SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------
FORM 10-K/A
Amendment to Form 10-K
Filed pursuant to the Securities Exchange Act of 1934
Advanced Machine Vision Corporation
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following
portions of its Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 as set forth below:
- --------------------------------------------------------------------------------
COVER PAGE is amended to add the following at the bottom of the page:
================================================================================
Documents Incorporated by Reference
The registrant's annual report to securityholders for the fiscal year ended
December 31, 1997 is incorporated by reference in Parts I and II of this Form
10-K. The registrant's proxy statement for its annual meeting of stockholders to
be held on May 7, 1997 or any adjournment thereof is incorporated by reference
in Part III of this Form 10-K.
ITEM 1. BUSINESS, Manufacturing and Supplies, second paragraph, is amended
to read as follows:
The Company is dependent on outside unaffiliated suppliers for some of the
components and parts used in its vision automation systems. Most major parts and
components are available from multiple sources; however, the prisms, required in
RGB Cyclops(TM) color cameras are obtained from a single source supplier, Canon
U.S.A., Incorporated, pursuant to periodic purchase orders which set forth price
and delivery terms. Although such supplier has not indicated any intention to
limit or reduce sales of parts to the Company, if it were to do so, the
Company's business, results of operations and financial condition could be
adversely affected. Sales of the Company's KROMA-SORT(TM) systems, containing
from one to six RGB Cyclops(TM) cameras each, represented approximately 42% of
the Company's 1997 consolidated revenues. Historically, AMV has generally been
able to obtain parts and components for its systems, as needed, either from its
then-current suppliers or replacement vendors. AMV believes that it will
continue to be able to obtain required components and parts from various
suppliers, although there can be no assurance that it will be able to do so.
- --------------------------------------------------------------------------------
PART II, ITEM 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Cautionary Statements and Risk Factors, has
been amended as follows:
================================================================================
Risk factor "Uncertain Ability to Manage Growth and Integrate Acquired
Businesses:" is amended to read as follows:
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 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.
Pulsarr was subsequently sold in May 1997 pursuant to an unsolicited offer,
which provided the Company with cash for financial flexibility and eliminated
certain potential liabilities related to non-vision products sold by Pulsarr in
prior years. A growth strategy involving the integration of new entities, such
as Ventek, will require the establishment of sales representatives 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.
- --------------------------------------------------------------------------------
PART IV, ITEM 14, Exhibits. Exhibit 13 is amended as follows:
================================================================================
Index to Financial Statements and Financial Statement Schedule Included in the
Company's Annual Report to Stockholders is amended as follows:
Delete: Consent of Independent Accountants F-23
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-24
Annual Report Close F-28
Add: Management's Discussion and Analysis of
Financial Condition and Results of Operations F-23
Annual Report Close F-27
- --------------------------------------------------------------------------------
The text of Management's Discussion and Analysis of Financial Condition and
Results of Operations has been added to Exhibit 13. The revised text of Exhibit
13 is as follows:
================================================================================
Management's Discussion and Analysis of
Financial Condition and Results of Operations
================================================================================
Introduction
Before the February 1994 acquisition of SRC, AMV's sole operation was Applied
Laser Systems, Inc. of Oregon, a manufacturer of laser diode devices. The laser
operation was sold in October 1995. Consequently, the results of operations of
ALS have been reported as a discontinued business in the accompanying financial
statements and in the discussion below.
The Company acquired SRC, Pulsarr and Ventek in February 1994, March 1996 and
July 1996, respectively. Pulsarr was subsequently sold in May 1997. The
operations of the acquired entities are included in the financial statements
from their respective acquisition dates, and in the case of Pulsarr, through its
disposition date.
The following table sets forth the results of operations for the last three
years (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
--------- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 31,974 100.0% $ 29,938 100.0% $ 19,394 100.0%
Cost of sales 16,042 50.2% 15,794 52.8% 11,194 57.7%
--------- -------- -------- ------- --------- --------
Gross profit 15,932 49.8% 14,144 47.2% 8,200 42.3%
--------- -------- -------- ------- -------- --------
Operating expenses:
Selling and marketing 4,930 15.4% 4,662 15.6% 3,255 16.8%
Research and development 3,950 12.4% 4,038 13.5% 1,987 10.2%
General and administrative 3,303 10.3% 3,549 11.8% 1,933 10.0%
Goodwill amortization 731 2.3% 633 2.1% 371 1.9%
Charge for acquired
in-process technology -- -- 4,915 16.4% -- --
Charge for royalty expense -- -- 647 2.2% -- --
--------- -------- -------- -------- -------- --------
12,914 40.4% 18,444 61.6% 7,546 38.9%
--------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before other
income and expense 3,018 9.4% (4,300) (14.4)% 654 3.4%
Gain on sale of Pulsarr 4,989 15.6% -- -- -- --
Gain on rescission of stock
compensation - net -- -- -- -- 732 3.8%
Investment and other income 371 1.2% 190 .6% 212 1.1%
Interest expense (1,263) (4.0)% (1,150) (3.8)% (483) (2.5)%
--------- --------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 7,115 22.3% (5,260) (17.6)% 1,115 5.8%
Provision for income taxes 99 (0.3)% -- -- -- --
--------- --------- -------- -------- -------- --------
Income (loss) from continuing
operations 7,016 21.9% (5,260) (17.6)% 1,115 5.8%
Loss from discontinued
operations -- -- -- -- (173) (0.9)%
--------- --------- -------- -------- --------- --------
Net income (loss) $ 7,016 21.9% $ (5,260) (17.6)% $ 942 4.9%
========= ========= ======== ======== ========= ========
</TABLE>
F-24
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Sales for 1997 were $31,974,000, up 7% when compared to sales for 1996 of
$29,938,000. Sales of non-food machine vision systems decreased 4% or $600,000
to $14,924,000. Sales of food machine vision systems increased 18% or $2,636,000
to $17,050,000. Pulsarr's sales, which are comprised entirely of food machine
vision systems, aggregated $2,558,000 in 1997 and $8,432,000 in 1996. Excluding
Pulsarr from both years, sales of food machine vision systems increased 142% or
$8,510,000 to $14,492,000 from $5,982,000. Total machine vision systems sold,
excluding Pulsarr, were 90 in 1997 and 77 in 1996.
Cost of sales was 50.2% of sales in 1997 and 52.8% in 1996.
Gross profit increased by 13% to $15,932,000 in 1997 when compared to
$14,144,000 of gross profit in 1996. In 1997, gross profit was 49.8%, as
compared to 47.2% in 1996. The increase in gross profit as a percentage of sales
is primarily related to a larger volume of higher-margin Ventek products
included in 1997, and an increase in the overall sales volume at SRC which
allowed for the spreading of fixed costs over a larger sales base.
Selling and marketing expenses increased 6% in 1997 to $4,930,000 when compared
to $4,662,000 in 1996. The increase in selling and marketing expense is due to
the increase in sales. Selling and marketing expenses amounted to 15.4% of sales
in 1997 and 15.6% of sales in 1996.
Research and development expenses were $3,950,000 and $4,038,000 in 1997 and
1996, or 12.4% and 13.5% of sales, respectively. The decrease was the result of
the inclusion of only four months of Pulsarr's costs in 1997 as compared to ten
months in 1996, partially offset by increases in research and development
expenses at both SRC and Ventek.
General and administrative expenses decreased $246,000 to $3,303,000 in 1997
from $3,549,000 in 1996. The decrease in general and administrative expenses was
the result of the inclusion of only four months of Pulsarr's costs in 1997 as
compared to ten months in 1996, partially offset by increases in general and
administrative expenses at both SRC and Ventek.
The increase in goodwill amortization is due to a full year of amortization from
the Ventek acquisition in 1997 as compared to only five months in 1996,
partially offset by lower amortization from Pulsarr as a result of its sale in
May 1997.
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 the Company recorded in 1996 in
conjunction with this acquisition.
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 the inclusion of $233,000
of deferred debt issuance costs written off as a result of the early repayment
of $2,500,000 of convertible notes payable.
The provision for income taxes represents income taxes due pursuant to the
Alternative Minimum Tax rules of the Internal Revenue Code. As of December 31,
1997, the Company had net operating loss carry-forwards of approximately
$13,000,000, which may be used to offset future taxable income, if any, and
expire between 2007 and 2011.
Net income for 1997 was $7,016,000 as compared to a loss of $5,260,000 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 was $2,260,000 for 1997 compared to
$302,000 for 1996 as a result of the factors discussed above.
F-25
<PAGE>
Fiscal 1996 Compared to Fiscal 1995
Sales for 1996 were $29,938,000, up 54% when compared to sales for 1995 of
$19,394,000. The increase is due to the inclusion of $11,234,000 of Pulsarr's
and Ventek's sales. Sales of non-food machine vision systems increased 36% or
$4,118,000 to $15,524,000. Sales of food machine vision systems increased 80% or
$6,426,000 to $14,414,000. Total machine vision systems sold in 1996 were 127 as
compared to 67 in 1995.
Cost of sales was 52.8% of sales in 1996 and 57.7% in 1995.
Gross profit increased by 72.5% to $14,144,000 in 1996 when compared to
$8,200,000 of gross profit in 1995. In 1996, gross profit was 47.2%, as compared
to 42.3% in 1995. The increase in gross profit as a percentage of sales is
primarily related to the higher margin Ventek products included in 1996, as well
as a change in product mix at SRC to higher margin non-food industry systems.
Selling and marketing expenses increased 43.2% in 1996 to $4,662,000 when
compared to 1995 due principally to the addition of Pulsarr and Ventek. Selling
and marketing expenses amounted to 13.5% of sales in 1996. Similar expenses in
1995 were $3,255,000 or 16.8% of sales.
Research and development expenses were $4,038,000 and $1,987,000 in 1996 and
1995, or 13.5% and 10.2% of sales, respectively. The larger research and
development level in 1996 was due principally to the continuing development of
SRC's next generation of vision processor, projects in non-food industry sorting
applications and $885,000 for Pulsarr and Ventek.
General and administrative expenses increased $1,616,000 to $3,549,000 in 1996
from $1,933,000 in 1995. The increase in general and administrative expenses is
due to the addition of Pulsarr and Ventek as well as an increase in personnel
costs and legal fees at SRC and AMV.
The increase in goodwill amortization is due to the acquisitions of Pulsarr and
Ventek.
As discussed in the Notes to the Financial Statements, on March 1, 1996, the
Company acquired Pulsarr for approximately $7.8 million. Approximately $4.9
million of the purchase price was allocated to in-process technology, which was
charged to expense during the quarter ended March 31, 1996. This charge is not
deductible for tax purposes. The Company will need to invest in additional
development related to the in-process technology in order to make these
technologies commercially viable. These expenditures are expected to be paid out
over the next few years and will be funded primarily from cash generated from
operations.
In the first quarter of 1996, the Company wrote off $647,000 of deferred royalty
expenses relating to certain technologies as all royalties have been earned, and
the Company believes that no significant future economic life exists relating to
the royalty agreement as a result of changing technologies (see Liquidity and
Capital Resources below).
In February 1995, Liviakis Financial Communications, Inc. returned approximately
668,000 previously issued and outstanding shares of AMV Class A Common Stock
pursuant to an award in arbitration in favor of the Company. A gain of $732,000
was recorded in February 1995 relating to the shares recovered.
The increase in interest expense is due to the increase in debt outstanding
relating to the acquisitions of Pulsarr and Ventek.
The net loss for 1996 was $5,260,000 as compared to net income of $942,000 in
1995. The variation is due primarily to the non-recurring charges for in-process
technology and royalty expense, the increased level of research and development
expenses, and the non-recurring gain in 1995 relating to the shares of AMV
Common Stock returned pursuant to an arbitration award.
F-26
<PAGE>
Liquidity and Capital Resources
The financial condition of the Company was strengthened during 1997. The
Company's cash balance and working capital increased to $6,045,000 and
$9,133,000, respectively, at December 31, 1997 from $1,909,000 and $5,913,000,
respectively, at December 31, 1996. The Company reduced its long-term and
current bank debt to $8,369,000 at December 31, 1997 from $17,593,000 at
December 31, 1996. In 1997, the Company's shareholders' equity increased to
$11,951,000 as of December 31, 1997, primarily as a result of net income in 1997
of $7,016,000. These changes in debt and equity improved the Company's
debt-to-equity ratio to 1:1.43 as of December 31, 1997 from 1:0.37 as of
December 31, 1996.
During 1997, net cash provided by operating activities totaled $3,797,000
compared to cash used in operating activities of $950,000 in 1996 and cash
provided by operating activities of $586,000 in 1995. Income before special
items was $2,260,000 in 1997 as compared to $302,000 in 1996 and is the
principle reason for the increase in cash provided from operations in 1997 as
compared to 1996. Increases in inventories used cash of $499,000 and $581,000 in
1997 and 1996, respectively, and were necessary to support the growth in sales
volume. A reduction in accounts receivable provided cash of $11,000 in 1997 as
compared to an increase in accounts receivable which consumed cash of $1,741,000
in 1996. These changes in receivables were the result of the changing level of
net sales in the fourth quarter. Sales for the fourth quarter of 1997, 1996 and
1995 were $9.2 million, $9.8 million and $5.1 million, respectively.
Cash provided by investment activities totaled $5,996,000 in 1997 compared to
cash used in investment activities of $7,511,000 in 1996 and cash provided by
investment activities of $734,000 in 1995. The sale of Pulsarr provided net cash
of $7,010,000 in 1997, and the sale of ALS provided $1,052,000 in 1995. The
acquisition of Pulsarr in 1996 used cash of $5,984,000. Consideration given for
the Ventek acquisition was approximately $5.1 million in notes and other
securities. Reference is made to Notes to Consolidated Financial Statements
regarding the July 1999 maturity date for the notes and potential cash payment
requirements. Cash resources of $1,014,000, $1,527,000 and $598,000 were used to
acquire property and equipment in 1997, 1996 and 1995, respectively. The Company
has no material commitments for capital expenditures at December 31, 1997.
Cash used in financing activities totaled $5,657,000 in 1997 as compared to cash
provided by financing activities of $6,199,000 in 1996 and $2,061,000 in 1995.
In 1997, cash generated from operations and the sale of Pulsarr were used to
repay the remaining $1,265,000 principal balance of the Company's 10.25%
Convertible Note in April 1997, to repay early $2,500,000 of its $3,400,000
6.75% Convertible Note, at par, in September 1997 and to purchase 1,001,640
shares of the Company's Class A Common Stock and 640,000 warrants to purchase
Class A Common Stock for $1,962,000 in August 1997. 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 and April 1995, the Company
received $3,000,000 and $2,000,000, respectively, representing the net proceeds
of private placements of convertible debt. The cash generated from these 1996
and 1995 transactions was used to finance the acquisition of Pulsarr and to
provide funds for working capital purposes.
As a result of the settlement in July 1992 of a lawsuit alleging certain patent
infringements, SRC entered into a royalty agreement whereby aggregate royalty
payments would not exceed $1,600,000. The final royalty payment of $400,000 was
made in July 1996. During the quarter ended March 31, 1996, the Company wrote
off against income $647,000 of deferred royalty expense related to this
settlement as all royalties had been earned and no significant future economic
life was estimated to exist.
Prior to 1995 and in 1996, the Company experienced 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 and acquisitions, 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. 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. If the Company is unable to consistently
generate sustained positive cash flow from operations, the Company may have to
rely on debt or equity financing. There can be no assurance the Company will be
able to obtain future financing on terms satisfactory to the Company.
F-27
<PAGE>
Outlook
At this time, management believes sales will approximate $30,000,000 for 1998
which is approximately level with 1997 sales excluding Pulsarr. The effects of
international currency fluctuations are expected to negatively impact
operations. For example, with the recent decline in Indonesian currency, further
shipments to that market in the foreseeable future appear unlikely; last year,
this market represented over 6% of the Company's total sales. Additionally, with
the continued strength of the U. S. dollar, the Company's new European sales and
service subsidiary, SRC VISION BV, may have to reduce the price of its products
in Europe.
The Company expects that the plywood manufacturing market served by Ventek will
remain depressed until at least the second half of 1998 and possibly longer.
This will likely put pressure on gross margins in 1998.
During 1998, the Company will introduce new products targeted at the food and
plywood industries. The Company plans to continue emphasis on research and
development to penetrate new markets and provide expanded sales opportunities
for the Company during the next two years.
- --------------------------------------------------------------------------------
PART IV, ITEM 14, Exhibits. Exhibit 23 is amended to delete Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
revised text of Exhibit 23 is as follows:
================================================================================
Consent of Independent Accountants
================================================================================
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-10847),
Registration Statement on Form S-8 (No. 33-87064), Registration Statement on
Form S-8 (No. 33-76864) and Registration Statement on Form S-8 (No. 333-42329)
of Advanced Machine Vision Corporation (formerly Applied Laser Systems or ARC
Capital) of our report dated January 23, 1998, except as to Note 10, which is as
of March 10, 1998, appearing on page F-2 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Portland, Oregon
March 24, 1998
- --------------------------------------------------------------------------------
The signature page is revised as follows:
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: March 9, 1998 ADVANCED MACHINE VISION CORPORATION
By: /s/ William J. Young
------------------------
William J. Young
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William J. Young Chairman of the Board of
- -------------------------- Directors, Chief Executive
William J. Young Officer and President,
Principal Executive Officer March 9, 1998
/s/ Alan R. Steel Chief Financial Officer,
- -------------------------- Principal Financial and
Alan R. Steel Accounting Officer March 13, 1998
/s/ Haig S. Bagerdjian Director March 11, 1998
- --------------------------
Haig S. Bagerdjian
/s/ Vikram Dutt Director March 10, 1998
- --------------------------
Vikram Dutt
/s/ James Ewan Director March 2, 1998
- --------------------------
James Ewan
/s/ Robert M. Loeffler Director March 9, 1998
- --------------------------
Robert M. Loeffler
/s/ Jack Nelson Director March 23, 1998
- --------------------------
Jack Nelson
/s/ Rodger A. Van Voorhis
- -------------------------- Director March 30, 1998
Rodger A. Van Voorhis
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: July 10, 1998 ADVANCED MACHINE VISION CORPORATION
By: /s/ Alan R. Steel
--------------------------------
Alan R. Steel
Chief Financial Officer,
Principal Financial and
Accounting Officer
