<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB

               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                      THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 1998

                         Commission File No. 000-28520

                                n-VISION, INC.
               (Name of Registrant as specified in its Charter)


            Delaware                                       54-1741313
  -------------------------------               -------------------------------
  (State or other jurisdiction of               (I.R.S. Employer Identification
  incorporation or organization)                            Number)


 7680 Old Springhouse Road, Madison Bldg., First Floor, McLean, Virginia 22102
 -----------------------------------------------------------------------------
 (Address of principal executive office)                            (Zip Code)

                  Registrant's Telephone Number: (703) 506-8808
              SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
                                      NONE

              SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
                     Common Stock, par value $0.01 per share
                                Class A Warrants
                                (Title of Class)

         Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

                                 Yes (X) No ( )

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this Form 10-KSB, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
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         The Registrant's revenues for its most recent fiscal year (1998) were
$2,697,158.

         As of March 24, 1999, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $315,604.

         As of March 24, 1999, the Registrant had outstanding 2,656,719 shares
of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1998 (the "1998 Annual Report") are incorporated by reference into
Part II and Part III of this Form 10-KSB. Portions of the Proxy Statement for
the 1999 Annual Meeting of Stockholders (the "1999 Proxy Statement") are
incorporated by reference into Part III of this Form 10-KSB.

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                                     PART I


ITEM 1.  BUSINESS

     (a) General.

          (1) n-Vision, Inc. (the "Company") was incorporated under the laws of 
the State of Delaware on September 16, 1994. The Company designs, develops,
manufactures and markets state-of-the-art, proprietary 3D immersive displays for
use in advanced visualization applications.

          (2) No material changes have occurred in the Company's mode of 
conducting business in the last three fiscal years.

     (b) Description of Business.

     The Company was established in 1988 as an operating division of Advanced
Technology Systems, Inc. ("ATS"), a McLean, Virginia information technology
company. The Company was incorporated on September 16, 1994, and acquired all
rights, title and interest in the Virtual Reality (VR) products and systems from
ATS. The Company is a premier manufacturer of 3D Immersive Displays for use in
advanced visualization applications, products, and systems for a variety of
commercial, industrial and military applications. The Company registered the
sale of its common stock and warrants to the public and became subject to the
filing requirements of the Securities and Exchange Commission on May 28, 1996.
Its corporate headquarters is located at 7680 Old Springhouse Road, First Floor,
McLean, Virginia 22102, and its telephone number is 703-506-8808.

     The Company's products are marketed worldwide, but principally to customers
in North America, Europe, and the Pacific Rim. At the beginning of the 1996
fiscal year, the Company was focused on the Datavisor 10x, a high performance
Head Mounted Display System (HMD). During 1996, the Company completed and began
marketing the second generation HMDs, the DatavisorHiRes and the Datavisor VGA.
The Datavisor VGA included new features and utilizes special electronics to
address the lower resolution needs of the less powerful workstations and
personal computers that operate in the VGA environment. The Company also
completed the development of the Virtual Binoculars, a hand-held display device
available in both a high-resolution format and a VGA format. This product was
aimed at the potential market in military and ship training systems. In the
third quarter of 1996, the Company introduced the Datavisor 80, which maintains
high-resolution capability but offers an expanded field of view, up to 120
degrees. The first model was delivered to NASA in November 1996 and a second
unit was delivered in early January 1997.

     During the 1997 fiscal year, the Company focused on manufacturing and
marketing the seven high performance display devices developed in prior years.
These included the Datavisor HiRes and VGA products, the Datavisor 80 HiRes
(high resolution) and VGA Virtual Binoculars, which garnered publicity when they
were used by the Jet Propulsion Laboratory to view the Mars terrain in stereo.
In the first quarter of the 1997 fiscal year, the Company 

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concluded an engineering contract with a subsidiary of The Walt Disney Company
to deliver its Viewport HMD product. This $476,000 effort led to a $1.25 million
order, which was delivered primarily in the first half of 1998.

     In its attempt to broaden its customer base by expanding its product lines
to offer lower-priced products, the Company introduced the Datavisor LCD,
Virtual Binoculars LCD and Datavisor NVG in 1998. The Company's first shipments
of the Datavisor LCD, a lightweight HMD, offered for just under $10,000, were in
the fourth quarter of 1998. The Company also introduced its latest version of
its Virtual Binoculars, which employed LCD technology to offer true VGA
resolution at an affordable cost. The Datavisor NVG, high-resolution simulated
night vision goggles, is an adaptation of the Company's core CRT (cathode ray
tube) technology. The Datavisor NVG goggles are already being used by the Air
Force to produce high-fidelity, low-cost night vision simulation that enables
mission training. These new products are focused at bringing the Company closer
to competition with the virtual reality products of large consumer electronics
companies such as Olympus and Sony.

     The Company has 12 employees, all of whom are full-time employees. The
Company is not unionized. Four persons left the Company last year, one of whom
is retained on an "as-needed" consulting basis. Despite the staff and management
attrition, the Company feels its relations with its employees are good.

     The Company continues to aggressively promote its products in international
markets by enlisting resellers such as Deneb Robotics, Inc., Nihon Binary of
Japan, Solidray Co. Ltd, Virtual Presence Ltd. and Virtual Reality Technologies
Gmbh of Germany. The Company has sought representation overseas to reduce
demonstration expenses and other marketing costs. Demonstrations are critical to
sales success, and maintaining relationships with organizations in Europe and
Japan have been important in reaching these markets with timely responses. Each
distributor is trained in the use of the Company's products.

     The United States market has been characterized by direct selling and sales
of the Company's products to integrators that are using the products as a
component of or in support of various programs. While corporate and educational
sales have tended to be direct sales after demonstration, integrators often must
have the products demonstrated or integrated for the final customer, which has
often been the U.S. Government.

     The Company extends sales terms of net 30 days. Overseas sales are quoted
in U.S. Dollars to reduce currency risk. The Company grants distributors a right
to return products, within limits. During the past fiscal year no products sold
to distributors have been returned. U.S. Government sales often take longer to
collect due to the bureaucratic nature of the U.S. Government and the extra
approval channels usually encountered. All receivables due from the U.S.
Government to date have been collected.

     The major suppliers for the Company's products are: Brimar Ltd. of England
and Lexel Imaging Systems, Inc. for high resolution miniature cathode ray tubes.
The supply was critically low in late 1997 due to a tube delivery requiring
correction and slowed delivery of products at year end. As a result, the Company
dropped a supplier and added Lexel to alleviate these concerns. Other important
suppliers include Vivitek Ltd., a Taiwan based manufacturer of 

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electronics components, and Apex Precision, Inc., a local company that supplies
machined parts as required. The Company has excellent relationships with these
suppliers, and expects no change in the relationships.

     The Company's customers are diverse and none by itself is material to the
Company except for a subsidiary of The Walt Disney Company, which accounted for
49% of total revenue in 1998. The U.S. Government is internally diverse with
sales to the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force. The Company has
no contracts subject to renegotiation with the U.S. Government.

     During 1996 and 1997, the Company entered the high-value immersive display
market, which is dominated by emerging commercial uses of head-mounted displays
in large corporations such as are in the automotive and aerospace industries and
the U.S. Government. The use of the products has moved swiftly in the automotive
industry, as highly sophisticated ergonomic design models can be exercised using
virtual driving and viewing. The aerospace market is divided into the military
and civilian training applications for pilots and the design application market
developing now as the automotive market developed in 1995 and 1996. The military
services of Europe and the United States are experimenting with mission
rehearsal systems, sighting systems, and other training applications. The
medical market is a high-value developing market, but developing slowly.
Inquiries are now being received as virtual reality demonstrations at medical
conventions are stimulating awareness of potential applications. This market has
potential as high resolution and quality are essential to the success of that
type of business. Geographically, the markets in Europe and Japan are developing
and evolving, with the European market ahead of the rest of the world. The
Company has five distributors in Europe and two in Japan. The Company's major
competitor for high-end federal systems and military applications is Kaiser
Electro-Optics, Inc. ("Kaiser"). Commercial competitors include Fakespace, Inc.
and Virtual Research Systems Inc.

     In the U.S. Government market, the Company can underprice Kaiser when it
competes head-to-head or when it has the opportunity to compete. The size,
history, and presence of Kaiser in the U.S. Government market, and the military
market in particular, make it a major competitor as it uses superior marketing
resources to obtain long-term development and supply contracts. Kaiser also has
developed many specialized products for the military market, which places the
Company at a disadvantage in this market, especially for custom products. The
Company can and does compete well head-to-head for HMD business and can
dramatically undersell Kaiser for comparable quality. The Company competes in
the commercial market but has limited resources to cover the market, as direct
sales through demonstration are usually needed due to the complexity and nature
of the products. The Company has found that it can compete head-to-head
successfully, offering superior quality at a competitive price.

     The Company is not required to obtain government approval for any of its
products, and there are no restricting regulations concerning the products. The
Company has completed certifications evidencing compliance with European EMC
Directive 89/33EEC (CE Mark) which is required for the sale of products to
non-technical users in the European market.

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All research and development activities and related costs are treated as normal
operating expenses of the Company in the period they are incurred.

ITEM 2.  DESCRIPTION OF PROPERTY

     (a) The Company leases approximately 15,000 square feet for its
headquarters and operations in facilities located at 7680 Old Springhouse Road,
Madison Bldg., First Floor, McLean, Virginia 22102. The lease term is three (3)
years and will expire on February 29, 2000. The lease requires the Company to
pay certain customary property taxes and operating expenses. The Company pays
$9.00 per square foot for the leased space with a 3% rent increase per year.

     The Company subleases approximately 43.4% (approximately 6,515 square feet)
of the space to three subtenants. The Company believes that its current and
anticipated facilities needs are suitably met with this space and that the space
is adequate for current operations and future growth.

     (b) The Company has made no real estate investments during the 1998 fiscal
year.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not involved in any pending legal proceedings other than
legal proceedings occurring in the ordinary course of business. Management
believes that none of these legal proceedings, individually or in the aggregate,
will have a material adverse impact on the results of operations or financial
condition of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     A Special Meeting of Stockholders was held on November 9, 1998 in order for
the Company to submit to stockholder vote the adoption and approval of an
amendment and restatement of the Company's Certificate of Incorporation to
effect a one-for-two reverse stock split of the issued and outstanding shares of
the Company's Common Stock. The matter was approved by a majority vote of the
stockholders. Pursuant to the report of the inspector of election for the
Special Meeting, 4,979,713 votes were cast in favor of the proposed matter and
105,775 votes were cast against the matter. The inspector of elections counted
3,890 abstentions and no broker non-votes as to the matter.

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                                     PART II

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     (a) Market Information.

     From the date of the Company's initial public offering of its Common Stock
and Class A Warrants, May, 1996 until December 11, 1998, the Company's Common
Stock and Class A Warrants traded on The Nasdaq Stock Market SmallCap Market
under the symbols "NVSN" and "NVSNW", respectively. On December 11, 1998, the
Company's Common Stock was delisted from trading on the Nasdaq SmallCap Market
due to the Company's inability to meet the SmallCap Market's minimum bid
requirements. Since December 14, 1998, the Company's Common Stock has traded on
the non-Nasdaq over-the-counter bulletin board ("OTCBB"). The OTCBB is a
regulated quotation service that displays real-time quotes, last sale prices and
trading volume in over-the-counter equity securities. On December 31, 1998, the
Common Stock closed at $0.50 per share and the Warrants closed at $.01 per
share. The table below shows the high and low bid information by quarter for the
Common Stock and Warrants for fiscal years 1998 and 1997.


                        Common        Common
                        Stock         Stock        Warrants       Warrants
                         HIGH          LOW           HIGH           LOW
                         ----          ---           ----           ---
Fiscal Year 1998
----------------

First Quarter            1.81          0.75         0.22            0.06
  
Second Quarter           1.50          0.75         0.28            0.09

Third Quarter            1.63          0.72         0.22            0.09

Fourth Quarter           0.88          0.19(1)      0.19            0.01


Fiscal Year 1997
----------------

First Quarter            0.75          0.41          0.16          0.06

Second Quarter           0.66          0.41          0.09          0.06

Third Quarter            2.94          0.41          0.34          0.03

Fourth Quarter           2.66          1.00          0.41          0.13

These quotations reflect inter-dealer prices, without retail mark-up, markdown
or commission and may not necessarily represent actual transactions.

(1) Quotations reflect one-for-two reverse stock split effective November 27, 
    1998.

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     (b) Holders.

     As of March 24, 1999, there are approximately 23 holders of record of the
Common Stock and 7 holders of record of the Warrants. Included in the number of
holders of record are approximately 829 beneficial securities holders of the
Common Stock.

     (c) Dividends.

     There was no dividend paid during the past three years. Holders of the
Company's Common Stock are entitled to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. The Company does not
anticipate the declaration or payment of any dividends in the foreseeable
future. The Company intends to retain earnings, if any, to finance the
development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital
requirements, general business conditions, and other factors. Therefore, there
can be no assurance that any dividends of any kind will ever be paid by the
Company.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

     The information required by this Item is incorporated by reference to pages
6 through 9 of the Company's 1998 Annual Report.

ITEM 7.  FINANCIAL STATEMENTS

     The information required by this Item is incorporated by reference to pages
10 through 17 of the Company's 1998 Annual Report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND FINANCIAL
         DISCLOSURE

     None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information required by this Item is incorporated by reference to the
section captioned "Voting Securities and Principal Holders Thereof" and the
section captioned "Proposal 1. Election of Directors" in the Company's 1999
Proxy Statement.

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ITEM 10. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to the
section captioned "Executive Compensation" in the Company's 1999 Proxy
Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference to the
section captioned "Voting Securities and Principal Holders Thereof" in the
Company's 1999 Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to the
section captioned "Proposal 1. Election of Directors" in the Company's 1999
Proxy Statement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     List of Exhibits.

     3.1**  Amended and Restated Certificate of Incorporation of the Company

     3.2*   Bylaws of the Company

     10.1*  Employment Agreement of Delmar J. Lewis, as amended

     10.2*  Employment Agreement of Christopher J. Lewis, as amended

     10.3*  Asset Purchase Agreement, dated November 1, 1994

     11     Computation of Per Share Earnings (Incorporated by reference to 
            page 14 of the 1998 Annual Report)

     13     Portions of 1998 Annual Report

     23     Consent of Grant Thornton LLP (filed herewith)

     27     Financial Data Schedule (filed herewith)

     99***  1999 Proxy Statement

*    Incorporated herein by reference into this document from the Exhibits to 
     Form SB-2 Registration Statement, filed on April 19, 1996, and any
     amendments thereto (Registration No. 333-3098).

**   Incorporated by reference into this document from the Proxy Statement for 
     the Special Meeting of Stockholders of the Company dated October 19, 1998.

***  To be filed within 120 days of the Company's fiscal year end.

     (a) Exhibits.

     All exhibits are listed in the Exhibit Index, which is incorporated herein
by reference.

     (b) Reports on Form 8-K.

     The Company filed no Forms 8-K during the quarter ended December 31,
1998.

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                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to the signed on
its behalf by the undersigned, thereunto duly authorized.

n-VISION, INC.

(Registrant)

By:  /s/ Delmar J. Lewis        
     -------------------------
     Delmar J. Lewis
     Chairman of the Board and
     Chief Executive Officer


Dated:  March 31, 1999

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

                                 n-VISION, INC.
                                  (Registrant)


/s/ Claude H. Rumsey, Jr                          Dated:  March 31, 1999
------------------------------------
Claude H. Rumsey, Jr.
Director

/s/ Ronald C. Wilgenbusch                         Dated: March 31, 1999
------------------------------------
Rear Admiral Ronald C. Wilgenbusch, USN
(Retired)
Director

/s/ Christopher J. Lewis                          Dated: March 31, 1999
------------------------------------
Christopher J. Lewis
President, Chief Operating Officer,
Corporate Secretary and Director

/s/ Delmar J. Lewis                               Dated: March 31, 1999
------------------------------------
Delmar J. Lewis
Chairman of the Board and
Chief Executive Officer

/s/ Eric A. Hall                                  Dated: March 31, 1999
------------------------------------
Eric A. Hall     
Principal Financial Officer 


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                                  EXHIBIT INDEX

                                 n-VISION, INC.

                             EXHIBITS TO FORM 10-KSB


<TABLE>
<CAPTION>

Exhibit                                                                        Sequentially
Number                             Identification                              Numbered Page
------                             --------------                              -------------

<S>      <C>                                                                   <C>    
  13     Portions of 1998 Annual Report 
  
  23     Consent of Grant Thornton LLP

  27     Financial Data Schedule
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