-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqE2DvxhakXPAeCinNZmwuFjdKr/x/0fTj1cHSCjQSY50vQy2FCCpKB5jDpfMJBZ OzVcfGFx2/7u8x5WoD/B2Q== 0000795445-97-000020.txt : 19971031 0000795445-97-000020.hdr.sgml : 19971031 ACCESSION NUMBER: 0000795445-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED MACHINE VISION CORP CENTRAL INDEX KEY: 0000795445 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 330256103 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20097 FILM NUMBER: 97703245 BUSINESS ADDRESS: STREET 1: 2067 COMMERCE DR CITY: MEDFORD STATE: OR ZIP: 97504 BUSINESS PHONE: 5417767700 MAIL ADDRESS: STREET 1: 2067 COMMERCE DR CITY: MEDFORD STATE: OR ZIP: 97504 FORMER COMPANY: FORMER CONFORMED NAME: ARC CAPITAL DATE OF NAME CHANGE: 19951222 FORMER COMPANY: FORMER CONFORMED NAME: APPLIED LASER SYSTEMS /CA DATE OF NAME CHANGE: 19930825 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 09-30-97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 Commission File No. 0-20097 ADVANCED MACHINE VISION CORPORATION A California Corporation IRS Employer Identification No. 33-0256103 2067 Commerce Drive Medford, OR 97504 Telephone: (541) 776-7700 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 |_| On September 30, 1997, registrant had 10,503,217 shares of Class A Common Stock, and 93,502 shares of Class B Common Stock, all no par value, issued and outstanding. Exhibit Index at Page 20 i INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets .........................................1 Consolidated Statements of Operations ...........................2 - 3 Consolidated Statements of Cash Flows ...............................4 Notes to Unaudited Consolidated Financial Statements ...........5 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .........................12 - 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings .............................................19 - 20 Item 6. Exhibits and Reports on Form 8-K ...................................20 Signature ..........................................................20 ii PART I. FINANCIAL INFORMATION ============================= Item 1. Financial Statements - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Balance Sheets - --------------------------------------------------------------------------------
September 30, December 31, 1997 1996 -------------- ------------- (unaudited) (audited) ASSETS ====== Current assets: Cash and cash equivalents $ 5,581,000 $ 1,909,000 Accounts receivable, net 3,248,000 4,979,000 Inventories 5,338,000 8,132,000 Prepaid expenses 72,000 391,000 ------------- ------------- Total current assets 14,239,000 15,411,000 Property, plant and equipment, net 4,501,000 6,488,000 Intangible assets, net 5,699,000 7,876,000 Other assets 859,000 1,163,000 ------------- ------------- $ 25,298,000 $ 30,938,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY ==================================== Current liabilities: Accounts payable $ 1,281,000 $ 1,897,000 Short-term borrowings -- 947,000 Accrued liabilities 1,178,000 1,299,000 Customer deposits 1,878,000 2,463,000 Accrued payroll 1,347,000 707,000 Warranty reserve 407,000 479,000 Current portion of notes payable 25,000 1,706,000 ------------- ------------- Total current liabilities 6,116,000 9,498,000 ------------- ------------- Notes payable, less current portion 8,351,000 14,940,000 ------------- ------------- Commitments and contingencies Shareholders' equity: Common stock: Class A - no par value, one vote per share: 60,000,000 shares authorized, 10,503,000 and 11,140,000 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 24,144,000 25,648,000 Class B - no par value, one vote per share: 3,000,000 shares authorized, 94,000 and 110,000 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 62,000 72,000 Common stock warrants 2,197,000 2,403,000 Additional paid in capital 2,822,000 2,797,000 Accumulated deficit (18,394,000) (24,370,000) Cumulative translation adjustment -- (50,000) ------------- ------------- Total shareholders' equity 10,831,000 6,500,000 ------------- ------------- $ 25,298,000 $ 30,938,000 ============= =============
See Accompanying Notes to Unaudited Consolidated Financial Statements. 1 - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Operations - --------------------------------------------------------------------------------
Three Months Ended September 30, -------------------------------- 1997 1996 ---- ---- (unaudited) Net sales $ 5,861,000 $ 10,097,000 Cost of sales 2,832,000 5,003,000 ------------ ------------ Gross profit 3,029,000 5,094,000 ------------ ------------ Operating expenses: Selling and marketing 1,089,000 1,539,000 Research and development 1,029,000 988,000 General and administrative 581,000 1,093,000 Amortization of intangible assets 174,000 180,000 ------------ ------------ 2,873,000 3,800,000 ------------ ------------ Income (loss) from operations before other income and expense 156,000 1,294,000 Other income and expense: Investment and other income 106,000 35,000 Interest expense (428,000) (344,000) ------------ ------------ Income (loss) before income taxes (166,000) 985,000 Provision for (benefit from) income taxes (6,000) -- ------------ ------------ Net income (loss) $ (160,000) $ 985,000 ============ ============ Earnings (loss) per share (Note 5) $ (0.01) $ 0.07 =========== ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. 2 - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Operations - --------------------------------------------------------------------------------
Nine Months Ended September 30, ------------------------------- 1997 1996 ---- ---- (unaudited) Net sales $ 22,805,000 $ 20,129,000 Cost of sales 11,236,000 10,958,000 ------------ ------------ Gross profit 11,569,000 9,171,000 ------------ ------------ Operating expenses: Selling and marketing 3,772,000 3,230,000 Research and development 2,980,000 2,931,000 General and administrative 2,425,000 3,157,000 Amortization of intangible assets 555,000 374,000 Charge for acquired in-process technology -- 4,915,000 Charge for royalty expense -- 647,000 ------------ ------------ 9,732,000 15,254,000 Income (loss) from operations before other income and expense 1,837,000 (6,083,000) Other income and expense: Gain on sale of Pulsarr 4,989,000 -- Investment and other income 275,000 139,000 Interest expense (1,084,000) (768,000) ------------ ------------ Income (loss) before income taxes 6,017,000 (6,712,000) Provision for income taxes 41,000 -- ------------ ------------ Net income (loss) $ 5,976,000 $ (6,712,000) ============ ============ Earnings (loss) per share (Note 5) $ 0.29 $ (0.61) =========== ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. 3 - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Nine Months Ended September 30, --------------------------------- 1997 1996 ---- ---- (unaudited) Cash flows from operating activities: Net (loss) income $ 5,976,000 $ (6,712,000) Adjustments to reconcile net income (loss) to net cash used in operating activities: Gain on sale of Pulsarr (4,989,000) -- Charge for acquired in-process technology -- 4,915,000 Charge for royalty expense -- 247,000 Charge for deferred debt issuance costs 233,000 -- Depreciation and amortization 963,000 825,000 Changes in assets and liabilities (net of amounts purchased in acquisition): Accounts receivable (527,000) (725,000) Inventories (657,000) (1,660,000) Prepaid expenses and other assets (111,000) (548,000) Accounts payable, short-term borrowings, accrued liabilities, customer deposits, accrued payroll, and warranty reserve 2,034,000 1,940,000 ------------ -------------- Net cash (used in) provided by operating activities 2,922,000 (1,718,000) ------------ -------------- Cash (used in) provided by investing activities: Proceeds from the sale of Pulsarr 7,010,000 -- Acquisition of Pulsarr/Ventek -- (5,797,000) Purchases of property and equipment (533,000) (1,515,000) ------------ -------------- Net cash provided by (used in) investing activities 6,477,000 (7,312,000) ------------ -------------- Cash (used in) provided by financing activities: Notes payable to bank and others, net (3,779,000) 4,690,000 Proceeds from (repurchase of) common stock (1,962,000) 1,971,000 Proceeds from exercise of stock options 14,000 65,000 Debt issuance costs -- (400,000) ------------ -------------- Net cash provided by financing activities (5,727,000) 6,236,000 ------------ -------------- Net (decrease) increase in cash 3,672,000 (2,704,000) Cash and cash equivalents, beginning of the period 1,909,000 4,171,000 ------------ -------------- Cash and cash equivalents, end of the period $ 5,581,000 $ 1,467,000 ============ ==============
See Accompanying Notes to Unaudited Consolidated Financial Statements. 4 ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. Principles Of Consolidation - -------------------------------- In the opinion of the management of Advanced Machine Vision Corporation (the "Company" or "AMV"), the accompanying consolidated financial statements, which have not been audited by independent accountants (except for the balance sheet as of December 31, 1996), reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position at September 30, 1997, and December 31, 1996, the results of operations and cash flows for the three- and nine-month periods ended September 30, 1997 and 1996. The financial statements include the accounts of the Company and its four wholly-owned subsidiaries, Applied Laser Systems, Inc. ("ALSO"), SRC VISION, Inc. ("SRC"), ARC Netherlands BV and its respective subsidiary, Pulsarr Holding BV ("Pulsarr") from its March 1, 1996 acquisition date to its May 6, 1997 disposition date, and Ventek, Inc. ("Ventek") from its July 24, 1996 acquisition date (see Note 6 regarding the sale of Pulsarr). The Company's current operating subsidiaries are SRC and Ventek. Certain notes and other information are condensed or omitted in the interim financial statements presented in this Quarterly Report on Form 10-Q. These financial statements should be read in conjunction with the Company's 1996 annual report on Form 10-K. 2. Nature Of Operations - ------------------------- In February 1994, the Company acquired all of the issued and outstanding capital stock of SRC for $8.1 million in cash. In March 1996, the Company acquired all of the issued and outstanding stock of Pulsarr for cash of $6.5 million and notes payable of $1.3 million (see Note 6 regarding the sale of Pulsarr for $8.4 million in cash in May 1997). In July 1996, the Company acquired the business and certain assets of Ventek, subject to certain liabilities, for $5.1 million in notes and other securities. The operations of each of the three acquired entities are included in the consolidated financial results since their respective acquisition dates. Through its subsidiaries, the Company designs, manufactures and markets computer-aided vision defect detection and sorting and defect removal equipment for use in a variety of industries, including food processing, wood products and recycling. The Company's systems combine optical and mechanical systems technologies to perform diverse scanning, analytical sensing, measuring and sorting applications on a variety of products such as food, wood and plastic. The Company sells its products throughout the world. 3. Financing - -------------- In April 1995, the Company borrowed $2,160,000 pursuant to a convertible subordinated secured note. Interest on the note was 10.25% and was payable semi-annually. The note was secured by the issued and outstanding capital stock of SRC. The note was convertible into the Company's Class A Common Stock at $1.875 per share. In connection with the borrowing, the Company paid a finders fee of $160,000 and issued 300,000 warrants to purchase Class A Common Stock at $1.875 per share. In October 1996 and March 1997, $645,000 and $250,000 principal amounts of the note were converted by the debtholders into 344,000 and 133,000 shares of Class A Common Stock. The remaining principal amount of $1,265,000 was paid in April 1997. In August 1997, the warrants were repurchased by the Company (see Note 4). In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured note. Interest on the note was 6.75% and is payable quarterly. The interest rate may be adjusted upward on each anniversary date of the note if the market price of the Company's Class A Common Stock fails to reach certain levels. In April 1997, the interest rate was adjusted to 9.75%. The maximum possible coupon interest rate is 11.25% if none of the market price thresholds are met. The note is secured by 54% of the stock of ARC Netherlands BV. The note is convertible into the Company's Class A Common Stock at $2.125 per share. In connection with the borrowing, the Company paid a finders fee of $400,000 and issued 340,000 warrants to purchase Class A Common Stock at $2.125 per share. In August and September 1997, AMV repurchased the warrants and paid off $2,500,000 of this note leaving $900,000 outstanding, which is due in April 2001 (see Note 4). In conjunction with this early pay-off, AMV wrote off $233,000 of deferred debt issuance costs. This amount is included in interest expense on the accompanying Consolidated Statement of Operations. In July 1996, AMV issued the following notes in connection with the acquisition of Ventek: (i) the 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75% $2,250,000 note due July 23, 1999 convertible into the Company's Class A Common Stock at $2.25 per share; and (iii) a $1,125,000 note and stock appreciation rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock or at the Company's option, in cash on July 23, 1999, or (b) solely in cash in the event AMV Common Stock is delisted from the Nasdaq Stock Market. The $1,125,000 note and stock appreciation rights payable were valued at $1,529,000 on the acquisition date based upon an independent appraisal received by the Company. All three notes are secured by all of the issued and outstanding shares of Ventek. 4. Stock Transactions; Shares Eligible For Future Sale; Effect Of Warrants, Options And Convertible Securities; Possible Dilution - ---------------------------------------------------------- On February 15, 1996, the Company redeemed all 497,094 shares of its Class E Common Stock for nominal consideration. Also on that date, the 3,002,906 Class E Warrants to purchase Class A Common Stock ceased to exist because escrow conditions related to the warrants were not met. In March 1996, the Company sold 1,400,000 shares of its Class A Common Stock in a private Regulation S offering to foreign investors at $1.625 per share, the market price on the date the related Subscription Agreement was entered into. In connection with the private placement, the Company paid finders fees and other costs of approximately $700,000 and issued 240,000 warrants to purchase Class A Common Stock at $2.00 per share. In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to retain the services of selected employees, officers and directors of the Company and provide them with strong incentives to enhance the Company's growth. The total number of shares of Class A Common Stock issuable under the 1997 Plan shall not exceed 2,000,000. In January 1997, the Company's Board of Directors awarded 2,000,000 shares of restricted Class A Common Stock to three key employees of the Company. As to 10% of the stock (the "10% Shares"), such shares cannot be traded or transferred unless (i) the employee remains in the employ of the Company until January 10, 2000 and (ii) a payment of $1.80 per share is made by the employee to AMV. As to 90% of the stock (the "90% Shares"), such stock cannot be traded or transferred unless, in addition to the conditions in the prior sentence, the market price of the stock as quoted by Nasdaq or other applicable stock exchange for any 30 consecutive days prior to the third anniversary date of the award is at least $20 per share. On September 25, 1997, the three key employees contributed back to the Company the 90% Shares (1,800,000 shares) which were canceled. If any of the conditions are not met with respect to the outstanding 10% Shares, the related shares of stock will be forfeited and returned to the Company. On March 8, 1997, April 1, 1997 and August 2, 1997, 188,400 Unit Purchase Options originally issued in connection with the Company's 1992 initial public offering, 135,000 Laidlaw warrants and 300,000 Gerinda warrants, respectively, expired unexercised. In August 1997, the Company purchased 1,001,640 shares of its Class A Common Stock, 300,000 Class F Warrants and 340,000 Class H Warrants in a private transaction for $1.9 million. In September 1997, the Company purchased at par $2.5 million of the $3.4 million outstanding 6.75% Convertible Note. Schedule of Outstanding Stock, Warrants, Units and Potential Dilution: The following table summarizes, as of September 30, 1997, outstanding common stock, potential dilution to the outstanding common stock upon exercise of warrants and conversion of convertible debt, and proforma proceeds from the exercise of warrants. The table also sets forth the exercise or conversion prices and warrant expiration and debt due dates.
Proforma Number or Principal Class A Common Proceeds Amount Outstanding Conversion Stock After Conversion or Debt Security at September 30, 1997 Factor Conversion Price Reduction ------------------ --------------------- ---------- -------------- ---------- --------- Common Stock: Class A 10,503,217 Class B 93,502 ------------- Total currently outstanding 10,596,719 Warrants (expiration date): A (3/9/98) 2,941,963 1.4 4,118,748 $ 2.84 $ 11,697,000 B (3/9/98) 4,354,863 (A) 1.4 6,096,808 4.17 25,424,000 C (3/9/98) 846,250 1.4 1,184,750 2.21 2,618,000 D (6/30/98-7/31/98) 275,000 1 275,000 2.75 756,000 G (2/28/99) 240,000 1 240,000 2.00 480,000 I (7/23/01) 1,000,000 (B) 1 1,000,000 2.25 2,250,000 J (9/30/99) 300,000 1 300,000 2.03 608,000 ------------- --------------- 13,215,306 43,833,000 ------------- --------------- Convertible Debt (due date): 6.75% Notes (4/16/01) 900,000 423,529 2.13 900,000 6.75% Ventek Note (7/23/99) 2,250,000 1,000,000 2.25 2,250,000 Ventek Note (7/23/99) 1,529,000 (B) 1,800,000 1,529,000 ------------- --------------- 3,223,519 4,679,000 ------------- --------------- Potentially outstanding shares and proforma proceeds and reduction of debt 27,035,554 $ 48,512,000 ============= =============== (A) Includes 1,412,900 outstanding plus 2,941,963 assuming exercise of the Class A Warrants. (B) The Company issued the $1,529,000 note and Class I Warrant in connection with the Ventek acquisition (see Note 5). The note is payable (a) at the Company's option, in cash or by delivery of up to 1,800,000 shares of Class A Common Stock on the third anniversary date of the note; or (b) solely in cash in the event AMV Common Stock is delisted from the Nasdaq Stock Market. The Warrant vests 25% in each of the next four years if sales and earnings objectives are achieved.
The proforma amounts above are for illustrative purposes only. Unless the market price of AMV's Class A Common Stock rises significantly above the exercise or conversion prices, it is unlikely that any warrants will be exercised or that the debt will be converted. In September 1997, the Company adopted the 1997 Nonqualified Stock Option Plan covering 500,000 shares of Class A Common Stock. On September 30, 1997, AMV had outstanding options to purchase 3,641,000 shares of Class A Common Stock, 3,149,000 of which are under its stock option plans. The existence of these outstanding warrants, options, and convertible debt, including those granted or to be granted under AMV's Stock Option Plans or otherwise, and potentially issuable shares pursuant to antidilution provisions of warrant agreements could adversely affect AMV's ability to obtain future financing. The price which AMV may receive for the Class A Common Stock issued upon exercise of options and warrants, or amount of debt forgiven in the case of conversion of debt, may be less than the market price of Class A Common Stock at the time such options and warrants are exercised or debt is converted. For the life of the warrants, options and convertible debt, the holders are given, at little or no cost, the opportunity to profit from a rise in the market price of their Class A Common Stock without assuming the risk of ownership. Moreover, the holders of the options and warrants might be expected to exercise them at a time when AMV would, in all likelihood, be able to obtain needed capital by a new offering of its securities on terms more favorable than those provided for by the options and warrants. 5. Earnings (Loss) Per Share - ------------------------------ Earnings (loss) per share is computed based on the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of the shares relating to a note and stock appreciation right agreement, options and warrants. As Advanced Machine Vision Corporation has outstanding options and warrants which, in the aggregate, exceed 20% of the common stock currently outstanding (see Note 4), AMV is required to follow the provisions of Accounting Principles Board (APB) Opinion No. 15, paragraph 38, in calculating earnings per share, if dilutive. APB 15, paragraph 38, assumes the aggregate exercise of all options and warrants and certain other computations. The assumed exercise of all of AMV's options and warrants would result in the aggregate proceeds of approximately $51,426,000 as of September 30, 1997. These proceeds are then assumed to be used in the following order: a) Repurchase up to 20% of the number of AMV common shares currently outstanding. b) Reduce all short-term and long-term borrowings. c) Invest the remaining proceeds in US government securities or commercial paper. The computation of primary loss per share for the three months ended September 30, 1997, and the nine months ended September 30, 1996, as required by APB Opinion No. 15, paragraph 38, was not dilutive and therefore, the net loss, as reported, and the weighted average shares outstanding of 12,665,000 and 10,998,000, respectively, were used in calculating loss per share. The computation of primary earnings per common share for the three months ended September 30, 1996 and the nine months ended September 30, 1997 is as follows:
Three Months Ended Nine Months Ended September 30, 1996 September 30, 1997 ------------------ ------------------ Net income as reported $ 985,000 $ 5,976,000 Reduction in interest expense accreted to a non-interest bearing note and stock appreciation rights agreement payable by the issuance of up to 1,800,000 shares of Class A Common Stock or, at AMV's option, in cash in three years 25,000 75,000 Reduction in interest expense as the result of the assumed retirement of all short-term and long-term borrowing 318,000 779,000 Increase in interest income as the result of the investment of excess cash generated from the assumed exercise of all options and warrants 593,000 1,163,000 ------------- ------------- Net income $ 1,922,000 $ 7,993,000 ============= ============= Earnings per share $ 0.07 $ 0.29 ============= =============
Three Months Ended Nine Months Ended September 30, 1996 September 30, 1997 ------------------ ------------------ Weighted average shares outstanding: Common stock 10,887,000 11,382,000 Reduction for contingently returnable shares as all conditions were not met as of period end -- (200,000) Shares relating to a note and stock appreciation rights agreement, issued on July 24, 1996 1,330,000 1,800,000 Assumed aggregate exercise of all stock options and warrants 19,191,000 16,810,000 Assumed repurchase of common shares, limited to 20% of currently outstanding common shares (2,178,000) (2,119,000) ------------- ------------- Shares used in calculations 29,230,000 27,673,000 ============= =============
Fully diluted and primary earnings (loss) per share are the same amounts for each period presented. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). The changes required by FAS 128 adjust the calculation of earnings per share (EPS) under generally accepted accounting principles in the U. S. to be more consistent with international standards. Under the new standard, companies will replace the reporting of "primary" EPS with "basic" EPS. Basic EPS is calculated by dividing the income available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. "Fully diluted" EPS will be replaced by "Diluted" EPS. Diluted EPS is computed similarly to fully diluted EPS under the provisions of APB Opinion No. 15. FAS 128 will be effective for periods ending after December 15, 1997 and early application is not permitted. However, proforma EPS amounts computed pursuant to FAS 128 are permitted and are shown below. The EPS amounts computed above in accordance with APB 15 will be adjusted as of December 15, 1997, to the amounts shown in the following table.
Proforma -------------------------------------------------------------------------------- For the Quarter Ended September 30, -------------------------------------------------------------------------------- 1997 1996 -------------------------------------- --------------------------------------- Per Income Per Income Shares Share (Loss) Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------ ------------- ------- ------------ ------------- ------- Basic EPS: Income (loss) available to common shareholders $ (160,000) 11,065,000 $ 985,000 10,887,000 Reduction for contingently returnable shares as all conditions were not met as of period end -- (200,000) -- -- ----------- ------------ ------------ ----------- Income (loss) available to common shareholders $ (160,000) 10,865,000 $(0.01) $ 985,000 10,887,000 $ 0.09 ====== ======= Effect of Dilutive Securities: Note and stock appreciation rights agreement -- -- 25,000 1,330,000 Stock options -- -- -- 569,000 Convertible debt -- -- 187,000 4,190,000 ----------- ------------ ------------ ----------- Diluted EPS: Income (loss) available to common shareholders and assumed conversions $ (160,000) 10,865,000 $(0.01) $ 1,172,000 16,976,000 $ 0.07 =========== ============ ====== ============ =========== =======
Proforma -------------------------------------------------------------------------------- For the Nine Months Ended September 30, -------------------------------------------------------------------------------- 1997 1996 -------------------------------------- --------------------------------------- Per Income Per Income Shares Share (Loss) Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------ ------------- ------- ------------ ------------- ------- Basic EPS: Income (loss) available to common shareholders $ 5,976,000 11,382,000 $ (6,712,000) 10,551,000 Reduction for contingently returnable shares as all conditions were not met as of period end -- (200,000) -- -- ----------- ------------ ------------ ----------- Income (loss) available to common shareholders $ 5,976,000 11,182,000 $ 0.53 $ (6,712,000) 10,551,000 $ (0.64) ====== ======= Effect of Dilutive Securities: Note and stock appreciation rights agreement 75,000 1,800,000 -- -- Stock options -- 973,000 -- -- Convertible debt 189,000 1,422,000 -- -- ----------- ------------ ------------ ----------- Diluted EPS: Income (loss) available to common shareholders and assumed conversions $ 6,240,000 15,377,000 $ 0.41 $ (6,712,000) 10,551,000 $ (0.64) =========== ============ ====== ============ =========== =======
Options to purchase 820,000 shares of common stock between $2.03 and $4.94 and warrants to purchase 13,212,000 shares of common stock between $2.03 and $4.17 were not included in the computation of Diluted EPS because such options' and warrants' exercise prices were greater than the average market price of the common shares. In summary, EPS computed under the APB 15 and FAS 128 methods for the three and nine months ended September 30, 1997 are as follows:
Computation Before Computation After December 15, 1997 December 15, 1997 ------------------------------- -------------------------------- Three Months Nine Months Three Months Nine Months ended ended ended ended September 30, September 30, September 30, September 30, 1997 1997 1997 1997 --------------- ------------- ------------- ------------- Primary or Basic EPS $(0.01) $ 0.29 $(0.01) $ 0.53 Fully Diluted or Diluted EPS $(0.01) $ 0.29 $(0.01) $ 0.41
6. Acquisitions Of Pulsarr and Ventek - --------------------------------------- On March 1, 1996, the Company acquired all of the outstanding capital stock of Pulsarr for cash of $6.5 million and notes payable of $1.3 million. On July 24, 1996, the Company acquired certain assets and the business of Ventek, subject to certain liabilities, for approximately $5.1 million in notes and other securities. These acquisitions are accounted for under the purchase method of accounting. The consolidated results of operations include Pulsarr's and Ventek's results of operations from their respective acquisition dates. On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of Belgium for $8.4 million in cash, resulting in a gain of approximately $5.0 million. The sale resulted in net cash proceeds to AMV of approximately $7 million and a reduction of current and long-term debt of approximately $4.6 million. The gain on the sale of Pulsarr is largely a result of the previous reduction in the carrying value of AMV's investment in Pulsarr due to the $4.9 million charge for acquired in-process technology the Company recorded in the quarter ended March 31, 1996 in conjunction with this acquisition. The proforma condensed combined statements of operations, shown below as supplemental information, assume (i) that the acquisition of Ventek occurred as of the beginning of the 1996 three- and nine-month periods, and (ii) that Pulsarr was sold at the beginning of such periods. However, the proforma combined balances are not necessarily indicative of balances which would have resulted had the acquisition and divestiture occurred as of the beginning of such three- and nine-month periods presented. Proforma condensed combined statements of operations are presented below:
Three months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 --------------- ------------- ------------- ------------- Sales $ 5,861,000 $ 7,065,000 $ 20,247,000 $ 17,564,000 ============== ============= ============= ============= Gross profit $ 3,029,000 $ 4,032,000 $ 10,651,000 $ 9,687,000 ============== ============= ============= ============= Net income (loss) $ (160,000) $ 983,000 $ 975,000 $ 142,000 ============== ============= ============= ============= Earnings (loss) per share $ (0.01) $ 0.07 $ 0.08 $ 0.01 ============= ============= ============ =============
7. Inventories - ---------------- Inventories are stated at the lower of cost or market and include material, labor and related manufacturing overhead. The Company determines cost based on the first-in, first-out (FIFO) method. Inventories consisted of: September 30, December 31, 1997 1996 ------------- ------------- Raw materials $ 1,491,000 $ 2,662,000 Work-in-process 1,889,000 2,234,000 Finished goods 1,958,000 3,236,000 ------------- ------------- $ 5,338,000 $ 8,132,000 ============= ============= 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------- On March 1, 1996, the Company acquired Pulsarr. On July 24, 1996, the Company acquired Ventek. The discussion below pertains to the operations of AMV with Pulsarr and Ventek included from their respective acquisition dates. In May 1997, May 1997, the Company sold Pulsarr for $8.4 million in cash (see Liquidity and Capital Resources below). The Company's backlog at September 30, 1997, was $7,655,000 compared to $13,598,000 as of September 30, 1996. After excluding Pulsarr, backlog was $10,899,000 at September 30, 1996. The 1997 backlog is expected to be shipped within nine months. Results of Operations - Comparison between three months ended September 30, 1997 and September 30, 1996 Sales for the three months ended September 30, 1997 ("Q3 1997") were $5,861,000, down 42% when compared to sales for the three months ended September 30, 1996 ("Q3 1996") of $10,097,000. Sales for Q3 1996 included Pulsarr sales of $3,032,000, whereas sales for Q3 1997 did not include any sales for Pulsarr due to its sale in May 1997. The remaining decrease in sales relates primarily to reduced sales at Ventek. Cost of sales was 48% of sales in Q3 1997 and 50% in Q3 1996. Gross profit decreased by 41% to $3,029,000 in Q3 1997 when compared to $5,094,000 of gross profit in Q3 1996. In Q3 1997, gross profit was 52% of sales as compared to 50% in Q3 1996. The increase in gross profit as a percentage of sales is due to the exclusion of the lower margin Pulsarr products during Q3 1997 versus their inclusion during Q3 1996. Selling and marketing expense decreased 29% in Q3 1997 from Q3 1996 to $1,089,000 amounting to 19% of sales in Q3 1997. Similar expenses in Q3 1996 were $1,539,000, or 15% of sales. The increase in selling and marketing expenses as a percent of sales is the result of increased commissions and general marketing activities during the quarter. The overall decrease in dollars expended for selling and marketing in Q3 1997 was due to the sale of Pulsarr. Research and development expenses were $1,029,000 and $988,000 in Q3 1997 and Q3 1996, or 18% and 10% of sales, respectively. As a percentage of sales, the increased level of research and development in Q3 1997 was due to a lower sales base. General and administrative expenses decreased $512,000 to $581,000 in Q3 1997 from $1,093,000 in Q3 1996. The decrease in general and administrative expenses is due principally to the sale of Pulsarr. The decrease in amortization of intangible assets is primarily due to the sale of Pulsarr. The increase in investment and other income is the result of higher cash balances available for investment. The increase in interest expense is due to inclusion of $233,000 of deferred debt issuance costs written off in September 1997 as a result of the early repayment of $2,500,000 of convertible notes payable. The net loss for Q3 1997 was $160,000 as compared to net income of $985,000 in Q3 1996 as a result of the factors discussed above. Results of Operations - Comparison between nine months ended September 30, 1997 and September 30, 1996 Sales for the nine months ended September 30, 1997 ("the 1997 Period") were $22,805,000, up 13% when compared to sales for the nine months ended September 30, 1996 ("the 1996 Period") of $20,129,000. The increase is due to an increase of $5,193,000 in sales at SRC, the inclusion of nine months of Ventek sales in the 1997 Period versus approximately two months in the 1996 Period, offset by reduced Pulsarr sales due to the sale of Pulsarr. Cost of sales was 49% of sales in the 1997 Period and 54% in the 1996 Period. Gross profit increased by 26% to $11,569,000 in the 1997 Period when compared to $9,171,000 of gross profit in the 1996 Period. In 1997, gross profit was 51% of sales as compared to 46% in 1996. The increase in gross profit as a percentage of sales is primarily related to a larger volume of the higher margin Ventek products included in 1997, an increase in the overall sales volume at SRC, which allowed for the spreading of fixed costs over a larger sales base, as well as a change in sales mix. Selling and marketing expense increased 17% in the 1997 Period from 1996 to $3,772,000 amounting to 17% of sales in 1997. Similar expenses in the 1996 Period were $3,230,000, or 16% of sales. The increase in selling and marketing expenses as a percent of sales is the result of increased commissions and general marketing activities. Research and development expenses were $2,980,000 and $2,931,000 in the 1997 Period and the 1996 Period, or 13% and 15% of sales, respectively. The decrease in research and development expense in 1997, as a percentage of sales, is due principally to the spreading of fixed costs over a larger sales base. General and administrative expenses decreased $732,000 to $2,425,000 in 1997 from $3,157,000 in 1996. The decrease in general and administrative expenses is due principally to the sale of Pulsarr. The increase in amortization of intangible assets is principally due to the acquisition of Ventek. On May 6, 1997, AMV sold Pulsarr to Barco NV of Belgium for $8.4 million in cash, resulting in a gain of $4,989,000. AMV had purchased Pulsarr on March 1, 1996 for $7.8 million. This gain primarily represents a recovery of the $4,915,000 charge for acquired in-process technology expensed in the quarter ended March 31, 1996. The increase in investment and other income is the result of higher cash balances available for investment. The increase in interest expense is primarily due to inclusion of $233,000 of deferred debt issuance costs written off in September 1997 as a result of the early repayment of $2,500,000 of convertible notes payable. Net income for 1997 was $5,976,000 as compared to a net loss of $6,712,000 in 1996. Net income for 1997 includes a gain on the sale of Pulsarr of $4,989,000 and a charge of $233,000 relating to the write-off of deferred debt issuance costs, while the net loss for 1996 includes a charge for acquired in-process technologies of $4,915,000 and a charge for deferred royalty expenses of $647,000. Income before special items for 1997 was $1,220,000 as compared to a loss of $1,150,000 for 1996 as a result of the factors discussed above. Liquidity and Capital Resources In August and September 1997, the Company purchased 1,001,640 shares of Class A Common Stock and 640,000 warrants to purchase Class A Common Stock for $1,962,000, and $2,500,000 of its $3,400,000 6.75% Convertible Note at par. On May 6, 1997, the Company received net proceeds of approximately $7,000,000 from the sale of Pulsarr. In March 1996, the Company received $2,000,000 from the sale of 1,400,000 shares of Class A Common Stock pursuant to a private placement. In April 1996, the Company received $3,000,000 representing the net proceeds of a private placement of convertible debt. In October 1995, the Company received approximately $1,052,000 from the sale of its laser diode operations. In April 1995, the Company received $2,000,000 representing the net proceeds from a private placement of convertible debt. The cash generated from these transactions was used to finance the acquisition of Pulsarr and to provide funds for working capital purposes. The Company's principal sources of operating capital have been funds from the above transactions, its overseas Regulation S offerings in September and October 1993 and in February 1994 and its initial public offering in March 1992. As of September 30, 1997, the Company had $8,123,000 in working capital. As a result of the settlement in July 1992 of a lawsuit alleging certain patent infringements, SRC entered into a royalty agreement, pursuant to which SRC paid royalties of 7% of certain vision system sales through the earlier of September 30, 2003, or the date at which aggregate royalty payments equaled $1,600,000. Until aggregate royalty payments equaled $1,600,000, maximum annual royalty payments were $400,000 through 1996. The final $400,000 installment was paid in July 1996. During the quarter ended March 31, 1996, the Company wrote off against income $647,000 of deferred royalty expense related to the settlement as all royalties had been earned and no significant future economic life was estimated to exist. The Company intends to continue to market its vision systems technology and products, and will evaluate selected acquisition opportunities. Additional investments will be required for capital equipment, marketing and R & D for the Company to remain competitive. For example, funds must be expended to complete development of the Company's next generation of processor to enhance the Company's ability to effectively compete in certain markets. Furthermore, if the Company consummates additional technology intensive acquisitions, additional equipment and R&D investments may be necessary, perhaps to a greater extent than for the Company's existing operations. The Company's ALSO operation, AMV's only business prior to the February 1994 acquisition of SRC, had suffered losses since inception. The operations of ALSO were sold in October 1995. In 1995, SRC generated operating profits (before allocation of corporate overhead expenses). Even though SRC reached operating profitability in six of the last eight quarters and had a history of profitable operations prior to its acquisition by AMV, there can be no assurance that long-term profitability will be realized. Ventek has operated profitably since 1992. The Company operates in a highly competitive environment, which environment may be intensified by the fact that Pulsarr is now owned by a company substantially larger and with far greater financial resources than AMV. Delays and difficulties relating to technological changes in turnaround situations often occur, any of which would materially and adversely affect the Company's cash flow. Furthermore, operational and marketing difficulties may occur relating to the integration of Ventek. The acquisition of Pulsarr occurred on March 1, 1996. In connection therewith, the Company paid approximately $6.5 million to the sellers. Cash received from the March and April 1996 placements of stock and notes detailed above generated approximately $5,000,000 for the purchase. The balance of the cash payments of approximately $1,500,000 was paid from the Company's current cash balances. The Company received net proceeds of approximately $7,000,000 when Pulsarr was sold in May 1997. The acquisition of Ventek occurred in July 1996. Consideration for the transaction was approximately $5.1 million in notes and other securities as described in Note 3 in this Form 10-Q. Prior to 1995, the Company had a history of negative operating cash flow. The Company believes it will operate at a negative cash flow during certain periods in the future due to payment of notes issued in connection with prior financings, working capital requirements, the need to fund certain development projects, cash required to enter new market areas, and possible cash needed to fully integrate Ventek's operations. In April 1997, the Company paid off the $1,265,000 of the 10.25% Convertible Subordinated Secured Note when due. Management believes that the Company has sufficient cash to enable the Company to sustain its operations and to adequately fund the cash flow expected to be used in operating activities for the next twelve months. Until the Company is able to consistently generate sustained positive cash flow from operations, the Company must rely on debt or equity financing. In connection with the acquisition of Pulsarr, the Company wrote off approximately $4.9 million of acquired in-process technology in the first quarter of 1996 (which loss was offset by a $5 million gain recorded when Pulsarr was sold in the second quarter of 1997). This non-recurring charge contributed to substantial reported losses in that quarter even though sales for such period, including Pulsarr from its acquisition date, increased from the same period in the prior year. There can be no assurance the Company will be able to obtain future financing on terms satisfactory to the Company, if at all. Increases in outstanding shares of the Company's Class A Common Stock in recent years due to private placements and the 1997 Restricted Stock Plan, the April 1995 and April 1996 private placements of convertible debt, notes issued in connection with the acquisition of Ventek, a substantial loss in 1996, and the number of securities issuable upon exercise of warrants and convertible debt may limit the Company's ability to negotiate additional debt or equity financing. Cautionary Statements and Risk Factors The Company may, from time to time, make forward looking statements that involve risks and uncertainties. Factors associated with the forward looking statements which could cause actual results to differ materially from those stated appear below. Readers should carefully consider the following cautionary statements and risk factors. History of Losses; Negative Cash Flow: Other than in 1995, the second half of 1996 and in 1997, the Company has had a history of operating losses and negative operating cash flow. The Company believes it may operate at a negative cash flow in the future due to (i) the need to fund certain development projects, (ii) cash required to enter new market areas, (iii) interest costs associated with recent financings, (iv) cash required for the repayment of debt (e.g., the $1.3 million paid in April 1997), (v) cash paid in 1997 for the purchase of stock, warrants and debt, and (vi) possible cash needed to fully integrate Ventek's operations. Until the Company is able to consistently generate sustained positive cash flow from operations, the Company must rely on debt or equity financing. Although the Company achieved operating profitability in 1995, the second half of 1996 and in 1997, there can be no assurance as to the Company's profitability on a quarterly or annual basis in the future. Furthermore, the non-recurring expenses in early 1996 resulted in a significant overall loss for the 1996 year. Need for Additional Financing: The Company may seek additional financing; however, there can be no assurance the Company will be able to obtain any additional financing on terms satisfactory to the Company, if at all. The (i) outstanding shares of the Company's Class A Common Stock due to private placements and implementation of the 1997 Restricted Stock Plan, (ii) April 1995 and April 1996 private placements of convertible debt, (iii) substantial loss in 1996, (iv) debt incurred for the acquisition of Ventek, and (v) number of securities issuable upon exercise of warrants and convertible debt may limit the Company's ability to negotiate additional debt or equity financing. Uncertain Ability to Manage Growth and Integrate Acquired Businesses: As part of its business strategy, the Company intends to pursue growth. In March and July 1996, the Company acquired Pulsarr and Ventek, respectively, which had sales in 1995 of approximately $11.4 million and $4.4 million, respectively, and would have added approximately 80% to the Company's 1995 sales on a proforma basis. In May 1997, AMV sold Pulsarr. A growth strategy will require the integration of new entities, such as Ventek, the establishment of distribution relationships in foreign countries, expanded customer service and support, increased personnel throughout the Company and the continued implementation and improvement of the Company's operational, financial and management information systems. There is no assurance that the Company will be able to attract qualified personnel or to accomplish other measures necessary for its successful integration of Ventek or other acquired entities or for internal growth, or that the Company can successfully manage expanded operations. As the Company expands, it may from time to time experience constraints that will adversely affect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect the Company's financial condition and results of operations. Rapid Technological Change; Product Development: The markets for the Company's machine vision products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions and enhancements. For example, the Company believes that the 1995 introduction by Key Technology, Inc. of its new line of vision sorting equipment adversely affected bookings in late 1995 and 1996. Sales of products such as those offered by the Company depend in part on the continuing development and deployment of emerging technology and new services and applications based on such technology. The Company's success will depend to a significant extent upon its ability to enhance its existing products and develop new products that gain market acceptance. There can be no assurance that the Company will be successful in selecting, developing and manufacturing new products or enhancing its existing products on a timely or cost-effective basis or that products or technologies developed by others will not render the Company's products non-competitive or obsolete. Moreover, the Company may encounter technical problems in connection with its product development that could result in the delayed introduction of new products or product enhancements. Failure to develop or introduce on a timely basis new products or product enhancements that achieve market acceptance would materially and adversely affect the Company's business, operating results and financial condition. Market Acceptance of New Products: The Company's future operating results will depend upon its ability to successfully introduce and market, on a timely and cost-effective basis, new products and enhancements to existing products. There can be no assurance that new products or enhancements, if developed and manufactured, will achieve market acceptance. The Company is currently in the initial prototype stage of development on a new high speed software and digital signal processing technology designed to significantly improve system performance. There can be no assurance that a market for this system will develop (i.e., that a need for the system will exist, that the system will be favored over other products on the market, etc.) or, if a market does develop, that the Company will be able, financially or operationally, to market and support the system successfully. Dependence on Certain Markets and Expansion Into New Markets: The future success and growth of the Company is dependent upon continuing sales in domestic and international food processing market as well as successful penetration of other existing and potential markets. A substantial portion of the Company's historical sales has been in the potato and vegetable processing markets. Reductions in capital equipment expenditures by such processors due to commodity surpluses, product price fluctuations, changing consumer preferences or other factors could have an adverse effect on the Company's results of operations. The Company also intends to expand the marketing of its processing systems in additional food markets such as meat and granular food products, as well as nonfood markets such as plastics, wood products and tobacco, and to expand its sales activities in foreign markets. In the case of Ventek, the wood products market served is narrow, and saturation of that market and the potential inability to identify and develop new markets could adversely affect Ventek's growth rate. There can be no assurance that the Company can successfully penetrate additional food and non-food markets or expand further in foreign markets. Lengthy Sales Cycle: The sales cycle in the marketing and sale of the Company's machine vision systems, especially in new markets or in a new application, is lengthy and can be as long as three years. Even in existing markets, due to the $100,000 to $550,000 price range for each system, the purchase of a machine vision system can constitute a substantial capital investment for a customer (which may need more than one machine for its particular proposed application) requiring lengthy consideration and evaluation. In particular, a potential customer must develop a high degree of assurance that the product will meet its needs, successfully interface with the customer's own manufacturing, production or processing system, and have minimal warranty, safety and service problems. Accordingly, the time lag from initiation of marketing efforts to final sales can be lengthy. Competition: The markets for the Company's products are highly competitive. A major competitor of the Company has recently made a new product introduction which has increased the competition that the Company faces. Some of the Company's competitors, including Pulsarr which was sold in May 1997 to a company significantly larger than AMV, may have substantially greater financial, technical, marketing and other resources than the Company. Important competitive factors in the Company's markets include price, performance, reliability, customer support and service. Although the Company believes that it currently competes effectively with respect to these factors, there can be no assurance that the Company will be able to continue to compete effectively in the future. Dependence Upon Certain Suppliers: Certain key components and subassemblies used in the Company's products are currently obtained from sole sources or a limited group of suppliers, and the Company does not have any long-term supply agreements to ensure an uninterrupted supply of these components. Although the Company seeks to reduce dependence on sole or limited source suppliers, the inability to obtain sufficient sole or limited source components as required, or to develop alternative sources if and as required, could result in delays or reductions in product shipments which could materially and adversely affect the Company's results of operations and damage customer relationships. The purchase of certain of the components used in the Company's products require an 8 to 12 week lead time for delivery. An unanticipated shortage of such components could delay the Company's ability to timely manufacture units, damage customer relations, and have a material adverse effect on the Company. In addition, a significant increase in the price of one or more of these components or subassemblies could adversely affect the Company's results of operations. Dependence Upon Significant Customers and Distribution Channel: The Company sold equipment to two unaffiliated customers totaling 13% and 12% of sales in 1996 and to two unaffiliated customers totaling 19% and 16% of sales in 1995. Sales to another unaffiliated customer totaled 15% of sales in 1994. Ventek's sales have been to a relatively small number of multi-location plywood manufacturers. The Company usually receives orders of from one to several machine vision systems, but occasionally receives larger orders. While the Company strives to create long-term relationships with its customers and distributors, there can be no assurance that they will continue ordering additional systems from the Company, or that orders will not be delayed due to customer capital appropriations procedures or other circumstances beyond the control of the Company. In certain instances, the Company's sales, income and cash flow may become negatively affected where investments have been made in inventory in anticipation of an order and such order is delayed by the customer. The Company may continue to be dependent on a small number of customers and distributors, the loss of which would adversely affect the Company's business. Risk of International Sales: Due to its export sales, the Company is subject to the risks of conducting business internationally, including unexpected changes in regulatory requirements; fluctuations in the value of the U. S. dollar, which could increase the sales prices in local currencies of the Company's products in international markets; delays in obtaining export licenses, tariffs and other barriers and restrictions; and the burdens of complying with a variety of international laws. In addition, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as do the laws of the United States. Fluctuations in Quarterly Operating Results; Seasonality: The Company has experienced and may in the future experience significant fluctuations in revenues and operating results from quarter to quarter as a result of a number of factors, many of which are outside the control of the Company. These factors include the timing of significant orders and shipments, product mix, delays in shipment, capital spending patterns of customers, competition and pricing, new product introductions by the Company or its competitors, the timing of research and development expenditures, expansion of marketing and support operations, changes in material costs, production or quality problems, currency fluctuations, disruptions in sources of supply, regulatory changes and general economic conditions. These factors are difficult to forecast, and these or other factors could have a material adverse effect on the Company's business and operating results. Moreover, due to the relatively fixed nature of many of the Company's costs, including personnel and facilities costs, the Company would not be able to reduce costs in any quarter to compensate for any unexpected shortfall in net sales, and such a shortfall would have a proportionately greater impact on the Company's results of operations for that quarter. For example, a significant portion of the Company's quarterly net sales depends upon sales of a relatively small number of high-priced systems. Thus, changes in the number of such high-priced systems shipped in any given quarter can produce substantial fluctuations in net sales, gross profits, and net income from quarter to quarter. In addition, in the event the Company's machine vision systems' average selling price increases, of which there can be no assurance, the addition or cancellation of sales may exacerbate quarterly fluctuations in revenues and operating results. The Company's operating results may also be affected by certain seasonal trends. The Company typically experiences lower sales and order levels in the first quarter when compared with the preceding fourth quarter due primarily to the seasonality of certain harvested food items and the fact that shipments to certain customers occur during such customers' December plant shutdowns. The Company expects these seasonal patterns to continue, though their impact on revenues will decline as the Company continues to expand its presence in nonagricultural and other markets which are less seasonal. Risks Associated With Possible Acquisitions: The Company may pursue strategic acquisitions or joint ventures in addition to the acquisitions of Pulsarr (subsequently divested in May 1997) and Ventek as part of its growth strategy. While the Company has no understandings, commitments or agreements with respect to any further acquisition, one or more potential opportunities may become available in the future. Acquisitions and joint ventures would require investment of operational and financial resources and could require integration of dissimilar operations, assimilation of new employees, diversion of management resources, increases in administrative costs and additional costs associated with debt or equity financing. There can be no assurance that any acquisition or joint venture by the Company will not have an adverse effect on the Company's results of operations or will not result in dilution to existing shareholders. If additional attractive opportunities become available, the Company may decide to pursue them actively. There can be no assurance that the Company will complete any future acquisitions or joint ventures or that such a future transaction will not materially and adversely affect the Company. Dependence Upon Key Personnel: The Company's success depends to a significant extent upon the continuing contributions of its key management, technical, sales and marketing and other key personnel. Except for William J. Young, the Company's President and Chief Executive Officer, Alan R. Steel, the Company's Chief Financial Officer, Dr. James Ewan, SRC's President and Chief Executive Officer, and the four former stockholders of Ventek, the Company does not have long-term employment agreements or other arrangements with such individuals which would encourage them to remain with the Company. The Company's future success also depends upon its ability to attract and retain additional skilled personnel. Competition for such employees is intense. The loss of any current key employees or the inability to attract and retain additional key personnel could have a material adverse effect on the Company's business and operating results. There can be no assurance that the Company will be able to retain its existing personnel or attract such additional skilled employees in the future. Intellectual Property: The Company's competitive position may be affected by its ability to protect its proprietary technology. Although the Company has a number of United States and foreign patents, there can be no assurance that any such patents will provide meaningful protection for its product innovations. The Company may experience additional intellectual property risks in international markets where it may lack patent protection. Product Liability and Other Legal Claims: From time to time, the Company may be involved in litigation arising out of the normal course of its business, including product liability and other legal claims. While the Company has a general liability insurance policy which includes product liability coverage up to an aggregate amount of $10 million, there can be no assurance that the Company will be able to maintain product liability insurance on acceptable terms or that its insurance will provide adequate coverage against potential claims in the future. There can be no assurance that third parties will not assert infringement claims against the Company, that any such assertion of infringement will not result in litigation or that the Company would prevail in such litigation. Furthermore, litigation, regardless of its outcome, could result in substantial cost to and diversion of effort by the Company. Any infringement claims or litigation against the Company could materially and adversely affect the Company's business, operating results and financial condition. If a substantial product liability or other legal claim against the Company were sustained that was not covered by insurance, there could be an adverse effect on the Company's financial condition and marketability of the affected products. Warranty Exposure and Performance Specifications: The Company generally provides a one-year limited warranty on its products. In addition, for certain custom-designed systems, the Company contracts to meet certain performance specifications for a specific application. In the past, the Company has incurred higher warranty expenses related to new products than it typically incurs with established products. There can be no assurance that the Company will not incur substantial warranty expenses in the future with respect to new products, as well as established products, or with respect to its obligations to meet performance specifications, which may have an adverse effect on its results of operations and customer relationships. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Ford & Cohn In March 1993, Wilson Ford, Robert Paul and Maxwell Cohn (together "Claimants") brought various claims against AMV and William Patridge, Asif Ahmad and Nagaraj Murthy, past directors or employees of AMV, in lawsuits in the Superior Courts for Los Angeles County and Orange County, California. The lawsuits were consolidated in February, 1994, and were litigated in Superior Court for Los Angeles County in September and October, 1995. Ford, a consultant to AMV, claims that AMV breached an agreement dated September 17, 1987, and subsequently amended on August 16, 1988, by which he was to receive 25,000 shares of stock of CNVS, Inc., predecessor to AMV, at no cost and an option to purchase 25,000 additional shares in the future upon the occurrence of specified events. Ford claims he was promised that this total of 50,000 shares in the Company would amount to 5% of the outstanding shares. Ford also claims AMV owes him royalties under a royalty agreement for certain low light video camera technology. AMV contends that Ford was never promised that his interest would amount to 5% of the outstanding shares, that Ford failed to fulfill his obligations under the royalty agreement, and that Ford's claims are barred under various legal theories. Based on these allegations, Ford made claims for breach of contract and breach of the covenant of good faith and fair dealing. The Claimants contend that statements allegedly made by William Patridge to United States Alcohol Testing of America, Inc. ("USAT") caused USAT to rescind an Asset Purchase Agreement with the Claimants. The Claimants allege that the statements concerning outstanding lawsuits and disputes between AMV and the Claimants were false and meant to disrupt the business relationship between Prime Lasertech and USAT. The Claimants allegedly would have benefited from the Asset Purchase Agreement as shareholders and/or licensees. Based on these allegations, the Claimants made claims for intentional and negligent interference with prospective advantage, intentional and negligent infliction of emotional distress, and civil conspiracy. On October 2, 1995, a jury awarded $375,000 to the Claimants, which included $281,000 of punitive damages for the breach of contract claim. The Company has filed motions with the court to eliminate the punitive portion of the award. AMV believes such damages are improper because (i) the claimants did not ask for punitive damages in the contract claim, and (ii) such damages cannot be awarded for breach of contract under applicable state laws. AMV is also attempting to overturn the balance of the breach of contract award based on the fact that the claim was made after the statute of limitations had expired. AMV has made an appeal to overturn the verdict based on these factors and certain other irregularities that occurred during the trial, which AMV believes unfairly affected the jury's decision. Due to the fact that a verdict was rendered, a $93,000 loss on the breach of contract claim was recorded as a liability in the fourth quarter of 1995. Credit Suisse, Max Khan and Konrad Meyer On January 9, 1997, the Company sued Credit Suisse, Max Khan and Konrad Meyer (together, "Credit Suisse") in Jackson County, Oregon, seeking $1,600,000 in fulfillment of Credit Suisse's contractual obligation to fund a Private Placement Subscription Agreement dated May 14, 1996. Ilverton International, Inc. ("Ilverton"), an entity that the Company believed to be controlled by Meyer and holder of the Company's $3,400,000 Convertible Secured Note, was later added as a defendant to the suit. The Company claimed that Credit Suisse's failure to fund limited AMV's ability to finance its business plan for Pulsarr and other operations and, as a result, adversely impacted AMV's credibility with investors and financial analysts. The suit also claimed that Messrs. Khan and Meyer, who had previously provided investment banking services to AMV, persuaded Credit Suisse to breach the Subscription Agreement. In a related action, on June 26, 1997, the Company sued Swiss American Securities, Inc. ("SASI"), Credit Suisse's U. S. Agent, and Ilverton, seeking the return of the common stock of the Company's SRC VISION, Inc. subsidiary that was pledged as security for the $2,160,000 Convertible Subordinated Secured Note to Ilverton that was paid off in April 1997. The agreement governing the pledge required Ilverton, upon payment of the note, to instruct SASI, the holder of the pledged shares, to return the pledged shares to AMV. Although Ilverton had no voting rights over the pledged shares, the Company believed that Ilverton's refusal to return the shares was related to the Credit Suisse action described above. In August and September 1997, all matters among the Company and the defendants were settled resulting in the dismissal with prejudice of all claims among the parties. In connection with the settlement, AMV purchased from Ilverton, 1,001,640 shares of the Company's Class A Common Stock, 640,000 Class F and H Warrants and $2.5 million of Convertible Secured Note. Item 6. Exhibits And Reports On Form 8-K - ----------------------------------------- (a) Exhibits Exhibit Number Description ------- ----------- 10.1 Settlement Agreement dated August 12, 1997. 10.2 1997 Nonqualified Stock Option Plan and form of option agreement. 27 Financial Data Schedule. (b) Reports on Form 8-K: On August 8, 1997, a Form 8-K was filed establishing the date for the Company's 1997 Annual Meeting of stockholders. On August 12, 1997, a Form 8-K was filed regarding AMV's purchase of 1,001,640 shares of Class A Common Stock and warrants to purchase 640,000 shares of Class A Common Stock. On September 15, 1997, a Form 8-K was filed regarding AMV's purchase of $2.5 million of the $3.4 million outstanding 6.75% Convertible Secured Note. On September 29, 1997, a Form 8-K was filed regarding the retirement of 1.8 million shares of Class A Common Stock contributed to the Company by William J. Young, Alan R. Steel and James Ewan, officers and/or directors of AMV. SIGNATURE Pursuant to the requirements 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. October 30, 1997 /s/ Alan R. Steel - ------------------------------- -------------------------------- Alan R. Steel Vice President - Finance (Principal Financial and duly Authorized Officer) 20 EX-10.1 2 SETTLEMENT AGREEMENT DATED AUGUST 12, 1997 EXHIBIT 10.1 SETTLEMENT AGREEMENT This Settlement Agreement is entered into this 12th day of August, 1997 among ADVANCED MACHINE VISION CORPORATION ("AMV"), CREDIT SUISSE, a corporation existing under the laws of Switzerland, SWISS AMERICAN SECURITIES, INC. ("SWISS AMERICAN"), ILVERTON INTERNATIONAL, INC., a corporation existing under the laws of the British Virgin Islands ("ILVERTON"), KONRAD MEYER ("MEYER") and MAX KHAN ("KHAN"). R E C I T A L S WHEREAS AMV fka ARC Capital is the plaintiff in an action against CREDIT SUISSE, ILVERTON, KHAN and MEYER now pending in the United States District Court for the District of Oregon as Case No. 97-3307-CO related to a Subscription Agreement dated May 14, 1996 ("Subscription Agreement Litigation"); WHEREAS AMV is the plaintiff in an action against SWISS AMERICAN and ILVERTON now pending in the United States District Court for the District of Oregon as Case No. CV 97-3039-CO related to a Pledge and Security Agreement dated April 13, 1995, and in which SWISS AMERICAN has filed an interpleader, ("Security Agreement Litigation"); and WHEREAS the parties or participant to this Settlement Agreement desire to resolve all disputes among them that relate to the Subscription Agreement Litigation and/or the Security Agreement Litigation. IT IS HEREBY AGREED AS FOLLOWS: KM_______ WY_______ 1. Dismissal of Litigation. 1.1 By AMV. Upon delivery of the securities as set forth in Sections 4 and 5 of this Settlement Agreement, AMV will dismiss with prejudice its complaints in the Subscription Agreement Litigation and the Security Agreement Litigation against the PARTIES SIGNING THIS SETTLEMENT AGREEMENT. 1.2 By CREDIT SUISSE. Upon delivery of the securities as set forth in Sections 4 and 5 of this Settlement Agreement, CREDIT SUISSE will dismiss with prejudice its counterclaim filed in the Subscription Agreement Litigation. 1.3 By SWISS AMERICAN. Upon delivery of the securities as set forth in Sections 4 and 5 of this Settlement Agreement, SWISS AMERICAN will dismiss with prejudice its claim for interpleader filed in the Security Agreement Litigation. 2. Release of Claims. 2.1 By AMV. Conditioned on and effective upon the delivery of the securities as set forth in Sections 4 and 5 of this Settlement Agreement, AMV releases and absolutely and forever discharges CREDIT SUISSE, SWISS AMERICAN, ILVERTON, MEYER and KHAN, but only if such PARTY HAS SIGNED THIS SETTLEMENT AGREEMENT, and each of their respective current officers, directors and agents of and from any and all claims, demands, damages, debts, liens, actions and causes of action of every kind and nature whatsoever, whether now known or unknown, suspected or unsuspected, which it might have had, shall or may hereafter have, upon or arising out of KM_______ WY_______ any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time through and including the date of this Settlement Agreement and including without limitation any theory recited in the Subscription Agreement Litigation and/or the Security Agreement Litigation. 2.2 By Remaining Parties. Conditioned on and effective upon the delivery of the securities as set forth in Sections 4 and 5 of this Settlement Agreement, CREDIT SUISSE, SWISS AMERICAN, ILVERTON, MEYER and KHAN hereby release and absolutely and forever discharge AMV and its subsidiaries and each of their current officers, directors and agents of and from any and all claims, demands, damages, debts, liens, actions and causes of action of every kind and nature whatsoever, whether now known or unknown, suspected or unsuspected, which any of them had, shall or may hereafter have, upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time through and including the date of this Settlement Agreement and including without limitation any theory recited in the Subscription Agreement Litigation and/or the Security Agreement Litigation. 2.3 Nonsigners: Notwithstanding the release of claims provided in Sections 2.1 and 2.2 of this Settlement Agreement, the provisions of Sections 2.1 and 2.2 shall not apply to any party not signing the Settlement Agreement. KM_______ WY_______ 3. Convertible Subordinated Bonds. 3.1 Description of Bonds. AMV is the issuer of $3.4 million of convertible subordinated bonds sold on April 17, 1996, and remains the obligor under such bonds until paid by AMV according to the terms of the bonds. 3.2 Repurchase of Convertible Subordinated Bonds. ILVERTON, MEYER, KHAN and CREDIT SUISSE shall have the right to "put" to AMV up to a maximum of $3.4 million face value of bonds issued pursuant to AMV's $3.4 million Convertible Secured Note dated April 17, 1996. The bonds shall be purchased by AMV at face value without prepayment penalty, but with interest accrued as of the date of the repurchase. This "put" shall terminate thirty days following execution of this Settlement Agreement. AMV shall have no obligation to repurchase bonds in the event this Settlement Agreement is not executed, the delivery of the securities required by Sections 4 and 5 of this Settlement Agreement is not timely completed, or in the event such redemption would require filings by AMV with the Securities and Exchange Commission or would otherwise violate the laws of the United States or any state thereof or of the country in which a bondholder requesting redemption may reside. 3.3 Bondholder Rights. Pursuant to this section of the agreement, the $3.4 million of bonds may either (i) "put" to AMV in accordance with Section 3.2 of this Settlement Agreement, (ii) converted into AMV Class A Common Stock as permitted in the bond instrument, or (iii) held until maturity or otherwise sold. KM_______ WY_______ 3.4 Obligation of AMV: The $3.4 million Convertible Secured Note dated April 17, 1996 is a primary obligation of AMV and is due on April 17, 2001. The note is backed by the full faith and credit of AMV. 4. Delivery of SRC Vision, Inc. Common Stock. Upon execution of this Settlement Agreement, ILVERTON and/or SWISS AMERICAN shall deliver to AMV all of the common stock of SRC Vision, Inc., AMV's wholly owned subsidiary, pledged to secure the $2,160,000 Convertible Subordinated Secured Note dated April 13, 1995 between AMV and ILVERTON. ILVERTON and MEYER represent and warrant that they have no further interest in, or claim to, the SRV Vision, Inc. common stock pledged to secure that note. 5. Repurchase of AMV Common Stock and Return of Warrants. 5.1 Delivery of Stock. Upon execution of this Settlement Agreement ILVERTON and SWISS AMERICAN will deliver to AMV 1,001,640 shares of AMV common stock held in the name of SWISS AMERICAN. 5.2 Return of Warrants. Within fifteen days of the execution of this Settlement Agreement, ILVERTON will deliver to AMV for cancellation ILVERTON's warrants to purchase 300,000 and 340,000 shares, respectively, of AMV's common stock (the Class F Warrants and Class H Warrants). 5.3 Purchase Price. Concurrent with the delivery of the stock and warrants pursuant to Sections 4, 5.2 and 5.3 above, AMV will pay to ILVERTON a total of $1,903,116. KM_______ WY_______ 6. Participation of MEYER in AMV's Affairs. For a period of five years from the date of this Agreement, MEYER nor any of his agents or affiliates shall, without prior consent of the then Chair of AMV's Board of Directors, communicate on matters related to AMV with AMV's shareholders, bondholders, current and former officers and directors, or, except to the extent compelled by applicable law, participate directly or indirectly in any lawsuit asserted against AMV, its officers or directors, or make any untruthful or defamatory statements about AMV, its officers or directors. Additionally, MEYER and his agents or affiliates will not engage in any proxy contest, tender offer, merger or any other similar activity related to AMV for five years. Recognizing that damages to AMV cannot be readily ascertained in the event of a violation of this Agreement, MEYER agrees to a payment of $100,000 as liquidated damages for each breach of this provision. Notwithstanding this Section 6, MEYER shall be able to discuss or communicate regarding publicly disclosed AMV information. 7. Participation of KHAN in AMV's Affairs. For a period of five years from the date of this Agreement, KHAN, nor any of his agents or affiliates shall, without prior consent of the then Chair of AMV's Board of Directors, communicate on matters related to AMV with AMV's shareholders, bondholders, current and former officers and directors, or, except to the extent compelled by applicable law, participate directly or indirectly in any lawsuit asserted against AMV, its officers or directors, or make any untruthful or defamatory statements about AMV, its officers or directors. Additionally, KHAN and his agents or affiliates will not engage in any proxy contest, KM_______ WY_______ tender offer, merger or any other similar activity related to AMV for five years. Recognizing that damages to AMV cannot be readily ascertained in the event of a violation of this Agreement, KHAN agrees to a payment of $100,000 as liquidated damages for each breach of this provision. Notwithstanding this Section 7, KHAN shall be able to discuss or communicate regarding publicly disclosed AMV information. 8. Participation of AMV in KHAN's Affairs. For a period of five years from the date of this Agreement, AMV, nor any of its agents or affiliates shall without prior consent of KHAN communicate on matters related to KHAN with KHAN's associates and affiliated businesses, or, except to the extent compelled by applicable law, participate directly or indirectly in any lawsuit asserted against KHAN, his associates or affiliated businesses, or make any untruthful or defamatory statements about KHAN, its associates or affiliated businesses. Recogniging that damages to KHAN cannot be readily ascertained in the event of a violation of this Agreement, AMV agrees to a payment of $100,000 as liquidated damages for each breach of this provision. Notwithstanding this Section 8, AMV shall be able to discuss or communicate regarding publicly disclosed KHAN information. 9. Participation of AMV in MEYER's Affairs. For a period of five years from the date of this Agreement, AMV, nor any of its agents or affiliates shall, without prior consent of MEYER communicate on matters related to MEYER with MEYER's associates and affiliated businesses, or, except to the extent compelled by applicable law, participate directly or indirectly in any lawsuit asserted against MEYER, its KM_______ WY_______ associates or affiliated businesses, or make any untruthful or defamatory statements about MEYER, his associates or affiliated businesses. Recognizing that damages to MEYER cannot be readily ascertained in the event of a violation of this Agreement, AMV agrees to a payment of $100,000 as liquidated damages for each breach of this provision. Notwithstanding this Section 8, AMV shall be able to discuss or communicate regarding publicly disclosed MEYER information. 10. Severability. If one or more of the provisions of this Settlement Agreement shall be for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity, legality and enforceability of any other provision hereof, and this Settlement Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, provided that the Agreement, as so modified, preserves the basic intent of the parties. 11. Miscellaneous. 11.1 Governing Law. This Settlement Agreement is made, and intended to be performed, in the state of Oregon, and shall be enforced and interpreted by the laws of that state. Any action to enforce or otherwise related to or arising out of this Settlement Agreement shall be pursued only through arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. All such arbitrations shall take place within the state of Oregon. 11.2 Entire Agreement. This Settlement Agreement is the final and complete agreement of the parties hereto with respect to its subject matter, and supersedes any prior discussions, negotiations or agreements, whether written KM_______ WY_______ or oral, between the parties with respect to the subject matter hereof. It may be amended only by an agreement in writing executed by the parties hereto. 11.3 Attorneys' Fees. Each party shall bear its own costs and attorneys' fees associated with the Subscription Agreement Litigation and/or the Security Agreement Litigation and/or the review and execution of this Settlement Agreement. 11.4 Advice of Counsel. Each of the parties hereto acknowledges, represents and warrants that he, she or it has had the opportunity to obtain the advice of counsel of such party's own choosing in the negotiations for and in the preparation of this Settlement Agreement, that the party has read the Settlement Agreement, that each has had this Settlement Agreement fully explained by such counsel and that each is fully aware of its contents and legal effect. 11.5 Binding Obligations. Each party signing this agreement expressly warrants and represents to each other party signing this agreement that such party is duly authorized and empowered to enter into this Settlement Agreement and to perform and observe its agreements and obligations herein, and that such party has been advised by its legal counsel that this Settlement Agreement creates and constitutes a binding obligation on such party and his or its successors and assigns, and that this Settlement Agreement is enforceable in accordance with its terms. KM_______ WY_______ 11.6 Further Assistance. Each party agrees to execute and deliver to the other parties all such other and additional instruments and other documents, and to do all such other acts and things as any party may reasonably deem necessary to more fully carry out this Agreement and the obligations contained herein. 11.7 Condition Precedent to Obligations. The parties to this Settlement Agreement understand that AMV will pay its obligation pursuant to Section 5.3 above by delivery upon execution of this Settlement Agreement of a standard AMV bank check(s). Should the check(s) fail to clear AMV's bank within five business days of deposit, AMV will return to the appropriate party the securities returned to AMV in accordance with this Settlement Agreement and this Settlement Agreement will be deemed to be null and void as if it never existed. KM_______ WY_______ IN WITNESS WHEREOF, the parties have executed this Settlement Agreement, or caused it to be executed by its officers, being thereunto duly authorized by all necessary corporate action, as of the date first above written. Advanced Machine Vision Corporation Credit Suisse By /s/ William J. Young By - ----------------------------------- -------------------------------------- President and CEO Swiss American Securities, Inc. Ilverton International, Inc. By By /s/ Ilverton International, Inc. - ----------------------------------- -------------------------------------- Konrad Meyer Max Khan /s/ Konrad Meyer - ----------------------------------- -------------------------------------- KM_______ WY_______ EX-10.2 3 1997 NONQUALIFIED STOCK OPTION PLAN & AGREEMENT EXHIBIT 10.2 ADVANCED MACHINE VISION CORPORATION 1997 NONQUALIFIED STOCK OPTION PLAN 1. Purpose. The Advanced Machine Vision Corporation 1997 Nonqualified Stock Option Plan (the "Plan") is hereby established to grant to key employees and consultants of Advanced Machine Vision Corporation and its Subsidiaries (individually and collectively, the "Company") an opportunity to acquire Class A Common Stock of Advanced Machine Vision Corporation (the "Stock"), and to create an incentive for such persons to remain in the employ of the Company and to contribute to its success. As used in the Plan, the term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute, and the terms "Parent" and "Subsidiary" shall have the meaning set forth in Sections 424(e) and (f) of the Code. 2. Administration. The Plan shall be administered by the Board of Directors or a Plan Committee of the Board of Directors of the Company (the "Administrator"). The Administrator shall consist of two members of the Board of Directors who are "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Administrator shall determine the meaning and application of the provisions of the Plan and all option agreements executed pursuant thereto, and its decisions shall be conclusive and binding upon all interested persons. Subject to the provisions of the Plan, the Administrator shall have the sole authority to determine: (a) The persons to whom options to purchase Stock shall be granted; (b) The number of options to be granted to each person; (c) The price to be paid for the Stock upon the exercise of each option; (d) The period within which each option shall be exercised; and (e) The terms and conditions of each stock option agreement entered into between the Company and persons to whom the Company has granted an option. 3. Eligibility. Key employees and consultants of the Company, as determined by the Administrator, shall be eligible to receive grants of options under the Plan. 4. Stock Subject to Plan. There shall be reserved for issue upon the exercise of options granted under the Plan 500,000 shares of Stock or the number of shares of Stock, which, in accordance with the provisions of Section 10 hereof, shall be substituted therefore. Such shares may be authorized but unissued shares or treasury shares. If an option granted under the Plan shall expire or terminate for any reason without having been exercised in full, unpurchased shares subject thereto shall again be available for the purposes of the Plan unless prohibited by law. 5. Terms of Options. (a) Nonqualified Stock Options. Only nonqualified options may be granted under the Plan. Each nonqualified stock option granted under the Plan shall be evidenced by a stock option agreement between the person to whom such option is granted and the Company. Such stock option agreement shall provide that the option is subject to the following terms and conditions and to such other terms and conditions not inconsistent therewith as the Administrator may deem appropriate in each case: (1) Option Exercise Price. The exercise price to be paid for each share of Stock upon the exercise of an option shall be determined by the Administrator at the time the option is granted, but shall in no event be less than 85% of the fair market value of the shares on the date the option is granted. As used in this Plan, the term "date the option is granted" means the date on which the Administrator authorizes the grant of an option hereunder or any later date specified by the Administrator. Fair market value of the shares shall be (i) the closing price of shares of Stock sold on a national stock exchange on the date the option is granted (or if there was no sale on such date, the closing price on the most recent date the Stock traded), or (ii) if the Stock is not listed on a national stock exchange on the date the option is granted, the closing price of the Stock in the National over-the-counter market on the date the option is granted, or (iii) if the Stock is not traded in any market, that price determined by the Administrator to be fair market value, based upon such evidence as it may think necessary or desirable. (2) Period of Option. The period or periods within which an option may be exercised shall be determined by the Administrator at the time the option is granted, but shall in no event exceed ten years from the date the option is granted. (3) Payment for Stock. The option exercise price for Stock purchased under an option shall be paid in full at the time of purchase. The Administrator may provide that the option exercise price be payable, at the election of the holder of the option, with the consent of the Administrator, in whole or in part either in cash or by delivery of Stock in transferable form, such Stock to be valued for such purpose at its fair market value on the date on which the option is exercised. No share of Stock shall be issued until full payment therefor has been made, and no employee shall have any rights as an owner of shares of Stock until the date of issuance to him of the stock certificate evidencing such Stock. 6. Nontransferability. The options granted pursuant to the Plan shall be nontransferable except by will or the laws of descent and distribution, and shall be exercisable during the Optionee's lifetime only by him and after his death, by his personal representative or by the person entitled thereto under his will or the laws of intestate succession. 7. Termination of Employment. Upon termination of the Optionee's employment, his rights to exercise options then held by him shall be only as follows: (a) Retirement or Disability. If the Optionee's employment is terminated by reason of his retirement by the Company, or, with the approval of the Administrator, because of disability or other reasons, he may, within three months following such termination, exercise the option to the extent the right to exercise had accrued at the time of termination of employment. However, in the event of his death prior to the end of the three-month period after the aforesaid termination of his employment, his estate shall have the right to exercise the option within one year following such termination with respect to all or any part of the shares subject thereto, to the extent the right to purchase such shares had accrued at the time of termination of employment. (b) Death. If an Optionee's employment is terminated by death, his estate shall have the right, for a period of one year following the date of such death, to exercise the option to the extent the right to exercise had accrued prior to the date of his death. (c) Other Terminations. When an Optionee's employment is terminated for any reason other than those provided in Sections 7(a) and 7(b) above, his options shall be exercised only if and to the extent that they are exercisable on the date of termination of his employment, and such options shall terminate thirty days following the date of his termination of employment. In no event, however, shall such options be exercised pursuant to this Section 7 after the expiration date set forth in Paragraph 2 of the option agreement. 8. Acceleration upon Termination or Sale of Company. The Administrator may determine to accelerate the exercisability of any or all options after termination of employment. In the event the Company or its stockholders enter into an agreement to dispose of all or substantially all of the assets or capital stock of the Company by means of a sale, merger, consolidation, reorganization, liquidation or otherwise, an option granted under the Plan, in addition to accelerated exercisability under any provisions of Section 10(b) hereof that may be applicable, will, in the discretion of the Administrator, if so authorized by the Board of Directors and conditioned upon consummation of such disposition of assets or stock, become immediately exercisable during the period commencing as of the date of the execution of such agreement and ending as of the earlier of the stated termination date of the option or the date on which the disposition of assets or stock contemplated by the agreement is consummated. 9. Transfer to Related Corporation. In the event an employee leaves the employ of the Company to become an employee of a Subsidiary or an employee leaves the employ of a Subsidiary to become an employee of the Company or another Subsidiary, such employee shall be deemed to continue as an employee for the purposes of this Plan. 10. Adjustment of Shares. (a) In the event of changes in the outstanding Stock by reason of stock dividends, stock splits, reverse stock splits, split-ups, consolidations, recapitalizations, reorganizations or like events (as determined by the Administrator), an appropriate adjustment shall be made by the Administrator in the number of shares reserved under the Plan, in the number of shares set forth in Section 4 hereof, and in the number of shares and the option price per share specified in any stock option agreement with respect to any unpurchased shares. The determination of the Administrator as to what adjustments shall be made shall be conclusive. Adjustments for any options to purchase fractional shares shall also be determined by the Administrator. The Administrator shall give prompt notice to all optionees of any adjustment pursuant to this Section. (b) Section 10(a) above to the contrary notwithstanding, in the event of any merger, consolidation or other reorganization of the Company in which the Company is not the surviving or continuing corporation (as determined by the Administrator) or in the event of the liquidation or dissolution of the Company, all options granted hereunder shall terminate on the effective date of the merger, consolidation, reorganization, liquidation, or dissolution unless the agreement with respect thereto provides for the assumption of such options by the continuing or surviving corporation. Any other provision of this Plan to the contrary notwithstanding, all outstanding options granted hereunder shall be fully exercisable for a period of 30 days prior to the effective date of any such merger, consolidation, reorganization, liquidation, or dissolution unless such options are assumed by the continuing or surviving corporation. 11. Securities Law Requirements. The Administrator may require prospective optionees, as a condition of either the grant or the exercise of an option, to represent and establish to the satisfaction of the Administrator that all shares of Stock acquired upon the exercise of such option will be acquired for investment and not for resale. The Company may refuse to permit the sale or other disposition of any shares acquired pursuant to any such representation until it is satisfied that such sale or other disposition would not be in contravention of applicable state or federal securities law. 12. Tax Withholding. The Company may require an optionee to pay to the Company all applicable federal, state and local taxes which the Company is required to withhold with respect to the exercise of an option granted hereunder. 13. Amendment. The Board of Directors may amend the Plan at any time. The provisions of the Plan shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 14. Termination. The Plan shall terminate automatically on September 23, 2007. The Board of Directors may terminate the Plan at any earlier time. The termination of the Plan shall not affect the validity of any option agreement outstanding at the date of such termination, but no option shall be granted after such date. 15. Effective Date. The Plan shall be effective upon its adoption by the Board of Directors of the Company which is September 23, 1997. NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT is made as of the 23rd day of September, 1997, by and between Advanced Machine Vision Corporation (the "Company"), and ________________________ ("Optionee"). W I T N E S S E T H WHEREAS, pursuant to the 1997 Nonqualified Stock Option Plan (the "Stock Option Plan"), the Board of Directors of the Company (the "Plan Administrator") has authorized the granting to Optionee of a nonqualified stock option to purchase the number of shares of Class A Common Stock ("Common Stock") of the Company specified in Paragraph 1 hereof, at the price specified therein, such option to be for the term and upon the terms and conditions hereinafter stated; NOW, THEREFORE, in consideration of the promises and of the undertakings of the parties hereto contained herein, it is hereby agreed: 1. Number of Shares; Option Price. Pursuant to said action of the Plan Administrator, the Company hereby grants to Optionee the option ("Option") to purchase, upon and subject to the terms and conditions of said Stock Option Plan, all or any part of _________ shares of Common Stock of the Company for cash at the price of $______ per share. 2. Term. This Option shall expire on _________________ unless such Option shall have been terminated prior to that date in accordance with the provisions of the Stock Option Plan or this Agreement (the "Termination Date"). The terms "Parent" and "Subsidiary" herein mean a parent corporation or a subsidiary corporation, as such terms are defined in the Stock Option Plan. 3. Vesting. This Option shall vest and be exercisable as to _________ shares on and after ________________. The Option shall thereafter remain wholly exercisable until and including the Termination Date, provided that Optionee is then and has continuously been in the employ of the Company, a Parent or a Subsidiary; subject, however, to the provisions of Paragraph 5 hereof. 4. Exercise. The Option may be exercised by written notice delivered to the Company stating the number of shares with respect to which the Option is being exercised, together with a check made payable to the Company in the amount of the purchase price of such shares plus the amount of applicable federal, state and local withholding taxes and the written statement provided for in Paragraph 9 hereof, if required by said Paragraph 9. Not less than 100 shares may be purchased at any one time unless the number purchased is the total number purchasable under such Option at the time. Only whole shares may be purchased. 5. Exercise on Termination of Employment. If Optionee shall cease to be employed by, or ceases to be a consultant or otherwise to render services to, the Company, a Parent or a Subsidiary, Optionee's right to exercise his options, if any, shall be governed by Section 7 of the Stock Option Plan. References in such Section 7 to "employment" shall mean the cessation of services to the Company, a Parent or a Subsidiary in the case of any person who is not an employee. 6. Nontransferability. The Option may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised only by Optionee during his lifetime and after his death, by his personal representative or by the person entitled thereto under his will or the laws of intestate succession. 7. Optionee Not a Shareholder. Optionee shall have no rights as a shareholder with respect to the Common Stock of the Company covered by such Option until the date of issuance of a stock certificate or stock certificates to him upon exercise of the Option. No adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued, except as provided in Section 10 of the Stock Option Plan. 8. Modification and Termination. The rights of Optionee are subject to modification and termination in certain events as provided in Sections 7 and 10 of the Stock Option Plan. 9. Restrictions on Sale of Shares. Optionee represents and agrees that upon his exercise of the Option, in whole or in part, unless there is in effect at that time under the Securities Act of 1933, as amended, a registration statement relating to the shares issued to him, he will acquire the shares issuable upon exercise of this Option for the purpose of investment and not with a view to their resale or further distribution, and that upon such exercise thereof he will furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. Optionee agrees that any certificate issued upon exercise of this Option may bear a legend indicating that their transferability is restricted in accordance with applicable state and federal securities law. Any person or persons entitled to exercise this Option under the provisions of Paragraphs 5 and 6 hereof shall, upon each exercise of the Option under circumstances in which Optionee would be required to furnish such a written statement, also furnish to the Company a written statement to the same effect, satisfactory to the Company in form and substance. 10. Plan Governs. This Agreement and the Option evidenced hereby are made and granted pursuant to the Stock Option Plan and are in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Plan Administrator of the Board of Directors of the Company. Optionee hereby acknowledges receipt of a copy of the Stock Option Plan. 11. Notices. All notices to the Company shall be addressed to the President of the Company at the principal office of the Company at 2067 Commerce Drive, Medford, Oregon, 97504, and all notices to Optionee shall be addressed to Optionee at the address of Optionee on file with the Company or its Subsidiaries, or to such other address as either may designate to the other in writing. A notice shall be deemed to be duly given if and when enclosed in a properly addressed sealed envelope deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, written notice under this Agreement may be given by personal delivery to Optionee or to the President of the Company (as the case may be). 12. Sale or Other Disposition. If Optionee at any time contemplates the disposition (whether by sale, gift, exchange, or other form or transfer) of any shares acquired by exercise of this Option, he or she will first notify the Company in writing of such proposed disposition and cooperate with the Company in complying with all applicable requirements of law, which, in the judgment of the Company, must be satisfied prior to such disposition. 13. 180-Day Holdback. In accepting the grant of this Option, Optionee hereby agrees that, in the event of an underwritten public offering of the Company's securities pursuant to which any of its securities are registered pursuant to the Securities Act of 1933, as amended, and to the extent the underwriter of such offering requests that the shareholders of the Company agree to do so, the Optionee will agree not to sell any of the Common Stock issued or issuable upon exercise of this Option for a period of at least 180 days after the closing of such public offering, and to sign a 180-day holdback agreement to that effect. IN WITNESS WHEREOF, the Company has executed this Nonqualified Stock Option Agreement as of the date and year first above written. ADVANCED MACHINE VISION CORPORATION By:_________________________________ Title:______________________________ OPTIONEE: By:_________________________________ (Signature) ____________________________________ (Typed or Printed Name) EX-27 4 FINANCIAL DATA SCHEDULE-THIRD QUARTER 1997 10-Q
5 This schedule contains summary financial information extracted from the September 30, 1997 financial statements and is qualified in its entirety by reference to such financial statements. 0000795445 Advanced Machine Vision Corporation 1000 9-MOS Dec-31-1997 Jan-01-1997 Sep-30-1997 5,581 0 3,248 0 5,338 14,239 6,272 1,771 25,298 6,116 8,351 0 0 24,206 (13,375) 25,298 22,805 22,805 11,230 20,693 (4,989) 0 1,084 6,017 41 5,976 0 0 0 5,976 0.29 0.29 On May 6, 1997, AMV sold Pulsarr for $8.4 million in cash, resulting in a gain of $4,989,000. This gain primarily represents a recovery of the $4,915,000 charge for acquired in-process technology expensed in the quarter ended March 31, 1996.
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