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

                               ----------------
                                   FORM 10-K

(MARK ONE)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
For the fiscal year ended September 30, 1997
                          ------------------------------------------------------
                                                    OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934
For the transition period from                      to
                              ----------------------  --------------------------

                 Commission File Number                0-8623
                                       --------------------------------

                         ROBOTIC VISION SYSTEMS, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

        Delaware                                              11-2400145
---------------------------------------------------   --------------------------
(State or other jurisdiction of                       (I.R.S. Employer 
incorporation or organization)                        Identification No.)

425 Rabro Drive East, Hauppauge, New York                       11788
---------------------------------------------------    -------------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code  (516) 273-9700
                                                  ------------------------------

Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange on which
Title of each class                                         registered
-------------------                               ------------------------------

     None                                                       None
---------------------------------------  ---------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $.01 per share
--------------------------------------------------------------------------------
                               (Title of Class)

--------------------------------------------------------------------------------
                               (Title of Class)

  Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.  Yes  X  No
                                              .....   .....
  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the 
best of Registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDING DURING THE PRECEDING FIVE YEARS:
  Indicate by check mark whether the Registrant has filed all documents and 
reports required to be filed by Section 12, 13 or 15(d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a plan 
confirmed by a court. Yes.........  No.........

                               -----------------

  The number of shares outstanding of the Registrant's common stock is 
24,470,899 (as of 12/12/97).

  The aggregate market value of the voting stock held by nonaffiliates of the 
Registrant is $309,590,749 (as of 12/12/97).

                      DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement for its Annual Meeting of Stockholders scheduled to
be convened in April 1998.
================================================================================
<PAGE>
 
                                     PART I


Item 1.  Description of Business.


     (a) General Development of Business

     Robotic Vision Systems, Inc. ("RVSI" or the "Company"), directly and
through wholly owned subsidiaries grouped into three operating units, designs,
manufactures, markets and sells automated 1-dimensional ("1-D"), 2-dimensional
("2-D") and 3-dimensional ("3-D") machine vision-based products and systems for
inspection, measurement and identification, and is a leader in advanced electro-
optical sensor technology. RVSI's aircraft safety division has developed and is
marketing an ice detection product for the aviation industry.

     On December 9, 1997, RVSI consummated a merger with Vanguard Automation,
Inc. ("Vanguard"), a privately owned company located in Tucson, Arizona,
pursuant to which Vanguard became a wholly owned subsidiary of RVSI ("Vanguard
Merger"). Vanguard is the leading supplier of ball grid array and chip scale
packaging equipment for the semiconductor and connector industries. The Vanguard
Merger was structured as a tax free reorganization and accounted for as a
pooling of interests. As a consequence of the Vanguard Merger, RVSI issued
3,390,780 shares of its Common Stock in exchange for all the outstanding capital
shares of Vanguard. Up to an additional 364,736 shares of RVSI's Common Stock
are issuable upon exercise of certain Vanguard options and warrants assumed by
RVSI upon consummation of the Vanguard Merger. The 1997 financial results
included herein do not include those of Vanguard, since that acquisition was
completed after the completion of the 1997 fiscal year.

     RVSI was incorporated in New York in 1976 and reincorporated in Delaware in
1977. Its executive offices are located at 425 Rabro Drive East, Hauppauge, New
York 11788; telephone (516) 273-9700.

     Unless otherwise noted, all subsequent references to RVSI or to the Company
in this Annual Report shall be deemed to refer to RVSI or the Company, as
applicable, and its consolidated subsidiaries as a single enterprise.


     (b) Financial Information About Industry Segments

     For the purpose of segment reporting, management considers the Company to
operate in one industry, the machine vision industry.


     (c) Narrative Description of Business

     (i) Principal Products and Product Development
<PAGE>
 
     A.  The SEMICONDUCTOR EQUIPMENT GROUP is comprised of RVSI's Electronics
Division, as well as its wholly owned subsidiaries, Systemation Engineered
Products, Inc. ("Systemation") and Vanguard Automation, Inc. ("Vanguard").

     RVSI's Electronics Division supplies inspection equipment to the
     semiconductor industry. The electronics division's LS, GS and CS Series
     lead scanning systems offer automated, high-speed, 3-D semiconductor
     package lead inspection with the added feature of non-contact scanning of
     the packages in their shipping trays ("in-tray scanning"). The systems use
     a laser-based, non-contact, 3-D measurement technique to inspect and sort
     quad flat packs, thin quad flat packs, chip scale packages ("CSP"), ball
     grid arrays ("BGA") and thin small outline packs in their carrying trays.
     The system measurements include coplanarity, total package height, true
     position spread and span, as well as lead angle, width, pitch and gap.

     Systemation offers tape-and-reel component processing systems designed to
     handle CSP and BGA. RVSI also believes that Systemation's expertise in
     designing and manufacturing systems that handle components in tubes
     provides RVSI with the means to further expand the breadth of its product
     offerings to the semiconductor market.

     Vanguard is the leading supplier of BGA and CSP equipment for the
     semiconductor and connection industries.  Customers for Vanguard's
     proprietary BGA and CSP equipment include over a dozen of the top
     semiconductor manufacturers in the world.


     B.   The ACUITY IMAGING DIVISION is comprised of Acuity Imaging LLC
("Acuity") and Northeast Robotics LLC ("Northeast Robotics"), Acuity's wholly
owned subsidiary.

     Acuity designs, manufactures and markets 2-D machine vision products and 
     systems and, through Northeast Robotics, lighting systems for use in
     industrial automation. The Division's products, which utilize a combination
     of software, an image processing computer and electronic cameras, perform
     such functions as measurement, flaw detection, verification of the presence
     and correctness of parts and subassemblies, and inspection of manufactured
     products. Typically, they are utilized in hot, dusty, dirty or other harsh
     industrial environments in applications where human inspection is not
     practical or where the use of machine vision systems is faster, more
     reliable and more economical than human inspection. Such applications
     include assembly verification, date and lot code reading, flaw detection,
     gauging and measurement, label verification and product identification.

                                       2
<PAGE>
 
     C.   The CIMATRIX DIVISION includes the respective operations of
International Data Matrix, Inc. and Computer Identics Corporation, each formerly
a wholly owned subsidiary of RVSI which, as of October 1, 1997, were combined
within CiMatrix LLC ("CiMatrix"), a wholly owned subsidiary of RVSI.

     The CiMatrix Division manufactures data collection products, networks, and
     linear and 2-D bar code reading systems.  Its customers encompass a wide
     cross-section of businesses and institutions, including postal services,
     freight companies, and manufacturers of electronics, pharmaceuticals,
     consumer goods, textiles and automobiles.

     The Data Matrix code, a 2-D code which resembles a scrambled checkerboard,
     was developed by one of the division's predecessors.  The small size of the
     Data Matrix code allows its use in industries and in applications that were
     previously impossible to satisfy with machine readable codes because of its
     ability to be printed or marked directly on parts and components, thereby
     eliminating the need for paper labels and the high cost of labeling
     equipment.  Serialization and therefore traceability is now possible in
     industries such as semiconductors, which have seen a surge in the theft of
     memory chips and other high priced computer components.


          D. The AIRCRAFT SAFETY DIVISION's sole current product is the ID-1
     aircraft detection system, a full-wing electro-optical ice detection system
     that is designed to provide a quick, clear and reliable indication of the
     presence or absence of ice, snow or frost. This proprietary system can be
     mounted on the bucket of a de-icing truck or other vehicle and is designed
     to operate under conditions where visual inspection can be ineffective or
     tactile inspection difficult. Its compact size and high degree of mobility
     are also designed to allow the ID-1 to detect ice on aircraft surfaces at
     any point between the gate and runway. Preliminary design and testing is
     under way, funded in part by a Federal Aviation Administration ("FAA")
     research grant in 1997, to adapt the technology to an on-aircraft product
     which would provide both ground and airborne ice detection capability.

          The commercial viability of the ID-1 has not as yet been proven nor
     can it be assured. Consequently, there can be no assurance that the ID-1
     can be commercially marketed at a profit at any time in the proximate
     future, if ever.

          (ii) Manufacturing

     Each of the Company's production facilities are capable of fabricating and
assembling total electronic and electromechanical systems and subsystems.
Facilities include assembly and wiring

                                       3
<PAGE>
 
operations that have the ability to produce complex wiring harnesses, as well as
intricate electronic subassemblies. The Company maintains comprehensive test and
inspection programs to ensure that all systems meet exacting customer
requirements for performance and quality workmanship prior to delivery.


          (iii)   Marketing and Sales

     The Semiconductor Equipment Group's marketing strategy focuses on
cultivating long-term relationships with the leading manufacturers of
electronic and semiconductor inspection and quality control equipment. Its
marketing efforts rely heavily on direct sales methods. The selling cycle for
its LS- and GS- Series products, generally, is between six to nine months from
initial customer contact to closure.  A lengthier process is often the case in
the purchase of an initial unit. Subsequent purchases require less time and
often result in multiple orders. Typically, potential purchasers visit division
headquarters to receive a full demonstration of the product and to discuss the
merits of the product with the division's engineers before making a purchase
decision.

     Sales activities in the domestic market are handled by direct sales
personnel.  The Group presently employs 26 persons primarily engaged in sales.
Lending further support to the sales effort is a 182 person engineering and
technical staff, which provides assistance in areas requiring in-depth technical
analysis. Due to the depth of analysis involved in the customer's purchase
decision, division management emphasizes active interaction between the direct
sales staff and the buyer throughout the selling process.

     The Group also maintains distribution capabilities in both Europe and the
Far East, providing access to all major markets for electronic and semiconductor
test equipment. A sales and technical support office is maintained in Singapore.

     Certain products and systems developed and marketed by Acuity, Northeast
Robotics, and CiMatrix are often incorporated into the Semiconductor Equipment
Group's product offerings.

     The Acuity Imaging Division markets its products worldwide through a direct
marketing, sales and sales application engineering force of 27 persons, as well
as through distributors and system integrators.  It supports its distribution
channels with regional sales managers and sales application engineers who
support and interface directly with the distributors. In addition, the Division
provides sales and product training to its distributors as well as technical
product support.

     The CiMatrix Division's product line is sold by its direct sales force in
the United States.  European sales are conducted through RVSI Europe Limited
("RVSI Europe"), RVSI's wholly owned

                                       4
<PAGE>
 
subsidiary headquartered in the United Kingdom and with offices in France and
Germany. RVSI Europe also markets and sells the Acuity Division's products in
Europe.  In addition, CiMatrix markets and sells its products on a worldwide
basis through distributors, value added resellers and systems integrators.
Products and components are also sold to OEMs, including materials handling
equipment manufacturers and system integration firms. These firms combine the
division's products with other hardware and software to create customized
information and control systems for sales to end users.


          (iv) Sources of Supply

     To support its internal operations and to extend its overall capacity, the
Company purchases a wide variety of components, assemblies and services from
proven outside manufacturers, distributors and service organizations. The
Company has not experienced any significant difficulty in obtaining adequate
supplies to perform under its contracts.

     Several of the Company's components and sub-systems are purchased from
single sources. The Company believes that alternative sources of supply could be
obtained, if necessary, without major interruption in production.


          (v)  Proprietary Protection

     At September 30, 1997 the Company owned 96 issued U.S. patents, with
expiration dates ranging from 1997 to 2014. The Company also has various U.S.
and foreign registered trademarks.

     The Company does not believe that its present operations are materially
dependent upon the proprietary protection that may be available to the Company
by reason of any one or more of such patents. Moreover, as its patent position
has not been tested with the exception of the litigation referred to elsewhere
herein under "Legal Proceedings," no assurance can be given as to the
effectiveness of the protection afforded by its patent rights.


          (vi) Customers

     Intel accounted for approximately 16% and 13% of the Company's consolidated
sales during its fiscal years ended September 30, 1997 and 1996. No other
customers accounted for more than 10% of such sales during the fiscal years
ended September 30, 1997, 1996 and 1995, respectively.

                                       5
<PAGE>
 
         (vii)      Backlog

     At September 30, 1997 the Company's backlog was approximately $30.0 million
as contrasted with approximately $14.9 million and $22.5 million at September
30, 1996 and 1995, respectively. The Company believes that most of its backlog
at September 30, 1997 will be completed prior to the close of fiscal year 1998.
The Company does not believe that its backlog at any particular time is
necessarily indicative of its future business.


        (viii) Competition

     The Company believes that machine vision has evolved into a new industry
over the past several years, in which a number of machine vision-based firms
have developed successful industrial applications for the technology. The
Company is aware that a large number of companies, estimated to be upward of 100
firms, entered the industry in the 1980's and that most of these were small
private concerns. Over the last several years the number of competitors has
narrowed to less than 25. The Company believes this is attributable, to a large
extent, to consolidation within the industry. Based upon the breadth of its
product lines, its customer base, and its level of revenues, the Company
believes that it is a significant factor in the machine vision industry.


          (ix) Research and Development

     Company-sponsored research and development efforts over recent years have
been largely devoted to continued development of advanced 2-D and 3-D vision
technology and applications software for use in various inspection and process
control automation systems.  Research and development has also included activity
related to automatic identification technology development.  Research and
development expenditures, net of capitalized software development costs,
aggregated approximately $23,410,000, $18,405,000 and $15,751,000 for the
Company's fiscal years ended September 30, 1997, 1996 and 1995, respectively. In
its fiscal years ended September 30, 1997, 1996 and 1995, the Company
capitalized $4,842,000, $2,630,000 and $535,000, respectively, of its software
development costs in accordance with the provisions of Statement of Financial
Accounting Standards No. 86.


          (x)  Environmental Regulation

     The Company believes that compliance with Federal, state, local and, where
applicable, foreign environmental regulations does not have any material effect
on its capital expenditures, earnings or competitive position.

                                       6
<PAGE>
 
          (xi)  Employees

     At December 12, 1997 the Company employed 800 persons, of whom 314 were
engineering and other technical personnel. None of the Company's employees is a
member of a labor union.


     (d)  Financial Information Relating to Foreign and Domestic Operations and
          Export Sales

     Revenues from unaffiliated customers generated by the Company's European
subsidiaries were $16,812,000, $16,226,000 and $16,762,000 for the years ended
September 30, 1997, 1996 and 1995, respectively.

     Total revenues to customers outside the U.S. were $104,222,000, $92,957,000
and $79,334,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.

     Export sales from the Company's United States operations to unaffiliated
customers were as follows:
 
                              (In Thousands)
                         Year Ended September 30,
                         -------------------------
                          1997     1996     1995
                         -------  -------  -------
 
     Europe              $16,413  $ 9,160  $ 8,665
     Asia/Pacific Rim     69,082   66,398   53,609
     Other                 1,915    1,173      298
                         -------  -------  -------
 
     Total               $87,410  $76,731  $62,572
                         =======  =======  =======
 

Item 2.   Properties.

     The Company's executive offices and electronics division are located in
Hauppauge, New York. Systemation's operations are in New Berlin, Wisconsin and
Vanguard's operations are in Tucson, Arizona.

     Acuity's operations are located in Nashua, New Hampshire while those of
CiMatrix are located in Canton, Massachusetts. The Company also maintains sales
and service facilities in four European countries and in Singapore. All of those
premises are leased at an aggregate annual cost of approximately $2.5 million.
Expiration dates of the respective leases range from 1998 to 2011.

                                       7
<PAGE>
 
Item 3.   Legal Proceedings.

     On or about October 22, 1992, the Company instituted an action in the
United States District Court for the Eastern District of New York against
defendant Cybo Systems, Inc., ("Cybo"), entitled Robotic Vision Systems, Inc. v.
Cybo Systems, Inc. a/k/a Cybot Systems, Inc., alleging that the defendant
breached certain agreements between the parties with respect to the sale by the
Company to the defendant of all of the assets of its welding and cutting systems
business.

     On or about December 4, 1992, Cybo filed and served an answer denying the
substantive allegations of the Company's complaint. In addition, Cybo asserted
counterclaims against the Company alleging, among other things, breach of
contract and warranties, fraud, bad faith, trespass and conversion and is
seeking aggregate damages in excess of $10.0 million. Shortly thereafter, the
Company moved to dismiss certain of Cybo's counterclaims on the ground that Cybo
failed to plead fraud with the requisite particularity. By Order dated March 20,
1993, the Court (i) granted the Company's motion to dismiss without prejudice,
and (ii) granted Cybo leave to serve an amended answer with amended
counterclaims by April 19, 1993. Cybo has since served an amended answer and
counterclaims which purport to plead fraud with the requisite particularity. All
pre-trial discovery has been completed, and the Company has moved for partial
summary judgment to dismiss most of the damage claims. No decision has been
rendered as yet. The Company, upon the advice of its general counsel, believes
Cybo's counterclaims are without merit and that the ultimate outcome of this
matter will not have a material adverse effect on the Company's financial
position or results of operations. Except for certain matters relating to the
issue of damages, the parties have completed discovery.

     RVSI is currently a party to two separate patent law suits (a third having
been dismissed), both commenced by RVSI, in the United States District Court for
the Central District of California with View Engineering, Inc. ("View"), a 
wholly owned subsidiary of General Scanning, Inc., a company that competes with
RVSI in the assembly and distribution of 3-D machine vision-based products. The
law suits involve the question of whether View is infringing a number of RVSI
patents in the assembly and distribution of its own 3-D machine vision-based
products.

     In the first action, the trial court dismissed the patent infringement
claims filed by RVSI and held that the relevant provisions of RVSI's patent at
issue in that case were invalid.  In the second action, the trial court
determined that View's machines did not infringe three of RVSI's patents.  Upon
RVSI's appeal, the Federal Circuit Court of Appeals overruled the trial court
and remanded the first action to the trial court for further discovery and,
ultimately, trial.  RVSI's appeal of the trial court's ruling in the second
action was unsuccessful.  The parties in the third action have completed
discovery and trial commenced on December 10,

                                       8
<PAGE>
 
1997.  RVSI believes that the ultimate outcome of the two remaining proceedings
will not have a material adverse effect upon RVSI.


Item 4.   Submission of Matters to a Vote of Security Holders.

          None.

                                       9
<PAGE>
 
                                    PART II


Item 5.   Market for the Company's Common Stock and Related Security Holder
          Matters.

     (a)  Market Information.

     The Company's Common Stock is quoted on The Nasdaq National Market under
the symbol ROBV. The following table sets forth the high and low closing prices
for the Company's Common Stock for the periods indicated:
 
 
Fiscal Quarter Ended         High       Low
-------------------------  --------  ---------
 
     September 30, 1997    $ 16-7/8  $  11-3/4
     June 30, 1997           11-7/8      8-3/8
     March 31, 1997          18-1/4     10-3/4
     December 31, 1996       15-3/8         10
 
     September 30, 1996    $ 17-1/4  $12-13/16
     June 30, 1996          20-5/16     14-1/2
     March 31, 1996          24-1/2     12-7/8
     December 31, 1995       27-1/8     19-3/8
 

     On December 12, 1997 the closing price of the Company's Common Stock was
$13 per share.


     (b)  Holders

     The number of holders of record of the Company's Common Stock as of
December 12, 1997 was approximately 5,900.


     (c)  Dividends

     The Company has not paid any cash dividends since its inception and does
not contemplate doing so in the near future. Any decisions as to the future
payment of dividends will depend on the earnings and financial condition of the
Company and such other factors as the Board of Directors deems relevant at that
time.

     In addition, the payment of cash dividends is restricted under the terms of
the Company's revolving credit arrangements with its bank.

                                       10
<PAGE>
 
Item 6.   Selected Consolidated Financial Data

Statement of Operation Data:
(In Thousands, except per share amount)



                                    Fiscal Year Ended September 30,

                              1997      1996      1995        1994       1993
                           --------  -------    -------    --------  ---------
 
 
Revenues                    $152,103   $143,540  $122,125   $90,994   $73,125
 
Income before (provision) 
benefit from income taxes,
discontinued operations
and cumulative effect of 
change in accounting 
priciple                    $  9,037   $  8,594  $ 10,903   $ 4,638   $   735
 
(Provision) benefit from
income taxes                $   (792)  $  1,132  $     92   $    (1)  $    45
 
Income before discontinued
operations and cumulative 
effect of change in 
accounting principle        $  8,245   $  9,726  $ 10,995   $ 4,637   $   780
 
Discontinued operations     $      -   $      -  $      -   $     -   $   (37)

Cumulative effect of change
in accounting principle     $      -   $      -  $      -   $     -   $   327

Net income                  $  8,245    $ 9,726  $ 10,995   $ 4,637   $ 1,070

Net income per common share
before discontinued 
operations and cumulative
effect of change in
accounting principle        $    .38    $   .45  $   .55    $    .25  $   .05

Net income per common share $    .38    $   .45  $   .55    $    .25  $   .06



Selected Balance Sheet Data:
(In Thousands)

                                       At September 30,
                        --------------------------------------------
                          1997    1996      1995     1994    1993
                          ----    ----      ----     ----    ----
 
Total Assets            $126,731  $96,985  $78,706  $43,092  $33,371
Current Liabilities     $ 45,934  $34,108  $32,815  $20,154  $21,854
Total Liabilities       $ 54,274  $34,587  $34,335  $22,734  $23,229
Stockholders' equity    $ 72,457  $62,398  $44,371  $20,358  $10,142
Working capital         $ 53,324  $45,976  $35,358  $15,246  $ 6,560
 

     Reference is made to Item 7 hereof and the Notes to the Consolidated
Financial Statements for a discussion of the financial data presented above.

                                       11
<PAGE>
 
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

Results of Operations

Years Ended September 30, 1997 and 1996

     Revenues of $152,103,000 for the year ended September 30, 1997 represent an
increase of $8,563,000, or 6.0%, over revenues of $143,540,000 for the year
ended September 30, 1996. The increase in revenues was primarily attributable to
increased shipments of RVSI's LS-3000 Series and GS-5000 Series semiconductor
lead inspection systems.

     The gross profit margin for the fiscal year ended September 30, 1997 was
50%, as compared to 48% for the fiscal year ended September 30, 1996.

     Continued development of the LS-3000 and GS-5000 Series of lead scanning
systems, computerized visual inspection equipment, and barcode scanning and data
collection equipment, as well as the ID-1 aircraft wing ice detection system,
primarily accounted for $23,410,000 in research and development expense, net of
capitalized software development costs, during the year ended September 30,
1997, as compared to $18,405,000 during fiscal 1996. In its fiscal year
ended September 30, 1997, the Company capitalized $4,842,000 of its software
development costs as compared to $2,630,000 over the comparable 1996 period in
accordance with the provisions of Statement of Financial Accounting Standards
No. 86 ("SFAS No. 86"). Capitalized software development costs for the fiscal
year ended September 30, 1997 include $848,000 of costs related to certain
acquired subsidiaries. These subsidiaries had not capitalized any software
development costs in prior years because prior to their respective acquisitions
by the Company they had not utilized detailed program designs in the software
development process. In general, the software development costs incurred by
these subsidiaries between the time working models were available and the
related software projects were released to customers were not material.

     Selling, general and administrative costs of $42,828,000 increased by
$3,225,000, or 8.0%, for the year ended September 30, 1997 as compared to
$39,603,000 in the prior fiscal year, primarily as a result of increased
marketing and distribution costs. For the year ended September 30, 1997, net
interest income was $2,000 as compared to $392,000 in the comparable period in
1996. The decrease is a result of using a significant portion of the Company's
cash to finance growing accounts receivable and inventory as the Company's
revenue growth pace increases.

     Net income for the year ended September 30, 1997 was $8,245,000, or $.38
per share, as compared to net income of

                                       12
<PAGE>
 
$9,726,000, or $.45, for the year ended September 30, 1996.

     During the fiscal year ended September 30, 1997, the Company recorded a net
provision for income taxes of $792,000. The current year provision primarily
relates to minimum federal and state income taxes which were partially offset by
a decrease in the valuation allowance relating to deferred tax assets which
emanated from a change in the legal structure of certain subsidiaries which
eliminated certain limitations on the Company's utilization of net operating
losses of acquired subsidiaries. During the fiscal year ended September 30,
1996, the Company recorded a net benefit from income taxes of $1,132,000. This
benefit primarily resulted from a decrease in the valuation allowance relating
to deferred tax assets which emanated from the Company's profitable operations
in fiscal 1996, and the extent to which the Company substantiated projected
future earnings.

     The net deferred tax assets at September 30, 1997 and 1996 of $8,820,000
and $8,155,000, respectively, are equivalent to the benefit to be derived from
net operating loss carryforwards, and net deductible temporary differences that
were expected to be utilized to offset future taxable income projected as of the
respective balance sheet dates. The valuation allowance as of September 30, 1997
relates primarily to net operating loss carryforwards and tax credit
carryforwards of Acuity and CiMatrix which are subject to annual limitations.

Years Ended September 30, 1996 and 1995

     Revenues of $143,540,000 for the year ended September 30, 1996 represent an
increase of $21,415,000, or 18%, in comparison to revenues of $122,125,000 for
the year ended September 30, 1995. The increase in revenues was primarily
attributable to substantially increased shipments of RVSI's LS-3000 Series and
GS-5000 Series semiconductor lead inspection systems.

     Gross profit margins for the fiscal years ended September 30, 1996 and 1995
were 48% and 51%, respectively.

     Continued development of the LS-3000 and GS-5000 Series of lead scanning
systems, computerized visual inspection equipment and barcode scanning and data
collection equipment, as well as the ID-1 aircraft wing ice detection system,
primarily accounted for $13,405,000 in research and development expense, net of
capitalized software development costs, during the year ended September 30,
1996, as contrasted with $15,751,000 during fiscal 1995. In its fiscal year
ended September 30, 1996, the Company capitalized $2,630,000 of its software
development costs as compared to $535,000 over the comparable 1995 period in
accordance with the provisions of SFAS No. 86. Capitalized software development
costs for the fiscal year ended September 30, 1996 include $1,534,000 of costs
related to certain acquired subsidiaries. These subsidiaries had not capitalized
any software development costs in prior years because prior to their respective
acquisitions by the Company they had not utilized detailed program designs in
the software development process. In general, the software development costs
incurred by these subsidiaries between the time working models were available
and the related software projects were released to customers were not material.

     Selling, general and administrative costs increased by $5,346,000, or 15% 
for the year ended September 30, 1996 as compared to the prior fiscal year,
primarily as a result of increased marketing and distribution costs.  The
Company incurred $2,661,000 for merger expenses primarily relating to the
acquisition of Computer Identics by the Company on August 30, 1996. For the year
ended September 30, 1996, net interest income was $392,000 as compared to net
interest expense of $18,000 in the comparable period in 1995. The increase was a
result of investing additional available funds.


Liquidity and Capital Resources

                                       13
<PAGE>
 
     The Company's operating, investing and financing activities for the year
ended September 30, 1997 utilized net cash and cash equivalents of $12,727,000
as follows:

     o    Operating activities utilized $12,492,000;

     o    $6,869,000 was used to purchase property and equipment, primarily
          computer, engineering and demonstration equipment;

     o    $2,319,000 was received from the maturity of investments;

     o    $3,144,000 was used to pay for the purchase of a business;

     o    $8,000,000 was proceeds from long-term borrowings;

     o    $1,779,000 was used to repay short-term borrowings;

     o    Other financing activities provided $1,049,000 primarily through the
          issuance of Common Stock upon the exercise of stock options and
          warrants;

     o    The effect of exchange rate changes on cash and cash equivalents was
          $189,000.

     The Company's inventories at September 30, 1997 of $33,958,000 increased by
$10,368,000 from $23,590,000 as of September 30, 1996 primarily to support
higher production volumes and customer requirements for shorter lead times.
Accounts receivable at September 30, 1997 of $47,873,000 increased by
$20,535,000 from $27,338,000 as of September 30, 1996 primarily due to higher
operating levels and increased sales to larger customers with longer payment
terms.

     On June 27, 1997, the Company entered into a credit agreement with a bank
which consisted of an $8,000,000 term loan and a $6,000,000 revolving credit
facility.  The revolving credit facility was subsequently increased to
$11,000,000 on December 3, 1997.  The term loan is payable in 60 monthly
installments of $133,333 and bears interest at 8.05 percent through June 27,
1999.  Effective June 27, 1999, the interest rate will adjust, at the discretion
of the Company, to either LIBOR plus 1.75 percent or a fixed rate equal to the
average yield on a five-year U.S. Treasury security plus 2 percent.  The
revolving credit facility expires on May 31, 2000 and borrowings bear interest
at LIBOR plus 1.5 percent.  The Company is required to pay a commitment fee of
one quarter of one percent per annum on any unused portion of the credit
facility.  Borrowings under the credit agreement are secured by substantially
all of the Company's assets and are guaranteed by all domestic subsidiaries.
The terms of the credit agreement,

                                       14
<PAGE>
 
among other matters, require the Company to maintain certain tangible net worth,
debt to equity, working capital, and debt service coverage ratios and place
restrictions on additional investments, indebtedness and the payment of cash
dividends.  The amount outstanding under these credit facilities at September
30, 1997 was $12,524,000.

     CiMatrix has an unsecured line of credit with a domestic bank which
provides for maximum borrowings of $2,500,000.  Borrowings under this line of
credit may be made in German Deutschmarks, French Francs, or British Pounds and
bear interest at various rates dependent upon the currency borrowed and are
payable on demand.  The interest rate on borrowings outstanding at September 30,
1997 range from 6.5 to 8.5 percent.  The amount outstanding at September 30,
1997 was $1,665,000.

     The Company anticipates that its working capital needs for fiscal 1998 will
be satisfied by operating revenues and, if necessary, through borrowings under
the existing line of credit or additional lines of credit.


Foreign Currency Transaction

     The Company does not currently engage in international currency hedging
transactions to mitigate its foreign currency exposure. Included in the foreign
exchange gain (loss) are unrealized foreign exchange gains and losses resulting
from the currency remeasurement of the financial statements (primarily
inventories, accounts receivable and intercompany debt) of the foreign
subsidiaries of the Company into U.S. dollars. To the extent the Company is
unable to match revenue received in foreign currencies with expenses paid in the
same currency, it is exposed to possible losses on international currency
transactions.


Recent Accounting Pronouncements

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which was adopted by the
Company in fiscal 1997. The Company has chosen not to implement the fair value
based accounting method for employee stock options, but has elected to disclose
pro forma net income and earnings per share as if such method has been used to
account for stock-based compensation cost as described in SFAS No. 123.

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS No. 128"), which will be adopted by the
Company on December 31, 1997. SFAS No. 128, which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share", ("APB No. 15") replaces
primary and fully diluted earnings per share with basic and fully diluted
earnings per share, respectively. Had earnings per share been calculated in
accordance with SFAS No. 128, basic earnings per share for the years ended
September 30, 1997, 1996 and 1995 would have been $0.39, $0.48 and $0.62,
respectively. Diluted earnings per share for the years ended September 30, 1997,
1996 and 1995 would have been $0.38, $0.45, and $0.55, respectively.

Effect of Inflation

     Management believes that the effect of inflation has not been material
during each of the years ended September 30, 1997, 1996 and 1995, respectively.

                                       15
<PAGE>
 
 Forward-Looking Statements and Associated Risks

     This Report contains forward-looking statements including statements
regarding, among other items, business strategy, growth strategy and anticipated
trends in RVSI's business, which are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.  The words
"believe," "expect" and "anticipate" and similar expressions identify forward-
looking statements, which speak only as of the date the statement is made.
These forward-looking statements are based largely on RVSI's expectations and
are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond RVSI's control.  Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements.  Statements in this Report, including
those set forth in "Risk Factors," below, describe factors, among others, that
could contribute to or cause such differences.  In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Report will in fact transpire or prove to be accurate.


Risk Factors

     Fluctuations in the Semiconductor Market.  Certain of RVSI's products,
     ----------------------------------------                              
particularly the products of its Semiconductor Equipment Group, are manufactured
for use by the semiconductor industry. Accordingly, the future financial results
of RVSI will depend significantly on the market demand for integrated circuit
devices. The semiconductor industry has been subject to significant market
fluctuations and periodic downturns. Such downturns have had a disproportion-
ately negative effect on manufacturers of semiconductor capital equipment.

     Customer Concentration.  RVSI's sales have been historically concentrated
     ----------------------                                                   
in a small number of customers at any time, although the specific customers
change over time.  Sales to Intel accounted for approximately 16% and 15%,
respectively, of RVSI's revenues during the fiscal years ended September 30,
1997 and 1996.  No other customers accounted for more than 10% of sales during
such fiscal years.  The loss or any significant reduction in Intel's orders for
RVSI's products may be expected to materially adversely affect RVSI's operations
and prospects.

     International Sales.  A majority of RVSI's sales in recent years has been
     -------------------                                                      
export sales to the Far East.  For the fiscal year ended September 30, 1997,
export sales accounted for approximately  57% of RVSI's revenues.  RVSI's
international business may be affected by changes in demand resulting from
fluctuations in currency exchange rates, trade restrictions, duties, general and
economic conditions, and other political and economic factors.  Although RVSI
currently attempts to mitigate its direct exposure to

                                       16
<PAGE>
 
exchange rate fluctuations by transacting most international business in United
States dollars, there can be no assurance that their international operations
will escape the risk of fluctuating currency values, hard currency shortages, or
controls on currency exchange.  To the extent foreign currencies weaken relating
to the U.S. dollar, RVSI's products could become more expensive in these
countries.  This could adversely affect both RVSI's sales volumes and
profitability.

     Product Protection and Intellectual Property.  RVSI relies primarily on a
     --------------------------------------------                             
combination of patent registrations, trade secrets, confidentiality procedures,
contractual provisions and copyright and trademark laws to protect its
proprietary rights.  RVSI seeks to protect its software and other written
materials under trade secret and copyright laws, which afford only limited
protection.  At September 30, 1997, RVSI owned 96 issued U.S. patents relating
to its 2-D and 3-D vision technology and other products, as well as the rights
to several U.S. patent applications relating to such technology.  Nonetheless,
RVSI does not believe that its present operations are materially dependent upon
the proprietary protection that may be available to RVSI by reason of any one or
more of such patents.  Moreover, as RVSI's patent position has not been tested
with the exception of the litigation discussed under "Legal Proceedings,"
elsewhere herein, there can be no assurance given as to the effectiveness of the
protection afforded by its patent rights.

     Despite RVSI's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of its products or to obtain and use
information that RVSI regards as proprietary.  The laws of some foreign
countries may not protect RVSI's proprietary rights to as great an extent as do
the laws of the United States, if at all.  There can be no assurance that RVSI's
means of protecting its proprietary rights will be adequate or that RVSI's
competitors will not independently develop comparable or superior technologies.
Third parties may assert that RVSI's products infringe their proprietary rights.
Should litigation with respect to any such claims commence, such litigation
could be expensive and time consuming and could materially and adversely affect
RVSI's results of operations regardless of the outcome of the litigation.

     Fluctuating Quarterly Results of Operations.  RVSI has experienced, and in
     -------------------------------------------                               
the future may be expected to continue to experience, substantial variations in
its periodic results of operations as a result of a number of factors, many of
which are outside of its control.  In particular, RVSI's operating results may
vary because of downturns in the semiconductor industry, changes in economic
conditions, or technology changes affecting its principal products.  Any of
these factors could cause RVSI's operating results to fluctuate significantly
from period to period, including on a quarterly basis.

                                       17
<PAGE>
 
     Technological Risks.  The future success of RVSI will depend, to a
     -------------------                                               
significant extent, on its ability to enhance, develop, manufacture profitably,
and deliver on a timely basis, technologically advanced, quality products and
its ability to achieve market acceptance for such products.  There can be no
assurance that RVSI will be successful in introducing products or product
enhancements once developed, or that RVSI's products will not be rendered
obsolete by new industry standards or competitive products or technologies.

     Competition.  The markets for RVSI's products are extremely competitive.
     -----------                                                              
Some of RVSI's competitors are more established and have greater financial,
technological, production, and marketing resources than RVSI. Competition could
intensify if new companies enter such markets or if existing competitors expand
their product lines.  An increase in competition could have a material adverse
effect on RVSI's business and operating results.  Maintaining competitive
position will require continued investment by RVSI in research and development
and sales and marketing.

     Dependence on Key Personnel.  RVSI's success depends in large part upon its
     ---------------------------                                                
ability to hire and retain qualified technical and management personnel.  In
recent periods, RVSI has encountered some difficulty in recruiting certain
qualified technical personnel.  The inability to hire and retain such personnel
could have a material adverse effect on RVSI.  There can be no assurance that
RVSI will be able to hire such qualified personnel.



Item 8.   Financial Statements and Supplementary Data.

     Reference is made to Item 14(a)1 herein.



Item 9.   Disagreements on Accounting and Financial Disclosure.

     There have been no changes in the Company's independent auditors due to
disagreements on accounting and financial disclosure during the 24 months prior
to September 30, 1997.

                                       18
<PAGE>
 
                                    PART III

Item 10.  Directors and Executive Officers of the Company.

     Item 10 is hereby incorporated by reference from the Company's definitive
Proxy Statement to be filed within 120 days of September 30, 1997.


Item 11.  Executive Compensation.

     Item 11 is hereby incorporated by reference from the Company's definitive
Proxy Statement to be filed within 120 days of September 30, 1997.


Item 12.  Security Ownership of Certain Beneficial Owners & Management.

     Item 12 is hereby incorporated by reference from the Company's definitive
Proxy Statement to be filed within 120 days of September 30, 1997.


Item 13.  Certain Relationships and Related Transactions.

     Item 13 is hereby incorporated by reference from the Company's definitive
Proxy Statement to be filed within 120 days of September 30, 1997.

                                       19
<PAGE>
 
                                      PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

          (a) Documents filed as part of this report:

               (i)  Financial Statements.

                    Independent Auditors' Reports

                    Consolidated Balance Sheets at September 30, 1997 and
                    September 30, 1996

                    Consolidated Statements of Income for the Years Ended
                    September 30, 1997, 1996 and 1995

                    Consolidated Statements of Stockholders' Equity for the
                    Years Ended September 30, 1997, 1996 and 1995

                    Consolidated Statements of Cash Flows for the Years Ended
                    September 30, 1997, 1996 and 1995

                    Notes to Consolidated Financial Statements

               (ii) Financial Statement Schedules.

                    Schedule II - Valuation and Qualifying Accounts

               (iii)     Exhibits.

                    10(a)     Agreement and Plan of Merger and Reorganization,
                              dated as of October 30, 1997 by and among the
                              Company, Vanguard Automation, Inc. and RVSI
                              Southwest Acquisition Corp.(A)

                    11        Computation of per share amounts

                    21        Subsidiaries of Company

                    23(a)     Independent Auditors' Consent -Deloitte & Touche
                              LLP

                    23(b)     Consent of Independent Public Accountants - Arthur
                              Andersen LLP

                                       20
<PAGE>
 
                    23(c)     Consent of Independent Public Accountants - Ernst
                              & Young LLP

                    27        Financial Data Schedule


------------------
(A)  Denotes document filed as Exhibit to the Company's Current Report on Form
     8-K dated December 18, 1997 and incorporated herein by reference.

          (b)  Reports on Form 8-K:

               None.

                                       21
<PAGE>
 
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Village of
Hauppauge, State of New York, on the 28th day of December, 1997.


                              ROBOTIC VISION SYSTEMS, INC.



                              By: /s/ Pat V. Costa
                                 ----------------------------
                                  Pat V. Costa, President


     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 dates indicated:

     SIGNATURE               CAPACITY                   DATE
     ---------               --------                   ----

                         Chairman of the
                         Board, President
                         and Director
                         (Principal Executive
                         Officer)                  December 28, 1997

/s/ Pat V. Costa
-----------------------
Pat V. Costa

                         Executive Vice
                         President, Secretary/
                         Treasurer and
                         Director (Principal
                         Financial Officer)        December 28, 1997
/s/ Robert H. Walker
----------------------
Robert H. Walker


                         Executive Vice President  December 28, 1997
/s/Steven Bilodeau       and Director
----------------------               
Steven Bilodeau


                         Senior Vice President
                         and Director              December 28, 1997
/s/ Howard Stern
----------------------
Howard Stern

                                       22
<PAGE>
 
                         Director                  December 28, 1997
/s/ Jay M. Haft
----------------------
Jay M. Haft



                         Director
----------------------
Donald J. Kramer



                         Director                  

----------------------
Mark J. Lerner



                         Director
----------------------
Frank A. DiPietro



                         Director
----------------------
Tomas Cohn

                                       23
<PAGE>
 
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
--------------------------------------------------------------------------------
 
 
Independent Auditors' Report of Deloitte & Touche LLP                F-1
 
Report of Arthur Andersen LLP, Independent Public Accountants        F-2
 
Report of Ernst & Young LLP, Independent Auditors                    F-3
 
Consolidated Balance Sheets as of September 30, 1997 and 1996        F-4
 
Consolidated Statements of Income for the Years Ended
   September 30, 1997, 1996 and 1995                                 F-5
 
Consolidated Statements of Stockholders' Equity
   for the Years Ended September 30, 1997, 1996 and 1995             F-6
 
Consolidated Statements of Cash Flows
   for the Years Ended September 30, 1997, 1996 and 1995         F-7 to F-8
 
Notes to Consolidated Financial Statements
   for the Years Ended September 30, 1997, 1996 and 1995         F-9 to F-24
 
Schedule II:  Valuation and Qualifying Accounts                     F-25
<PAGE>
 
  INDEPENDENT AUDITORS' REPORT


  To the Board of Directors and Stockholders of
   Robotic Vision Systems, Inc. and subsidiaries:

  We have audited the accompanying consolidated balance sheets of Robotic Vision
  Systems, Inc. and subsidiaries (the "Company") as of September 30, 1997 and
  1996, and the related consolidated statements of income, stockholders' equity,
  and cash flows for each of the three years in the period ended September 30,
  1997.  Our audits included the financial statement schedule listed in the
  index at item 14(a)(1) and (2).  These financial statements and financial
  statement schedule are the responsibility of the Company's management.  Our
  responsibility is to express an opinion on these financial statements and
  financial statement schedule based on our audits.  We did not audit the
  consolidated financial statements of Acuity Imaging, Inc. and subsidiaries
  ("Acuity"), a wholly-owned subsidiary, for the year ended September 30, 1995,
  which statements reflect total revenues constituting 16% of consolidated total
  revenues for the year ended September 30, 1995.  We also did not audit the
  consolidated financial statements of Computer Identics Corporation and
  subsidiaries ("CI"), a wholly-owned subsidiary, for the year ended December
  31, 1995, which statements reflect total revenues constituting 23% of
  consolidated total revenues for the year ended September 30, 1995.  Those
  financial statements were audited by other auditors whose reports have been
  furnished to us, and our opinion, insofar as it relates to the amounts
  included for Acuity and CI for the year ended September 30, 1995, is based
  solely on the reports of such other auditors.

  We conducted our audits in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement.  An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements.  An audit
  also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statement presentation.  We believe that our audits provide a reasonable basis
  for our opinion.

  In our opinion, based on our audits and the reports of the other auditors,
  such consolidated financial statements present fairly, in all material
  respects, the financial position of the Company at September 30, 1997 and
  1996, and the results of their operations and their cash flows for each of the
  three years in the period ended September 30, 1997 in conformity with
  generally accepted accounting principles.  Also, in our opinion, such
  financial statement schedule, when considered in relation to the basic
  consolidated financial statements taken as a whole, presents fairly in all
  material respects the information set forth therein.


  /s/ Deloitte & Touche LLP
  Jericho, New York                                      
  December 9, 1997

                                      F-1
<PAGE>
 
                              ARTHUR ANDERSEN LLP
                                    REPORT


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Acuity Imaging, Inc.:

We have audited the consolidated balance sheet of Acuity Imaging, Inc. (a 
Delaware corporation and a wholly owned subsidiary of Robotic Vision Systems, 
Inc.) and subsidiaries as of September 30, 1995, and the related consolidated 
statements of operations and cash flows for the year then ended. These 
consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated 
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material 
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by 
management, as well as evaluating the overall financial statement presentation. 
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Acuity Imaging, Inc.
and subsidiaries at September 30, 1995, and the results of their operations and
their cash flows for the year ended in conformity with generally accepted
accounting principles.

On September 20, 1995, Robotic Vision Systems, Inc. acquired Acuity Imaging, 
Inc.


                                               /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
November 6, 1995

                                      F-2
<PAGE>
 
                               ERNST & YOUNG LLP
                                    REPORT


    REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

    To the Board of Directors
    and Stockholders of Computer Identics Corporation:

    We have audited the accompanying consolidated balance sheet of Computer
    Identics Corporation and subsidiaries as of December 31, 1995 and the
    related consolidated statements of operations, stockholders' equity, and
    cash flows for the year then ended (not presented separately herein). Our
    audits also included the related financial statement schedule - Valuation
    and Qualifying Accounts, for the year ended December 31, 1995 (not presented
    separately herein). These financial statements and schedule are the
    responsibility of the Company's management. Our responsibility is to express
    an opinion on these financial statements and schedule based on our audit.

    We conducted our audit in accordance with generally accepted auditing
    standards. Those standards require that we plan and perform the audit to
    obtain reasonable assurance about whether the financial statements are free
    of material misstatement. An audit includes examining, on a test basis,
    evidence supporting the amounts and disclosures in the financial statements.
    An audit also includes assessing the accounting principles used and
    significant estimates made by management, as well as evaluating the overall
    financial statement presentation. We believe that our audit provides
    reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
    in all material respects, the consolidated financial position of Computer
    Identics Corporation and subsidiaries at December 31, 1995 and the
    consolidated results of their operations, and their cash flows for year
    ended, in conformity with generally accepted accounting principles. Also, in
    our opinion the related financial statement schedule, when considered in
    relation to the basic financial statements taken as a whole, presents fairly
    in all material respects the information set forth therein.

                                                           /s/ Ernst & Young LLP

    Boston, Massachusetts 
    February 8, 1996


                                      F-3
<PAGE>
 
  ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
  ---------------------------------------------

  CONSOLIDATED BALANCE SHEETS
  SEPTEMBER 30, 1997 AND 1996
  (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                          NOTES    1997       1996
                                                          -----  ---------  ---------
<S>                                                       <C>    <C>        <C>
  ASSETS (Note 9)
--------
  CURRENT ASSETS:
    Cash and cash equivalents                                    $  5,465   $ 18,192
    Investments                                                         -      1,500
    Accounts receivable, net                                  3    47,873     27,338
    Inventories                                               4    33,958     23,590
    Deferred income taxes                                     5    10,643      8,116
    Prepaid expenses and other                                      1,319      1,348
                                                                 --------   --------
       Total current assets                                        99,258     80,084
  PLANT AND EQUIPMENT, net                                    6    12,672      9,266
  INVESTMENTS                                                           -        665
  GOODWILL, net of accumulated amortization of $290
    and $61 in 1997 and 1996, respectively                    2     6,207      2,627
  OTHER ASSETS                                              5,7     8,594      4,343
                                                                 --------   --------
                                                                 $126,731   $ 96,985
                                                                 ========   ========
  LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
  CURRENT LIABILITIES:
    Note payable and current portion of long-term debt        9  $  8,189   $  8,225
    Accounts payable                                               21,538     11,880
    Accrued expenses and other current liabilities            8    15,079     12,332
    Advance contract payments received                              1,128      1,671
                                                                 --------   --------
       Total current liabilities                                   45,934     34,108
 
  LONG-TERM DEBT                                              9     6,000          -
  DEFERRED INCOME TAXES                                       5     1,823          -
  OTHER LIABILITIES                                                   517        479
                                                                 --------   --------
  TOTAL LIABILITIES                                                54,274     34,587
                                                                 --------   --------
  COMMITMENTS AND CONTINGENCIES                              11
  STOCKHOLDERS' EQUITY:                                      12
    Common stock, $.01 par value; shares authorized,
       30,000,000; shares issued and outstanding,
       1997 - 21,063,000 and 1996 - 20,697,000                        211        207
    Additional paid-in capital                                    145,229    143,264
    Accumulated deficit                                           (73,150)   (81,395)
    Unrealized gain on investments available for sale                   -        147
    Cumulative translation adjustment                                 167        175
                                                                 --------   --------
       Total stockholders' equity                                  72,457     62,398
                                                                 --------   --------
                                                                 $126,731   $ 96,985
                                                                 ========   ========
</TABLE>
  See notes to consolidated financial statements.

                                      F-4
<PAGE>
 
  ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
  ---------------------------------------------

  CONSOLIDATED STATEMENTS OF INCOME
  FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
  ------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                                   NOTES     1997      1996        1995
                                                   -----     ----      ----        ----
<S>                                                 <C>     <C>        <C>        <C>
  REVENUES                                          14, 15  $152,103   $143,540   $122,125
 
  COST OF REVENUES                                            76,761     74,669     59,891
                                                            --------   --------   --------
 
  GROSS PROFIT                                                75,342     68,871     62,234
                                                            --------   --------   --------
 
  OPERATING COSTS AND EXPENSES:
    Research and development costs                            23,410     18,405     15,751
    Selling, general and administrative expenses              42,828     39,603     34,257
    Merger expenses                                      2        69      2,661      1,305
    Interest income                                             (717)    (1,125)      (518)
    Interest expense                                             715        733        536
                                                            --------   --------   --------
 
                                                              66,305     60,277     51,331
                                                            --------   --------   --------
 
  INCOME BEFORE INCOME TAXES                                   9,037      8,594     10,903
 
  INCOME TAX PROVISION (BENEFIT)                         5       792     (1,132)       (92)
                                                            --------   --------   --------
 
  NET INCOME                                                $  8,245   $  9,726   $ 10,995
                                                            --------   --------   --------
 
  NET INCOME PER SHARE                                         $0.38   $   0.45   $   0.55
                                                            ---------  --------   --------


  WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING                                  21,721     21,386     19,872
                                                            ---------  --------   --------

</TABLE> 

  See notes to consolidated financial statements.

                                      F-5
<PAGE>
 
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                      COMMON STOCK         ADDITIONAL           
                                   NUMBER                   PAID-IN    ACCUMULATED    DEFERRED
                           NOTES  OF SHARES    AMOUNT       CAPITAL      DEFICIT      COMPENSATION
                           -----------------------------------------------------------------------
<S>                          <C>     <C>      <C>         <C>           <C>         
                                                                                    
Balance, October 1, 1994             17,023      $  170     $121,521    $(101,397)       $ (54) 
Shares and warrants issued                                                          
 in connection with                                                                 
  private equity                                                                    
   placement, net of                                                                
   offering costs                12   1,110           11        9,375           -            -
Shares issued in                                                                    
 connection with private                                                            
 placement                                                                          
  of subsidiary, net of                                                             
   offering costs                12     119            2        1,763            -            -
Warrants issued for                                                                 
 professional services           12       -            -           92            -            -
Shares issued in                                                                    
 connection with the                                                                
 exercise                                                                           
  of stock options and                                                              
   warrants                      12     746            7        1,476            -            -
Other stock transactions                 40            -          309            -           (6) 
Change in year end of                                                               
 pooled companies                 2       -            -            -         (101)           -
Translation adjustment                    -            -            -            -            -
Net income                                -            -            -       10,995            -  
                                     ------        ------     --------    ---------     ----------  
Balance, September 30, 1995          19,038          190      134,536      (90,503)         (60) 
Shares issued in                                                                    
 connection with the                                                                
 exercise of                                                                        
  stock options and                                                                 
   warrants                      12   1,511           15        5,821            -             -
Shares issued in                                                                    
 connection with the                                                                
 acquisition                                                                        
  of Northeast Robotics,                                                            
   Inc. accounted for as                                                            
  a purchase                      2     139            1        2,675            -             -
Warrants issued for                                                                 
 professional services           12       -            -           74            -             -
Other stock transactions          9       1          158            -           60             -
Change in year end of                                                               
 pooled companies                 2       -            -            -         (618)            -
Change in net unrealized                                                            
 holding gains                    1       -            -            -            -             -
Translation adjustment                    -            -            -            -             -  
Net income                                -            -            -        9,726             -  
                                      ------       ------     --------    ---------       ----------  
Balance, September 30, 1996          20,697          207      143,264      (81,395)            -  
                                                                                    
Shares issued in                                                                    
 connection with the                                                                
 exercise of                                                                        
  stock options and                                                                 
   warrants                      12     384            4        1,839            -              -
Other stock transactions                (18)           -          126            -              -
Change in net unrealized                                                            
 holding gains                    1       -            -            -            -              -
Translation adjustment                    -            -            -            -              -  
Net income                                -            -            -        8,245              -  
                                     ------        ------     --------    ---------      ----------  
Balance, September 30, 1997          21,063        $  211     $145,229    $ (73,150)      $-          
                                    =======        ======     ========    =========      ==========  
 
</TABLE>

<TABLE> 
<CAPTION> 
 
                            UNREALIZED     CUMULATIVE      TOTAL
                             GAIN ON       TRANSLATION   STOCKHOLDERS'
                            INVESTMENTS    ADJUSTMENT      EQUITY
                            ------------  ------------  --------------  
<S>                         <C>           <C>             <C>
                            
Balance, October 1, 1994    $       -       $ 118           $ 20,358
Shares and warrants issued  
 in connection with         
  private equity            
   placement, net of        
   offering costs                    -           -              9,386
Shares issued in            
 connection with private    
 placement                  
  of subsidiary, net of     
   offering costs                    -            -              1,765
Warrants issued for         
 professional services               -            -                 92
Shares issued in            
 connection with the        
 exercise                   
  of stock options and      
   warrants                           -            -              1,483
Other stock transactions              -            -                303
Change in year end of       
 pooled companies                     -            -               (101)
Translation adjustment                -           90                 90
Net income                            -            -             10,995
                            ------------        -----         ----------
Balance, September 30, 1995           -           208            44,371
Shares issued in            
 connection with the        
 exercise of                
  stock options and         
   warrants                            -            -             5,836
Shares issued in            
 connection with the        
 acquisition                
  of Northeast Robotics,    
   Inc. accounted for as    
  a purchase                           -            -              2,676
Warrants issued for         
 professional services                 -            -                 74
Other stock transactions               -            -                219
Change in year end of       
 pooled companies                      -            -               (618)
Change in net unrealized    
 holding gains                       147            -                147
Translation adjustment                 -          (33)               (33)
Net income                             -            -              9,726
                            ------------        -----         ----------
Balance, September 30, 1996          147          175             62,398
                            
Shares issued in            
 connection with the        
 exercise of                
  stock options and         
   warrants                            -            -               1,843
Other stock transactions               -            -                 126
Change in net unrealized    
 holding gains                      (147)           -                (147)
Translation adjustment                 -           (8)                 (8)
Net income                             -            -               8,245
                            ------------        -----         -----------
Balance, September 30, 1997  $         -        $ 167          $   72,457
                            ============        =====         ===========
</TABLE> 


See notes to consolidated financial statements.

                                      F-6
<PAGE>
 
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
-------------------------------------------------------------------

<TABLE> 
<CAPTION> 
 
                                                                       1997      1996      1995
                                                                     --------   -------   -------
 
OPERATING ACTIVITIES:
<S>                                                                <C>          <C>      <C> 
Net income                                                           $  8,245   $ 9,726   $10,995
Adjustments to reconcile net income
  to net cash (used in) provided by operating activities:
    Deferred income taxes                                                 (93)   (2,881)   (1,729)
    Depreciation and amortization                                       4,820     3,221     2,354
    Other                                                                (693)    1,096       397
    Changes in operating assets and liabilities (net of
      effects of business acquired):
      Accounts receivable                                             (20,190)   (6,039)   (7,401)
      Inventories                                                     (10,429)   (4,065)   (8,922)
      Prepaid expenses and other current assets                          (481)     (792)     (102)
      Other assets                                                     (4,803)   (2,853)     (854)
      Accounts payable                                                  8,815      (444)    5,346
      Accrued expenses and other current liabilities                    3,076     3,705     3,407
      Advance contract payments received                                 (698)      (23)     (350)
      Other liabilities                                                   (61)     (164)     (136)
                                                                     --------   -------   -------
          Net cash (used in) provided by operating activities         (12,492)      487     3,005
                                                                     --------   -------   -------
INVESTING ACTIVITIES:
Proceeds from maturity of investments                                   2,319     1,000     1,500
Additions to plant and equipment, net                                  (6,869)   (5,534)   (3,540)
Purchase of investments                                                     -         -    (1,484)
Payment for purchase of business                                       (3,144)      (77)        -
                                                                     --------   -------   -------
          Net cash used in investing activities                        (7,694)   (4,611)   (3,524)
                                                                     --------   -------   -------
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and warrants - private
  equity placement (less offering costs)                                    -         -    10,306
Proceeds from the exercise of stock options and warrants                1,271     2,428     1,357
Net proceeds from short-term borrowings                                  (222)    7,752     6,400
Proceeds from long-term borrowings                                      8,000         -         -
Repayment of long-term borrowings                                      (1,779)   (5,870)   (1,940)
                                                                     --------   -------   -------
          Net cash provided by financing activities                     7,270     4,310    16,123
                                                                     --------   -------   -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
  CASH EQUIVALENTS                                                        189        71        44
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                    (12,727)      257    15,648
CASH AND CASH EQUIVALENTS:
  Beginning of year                                                    18,192    17,935     2,618
                                                                     --------   -------   -------
  End of year                                                        $  5,465   $18,192   $18,266
                                                                     ========   =======   =======
 
</TABLE>
See notes to consolidated financial statements.

                                      F-7
<PAGE>
 
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (CONTINUED)
-----------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                             1997    1996       1995
                                             ----     ----      ----

SUPPLEMENTAL CASH FLOW INFORMATION:
<S>                                     <C>         <C>       <C> 
  Interest paid                              $658      $699      $554
                                             ====      ====      ====
  Taxes paid                                 $218     $1,415    $1,056
                                             ====     ======    ======


NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
Income tax benefit relating to the
       exercise of stock options               $572  $3,408  $126
                                               ====  ======  ====
 
     Liabilities incurred in connection 
       with acquisition of business            $902  $    -  $  -
                                               ====  ======  ====
 
     Property and equipment acquired under
       capital leases                           $ 22  $    -  $354
                                                ====  ======  ====
 
     Issuance of common stock to acquire
       Northeast Robotics, Inc.                 $  -  $2,676  $  -
                                                ====  ======  ====
 
     Liabilities satisfied by private 
        offering of common stock 
        of subsidiary                            $  -  $    -  $845
                                                 ====  ======  ====
 
</TABLE>



See notes to consolidated financial statements.

                                      F-8
<PAGE>
 
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
--------------------------------------------------------------------------------


1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES

   a. DESCRIPTION OF BUSINESS - Robotic Vision Systems, Inc. ("RVSI") and
      -----------------------                                            
       subsidiaries (the "Company") designs, manufactures, markets and sells
       automated two dimensional and three dimensional machine vision based
       products and systems for inspection, measurement and identification, and
       is a leader in advanced electro-optical sensor technology.  The Company
       is also developing an ice detection product for the aviation industry.

   b. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
      ---------------------------                                        
       include the financial statements of Robotic Vision Systems, Inc. and its
       subsidiaries, all of which are wholly-owned.  All significant
       intercompany transactions and balances have been eliminated in
       consolidation.

   c. REVENUES AND COST OF REVENUES - The Company recognizes revenue on its
      -----------------------------                                        
       standard electronic inspection and measurement products upon shipment.
       Revenue from the licensing of software is recognized when the software is
       delivered if collectibility is probable and there are no significant
       vendor obligations.  Engineering service and support revenue is
       recognized when such services are rendered.  Warranty costs associated
       with products sold with warranty protection, as well as other post-
       contract support obligations, are estimated based on the Company's
       historical experience and recorded in the period the product is sold.

   d. CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes money
      -------------------------                                           
       market accounts and certain debt securities issued by the United States
       government with an original maturity of three months or less.

   e. INVESTMENTS - At September 30, 1996, investments consisted primarily of
      -----------                                                            
       certain debt securities issued by the United States government.  The
       Company's intention was to hold such investments until their maturity,
       therefore, such investments were recorded at their amortized cost which
       was $1,998,000.  The carrying value of these investments approximated
       market value.  In addition, at September 30, 1996, the Company had
       marketable equity securities classified as available-for-sale which were
       recorded at their fair market value of $167,000, with unrealized gains of
       $147,000 included as a separate component of stockholders' equity.

   f. INVENTORIES - Inventories are stated at the lower of cost (using the
      -----------                                                         
       first-in, first-out cost flow assumption) or market.

   g. PLANT AND EQUIPMENT - Plant and equipment is recorded at cost less
      -------------------                                               
       accumulated depreciation and amortization and includes the costs
       associated with demonstration equipment and other equipment internally
       developed by the Company.  The cost of internally developed assets
       includes direct material and labor costs and applicable factory overhead.
       Depreciation is computed by the straight-line method over estimated lives
       ranging from two to eight years.  Leasehold improvements are amortized
       over the lesser of their respective estimated useful lives or lease
       terms.

   h.  IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the Financial Accounting
       -------------------------------                                          
       Standards Board issued Statements of Financial Accounting Standards
       ("SFAS") No. 121, "Accounting For the Impairment of Long-Lived Assets and
       For Long-Lived Assets To Be Disposed Of".  SFAS No. 121 

                                      F-9
<PAGE>
 
       establishes accounting standards for the impairment of long-lived assets,
       certain identifiable intangibles, and goodwill related to those assets to
       be held and used, and for long-lived assets and certain identifiable
       intangibles to be disposed of.

      In accordance with SFAS No. 121, the Company reviews its long-lived
       assets, including property and equipment, goodwill and other identifiable
       intangibles for impairment whenever events or changes in circumstances
       indicate that the carrying amount of the assets may not be fully
       recoverable.  To determine recoverability of its long-lived assets, the
       Company evaluates the probability that future undiscounted net cash
       flows, without interest charges, will be less than the carrying amount of
       the assets.  Impairment is measured at fair value.  The adoption of SFAS
       No. 121 had no effect on the Company's consolidated financial statements.

   i. SOFTWARE DEVELOPMENT COSTS - Software development costs are capitalized in
      --------------------------                                                
       accordance with SFAS No. 86.  Capitalized software development costs are
       amortized primarily over a five-year period, which is the estimated
       useful life of the software.  Amortization begins in the period in which
       the related product is available for general release to customers.

   j. RESEARCH AND DEVELOPMENT COSTS - The Company charges research and
      ------------------------------                                   
       development costs for Company-funded projects to operations as incurred.
       Research and development costs which are reimbursable under customer-
       funded contracts are treated as contract costs.

   k. INCOME TAXES - The Company accounts for income taxes under the provisions
      ------------                                                             
       of SFAS No. 109, "Accounting for Income Taxes," which requires
       recognition of deferred tax assets and liabilities for the expected
       future tax consequences of events that have been included in the
       Company's consolidated financial statements or tax returns.  Under this
       method, deferred tax assets and liabilities are determined based on the
       differences between the financial accounting and tax bases of assets and
       liabilities using enacted tax rates in effect for the year in which the
       differences are expected to reverse.

   l. FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Company's
      ----------------------------                                          
       European subsidiaries are translated at the exchange rate in effect at
       the balance sheet date.  Income statement accounts are translated at the
       average exchange rate for the year.  The resulting translation
       adjustments are excluded from operations and accumulated as a separate
       component of stockholders' equity.  Transaction gains (losses) are
       included in net income and totaled $(267,000), $(52,000) and $167,000 in
       1997, 1996 and 1995, respectively.

   m. NET INCOME PER SHARE - Net income per common share is computed by dividing
      --------------------                                                      
       each year's net income by the respective weighted average number of
       shares of common stock outstanding during the period, after giving effect
       to dilutive options and warrants.

   n.  FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
       -----------------------------------                            
       assumptions were used to estimate the fair value of each class of
       financial instruments:

      a) Cash and Cash Equivalents - The carrying amounts approximate fair value
         -------------------------                                              
            because of the short maturity of these instruments.

      b) Investments - The carrying amounts approximate fair value as determined
         -----------                                                            
            by quoted market prices.

      c) Receivables - The carrying amount approximates fair value because of
         -----------                                                         
            the short maturity of these instruments.

                                      F-10
<PAGE>
 
      d) Debt - The carrying amounts approximate fair value based on borrowing
         ----                                                                 
            rates currently available to the Company for loans with similar
            terms.

      e) Deferred Income Taxes - The carrying amounts approximate fair value 
         ---------------------
            because of the short maturity of these instruments.

    o. USE OF ESTIMATES - The preparation of financial statements in
        -----------------          
       conformity with generally accepted accounting principles requires
       management to make estimates and assumptions that affect the reported
       amounts of assets and liabilities and disclosure of contingent assets and
       liabilities at the date of the financial statements and the reported
       amounts of revenues and expenses during the reporting period. Actual
       results could differ from those estimates.
      
       The Company's most significant estimates relate to the deferred income 
       tax valuation allowance, allowance for doubtful accounts receivable, 
       reserve for excess and obsolete inventory, and warranty reserve.

    p. RECLASSIFICATIONS - Certain amounts in the 1995 and 1996 financial
      -----------------                                                 
       statements have been reclassified to conform with the 1997 presentation.

2.     ACQUISITIONS

   a. VANGUARD AUTOMATION, INC.
      -------------------------

      On December 9, 1997, the Company acquired the outstanding shares of
      Vanguard Automation, Inc. ("Vanguard") for approximately 3,391,000 shares
      of the Company's common stock, having a market value of $45,776,000 .
      Outstanding Vanguard stock options were converted into stock options to
      purchase approximately 152,000 shares of the Company's common stock.
      Outstanding Vanguard warrants were converted into warrants to purchase
      approximately 182,000 shares of the Company's common stock.  Vanguard
      produces and markets automated manufacturing equipment used in the
      assembly of certain types of semiconductor packaging processes, commonly
      referred to as Ball Grid Array.  This acquisition will be accounted for as
      a pooling of interests.

      Unaudited pro forma consolidated statement of income data for the year
      ended September 30, 1997, 1996 and 1995 is as follows:
 
                               RVSI    VANGUARD   ELIMINATIONS   COMBINED
                             --------  ---------  -------------  --------
     1997
     ----
     Revenues                $152,103   $18,218          $(979)  $169,342
     Net income (loss)       $  8,245   $(7,511)         $ (86)  $    648
     Net income per share    $   0.38                               $0.03

     1996
     ----
     Revenues                $143,540   $10,977          $(542)  $153,975
     Net income (loss)       $  9,726   $(8,851)         $ (40)  $    835
     Net income per share    $   0.45                               $0.04

     1995
     ----
     Revenues                $122,125   $23,290          $   -   $145,415
     Net income              $ 10,995   $ 1,153          $   -   $ 12,148
     Net income per share    $   0.55                               $0.58


   The unaudited pro forma consolidated statement of income data combines the
   historical statement of income data of the Company for the years ended
   September 30, 1997, 1996, and 1995 with the historical statement of income
   data of Vanguard for the 12 months ended September 30, 1997 and the years
   ended December 31, 1996 and 1995, respectively.

                                      F-11
<PAGE>
 
   b. TRIGON
      ------

      On June 30, 1997, the Company acquired Trigon Technologies, Inc.
       ("Trigon"), a privately owned company located in Farmington Hills,
       Michigan.  Trigon markets a line of 2-D machine vision products for the
       semiconductor industry.  The purchase price was $3,000,000 in cash plus
       contingent consideration based upon the sales level of certain products
       sold by Trigon, over a five-year period.

      This acquisition has been accounted for as a purchase and, accordingly,
       the results of Trigon are included in the consolidated statements of
       income of the Company since the date of acquisition and the purchase
       price (including acquisition costs) has been allocated to net assets
       acquired based upon their fair values.  Goodwill relating to the
       acquisition of $2,997,000 is being amortized over 15 years.  The
       historical results of operations of Trigon were not material to the
       operations of the Company.

   c. SYSTEMATION ENGINEERED PRODUCTS, INC.
      -------------------------------------

      On October 1, 1996, the Company acquired the outstanding shares of SEP for
       1,740,000 shares of the Company's common stock, having a market value at
       the date of the merger of approximately $22,838,000. SEP designs
       manufactures, markets and sells specialized high speed production
       machinery for the electronics component industry. SEP's principle product
       lines include tape and reel packaging equipment and automatic optical
       inspection systems. This acquisition has been accounted for as a pooling
       of interests and, accordingly, the consolidated financial statements have
       been restated to include the accounts of SEP for all periods presented.
       The accompanying September 30, 1995 consolidated financial statements
       include SEP's amounts for the year ended March 31, 1996. The accompanying
       consolidated financial statements for the years ended September 30, 1997
       and 1996 include the operations of SEP on a common fiscal year. SEP's net
       income for the period October 1, 1995 through March 31, 1996 of $558,000,
       included twice in the accompanying consolidated statements of income for
       the fiscal years ended September 1996 and 1995 as a result of conforming
       fiscal years, has been included as an adjustment to consolidated
       accumulated deficit. Expenses of $904,000 have been incurred related to
       this merger.

   d. COMPUTER IDENTICS CORPORATION
      -----------------------------

      On August 30, 1996, the Company acquired the outstanding shares of
       Computer Identics Corporation ("CI") for approximately 2,127,000 shares
       of the Company's common stock, having a market value at the date of the
       merger of approximately $30,580,000.  Outstanding CI stock options were
       converted into options to purchase approximately 186,000 shares of the
       Company's common stock.  Outstanding CI warrants were converted into
       warrants to purchase approximately 39,000 shares of the Company's common
       stock.  CI designs, manufactures, markets and sells standard barcode
       products, data collection networks and systems for data collection and
       material handling/industrial markets.  This acquisition has been
       accounted for as a pooling of interests and accordingly, the consolidated
       financial statements have been restated to include the accounts of CI for
       all periods presented.  The accompanying September 30, 1995 consolidated
       financial statement include CI's amounts for the year ended December 31,
       1995.  The accompanying consolidated financial statements for the years
       ended September 30, 1997 and 1996 include the operations of CI on a
       common fiscal year.  CI's net income for the period October 1, 1995
       through December 31, 1995 of $60,000 included twice in the accompanying
       consolidated statements of income for the fiscal years ended September
       1996 and 1995 as a result of conforming fiscal years, has been included
       as an adjustment to consolidated accumulated deficit in fiscal 1996.
       Included in the operating results of the Company for the year ended
       September 30, 1996 are approximately 

                                      F-12
<PAGE>
 
       $24,661,000 of revenues and approximately $793,000 of net loss of CI
       prior to the date of acquisition (August 30, 1996). Expenses of
       $1,547,000 have been incurred related to this merger.

   e.  NORTHEAST ROBOTICS, INC.
       ------------------------

      On May 30, 1996, the Company consummated a merger with Northeast Robotics,
       Inc. ("NER"), a privately owned company located in New Boston, New
       Hampshire, pursuant to which NER became a wholly owned subsidiary of the
       Company (the "NER Merger").  NER markets a line of patented illumination
       products to perform reliably in difficult imaging applications involving
       highly reflective or uneven surfaces.  As a consequence of the NER
       Merger, the Company issued approximately 139,000 shares of its common
       stock (which had a market value of approximately $2,676,000 on the date
       the NER Merger was consummated) to the shareholders of NER in exchange
       for all of the outstanding shares of NER common stock.

      This acquisition has been accounted for as a purchase and, accordingly,
       the results of NER are included in the consolidated statements of income
       of the Company since the date of acquisition and the purchase price
       (including acquisition costs) has been allocated to net assets acquired
       based upon their fair values.  Goodwill relating to the acquisition of
       $2,688,000 is being amortized over 15 years.  The historical results of
       operations of NER were not material to the operations of the Company.

   f.  INTERNATIONAL DATA MATRIX, INC.
       -------------------------------

      On October 23, 1995, the Company acquired the outstanding shares of
       International Data Matrix, Inc. ("IDM") for approximately 370,000 shares
       of the Company's common stock, having a market value at the date of the
       merger of approximately $8,183,000.  IDM is a manufacturer and supplier
       of two dimensional bar code reading systems.  This acquisition has been
       accounted for as a pooling of interests and accordingly, the consolidated
       financial statements have been restated to include the accounts of IDM
       for all periods presented.  IDM's net loss for the period October 1, 1994
       through December 31, 1994 of $154,000, included twice in the consolidated
       statements of income for the fiscal years ended September 30, 1995 and
       1994 as a result of conforming fiscal years, has been included as an
       adjustment to the consolidated accumulated deficit in fiscal 1995.
       Included in the operating results of the Company for the years ended
       September 30, 1996 are approximately $77,000 of revenues and $135,000 of
       net loss of IDM prior to the date of acquisition (October 23, 1995).
       Expenses of $445,000 have been incurred related to this merger.

   g.  ACUITY IMAGING, INC. AND SUBSIDIARIES
       -------------------------------------

      On September 20, 1995, the Company acquired the outstanding shares of
       Acuity Imaging, Inc. ("Acuity") for approximately 1,448,000 shares of the
       Company's common stock, having a market value at the date of the merger
       of approximately $31,141,000.  Acuity designs, manufactures and markets
       two dimensional machine vision systems for use in industrial automation.
       Outstanding Acuity stock options were converted into options to purchase
       approximately 114,000 shares of the Company's common stock.  This
       acquisition has been accounted for as a pooling of interests.  Acuity's
       net income for the period October 1, 1994 through December 31, 1994 of
       $255,000, included twice in the consolidated statements of income for the
       fiscal years ended September 30, 1995 and 1994 as a result of conforming
       fiscal years, has been included as an adjustment to the consolidated
       accumulated deficit in fiscal 1995.  Included in the operating results of
       the Company for the year ended September 30, 1995 are approximately
       $19,153,000 of revenues and $1,188,000 of net loss of Acuity prior to the
       date of acquisition (September 20, 1995).  Expenses of $1,160,000 have
       been incurred related to this merger.

                                      F-13
<PAGE>
 
3.     ACCOUNTS RECEIVABLE

   Accounts receivable at September 1997 and 1996 consisted of the following:

                                                           (IN THOUSANDS)
                                                           1997     1996
                                                          -------  -------
       Billed accounts receivable                         $43,895  $26,432
       Unbilled accounts receivable                         4,994    2,206
                                                          -------  -------
       Total                                               48,889   28,638
       Less allowance for doubtful accounts receivable      1,016    1,300
                                                          -------  -------
       Accounts receivables, net                          $47,873  $27,338
                                                          =======  =======

   Unbilled receivables primarily relate to sales recorded on standard products
     which have been shipped, but have not yet been finally accepted by the
     customer.  The Company has no significant remaining obligations relating to
     these unbilled receivables and collectibility is probable. The Company
     estimates that all of its unbilled receivables at September 30, 1997 will
     become billable during the ensuing twelve months.

4.     INVENTORIES

   Inventories at September 1997 and 1996 consisted of the following:

 
                           (IN THOUSANDS)
                           1997     1996
                          -------  -------
       Raw materials      $18,919  $ 9,995
       Work-in-process      9,740   10,920
       Finished goods       5,299    2,675
                          -------  -------
       Total              $33,958  $23,590
                          =======  =======

5. INCOME TAXES
 
The components of income before income tax provision (benefit) are as follows:
 
                                              (IN THOUSANDS)
                                      1997          1996      1995
                                    ------        ------   -------
                                              
      Domestic                      $9,758        $8,795   $10,838
      Foreign                         (721)         (201)       65
                                    ------        ------   -------
       Total                        $9,037        $8,594   $10,903
                                    ======        ======   =======

                                      F-14
<PAGE>
 
   The income tax provision (benefit) for the fiscal years ended September 30,
     1997, 1996 and 1995 consisted of the following:

<TABLE> 
<CAPTION> 
 
                                                               (IN THOUSANDS)
                                                          1997      1996      1995
                                                        --------  --------  --------
<S>                                                     <C>       <C>       <C>
   Current:
     Federal                                            $   776   $ 4,297   $ 4,957
     State                                                  118     1,028       747
     Foreign                                                 (9)       38        42
     Utilization of net operating loss carryforwards          -    (3,614)   (4,109)
                                                        -------   -------   -------
                                                            885     1,749     1,637
                                                        -------   -------   -------
   Deferred:
     Federal                                              2,970      (734)      674
     State                                                  564        83       222
     Adjustment of valuation allowance                   (3,627)   (2,230)   (2,625)
                                                        -------   -------   -------
                                                            (93)   (2,881)   (1,729)
                                                        -------   -------   -------
     Total                                              $   792   $(1,132)  $   (92)
                                                        =======   =======   =======
</TABLE>
  
   The adjustment of the valuation allowance during fiscal 1997 emanated from a
   change in the legal structure of certain subsidiaries which eliminated
   certain limitations on the Company's utilization of net operating losses of
   acquired subsidiaries. The adjustments of the valuation allowance during
   fiscal 1996 and 1995 emanated from the Company's profitable operations during
   those years and the extent to which the Company substantiated projected
   future earnings. The valuation allowance as of September 30, 1997 relates
   primarily to net operating loss carryforwards and tax credit carryforwards of
   Acuity, IDM and CI which are subject to annual limitations as a result of the
   changes in ownership.

   The income tax benefits related to the exercise of stock options reduces
   taxes currently payable or increases net deferred tax assets, and is credited
   to additional paid-in capital.  Such amounts approximate $572,000 and
   $3,408,000 during the fiscal years ended September 1997 and 1996,
   respectively.

   A reconciliation between the statutory U.S. Federal income tax rate and the
   Company's effective tax rate for the years ended September 30, 1997, 1996 and
   1995 is as follows:
<TABLE>
<CAPTION>
 
                                                             1997    1996     1995
                                                            ------  -------  ------
<S>                                                         <C>     <C>      <C>
   U.S. Federal statutory rate                               34.0%    34.0%   34.0%
   Increases (reductions) due to:
   State taxes - net of Federal tax benefit                   2.1      8.3     4.7
   Utilization of net operating loss carryforwards              -    (42.1)  (35.2)
   Anticipated future utilization of net operating
    loss carryforwards                                      (13.7)   (17.0)  (11.1)
   Net operating loss not producing current tax benefits      2.6      1.3     7.1
   Exempt income of foreign sales corporation                (8.5)    (0.3)   (1.2)
   Worthless stock deduction relating to liquidation
    of foreign subsidiaries                                  (8.5)       -       -
   Other - net                                                0.8      2.6     0.9
                                                            -----   ------   -----
   Total                                                      8.8%  (13.2)%  (0.8)%
                                                            =====   ======   =====
</TABLE>

                                      F-15
<PAGE>
 
   The net deferred tax asset at September 30, 1997, 1996 and 1995 is comprised
   of the following:
<TABLE>
<CAPTION>
  
                                                (IN THOUSANDS)
DEFERRED TAX ASSETS (LIABILITIES)        1997      1996       1995
-------------------------------------  --------  ---------  ---------
<S>                                    <C>       <C>        <C>
   Net operating loss carryforwards    $12,117   $ 12,436   $ 13,334
   Tax credit carryforwards              2,655      2,853      2,651
   Accrued liabilities                   1,131      1,479      1,489
   Inventories                           2,134      2,492      1,206
   Receivables                             398        446        173
   Property and equipment                  (79)      (292)       (44)
   Merger expenses                         271        706        288
   Software development costs           (2,043)      (543)         -
   Other                                    31          -          -
                                       -------   --------   --------
                                        16,615     19,577     19,097
   Less valuation allowance             (7,795)   (11,422)   (15,874)
                                       -------   --------   --------
   Total                               $ 8,820   $  8,155   $  3,223
                                       =======   ========   ========
</TABLE>
   At September 30, 1996, other assets included noncurrent net deferred tax
   assets of $39,000.

   As of September 30, 1997, the Company had Federal net operating loss
   carryforwards of approximately $30,706,000 of which $19,988,000 are subject
   to annual limitations because of the changes in ownership, as defined in the
   Internal Revenue Code.  Such loss carryforwards expire in the fiscal years
   1998 through 2012.  The utilization of the carryforwards to offset future tax
   liabilities is dependent upon the Company's ability to generate sufficient
   taxable income during the carryforward periods.

6. PLANT AND EQUIPMENT

   Plant and equipment at September 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
 
                                                      (IN THOUSANDS)
                                                      1997     1996
                                                     -------  -------
<S>                                                  <C>      <C>
   Machinery and equipment                           $ 6,924  $ 5,439
   Furniture, fixtures and other equipment             8,251    5,645
   Demonstration equipment                             6,278    4,874
   Leasehold improvements                              1,571    1,185
                                                     -------  -------
   Total                                              23,024   17,143
   Less accumulated depreciation and amortization     10,352    7,877
                                                     -------  -------
   Plant and equipment - net                         $12,672  $ 9,266
                                                     =======  =======
</TABLE>

7. OTHER ASSETS
 
Other assets at September 1997 and 1996 consisted of the following:

<TABLE> 
<CAPTION> 
 
                                                                 (IN THOUSANDS)
                                                                   1997     1996
                                                                   ----     ----
<S>                                                           <C>         <C> 
Software development costs, net of accumulated
 amortization of $2,251,000 and $1,289,000, respectively           $7,233   $3,353
Other                                                               1,361      990
                                                                   ------   ------
Total                                                              $8,594   $4,343
                                                                   ======   ======
</TABLE>

                                      F-16
<PAGE>
 
   Certain software development costs totaling $4,842,000 and $2,630,000 have
   been capitalized during the fiscal years ended September 1997 and 1996,
   respectively.  Capitalized software development costs for the fiscal year
   ended September 30, 1997 and 1996 include $848,000 and $1,534,000,
   respectively, of costs related to certain acquired subsidiaries. These
   subsidiaries had not capitalized any software development costs in prior
   years because, prior to their respective acquisitions by the Company, they
   had not utilized detailed program designs in the software development
   process. In general, the software development costs incurred by these
   subsidiaries between the time working models were available and the related
   software projects were released to customers were not material.

   Amortization expense relating to software development costs for 1997, 1996
   and 1995 was $962,000, $551,000 and $325,000, respectively.

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

   Accrued expenses and other current liabilities at September 1997 and 1996
   consisted of the following:
<TABLE>
<CAPTION>
 
                                                        (IN THOUSANDS)
                                                        1997     1996
                                                       -------  -------
<S>                                                    <C>      <C>
   Accrued wages and related employee benefits         $ 4,636  $ 4,408
   Accrued sales commissions                             4,028    3,742
   Accrued warranty and other product related costs        741    1,730
   Other                                                 5,674    2,452
                                                       -------  -------
   Total                                               $15,079  $12,332
                                                       =======  =======
</TABLE>

9. NOTES PAYABLE AND LONG-TERM DEBT

<TABLE>
<CAPTION>
 
Long-term debt at September 1997 and 1996 consisted of the following:

 
                                                               (IN THOUSANDS)
                                                                 1997     1996
                                                                 ----     ----
<S>                                                          <C>         <C> 
RVSI line of credit (a)                                         $ 4,924  $    -
RVSI term loan (a)                                                7,600       -
CI line of credit (b)                                             1,665     759
SEP line of credits, repaid in October 1996                           -   6,400
SEP installment note payable, repaid in October 1996                  -     845
Other borrowings                                                      -     221
                                                                -------  ------
Total long-term debt                                             14,189   8,225
Less current portion of long-term debt                            8,189   8,225
                                                                -------  ------
Long-term debt, net of current portion                          $ 6,000  $    -
                                                                =======  ======
</TABLE>
   a.  On June 27, 1997, RVSI entered into a credit agreement with a bank which
       consisted of an $8,000,000 term loan and a $6,000,000 revolving credit
       facility.  The revolving credit facility was subsequently increased to
       $11,000,000 on December 3, 1997.  The term loan is payable in 60 monthly
       installments of $133,333 and bears interest at 8.05 percent through June
       27, 1999.  Effective June 27, 1999, the interest rate will adjust, at the
       discretion of the Company, to either LIBOR plus 1.75 percent or a fixed
       rate equal to the average yield on a five-year U.S. Treasury security
       plus 2 percent.  The revolving credit facility expires on May 31, 2000
       and borrowings bear interest at LIBOR plus 1.5 percent.  The Company is
       required to pay a commitment fee of one quarter of one percent per annum
       on any unused portion of the credit facility.  Borrowings under the
       credit agreement are secured by substantially all of the Company's assets
       and are guaranteed by all 

                                      F-17
<PAGE>
 
       domestic subsidiaries. The terms of the credit agreement, among other
       matters, require the Company to maintain certain tangible net worth, debt
       to equity, working capital, and debt service coverage ratios and place
       restrictions on additional investments, indebtedness and the payment of
       cash dividends.

   b.  CI has an unsecured line of credit with a domestic bank which provides
       for maximum borrowings of $2,500,000.  Borrowings under this line of
       credit may be made in German Deutschmarks, French Francs, or British
       Pounds and bear interest at various rates dependent upon the currency
       borrowed.  Borrowings under this line of credit are payable on demand.
       The interest rate on borrowings outstanding at September 30, 1997 range
       from 6.5 percent to 8.5 percent.

   Maturities of long-term debt as of September 30, 1997 are as follows:
 
                    YEAR ENDING
                    SEPTEMBER 30,
                    ------------
                         1998              $ 8,189
                         1999                1,600
                         2000                1,600
                         2001                1,600
                         2002                1,200
                                           -------
 
                                           $14,189
                                           =======

10. EMPLOYEE BENEFIT PLANS

 

   DEFINED BENEFIT PLAN -    The Company has a noncontributory pension plan for
   employees who meet certain minimum eligibility requirements. The level of
   retirement benefit is based on a formula which considers both employee
   compensation and length of credited service.

   Plan assets are invested in pooled bank investment accounts, and the fair
   value of such assets is based on the quoted market prices of underlying
   securities in such accounts.  The Company funds pension plan costs based on
   minimum and maximum funding criteria as determined by independent actuarial
   consultants.

   The components of net pension cost for the fiscal years ended September 30,
   1997, 1996 and 1995 are summarized as follows:

                                                           (IN THOUSANDS)
                                                        1997    1996    1995
                                                       ------  ------  ------
   Service cost - benefits earned during the period    $ 272   $ 219   $ 158
   Interest on projected benefit obligations             135      97      83
   Estimated return on plan assets                      (117)    (81)    (56)
   Other - amortization of actuarial gains and
      net transition asset                               (15)    (23)    (20)
                                                       -----   -----   -----
   Net pension cost                                    $ 275   $ 212   $ 165
                                                       =====   =====   =====

                                      F-18
<PAGE>
 
The funded status of the plan compared with the accrued expense included in
the Company's consolidated balance sheet at September 1997 and 1996 is as
follows:

<TABLE>
<CAPTION>
 
                                                                       (IN THOUSANDS)
                                                                       1997     1996
                                                                      -------  -------
<S>                                                                   <C>      <C>
       Fair value of plan assets                                      $1,664   $1,211
                                                                      ------   ------
       Actuarial present value of benefit obligation:
         Accumulated benefit obligation, including vested benefits
           of $318,000 and $965,000 in 1997 and 1996, respectively     1,647    1,246
         Effect of projected compensation increases                      554      350
                                                                      ------   ------
       Projected benefit obligation for services rendered to date      2,201    1,596
                                                                      ------   ------
       Projected benefit obligation in excess of plan assets            (537)    (385)
       Unrecognized net loss                                             358      210
       Remaining unrecognized net transition asset being
         amortized over 11 years                                         (14)     (50)
       Unrecognized prior service costs                                   23       28
                                                                      ------   ------
       Accrued pension cost                                           $ (170)  $ (197)
                                                                      ======   ======
</TABLE>
   Significant assumptions used in determining net periodic pension cost and
   related pension obligations are as follows:

<TABLE>
<CAPTION>
                                                  1997   1996
                                                  -----  -----
<S>                                               <C>    <C>
   Discount rate                                  7.50%  7.50%
   Rate of compensation increase                  4.00%  4.00%
   Expected long-term rate of return on assets    8.25%  8.25%
</TABLE>

   DEFINED CONTRIBUTION PLANS - The Company has three defined contribution plans
   --------------------------                                                   
   (the "Plans") for all eligible employees, as defined by the Plans. The
   Company made matching employer contributions at various percentages in
   accordance with the respective plan documents.  The Company incurred
   $520,000, $242,000 and $183,000 for matching employer contributions to the
   Plans in 1997, 1996 and 1995, respectively.  In 1997, 1996 and 1995, the
   Company issued 9,000, 4,000 and 12,000 shares, respectively, of its common
   stock to one of the Plans related to its prior year contribution.

11. COMMITMENTS AND CONTINGENCIES

   OPERATING LEASES - The Company has entered into operating lease agreements
   ----------------                                                          
   for equipment, and manufacturing and office facilities.  The minimum
   noncancelable scheduled rentals under these agreements are as follows (in
   thousands of dollars):

<TABLE>
<CAPTION>
 
YEAR ENDING SEPTEMBER 30:    FACILITIES  EQUIPMENT    TOTAL
---------------------------  ----------  ---------   -------
<S>                          <C>         <C>        <C>
         1998                $ 2,120       $157      $ 2,277
         1999                  1,752        282        2,034
         2000                  1,582         58        1,640
         2001                  1,190         14        1,204
         2002                    735          4          739
         Thereafter            6,454          1        6,455
                             -------       ----      -------
         Total               $13,833       $516      $14,349
                             =======       ====      =======
</TABLE>

   Rent expense for 1997, 1996 and 1995 was $2,721,000, $1,910,000 and
   $1,698,000, respectively.

   On January 6, 1997, the lessor of SEP's manufacturing facility assigned the
   lease to the former majority shareholder of SEP, in conjunction with the sale
   of this facility to the former majority shareholder.  In addition, the lease
   was amended to include certain capital equipment owned by the former majority

                                      F-19
<PAGE>
 
   shareholder.  SEP began leasing this facility during fiscal 1996.  The base
   annual rental payable under the lease is $605,000.  The lease expires in
   October 2011.

   LITIGATION - During fiscal 1992, the Company instituted an action against
   ----------                                                               
   Cybo Systems, Inc. ("Cybo"), alleging that Cybo breached certain agreements
   between the parties with respect to the sale by the Company to Cybo of all of
   the assets of its welding and cutting systems business.

   In response to the action brought by the Company, Cybo asserted claims
   against the Company alleging, among other things, breach of contract and
   warranties, fraud, bad faith, trespass and conversion.  Cybo is seeking
   aggregate damages in excess of $10,000,000.  The Company believes that Cybo's
   claims are without merit and plans to defend against them vigorously.  The
   Company's management, after discussion with legal counsel, believes that the
   ultimate outcome of this matter will not have a material adverse impact on
   the Company's consolidated financial statements.

   The Company is also presently involved in other litigation matters in the
   normal course of business.  Based upon discussion with Company legal counsel,
   management does not expect that these matters will have a material adverse
   impact on the Company's consolidated financial statements.

12. STOCKHOLDERS' EQUITY

   PRIVATE EQUITY PLACEMENTS - During fiscal 1995, the Company entered into an
   -------------------------                                                  
   agreement with a group of investors.  Under the agreement, the Company
   received approximately $9,386,000, after expenses, in exchange for the
   issuance of 1,110,000 shares of the Company's common stock.  The Company also
   issued warrants exercisable through June 2000 to purchase approximately
   68,000 shares of the Company's common stock at exercise prices ranging from
   $8.75 to $9.00 per share.

   During fiscal 1995, IDM entered into an agreement with a group of investors
   and certain then existing stockholders.  Under the agreement, IDM received
   approximately $1,765,000 after expenses, in exchange for 46,447 shares of
   IDM's common stock (approximately 119,000 equivalent shares of RVSI common
   stock).  IDM used approximately $785,000 of the net proceeds to satisfy
   certain notes payable and related accrued interest and $60,000 of the net
   proceeds to satisfy certain accounts payable.

   WARRANTS ISSUED FOR SERVICES RENDERED - During fiscal 1996, the Company
   -------------------------------------                                  
   issued warrants under certain agreements granting the holders thereof the
   right through September 2000 to purchase up to approximately 50,000 shares of
   the Company's common stock at exercise prices ranging from $12.88 to $25.00
   per share as compensation for professional services rendered.  The Company
   recorded an expense of approximately $74,000 related to the issuance of such
   warrants.

   During fiscal 1995, the Company issued warrants under certain agreements
   granting the holders thereof the right through July 1999 to purchase up to
   approximately 82,000 shares of the Company's common stock at exercise prices
   ranging from $5.81 to $23.38 per share as compensation for professional
   services rendered.  The Company recorded an expense of approximately $92,000
   related to the issuance of such warrants.

   WARRANTS EXERCISED - During fiscal 1997, the Company received approximately
   ------------------                                                         
   $515,000 in connection with the issuance of approximately 91,000 shares of
   its common stock upon the exercise of warrants to purchase such shares at
   prices ranging between $1.00 and $7.67 per share.

   During fiscal 1996, the Company received approximately $1,358,000 in
   connection with the issuance of approximately 1,014,000 shares of its common
   stock upon the exercise of warrants to purchase such shares at prices ranging
   between $1.00 and $9.00 per share.

                                      F-20
<PAGE>
 
   During fiscal 1995, the Company received approximately $492,000 in connection
   with the issuance of approximately 324,000 shares of its common stock upon
   the exercise of warrants to purchase such shares at prices ranging between
   $1.00 and $4.38 per share.

   WARRANTS OUTSTANDING - As of September 30, 1997, there were warrants
   --------------------                                                
   outstanding to purchase approximately 183,000 shares of the Company's common
   stock with exercise prices ranging between $3.75 and $25.00 per share.

   STOCK OPTION PLANS - The Company has several stock option plans which provide
   ------------------                                                           
   for the granting of options to employees or directors at prices and terms as
   determined by the Board of Directors' Stock Option Committee.  Such options
   vest over a period of three to five years.  All options issued by the Company
   to date have exercise prices which were equal to market value of the
   Company's common stock at the date of grant.

   Shares granted and canceled during 1997 include a stock option repricing
   offered by the Company to existing stock option holders of unexercised
   options of each of the Company's stock option plans. All options that were
   granted prior to July 9, 1997 were eligible for replacement. Under the terms
   of the stock options repricing, at the election of the stock option holder,
   stock option holders could surrender their unexercised stock options for a
   proportionately less amount of stock options, based upon a formula, at an
   exercise of $14.13, the fair value of the Company common stock on July 22,
   1997. A total of approximately 1,196,000 options with exercise prices ranging
   from $14.52 to $26.75 were canceled, and approximately 930,000 options were
   reissued at an exercise price of $14.13 per share. Reissued options vest 20
   percent on the six-month anniversary of the replacement date; 20 percent on
   the one-year anniversary of the replacement date; and 20 percent annually
   thereafter until fully vested. The options expire on July 22, 2002. For
   directors and officers of the Company, the options will not become
   exercisable until the earlier of seven years from the replacement date or
   until the market value of the Company's common stock reaches the exercise
   price of the originally replaced option.

   The following table sets forth summarized information concerning the
   Company's stock options:

<TABLE>
<CAPTION>
 
                                                                         NUMBER OF SHARES   EXERCISE
                                                                         (IN THOUSANDS)    PRICE RANGE
                                                                          ------------    -------------
<S>                                                                        <C>           <C>      <C>
   Options outstanding for shares of common stock at October 1, 1994             1,938    0.53     38.72
   Granted                                                                         294    4.25     22.50
   Canceled or expired                                                             (63)   0.53     17.43
   Exercised                                                                      (416)   0.53     17.43
                                                                                ------   -----  -  -----
   Options outstanding for shares of common stock at September 30, 1995          1,753    0.53     38.72
   Granted                                                                       1,798   12.88     26.75
   Canceled or expired                                                            (208)   1.00     22.50
   Exercised                                                                      (498)   0.53     17.43
                                                                                ------   -----  -  -----
   Options outstanding for shares of common stock at September 30, 1996          2,845    0.53     38.72
   Granted                                                                       2,546    8.56     19.00
   Canceled or expired                                                          (1,584)   0.81     38.72
   Exercised                                                                      (293)   0.53     15.34
                                                                                ------   -----  -  -----
   Options outstanding for shares of common stock at September 30, 1997          3,514    0.75     34.42
                                                                                ======   ===============
 
   Shares reserved for issuance at September 30, 1997                              371
                                                                                ======
</TABLE>

                                      F-21
<PAGE>
 
   Weighted average option exercise price information for the years 1997 and
   1996 was as follows:
<TABLE>
<CAPTION>
 
                                        1997    1996
                                       ------  ------
<S>                                    <C>     <C>
   Outstanding at beginning of year    $12.40  $ 4.21
   Granted during the year              13.09   18.20
   Exercised during the year             4.14    2.09
   Canceled, terminated and expired     16.84   16.94
   Exercisable at year end               5.87    4.47
</TABLE>

   Significant option groups outstanding at September 30, 1997 and related
   weighted average price and life information were as follows:

<TABLE>
<CAPTION>
 
                                     WEIGHTED      WEIGHTED                WEIGHTED
                                     AVERAGE        AVERAGE                AVERAGE
   RANGE OF            NUMBER        REMAINING      EXERCISE    NUMBER     EXERCISE
EXERCISE PRICE      OUTSTANDING  CONTRACTUAL LIFE   PRICE    EXERCISABLE    PRICE
--------------      -----------  ----------------  --------  -----------  --------
<S>                 <C>           <C>              <C>        <C>        <C>         
 $  0.75 -  $7.44      724            2.95          $ 3.23        565      $ 2.63
 $  7.56 - $12.75      931            5.48           10.93         69        9.26
 $12.88 - $13.88       595            5.54           13.18         22       13.20
      $14.13           946            6.47           14.13         66       14.13
 $14.19 - $34.42       318            5.36           18.08         66       19.31
                      3,514           5.23          $11.23        788      $ 5.87

</TABLE>

   The Company applies Accounting Principles Board Opinion No. 25, "Accounting
   For Stock Issued To Employees", and selected interpretations in accounting
   for its option plans.  Accordingly, as all options have been granted at
   exercise prices equal to fair market value on the date of grant, no
   compensation expense has been recognized by the Company in connection with
   its stock-based compensation plans.  Had compensation cost for the Company's
   stock option plans been determined based upon the fair value at the grant
   date for awards under these plans consistent with the methodology prescribed
   under Statement of Financial Accounting Standards No. 123, "Accounting For
   Stock-Based Compensation", the Company's net income and earnings per share
   would have been reduced by approximately $5,032,000 and $2,420,000 or $0.23
   and $0.11 per share in 1997 and 1996, respectively.  The weighted average
   fair value of the options granted during 1997 and 1996 is estimated at $7.44
   and $9.76 on the date of grant (using Black-Scholes option pricing model)
   with the following weighted average assumptions for 1997 and 1996,
   respectively:  volatility of 64% and 56%, risk-free interest rate of 5.83%
   and 5.81%, and an expected life of five years in 1997 and 1996.

13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
 
                                           1997
                           ----------------------------------
                            FIRST   SECOND    THIRD    FOURTH
                           QUARTER  QUARTER  QUARTER  QUARTER
                           -------  -------  -------  --------
<S>                        <C>      <C>      <C>      <C>
   Revenues                $35,401  $32,388  $37,930   $46,384
   Gross profit            $17,898  $15,862  $19,390   $22,192
   Net income              $ 2,151  $   918  $ 1,708   $ 3,468
   Net income per share    $  0.10  $  0.04  $  0.08   $  0.16
</TABLE>

                                      F-22
<PAGE>
 
<TABLE>
<CAPTION>
                                                 1996
                                  -----------------------------------
                                   FIRST   SECOND    THIRD    FOURTH
                                  QUARTER  QUARTER  QUARTER  QUARTER
                                  -------  -------  -------  --------
<S>                               <C>      <C>      <C>      <C>
   Revenues                       $36,279  $36,134  $36,083  $35,044
   Gross profit                   $19,072  $18,255  $16,884  $14,660
   Net income (loss)              $ 4,727  $ 3,888  $ 2,857  $(1,746)
   Net income (loss) per share    $  0.22  $  0.18  $  0.13  $ (0.08)
</TABLE>

   During the quarter ended September 30, 1996, the Company capitalized
   approximately $590,000 of software development costs which should have been
   capitalized during the first three quarters of the fiscal year ended
   September 30, 1996.

   During the quarter ended June 30, 1996, SEP became aware of a significant
   problem with the performance of one of its products. The Company's management
   believes it has resolved this problem and has implemented the necessary
   design changes. As a result, SEP recorded inventory, warranty and accounts
   receivable reserves of approximately $1.8 million and $1.1 million in the
   third and fourth quarters of fiscal 1996, respectively, relating to the
   correction of this problem.

   The quarterly net income per share information is computed separately for
   each period.  Therefore, the sum of such quarterly per share amounts may
   differ from the total for the year.

14. MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS

   The Company grants credit to customers who are primarily in the semiconductor
   industry. During 1997 and 1996, revenues from a single customer represented
   16 percent and 13 percent of total revenues, respectively.  No other customer
   accounted for more than 10 percent of total revenues for fiscal 1997, 1996
   and 1995.

15. GEOGRAPHIC OPERATIONS

   For the purposes of segment reporting, management considers the Company to
   operate in one industry, the machine vision industry.  Operations in this
   business segment by geographic area are summarized as follows (in thousands
   of dollars):
<TABLE>
<CAPTION>
                                                              UNITED STATES       EUROPE   ELIMINATIONS   CONSOLIDATED
                                                              -------------       ------   ------------   ------------
   YEAR ENDED SEPTEMBER 30, 1997:
   ------------------------------
<S>                                                       <C>                     <C>       <C>            <C>
   Revenues from unaffiliated customers                        $135,291           $16,812        $    -       $152,103
   Transfers between geographic areas                             4,611                 -         (4,611)             -
                                                               --------           -------        -------       --------
   Total revenues                                              $139,902           $16,812        $(4,611)      $152,103
                                                               --------           -------        -------       --------
   Income (loss) before income tax benefit (provision)         $  9,764           $  (721)       $    (6)      $  9,037
                                                               --------           -------        -------       --------
   Identifiable assets                                         $119,323           $ 8,451        $(4,976)      $122,798           
                                                               --------           -------        -------       --------
   Corporate assets                                                                                            $  3,933  
                                                                                                               --------
   Total assets at September 30, 1997                                                                          $126,731
                                                                                                               --------
   YEAR ENDED SEPTEMBER 30, 1996:
   ------------------------------
   Revenues from unaffiliated customers                        $127,314           $16,226        $     -       $143,540
   Transfers between geographic areas                             4,128               240         (4,368)             -
                                                               --------           -------        -------       --------
   Total revenues                                              $131,442           $16,466        $(4,368)      $143,540
                                                               --------           -------        -------       --------
   Income (loss) before income tax benefit (provision)         $  8,726           $  (201)       $    69       $  8,594
                                                               --------           -------        -------       --------
   Identifiable assets                                         $ 83,121           $ 7,085        $(8,143)      $ 82,063
                                                               --------           -------        -------       --------
   Corporate assets                                                                                              14,922
                                                                                                               --------
   Total assets at September 30, 1996                                                                          $ 96,985
                                                                                                               ========
</TABLE> 

                                      F-23
<PAGE>
 
<TABLE> 
<CAPTION> 

   YEAR ENDED SEPTEMBER 30, 1995:
   ------------------------------
<S>                                                         <C>                <C>            <C>           <C> 
   Revenues from unaffiliated customers                        $105,363           $16,762        $     -       $122,125
   Transfers between geographic areas                             5,050               110         (5,160)             -
                                                               --------           -------        -------       --------
   Total revenues                                              $110,413           $16,872        $(5,160)      $122,125
                                                               --------           -------        -------       --------
   Income (loss) before income tax benefit (provision)         $ 10,973           $    65        $  (135)      $ 10,903
                                                               --------           -------        -------       --------
   Identifiable assets                                         $ 61,930           $ 7,465        $(6,985)      $ 62,410
                                                               --------           -------        -------       --------
   Corporate assets                                                                                              16,296
                                                                                                               --------
   Total assets at September 30, 1995                                                                          $ 78,706
                                                                                                               ========
</TABLE>

   Total revenues to customers outside the U.S. were $104,222,000, $92,957,000
   and $79,334,000 for the years ended September 30, 1997, 1996 and 1995,
   respectively.

   Export sales from the Company's United States operations to unaffiliated
   customers were as follows:
<TABLE>
<CAPTION>
 
                                 (IN THOUSANDS)
                             YEAR ENDED SEPTEMBER 30,
                             -----------------------
                              1997     1996     1995  
                              ----     ----     ----  
<S>                          <C>      <C>      <C>    
Europe                       $16,413  $ 9,160  $ 8,665
Asia/Pacific Rim              69,082   66,398   53,609
Other                          1,915    1,173      298
                             -------  -------  -------
Total                        $87,410  $76,731  $62,572
                             =======  =======  ======= 
</TABLE>
                                 * * * * * * *

                                      F-24
<PAGE>
 
                 ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
                 ---------------------------------------------

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
 
 
                                   COLUMN A    COLUMN B    COLUMN C    COLUMN D   COLUMN E
                                   ----------  ----------  ----------  ----------  ---------
                                                      ADDITION
                                                     ----------
                                                            CHARGED TO
                                    BALANCE AT  CHARGED TO    OTHER                  BALANCE
                                    BEGINNING    COST AND    ACCOUNTS   DEDUCTIONS  AT END OF
      DESCRIPTIONS                  OF PERIOD    EXPENSES   - DESCRIBE  - DESCRIBE   PERIOD
--------------------                ----------  ----------  ----------  ----------  ---------
 

YEAR ENDED SEPTEMBER 30, 1997:
<S>                                  <C>         <C>        <C>         <C>         <C>
 Allowance for doubtful accounts      $1,300    $  324       $   -  (1)   $ 608  (2)   $1,016
                                      ------    ------       ------       -----        ------
 Reserve for excess and
  obsolete inventory                  $3,410    $1,089                    $ 782  (2)   $3,103
                                      ------    ------                    -----        ------

YEAR ENDED SEPTEMBER 30, 1996:
 Allowance for doubtful accounts      $  519    $  882       $   6  (1)   $  107 (2)   $ 1,300
                                      ------    ------       ------       ------       -------
 Reserve for excess and                                  
  obsolete inventory                  $  957    $2,602                    $  149 (2)   $ 3,410
                                      ------    ------                    ------       --------
                                                         
YEAR ENDED SEPTEMBER 30, 1995:                           
 Allowance for doubtful accounts      $  605    $  113       $    8  (1)  $  207 (2)   $   519
                                      ------    ------       ------       ------       -------
 Reserve for excess and                                  
  obsolete inventory                  $1,034    $  280                    $  357 (2)   $   957
                                      ------    ------                    ------       -------     

</TABLE> 

(1)  Recoveries of accounts written off.
(2)  Amounts written off.

                                      F-25