SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File No. 0-20097
ADVANCED MACHINE VISION CORPORATION
A California Corporation
IRS Employer Identification No. 33-0256103
2067 Commerce Drive
Medford, OR 97504
Telephone: (541) 776-7700
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
On September 30, 1997, registrant had 10,503,217 shares of Class A Common Stock,
and 93,502 shares of Class B Common Stock, all no par value, issued and
outstanding.
Exhibit Index at Page 20
i
<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
ii
<PAGE>
PART I. FINANCIAL INFORMATION
=============================
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(unaudited) (audited)
ASSETS
======
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,581,000 $ 1,909,000
Accounts receivable, net 3,248,000 4,979,000
Inventories 5,338,000 8,132,000
Prepaid expenses 72,000 391,000
------------- -------------
Total current assets 14,239,000 15,411,000
Property, plant and equipment, net 4,501,000 6,488,000
Intangible assets, net 5,699,000 7,876,000
Other assets 859,000 1,163,000
------------- -------------
$ 25,298,000 $ 30,938,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
====================================
Current liabilities:
Accounts payable $ 1,281,000 $ 1,897,000
Short-term borrowings -- 947,000
Accrued liabilities 1,178,000 1,299,000
Customer deposits 1,878,000 2,463,000
Accrued payroll 1,347,000 707,000
Warranty reserve 407,000 479,000
Current portion of notes payable 25,000 1,706,000
------------- -------------
Total current liabilities 6,116,000 9,498,000
------------- -------------
Notes payable, less current portion 8,351,000 14,940,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A - no par value, one vote per share: 60,000,000
shares authorized, 10,503,000 and 11,140,000
shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively 24,144,000 25,648,000
Class B - no par value, one vote per share: 3,000,000
shares authorized, 94,000 and 110,000 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 62,000 72,000
Common stock warrants 2,197,000 2,403,000
Additional paid in capital 2,822,000 2,797,000
Accumulated deficit (18,394,000) (24,370,000)
Cumulative translation adjustment -- (50,000)
------------- -------------
Total shareholders' equity 10,831,000 6,500,000
------------- -------------
$ 25,298,000 $ 30,938,000
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
1
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 5,861,000 $ 10,097,000
Cost of sales 2,832,000 5,003,000
------------ ------------
Gross profit 3,029,000 5,094,000
------------ ------------
Operating expenses:
Selling and marketing 1,089,000 1,539,000
Research and development 1,029,000 988,000
General and administrative 581,000 1,093,000
Amortization of intangible assets 174,000 180,000
------------ ------------
2,873,000 3,800,000
------------ ------------
Income (loss) from operations before other income and expense 156,000 1,294,000
Other income and expense:
Investment and other income 106,000 35,000
Interest expense (428,000) (344,000)
------------ ------------
Income (loss) before income taxes (166,000) 985,000
Provision for (benefit from) income taxes (6,000) --
------------ ------------
Net income (loss) $ (160,000) $ 985,000
============ ============
Earnings (loss) per share (Note 5) $ (0.01) $ 0.07
=========== ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 22,805,000 $ 20,129,000
Cost of sales 11,236,000 10,958,000
------------ ------------
Gross profit 11,569,000 9,171,000
------------ ------------
Operating expenses:
Selling and marketing 3,772,000 3,230,000
Research and development 2,980,000 2,931,000
General and administrative 2,425,000 3,157,000
Amortization of intangible assets 555,000 374,000
Charge for acquired in-process technology -- 4,915,000
Charge for royalty expense -- 647,000
------------ ------------
9,732,000 15,254,000
Income (loss) from operations before other income and expense 1,837,000 (6,083,000)
Other income and expense:
Gain on sale of Pulsarr 4,989,000 --
Investment and other income 275,000 139,000
Interest expense (1,084,000) (768,000)
------------ ------------
Income (loss) before income taxes 6,017,000 (6,712,000)
Provision for income taxes 41,000 --
------------ ------------
Net income (loss) $ 5,976,000 $ (6,712,000)
============ ============
Earnings (loss) per share (Note 5) $ 0.29 $ (0.61)
=========== ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 5,976,000 $ (6,712,000)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Gain on sale of Pulsarr (4,989,000) --
Charge for acquired in-process technology -- 4,915,000
Charge for royalty expense -- 247,000
Charge for deferred debt issuance costs 233,000 --
Depreciation and amortization 963,000 825,000
Changes in assets and liabilities (net of amounts
purchased in acquisition):
Accounts receivable (527,000) (725,000)
Inventories (657,000) (1,660,000)
Prepaid expenses and other assets (111,000) (548,000)
Accounts payable, short-term borrowings, accrued liabilities,
customer deposits, accrued payroll, and warranty reserve 2,034,000 1,940,000
------------ --------------
Net cash (used in) provided by operating activities 2,922,000 (1,718,000)
------------ --------------
Cash (used in) provided by investing activities:
Proceeds from the sale of Pulsarr 7,010,000 --
Acquisition of Pulsarr/Ventek -- (5,797,000)
Purchases of property and equipment (533,000) (1,515,000)
------------ --------------
Net cash provided by (used in) investing activities 6,477,000 (7,312,000)
------------ --------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net (3,779,000) 4,690,000
Proceeds from (repurchase of) common stock (1,962,000) 1,971,000
Proceeds from exercise of stock options 14,000 65,000
Debt issuance costs -- (400,000)
------------ --------------
Net cash provided by financing activities (5,727,000) 6,236,000
------------ --------------
Net (decrease) increase in cash 3,672,000 (2,704,000)
Cash and cash equivalents, beginning of the period 1,909,000 4,171,000
------------ --------------
Cash and cash equivalents, end of the period $ 5,581,000 $ 1,467,000
============ ==============
</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 September 30, 1997, and December 31, 1996, the results of operations and cash
flows for the three- and nine-month periods ended September 30, 1997 and 1996.
The financial statements include the accounts of the Company and its four
wholly-owned subsidiaries, Applied Laser Systems, Inc. ("ALSO"), SRC VISION,
Inc. ("SRC"), ARC Netherlands BV and its respective subsidiary, Pulsarr Holding
BV ("Pulsarr") from its March 1, 1996 acquisition date to its May 6, 1997
disposition date, and Ventek, Inc. ("Ventek") from its July 24, 1996 acquisition
date (see Note 6 regarding the sale of Pulsarr). The Company's current operating
subsidiaries are SRC and Ventek.
Certain notes and other information are condensed or omitted in the interim
financial statements presented in this Quarterly Report on Form 10-Q. These
financial statements should be read in conjunction with the Company's 1996
annual report on Form 10-K.
2. Nature Of Operations
- -------------------------
In February 1994, the Company acquired all of the issued and outstanding capital
stock of SRC for $8.1 million in cash. In March 1996, the Company acquired all
of the issued and outstanding stock of Pulsarr for cash of $6.5 million and
notes payable of $1.3 million (see Note 6 regarding the sale of Pulsarr for $8.4
million in cash in May 1997). In July 1996, the Company acquired the business
and certain assets of Ventek, subject to certain liabilities, for $5.1 million
in notes and other securities. The operations of each of the three acquired
entities are included in the consolidated financial results since their
respective acquisition dates. Through its subsidiaries, the Company designs,
manufactures and markets computer-aided vision defect detection and sorting and
defect removal equipment for use in a variety of industries, including food
processing, wood products and recycling. The Company's systems combine optical
and mechanical systems technologies to perform diverse scanning, analytical
sensing, measuring and sorting applications on a variety of products such as
food, wood and plastic. The Company sells its products throughout the world.
3. Financing
- --------------
In April 1995, the Company borrowed $2,160,000 pursuant to a convertible
subordinated secured note. Interest on the note was 10.25% and was payable
semi-annually. The note was secured by the issued and outstanding capital stock
of SRC. The note was convertible into the Company's Class A Common Stock at
$1.875 per share. In connection with the borrowing, the Company paid a finders
fee of $160,000 and issued 300,000 warrants to purchase Class A Common Stock at
$1.875 per share. In October 1996 and March 1997, $645,000 and $250,000
principal amounts of the note were converted by the debtholders into 344,000 and
133,000 shares of Class A Common Stock. The remaining principal amount of
$1,265,000 was paid in April 1997. In August 1997, the warrants were repurchased
by the Company (see Note 4).
In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note. Interest on the note was 6.75% and is payable quarterly. The interest rate
may be adjusted upward on each anniversary date of the note if the market price
of the Company's Class A Common Stock fails to reach certain levels. In April
1997, the interest rate was adjusted to 9.75%. The maximum possible coupon
interest rate is 11.25% if none of the market price thresholds are met. The note
is secured by 54% of the stock of ARC Netherlands BV. The note is convertible
into the Company's Class A Common Stock at $2.125 per share. In connection with
the borrowing, the Company paid a finders fee of $400,000 and issued 340,000
warrants to purchase Class A Common Stock at $2.125 per share. In August and
September 1997, AMV repurchased the warrants and paid off $2,500,000 of this
note leaving $900,000 outstanding, which is due in April 2001 (see Note 4). In
conjunction with this early pay-off, AMV wrote off $233,000 of deferred debt
issuance costs. This amount is included in interest expense on the accompanying
Consolidated Statement of Operations.
In July 1996, AMV issued the following notes in connection with the acquisition
of Ventek: (i) the 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75%
$2,250,000 note due July 23, 1999 convertible into the Company's Class A Common
Stock at $2.25 per share; and (iii) a $1,125,000 note and stock appreciation
rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock
or at the Company's option, in cash on July 23, 1999, or (b) solely in cash in
the event AMV Common Stock is delisted from the Nasdaq Stock Market. The
$1,125,000 note and stock appreciation rights payable were valued at $1,529,000
on the acquisition date based upon an independent appraisal received by the
Company. All three notes are secured by all of the issued and outstanding shares
of Ventek.
4. Stock Transactions; Shares Eligible For Future Sale; Effect Of Warrants,
Options And Convertible Securities; Possible Dilution
- ----------------------------------------------------------
On February 15, 1996, the Company redeemed all 497,094 shares of its Class E
Common Stock for nominal consideration. Also on that date, the 3,002,906 Class E
Warrants to purchase Class A Common Stock ceased to exist because escrow
conditions related to the warrants were not met.
In March 1996, the Company sold 1,400,000 shares of its Class A Common Stock in
a private Regulation S offering to foreign investors at $1.625 per share, the
market price on the date the related Subscription Agreement was entered into. In
connection with the private placement, the Company paid finders fees and other
costs of approximately $700,000 and issued 240,000 warrants to purchase Class A
Common Stock at $2.00 per share.
In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong incentives to enhance the Company's growth. The
total number of shares of Class A Common Stock issuable under the 1997 Plan
shall not exceed 2,000,000. In January 1997, the Company's Board of Directors
awarded 2,000,000 shares of restricted Class A Common Stock to three key
employees of the Company. As to 10% of the stock (the "10% Shares"), such shares
cannot be traded or transferred unless (i) the employee remains in the employ of
the Company until January 10, 2000 and (ii) a payment of $1.80 per share is made
by the employee to AMV. As to 90% of the stock (the "90% Shares"), such stock
cannot be traded or transferred unless, in addition to the conditions in the
prior sentence, the market price of the stock as quoted by Nasdaq or other
applicable stock exchange for any 30 consecutive days prior to the third
anniversary date of the award is at least $20 per share. On September 25, 1997,
the three key employees contributed back to the Company the 90% Shares
(1,800,000 shares) which were canceled. If any of the conditions are not met
with respect to the outstanding 10% Shares, the related shares of stock will be
forfeited and returned to the Company.
On March 8, 1997, April 1, 1997 and August 2, 1997, 188,400 Unit Purchase
Options originally issued in connection with the Company's 1992 initial public
offering, 135,000 Laidlaw warrants and 300,000 Gerinda warrants, respectively,
expired unexercised.
In August 1997, the Company purchased 1,001,640 shares of its Class A Common
Stock, 300,000 Class F Warrants and 340,000 Class H Warrants in a private
transaction for $1.9 million.
In September 1997, the Company purchased at par $2.5 million of the $3.4 million
outstanding 6.75% Convertible Note.
Schedule of Outstanding Stock, Warrants, Units and Potential Dilution: The
following table summarizes, as of September 30, 1997, outstanding common stock,
potential dilution to the outstanding common stock upon exercise of warrants and
conversion of convertible debt, and proforma proceeds from the exercise of
warrants. The table also sets forth the exercise or conversion prices and
warrant expiration and debt due dates.
<TABLE>
<CAPTION>
Proforma
Number or Principal Class A Common Proceeds
Amount Outstanding Conversion Stock After Conversion or Debt
Security at September 30, 1997 Factor Conversion Price Reduction
------------------ --------------------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Class A 10,503,217
Class B 93,502
-------------
Total currently outstanding 10,596,719
Warrants (expiration date):
A (3/9/98) 2,941,963 1.4 4,118,748 $ 2.84 $ 11,697,000
B (3/9/98) 4,354,863 (A) 1.4 6,096,808 4.17 25,424,000
C (3/9/98) 846,250 1.4 1,184,750 2.21 2,618,000
D (6/30/98-7/31/98) 275,000 1 275,000 2.75 756,000
G (2/28/99) 240,000 1 240,000 2.00 480,000
I (7/23/01) 1,000,000 (B) 1 1,000,000 2.25 2,250,000
J (9/30/99) 300,000 1 300,000 2.03 608,000
------------- ---------------
13,215,306 43,833,000
------------- ---------------
Convertible Debt (due date):
6.75% Notes (4/16/01) 900,000 423,529 2.13 900,000
6.75% Ventek Note (7/23/99) 2,250,000 1,000,000 2.25 2,250,000
Ventek Note (7/23/99) 1,529,000 (B) 1,800,000 1,529,000
------------- ---------------
3,223,519 4,679,000
------------- ---------------
Potentially outstanding shares and proforma
proceeds and reduction of debt 27,035,554 $ 48,512,000
============= ===============
<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 September 1997, the Company adopted the 1997 Nonqualified Stock Option Plan
covering 500,000 shares of Class A Common Stock. On September 30, 1997, AMV had
outstanding options to purchase 3,641,000 shares of Class A Common Stock,
3,149,000 of which are under its stock option plans.
The existence of these outstanding warrants, options, and convertible debt,
including those granted or to be granted under AMV's Stock Option Plans or
otherwise, and potentially issuable shares pursuant to antidilution provisions
of warrant agreements could adversely affect AMV's ability to obtain future
financing. The price which AMV may receive for the Class A Common Stock issued
upon exercise of options and warrants, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of Class A Common Stock at
the time such options and warrants are exercised or debt is converted. For the
life of the warrants, options and convertible debt, the holders are given, at
little or no cost, the opportunity to profit from a rise in the market price of
their Class A Common Stock without assuming the risk of ownership. Moreover, the
holders of the options and warrants might be expected to exercise them at a time
when AMV would, in all likelihood, be able to obtain needed capital by a new
offering of its securities on terms more favorable than those provided for by
the options and warrants.
5. Earnings (Loss) Per Share
- ------------------------------
Earnings (loss) per share is computed based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of the shares relating to a
note and stock appreciation right agreement, options and warrants.
As Advanced Machine Vision Corporation has outstanding options and warrants
which, in the aggregate, exceed 20% of the common stock currently outstanding
(see Note 4), AMV is required to follow the provisions of Accounting Principles
Board (APB) Opinion No. 15, paragraph 38, in calculating earnings per share, if
dilutive. APB 15, paragraph 38, assumes the aggregate exercise of all options
and warrants and certain other computations. The assumed exercise of all of
AMV's options and warrants would result in the aggregate proceeds of
approximately $51,426,000 as of September 30, 1997. These proceeds are then
assumed to be used in the following order:
a) Repurchase up to 20% of the number of AMV common shares currently
outstanding.
b) Reduce all short-term and long-term borrowings.
c) Invest the remaining proceeds in US government securities or commercial
paper.
The computation of primary loss per share for the three months ended September
30, 1997, and the nine months ended September 30, 1996, as required by APB
Opinion No. 15, paragraph 38, was not dilutive and therefore, the net loss, as
reported, and the weighted average shares outstanding of 12,665,000 and
10,998,000, respectively, were used in calculating loss per share.
The computation of primary earnings per common share for the three months ended
September 30, 1996 and the nine months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net income as reported $ 985,000 $ 5,976,000
Reduction in interest expense accreted to a non-interest
bearing note and stock appreciation rights agreement
payable by the issuance of up to 1,800,000 shares of
Class A Common Stock or, at AMV's option, in cash in
three years 25,000 75,000
Reduction in interest expense as the result of the assumed
retirement of all short-term and long-term borrowing 318,000 779,000
Increase in interest income as the result of the investment
of excess cash generated from the assumed exercise of
all options and warrants 593,000 1,163,000
------------- -------------
Net income $ 1,922,000 $ 7,993,000
============= =============
Earnings per share $ 0.07 $ 0.29
============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1997
------------------ ------------------
<S> <C> <C>
Weighted average shares outstanding:
Common stock 10,887,000 11,382,000
Reduction for contingently returnable shares as all
conditions were not met as of period end -- (200,000)
Shares relating to a note and stock appreciation
rights agreement, issued on July 24, 1996 1,330,000 1,800,000
Assumed aggregate exercise of all stock options
and warrants 19,191,000 16,810,000
Assumed repurchase of common shares, limited
to 20% of currently outstanding common shares (2,178,000) (2,119,000)
------------- -------------
Shares used in calculations 29,230,000 27,673,000
============= =============
</TABLE>
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 September 30,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------- ---------------------------------------
Per Income 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 $ (160,000) 11,065,000 $ 985,000 10,887,000
Reduction for contingently
returnable shares as all
conditions were not met
as of period end -- (200,000) -- --
----------- ------------ ------------ -----------
Income (loss) available to
common shareholders $ (160,000) 10,865,000 $(0.01) $ 985,000 10,887,000 $ 0.09
====== =======
Effect of Dilutive Securities:
Note and stock appreciation
rights agreement -- -- 25,000 1,330,000
Stock options -- -- -- 569,000
Convertible debt -- -- 187,000 4,190,000
----------- ------------ ------------ -----------
Diluted EPS:
Income (loss) available to
common shareholders
and assumed conversions $ (160,000) 10,865,000 $(0.01) $ 1,172,000 16,976,000 $ 0.07
=========== ============ ====== ============ =========== =======
</TABLE>
<TABLE>
<CAPTION>
Proforma
--------------------------------------------------------------------------------
For the Nine Months Ended September 30,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------- ---------------------------------------
Per Income Per
Income Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- ------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common shareholders $ 5,976,000 11,382,000 $ (6,712,000) 10,551,000
Reduction for contingently
returnable shares as all
conditions were not met
as of period end -- (200,000) -- --
----------- ------------ ------------ -----------
Income (loss) available to
common shareholders $ 5,976,000 11,182,000 $ 0.53 $ (6,712,000) 10,551,000 $ (0.64)
====== =======
Effect of Dilutive Securities:
Note and stock appreciation
rights agreement 75,000 1,800,000 -- --
Stock options -- 973,000 -- --
Convertible debt 189,000 1,422,000 -- --
----------- ------------ ------------ -----------
Diluted EPS:
Income (loss) available to
common shareholders
and assumed conversions $ 6,240,000 15,377,000 $ 0.41 $ (6,712,000) 10,551,000 $ (0.64)
=========== ============ ====== ============ =========== =======
</TABLE>
Options to purchase 820,000 shares of common stock between $2.03 and $4.94 and
warrants to purchase 13,212,000 shares of common stock between $2.03 and $4.17
were not included in the computation of Diluted EPS because such options' and
warrants' exercise prices were greater than the average market price of the
common shares.
In summary, EPS computed under the APB 15 and FAS 128 methods for the three and
nine months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Computation Before Computation After
December 15, 1997 December 15, 1997
------------------------------- --------------------------------
Three Months Nine Months Three Months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
1997 1997 1997 1997
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary or Basic EPS $(0.01) $ 0.29 $(0.01) $ 0.53
Fully Diluted or Diluted EPS $(0.01) $ 0.29 $(0.01) $ 0.41
</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 nine-month periods, and (ii) that
Pulsarr was sold at the beginning of such periods. However, the proforma
combined balances are not necessarily indicative of balances which would have
resulted had the acquisition and divestiture occurred as of the beginning of
such three- and nine-month periods presented. Proforma condensed combined
statements of operations are presented below:
<TABLE>
<CAPTION>
Three months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 5,861,000 $ 7,065,000 $ 20,247,000 $ 17,564,000
============== ============= ============= =============
Gross profit $ 3,029,000 $ 4,032,000 $ 10,651,000 $ 9,687,000
============== ============= ============= =============
Net income (loss) $ (160,000) $ 983,000 $ 975,000 $ 142,000
============== ============= ============= =============
Earnings (loss) per share $ (0.01) $ 0.07 $ 0.08 $ 0.01
============= ============= ============ =============
</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:
September 30, December 31,
1997 1996
------------- -------------
Raw materials $ 1,491,000 $ 2,662,000
Work-in-process 1,889,000 2,234,000
Finished goods 1,958,000 3,236,000
------------- -------------
$ 5,338,000 $ 8,132,000
============= =============
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- ---------------------
On March 1, 1996, the Company acquired Pulsarr. On July 24, 1996, the Company
acquired Ventek. The discussion below pertains to the operations of AMV with
Pulsarr and Ventek included from their respective acquisition dates. In May
1997, May 1997, the Company sold Pulsarr for $8.4 million in cash (see
Liquidity and Capital Resources below).
The Company's backlog at September 30, 1997, was $7,655,000 compared to
$13,598,000 as of September 30, 1996. After excluding Pulsarr, backlog was
$10,899,000 at September 30, 1996. The 1997 backlog is expected to be shipped
within nine months.
Results of Operations - Comparison between three months ended September 30, 1997
and September 30, 1996
Sales for the three months ended September 30, 1997 ("Q3 1997") were $5,861,000,
down 42% when compared to sales for the three months ended September 30, 1996
("Q3 1996") of $10,097,000. Sales for Q3 1996 included Pulsarr sales of
$3,032,000, whereas sales for Q3 1997 did not include any sales for Pulsarr due
to its sale in May 1997. The remaining decrease in sales relates primarily to
reduced sales at Ventek.
Cost of sales was 48% of sales in Q3 1997 and 50% in Q3 1996.
Gross profit decreased by 41% to $3,029,000 in Q3 1997 when compared to
$5,094,000 of gross profit in Q3 1996. In Q3 1997, gross profit was 52% of sales
as compared to 50% in Q3 1996. The increase in gross profit as a percentage of
sales is due to the exclusion of the lower margin Pulsarr products during Q3
1997 versus their inclusion during Q3 1996.
Selling and marketing expense decreased 29% in Q3 1997 from Q3 1996 to
$1,089,000 amounting to 19% of sales in Q3 1997. Similar expenses in Q3 1996
were $1,539,000, or 15% of sales. The increase in selling and marketing expenses
as a percent of sales is the result of increased commissions and general
marketing activities during the quarter. The overall decrease in dollars
expended for selling and marketing in Q3 1997 was due to the sale of Pulsarr.
Research and development expenses were $1,029,000 and $988,000 in Q3 1997 and Q3
1996, or 18% and 10% of sales, respectively. As a percentage of sales, the
increased level of research and development in Q3 1997 was due to a lower sales
base.
General and administrative expenses decreased $512,000 to $581,000 in Q3 1997
from $1,093,000 in Q3 1996. The decrease in general and administrative expenses
is due principally to the sale of Pulsarr.
The decrease in amortization of intangible assets is primarily due to the sale
of Pulsarr.
The increase in investment and other income is the result of higher cash
balances available for investment.
The increase in interest expense is due to inclusion of $233,000 of deferred
debt issuance costs written off in September 1997 as a result of the early
repayment of $2,500,000 of convertible notes payable.
The net loss for Q3 1997 was $160,000 as compared to net income of $985,000 in
Q3 1996 as a result of the factors discussed above.
Results of Operations - Comparison between nine months ended September 30, 1997
and September 30, 1996
Sales for the nine months ended September 30, 1997 ("the 1997 Period") were
$22,805,000, up 13% when compared to sales for the nine months ended September
30, 1996 ("the 1996 Period") of $20,129,000. The increase is due to an increase
of $5,193,000 in sales at SRC, the inclusion of nine months of Ventek sales
in the 1997 Period versus approximately two months in the 1996 Period, offset by
reduced Pulsarr sales due to the sale of Pulsarr.
Cost of sales was 49% of sales in the 1997 Period and 54% in the 1996 Period.
Gross profit increased by 26% to $11,569,000 in the 1997 Period when compared to
$9,171,000 of gross profit in the 1996 Period. In 1997, gross profit was 51% of
sales as compared to 46% in 1996. The increase in gross profit as a percentage
of sales is primarily related to a larger volume of the higher margin Ventek
products included in 1997, an increase in the overall sales volume at SRC, which
allowed for the spreading of fixed costs over a larger sales base, as well as a
change in sales mix.
Selling and marketing expense increased 17% in the 1997 Period from 1996 to
$3,772,000 amounting to 17% of sales in 1997. Similar expenses in the 1996
Period were $3,230,000, or 16% of sales. The increase in selling and marketing
expenses as a percent of sales is the result of increased commissions and
general marketing activities.
Research and development expenses were $2,980,000 and $2,931,000 in the 1997
Period and the 1996 Period, or 13% and 15% of sales, respectively. The decrease
in research and development expense in 1997, as a percentage of sales, is due
principally to the spreading of fixed costs over a larger sales base.
General and administrative expenses decreased $732,000 to $2,425,000 in 1997
from $3,157,000 in 1996. The decrease in general and administrative expenses is
due principally to the sale of Pulsarr.
The increase in amortization of intangible assets is principally due to the
acquisition of Ventek.
On May 6, 1997, AMV sold Pulsarr to Barco NV of Belgium for $8.4 million in
cash, resulting in a gain of $4,989,000. AMV had purchased Pulsarr on March 1,
1996 for $7.8 million. This gain primarily represents a recovery of the
$4,915,000 charge for acquired in-process technology expensed in the quarter
ended March 31, 1996.
The increase in investment and other income is the result of higher cash
balances available for investment.
The increase in interest expense is primarily due to inclusion of $233,000 of
deferred debt issuance costs written off in September 1997 as a result of the
early repayment of $2,500,000 of convertible notes payable.
Net income for 1997 was $5,976,000 as compared to a net loss of $6,712,000 in
1996. Net income for 1997 includes a gain on the sale of Pulsarr of $4,989,000
and a charge of $233,000 relating to the write-off of deferred debt issuance
costs, while the net loss for 1996 includes a charge for acquired in-process
technologies of $4,915,000 and a charge for deferred royalty expenses of
$647,000. Income before special items for 1997 was $1,220,000 as compared to a
loss of $1,150,000 for 1996 as a result of the factors discussed above.
Liquidity and Capital Resources
In August and September 1997, the Company purchased 1,001,640 shares of Class
A Common Stock and 640,000 warrants to purchase Class A Common Stock for
$1,962,000, and $2,500,000 of its $3,400,000 6.75% Convertible Note at par.
On May 6, 1997, the Company received net proceeds of approximately $7,000,000
from the sale of Pulsarr.
In March 1996, the Company received $2,000,000 from the sale of 1,400,000 shares
of Class A Common Stock pursuant to a private placement. In April 1996, the
Company received $3,000,000 representing the net proceeds of a private placement
of convertible debt. In October 1995, the Company received approximately
$1,052,000 from the sale of its laser diode operations. In April 1995, the
Company received $2,000,000 representing the net proceeds from a private
placement of convertible debt. The cash generated from these transactions was
used to finance the acquisition of Pulsarr and to provide funds for working
capital purposes.
The Company's principal sources of operating capital have been funds from the
above transactions, its overseas Regulation S offerings in September and October
1993 and in February 1994 and its initial public offering in March 1992. As of
September 30, 1997, the Company had $8,123,000 in working capital.
As a result of the settlement in July 1992 of a lawsuit alleging certain patent
infringements, SRC entered into a royalty agreement, pursuant to which SRC paid
royalties of 7% of certain vision system sales through the earlier of September
30, 2003, or the date at which aggregate royalty payments equaled $1,600,000.
Until aggregate royalty payments equaled $1,600,000, maximum annual royalty
payments were $400,000 through 1996. The final $400,000 installment was paid in
July 1996. During the quarter ended March 31, 1996, the Company wrote off
against income $647,000 of deferred royalty expense related to the settlement as
all royalties had been earned and no significant future economic life was
estimated to exist.
The Company intends to continue to market its vision systems technology and
products, and will evaluate selected acquisition opportunities. Additional
investments will be required for capital equipment, marketing and R & D for the
Company to remain competitive. For example, funds must be expended to complete
development of the Company's next generation of processor to enhance the
Company's ability to effectively compete in certain markets. Furthermore, if the
Company consummates additional technology intensive acquisitions, additional
equipment and R&D investments may be necessary, perhaps to a greater extent than
for the Company's existing operations.
The Company's ALSO operation, AMV's only business prior to the February 1994
acquisition of SRC, had suffered losses since inception. The operations of ALSO
were sold in October 1995. In 1995, SRC generated operating profits (before
allocation of corporate overhead expenses). Even though SRC reached operating
profitability in six of the last eight quarters and had a history of profitable
operations prior to its acquisition by AMV, there can be no assurance that
long-term profitability will be realized. Ventek has operated profitably since
1992. The Company operates in a highly competitive environment, which
environment may be intensified by the fact that Pulsarr is now owned by a
company substantially larger and with far greater financial resources than AMV.
Delays and difficulties relating to technological changes in turnaround
situations often occur, any of which would materially and adversely affect the
Company's cash flow. Furthermore, operational and marketing difficulties may
occur relating to the integration of Ventek.
The acquisition of Pulsarr occurred on March 1, 1996. In connection therewith,
the Company paid approximately $6.5 million to the sellers. Cash received from
the March and April 1996 placements of stock and notes detailed above generated
approximately $5,000,000 for the purchase. The balance of the cash payments of
approximately $1,500,000 was paid from the Company's current cash balances. The
Company received net proceeds of approximately $7,000,000 when Pulsarr was sold
in May 1997.
The acquisition of Ventek occurred in July 1996. Consideration for the
transaction was approximately $5.1 million in notes and other securities as
described in Note 3 in this Form 10-Q.
Prior to 1995, the Company had a history of negative operating cash flow. The
Company believes it will operate at a negative cash flow during certain periods
in the future due to payment of notes issued in connection with prior
financings, working capital requirements, the need to fund certain development
projects, cash required to enter new market areas, and possible cash needed to
fully integrate Ventek's operations. In April 1997, the Company paid off the
$1,265,000 of the 10.25% Convertible Subordinated Secured Note when due.
Management believes that the Company has sufficient cash to enable the Company
to sustain its operations and to adequately fund the cash flow expected to be
used in operating activities for the next twelve months. Until the Company is
able to consistently generate sustained positive cash flow from operations, the
Company must rely on debt or equity financing.
In connection with the acquisition of Pulsarr, the Company wrote off
approximately $4.9 million of acquired in-process technology in the first
quarter of 1996 (which loss was offset by a $5 million gain recorded when
Pulsarr was sold in the second quarter of 1997). This non-recurring charge
contributed to substantial reported losses in that quarter even though sales for
such period, including Pulsarr from its acquisition date, increased from the
same period in the prior year.
There can be no assurance the Company will be able to obtain future financing on
terms satisfactory to the Company, if at all. Increases in outstanding shares of
the Company's Class A Common Stock in recent years due to private placements and
the 1997 Restricted Stock Plan, the April 1995 and April 1996 private placements
of convertible debt, notes issued in connection with the acquisition of Ventek,
a substantial loss in 1996, and the number of securities issuable upon exercise
of warrants and convertible debt may limit the Company's ability to negotiate
additional debt or equity financing.
Cautionary Statements and Risk Factors
The Company may, from time to time, make forward looking statements that involve
risks and uncertainties. Factors associated with the forward looking statements
which could cause actual results to differ materially from those stated appear
below. Readers should carefully consider the following cautionary statements and
risk factors.
History of Losses; Negative Cash Flow: Other than in 1995, the second half of
1996 and in 1997, the Company has had a history of operating losses and negative
operating cash flow. The Company believes it may operate at a negative cash flow
in the future due to (i) the need to fund certain development projects, (ii)
cash required to enter new market areas, (iii) interest costs associated with
recent financings, (iv) cash required for the repayment of debt (e.g., the $1.3
million paid in April 1997), (v) cash paid in 1997 for the purchase of stock,
warrants and debt, and (vi) possible cash needed to fully integrate Ventek's
operations. Until the Company is able to consistently generate sustained
positive cash flow from operations, the Company must rely on debt or equity
financing.
Although the Company achieved operating profitability in 1995, the second half
of 1996 and in 1997, there can be no assurance as to the Company's profitability
on a quarterly or annual basis in the future. Furthermore, the non-recurring
expenses in early 1996 resulted in a significant overall loss for the 1996 year.
Need for Additional Financing: The Company may seek additional financing;
however, there can be no assurance the Company will be able to obtain any
additional financing on terms satisfactory to the Company, if at all. The (i)
outstanding shares of the Company's Class A Common Stock due to private
placements and implementation of the 1997 Restricted Stock Plan, (ii) April 1995
and April 1996 private placements of convertible debt, (iii) substantial loss in
1996, (iv) debt incurred for the acquisition of Ventek, and (v) number of
securities issuable upon exercise of warrants and convertible debt may limit the
Company's ability to negotiate additional debt or equity financing.
Uncertain Ability to Manage Growth and Integrate Acquired Businesses: As part of
its business strategy, the Company intends to pursue growth. In March and July
1996, the Company acquired Pulsarr and Ventek, respectively, which had sales in
1995 of approximately $11.4 million and $4.4 million, respectively, and would
have added approximately 80% to the Company's 1995 sales on a proforma basis. In
May 1997, AMV sold Pulsarr. A growth strategy will require the integration of
new entities, such as Ventek, the establishment of distribution relationships in
foreign countries, expanded customer service and support, increased personnel
throughout the Company and the continued implementation and improvement of the
Company's operational, financial and management information systems. There is no
assurance that the Company will be able to attract qualified personnel or to
accomplish other measures necessary for its successful integration of Ventek or
other acquired entities or for internal growth, or that the Company can
successfully manage expanded operations. As the Company expands, it may from
time to time experience constraints that will adversely affect its ability to
satisfy customer demand in a timely fashion. Failure to manage growth
effectively could adversely affect the Company's financial condition and results
of operations.
Rapid Technological Change; Product Development: The markets for the Company's
machine vision products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions and
enhancements. For example, the Company believes that the 1995 introduction by
Key Technology, Inc. of its new line of vision sorting equipment adversely
affected bookings in late 1995 and 1996. Sales of products such as those offered
by the Company depend in part on the continuing development and deployment of
emerging technology and new services and applications based on such technology.
The Company's success will depend to a significant extent upon its ability to
enhance its existing products and develop new products that gain market
acceptance. There can be no assurance that the Company will be successful in
selecting, developing and manufacturing new products or enhancing its existing
products on a timely or cost-effective basis or that products or technologies
developed by others will not render the Company's products non-competitive or
obsolete. Moreover, the Company may encounter technical problems in connection
with its product development that could result in the delayed introduction of
new products or product enhancements. Failure to develop or introduce on a
timely basis new products or product enhancements that achieve market acceptance
would materially and adversely affect the Company's business, operating results
and financial condition.
Market Acceptance of New Products: The Company's future operating results will
depend upon its ability to successfully introduce and market, on a timely and
cost-effective basis, new products and enhancements to existing products. There
can be no assurance that new products or enhancements, if developed and
manufactured, will achieve market acceptance. The Company is currently in the
initial prototype stage of development on a new high speed software and digital
signal processing technology designed to significantly improve system
performance. There can be no assurance that a market for this system will
develop (i.e., that a need for the system will exist, that the system will be
favored over other products on the market, etc.) or, if a market does develop,
that the Company will be able, financially or operationally, to market and
support the system successfully.
Dependence on Certain Markets and Expansion Into New Markets: The future success
and growth of the Company is dependent upon continuing sales in domestic and
international food processing market as well as successful penetration of other
existing and potential markets. A substantial portion of the Company's
historical sales has been in the potato and vegetable processing markets.
Reductions in capital equipment expenditures by such processors due to commodity
surpluses, product price fluctuations, changing consumer preferences or other
factors could have an adverse effect on the Company's results of operations. The
Company also intends to expand the marketing of its processing systems in
additional food markets such as meat and granular food products, as well as
nonfood markets such as plastics, wood products and tobacco, and to expand its
sales activities in foreign markets. In the case of Ventek, the wood products
market served is narrow, and saturation of that market and the potential
inability to identify and develop new markets could adversely affect Ventek's
growth rate. There can be no assurance that the Company can successfully
penetrate additional food and non-food markets or expand further in foreign
markets.
Lengthy Sales Cycle: The sales cycle in the marketing and sale of the Company's
machine vision systems, especially in new markets or in a new application, is
lengthy and can be as long as three years. Even in existing markets, due to the
$100,000 to $550,000 price range for each system, the purchase of a machine
vision system can constitute a substantial capital investment for a customer
(which may need more than one machine for its particular proposed application)
requiring lengthy consideration and evaluation. In particular, a potential
customer must develop a high degree of assurance that the product will meet its
needs, successfully interface with the customer's own manufacturing, production
or processing system, and have minimal warranty, safety and service problems.
Accordingly, the time lag from initiation of marketing efforts to final sales
can be lengthy.
Competition: The markets for the Company's products are highly competitive. A
major competitor of the Company has recently made a new product introduction
which has increased the competition that the Company faces. Some of the
Company's competitors, including Pulsarr which was sold in May 1997 to a company
significantly larger than AMV, may have substantially greater financial,
technical, marketing and other resources than the Company. Important competitive
factors in the Company's markets include price, performance, reliability,
customer support and service. Although the Company believes that it currently
competes effectively with respect to these factors, there can be no assurance
that the Company will be able to continue to compete effectively in the future.
Dependence Upon Certain Suppliers: Certain key components and subassemblies used
in the Company's products are currently obtained from sole sources or a limited
group of suppliers, and the Company does not have any long-term supply
agreements to ensure an uninterrupted supply of these components. Although the
Company seeks to reduce dependence on sole or limited source suppliers, the
inability to obtain sufficient sole or limited source components as required, or
to develop alternative sources if and as required, could result in delays or
reductions in product shipments which could materially and adversely affect the
Company's results of operations and damage customer relationships. The purchase
of certain of the components used in the Company's products require an 8 to 12
week lead time for delivery. An unanticipated shortage of such components could
delay the Company's ability to timely manufacture units, damage customer
relations, and have a material adverse effect on the Company. In addition, a
significant increase in the price of one or more of these components or
subassemblies could adversely affect the Company's results of operations.
Dependence Upon Significant Customers and Distribution Channel: The Company sold
equipment to two unaffiliated customers totaling 13% and 12% of sales in 1996
and to two unaffiliated customers totaling 19% and 16% of sales in 1995. Sales
to another unaffiliated customer totaled 15% of sales in 1994. Ventek's sales
have been to a relatively small number of multi-location plywood manufacturers.
The Company usually receives orders of from one to several machine vision
systems, but occasionally receives larger orders. While the Company strives to
create long-term relationships with its customers and distributors, there can be
no assurance that they will continue ordering additional systems from the
Company, or that orders will not be delayed due to customer capital
appropriations procedures or other circumstances beyond the control of the
Company. In certain instances, the Company's sales, income and cash flow may
become negatively affected where investments have been made in inventory in
anticipation of an order and such order is delayed by the customer. The Company
may continue to be dependent on a small number of customers and distributors,
the loss of which would adversely affect the Company's business.
Risk of International Sales: Due to its export sales, the Company is subject to
the risks of conducting business internationally, including unexpected changes
in regulatory requirements; fluctuations in the value of the U. S. dollar, which
could increase the sales prices in local currencies of the Company's products in
international markets; delays in obtaining export licenses, tariffs and other
barriers and restrictions; and the burdens of complying with a variety of
international laws. In addition, the laws of certain foreign countries may not
protect the Company's intellectual property rights to the same extent as do the
laws of the United States.
Fluctuations in Quarterly Operating Results; Seasonality: The Company has
experienced and may in the future experience significant fluctuations in
revenues and operating results from quarter to quarter as a result of a number
of factors, many of which are outside the control of the Company. These factors
include the timing of significant orders and shipments, product mix, delays in
shipment, capital spending patterns of customers, competition and pricing, new
product introductions by the Company or its competitors, the timing of research
and development expenditures, expansion of marketing and support operations,
changes in material costs, production or quality problems, currency
fluctuations, disruptions in sources of supply, regulatory changes and general
economic conditions. These factors are difficult to forecast, and these or other
factors could have a material adverse effect on the Company's business and
operating results. Moreover, due to the relatively fixed nature of many of the
Company's costs, including personnel and facilities costs, the Company would not
be able to reduce costs in any quarter to compensate for any unexpected
shortfall in net sales, and such a shortfall would have a proportionately
greater impact on the Company's results of operations for that quarter. For
example, a significant portion of the Company's quarterly net sales depends upon
sales of a relatively small number of high-priced systems. Thus, changes in the
number of such high-priced systems shipped in any given quarter can produce
substantial fluctuations in net sales, gross profits, and net income from
quarter to quarter. In addition, in the event the Company's machine vision
systems' average selling price increases, of which there can be no assurance,
the addition or cancellation of sales may exacerbate quarterly fluctuations in
revenues and operating results.
The Company's operating results may also be affected by certain seasonal trends.
The Company typically experiences lower sales and order levels in the first
quarter when compared with the preceding fourth quarter due primarily to the
seasonality of certain harvested food items and the fact that shipments to
certain customers occur during such customers' December plant shutdowns. The
Company expects these seasonal patterns to continue, though their impact on
revenues will decline as the Company continues to expand its presence in
nonagricultural and other markets which are less seasonal.
Risks Associated With Possible Acquisitions: The Company may pursue strategic
acquisitions or joint ventures in addition to the acquisitions of Pulsarr
(subsequently divested in May 1997) and Ventek as part of its growth strategy.
While the Company has no understandings, commitments or agreements with respect
to any further acquisition, one or more potential opportunities may become
available in the future. Acquisitions and joint ventures would require
investment of operational and financial resources and could require integration
of dissimilar operations, assimilation of new employees, diversion of management
resources, increases in administrative costs and additional costs associated
with debt or equity financing. There can be no assurance that any acquisition or
joint venture by the Company will not have an adverse effect on the Company's
results of operations or will not result in dilution to existing shareholders.
If additional attractive opportunities become available, the Company may decide
to pursue them actively. There can be no assurance that the Company will
complete any future acquisitions or joint ventures or that such a future
transaction will not materially and adversely affect the Company.
Dependence Upon Key Personnel: The Company's success depends to a significant
extent upon the continuing contributions of its key management, technical, sales
and marketing and other key personnel. Except for William J. Young, the
Company's President and Chief Executive Officer, Alan R. Steel, the Company's
Chief Financial Officer, Dr. James Ewan, SRC's President and Chief Executive
Officer, and the four former stockholders of Ventek, the Company does not have
long-term employment agreements or other arrangements with such individuals
which would encourage them to remain with the Company. The Company's future
success also depends upon its ability to attract and retain additional skilled
personnel. Competition for such employees is intense. The loss of any current
key employees or the inability to attract and retain additional key personnel
could have a material adverse effect on the Company's business and operating
results. There can be no assurance that the Company will be able to retain its
existing personnel or attract such additional skilled employees in the future.
Intellectual Property: The Company's competitive position may be affected by its
ability to protect its proprietary technology. Although the Company has a number
of United States and foreign patents, there can be no assurance that any such
patents will provide meaningful protection for its product innovations. The
Company may experience additional intellectual property risks in international
markets where it may lack patent protection.
Product Liability and Other Legal Claims: From time to time, the Company may be
involved in litigation arising out of the normal course of its business,
including product liability and other legal claims. While the Company has a
general liability insurance policy which includes product liability coverage up
to an aggregate amount of $10 million, there can be no assurance that the
Company will be able to maintain product liability insurance on acceptable terms
or that its insurance will provide adequate coverage against potential claims in
the future. There can be no assurance that third parties will not assert
infringement claims against the Company, that any such assertion of infringement
will not result in litigation or that the Company would prevail in such
litigation. Furthermore, litigation, regardless of its outcome, could result in
substantial cost to and diversion of effort by the Company. Any infringement
claims or litigation against the Company could materially and adversely affect
the Company's business, operating results and financial condition. If a
substantial product liability or other legal claim against the Company were
sustained that was not covered by insurance, there could be an adverse effect on
the Company's financial condition and marketability of the affected products.
Warranty Exposure and Performance Specifications: The Company generally provides
a one-year limited warranty on its products. In addition, for certain
custom-designed systems, the Company contracts to meet certain performance
specifications for a specific application. In the past, the Company has incurred
higher warranty expenses related to new products than it typically incurs with
established products. There can be no assurance that the Company will not incur
substantial warranty expenses in the future with respect to new products, as
well as established products, or with respect to its obligations to meet
performance specifications, which may have an adverse effect on its results of
operations and customer relationships.
18
<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 directors or employees of AMV, in lawsuits in the Superior Courts
for Los Angeles County and Orange County, California. The lawsuits were
consolidated in February, 1994, and were litigated in Superior Court for Los
Angeles County in September and October, 1995.
Ford, a consultant to AMV, claims that AMV breached an agreement dated September
17, 1987, and subsequently amended on August 16, 1988, by which he was to
receive 25,000 shares of stock of CNVS, Inc., predecessor to AMV, at no cost and
an option to purchase 25,000 additional shares in the future upon the occurrence
of specified events. Ford claims he was promised that this total of 50,000
shares in the Company would amount to 5% of the outstanding shares. Ford also
claims AMV owes him royalties under a royalty agreement for certain low light
video camera technology. AMV contends that Ford was never promised that his
interest would amount to 5% of the outstanding shares, that Ford failed to
fulfill his obligations under the royalty agreement, and that Ford's claims are
barred under various legal theories. Based on these allegations, Ford made
claims for breach of contract and breach of the covenant of good faith and fair
dealing.
The Claimants contend that statements allegedly made by William Patridge to
United States Alcohol Testing of America, Inc. ("USAT") caused USAT to rescind
an Asset Purchase Agreement with the Claimants. The Claimants allege that the
statements concerning outstanding lawsuits and disputes between AMV and the
Claimants were false and meant to disrupt the business relationship between
Prime Lasertech and USAT. The Claimants allegedly would have benefited from the
Asset Purchase Agreement as shareholders and/or licensees. Based on these
allegations, the Claimants made claims for intentional and negligent
interference with prospective advantage, intentional and negligent infliction of
emotional distress, and civil conspiracy.
On October 2, 1995, a jury awarded $375,000 to the Claimants, which included
$281,000 of punitive damages for the breach of contract claim. The Company has
filed motions with the court to eliminate the punitive portion of the award. AMV
believes such damages are improper because (i) the claimants did not ask for
punitive damages in the contract claim, and (ii) such damages cannot be awarded
for breach of contract under applicable state laws. AMV is also attempting to
overturn the balance of the breach of contract award based on the fact that the
claim was made after the statute of limitations had expired. AMV has made an
appeal to overturn the verdict based on these factors and certain other
irregularities that occurred during the trial, which AMV believes unfairly
affected the jury's decision. Due to the fact that a verdict was rendered, a
$93,000 loss on the breach of contract claim was recorded as a liability in the
fourth quarter of 1995.
Credit Suisse, Max Khan and Konrad Meyer
On January 9, 1997, the Company sued Credit Suisse, Max Khan and Konrad Meyer
(together, "Credit Suisse") in Jackson County, Oregon, seeking $1,600,000 in
fulfillment of Credit Suisse's contractual obligation to fund a Private
Placement Subscription Agreement dated May 14, 1996. Ilverton International,
Inc. ("Ilverton"), an entity that the Company believed to be controlled by Meyer
and holder of the Company's $3,400,000 Convertible Secured Note, was later added
as a defendant to the suit. The Company claimed that Credit Suisse's failure to
fund limited AMV's ability to finance its business plan for Pulsarr and other
operations and, as a result, adversely impacted AMV's credibility with investors
and financial analysts. The suit also claimed that Messrs. Khan and Meyer, who
had previously provided investment banking services to AMV, persuaded Credit
Suisse to breach the Subscription Agreement.
In a related action, on June 26, 1997, the Company sued Swiss American
Securities, Inc. ("SASI"), Credit Suisse's U. S. Agent, and Ilverton, seeking
the return of the common stock of the Company's SRC VISION, Inc. subsidiary that
was pledged as security for the $2,160,000 Convertible Subordinated Secured Note
to Ilverton that was paid off in April 1997. The agreement governing the pledge
required Ilverton, upon payment of the note, to instruct SASI, the holder of the
pledged shares, to return the pledged shares to AMV. Although Ilverton had no
voting rights over the pledged shares, the Company believed that Ilverton's
refusal to return the shares was related to the Credit Suisse action described
above.
In August and September 1997, all matters among the Company and the defendants
were settled resulting in the dismissal with prejudice of all claims among the
parties. In connection with the settlement, AMV purchased from Ilverton,
1,001,640 shares of the Company's Class A Common Stock, 640,000 Class F and H
Warrants and $2.5 million of Convertible Secured Note.
Item 6. Exhibits And Reports On Form 8-K
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(a) Exhibits
Exhibit
Number Description
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10.1 Settlement Agreement dated August 12, 1997.
10.2 1997 Nonqualified Stock Option Plan and form of option agreement.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
On August 8, 1997, a Form 8-K was filed establishing the date
for the Company's 1997 Annual Meeting of stockholders.
On August 12, 1997, a Form 8-K was filed regarding AMV's
purchase of 1,001,640 shares of Class A Common Stock and
warrants to purchase 640,000 shares of Class A Common Stock.
On September 15, 1997, a Form 8-K was filed regarding AMV's
purchase of $2.5 million of the $3.4 million outstanding 6.75%
Convertible Secured Note.
On September 29, 1997, a Form 8-K was filed regarding the
retirement of 1.8 million shares of Class A Common Stock
contributed to the Company by William J. Young, Alan R. Steel
and James Ewan, officers and/or directors of AMV.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 30, 1997 /s/ Alan R. Steel
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Alan R. Steel
Vice President - Finance
(Principal Financial and duly
Authorized Officer)
20
EXHIBIT 10.1
SETTLEMENT AGREEMENT
This Settlement Agreement is entered into this 12th day of August, 1997
among ADVANCED MACHINE VISION CORPORATION ("AMV"), CREDIT SUISSE, a corporation
existing under the laws of Switzerland, SWISS AMERICAN SECURITIES, INC. ("SWISS
AMERICAN"), ILVERTON INTERNATIONAL, INC., a corporation existing under the laws
of the British Virgin Islands ("ILVERTON"), KONRAD MEYER ("MEYER") and MAX KHAN
("KHAN").
R E C I T A L S
WHEREAS AMV fka ARC Capital is the plaintiff in an action against
CREDIT SUISSE, ILVERTON, KHAN and MEYER now pending in the United States
District Court for the District of Oregon as Case No. 97-3307-CO related to a
Subscription Agreement dated May 14, 1996 ("Subscription Agreement Litigation");
WHEREAS AMV is the plaintiff in an action against SWISS AMERICAN and
ILVERTON now pending in the United States District Court for the District of
Oregon as Case No. CV 97-3039-CO related to a Pledge and Security Agreement
dated April 13, 1995, and in which SWISS AMERICAN has filed an interpleader,
("Security Agreement Litigation"); and
WHEREAS the parties or participant to this Settlement Agreement desire
to resolve all disputes among them that relate to the Subscription Agreement
Litigation and/or the Security Agreement Litigation.
IT IS HEREBY AGREED AS FOLLOWS:
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1. Dismissal of Litigation.
1.1 By AMV. Upon delivery of the securities as set forth in
Sections 4 and 5 of this Settlement Agreement, AMV will dismiss
with prejudice its complaints in the Subscription Agreement
Litigation and the Security Agreement Litigation against the
PARTIES SIGNING THIS SETTLEMENT AGREEMENT.
1.2 By CREDIT SUISSE. Upon delivery of the securities as set
forth in Sections 4 and 5 of this Settlement Agreement, CREDIT
SUISSE will dismiss with prejudice its counterclaim filed in the
Subscription Agreement Litigation.
1.3 By SWISS AMERICAN. Upon delivery of the securities as
set forth in Sections 4 and 5 of this Settlement Agreement, SWISS
AMERICAN will dismiss with prejudice its claim for interpleader
filed in the Security Agreement Litigation.
2. Release of Claims.
2.1 By AMV. Conditioned on and effective upon the delivery
of the securities as set forth in Sections 4 and 5 of this
Settlement Agreement, AMV releases and absolutely and forever
discharges CREDIT SUISSE, SWISS AMERICAN, ILVERTON, MEYER and
KHAN, but only if such PARTY HAS SIGNED THIS SETTLEMENT
AGREEMENT, and each of their respective current officers,
directors and agents of and from any and all claims, demands,
damages, debts, liens, actions and causes of action of every kind
and nature whatsoever, whether now known or unknown, suspected or
unsuspected, which it might have had, shall or may hereafter
have, upon or arising out of
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any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time through and including the date
of this Settlement Agreement and including without limitation any
theory recited in the Subscription Agreement Litigation and/or
the Security Agreement Litigation.
2.2 By Remaining Parties. Conditioned on and effective upon
the delivery of the securities as set forth in Sections 4 and 5
of this Settlement Agreement, CREDIT SUISSE, SWISS AMERICAN,
ILVERTON, MEYER and KHAN hereby release and absolutely and
forever discharge AMV and its subsidiaries and each of their
current officers, directors and agents of and from any and all
claims, demands, damages, debts, liens, actions and causes of
action of every kind and nature whatsoever, whether now known or
unknown, suspected or unsuspected, which any of them had, shall
or may hereafter have, upon or arising out of any matter, cause,
fact, thing, act or omission whatsoever occurring or existing at
any time through and including the date of this Settlement
Agreement and including without limitation any theory recited in
the Subscription Agreement Litigation and/or the Security
Agreement Litigation.
2.3 Nonsigners: Notwithstanding the release of claims
provided in Sections 2.1 and 2.2 of this Settlement Agreement,
the provisions of Sections 2.1 and 2.2 shall not apply to any
party not signing the Settlement Agreement.
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3. Convertible Subordinated Bonds.
3.1 Description of Bonds. AMV is the issuer of $3.4 million
of convertible subordinated bonds sold on April 17, 1996, and
remains the obligor under such bonds until paid by AMV according
to the terms of the bonds.
3.2 Repurchase of Convertible Subordinated Bonds. ILVERTON,
MEYER, KHAN and CREDIT SUISSE shall have the right to "put" to
AMV up to a maximum of $3.4 million face value of bonds issued
pursuant to AMV's $3.4 million Convertible Secured Note dated
April 17, 1996. The bonds shall be purchased by AMV at face value
without prepayment penalty, but with interest accrued as of the
date of the repurchase. This "put" shall terminate thirty days
following execution of this Settlement Agreement. AMV shall have
no obligation to repurchase bonds in the event this Settlement
Agreement is not executed, the delivery of the securities
required by Sections 4 and 5 of this Settlement Agreement is not
timely completed, or in the event such redemption would require
filings by AMV with the Securities and Exchange Commission or
would otherwise violate the laws of the United States or any
state thereof or of the country in which a bondholder requesting
redemption may reside.
3.3 Bondholder Rights. Pursuant to this section of the
agreement, the $3.4 million of bonds may either (i) "put" to AMV
in accordance with Section 3.2 of this Settlement Agreement, (ii)
converted into AMV Class A Common Stock as permitted in the bond
instrument, or (iii) held until maturity or otherwise sold.
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3.4 Obligation of AMV: The $3.4 million Convertible Secured
Note dated April 17, 1996 is a primary obligation of AMV and is
due on April 17, 2001. The note is backed by the full faith and
credit of AMV.
4. Delivery of SRC Vision, Inc. Common Stock.
Upon execution of this Settlement Agreement, ILVERTON and/or
SWISS AMERICAN shall deliver to AMV all of the common stock of
SRC Vision, Inc., AMV's wholly owned subsidiary, pledged to
secure the $2,160,000 Convertible Subordinated Secured Note dated
April 13, 1995 between AMV and ILVERTON. ILVERTON and MEYER
represent and warrant that they have no further interest in, or
claim to, the SRV Vision, Inc. common stock pledged to secure
that note.
5. Repurchase of AMV Common Stock and Return of Warrants.
5.1 Delivery of Stock. Upon execution of this Settlement
Agreement ILVERTON and SWISS AMERICAN will deliver to AMV
1,001,640 shares of AMV common stock held in the name of SWISS
AMERICAN.
5.2 Return of Warrants. Within fifteen days of the execution
of this Settlement Agreement, ILVERTON will deliver to AMV for
cancellation ILVERTON's warrants to purchase 300,000 and 340,000
shares, respectively, of AMV's common stock (the Class F Warrants
and Class H Warrants).
5.3 Purchase Price. Concurrent with the delivery of the
stock and warrants pursuant to Sections 4, 5.2 and 5.3 above, AMV
will pay to ILVERTON a total of $1,903,116.
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6. Participation of MEYER in AMV's Affairs.
For a period of five years from the date of this Agreement,
MEYER nor any of his agents or affiliates shall, without prior
consent of the then Chair of AMV's Board of Directors,
communicate on matters related to AMV with AMV's shareholders,
bondholders, current and former officers and directors, or,
except to the extent compelled by applicable law, participate
directly or indirectly in any lawsuit asserted against AMV, its
officers or directors, or make any untruthful or defamatory
statements about AMV, its officers or directors. Additionally,
MEYER and his agents or affiliates will not engage in any proxy
contest, tender offer, merger or any other similar activity
related to AMV for five years. Recognizing that damages to AMV
cannot be readily ascertained in the event of a violation of this
Agreement, MEYER agrees to a payment of $100,000 as liquidated
damages for each breach of this provision. Notwithstanding this
Section 6, MEYER shall be able to discuss or communicate
regarding publicly disclosed AMV information.
7. Participation of KHAN in AMV's Affairs.
For a period of five years from the date of this Agreement,
KHAN, nor any of his agents or affiliates shall, without prior
consent of the then Chair of AMV's Board of Directors,
communicate on matters related to AMV with AMV's shareholders,
bondholders, current and former officers and directors, or,
except to the extent compelled by applicable law, participate
directly or indirectly in any lawsuit asserted against AMV, its
officers or directors, or make any untruthful or defamatory
statements about AMV, its officers or directors. Additionally,
KHAN and his agents or affiliates will not engage in any proxy
contest,
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tender offer, merger or any other similar activity related
to AMV for five years. Recognizing that damages to AMV cannot be
readily ascertained in the event of a violation of this
Agreement, KHAN agrees to a payment of $100,000 as liquidated
damages for each breach of this provision. Notwithstanding this
Section 7, KHAN shall be able to discuss or communicate regarding
publicly disclosed AMV information.
8. Participation of AMV in KHAN's Affairs.
For a period of five years from the date of this Agreement,
AMV, nor any of its agents or affiliates shall without prior
consent of KHAN communicate on matters related to KHAN with
KHAN's associates and affiliated businesses, or, except to the
extent compelled by applicable law, participate directly or
indirectly in any lawsuit asserted against KHAN, his associates
or affiliated businesses, or make any untruthful or defamatory
statements about KHAN, its associates or affiliated businesses.
Recogniging that damages to KHAN cannot be readily ascertained in
the event of a violation of this Agreement, AMV agrees to a
payment of $100,000 as liquidated damages for each breach of this
provision. Notwithstanding this Section 8, AMV shall be able to
discuss or communicate regarding publicly disclosed KHAN
information. 9. Participation of AMV in MEYER's Affairs. For a
period of five years from the date of this Agreement, AMV, nor
any of its agents or affiliates shall, without prior consent of
MEYER communicate on matters related to MEYER with MEYER's
associates and affiliated businesses, or, except to the extent
compelled by applicable law, participate directly or indirectly
in any lawsuit asserted against MEYER, its
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associates or affiliated businesses, or make any untruthful
or defamatory statements about MEYER, his associates or
affiliated businesses. Recognizing that damages to MEYER cannot
be readily ascertained in the event of a violation of this
Agreement, AMV agrees to a payment of $100,000 as liquidated
damages for each breach of this provision. Notwithstanding this
Section 8, AMV shall be able to discuss or communicate regarding
publicly disclosed MEYER information.
10. Severability.
If one or more of the provisions of this Settlement
Agreement shall be for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity, legality and
enforceability of any other provision hereof, and this Settlement
Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein, provided
that the Agreement, as so modified, preserves the basic intent of
the parties.
11. Miscellaneous.
11.1 Governing Law. This Settlement Agreement is made, and
intended to be performed, in the state of Oregon, and shall be
enforced and interpreted by the laws of that state. Any action to
enforce or otherwise related to or arising out of this Settlement
Agreement shall be pursued only through arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association. All such arbitrations shall take place within the
state of Oregon.
11.2 Entire Agreement. This Settlement Agreement is the
final and complete agreement of the parties hereto with respect
to its subject matter, and supersedes any prior discussions,
negotiations or agreements, whether written
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or oral, between the parties with respect to the subject
matter hereof. It may be amended only by an agreement in writing
executed by the parties hereto.
11.3 Attorneys' Fees. Each party shall bear its own costs
and attorneys' fees associated with the Subscription Agreement
Litigation and/or the Security Agreement Litigation and/or the
review and execution of this Settlement Agreement.
11.4 Advice of Counsel. Each of the parties hereto
acknowledges, represents and warrants that he, she or it has had
the opportunity to obtain the advice of counsel of such party's
own choosing in the negotiations for and in the preparation of
this Settlement Agreement, that the party has read the Settlement
Agreement, that each has had this Settlement Agreement fully
explained by such counsel and that each is fully aware of its
contents and legal effect.
11.5 Binding Obligations. Each party signing this agreement
expressly warrants and represents to each other party signing
this agreement that such party is duly authorized and empowered
to enter into this Settlement Agreement and to perform and
observe its agreements and obligations herein, and that such
party has been advised by its legal counsel that this Settlement
Agreement creates and constitutes a binding obligation on such
party and his or its successors and assigns, and that this
Settlement Agreement is enforceable in accordance with its terms.
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11.6 Further Assistance. Each party agrees to execute and
deliver to the other parties all such other and additional
instruments and other documents, and to do all such other acts
and things as any party may reasonably deem necessary to more
fully carry out this Agreement and the obligations contained
herein.
11.7 Condition Precedent to Obligations. The parties to this
Settlement Agreement understand that AMV will pay its obligation
pursuant to Section 5.3 above by delivery upon execution of this
Settlement Agreement of a standard AMV bank check(s). Should the
check(s) fail to clear AMV's bank within five business days of
deposit, AMV will return to the appropriate party the securities
returned to AMV in accordance with this Settlement Agreement and
this Settlement Agreement will be deemed to be null and void as
if it never existed.
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IN WITNESS WHEREOF, the parties have executed this Settlement Agreement, or
caused it to be executed by its officers, being thereunto duly authorized by all
necessary corporate action, as of the date first above written.
Advanced Machine Vision Corporation Credit Suisse
By /s/ William J. Young By
- ----------------------------------- --------------------------------------
President and CEO
Swiss American Securities, Inc. Ilverton International, Inc.
By By /s/ Ilverton International, Inc.
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Konrad Meyer Max Khan
/s/ Konrad Meyer
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EXHIBIT 10.2
ADVANCED MACHINE VISION CORPORATION
1997 NONQUALIFIED STOCK OPTION PLAN
1. Purpose. The Advanced Machine Vision Corporation 1997 Nonqualified Stock
Option Plan (the "Plan") is hereby established to grant to key employees and
consultants of Advanced Machine Vision Corporation and its Subsidiaries
(individually and collectively, the "Company") an opportunity to acquire Class A
Common Stock of Advanced Machine Vision Corporation (the "Stock"), and to create
an incentive for such persons to remain in the employ of the Company and to
contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue Code
of 1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meaning set forth in Sections 424(e) and (f) of the
Code.
2. Administration. The Plan shall be administered by the Board of Directors
or a Plan Committee of the Board of Directors of the Company (the
"Administrator"). The Administrator shall consist of two members of the Board of
Directors who are "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Administrator shall determine the meaning and application of the
provisions of the Plan and all option agreements executed pursuant thereto, and
its decisions shall be conclusive and binding upon all interested persons.
Subject to the provisions of the Plan, the Administrator shall have the sole
authority to determine:
(a) The persons to whom options to purchase Stock shall be granted;
(b) The number of options to be granted to each person;
(c) The price to be paid for the Stock upon the exercise of each option;
(d) The period within which each option shall be exercised; and
(e) The terms and conditions of each stock option agreement entered into
between the Company and persons to whom the Company has granted an
option.
3. Eligibility. Key employees and consultants of the Company, as determined
by the Administrator, shall be eligible to receive grants of options under the
Plan.
4. Stock Subject to Plan. There shall be reserved for issue upon the
exercise of options granted under the Plan 500,000 shares of Stock or the number
of shares of Stock, which, in accordance with the provisions of Section 10
hereof, shall be substituted therefore. Such shares may be authorized but
unissued shares or treasury shares. If an option granted under the Plan shall
expire or terminate for any reason without having been exercised in full,
unpurchased shares subject thereto shall again be available for the purposes of
the Plan unless prohibited by law.
5. Terms of Options.
(a) Nonqualified Stock Options. Only nonqualified options may be
granted under the Plan. Each nonqualified stock option granted under the Plan
shall be evidenced by a stock option agreement between the person to whom such
option is granted and the Company. Such stock option agreement shall provide
that the option is subject to the following terms and conditions and to such
other terms and conditions not inconsistent therewith as the Administrator may
deem appropriate in each case:
(1) Option Exercise Price. The exercise price to be paid for
each share of Stock upon the exercise of an option shall be determined by the
Administrator at the time the option is granted, but shall in no event be less
than 85% of the fair market value of the shares on the date the option is
granted. As used in this Plan, the term "date the option is granted" means the
date on which the Administrator authorizes the grant of an option hereunder or
any later date specified by the Administrator. Fair market value of the shares
shall be (i) the closing price of shares of Stock sold on a national stock
exchange on the date the option is granted (or if there was no sale on such
date, the closing price on the most recent date the Stock traded), or (ii) if
the Stock is not listed on a national stock exchange on the date the option is
granted, the closing price of the Stock in the National over-the-counter market
on the date the option is granted, or (iii) if the Stock is not traded in any
market, that price determined by the Administrator to be fair market value,
based upon such evidence as it may think necessary or desirable.
(2) Period of Option. The period or periods within which an
option may be exercised shall be determined by the Administrator at the time the
option is granted, but shall in no event exceed ten years from the date the
option is granted.
(3) Payment for Stock. The option exercise price for Stock
purchased under an option shall be paid in full at the time of purchase. The
Administrator may provide that the option exercise price be payable, at the
election of the holder of the option, with the consent of the Administrator, in
whole or in part either in cash or by delivery of Stock in transferable form,
such Stock to be valued for such purpose at its fair market value on the date on
which the option is exercised. No share of Stock shall be issued until full
payment therefor has been made, and no employee shall have any rights as an
owner of shares of Stock until the date of issuance to him of the stock
certificate evidencing such Stock.
6. Nontransferability. The options granted pursuant to the Plan shall be
nontransferable except by will or the laws of descent and distribution, and
shall be exercisable during the Optionee's lifetime only by him and after his
death, by his personal representative or by the person entitled thereto under
his will or the laws of intestate succession.
7. Termination of Employment. Upon termination of the Optionee's
employment, his rights to exercise options then held by him shall be only as
follows:
(a) Retirement or Disability. If the Optionee's employment is
terminated by reason of his retirement by the Company, or, with the approval of
the Administrator, because of disability or other reasons, he may, within three
months following such termination, exercise the option to the extent the right
to exercise had accrued at the time of termination of employment. However, in
the event of his death prior to the end of the three-month period after the
aforesaid termination of his employment, his estate shall have the right to
exercise the option within one year following such termination with respect to
all or any part of the shares subject thereto, to the extent the right to
purchase such shares had accrued at the time of termination of employment.
(b) Death. If an Optionee's employment is terminated by death, his
estate shall have the right, for a period of one year following the date of such
death, to exercise the option to the extent the right to exercise had accrued
prior to the date of his death.
(c) Other Terminations. When an Optionee's employment is terminated
for any reason other than those provided in Sections 7(a) and 7(b) above, his
options shall be exercised only if and to the extent that they are exercisable
on the date of termination of his employment, and such options shall terminate
thirty days following the date of his termination of employment. In no event,
however, shall such options be exercised pursuant to this Section 7 after the
expiration date set forth in Paragraph 2 of the option agreement.
8. Acceleration upon Termination or Sale of Company. The Administrator may
determine to accelerate the exercisability of any or all options after
termination of employment. In the event the Company or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
capital stock of the Company by means of a sale, merger, consolidation,
reorganization, liquidation or otherwise, an option granted under the Plan, in
addition to accelerated exercisability under any provisions of Section 10(b)
hereof that may be applicable, will, in the discretion of the Administrator, if
so authorized by the Board of Directors and conditioned upon consummation of
such disposition of assets or stock, become immediately exercisable during the
period commencing as of the date of the execution of such agreement and ending
as of the earlier of the stated termination date of the option or the date on
which the disposition of assets or stock contemplated by the agreement is
consummated.
9. Transfer to Related Corporation. In the event an employee leaves the
employ of the Company to become an employee of a Subsidiary or an employee
leaves the employ of a Subsidiary to become an employee of the Company or
another Subsidiary, such employee shall be deemed to continue as an employee for
the purposes of this Plan.
10. Adjustment of Shares.
(a) In the event of changes in the outstanding Stock by reason of
stock dividends, stock splits, reverse stock splits, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the
Administrator), an appropriate adjustment shall be made by the Administrator in
the number of shares reserved under the Plan, in the number of shares set forth
in Section 4 hereof, and in the number of shares and the option price per share
specified in any stock option agreement with respect to any unpurchased shares.
The determination of the Administrator as to what adjustments shall be made
shall be conclusive. Adjustments for any options to purchase fractional shares
shall also be determined by the Administrator. The Administrator shall give
prompt notice to all optionees of any adjustment pursuant to this Section.
(b) Section 10(a) above to the contrary notwithstanding, in the event
of any merger, consolidation or other reorganization of the Company in which the
Company is not the surviving or continuing corporation (as determined by the
Administrator) or in the event of the liquidation or dissolution of the Company,
all options granted hereunder shall terminate on the effective date of the
merger, consolidation, reorganization, liquidation, or dissolution unless the
agreement with respect thereto provides for the assumption of such options by
the continuing or surviving corporation. Any other provision of this Plan to the
contrary notwithstanding, all outstanding options granted hereunder shall be
fully exercisable for a period of 30 days prior to the effective date of any
such merger, consolidation, reorganization, liquidation, or dissolution unless
such options are assumed by the continuing or surviving corporation.
11. Securities Law Requirements. The Administrator may require prospective
optionees, as a condition of either the grant or the exercise of an option, to
represent and establish to the satisfaction of the Administrator that all shares
of Stock acquired upon the exercise of such option will be acquired for
investment and not for resale. The Company may refuse to permit the sale or
other disposition of any shares acquired pursuant to any such representation
until it is satisfied that such sale or other disposition would not be in
contravention of applicable state or federal securities law.
12. Tax Withholding. The Company may require an optionee to pay to the
Company all applicable federal, state and local taxes which the Company is
required to withhold with respect to the exercise of an option granted
hereunder.
13. Amendment. The Board of Directors may amend the Plan at any time. The
provisions of the Plan shall not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
14. Termination. The Plan shall terminate automatically on September 23,
2007. The Board of Directors may terminate the Plan at any earlier time. The
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination, but no option shall be granted
after such date.
15. Effective Date. The Plan shall be effective upon its adoption by the
Board of Directors of the Company which is September 23, 1997.
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 23rd day of September, 1997, by and
between Advanced Machine Vision Corporation (the "Company"), and
________________________ ("Optionee").
W I T N E S S E T H
WHEREAS, pursuant to the 1997 Nonqualified Stock Option Plan (the "Stock
Option Plan"), the Board of Directors of the Company (the "Plan Administrator")
has authorized the granting to Optionee of a nonqualified stock option to
purchase the number of shares of Class A Common Stock ("Common Stock") of the
Company specified in Paragraph 1 hereof, at the price specified therein, such
option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, in consideration of the promises and of the undertakings of
the parties hereto contained herein, it is hereby agreed:
1. Number of Shares; Option Price. Pursuant to said action of the Plan
Administrator, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of said Stock Option
Plan, all or any part of _________ shares of Common Stock of the Company for
cash at the price of $______ per share.
2. Term. This Option shall expire on _________________ unless such Option
shall have been terminated prior to that date in accordance with the provisions
of the Stock Option Plan or this Agreement (the "Termination Date"). The terms
"Parent" and "Subsidiary" herein mean a parent corporation or a subsidiary
corporation, as such terms are defined in the Stock Option Plan.
3. Vesting. This Option shall vest and be exercisable as to _________
shares on and after ________________. The Option shall thereafter remain wholly
exercisable until and including the Termination Date, provided that Optionee is
then and has continuously been in the employ of the Company, a Parent or a
Subsidiary; subject, however, to the provisions of Paragraph 5 hereof.
4. Exercise. The Option may be exercised by written notice delivered to the
Company stating the number of shares with respect to which the Option is being
exercised, together with a check made payable to the Company in the amount of
the purchase price of such shares plus the amount of applicable federal, state
and local withholding taxes and the written statement provided for in Paragraph
9 hereof, if required by said Paragraph 9. Not less than 100 shares may be
purchased at any one time unless the number purchased is the total number
purchasable under such Option at the time. Only whole shares may be purchased.
5. Exercise on Termination of Employment. If Optionee shall cease to be
employed by, or ceases to be a consultant or otherwise to render services to,
the Company, a Parent or a Subsidiary, Optionee's right to exercise his options,
if any, shall be governed by Section 7 of the Stock Option Plan. References in
such Section 7 to "employment" shall mean the cessation of services to the
Company, a Parent or a Subsidiary in the case of any person who is not an
employee.
6. Nontransferability. The Option may not be assigned or transferred except
by will or by the laws of descent and distribution, and may be exercised only by
Optionee during his lifetime and after his death, by his personal representative
or by the person entitled thereto under his will or the laws of intestate
succession.
7. Optionee Not a Shareholder. Optionee shall have no rights as a
shareholder with respect to the Common Stock of the Company covered by such
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of the Option. No adjustment will be made for dividends or
other rights for which the record date is prior to the date such stock
certificate or certificates are issued, except as provided in Section 10 of the
Stock Option Plan.
8. Modification and Termination. The rights of Optionee are subject to
modification and termination in certain events as provided in Sections 7 and 10
of the Stock Option Plan.
9. Restrictions on Sale of Shares. Optionee represents and agrees that upon
his exercise of the Option, in whole or in part, unless there is in effect at
that time under the Securities Act of 1933, as amended, a registration statement
relating to the shares issued to him, he will acquire the shares issuable upon
exercise of this Option for the purpose of investment and not with a view to
their resale or further distribution, and that upon such exercise thereof he
will furnish to the Company a written statement to such effect, satisfactory to
the Company in form and substance. Optionee agrees that any certificate issued
upon exercise of this Option may bear a legend indicating that their
transferability is restricted in accordance with applicable state and federal
securities law. Any person or persons entitled to exercise this Option under the
provisions of Paragraphs 5 and 6 hereof shall, upon each exercise of the Option
under circumstances in which Optionee would be required to furnish such a
written statement, also furnish to the Company a written statement to the same
effect, satisfactory to the Company in form and substance.
10. Plan Governs. This Agreement and the Option evidenced hereby are made
and granted pursuant to the Stock Option Plan and are in all respects limited by
and subject to the express terms and provisions of that Plan, as it may be
amended from time to time and construed by the Plan Administrator of the Board
of Directors of the Company. Optionee hereby acknowledges receipt of a copy of
the Stock Option Plan.
11. Notices. All notices to the Company shall be addressed to the President
of the Company at the principal office of the Company at 2067 Commerce Drive,
Medford, Oregon, 97504, and all notices to Optionee shall be addressed to
Optionee at the address of Optionee on file with the Company or its
Subsidiaries, or to such other address as either may designate to the other in
writing. A notice shall be deemed to be duly given if and when enclosed in a
properly addressed sealed envelope deposited, postage prepaid, with the United
States Postal Service. In lieu of giving notice by mail as aforesaid, written
notice under this Agreement may be given by personal delivery to Optionee or to
the President of the Company (as the case may be).
12. Sale or Other Disposition. If Optionee at any time contemplates the
disposition (whether by sale, gift, exchange, or other form or transfer) of any
shares acquired by exercise of this Option, he or she will first notify the
Company in writing of such proposed disposition and cooperate with the Company
in complying with all applicable requirements of law, which, in the judgment of
the Company, must be satisfied prior to such disposition.
13. 180-Day Holdback. In accepting the grant of this Option, Optionee
hereby agrees that, in the event of an underwritten public offering of the
Company's securities pursuant to which any of its securities are registered
pursuant to the Securities Act of 1933, as amended, and to the extent the
underwriter of such offering requests that the shareholders of the Company agree
to do so, the Optionee will agree not to sell any of the Common Stock issued or
issuable upon exercise of this Option for a period of at least 180 days after
the closing of such public offering, and to sign a 180-day holdback agreement to
that effect.
IN WITNESS WHEREOF, the Company has executed this Nonqualified Stock Option
Agreement as of the date and year first above written.
ADVANCED MACHINE VISION CORPORATION
By:_________________________________
Title:______________________________
OPTIONEE:
By:_________________________________
(Signature)
____________________________________
(Typed or Printed Name)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> Advanced Machine Vision Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 5,581
<SECURITIES> 0
<RECEIVABLES> 3,248
<ALLOWANCES> 0
<INVENTORY> 5,338
<CURRENT-ASSETS> 14,239
<PP&E> 6,272
<DEPRECIATION> 1,771
<TOTAL-ASSETS> 25,298
<CURRENT-LIABILITIES> 6,116
<BONDS> 8,351
0
0
<COMMON> 24,206
<OTHER-SE> (13,375)
<TOTAL-LIABILITY-AND-EQUITY> 25,298
<SALES> 22,805
<TOTAL-REVENUES> 22,805
<CGS> 11,230
<TOTAL-COSTS> 20,693
<OTHER-EXPENSES> (4,989) <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,084
<INCOME-PRETAX> 6,017
<INCOME-TAX> 41
<INCOME-CONTINUING> 5,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,976
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<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>
