SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission File No. 0-20097
ADVANCED MACHINE VISION CORPORATION
A California Corporation
IRS Employer Identification No. 33-0256103
3709 Citation Way #102
Medford, OR 97504
Telephone: 541-776-7700
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
On September 30, 1998, registrant had 10,655,218 shares of Class A Common Stock,
and 64,335 shares of Class B Common Stock, all no par value, issued and
outstanding.
Exhibit Index at Page 18
<PAGE>
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets...............................1
Consolidated Statements of Operations - Three Months......2
Consolidated Statements of Operations - Nine Months.......3
Consolidated Statements of Cash Flows.....................4
Notes to Unaudited Consolidated Financial Statements......5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................18
Signature................................................21
<PAGE>
PART I. FINANCIAL INFORMATION
=============================
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(unaudited) (audited)
------------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,285,000 $ 6,045,000
Accounts receivable - net 3,550,000 2,711,000
Inventories 6,563,000 5,181,000
Prepaid expenses 140,000 138,000
------------- -------------
Total current assets 14,538,000 14,075,000
Property, plant and equipment - net 5,335,000 4,775,000
Intangible assets - net 5,014,000 5,535,000
Other assets 1,185,000 850,000
------------- -------------
$ 26,072,000 $ 25,235,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 948,000 $ 1,436,000
Accrued liabilities 1,006,000 1,146,000
Customer deposits 535,000 1,073,000
Accrued payroll 1,205,000 783,000
Warranty reserve 447,000 477,000
Current portion of notes payable 3,288,000 27,000
------------- -------------
Total current liabilities 7,429,000 4,942,000
------------- -------------
Notes payable, less current portion 5,374,000 8,342,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A and B--10,720,000 and 10,679,000 shares
issued and outstanding at September 30, 1998
and December 31, 1997, respectively 24,330,000 24,285,000
Common stock warrants 110,000 2,197,000
Additional paid in capital 4,910,000 2,823,000
Accumulated deficit (16,081,000) (17,354,000)
------------- -------------
Total shareholders' equity 13,269,000 11,951,000
------------- -------------
$ 26,072,000 $ 25,235,000
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations - Three Months
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 5,546,000 $ 5,861,000
Cost of sales 2,667,000 2,832,000
------------ ------------
Gross profit 2,879,000 3,029,000
------------ ------------
Operating expenses:
Selling and marketing 644,000 1,089,000
Research and development 1,116,000 1,029,000
General and administrative 767,000 581,000
Amortization of intangible assets 174,000 174,000
------------ ------------
2,701,000 2,873,000
Income from operations before other income and expense 178,000 156,000
Other income and expense:
Investment and other income 72,000 106,000
Interest expense (172,000) (428,000)
------------ ------------
Income before income taxes 78,000 (166,000)
Provision for income taxes 3,000 (6,000)
------------ ------------
Net income $ 75,000 $ (160,000)
============ ============
Earnings per share (Note 5):
Basic $ 0.01 $ (0.01)
=========== ============
Diluted $ 0.01 $ (0.01)
=========== ============
Average shares outstanding - assuming dilution 11,234,000 10,865,000
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations - Nine Months
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 21,736,000 $ 22,805,000
Cost of sales 10,489,000 11,236,000
------------ ------------
Gross profit 11,247,000 11,569,000
------------ ------------
Operating expenses:
Selling and marketing 2,977,000 3,772,000
Research and development 3,297,000 2,980,000
General and administrative 2,792,000 2,425,000
Amortization of intangible assets 521,000 555,000
------------ ------------
9,587,000 9,732,000
Income from operations before other income and expense 1,660,000 1,837,000
Other income and expense:
Gain on sale of Pulsarr -- 4,989,000
Investment and other income 183,000 275,000
Interest expense (517,000) (1,084,000)
------------ ------------
Income before income taxes 1,326,000 6,017,000
Provision for income taxes 53,000 41,000
------------ ------------
Net income $ 1,273,000 $ 5,976,000
============ ============
Earnings per share (Note 5)
Basic $ 0.12 $ 0.53
=========== ============
Diluted $ 0.10 $ 0.41
=========== ============
Average shares outstanding--assuming dilution 13,182,000 15,377,000
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,273,000 $ 5,976,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on sale of Pulsarr -- (4,989,000)
Charge for deferred debt issue costs -- 233,000
Depreciation and amortization 1,051,000 963,000
Changes in assets and liabilities:
Accounts receivable (840,000) (527,000)
Inventories (1,383,000) (657,000)
Prepaid expenses and other assets (334,000) (111,000)
Accounts payable, short-term borrowings, accrued liabilities,
customer deposits, accrued payroll and warranty reserve (729,000) 2,034,000
------------ ------------
Net cash (used in) provided by operating activities (962,000) 2,922,000
------------ ------------
Cash (used in) provided by investing activities:
Proceeds from the sale of Pulsarr -- 7,010,000
Purchases of property and equipment (1,088,000) (533,000)
------------ ------------
Net cash (used in) provided by investing activities (1,088,000) 6,477,000
------------ ------------
Cash provided by (used in) financing activities:
Notes payable to bank and others, net 282,000 (3,779,000)
Repurchase of common stock and warrants -- (1,962,000)
Proceeds from exercise of stock options 8,000 14,000
------------ ------------
Net cash provided by (used in) financing activities 290,000 (5,727,000)
------------ ------------
Net (decrease) increase in cash (1,760,000) 3,672,000
Cash and cash equivalents, beginning of the period 6,045,000 1,909,000
------------ ------------
Cash and cash equivalents, end of period $ 4,285,000 $ 5,581,000
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
====================================================
Note 1. Principles of Consolidation
- ------------------------------------
In the opinion of the management of Advanced Machine Vision Corporation (the
"Company" or "AMV"), the accompanying consolidated financial statements, which
have not been audited by independent accountants (except for the balance sheet
as of December 31, 1997), reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's financial position
at September 30, 1998, and December 31, 1997, the results of operations for the
three- and nine-month periods ended September 30, 1998 and 1997 and cash flows
for the nine-month periods ended September 30, 1998 and 1997. The financial
statements include the accounts of the Company and its four wholly-owned
subsidiaries, Applied Laser Systems, Inc., SRC VISION, Inc. ("SRC"), ARC
Netherlands BV and its respective subsidiary, Pulsarr Holding BV ("Pulsarr")
(see Note 6) to its May 6, 1997 disposition date, and Ventek, Inc. ("Ventek").
The Company's current operating subsidiaries are SRC and Ventek.
Certain notes and other information are condensed or omitted in the interim
financial statements presented in this Quarterly Report on Form 10-Q. These
financial statements should be read in conjunction with the Company's 1997
annual report on Form 10-K.
Note 2. Nature of Operations
- -----------------------------
In February 1994, the Company acquired all of the issued and outstanding capital
stock of SRC for $8.1 million in cash. In March 1996, the Company acquired all
of the issued and outstanding stock of Pulsarr for cash of $6.5 million and
notes payable of $1.3 million (see Note 6 regarding the sale of Pulsarr for $8.4
million in May 1997). In July 1996, the Company acquired the business and
certain assets of Ventek, subject to certain liabilities, for $5.1 million in
notes and other securities. The operations of each of the three acquired
entities are included in the consolidated financial results since their
respective acquisition dates, and in the case of Pulsarr, through its
disposition date. Through its subsidiaries, the Company designs, manufactures
and markets computer-aided vision defect detection and sorting and defect
removal equipment for use in a variety of industries, including food processing,
wood products and recycling. The Company's systems combine optical and
mechanical systems technologies to perform diverse scanning, analytical sensing,
measuring and sorting applications on a variety of products such as food, wood
and plastic. The Company sells its products throughout the world.
Note 3. Financing
- ------------------
In April 1995, the Company borrowed $2,160,000 pursuant to a convertible
subordinated secured note. Interest on the note was 10.25% and was payable
semi-annually. The note was convertible into the Company's Class A Common Stock
at $1.875 per share. In connection with the borrowing, the Company issued
300,000 warrants to purchase Class A Common Stock at $1.875 per share. In
October 1996 and March 1997, $645,000 and $250,000 principal amounts of the note
were converted by the debtholders into 344,000 and 133,000 shares of Class A
Common Stock. The remaining principal amount of $1,265,000 was paid in April
1997. In August 1997, the warrants were repurchased by the Company (see Note 4).
In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note. Interest on the note was 6.75% and is payable quarterly. The interest rate
may be adjusted upward on each anniversary date of the note if the market price
of the Company's Class A Common Stock fails to reach certain levels. In April
1997, the interest rate was adjusted to 9.75%. The maximum possible coupon
interest rate is 11.25% if none of the market price thresholds are met. The note
is secured by 54% of the stock of ARC Netherlands BV. The note is convertible
into the Company's Class A Common Stock at $2.125 per share. In connection with
the borrowing, the Company issued 340,000 warrants to purchase Class A Common
Stock at $2.125 per share. In August and September 1997, AMV repurchased the
warrants and paid off $2,500,000 of this note leaving $900,000 outstanding,
which is due in April 2001 (see Note 4). In conjunction with this early pay-off,
AMV wrote off $233,000 of deferred debt issuance costs in the quarter ended
September 30, 1997. In July 1996, AMV issued the following notes in connection
with the acquisition of Ventek: (i) a 6.75% $1,000,000 note due July 23, 1999;
(ii) a 6.75% $2,250,000 note due July 23, 1999 convertible into the Company's
Class A Common Stock at $2.25 per share; and (iii) a $1,125,000 note and stock
appreciation rights payable (a) by issuance of up to 1,800,000 shares of Class A
Common Stock or at the Company's option, in cash on July 23, 1999, or (b) solely
in cash in the event AMV Common Stock is delisted from the Nasdaq Stock Market.
The $1,125,000 note and stock appreciation rights payable were valued at
$1,529,000 on the acquisition date based upon an independent appraisal received
by the Company. All three notes are secured by all of the issued and outstanding
shares of Ventek.
In April 1998, AMV entered into a credit relationship with Bank of America NT&SA
for a line of credit ("LOC") and a new mortgage. The LOC Business Loan Agreement
provides that AMV can borrow the lesser of $2,000,000 or the collateral value of
pledged marketable securities, for interest at prime rate or the bank's offshore
rate plus 1.85% and has an April 30, 1999 expiration date. The $3,000,000
mortgage replaced the 9.75% $2,680,000 prior mortgage, provides for fixed
interest at 8.3% and is due on May 1, 2008.
Note 4. Equity Transactions; Reduction in Outstanding Securities; Effect of
Remaining Warrants, Options and Convertible Securities; Stock Rights
Plan
- -----------------------------------------------------------------------------
In October 1998, the Company sold 119,106 shares of Series B Preferred Stock to
FMC Corporation ("FMC") for $2,620,000. The preferred stock is convertible into
1,191,000 shares of Class A Common Stock, which, if converted, represents a 10%
ownership position based on the number of common shares outstanding on the
transaction date. Each share of preferred stock is allowed ten votes in matters
placed before the common stockholders except in the election of directors, in
which case FMC has the right to elect one director. The preferred stock pays no
dividends. The preferred stock has a $22 per share liquidation preference. FMC
also has a five-year option to purchase a number of shares of common stock equal
to 15% of the shares outstanding on the exercise date at a price equal to the
greater of the then-current market value of the AMV common stock or $2.20 per
share.
In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong incentives to enhance the Company's growth. The
total number of shares of Class A Common Stock issuable under the 1997 Plan
shall not exceed 2,000,000. In January 1997, the Company's Board of Directors
awarded 2,000,000 shares of restricted Class A Common Stock to three key
employees of the Company. On September 25, 1997, the three key employees
contributed back to the Company 1,800,000 shares which were canceled. The
remaining shares cannot be traded or transferred unless (i) the employee remains
in the employ of the Company until January 10, 2000 and (ii) a payment of $1.80
per share is made by the employee to AMV. If any of the conditions are not met,
the stock will be forfeited and returned to the Company.
Between March 8, 1997 and July 31, 1998, 188,400 Unit Purchase Options (to
acquire 1,696,000 shares of stock) originally issued in connection with the
Company's 1992 initial public offering, 135,000 Laidlaw warrants, 300,000
Gerinda warrants, the Company's Class A, B and C Warrants to purchase
approximately 11.4 million shares and 275,000 Class D Warrants expired
unexercised.
In August 1997, the Company purchased 1,001,640 shares of its Class A Common
Stock, 300,000 Class F Warrants and 340,000 Class H Warrants in a private
transaction for $1.9 million.
In September 1997, the Company purchased at par $2.5 million of the $3.4 million
outstanding 6.75% Convertible Note.
In June 1998, the Class I Warrant was amended to reduce the number of shares
issuable pursuant to the warrant from 1,000,000 to 250,000.
Schedule of Outstanding Stock, Warrants and Potential Dilution: The following
table summarizes, as of October 15, 1998, outstanding common stock, potential
dilution to the outstanding common stock upon exercise of warrants or conversion
of convertible debt, and proforma proceeds or debt reduction from the exercise
or conversion. The table also sets forth the exercise or conversion prices and
warrant expiration and debt due dates.
<TABLE>
<CAPTION>
Proforma
Number or Principal Common Proceeds
Amount Outstanding Stock After Conversion or Debt
Security at October 15, 1998 Conversion Price Reduction
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding Common Stock 10,720,000
Warrants (expiration date):
G (2/28/99) 240,000 240,000 $ 2.00 $ 480,000
I (7/23/01) 250,000 (A) 250,000 2.25 563,000
J (9/30/99) 300,000 300,000 2.03 609,000
------------ ------------
790,000 1,652,000
------------ ------------
Convertible Debt (due date):
6.75% Notes (4/16/01) $ 900,000 423,000 2.13 900,000
6.75% Ventek Note (7/23/99) $ 2,250,000 1,000,000 2.25 2,250,000
Ventek Note (7/23/99) $ 1,529,000 (A) 1,800,000 1,529,000
------------ ------------
3,223,000 4,679,000
------------ ------------
Convertible Preferred Stock 119,100 1,191,000
------------
Potentially outstanding shares
and proforma proceeds
or reduction of debt 15,924,000 $ 6,331,000
============ ============
</TABLE>
(A) The Company issued the $1,529,000 note and Class I Warrant in connection
with the Ventek acquisition (see Note 3). The note is payable, (a) at the
Company's option, in cash or by delivery of up to 1,800,000 shares of Class
A Common Stock on the third anniversary date of the note; or (b) solely in
cash in the event AMV Common Stock is delisted from the Nasdaq Stock
Market.
The proforma amounts above are for illustrative purposes only. Unless the market
price of AMV's Class A Common Stock rises significantly above the exercise or
conversion prices, it is unlikely that any warrants will be exercised or that
the debt or preferred stock will be converted.
In addition to the FMC option described above, on September 30, 1998, AMV had
outstanding options to purchase 3,720,000 shares of Class A Common Stock,
3,089,000 of which are under its stock option plans.
The existence of these outstanding warrants, options, and convertible debt and
preferred stock, including options that may be granted under AMV's Stock Option
Plans or otherwise, could adversely affect AMV's ability to obtain future
financing. The price which AMV may receive for the Class A Common Stock issued
upon exercise of options and warrants, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of Class A Common Stock at
the time such options and warrants are exercised or debt is converted. For the
life of the warrants, options, convertible debt and preferred stock, the holders
are given, at little or no cost, the opportunity to profit from a rise in the
market price of their Class A Common Stock without assuming the risk of
ownership. Moreover, the holders of the options and warrants might be expected
to exercise them at a time when AMV would, in all likelihood, be able to obtain
needed capital by a new offering of its securities on terms more favorable than
those provided for by the options and warrants.
Stock Rights Plan: In February 1998, the Company implemented a stock rights
program. Pursuant to the program, stockholders of record on February 27, 1998
received a dividend of one right to purchase for $15 one one-hundredth of a
share of a newly created Series A Junior Participating Preferred Stock. The
rights are attached to AMV's Class A Common Stock and will also become attached
to shares issued in the future. The rights will not be traded separately and
will not become exercisable until the occurrence of a triggering event, defined
as an accumulation by a single person or group of 20% or more of AMV's Class A
Common Stock. The rights will expire on February 26, 2008 and are redeemable at
$.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate.
Note 5. Earnings Per Share
- ---------------------------
The computation of earnings per share is presented in the following tables:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-------------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Income Shares Income Shares
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Calculation of EPS
Income (loss) available to
common shareholders $ 75,000 10,720,000 $ (160,000) 11,065,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (200,000) -- (200,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ 75,000 10,520,000 $ (160,000) 10,865,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.01 $ (0.01)
- ----------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options $ -- 714,000 $ -- --
------------- ------------- ------------- -------------
Income available to common
shareholders and assumed
conversions $ 75,000 11,234,000 $ (160,000) 10,865,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.01 $ (0.01)
- ----------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30,
------------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------
Income Shares Income Shares
------------- ------------- ------------- -------------
Calculation of EPS
Income (loss) available to
common shareholders $ 1,273,000 10,716,000 $ 5,976,000 11,382,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (200,000) -- (200,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ 1,273,000 10,516,000 $ 5,976,000 11,182,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.12 $ 0.53
- ----------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options and warrants $ -- 866,000 $ -- 973,000
Note and stock appreciation
rights agreement 75,000 1,800,000 75,000 1,800,000
Convertible debt -- -- 189,000 1,422,000
------------- ------------- ------------- -------------
Income available to common
shareholders and assumed
conversions $ 1,348,000 13,182,000 $ 6,240,000 15,377,000
============= ============= ============= =============
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.10 $ 0.41
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The number of shares of common stock, along with their respective exercise
prices, underlying options, warrants and convertible debt, which were excluded
from the computation of diluted EPS because their exercise prices were greater
than the average market price of common stock, are listed below.
September 30,
-----------------------------
1998 1997
------------- -------------
Number of shares of common stock
exercisable from:
Options 1,279,500 820,000
Warrants 790,000 13,212,000
------------- -------------
2,069,500 14,032,000
============= =============
Exercise price ranges $1.88 - $4.63 $2.03 - $4.94
Note 6. Acquisition and Sale of Pulsarr
- ----------------------------------------
On March 1, 1996, the Company acquired all of the outstanding capital stock of
Pulsarr for cash of $6.5 million and notes payable of $1.3 million. This
acquisition was accounted for under the purchase method of accounting.
On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of Belgium
for $8.4 million. The sale resulted in net cash proceeds to AMV of approximately
$7 million and a reduction of current and long-term debt of approximately $4.6
million. The $5 million gain on the sale was largely a result of previous
reduction in the carrying value of AMV's investment in Pulsarr due to the $4.9
million charge for acquired in-process technology the Company recorded in the
quarter ended March 31, 1996 in conjunction with this acquisition.
The condensed combined statements of operations, shown below as supplemental
information, assume that Pulsarr was sold at the beginning of 1997. However, the
proforma combined balances are not necessarily indicative of balances which
would have resulted had the divestiture occurred as of the beginning of the
nine-month period ending September 30, 1997. Condensed combined statements of
operations are presented below:
Nine Months Ended September 30,
-------------------------------
1998 1997
(Actual) (Proforma)
------------- -------------
Sales $ 21,736,000 $ 20,247,000
============= =============
Gross profit $ 11,247,000 $ 10,651,000
============= =============
Net income $ 1,273,000 $ 975,000
============= =============
Earnings per share:
Basic $ 0.12 $ 0.09
============= =============
Diluted $ 0.10 $ 0.08
============= =============
Note 7. Inventories
- --------------------
Inventories are stated at the lower of cost or market and include material,
labor and related manufacturing overhead. The Company determines cost based on
the first-in, first-out (FIFO) method. Inventories consisted of:
Sept. 30, Dec. 31,
1998 1997
------------- -------------
Raw materials $ 2,250,000 $ 1,584,000
Work-in-process 1,187,000 1,359,000
Finished goods 3,126,000 2,238,000
------------- -------------
$ 6,563,000 $ 5,181,000
============= =============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
On March 1, 1996, the Company acquired Pulsarr. In May 1997, the Company sold
Pulsarr for $8.4 million (see Note 6 to the Consolidated Financial Statements).
The discussion below pertains to the operations of AMV with Pulsarr through its
disposition date.
The Company's backlog at September 30, 1998, was $2,934,000 compared to
$7,635,000 as of September 30, 1997.
Results of Operations - Comparison between three months ended September 30, 1998
and September 30, 1997:
- -----------------------
Sales for the three months ended September 30, 1998 ("Q3 1998") were
$5,546,000, down 5% when compared to sales for the three months ended September
30, 1997 ("Q3 1997") of $5,861,000. The decrease in sales is due to lower sales
at SRC partially offset by higher sales at Ventek.
Gross profit decreased by $150,000 to $2,879,000 in Q3 1998 when compared to
$3,029,000 of gross profit in Q3 1997. The decrease in gross profit is due to
the decrease in sales. Gross profit as a percentage of sales was 52% in both
periods.
Selling and marketing expense decreased by $445,000 in Q3 1998 from Q3 1997 to
$644,000 amounting to 12% of sales in Q3 1998. Similar expenses in Q3 1997 were
$1,089,000, or 19% of sales. The decrease in selling and marketing expenses as a
percentage of sales is due to lower external commissions and reduced
demonstration equipment expenses.
Research and development expenses were $1,116,000 and $1,029,000 in Q3 1998 and
Q3 1997, or 20% and 18% of sales, respectively. The increase in research and
development expenses is related to new projects, which include developing new
lighting, camera and software technologies.
General and administrative expenses increased $186,000 to $767,000 in Q3 1998
from $581,000 in Q3 1997. The increase in general and administrative expenses is
due principally to costs associated with a project of reevaluating the financial
and operational processes and procedures at SRC in preparation for possible
future growth of SRC's business.
Interest expense in Q3 1997 included a charge for deferred debt issuance costs
of $233,000 as the result of the early repayment of $2,500,000 of convertible
notes payable. The remaining decrease in interest expense is due to reduced debt
balances outstanding.
Net income for Q3 1998 was $75,000 as compared to a net loss of $160,000 in Q3
1997. Excluding the charge for deferred debt issue costs, net income for Q3 1997
was $73,000.
Results of Operations - Comparison between nine months ended September 30, 1998
and September 30, 1997:
- -----------------------
Sales for the nine months ended September 30, 1998 ("the 1998 Period") were
$21,736,000, down 5% when compared to sales for the nine months ended September
30, 1997 ("the 1997 Period") of $22,805,000. The decrease is due to the sale of
Pulsarr, which generated revenues of $2,558,000 in 1997 and a decrease in sales
at Ventek of $1,104,000. These decreases were largely off by increased sales at
SRC of $2,593,000.
Gross profit decreased by 3% to $11,247,000 in the 1998 Period when compared to
$11,569,000 of gross profit in the 1997 Period. In 1998, gross profit was 52% of
sales as compared to 51% in 1997. The increase in gross profit as a percentage
of sales is due to a change in product mix to higher margin products at SRC and
the elimination of lower margin Pulsarr products. These increases were partially
offset by a lower sales volume of higher-margin Ventek products.
Selling and marketing expense decreased 21% in the 1998 Period from the 1997
Period to $2,977,000 amounting to 14% of sales in 1998. Similar expenses in the
1997 Period were $3,772,000, or 17% of sales. The decrease in selling and
marketing expenses as a percent of sales is the result of lower external
commissions, reduced spending on advertising and marketing and the spreading the
fixed sales costs at SRC over a larger sales base.
Research and development expenses were $3,297,000 and $2,980,000 in the 1998
Period and the 1997 Period, or 15% and 13% of sales, respectively. The increase
in research and development expense in 1998 is related to new projects, which
include developing new lighting, camera and software technologies.
General and administrative expenses increased $367,000 to $2,792,000 in the 1998
Period from $2,425,000 in the 1997 Period. The increase in general and
administrative expenses is due principally to costs associated with a project of
reevaluating the financial and operational processes and procedures at SRC in
preparation for possible future growth of SRC's business.
On May 6, 1997, AMV sold Pulsarr to Barco NV of Belgium for $8.4 million,
resulting in a gain of $4,989,000. AMV had purchased Pulsarr on March 1, 1996
for $7.8 million. This gain primarily represents a recovery of the $4,915,000
charge for acquired in-process technology expensed in the quarter ended March
31, 1996.
Interest expense in 1997 included a charge for deferred debt issuance costs of
$233,000 as a result of the early repayment of $2,500,000 of convertible notes
payable. The remaining decrease in interest expense is due to lower debt
balances outstanding.
Net income for 1998 was $1,273,000 as compared to a net income of $5,976,000 in
1997. Excluding the gain on the sale of Pulsarr and the charge for deferred debt
issuance costs, net income for the 1997 Period was $1,220,000.
Liquidity and Capital Resources
- -------------------------------
The Company's cash balance and working capital were $4,285,000 and $7,109,000,
respectively, at September 30, 1998 as compared to $6,045,000 and $9,133,000,
respectively, at December 31, 1997. The Company's long-term debt decreased by
approximately $3 million primarily as a result of the current classification of
debt relating to the Ventek acquisition which is due in July 1999. Equity
balances at September 30, 1998 and December 31, 1997 were similar.
During the 1998 Period, net cash used in operating activities totaled $962,000
compared to cash provided by operating activities of $2,922,000 in the 1997
Period. Larger increases in receivables, inventories and other assets as well as
a large reduction of accounts payable, accrued liabilities and customer deposits
in the 1998 Period as compared to the 1997 Period caused the change in cash used
in operations in the 1998 Period as compared to cash generated in the 1997
Period.
Cash used in investment activities totaled $1,088,000 in 1998 compared to cash
provided by investment activities of $6,477,000 in 1997. The Company purchased
3.4 acres of land adjacent to its Medford, Oregon facility for approximately
$460,000 during the 1998 Period. The 1997 Period includes approximately $7
million provided from the sale of Pulsarr. The Company has no material
commitments for capital expenditures at September 30, 1998.
Cash provided by financing activities totaled $290,000 in 1998 as compared to
cash used in financing activities of $5,727,000 in 1997. In April 1998, the
Company refinanced its existing $2,680,000 mortgage due 2003 with a new
$3,000,000 mortgage due 2008. The mortgage interest rate was lowered from 9.75%
to 8.3%. Additionally, the Company obtained a $2,000,000 revolving line of
credit that will expire on April 30, 1999. The 1997 Period includes the purchase
of 1,001,640 shares of Class A Common Stock and 640,000 warrants to purchase
Class A Common Stock for $1,962,000, the early repayment of $2,500,000 of its
$3,400,000 Convertible Note dated April 1996, and the final payment of
$1,265,000 related to the payoff of a Convertible Note dated April 1995.
In October 1998, the Company received $2,620,000 from FMC Corporation for
119,106 shares of newly issued Series B Preferred Stock (see Note 4 to
Consolidated Financial Statements).
Management believes that the Company has sufficient cash to enable the Company
to sustain its operations and to adequately fund the cash flow expected to be
used in operating activities for the next twelve months.
Cautionary Statements and Risk Factors
- --------------------------------------
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to long-term objectives or expectations
of the Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely," "are expected to," "is anticipated," "is
predicted," "forecast," "estimate," "project," "plans to continue," "believes,"
or similar expressions identify "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. In connection with the "Safe Harbor" provisions on the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company cautions that the following list of important factors may not be all
inclusive, and it specifically declines to undertake any obligation to publicly
revise any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. Among the factors that could have an impact
on the Company's ability to achieve its operating results and growth plan goals
and/or affect the market price of the Company's stock are:
* The Company's history of losses and negative cash flow.
* Fluctuations in quarterly operating results and seasonality in certain
of the Company's markets.
* Rapid technological change in the Company's markets and the need for
new product development.
* Market acceptance of the Company's new products.
* AMV's dependence on certain markets and the need to expand into new
markets.
* The lengthy sales cycle for the Company's products.
* The Company's highly competitive marketplace.
* The dependence on certain suppliers.
* The risks associated with dependence upon significant customers and
reliance on certain distributors.
* The risks associated with international sales.
* The uncertain ability to manage growth and integrate acquired
businesses.
* Risks associated with acquisitions and other relationships.
* Dependence upon key personnel.
* The Company's ability to protect its intellectual property.
* The possibility of product liability or other legal claims.
* Exposure to possible warranty and litigation claims.
* The possible need for additional financing.
* The impact of the 1998 Shareholder Rights Plan.
* The inability of the Company or its suppliers or customers to remedy
potential problems with information systems related to the arrival of
the year 2000.
These risk factors are discussed in further detail below.
History of Losses; Negative Cash Flow:
- ---------------------------------------
Prior to 1995 and in 1996, the Company experienced losses and negative
operating cash flow. The Company believes it may operate at a negative cash flow
for certain periods in the future due to (i) the need to fund certain
development projects, (ii) cash required to enter new market areas, (iii)
irregular bookings by customers due to seasonality or economic downturns in some
markets and the relatively high per-unit cost of the Company's products which
may cause fluctuations in quarterly or yearly revenues, (iv) cash required for
the repayment of debt, especially $3.25 million due in July 1999, and (v)
possible cash needed to fully integrate SRC's and Ventek's operations. If the
Company is unable to consistently generate sustained positive cash flow from
operations, the Company must rely on debt or equity financing.
Although the Company achieved profitability in 1995, 1997 and the first nine
months of 1998, there can be no assurance as to the Company's profitability on a
quarterly or annual basis in the future. Furthermore, the non-recurring expenses
in early 1996 resulted in a significant loss for the 1996 year.
Fluctuations in Quarterly Operating Results; Seasonality:
- ---------------------------------------------------------
The Company has experienced and may in the future experience significant
fluctuations in revenues and operating results from quarter to quarter as a
result of a number of factors, many of which are outside the control of the
Company. These factors include the timing of significant orders and shipments,
product mix, delays in shipment, capital spending patterns of customers,
competition and pricing, new product introductions by the Company or its
competitors, the timing of research and development expenditures, expansion of
marketing and support operations, changes in material costs, production or
quality problems, currency fluctuations, disruptions in sources of supply,
regulatory changes and general economic conditions. These factors are difficult
to forecast, and these or other factors could have a material adverse effect on
the Company's business and operating results. Moreover, due to the relatively
fixed nature of many of the Company's costs, including personnel and facilities
costs, the Company would not be able to reduce costs in any quarter to
compensate for any unexpected shortfall in net sales, and such a shortfall would
have a proportionately greater impact on the Company's results of operations for
that quarter. For example, a significant portion of the Company's quarterly net
sales depends upon sales of a relatively small number of high-priced systems.
Thus, changes in the number of such systems shipped in any given quarter can
produce substantial fluctuations in net sales, gross profits, and net income
from quarter to quarter. In addition, in the event the Company's machine vision
systems' average selling price increases, of which there can be no assurance,
the addition or cancellation of sales may exacerbate quarterly fluctuations in
revenues and operating results.
The Company's operating results may also be affected by certain seasonal trends.
For example, the Company may experience lower sales and order levels in the
first quarter when compared with the preceding fourth quarter due to the
seasonality of certain harvested food items and the timing of annual or
semi-annual customer plant shut-downs during which systems are installed. The
Company expects these patterns to continue.
Rapid Technological Change; Product Development:
- ------------------------------------------------
The markets for the Company's machine vision products are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions and enhancements. For example, the Company believes that
the 1995 introduction by Key Technology, Inc. of its new line of vision sorting
equipment adversely affected bookings in late 1995 and 1996. Sales of the
Company's products depend in part on the continuing development and deployment
of new technology and services and applications. The Company's success will
depend to a significant extent upon its ability to enhance its existing products
and develop new products that gain market acceptance. There can be no assurance
that the Company will be successful in selecting, developing and manufacturing
new products or enhancing its existing products on a timely or cost-effective
basis or that products or technologies developed by others will not render the
Company's products noncompetitive or obsolete. Moreover, the Company may
encounter technical problems in connection with its product development that
could result in the delayed introduction of new products or product
enhancements. Market Acceptance of New Products: The Company's future operating
results will depend upon its ability to successfully introduce and market, on a
timely and cost-effective basis, new products and enhancements to existing
products. There can be no assurance that new products or enhancements, if
developed and manufactured, will achieve market acceptance. The Company is
currently in the initial prototype stage of development on a new high-speed
software and digital signal processing technology designed to significantly
improve system performance. There can be no assurance that a market for this
system will develop (i.e., that a need for the system will exist, that the
system will be favored over other products on the market, etc.) or, if a market
does develop, that the Company will be able, financially or operationally, to
market and support the system successfully.
Dependence on Certain Markets and Expansion Into New Markets:
- -------------------------------------------------------------
The future success and growth of the Company is dependent upon continuing
sales in domestic and international food processing markets as well as
successful penetration of other existing and potential markets. A substantial
portion of the Company's historical sales has been in the potato and other
vegetable processing markets. Reductions in capital equipment expenditures by
such processors due to commodity surpluses, product price fluctuations, changing
consumer preferences or other factors could have an adverse effect on the
Company's results of operations. The Company also intends to expand the
marketing of its processing systems in additional food markets such as meat and
granular food products, as well as non-food markets such as plastics, wood
products and tobacco, and to expand its sales activities in foreign markets. In
the case of Ventek, the wood products market served is narrow and cyclical, and
saturation of that market and the potential inability to identify and develop
new markets could adversely affect Ventek's growth rate. The Company may not be
able to successfully penetrate additional food and non-food markets or expand
further in foreign markets.
Lengthy Sales Cycle:
- --------------------
The sales cycle in the marketing and sale of the Company's machine vision
systems, especially in new markets or in a new application, is lengthy and can
be as long as three years. Even in existing markets, due to the $150,000 to
$600,000 price range for each system and possibly significant ancillary costs
required for a customer to install the system, the purchase of a machine vision
system can constitute a substantial capital investment for a customer (which may
need more than one machine for its particular proposed application) requiring
lengthy consideration and evaluation. In particular, a potential customer must
develop a high degree of assurance that the product will meet its needs,
successfully interface with the customer's own manufacturing, production or
processing system, and have minimal warranty, safety and service problems.
Accordingly, the time lag from initiation of marketing efforts to final sales
can be lengthy.
Competition:
- ------------
The markets for the Company's products are highly competitive. A major
competitor of the Company introduced several years ago a new optical sorter
product which has increased the competition that the Company faces. In the case
of Ventek, the wood industry continues to develop alternative products to
plywood (e.g., oriented strand board) which do not require vision systems for
quality control. Some of the Company's competitors, including Pulsarr, which was
sold in May 1997 to a company significantly larger than AMV, may have
substantially greater financial, technical, marketing and other resources than
the Company. Important competitive factors in the Company's markets include
price, performance, reliability, customer support and service. Although the
Company believes that it currently competes effectively with respect to these
factors, the Company may not be able to continue to compete effectively in the
future.
Dependence Upon Certain Suppliers:
- ----------------------------------
Certain key components and subassemblies used in the Company's products are
currently obtained from sole sources or a limited group of suppliers, and the
Company does not have any long-term supply agreements to ensure an uninterrupted
supply of these components. Although the Company seeks to reduce dependence on
sole or limited source suppliers, the inability to obtain sufficient sole or
limited source components as required, or to develop alternative sources if and
as required, could result in delays or reductions in product shipments which
could materially and adversely affect the Company's results of operations and
damage customer relationships. The purchase of certain of the components used in
the Company's products require an 8 to 12 week lead time for delivery. An
unanticipated shortage of such components could delay the Company's ability to
timely manufacture units, damage customer relations, and have a material adverse
effect on the Company. In addition, a significant increase in the price of one
or more of these components or subassemblies could adversely affect the
Company's results of operations.
Dependence Upon Significant Customers and Distribution Channel:
- ---------------------------------------------------------------
The Company sold equipment to an unaffiliated customer totaling 14% of
sales in 1997 and to two unaffiliated customers totaling 13% and 12% of sales in
1996. Sales to another two unaffiliated customers totaled 19% and 16% of sales
in 1995. Ventek's sales have been to a relatively small number of multi-location
plywood manufacturers. In the emerging pulp wood industry, the Company utilizes
a single exclusive distributor for its products in North America. In 1998, the
Company entered an agreement with FMC Corporation to be its exclusive or
nonexclusive sales representative in much of the United States and in many areas
in the rest of the world. While the Company strives to create long-term
relationships with its customers, distributors and representatives, there can be
no assurance that they will continue ordering or selling additional systems. The
Company may continue to be dependent on a small number of customers,
distributors and representatives, the loss of which would adversely affect the
Company's business.
Risk of International Sales:
- ----------------------------
Due to its export sales, the Company is subject to the risks of conducting
business internationally, including unexpected changes in regulatory
requirements; fluctuations in the value of the U. S. dollar which could increase
the sales prices in local currencies of the Company's products in international
markets; delays in obtaining export licenses, tariffs and other barriers and
restrictions; and the burdens of complying with a variety of international laws.
For example, the possibility of sales to Indonesian customers has been adversely
affected by the recent currency devaluation. In addition, the laws of certain
foreign countries may not protect the Company's intellectual property rights to
the same extent as do the laws of the United States.
Uncertain Ability to Manage Growth and Integrate Acquired Businesses:
- ---------------------------------------------------------------------
As part of its business strategy, the Company intends to pursue rapid
growth. In March and July 1996, the Company acquired Pulsarr and Ventek. Pulsarr
was subsequently sold in May 1997. A growth strategy involving the integration
of new entities, such as Ventek, will require the establishment of a sales
representative and distribution relationships, expanded customer service and
support, increased personnel throughout the Company and the continued
implementation and improvement of the Company's operational, financial and
management information systems. There is no assurance that the Company will be
able to attract qualified personnel or to accomplish other measures necessary
for its successful integration of Ventek or other acquired entities or for
internal growth, or that the Company can successfully manage expanded
operations. As the Company expands, it may from time to time experience
constraints that will adversely affect its ability to satisfy customer demand in
a timely fashion. Failure to manage growth effectively could adversely affect
the Company's financial condition and results of operations.
Risks Associated With Acquisitions:
- -----------------------------------
The Company may pursue strategic acquisitions or joint ventures in addition to
the acquisitions of Pulsarr (subsequently divested in May 1997) and Ventek as
part of its growth strategy. While the Company presently has no understandings,
commitments or agreements with respect to any further acquisition, the Company
anticipates that one or more potential opportunities may become available in the
future. Acquisitions and joint ventures would require investment of operational
and financial resources and could require integration of dissimilar operations,
assimilation of new employees, diversion of management resources, increases in
administrative costs and additional costs associated with debt or equity
financing. For these reasons, any acquisition or joint venture by the Company
may have an adverse effect on the Company's results of operations or may result
in dilution to existing shareholders. If additional attractive opportunities
become available, the Company may decide to pursue them actively. Any future
acquisitions or joint ventures may materially and adversely affect the Company.
Dependence Upon Key Personnel:
- ------------------------------
The Company's success depends to a significant extent upon the continuing
contributions of its key management, technical, sales and marketing and other
key personnel. Except for William J. Young, the Company's President and Chief
Executive Officer, Alan R. Steel, the Company's Chief Financial Officer, Dr.
James Ewan, SRC's President and Chief Executive Officer, and the four former
stockholders of Ventek, the Company does not have long-term employment
agreements or other arrangements with such individuals which would encourage
them to remain with the Company. The Company's future success also depends upon
its ability to attract and retain additional skilled personnel. Competition for
such employees is intense. The loss of any current key employees or the
inability to attract and retain additional key personnel could have a material
adverse effect on the Company's business and operating results.
Intellectual Property:
- ----------------------
The Company's competitive position may be affected by its ability to protect
its proprietary technology. Although the Company has a number of United States
and foreign patents, such patents may not provide meaningful protection for its
product innovations. The Company may experience additional intellectual property
risks in international markets where it may lack patent protection.
Product Liability and Other Legal Claims:
- -----------------------------------------
From time to time, the Company may be involved in litigation arising out of the
normal course of its business, including product liability, patent and other
legal claims. While the Company has a general liability insurance policy which
includes product liability coverage up to an aggregate amount of $10 million,
the Company may not be able to maintain product liability insurance on
acceptable terms in the future. Litigation, regardless of its outcome, could
result in substantial cost to and diversion of effort by the Company. Any
infringement claims or litigation against the Company could materially and
adversely affect the Company's business, operating results and financial
condition. If a substantial product liability or other legal claim against the
Company were sustained that was not covered by insurance, there could be an
adverse effect on the Company's financial condition and marketability of the
affected products.
Warranty Exposure and Performance Specifications:
- -------------------------------------------------
The Company generally provides a one-year limited warranty on its products. In
addition, for certain custom-designed systems, the Company contracts to meet
certain performance specifications. In the past, the Company has incurred higher
warranty expenses related to new products than it typically incurs with
established products. The Company may incur substantial warranty expenses in the
future with respect to new products, as well as established products, or with
respect to its obligations to meet performance specifications, which may have an
adverse effect on its results of operations and customer relationships.
Possible Need for Additional Financing:
- ---------------------------------------
The Company may seek additional financing; however, the Company may not be able
to obtain any additional financing on terms satisfactory to the Company, if at
all. Potential increases in the number of outstanding shares of the Company's
Class A Common Stock due to convertible debt and preferred stock, warrants and
stock options, a substantial loss in 1996 and debt incurred for the acquisition
of Ventek due in 1999, may limit the Company's ability to negotiate additional
debt or equity financing.
Shareholder Rights Plan:
- ------------------------
In February 1998, the Company implemented a stock rights program. Pursuant to
the program, stockholders of record on February 27, 1998 received a dividend of
one right to purchase for $15 one one-hundredth of a share of a newly created
Series A Junior Participating Preferred Stock. The rights are attached to AMV's
Class A Common Stock and will also become attached to shares issued in the
futre. The rights will not be traded separately and will not become exercisable
until the occurrence of a triggering event, defined as an accumulation by a
single person or group of 20% or more of AMV's Class A Common Stock. The rights
will expire on February 26, 2008 and are redeemable at $.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate.
In October 1998, FMC acquired 119,106 shares of the Company's Series B Preferred
Stock, which, if converted into common stock in accordance with its terms,
represents a 10% ownership position in the Company. FMC also received a
five-year option to acquire 15% of the Company's outstanding common stock on the
date of exercise. While FMC's resulting beneficial ownership exceeds 20%, the
transaction was not a triggering event as defined in the Stock Rights Plan since
the acquisition of shares was directly from the Company. As stated in a Schedule
13D filed with the Securities and Exchange Commission on October 22, 1998, FMC's
purpose was to invest in the Company and its technology. FMC currently intends
to review its investment position in the Company periodically and, depending on
such review and factors including market conditions and share prices, the
Company's business prospects, technology, future developments and applicable
legal requirements, FMC may seek to acquire additional securities of the Company
from time to time in the open market or in negotiated transactions. Such
possible additional acquisitions may result in triggering events.
While the Company is not aware of any other circumstance that might result in
the acquisition of a sufficient number of shares of the Company's common stock
to trigger distribution of the Rights, existence of the Rights could discourage
offers for the Company's stock that may exceed the current market price of the
stock, but that the Board of Directors deems inadequate.
Year 2000 Issues:
- -----------------
AMV has established a company-wide initiative to examine the implications of
the Year 2000 on the Company's computing systems and related technologies,
and to assess the potential need for changes. The Company has identified areas
of potential business impact, and appropriate modifications to its computing
systems are underway. Management believes this will be accomplished in a timely
manner. The Company is also communicating with suppliers and customers to
coordinate Year 2000 conversion. Management does not currently believe that the
costs related to the Company's compliance with the Year 2000 issue will have a
material adverse effect on the Company's financial position, results of
operations or cash flows. However, in the event that the Company or any of the
Company's significant suppliers or customers experience disruptions due to the
Year 2000 issue, the Company's operations could be adversely affected.
<PAGE>
PART II. OTHER INFORMATION
==========================
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
- -------------
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation of the Company as amended to
date. (8)
3.2 Restated and Amended By-Laws of the Company. (2)
4.1 Form of Class D Warrant Agreement. (1)
4.2 Form of Class G Warrant Agreement. (3)
4.3 Form of Class H Warrant Agreement. (7)
4.4 Form of Class I Warrant Agreement. (5)
4.5 Form of Laidlaw Warrant Agreement. (5)
4.6 Form of stock option agreement. (4)
4.7 Form of 1997 Restricted Stock Plan and restricted stock agreement.
(6)
4.8 Form of amendments to restricted stock agreements.
4.9 Rights Agreement dated February 27, 1998 between the Company and
American Stock Transfer and Trust Company. (12)
4.10 Amendment to Class I Warrant Agreement. (14)
4.11 Form of Certificate of Determination for Series A Junior
Participating Preferred Stock. (15)
4.12 Form of Certificate of Determination for Series B Preferred Stock.
(17)
10.1 Form of Indemnity Agreement between the Company and each of its
officers and directors. (1)
10.2 Employment Agreement between Alan R. Steel and the Company dated
January 1, 1998. (13)
10.3 Employment Agreement between William J. Young and the Company
dated January 1, 1998. (13)
10.4 Employment Agreement between William J. Young and SRC VISION, Inc.
dated January 1, 1998. (13)
10.5 Employment Agreement between James Ewan and SRC VISION, Inc. dated
January 1, 1998. (13)
10.6 Subscription Agreement dated April 9, 1996, between the Company
and Swiss American Securities, Inc., as agent for Credit Suisse,
related to the private placement of $3,400,000 of convertible
secured notes. (3)
10.7 Convertible Secured Note dated April 17, 1996, between the Company
and Ilverton International, Inc. (7)
10.8 Asset Purchase Agreement dated July 24, 1996, by and among AMV,
Ventek and the shareholders of Ventek. (5)
10.9 $1,000,000 Note dated July 24, 1996, between AMV and Ventek. (5)
10.10 $2,250,000 Convertible Note dated July 24, 1996, between AMV and
Ventek. (5)
10.11 $1,125,000 Note dated July 24, 1996, between AMV and Ventek. (5)
10.12 Stock Appreciation Rights Agreement dated July 24, 1996 between
AMV and Ventek. (5)
10.13 Form of Employment Agreement dated July 24, 1996 between Ventek
and each of the four stockholders of Ventek. (5)
10.14 Pledge and Security Agreement dated July 24, 1996, by and among
AMV, AMV Subsidiary, Inc., Ventek and Solin and Associates, P.C.
(5)
10.15 1997 SRC VISION, Inc. Stock Option Plan and forms of stock option
agreements. (11)
10.16 Plan of Merger between ARC Capital and AMV to effect an amendment
to the Company's Articles of Incorporation to change the Company's
name from ARC Capital to Advanced Machine Vision Corporation. (8)
10.17 Share Purchase Agreement dated April 29, 1997 between Barco NV and
ARC Netherlands BV. (9)
10.18 Settlement Agreement dated August 12, 1997. (10)
10.19 1997 Nonqualified Stock Option Plan and form of option agreement.
(10)
10.20 Business Loan Agreement dated April 30, 1998 between AMV and Bank
of America NT&SA, together with related documents. (16)
10.21 Promissory Note dated April 24, 1998 to Bank of America NT&SA,
together with related documents. (16)
10.22 $250,000 Note dated June 5, 1998 from Rodger A. Van Voorhis to
Ventek. (14)
10.23 Series B Preferred Stock Purchase Agreement between AMV and FMC
Corporation dated October 14, 1998. (17)
10.24 Intellectual Property and Security Agreement dated October 14,
1998 between SRC VISION, Inc. and FMC Corporation. (17)
27 Financial Data Schedule.
- ------------------
(1) Previously filed as an exhibit to Form S-1 (File No. 33-45126).
(2) Previously filed as an exhibit to Form S-3 (File No. 333-10847).
(3) Filed with the SEC on April 14, 1996, as an exhibit to the Company's
Form 10-K for the year ended December 31, 1995.
(4) Filed with the SEC as an exhibit to Form S-1 (File No. 33-45126).
(5) Filed with the SEC on July 30, 1996, as an exhibit to the Company's
Form 8-K dated July 24, 1996.
(6) Filed with the SEC on January 22, 1997, as an exhibit to the Company's
Form 8-K dated January 9, 1997.
(7) Filed with the SEC on May 14, 1996, as an exhibit to the Company's Form
10-Q for the quarter ended March 31, 1996.
(8) Filed with the SEC on May 14, 1997 as an exhibit to the Company's Form
10-Q for the quarter ended March 31, 1997.
(9) Filed with the SEC on May 9, 1997 as an exhibit to the Company's Form
8-K regarding the sale of Pulsarr.
(10) Filed with the SEC on October 30, 1997 as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
(11) Filed with the SEC on March 31, 1997 as an exhibit to the Company's
Form 10-K for the year ended December 31, 1996.
(12) Filed with the SEC on February 20, 1998 as an exhibit to the Company's
Form 8-A.
(13) Filed with the SEC on February 27, 1998 as an exhibit to the Company's
Form 8-K regarding implementation of a stock rights program and
employment contracts.
(14) Filed with the SEC on June 15, 1998 as an exhibit to the Company's
Form 8-K dated June 5, 1998.
(15) Filed with the SEC on February 27, 1998 as an exhibit to the Company's
Form 8-A dated February 27, 1998.
(16) Filed with the SEC on August 4, 1998 as an exhibit to the Company's
Form 10-Q dated August 4, 1998.
(17) Filed with the SEC on October 19, 1998 as an exhibit to the Company's
Form 8-K dated October 14, 1998.
(b) Reports on Form 8-K:
- -------------------------
On February 27, 1998, a Form 8-K was filed regarding the implementation of
a stock rights program and employment contracts.
On June 15, 1998, a Form 8-K was filed regarding a $250,000 loan to a
director and reduction in the number of shares of common stock issuable
upon exercise of the Class I Warrant.
On September 14, 1998, a Form 8-K was filed regarding a non-binding letter
of intent between the Company and FMC Corporation ("FMC") whereby FMC may
acquire 119,106 shares of the Company's Series B Preferred Stock for $2.6
million.
On October 19, 1998, a Form 8-K was filed regarding the completion of FMC's
purchase of 119,106 shares of the Company's Series B Preferred Stock.
SIGNATURE
=========
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 30, 1998 /s/ Alan R. Steel
- ------------------------------- -------------------------------
Alan R. Steel
Vice President, Finance
(Principal Financial and duly
Authorized Officer)
Exhibit 4.8
ADVANCED MACHINE VISION CORPORATION
AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT
=============================================
THIS AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT ("Amendment") is made as
of September 25, 1997 by and between _________________________ ("Employee") and
Advanced Machine Vision Corporation (the "Company").
R E C I T A L
On January 10, 1997, Employee and Company entered a Restricted Stock
Agreement ("Agreement") pursuant to which Employee was granted _____________
shares of restricted stock pursuant to the 1997 Restricted Stock Plan ("Plan").
The restrictions as to 10% of the shares (the "10% shares") were that Employee
must remain employed on the third anniversary of the Agreement and pay to the
Company $1.80 per share. The restrictions as to 90% of the shares (the "90%
shares") were the same as for the 10% shares and a requirement that the closing
price of the Company's Class A Common Stock be at least $20 per share for 30
consecutive days at any time prior to the third anniversary date of the
Agreement.
A G R E E M E N T
NOW, THEREFORE, to simplify the Company's capital structure and in an
effort to increase shareholder value through the reduction of total outstanding
shares, Employee contributes back to the Company ___________ shares of
restricted stock which constitutes the 90% Shares. The 90% Shares will be
canceled by the Company, and a new share certificate will be issued to the
Employee for the 10% Shares. The 90% Shares shall once again become available
under the Plan. The restrictions and other terms of the Agreement with respect
to the 10% Shares shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ADVANCED MACHINE VISION CORPORATION
By_________________________________
Title:_____________________________
EMPLOYEE
___________________________________
(Signature)
Address:
___________________________________
___________________________________
<PAGE>
ADVANCED MACHINE VISION CORPORATION
AMENDMENT NO. 2 TO RESTRICTED STOCK AGREEMENT
=============================================
THIS AMENDMENT NO. 2 TO RESTRICTED STOCK AGREEMENT ("Amendment") is made as
of August 5, 1998 by and between ________________________ ("Employee") and
Advanced Machine Vision Corporation (the "Company").
R E C I T A L S
On January 10, 1997, Employee and Company entered a Restricted Stock
Agreement ("Agreement") pursuant to which Employee was granted _____________
shares of restricted stock pursuant to the 1997 Restricted Stock Plan ("Plan").
The restrictions as to 10% of the shares (the "10% shares") were that Employee
must remain employed on the third anniversary of the Agreement and pay to the
Company $1.80 per share. The restrictions as to 90% of the shares (the "90%
shares") were the same as for the 10% shares and a requirement that the closing
price of the Company's Class A Common Stock be at least $20 per share for 30
consecutive days at any time prior to the third anniversary date of the
Agreement.
To simplify the Company's capital structure and in an effort to increase
shareholder value through the reduction of total outstanding shares, Employee
contributed back to the Company ___________ shares of restricted stock which
constituted the 90% Shares. The 90% Shares were canceled by the Company. The
restrictions and other terms of the Agreement with respect to the 10% Shares
remained unchanged.
A G R E E M E N T
NOW, THEREFORE, to clarify the forfeiture language in Paragraph 2 of the
Restricted Stock Agreement, such paragraph is amended as follows:
In the fourth line of paragraph 2, the phrase "terminates for any
reason at any time prior to the third anniversary of this award or if
the payments required hereunder are not made" is replaced by "is
terminated for cause at any time prior to the third anniversary date of
this award or if the payments required hereunder are not made within 90
days of termination other than for cause, including constructive
termination and termination following a change in control (the terms
"cause," "constructive termination" and "change in control" are as
defined in the January 1, 1998 employment agreement between Employee
and the Company)."
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ADVANCED MACHINE VISION CORPORATION
By_________________________________
Title:_____________________________
EMPLOYEE
___________________________________
(Signature)
Address:
___________________________________
___________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
September 30, 1998 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> Advanced Machine Vision Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,285
<SECURITIES> 0
<RECEIVABLES> 3,550
<ALLOWANCES> 0
<INVENTORY> 6,563
<CURRENT-ASSETS> 14,538
<PP&E> 7,822
<DEPRECIATION> 2,487
<TOTAL-ASSETS> 26,072
<CURRENT-LIABILITIES> 7,429
<BONDS> 5,374
0
0
<COMMON> 24,330
<OTHER-SE> (11,061)
<TOTAL-LIABILITY-AND-EQUITY> 26,072
<SALES> 21,736
<TOTAL-REVENUES> 21,736
<CGS> 10,489
<TOTAL-COSTS> 19,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517
<INCOME-PRETAX> 1,326
<INCOME-TAX> 53
<INCOME-CONTINUING> 1,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,273
<EPS-PRIMARY> .12
<EPS-DILUTED> .10
</TABLE>
