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 JUNE 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 June 30, 1997, registrant had 13,304,857 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
<PAGE>
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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
================================================================================
Advanced Machine Vision Corporation
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,534,000 $ 1,909,000
Accounts receivable, net 3,637,000 4,979,000
Inventories 4,941,000 8,132,000
Prepaid expenses 103,000 391,000
------------- -------------
Total current assets 17,215,000 15,411,000
Property, plant and equipment, net 4,435,000 6,488,000
Intangible assets, net 5,873,000 7,876,000
Other assets 923,000 1,163,000
------------- -------------
$ 28,446,000 $ 30,938,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,170,000 $ 1,897,000
Short-term borrowings -- 947,000
Accrued liabilities 1,209,000 1,299,000
Customer deposits 705,000 2,463,000
Accrued payroll 1,122,000 707,000
Warranty reserve 405,000 479,000
Current portion of notes payable 25,000 1,706,000
------------- -------------
Total current liabilities 4,636,000 9,498,000
------------- -------------
Notes payable, less current portion 10,857,000 14,940,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A - no par value, one vote per share: 60,000,000
shares authorized, 13,305,000 and 11,140,000
shares issued and outstanding at June 30, 1997
and December 31, 1996, respectively 25,926,000 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 June 30, 1997 and
December 31, 1996, respectively 62,000 72,000
Common stock warrants 2,377,000 2,403,000
Additional paid in capital 2,822,000 2,797,000
Accumulated deficit (18,234,000) (24,370,000)
Cumulative translation adjustment -- (50,000)
------------- -------------
Total shareholders' equity 12,953,000 6,500,000
------------- -------------
$ 28,446,000 $ 30,938,000
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
1
<PAGE>
================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 7,607,000 $ 6,419,000
Cost of sales 3,674,000 3,821,000
------------ ------------
Gross profit 3,933,000 2,598,000
------------ ------------
Operating expenses:
Selling and marketing 1,430,000 877,000
Research and development 932,000 1,125,000
General and administrative 812,000 1,181,000
Amortization of intangible assets 182,000 99,000
------------ ------------
3,356,000 3,282,000
Income (loss) from operations before other income and expense 577,000 (684,000)
Other income and expense:
Gain on sale of Pulsarr 4,989,000 --
Investment and other income 112,000 36,000
Interest expense (296,000) (252,000)
------------ ------------
Income (loss) before income taxes 5,382,000 (900,000)
Provision for income taxes 15,000 --
------------ ------------
Net income (loss) $ 5,367,000 $ (900,000)
============ ============
Earnings (loss) per share (Note 5) $ 0.22 $ (0.08)
=========== ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 16,944,000 $ 10,032,000
Cost of sales 8,404,000 5,955,000
------------ ------------
Gross profit 8,540,000 4,077,000
------------ ------------
Operating expenses:
Selling and marketing 2,683,000 1,691,000
Research and development 1,951,000 1,943,000
General and administrative 1,844,000 2,064,000
Amortization of intangible assets 381,000 194,000
Charge for acquired in-process technology -- 4,915,000
Charge for royalty expense -- 647,000
------------ ------------
6,859,000 11,454,000
Income (loss) from operations before other income and expense 1,681,000 (7,377,000)
Other income and expense:
Gain on sale of Pulsarr 4,989,000 --
Investment and other income 169,000 104,000
Interest expense (656,000) (424,000)
------------ ------------
Income (loss) before income taxes 6,183,000 (7,697,000)
Provision for income taxes 47,000 --
------------ ------------
Net income (loss) $ 6,136,000 $ (7,697,000)
============ ============
Earnings (loss) per share (Note 5) $ 0.28 $ (0.74)
=========== ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 6,136,000 $ (7,697,000)
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 -- 647,000
Depreciation and amortization 633,000 473,000
Changes in assets and liabilities (net of amounts purchased in
acquisition):
Accounts receivable (916,000) (36,000)
Inventories (260,000) (1,689,000)
Prepaid expenses and other assets 33,000 (697,000)
Accounts payable, short-term borrowings, accrued liabilities,
customer deposits, accrued payroll, and warranty reserve 547,000 2,735,000
------------ --------------
Net cash (used in) provided by operating activities 1,184,000 (1,349,000)
------------ --------------
Cash (used in) provided by investing activities:
Proceeds from the sale of Pulsarr 7,010,000 --
Acquisition of Pulsarr -- (6,225,000)
Purchases of property and equipment (310,000) (1,361,000)
------------- --------------
Net cash provided by (used in) investing activities 6,700,000 (7,586,000)
------------ ---------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net (1,273,000) 4,270,000
Proceeds from common stock issuances -- 2,000,000
Proceeds from exercise of stock options 14,000 60,000
Debt issuance costs -- (400,000)
------------ --------------
Net cash provided by financing activities (1,259,000) 5,930,000
------------ --------------
Net (decrease) increase in cash 6,625,000 (3,005,000)
Cash and cash equivalents, beginning of the period 1,909,000 4,171,000
------------ --------------
Cash and cash equivalents, end of the period $ 8,534,000 $ 1,166,000
============ ==============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
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 June 30, 1997, and December 31, 1996, the results of operations and cash
flows for the three- and six-month periods ended June 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).
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 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
principal amount is due in April 2001. 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 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
==========================================================
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.
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 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, 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, 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. If any of these conditions are not met, 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, thereby reducing potentially outstanding shares and
proforma proceeds in the table below by 2,130,000 and $7,804,000, respectively.
Schedule of Outstanding Stock, Warrants, Units and Potential Dilution:
- ---------------------------------------------------------------------------
The following table summarizes, as of August 2, 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.
<TABLE>
<CAPTION>
Proforma
Number or Principal Class A Common Proceeds
Amount Outstanding Conversion Stock After Conversion or Debt
Security at August 2, 1997 Factor Conversion Price Reduction
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Class A 13,304,857
Class B 93,502
-------------
Total currently outstanding 13,398,359
-------------
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
F (4/12/98) 300,000 1 300,000 1.88 564,000
G (2/28/99) 240,000 1 240,000 2.00 480,000
H (4/16/01) 340,000 1 340,000 2.13 724,000
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
------------- ---------------
13,855,306 45,121,000
------------- ---------------
Convertible Debt (due date):
6.75% Notes (4/16/01) 3,400,000 1,600,000 2.13 3,400,000
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
------------- ---------------
4,400,000 7,179,000
------------- ---------------
Potentially outstanding shares and proforma
proceeds and reduction of debt 31,653,665 $ 52,300,000
============= ===============
<FN>
(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.
</FN>
</TABLE>
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 addition, on June 30, 1997, AMV had outstanding options to purchase 3,338,000
shares of Class A Common Stock, 2,876,000 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 June 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 earnings per common share for the three and six
months ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1997 1997
------------- --------------
<S> <C> <C>
Net income as reported $ 5,367,000 $ 6,136,000
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 50,000
Reduction in interest expense as the result of the
assumed retirement of all short-term and long-term
borrowing 259,000 580,000
Increase in interest income as the result of the
investment of excess cash generated from the
assumed exercise of all options and warrants 555,000 1,105,000
------------- -------------
Net income $ 6,206,000 $ 7,871,000
============= =============
Earnings per share $ 0.22 $ 0.28
============= =============
</TABLE>
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1997 1997
-------------- --------------
<S> <C> <C>
Weighted average shares outstanding:
Common stock 13,398,000 13,342,000
Reduction for contingently returnable shares as
all conditions were not met as of period end. (2,000,000) (2,000,000)
Shares relating to a note and stock appreciation
rights agreement, issued on July 24, 1996 1,800,000 1,800,000
Assumed aggregate exercise of all stock options
and warrants 17,194,000 17,194,000
Assumed repurchase of common shares, limited to
20% of currently outstanding common shares (2,280,000) (2,280,000)
------------- -------------
Shares used in calculations 28,112,000 28,056,000
============= =============
</TABLE>
The computation of primary earnings per share for the three and six months ended
June 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 10,854,000 and 10,388,000, respectively, were used in calculating
earnings per share.
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.
<TABLE>
<CAPTION>
Proforma
--------------------------------------------------------------------------------
For the Quarter Ended June 30,
--------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Per Per
Income Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common shareholders $ 5,367,000 13,398,000 $ (900,000) 10,854,000
Reduction for contingently
returnable shares as all
conditions were not met
as of period end -- (2,000,000) -- --
----------- ------------ ------------ -----------
Income (loss) available to
common shareholders $ 5,367,000 11,398,000 $ 0.47 $ (900,000) 10,854,000 $ (0.08)
====== =======
Effect of Dilutive Securities
Note and stock appreciation
rights agreement 25,000 1,800,000 -- --
Stock options -- 544,000 -- --
Convertible debt 137,000 2,596,000 -- --
----------- ------------ ------------ -----------
Diluted EPS:
Income (loss) available to
common shareholders
and assumed conversions $ 5,529,000 16,338,000 $ 0.34 $ (900,000) 10,854,000 $ (0.08)
=========== ============ ====== ============ =========== =======
</TABLE>
<TABLE>
<CAPTION>
Proforma
--------------------------------------------------------------------------------
For the Six Months Ended June 30,
--------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Per Per
Income Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common shareholders $ 6,136,000 13,342,000 $ (7,697,000) 10,388,000
Reduction for contingently
returnable shares as all
conditions were not met
as of period end -- (2,000,000) -- --
----------- ------------ ------------ -----------
Income (loss) available to
common shareholders $ 6,136,000 11,342,000 $ 0.54 $ (7,697,000) 10,388,000 $ (0.74)
====== =======
Effect of Dilutive Securities
Note and stock appreciation
rights agreement 50,000 1,800,000 -- --
Stock options -- 544,000 -- --
Convertible debt 274,000 2,596,000 -- --
----------- ------------ ------------ -----------
Diluted EPS:
Income (loss) available to
common shareholders
and assumed conversions $ 6,460,000 16,282,000 $ 0.40 $ (7,697,000) 10,388,000 $ (0.74)
=========== ============ ====== ============ =========== =======
</TABLE>
Options to purchase 2,795,000 shares of common stock between $1.56 and $4.94 and
warrants to purchase 14,155,000 shares of common stock between $1.88 and $5.00
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
six months ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Computation Before Computation After
December 15, 1997 December 15, 1997
------------------------------- --------------------------------
Three months Six months Three months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
1997 1997 1997 1997
- ---------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Primary or Basic EPS $ 0.22 $ 0.28 $ 0.47 $ 0.54
Fully Diluted or Diluted EPS $ 0.22 $ 0.28 $ 0.34 $ 0.40
</TABLE>
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 six-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 acquisitions occurred as of the beginning of such three- and six-month
periods presented. Proforma condensed combined statements of operations are
presented below:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 7,259,000 $ 5,860,000 $ 14,386,000 $ 10,499,000
============== ============= ============= =============
Gross profit $ 3,822,000 $ 3,237,000 $ 7,622,000 $ 5,655,000
============== ============= ============= =============
Net income (loss) $ 407,000 $ 310,000 $ 1,135,000 $ (841,000)
============== ============= ============= =============
Earnings (loss) per share $ 0.03 $ 0.02 $ 0.09 $ (0.07)
============= ============= ============ =============
</TABLE>
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:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials $ 1,396,000 $ 2,662,000
Work-in-process 1,524,000 2,234,000
Finished goods 2,021,000 3,236,000
------------- -------------
$ 4,941,000 $ 8,132,000
============= =============
</TABLE>
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, the Company sold Pulsarr for $8.4 million in cash (see Liquidity and
Capital Resources below).
The Company's backlog at June 30, 1997, was $2,464,000, a decrease of 76% when
compared to the $10,385,000 backlog as of June 30, 1996. After excluding Pulsarr
from, and including Ventek in, both periods, backlog was $2,464,000 at June 30,
1997 as compared to $8,748,000 at June 30, 1996. The 1997 backlog is expected to
be shipped within nine months.
Results of Operations - Comparison between three months ended June 30, 1997 and
June 30, 1996
- --------------
Sales for the three months ended June 30, 1997 ("Q2 1997") were $7,607,000,
up 19% when compared to sales for the three months ended June 30, 1996 ("Q2
1996") of $6,419,000. The increase is due to the inclusion of Ventek's sales of
$880,000 and an increase of $2,814,000 in sales at SRC, offset by reduced
Pulsarr sales due to the sale of Pulsarr.
Cost of sales was 48% of sales in Q2 1997 and 60% in Q2 1996.
Gross profit increased by 51% to $3,933,000 in Q2 1997 when compared to
$2,598,000 of gross profit in Q2 1996. In Q2 1997, gross profit was 52% of sales
as compared to 40% in Q2 1996. The increase in gross profit as a percentage of
sales is primarily related to the higher margin Ventek products included in Q2
1997, an increase in the overall sales volume at SRC which allowed for the
spreading of fixed costs over a larger sales based as well as a change in sales
mix.
Selling and marketing expense increased 63% in Q2 1997 from Q2 1996 to
$1,430,000 amounting to 19% of sales in Q2 1997. Similar expenses in Q2 1996
were $877,000, or 14% 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.
Research and development expenses were $932,000 and $1,125,000 in Q2 1997 and Q2
1996, or 12% and 18% of sales, respectively. The reduced research and
development level in Q2 1997 was due principally to the sale of Pulsarr.
General and administrative expenses decreased $369,000 to $812,000 in Q2 1997
from $1,181,000 in Q2 1996. The decrease in general and administrative expenses
is due principally to the sale of Pulsarr.
The increase in amortization of intangible assets is primarily 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 expenses 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 the result of the increase in debt
outstanding.
Net income for Q2 1997 was $5,367,000 as compared to a net loss of $900,000 in
Q2 1996 as a result of the factors discussed above.
Results of Operations - Comparison between six months ended June 30, 1997 and
June 30, 1996
- -------------
Sales for the six months ended June 30, 1997 ("the 1997 Period") were
$16,944,000, up 69% when compared to sales for the six months ended June 30,
1996 ("the 1996 Period") of $10,032,000. The increase is due to the inclusion of
Ventek's sales of $2,308,000, an increase of $5,329,000 in sales at SRC, offset
by reduced Pulsarr sales due to the sale of Pulsarr.
Cost of sales was 50% of sales in the 1997 Period and 59% in the 1996 Period.
Gross profit increased by 109% to $8,540,000 in the 1997 Period when compared to
$4,077,000 of gross profit in the 1996 Period. In 1997, gross profit was 50% of
sales as compared to 41% in 1996. The increase in gross profit as a percentage
of sales is primarily related to 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 based as well as a change in sales
mix.
Selling and marketing expense increased 59% in the 1997 Period from 1996 to
$2,683,000 amounting to 16% of sales in 1997. Similar expenses in the 1996
Period were $1,691,000, or 17% of sales. The decrease in selling and marketing
expenses as a percent of sales is the result of spreading of fixed costs over a
larger sales base.
Research and development expenses were $1,951,000 and $1,943,000 in the 1997
Period and the 1996 Period, or 12% and 19% 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 $220,000 to $1,844,000 in 1997
from $2,064,000 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 the result of the increase in debt
outstanding.
Net income for 1997 was $6,136,000 as compared to a net loss of $7,697,000 in
1996. Net income for 1997 includes a gain on the sale of Pulsarr of $4,989,000
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 $1,147,000 as compared to a
loss of $2,135,000 for 1996 primarily as a result of the increase in sales
discussed above.
Liquidity and Capital Resources
- -------------------------------
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
June 30, 1997, the Company had $12,579,000 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 will
pay royalties of 7% of certain vision system sales through the earlier of June
30, 2003, or the date at which aggregate royalty payments equal $1,600,000.
Until aggregate royalty payments equal $1,600,000, maximum annual royalty
payments are $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 with Key Technology,
Inc.'s (the Company's principal competitor) 1995 product introduction.
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 January 1997, the Company sued Credit Suisse to fulfill its obligation to
fund $1.6 million pursuant to a Subscription Agreement dated May 14, 1996. There
can be no assurance that the Company will prevail in this suit, although the
Company believes it has a contractual right to the funding.
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. The recent increases in
outstanding shares of the Company's Class A Common Stock 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 the first half of 1997, the
Company has had a history of 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),
and (v) 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 profitability in 1995, the second half of 1996 and
the first half of 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
$500,000 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 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.
<PAGE>
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 or current 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 believes 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 claims that Credit Suisse's failure to
fund has limited AMV's ability to finance its business plan for Pulsarr and
other operations and, as a result, will adversely impact AMV's credibility with
investors and financial analysts. Any erosion of credibility or, alternatively,
the dilution of shareholder value caused by alternate financing may, in turn,
adversely impact the Company's ability to raise debt and equity financing.
The suit also claims 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 has no
voting rights over the pledged shares, the Company believes that Ilverton's
refusal to return the shares is related to the Credit Suisse action described
above.
Item 6. Exhibits And Reports On Form 8-K
=========================================
(a) Exhibits
Exhibit
Number Description
------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
On May 9, 1997, a Form 8-K was filed regarding the sale of
Pulsarr and the resignation of two directors.
On August 6, 1995, a Form 8-K was filed establishing the date
for the Company's 1997 Annual Meeting of stockholders.
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.
August 8, 1997 /s/ Alan R. Steel
- ------------------------------- --------------------------------
Alan R. Steel
Vice President - Finance
(Principal Financial and duly
Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
June 30, 1997 financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> Advanced Machine Vision Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jun-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 8,534
<SECURITIES> 0
<RECEIVABLES> 3,637
<ALLOWANCES> 0
<INVENTORY> 4,941
<CURRENT-ASSETS> 17,215
<PP&E> 6,050
<DEPRECIATION> 1,615
<TOTAL-ASSETS> 28,446
<CURRENT-LIABILITIES> 4,636
<BONDS> 10,857
0
0
<COMMON> 25,988
<OTHER-SE> (13,035)
<TOTAL-LIABILITY-AND-EQUITY> 28,446
<SALES> 16,944
<TOTAL-REVENUES> 16,944
<CGS> 8,404
<TOTAL-COSTS> 15,094
<OTHER-EXPENSES> (4,989)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 656
<INCOME-PRETAX> 6,183
<INCOME-TAX> 47
<INCOME-CONTINUING> 6,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,136
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<FN>
<F1>
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.
</FN>
</TABLE>
