-----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, EVMjBfqt7I0kMZbxSl8MDASDelUZRYHchYH8+aIEbvBzet88QEP2tqflAeu4SJ3I 7QzjviGsoR6BWYdRw7nmrQ== 0000795445-98-000026.txt : 19981102 0000795445-98-000026.hdr.sgml : 19981102 ACCESSION NUMBER: 0000795445-98-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981030 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: 98734450 BUSINESS ADDRESS: STREET 1: 3709 CITATION WAY STREET 2: STE 102 CITY: MEDFORD STATE: OR ZIP: 97504 BUSINESS PHONE: 5417767700 MAIL ADDRESS: STREET 1: 3709 CITATION WAY STREET 2: STE 102 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 FORM 10-Q FOR QUARTER ENDED SEPT. 30, 1998 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, 1998 Commission File No. 0-20097 ADVANCED MACHINE VISION CORPORATION A California Corporation IRS Employer Identification No. 33-0256103 3709 Citation Way #102 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, 1998, registrant had 10,655,218 shares of Class A Common Stock, and 64,335 shares of Class B Common Stock, all no par value, issued and outstanding. Exhibit Index at Page 18 INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets...............................1 Consolidated Statements of Operations - Three Months......2 Consolidated Statements of Operations - Nine Months.......3 Consolidated Statements of Cash Flows.....................4 Notes to Unaudited Consolidated Financial Statements......5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.........................18 Signature................................................21 PART I. FINANCIAL INFORMATION ============================= Item 1. Financial Statements - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Balance Sheets - --------------------------------------------------------------------------------
September 30, December 31, 1998 1997 (unaudited) (audited) ------------- ------------ ASSETS ------ Current assets: Cash and cash equivalents $ 4,285,000 $ 6,045,000 Accounts receivable - net 3,550,000 2,711,000 Inventories 6,563,000 5,181,000 Prepaid expenses 140,000 138,000 ------------- ------------- Total current assets 14,538,000 14,075,000 Property, plant and equipment - net 5,335,000 4,775,000 Intangible assets - net 5,014,000 5,535,000 Other assets 1,185,000 850,000 ------------- ------------- $ 26,072,000 $ 25,235,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 948,000 $ 1,436,000 Accrued liabilities 1,006,000 1,146,000 Customer deposits 535,000 1,073,000 Accrued payroll 1,205,000 783,000 Warranty reserve 447,000 477,000 Current portion of notes payable 3,288,000 27,000 ------------- ------------- Total current liabilities 7,429,000 4,942,000 ------------- ------------- Notes payable, less current portion 5,374,000 8,342,000 ------------- ------------- Commitments and contingencies Shareholders' equity: Common stock: Class A and B--10,720,000 and 10,679,000 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 24,330,000 24,285,000 Common stock warrants 110,000 2,197,000 Additional paid in capital 4,910,000 2,823,000 Accumulated deficit (16,081,000) (17,354,000) ------------- ------------- Total shareholders' equity 13,269,000 11,951,000 ------------- ------------- $ 26,072,000 $ 25,235,000 ============= =============
See Accompanying Notes to Unaudited Consolidated Financial Statements. - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Operations - Three Months - --------------------------------------------------------------------------------
Three Months Ended September 30, -------------------------------- 1998 1997 ---- ---- (unaudited) Net sales $ 5,546,000 $ 5,861,000 Cost of sales 2,667,000 2,832,000 ------------ ------------ Gross profit 2,879,000 3,029,000 ------------ ------------ Operating expenses: Selling and marketing 644,000 1,089,000 Research and development 1,116,000 1,029,000 General and administrative 767,000 581,000 Amortization of intangible assets 174,000 174,000 ------------ ------------ 2,701,000 2,873,000 Income from operations before other income and expense 178,000 156,000 Other income and expense: Investment and other income 72,000 106,000 Interest expense (172,000) (428,000) ------------ ------------ Income before income taxes 78,000 (166,000) Provision for income taxes 3,000 (6,000) ------------ ------------ Net income $ 75,000 $ (160,000) ============ ============ Earnings per share (Note 5): Basic $ 0.01 $ (0.01) =========== ============ Diluted $ 0.01 $ (0.01) =========== ============ Average shares outstanding - assuming dilution 11,234,000 10,865,000 ============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Operations - Nine Months - --------------------------------------------------------------------------------
Nine Months Ended September 30, 1998 1997 ---- ---- (unaudited) Net sales $ 21,736,000 $ 22,805,000 Cost of sales 10,489,000 11,236,000 ------------ ------------ Gross profit 11,247,000 11,569,000 ------------ ------------ Operating expenses: Selling and marketing 2,977,000 3,772,000 Research and development 3,297,000 2,980,000 General and administrative 2,792,000 2,425,000 Amortization of intangible assets 521,000 555,000 ------------ ------------ 9,587,000 9,732,000 Income from operations before other income and expense 1,660,000 1,837,000 Other income and expense: Gain on sale of Pulsarr -- 4,989,000 Investment and other income 183,000 275,000 Interest expense (517,000) (1,084,000) ------------ ------------ Income before income taxes 1,326,000 6,017,000 Provision for income taxes 53,000 41,000 ------------ ------------ Net income $ 1,273,000 $ 5,976,000 ============ ============ Earnings per share (Note 5) Basic $ 0.12 $ 0.53 =========== ============ Diluted $ 0.10 $ 0.41 =========== ============ Average shares outstanding--assuming dilution 13,182,000 15,377,000 ============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. - -------------------------------------------------------------------------------- Advanced Machine Vision Corporation Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Nine Months Ended September 30, ------------------------------- 1998 1997 ---- ---- (unaudited) Cash flows from operating activities: Net income $ 1,273,000 $ 5,976,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Gain on sale of Pulsarr -- (4,989,000) Charge for deferred debt issue costs -- 233,000 Depreciation and amortization 1,051,000 963,000 Changes in assets and liabilities: Accounts receivable (840,000) (527,000) Inventories (1,383,000) (657,000) Prepaid expenses and other assets (334,000) (111,000) Accounts payable, short-term borrowings, accrued liabilities, customer deposits, accrued payroll and warranty reserve (729,000) 2,034,000 ------------ ------------ Net cash (used in) provided by operating activities (962,000) 2,922,000 ------------ ------------ Cash (used in) provided by investing activities: Proceeds from the sale of Pulsarr -- 7,010,000 Purchases of property and equipment (1,088,000) (533,000) ------------ ------------ Net cash (used in) provided by investing activities (1,088,000) 6,477,000 ------------ ------------ Cash provided by (used in) financing activities: Notes payable to bank and others, net 282,000 (3,779,000) Repurchase of common stock and warrants -- (1,962,000) Proceeds from exercise of stock options 8,000 14,000 ------------ ------------ Net cash provided by (used in) financing activities 290,000 (5,727,000) ------------ ------------ Net (decrease) increase in cash (1,760,000) 3,672,000 Cash and cash equivalents, beginning of the period 6,045,000 1,909,000 ------------ ------------ Cash and cash equivalents, end of period $ 4,285,000 $ 5,581,000 ============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ==================================================== Note 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, 1997), reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position at September 30, 1998, and December 31, 1997, the results of operations for the three- and nine-month periods ended September 30, 1998 and 1997 and cash flows for the nine-month periods ended September 30, 1998 and 1997. The financial statements include the accounts of the Company and its four wholly-owned subsidiaries, Applied Laser Systems, Inc., SRC VISION, Inc. ("SRC"), ARC Netherlands BV and its respective subsidiary, Pulsarr Holding BV ("Pulsarr") (see Note 6) to its May 6, 1997 disposition date, and Ventek, Inc. ("Ventek"). 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 1997 annual report on Form 10-K. Note 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 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, and in the case of Pulsarr, through its disposition date. 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. Note 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 convertible into the Company's Class A Common Stock at $1.875 per share. In connection with the borrowing, the Company 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 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 in the quarter ended September 30, 1997. In July 1996, AMV issued the following notes in connection with the acquisition of Ventek: (i) a 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. In April 1998, AMV entered into a credit relationship with Bank of America NT&SA for a line of credit ("LOC") and a new mortgage. The LOC Business Loan Agreement provides that AMV can borrow the lesser of $2,000,000 or the collateral value of pledged marketable securities, for interest at prime rate or the bank's offshore rate plus 1.85% and has an April 30, 1999 expiration date. The $3,000,000 mortgage replaced the 9.75% $2,680,000 prior mortgage, provides for fixed interest at 8.3% and is due on May 1, 2008. Note 4. Equity Transactions; Reduction in Outstanding Securities; Effect of Remaining Warrants, Options and Convertible Securities; Stock Rights Plan - ----------------------------------------------------------------------------- In October 1998, the Company sold 119,106 shares of Series B Preferred Stock to FMC Corporation ("FMC") for $2,620,000. The preferred stock is convertible into 1,191,000 shares of Class A Common Stock, which, if converted, represents a 10% ownership position based on the number of common shares outstanding on the transaction date. Each share of preferred stock is allowed ten votes in matters placed before the common stockholders except in the election of directors, in which case FMC has the right to elect one director. The preferred stock pays no dividends. The preferred stock has a $22 per share liquidation preference. FMC also has a five-year option to purchase a number of shares of common stock equal to 15% of the shares outstanding on the exercise date at a price equal to the greater of the then-current market value of the AMV common stock or $2.20 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. On September 25, 1997, the three key employees contributed back to the Company 1,800,000 shares which were canceled. The remaining 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. If any of the conditions are not met, the stock will be forfeited and returned to the Company. Between March 8, 1997 and July 31, 1998, 188,400 Unit Purchase Options (to acquire 1,696,000 shares of stock) originally issued in connection with the Company's 1992 initial public offering, 135,000 Laidlaw warrants, 300,000 Gerinda warrants, the Company's Class A, B and C Warrants to purchase approximately 11.4 million shares and 275,000 Class D Warrants 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. In June 1998, the Class I Warrant was amended to reduce the number of shares issuable pursuant to the warrant from 1,000,000 to 250,000. Schedule of Outstanding Stock, Warrants and Potential Dilution: The following table summarizes, as of October 15, 1998, outstanding common stock, potential dilution to the outstanding common stock upon exercise of warrants or conversion of convertible debt, and proforma proceeds or debt reduction from the exercise or conversion. The table also sets forth the exercise or conversion prices and warrant expiration and debt due dates.
Proforma Number or Principal Common Proceeds Amount Outstanding Stock After Conversion or Debt Security at October 15, 1998 Conversion Price Reduction - ---------------------------------------------------------------------------------------------------------------- Outstanding Common Stock 10,720,000 Warrants (expiration date): G (2/28/99) 240,000 240,000 $ 2.00 $ 480,000 I (7/23/01) 250,000 (A) 250,000 2.25 563,000 J (9/30/99) 300,000 300,000 2.03 609,000 ------------ ------------ 790,000 1,652,000 ------------ ------------ Convertible Debt (due date): 6.75% Notes (4/16/01) $ 900,000 423,000 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 (A) 1,800,000 1,529,000 ------------ ------------ 3,223,000 4,679,000 ------------ ------------ Convertible Preferred Stock 119,100 1,191,000 ------------ Potentially outstanding shares and proforma proceeds or reduction of debt 15,924,000 $ 6,331,000 ============ ============
(A) The Company issued the $1,529,000 note and Class I Warrant in connection with the Ventek acquisition (see Note 3). 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 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 or preferred stock will be converted. In addition to the FMC option described above, on September 30, 1998, AMV had outstanding options to purchase 3,720,000 shares of Class A Common Stock, 3,089,000 of which are under its stock option plans. The existence of these outstanding warrants, options, and convertible debt and preferred stock, including options that may be granted under AMV's Stock Option Plans or otherwise, 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, convertible debt and preferred stock, 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. Stock Rights Plan: In February 1998, the Company implemented a stock rights program. Pursuant to the program, stockholders of record on February 27, 1998 received a dividend of one right to purchase for $15 one one-hundredth of a share of a newly created Series A Junior Participating Preferred Stock. The rights are attached to AMV's Class A Common Stock and will also become attached to shares issued in the future. The rights will not be traded separately and will not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of AMV's Class A Common Stock. The rights will expire on February 26, 2008 and are redeemable at $.0001 per right. After a triggering event, the rights will detach from the Class A Common Stock. If AMV is then merged into, or is acquired by, another corporation, the Company has the opportunity to either (i) redeem the rights or (ii) permit the rights holder to receive in the merger stock of AMV or the acquiring company equal to two times the exercise price of the right (i.e., $30). In the latter instance, the rights attached to the acquirer's stock become null and void. The effect of the rights program is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of AMV's Board of Directors, the offer is inadequate. Note 5. Earnings Per Share - --------------------------- The computation of earnings per share is presented in the following tables:
For the Three Months Ended September 30, ------------------------------------------------------------------------- 1998 1997 --------------------------------- --------------------------------- Income Shares Income Shares ------------- ------------- ------------- -------------- Calculation of EPS Income (loss) available to common shareholders $ 75,000 10,720,000 $ (160,000) 11,065,000 Reduction for contingently returnable shares as all conditions were not met as of period end -- (200,000) -- (200,000) ------------- ------------- ------------- ------------- Income (loss) available to common shareholders $ 75,000 10,520,000 $ (160,000) 10,865,000 ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------------- Basic EPS $ 0.01 $ (0.01) - ---------------------------------------------------------------------------------------------------------------- Effect of Dilutive Securities: Stock options $ -- 714,000 $ -- -- ------------- ------------- ------------- ------------- Income available to common shareholders and assumed conversions $ 75,000 11,234,000 $ (160,000) 10,865,000 ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------------- Diluted EPS $ 0.01 $ (0.01) - ---------------------------------------------------------------------------------------------------------------- For the Nine Months Ended September 30, ------------------------------------------------------------------------ 1998 1997 --------------------------------- -------------------------------- Income Shares Income Shares ------------- ------------- ------------- ------------- Calculation of EPS Income (loss) available to common shareholders $ 1,273,000 10,716,000 $ 5,976,000 11,382,000 Reduction for contingently returnable shares as all conditions were not met as of period end -- (200,000) -- (200,000) ------------- ------------- ------------- ------------- Income (loss) available to common shareholders $ 1,273,000 10,516,000 $ 5,976,000 11,182,000 ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------------- Basic EPS $ 0.12 $ 0.53 - ---------------------------------------------------------------------------------------------------------------- Effect of Dilutive Securities: Stock options and warrants $ -- 866,000 $ -- 973,000 Note and stock appreciation rights agreement 75,000 1,800,000 75,000 1,800,000 Convertible debt -- -- 189,000 1,422,000 ------------- ------------- ------------- ------------- Income available to common shareholders and assumed conversions $ 1,348,000 13,182,000 $ 6,240,000 15,377,000 ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------------- Diluted EPS $ 0.10 $ 0.41 - ----------------------------------------------------------------------------------------------------------------
The number of shares of common stock, along with their respective exercise prices, underlying options, warrants and convertible debt, which were excluded from the computation of diluted EPS because their exercise prices were greater than the average market price of common stock, are listed below. September 30, ----------------------------- 1998 1997 ------------- ------------- Number of shares of common stock exercisable from: Options 1,279,500 820,000 Warrants 790,000 13,212,000 ------------- ------------- 2,069,500 14,032,000 ============= ============= Exercise price ranges $1.88 - $4.63 $2.03 - $4.94 Note 6. Acquisition and Sale of Pulsarr - ---------------------------------------- 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. This acquisition was accounted for under the purchase method of accounting. On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of Belgium for $8.4 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 $5 million gain on the sale was largely a result of 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 condensed combined statements of operations, shown below as supplemental information, assume that Pulsarr was sold at the beginning of 1997. However, the proforma combined balances are not necessarily indicative of balances which would have resulted had the divestiture occurred as of the beginning of the nine-month period ending September 30, 1997. Condensed combined statements of operations are presented below: Nine Months Ended September 30, ------------------------------- 1998 1997 (Actual) (Proforma) ------------- ------------- Sales $ 21,736,000 $ 20,247,000 ============= ============= Gross profit $ 11,247,000 $ 10,651,000 ============= ============= Net income $ 1,273,000 $ 975,000 ============= ============= Earnings per share: Basic $ 0.12 $ 0.09 ============= ============= Diluted $ 0.10 $ 0.08 ============= ============= Note 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: Sept. 30, Dec. 31, 1998 1997 ------------- ------------- Raw materials $ 2,250,000 $ 1,584,000 Work-in-process 1,187,000 1,359,000 Finished goods 3,126,000 2,238,000 ------------- ------------- $ 6,563,000 $ 5,181,000 ============= ============= Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- On March 1, 1996, the Company acquired Pulsarr. In May 1997, the Company sold Pulsarr for $8.4 million (see Note 6 to the Consolidated Financial Statements). The discussion below pertains to the operations of AMV with Pulsarr through its disposition date. The Company's backlog at September 30, 1998, was $2,934,000 compared to $7,635,000 as of September 30, 1997. Results of Operations - Comparison between three months ended September 30, 1998 and September 30, 1997: - ----------------------- Sales for the three months ended September 30, 1998 ("Q3 1998") were $5,546,000, down 5% when compared to sales for the three months ended September 30, 1997 ("Q3 1997") of $5,861,000. The decrease in sales is due to lower sales at SRC partially offset by higher sales at Ventek. Gross profit decreased by $150,000 to $2,879,000 in Q3 1998 when compared to $3,029,000 of gross profit in Q3 1997. The decrease in gross profit is due to the decrease in sales. Gross profit as a percentage of sales was 52% in both periods. Selling and marketing expense decreased by $445,000 in Q3 1998 from Q3 1997 to $644,000 amounting to 12% of sales in Q3 1998. Similar expenses in Q3 1997 were $1,089,000, or 19% of sales. The decrease in selling and marketing expenses as a percentage of sales is due to lower external commissions and reduced demonstration equipment expenses. Research and development expenses were $1,116,000 and $1,029,000 in Q3 1998 and Q3 1997, or 20% and 18% of sales, respectively. The increase in research and development expenses is related to new projects, which include developing new lighting, camera and software technologies. General and administrative expenses increased $186,000 to $767,000 in Q3 1998 from $581,000 in Q3 1997. The increase in general and administrative expenses is due principally to costs associated with a project of reevaluating the financial and operational processes and procedures at SRC in preparation for possible future growth of SRC's business. Interest expense in Q3 1997 included a charge for deferred debt issuance costs of $233,000 as the result of the early repayment of $2,500,000 of convertible notes payable. The remaining decrease in interest expense is due to reduced debt balances outstanding. Net income for Q3 1998 was $75,000 as compared to a net loss of $160,000 in Q3 1997. Excluding the charge for deferred debt issue costs, net income for Q3 1997 was $73,000. Results of Operations - Comparison between nine months ended September 30, 1998 and September 30, 1997: - ----------------------- Sales for the nine months ended September 30, 1998 ("the 1998 Period") were $21,736,000, down 5% when compared to sales for the nine months ended September 30, 1997 ("the 1997 Period") of $22,805,000. The decrease is due to the sale of Pulsarr, which generated revenues of $2,558,000 in 1997 and a decrease in sales at Ventek of $1,104,000. These decreases were largely off by increased sales at SRC of $2,593,000. Gross profit decreased by 3% to $11,247,000 in the 1998 Period when compared to $11,569,000 of gross profit in the 1997 Period. In 1998, gross profit was 52% of sales as compared to 51% in 1997. The increase in gross profit as a percentage of sales is due to a change in product mix to higher margin products at SRC and the elimination of lower margin Pulsarr products. These increases were partially offset by a lower sales volume of higher-margin Ventek products. Selling and marketing expense decreased 21% in the 1998 Period from the 1997 Period to $2,977,000 amounting to 14% of sales in 1998. Similar expenses in the 1997 Period were $3,772,000, or 17% of sales. The decrease in selling and marketing expenses as a percent of sales is the result of lower external commissions, reduced spending on advertising and marketing and the spreading the fixed sales costs at SRC over a larger sales base. Research and development expenses were $3,297,000 and $2,980,000 in the 1998 Period and the 1997 Period, or 15% and 13% of sales, respectively. The increase in research and development expense in 1998 is related to new projects, which include developing new lighting, camera and software technologies. General and administrative expenses increased $367,000 to $2,792,000 in the 1998 Period from $2,425,000 in the 1997 Period. The increase in general and administrative expenses is due principally to costs associated with a project of reevaluating the financial and operational processes and procedures at SRC in preparation for possible future growth of SRC's business. On May 6, 1997, AMV sold Pulsarr to Barco NV of Belgium for $8.4 million, 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. Interest expense in 1997 included a charge for deferred debt issuance costs of $233,000 as a result of the early repayment of $2,500,000 of convertible notes payable. The remaining decrease in interest expense is due to lower debt balances outstanding. Net income for 1998 was $1,273,000 as compared to a net income of $5,976,000 in 1997. Excluding the gain on the sale of Pulsarr and the charge for deferred debt issuance costs, net income for the 1997 Period was $1,220,000. Liquidity and Capital Resources - ------------------------------- The Company's cash balance and working capital were $4,285,000 and $7,109,000, respectively, at September 30, 1998 as compared to $6,045,000 and $9,133,000, respectively, at December 31, 1997. The Company's long-term debt decreased by approximately $3 million primarily as a result of the current classification of debt relating to the Ventek acquisition which is due in July 1999. Equity balances at September 30, 1998 and December 31, 1997 were similar. During the 1998 Period, net cash used in operating activities totaled $962,000 compared to cash provided by operating activities of $2,922,000 in the 1997 Period. Larger increases in receivables, inventories and other assets as well as a large reduction of accounts payable, accrued liabilities and customer deposits in the 1998 Period as compared to the 1997 Period caused the change in cash used in operations in the 1998 Period as compared to cash generated in the 1997 Period. Cash used in investment activities totaled $1,088,000 in 1998 compared to cash provided by investment activities of $6,477,000 in 1997. The Company purchased 3.4 acres of land adjacent to its Medford, Oregon facility for approximately $460,000 during the 1998 Period. The 1997 Period includes approximately $7 million provided from the sale of Pulsarr. The Company has no material commitments for capital expenditures at September 30, 1998. Cash provided by financing activities totaled $290,000 in 1998 as compared to cash used in financing activities of $5,727,000 in 1997. In April 1998, the Company refinanced its existing $2,680,000 mortgage due 2003 with a new $3,000,000 mortgage due 2008. The mortgage interest rate was lowered from 9.75% to 8.3%. Additionally, the Company obtained a $2,000,000 revolving line of credit that will expire on April 30, 1999. The 1997 Period includes the purchase of 1,001,640 shares of Class A Common Stock and 640,000 warrants to purchase Class A Common Stock for $1,962,000, the early repayment of $2,500,000 of its $3,400,000 Convertible Note dated April 1996, and the final payment of $1,265,000 related to the payoff of a Convertible Note dated April 1995. In October 1998, the Company received $2,620,000 from FMC Corporation for 119,106 shares of newly issued Series B Preferred Stock (see Note 4 to Consolidated Financial Statements). 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. Cautionary Statements and Risk Factors - -------------------------------------- The Company and its representatives may from time to time make written or oral forward-looking statements with respect to long-term objectives or expectations of the Company, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to stockholders. The words or phrases "will likely," "are expected to," "is anticipated," "is predicted," "forecast," "estimate," "project," "plans to continue," "believes," or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In connection with the "Safe Harbor" provisions on the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company cautions that the following list of important factors may not be all inclusive, and it specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Among the factors that could have an impact on the Company's ability to achieve its operating results and growth plan goals and/or affect the market price of the Company's stock are: * The Company's history of losses and negative cash flow. * Fluctuations in quarterly operating results and seasonality in certain of the Company's markets. * Rapid technological change in the Company's markets and the need for new product development. * Market acceptance of the Company's new products. * AMV's dependence on certain markets and the need to expand into new markets. * The lengthy sales cycle for the Company's products. * The Company's highly competitive marketplace. * The dependence on certain suppliers. * The risks associated with dependence upon significant customers and reliance on certain distributors. * The risks associated with international sales. * The uncertain ability to manage growth and integrate acquired businesses. * Risks associated with acquisitions and other relationships. * Dependence upon key personnel. * The Company's ability to protect its intellectual property. * The possibility of product liability or other legal claims. * Exposure to possible warranty and litigation claims. * The possible need for additional financing. * The impact of the 1998 Shareholder Rights Plan. * The inability of the Company or its suppliers or customers to remedy potential problems with information systems related to the arrival of the year 2000. These risk factors are discussed in further detail below. History of Losses; Negative Cash Flow: - --------------------------------------- Prior to 1995 and in 1996, the Company experienced losses and negative operating cash flow. The Company believes it may operate at a negative cash flow for certain periods in the future due to (i) the need to fund certain development projects, (ii) cash required to enter new market areas, (iii) irregular bookings by customers due to seasonality or economic downturns in some markets and the relatively high per-unit cost of the Company's products which may cause fluctuations in quarterly or yearly revenues, (iv) cash required for the repayment of debt, especially $3.25 million due in July 1999, and (v) possible cash needed to fully integrate SRC's and Ventek's operations. If the Company is unable to consistently generate sustained positive cash flow from operations, the Company must rely on debt or equity financing. Although the Company achieved profitability in 1995, 1997 and the first nine months of 1998, 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 loss for the 1996 year. 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 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. For example, the Company may experience lower sales and order levels in the first quarter when compared with the preceding fourth quarter due to the seasonality of certain harvested food items and the timing of annual or semi-annual customer plant shut-downs during which systems are installed. The Company expects these patterns to continue. 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 the Company's products depend in part on the continuing development and deployment of new technology and services and applications. 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 noncompetitive 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. 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 markets 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 other 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 non-food 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 cyclical, and saturation of that market and the potential inability to identify and develop new markets could adversely affect Ventek's growth rate. The Company may not be able to 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 $150,000 to $600,000 price range for each system and possibly significant ancillary costs required for a customer to install the 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 introduced several years ago a new optical sorter product which has increased the competition that the Company faces. In the case of Ventek, the wood industry continues to develop alternative products to plywood (e.g., oriented strand board) which do not require vision systems for quality control. 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, the Company may not 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 an unaffiliated customer totaling 14% of sales in 1997 and to two unaffiliated customers totaling 13% and 12% of sales in 1996. Sales to another two unaffiliated customers totaled 19% and 16% of sales in 1995. Ventek's sales have been to a relatively small number of multi-location plywood manufacturers. In the emerging pulp wood industry, the Company utilizes a single exclusive distributor for its products in North America. In 1998, the Company entered an agreement with FMC Corporation to be its exclusive or nonexclusive sales representative in much of the United States and in many areas in the rest of the world. While the Company strives to create long-term relationships with its customers, distributors and representatives, there can be no assurance that they will continue ordering or selling additional systems. The Company may continue to be dependent on a small number of customers, distributors and representatives, 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. For example, the possibility of sales to Indonesian customers has been adversely affected by the recent currency devaluation. 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. Uncertain Ability to Manage Growth and Integrate Acquired Businesses: - --------------------------------------------------------------------- As part of its business strategy, the Company intends to pursue rapid growth. In March and July 1996, the Company acquired Pulsarr and Ventek. Pulsarr was subsequently sold in May 1997. A growth strategy involving the integration of new entities, such as Ventek, will require the establishment of a sales representative and distribution relationships, 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. Risks Associated With 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 presently has no understandings, commitments or agreements with respect to any further acquisition, the Company anticipates that 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. For these reasons, any acquisition or joint venture by the Company may have an adverse effect on the Company's results of operations or may result in dilution to existing shareholders. If additional attractive opportunities become available, the Company may decide to pursue them actively. Any future acquisitions or joint ventures may 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. 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, such patents may not 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, patent 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, the Company may not be able to maintain product liability insurance on acceptable terms in the future. 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. In the past, the Company has incurred higher warranty expenses related to new products than it typically incurs with established products. The Company may 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. Possible Need for Additional Financing: - --------------------------------------- The Company may seek additional financing; however, the Company may not be able to obtain any additional financing on terms satisfactory to the Company, if at all. Potential increases in the number of outstanding shares of the Company's Class A Common Stock due to convertible debt and preferred stock, warrants and stock options, a substantial loss in 1996 and debt incurred for the acquisition of Ventek due in 1999, may limit the Company's ability to negotiate additional debt or equity financing. Shareholder Rights Plan: - ------------------------ In February 1998, the Company implemented a stock rights program. Pursuant to the program, stockholders of record on February 27, 1998 received a dividend of one right to purchase for $15 one one-hundredth of a share of a newly created Series A Junior Participating Preferred Stock. The rights are attached to AMV's Class A Common Stock and will also become attached to shares issued in the futre. The rights will not be traded separately and will not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of AMV's Class A Common Stock. The rights will expire on February 26, 2008 and are redeemable at $.0001 per right. After a triggering event, the rights will detach from the Class A Common Stock. If AMV is then merged into, or is acquired by, another corporation, the Company has the opportunity to either (i) redeem the rights or (ii) permit the rights holder to receive in the merger stock of AMV or the acquiring company equal to two times the exercise price of the right (i.e., $30). In the latter instance, the rights attached to the acquirer's stock become null and void. The effect of the rights program is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of AMV's Board of Directors, the offer is inadequate. In October 1998, FMC acquired 119,106 shares of the Company's Series B Preferred Stock, which, if converted into common stock in accordance with its terms, represents a 10% ownership position in the Company. FMC also received a five-year option to acquire 15% of the Company's outstanding common stock on the date of exercise. While FMC's resulting beneficial ownership exceeds 20%, the transaction was not a triggering event as defined in the Stock Rights Plan since the acquisition of shares was directly from the Company. As stated in a Schedule 13D filed with the Securities and Exchange Commission on October 22, 1998, FMC's purpose was to invest in the Company and its technology. FMC currently intends to review its investment position in the Company periodically and, depending on such review and factors including market conditions and share prices, the Company's business prospects, technology, future developments and applicable legal requirements, FMC may seek to acquire additional securities of the Company from time to time in the open market or in negotiated transactions. Such possible additional acquisitions may result in triggering events. While the Company is not aware of any other circumstance that might result in the acquisition of a sufficient number of shares of the Company's common stock to trigger distribution of the Rights, existence of the Rights could discourage offers for the Company's stock that may exceed the current market price of the stock, but that the Board of Directors deems inadequate. Year 2000 Issues: - ----------------- AMV has established a company-wide initiative to examine the implications of the Year 2000 on the Company's computing systems and related technologies, and to assess the potential need for changes. The Company has identified areas of potential business impact, and appropriate modifications to its computing systems are underway. Management believes this will be accomplished in a timely manner. The Company is also communicating with suppliers and customers to coordinate Year 2000 conversion. Management does not currently believe that the costs related to the Company's compliance with the Year 2000 issue will have a material adverse effect on the Company's financial position, results of operations or cash flows. However, in the event that the Company or any of the Company's significant suppliers or customers experience disruptions due to the Year 2000 issue, the Company's operations could be adversely affected. PART II. OTHER INFORMATION ========================== Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits - ------------- Exhibit Number Description ------- ----------- 3.1 Restated Articles of Incorporation of the Company as amended to date. (8) 3.2 Restated and Amended By-Laws of the Company. (2) 4.1 Form of Class D Warrant Agreement. (1) 4.2 Form of Class G Warrant Agreement. (3) 4.3 Form of Class H Warrant Agreement. (7) 4.4 Form of Class I Warrant Agreement. (5) 4.5 Form of Laidlaw Warrant Agreement. (5) 4.6 Form of stock option agreement. (4) 4.7 Form of 1997 Restricted Stock Plan and restricted stock agreement. (6) 4.8 Form of amendments to restricted stock agreements. 4.9 Rights Agreement dated February 27, 1998 between the Company and American Stock Transfer and Trust Company. (12) 4.10 Amendment to Class I Warrant Agreement. (14) 4.11 Form of Certificate of Determination for Series A Junior Participating Preferred Stock. (15) 4.12 Form of Certificate of Determination for Series B Preferred Stock. (17) 10.1 Form of Indemnity Agreement between the Company and each of its officers and directors. (1) 10.2 Employment Agreement between Alan R. Steel and the Company dated January 1, 1998. (13) 10.3 Employment Agreement between William J. Young and the Company dated January 1, 1998. (13) 10.4 Employment Agreement between William J. Young and SRC VISION, Inc. dated January 1, 1998. (13) 10.5 Employment Agreement between James Ewan and SRC VISION, Inc. dated January 1, 1998. (13) 10.6 Subscription Agreement dated April 9, 1996, between the Company and Swiss American Securities, Inc., as agent for Credit Suisse, related to the private placement of $3,400,000 of convertible secured notes. (3) 10.7 Convertible Secured Note dated April 17, 1996, between the Company and Ilverton International, Inc. (7) 10.8 Asset Purchase Agreement dated July 24, 1996, by and among AMV, Ventek and the shareholders of Ventek. (5) 10.9 $1,000,000 Note dated July 24, 1996, between AMV and Ventek. (5) 10.10 $2,250,000 Convertible Note dated July 24, 1996, between AMV and Ventek. (5) 10.11 $1,125,000 Note dated July 24, 1996, between AMV and Ventek. (5) 10.12 Stock Appreciation Rights Agreement dated July 24, 1996 between AMV and Ventek. (5) 10.13 Form of Employment Agreement dated July 24, 1996 between Ventek and each of the four stockholders of Ventek. (5) 10.14 Pledge and Security Agreement dated July 24, 1996, by and among AMV, AMV Subsidiary, Inc., Ventek and Solin and Associates, P.C. (5) 10.15 1997 SRC VISION, Inc. Stock Option Plan and forms of stock option agreements. (11) 10.16 Plan of Merger between ARC Capital and AMV to effect an amendment to the Company's Articles of Incorporation to change the Company's name from ARC Capital to Advanced Machine Vision Corporation. (8) 10.17 Share Purchase Agreement dated April 29, 1997 between Barco NV and ARC Netherlands BV. (9) 10.18 Settlement Agreement dated August 12, 1997. (10) 10.19 1997 Nonqualified Stock Option Plan and form of option agreement. (10) 10.20 Business Loan Agreement dated April 30, 1998 between AMV and Bank of America NT&SA, together with related documents. (16) 10.21 Promissory Note dated April 24, 1998 to Bank of America NT&SA, together with related documents. (16) 10.22 $250,000 Note dated June 5, 1998 from Rodger A. Van Voorhis to Ventek. (14) 10.23 Series B Preferred Stock Purchase Agreement between AMV and FMC Corporation dated October 14, 1998. (17) 10.24 Intellectual Property and Security Agreement dated October 14, 1998 between SRC VISION, Inc. and FMC Corporation. (17) 27 Financial Data Schedule. - ------------------ (1) Previously filed as an exhibit to Form S-1 (File No. 33-45126). (2) Previously filed as an exhibit to Form S-3 (File No. 333-10847). (3) Filed with the SEC on April 14, 1996, as an exhibit to the Company's Form 10-K for the year ended December 31, 1995. (4) Filed with the SEC as an exhibit to Form S-1 (File No. 33-45126). (5) Filed with the SEC on July 30, 1996, as an exhibit to the Company's Form 8-K dated July 24, 1996. (6) Filed with the SEC on January 22, 1997, as an exhibit to the Company's Form 8-K dated January 9, 1997. (7) Filed with the SEC on May 14, 1996, as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 1996. (8) Filed with the SEC on May 14, 1997 as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 1997. (9) Filed with the SEC on May 9, 1997 as an exhibit to the Company's Form 8-K regarding the sale of Pulsarr. (10) Filed with the SEC on October 30, 1997 as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 1997. (11) Filed with the SEC on March 31, 1997 as an exhibit to the Company's Form 10-K for the year ended December 31, 1996. (12) Filed with the SEC on February 20, 1998 as an exhibit to the Company's Form 8-A. (13) Filed with the SEC on February 27, 1998 as an exhibit to the Company's Form 8-K regarding implementation of a stock rights program and employment contracts. (14) Filed with the SEC on June 15, 1998 as an exhibit to the Company's Form 8-K dated June 5, 1998. (15) Filed with the SEC on February 27, 1998 as an exhibit to the Company's Form 8-A dated February 27, 1998. (16) Filed with the SEC on August 4, 1998 as an exhibit to the Company's Form 10-Q dated August 4, 1998. (17) Filed with the SEC on October 19, 1998 as an exhibit to the Company's Form 8-K dated October 14, 1998. (b) Reports on Form 8-K: - ------------------------- On February 27, 1998, a Form 8-K was filed regarding the implementation of a stock rights program and employment contracts. On June 15, 1998, a Form 8-K was filed regarding a $250,000 loan to a director and reduction in the number of shares of common stock issuable upon exercise of the Class I Warrant. On September 14, 1998, a Form 8-K was filed regarding a non-binding letter of intent between the Company and FMC Corporation ("FMC") whereby FMC may acquire 119,106 shares of the Company's Series B Preferred Stock for $2.6 million. On October 19, 1998, a Form 8-K was filed regarding the completion of FMC's purchase of 119,106 shares of the Company's Series B Preferred Stock. 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, 1998 /s/ Alan R. Steel - ------------------------------- ------------------------------- Alan R. Steel Vice President, Finance (Principal Financial and duly Authorized Officer) EX-4 2 EXHIBIT 4.8 FORM OF AMENDMENTS TO RESTR. STOCK AGR Exhibit 4.8 ADVANCED MACHINE VISION CORPORATION AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT ============================================= THIS AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT ("Amendment") is made as of September 25, 1997 by and between _________________________ ("Employee") and Advanced Machine Vision Corporation (the "Company"). R E C I T A L On January 10, 1997, Employee and Company entered a Restricted Stock Agreement ("Agreement") pursuant to which Employee was granted _____________ shares of restricted stock pursuant to the 1997 Restricted Stock Plan ("Plan"). The restrictions as to 10% of the shares (the "10% shares") were that Employee must remain employed on the third anniversary of the Agreement and pay to the Company $1.80 per share. The restrictions as to 90% of the shares (the "90% shares") were the same as for the 10% shares and a requirement that the closing price of the Company's Class A Common Stock be at least $20 per share for 30 consecutive days at any time prior to the third anniversary date of the Agreement. A G R E E M E N T NOW, THEREFORE, to simplify the Company's capital structure and in an effort to increase shareholder value through the reduction of total outstanding shares, Employee contributes back to the Company ___________ shares of restricted stock which constitutes the 90% Shares. The 90% Shares will be canceled by the Company, and a new share certificate will be issued to the Employee for the 10% Shares. The 90% Shares shall once again become available under the Plan. The restrictions and other terms of the Agreement with respect to the 10% Shares shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. ADVANCED MACHINE VISION CORPORATION By_________________________________ Title:_____________________________ EMPLOYEE ___________________________________ (Signature) Address: ___________________________________ ___________________________________ ADVANCED MACHINE VISION CORPORATION AMENDMENT NO. 2 TO RESTRICTED STOCK AGREEMENT ============================================= THIS AMENDMENT NO. 2 TO RESTRICTED STOCK AGREEMENT ("Amendment") is made as of August 5, 1998 by and between ________________________ ("Employee") and Advanced Machine Vision Corporation (the "Company"). R E C I T A L S On January 10, 1997, Employee and Company entered a Restricted Stock Agreement ("Agreement") pursuant to which Employee was granted _____________ shares of restricted stock pursuant to the 1997 Restricted Stock Plan ("Plan"). The restrictions as to 10% of the shares (the "10% shares") were that Employee must remain employed on the third anniversary of the Agreement and pay to the Company $1.80 per share. The restrictions as to 90% of the shares (the "90% shares") were the same as for the 10% shares and a requirement that the closing price of the Company's Class A Common Stock be at least $20 per share for 30 consecutive days at any time prior to the third anniversary date of the Agreement. To simplify the Company's capital structure and in an effort to increase shareholder value through the reduction of total outstanding shares, Employee contributed back to the Company ___________ shares of restricted stock which constituted the 90% Shares. The 90% Shares were canceled by the Company. The restrictions and other terms of the Agreement with respect to the 10% Shares remained unchanged. A G R E E M E N T NOW, THEREFORE, to clarify the forfeiture language in Paragraph 2 of the Restricted Stock Agreement, such paragraph is amended as follows: In the fourth line of paragraph 2, the phrase "terminates for any reason at any time prior to the third anniversary of this award or if the payments required hereunder are not made" is replaced by "is terminated for cause at any time prior to the third anniversary date of this award or if the payments required hereunder are not made within 90 days of termination other than for cause, including constructive termination and termination following a change in control (the terms "cause," "constructive termination" and "change in control" are as defined in the January 1, 1998 employment agreement between Employee and the Company)." IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. ADVANCED MACHINE VISION CORPORATION By_________________________________ Title:_____________________________ EMPLOYEE ___________________________________ (Signature) Address: ___________________________________ ___________________________________ EX-27 3 FINANCIAL DATA SCHEDULE, THIRD QUARTER 1998 10-Q
5 The schedule contains summary financial information extracted from the September 30, 1998 financial statements and is qualified in its entirety by reference to such financial statements. 0000795445 Advanced Machine Vision Corporation 1000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 4,285 0 3,550 0 6,563 14,538 7,822 2,487 26,072 7,429 5,374 0 0 24,330 (11,061) 26,072 21,736 21,736 10,489 19,893 0 0 517 1,326 53 1,273 0 0 0 1,273 .12 .10
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