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, 1999
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, 1999, registrant had 12,821,884 shares of Class A Common Stock,
and 47,669 shares of Class B Common Stock, all no par value, issued and
outstanding.
<PAGE>
Exhibit Index at Page 18
INDEX
-----
Page Number
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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 Statement of Shareholders' Equity........................4
Consolidated Statements of Cash Flows.................................5
Notes to Unaudited Consolidated Financial Statements..................6
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>
Sept. 30, December 31,
1999 1998
------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 3,238,000 $ 4,423,000
Accounts receivable - net 2,547,000 4,073,000
Inventories 8,992,000 7,379,000
Prepaid expenses 737,000 181,000
Current deferred tax asset 1,175,000 1,175,000
------------- -------------
Total current assets 16,689,000 17,231,000
Property, plant and equipment - net 5,084,000 5,274,000
Intangible assets - net 4,355,000 4,894,000
Deferred tax asset 925,000 925,000
Other assets 645,000 1,515,000
------------- -------------
$ 27,698,000 $ 29,839,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 864,000 $ 984,000
Accrued liabilities 600,000 997,000
Customer deposits 1,257,000 1,151,000
Accrued payroll 473,000 761,000
Warranty reserve 450,000 448,000
Current portion of notes payable 2,540,000 790,000
------------- -------------
Total current liabilities 6,184,000 5,131,000
------------- -------------
Notes payable, less current portion 3,804,000 7,862,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock 2,579,000 2,579,000
Common stock:
Class A and B - 12,870,000 and
10,720,000 shares issued and
outstanding at September 30, 1999
and December 31, 1998, respectively 26,103,000 24,329,000
Common stock warrants -- 110,000
Additional paid in capital 5,020,000 4,910,000
Accumulated deficit (15,962,000) (15,112,000)
Cumulative translation adjustment (30,000) 30,000
------------- -------------
Total shareholders' equity 17,710,000 16,846,000
------------- -------------
$ 27,698,000 $ 29,839,000
============= =============
</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 Sept. 30,
------------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 6,646,000 $ 5,546,000
Cost of sales 3,631,000 2,667,000
------------ ------------
Gross profit 3,015,000 2,879,000
------------ ------------
Operating expenses:
Selling and marketing 1,270,000 644,000
Research and development 1,108,000 1,116,000
General and administrative 833,000 767,000
Amortization of intangible assets 180,000 174,000
------------ ------------
3,391,000 2,701,000
Income (loss) from operations before other
income and expense (376,000) 178,000
Other income and expense:
Investment and other income 26,000 72,000
Interest expense (134,000) (172,000)
------------ ------------
Income (loss) before income taxes (484,000) 78,000
Provision for income taxes -- 3,000
------------ ------------
Net income (loss) $ (484,000) $ 75,000
============ ============
Earnings (loss) per share (Note 5):
Basic $ 0.04 $ 0.01
============ ============
Diluted $ 0.04 $ 0.01
============ ============
Average shares outstanding - assuming dilution 12,320,000 11,234,000
============ ============
</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 Sept. 30,
------------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 19,002,000 $ 21,736,000
Cost of sales 9,100,000 10,489,000
------------ ------------
Gross profit 9,902,000 11,247,000
------------ ------------
Operating expenses:
Selling and marketing 3,799,000 2,977,000
Research and development 3,794,000 3,297,000
General and administrative 2,381,000 2,792,000
Amortization of intangible assets 540,000 521,000
------------ ------------
10,514,000 9,587,000
Income (loss) from operations before other
income and expense (612,000) 1,660,000
Other income and expense:
Investment and other income 157,000 183,000
Interest expense (411,000) (517,000)
------------ ------------
Income (loss) before income taxes (866,000) 1,326,000
Provision for (benefit from) income taxes (16,000) 53,000
------------ ------------
Net income (loss) $ (850,000) $ 1,273,000
============ ============
Earnings (loss) per share (Note 5):
Basic $ (0.07) $ 0.12
============ ============
Diluted $ (0.07) $ 0.10
============ ============
Average shares outstanding - assuming dilution 12,005,000 13,182,000
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statement of Shareholders' Equity (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Series B Class A and B Compre- Compre-
Preferred Stock Common Stock Common Additional hensive hensive
------------------- ---------------------- Stock Paid in Accumulated Income Income
Shares Amount Shares Amount Warrants Capital Deficit (Loss) (Loss)
------- ---------- ---------- ----------- --------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 119,106 $2,579,000 10,720,000 $24,329,000 $ 110,000 $4,910,000 $(15,112,000) $ 30,000
Conversion of note
payable -- -- 1,800,000 1,774,000 -- -- -- --
Issuance of restricted
stock -- -- 350,000 -- -- -- -- --
Cancellation/expiration
of warrants -- -- -- -- (110,000) 110,000 -- --
Translation adjustment -- -- -- -- -- -- -- (60,000) $ (60,000)
Net loss -- -- -- -- -- -- (850,000) -- (850,000)
------- ---------- ---------- ----------- --------- ---------- ------------ -------- ---------
Balance, Sept. 30, 1999 119,106 $2,579,000 12,870,000 $26,103,000 $ -- $5,020,000 $(15,962,000) $(30,000)
======= ========== ========== =========== ========= ========== ============ ========
Comprehensive loss $ (910,000)
==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
------------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (850,000) $ 1,273,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,137,000 1,051,000
Changes in assets and liabilities:
Accounts receivable 1,526,000 (840,000)
Inventories (1,613,000) (1,383,000)
Prepaid expenses and other assets 264,000 (334,000)
Accounts payable, accrued liabilities, customer
deposits, accrued payroll and warranty reserve (455,000) (729,000)
------------ ------------
Net cash provided by (used in) operating activities 9,000 (962,000)
------------ ------------
Cash (used in) investing activities:
Purchases of property and equipment (415,000) (1,088,000)
------------ ------------
Net cash (used in) investing activities (415,000) (1,088,000)
------------ ------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net (779,000) 282,000
Proceeds from exercise of stock options -- 8,000
------------ ------------
Net cash (used in) provided by financing activities (779,000) 290,000
------------ ------------
Net (decrease) in cash (1,185,000) (1,760,000)
Cash and cash equivalents, beginning of the period 4,423,000 6,045,000
------------ ------------
Cash and cash equivalents, end of period $ 3,238,000 $ 4,285,000
============ ============
</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, 1998), reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's financial position
at September 30, 1999, and December 31, 1998, the results of operations for the
three- and nine-month periods ended September 30, 1999 and cash flows for the
nine-month period ended September 30, 1999. 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 Ventek, Inc.
("Ventek"). The Company's current operating subsidiaries are SRC and Ventek.
Certain reclassifications have been made to the 1998 financial statements to
conform to the financial statement presentation for fiscal 1999. Such
reclassifications had no effect on the Company's results of operations or
shareholders' equity.
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 1998
annual report on Form 10-K.
Note 2. Nature of Operations
- -----------------------------
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 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note, $900,000 of which remains outstanding at September 30, 1999. The nominal
6.75% interest rate may be adjusted upward on each anniversary date (April 13)
of the note if the market price of the Company's Common Stock fails to reach
certain levels. In April 1999, the interest rate was adjusted to 10.75%. 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 Common Stock at $2.125 per share.
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 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 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. All three notes are
secured by all of the issued and outstanding shares of Ventek.
In February 1999, the Ventek notes were restructured. $750,000 of the $1,000,000
note was prepaid. The maturity dates of the remaining $250,000 and the
$2,250,000 note were extended to July 23, 2000. The $1,125,000 note was paid in
full by delivery of 1,800,000 restricted shares, and the stock appreciation
rights were cancelled.
In April 1998, AMV entered into a credit relationship with Bank of America NT&SA
("BofA") for a line of credit and a new mortgage. The line of credit agreement
provided that AMV could borrow the lesser of $2,000,000 or the collateral value
of pledged marketable securities, and had an April 30, 1999 expiration date (see
below for a description of a replacement credit facility). 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.
In April 1999, the Company entered into a new line of credit Business Loan
Agreement with BofA for two loan facilities. The first provides for borrowings
of up to $2,000,000, interest at prime rate plus .5% or BofA's offshore rate
plus 2.35%, and is secured by accounts receivable, inventory and equipment. The
second provides for borrowings of up to $500,000 for letters of credit to be
secured by cash instruments. Both facilities expire April 30, 2000.
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 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 Common Stock issuable under the 1997 Plan shall not
exceed 2,000,000. Under the 1997 Plan, there are currently 200,000 shares issued
to three key employees of the Company. The shares cannot be traded or
transferred unless (i) the employee remains in the employ of the Company until
January 10, 2000 and (ii) the employee makes a payment of $1.80 per share 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 September 30, 1999, 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, 275,000 Class D Warrants, 240,000 Class G
Warrants and 300,000 Class J 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, originally issued in the Ventek acquisition,
was amended to reduce the number of shares issuable pursuant to the warrant from
1,000,000 to 250,000. In connection with the February 1999 Ventek debt
restructuring (see Note 3), the remaining Class I Warrant was canceled and the
Company issued 350,000 restricted shares of Class A Common Stock. The 350,000
shares cannot be traded or transferred unless $1.25 per share is paid to the
Company between February 1, 2000 and January 31, 2001. Absent such payment, the
shares shall be forfeited and returned to the Company for cancellation.
Schedule of Outstanding Stock, Warrants and Potential Dilution: The following
table summarizes, as of September 30, 1999, outstanding common stock, potential
dilution to the outstanding common stock upon conversion of convertible debt,
and proforma proceeds or debt reduction from the conversion. The table also sets
forth the conversion prices and warrant expiration and debt due dates.
<TABLE>
<CAPTION>
Number or Principal Common Proforma
Amount Outstanding Stock After Conversion Debt
Security at September 30, 1999 Conversion Price Reduction
- ------------------------------- --------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Outstanding Common Stock 12,870,000
Convertible Debt (due date):
6.75% Notes (4/16/01) $ 900,000 423,000 $ 2.13 $ 900,000
6.75% Ventek Note (7/23/00) $ 2,250,000 1,000,000 2.25 2,250,000
------------ ------------
1,423,000
------------
Convertible Preferred Stock 119,100 1,191,000
------------
Potentially outstanding shares
and proforma proceeds
or reduction of debt 15,484,000 $ 3,150,000
============ ============
</TABLE>
The proforma amounts above are for illustrative purposes only. Unless the market
price of AMV's Common Stock rises significantly above the conversion prices, it
is unlikely that the debt or preferred stock will be converted.
In addition to the FMC option described above, on September 30, 1999, AMV had
outstanding options to purchase 3,185,000 shares of Common Stock, 2,553,000 of
which are under its stock option plans.
The existence of these outstanding options, 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 Common Stock issued upon exercise of
options, or amount of debt forgiven in the case of conversion of debt, may be
less than the market price of Common Stock at the time such options are
exercised or debt is converted. For the life of the 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 the Common Stock
without assuming the risk of ownership. Moreover, the holders of the options
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.
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 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 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 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 December 1998, the Rights Plan was amended to permit FMC to acquire up to
1,600,000 shares of AMV Common Stock on the open market without causing a
triggering event.
Note 5. Earnings (Loss) Per Share
- ----------------------------------
The computation of earnings (loss) per share is presented in the following
tables:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ---------------------------------
Income (Loss) Shares Income Shares
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Calculation of EPS
Income (loss) available to
common shareholders $ (484,000) 12,870,000 $ 75,000 10,720,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (550,000) -- (200,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ (484,000) 12,320,000 $ 75,000 10,520,000
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (0.04) $ 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options and warrants $ -- -- $ -- 714,000
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders and
assumed conversions $ (484,000) 12,320,000 $ 75,000 11,234,000
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.04) $ 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 30,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ---------------------------------
Income (Loss) Shares Income Shares
-------------- -------------- ------------- --------------
Calculation of EPS
Income (loss) available to
common shareholders $ (850,000) 12,555,000 $ 1,273,000 10,716,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (550,000) -- (200,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ (850,000) 12,005,000 $ 1,273,000 10,516,000
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (0.07) $ 0.12
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options and warrants $ -- -- $ -- 866,000
Note and stock appreciation
rights agreement -- -- 75,000 1,800,000
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders and
assumed conversions $ (850,000) 12,005,000 $ 1,348,000 13,182,000
============= ============= ============= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.07) $ 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The number of shares of Common Stock, along with their respective exercise
prices, underlying options, warrants, convertible debt and preferred stock,
which were excluded from the computation of diluted EPS for the nine-month
periods because their exercise prices were greater than the average market price
of common stock or the inclusion of such shares would be antidilutive, are
listed below.
For Nine Months
Ended September 30,
-----------------------------
1999 1998
------------- -------------
Number of shares of common stock
exercisable from:
Options 3,185,000 1,279,500
Warrants -- 790,000
Convertible debt 1,423,000 1,423,000
Preferred stock 1,191,000 --
------------- -------------
5,799,000 3,492,500
Exercise price ranges $1.00 - $3.00 $1.88 - $4.63
Note 6. 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,
1999 1998
------------- -------------
Raw materials $ 3,338,000 $ 2,837,000
Work-in-process 2,047,000 1,563,000
Finished goods 3,607,000 2,979,000
------------- -------------
$ 8,992,000 $ 7,379,000
============= =============
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
======================================================
Our backlog at September 30, 1999 was $4,074,000 compared to $2,934,000 as of
September 30, 1998.
Results of Operations - Comparison between three months ended September 30, 1999
and September 30, 1998
- --------------------------------------------------------------------------------
Sales for the three months ended September 30, 1999 ("Q3 1999") were $6,646,000,
up 20% when compared to sales for the three months ended September 30, 1998 ("Q3
1998") of $5,546,000. The $1,100,000 increase in sales is due to higher sales in
softwood veneer production applications.
Gross profit increased by $136,000 to $3,015,000 in Q3 1999 when compared to
$2,879,000 of gross profit in Q3 1998. The increase in gross profit is due to
the increase in sales. Gross profit as a percentage of sales was 45% in 1999 and
52% in 1998. The decrease in gross profit as a percentage of sales is due to the
introduction of new products and the penetration of new geographical markets.
The initial unit cost of sales of the new products are higher due to the higher
material costs resulting from smaller quantity purchasing and higher labor costs
due to the lack of learning curve efficiencies. To penetrate new geographical
markets, the Company granted some initial discounts, which also decreased gross
margins as a percentage of sales.
Selling and marketing expense increased by $626,000 in Q3 1999 from Q3 1998 to
$1,270,000 amounting to 19% of sales in Q3 1999. Similar expenses in Q3 1998
were $644,000, or 12% of sales. The increase in selling and marketing expenses
in terms of both the dollar amount and a percentage of sales is due to higher
personnel costs and marketing activities associated with the introduction of new
products and the penetration of new geographical areas.
Research and development expenses were $1,108,000 and $1,116,000 in Q3 1999 and
Q3 1998, or 17% and 20% of sales, respectively. The decrease in research and
development expenses as a percentage of sales is related to spreading of the
fixed research and development costs over a larger sales base.
General and administrative expenses increased $66,000 to $833,000 in Q3 1999
from $767,000 in Q3 1998.
The decrease in interest expense is due to a decrease in outstanding debt
balances.
Net loss for Q3 1999 was $484,000 as compared to net income of $75,000 in Q3
1998.
Results of Operations - Comparison between nine months ended September 30, 1999
and September 30, 1998
- --------------------------------------------------------------------------------
Sales for the nine months ended September 30, 1999 ("the 1999 Period") were
$19,002,000, down 13% when compared to sales for the nine months ended September
30, 1998 ("the 1998 Period") of $21,736,000. The decrease is due to lower sales
in food processing, plastic sorting and agricultural sorting applications. These
decreases were partially offset by higher sales in softwood veneer production
applications.
Gross profit decreased by 12% to $9,902,000 in the 1999 Period when compared
to $11,247,000 of gross profit in the 1998 Period. The decrease in gross
profit is due to lower sales. In 1999, gross profit was 52% of sales as compared
to 52% in 1998.
Selling and marketing expense increased 28% in the 1999 Period from the 1998
Period to $3,799,000 amounting to 20% of sales in 1999. Similar expenses in the
1998 Period were $2,977,000, or 14% of sales. The increase in selling and
marketing expenses in terms of both the dollar amount and as a percentage of
sales is due to higher personnel costs and marketing activities associated with
the introduction of new products and the penetration of new geographical areas.
Research and development expenses were $3,794,000 and $3,297,000 in the 1999
Period and the 1998 Period, or 20% and 15% of sales, respectively. The increase
in research and development expense in 1999 is related to the continuing
development of the Company's new generation of processor as well as new products
for softwood veneer production applications.
General and administrative expenses decreased $411,000 to $2,381,000 in the 1999
Period from $2,792,000 in the 1998 Period. The decrease is due principally to
costs associated with a 1998 Period project of reevaluating the financial and
operational processes and procedures at SRC in anticipation of possible future
growth of SRC's business. The 1999 Period does not include any of these project
costs.
The decrease in interest expense is due to a decrease in outstanding debt
balances.
The net loss for 1999 was $850,000 as compared to a net income of $1,273,000 in
1998.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Our cash balance and working capital were $3,238,000 and $10,505,000,
respectively, at September 30, 1999 as compared to $4,423,000 and $12,100,000,
respectively, at December 31, 1998. Our debt decreased by approximately $2.3
million primarily as a result of the Ventek debt restructuring. Equity at
September 30, 1999 increased from December 31, 1998 due to the Ventek debt
restructuring, offset by a $850,000 net loss for 1999.
During 1999, net cash generated from operating activities totaled $9,000
compared to cash used for operating activities of $962,000 in 1998. The net loss
for the nine months ended September 30, 1999 of $850,000 included non-cash
charges for depreciation and amortization of $1,137,000. Extended payment terms
were granted for certain sales in 1998, increasing accounts receivable as of
December 31, 1998. These receivables were collected in 1999, generating
$1,526,000 in cash. Inventories increased in 1999, using $1,613,000 of cash, as
a result of placing more systems into trial situations, as well as an increase
in inventory to support higher sales of systems sold for softwood veneer
applications. The 1998 usage was due principally to an increase in accounts
receivable, inventories and prepaid and other assets.
Cash used in investment activities totaled $415,000 in 1999 compared to cash
used in investment activities of $1,088,000 in 1998. We have no material
commitments for capital expenditures at September 30, 1999.
Cash used in financing activities totaled $779,000 in 1999 as compared to cash
generated from financing activities of $290,000 in 1998. In February 1999, we
paid $750,000 of a $1,000,000 note and issued 1,800,000 shares of Common Stock
in payment of a $1,529,000 note as part of the Ventek debt restructuring. In
1998, we refinanced our mortgage payable increasing the amount borrowed to
$3,000,000 from $2,680,000 (see Note 3 to the Unaudited Consolidated Financial
Statements).
In October 1998, we received $2,620,000 from FMC Corporation for 119,106 shares
of newly issued Series B Preferred Stock (see Note 4 to the Unaudited
Consolidated Financial Statements).
In April 1999, we entered into a Business Loan Agreement providing up to
$2,500,000 of working capital financing (see Note 3 to the Unaudited
Consolidated Financial Statements).
We believe that we have sufficient cash to enable us to sustain our
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
- --------------------------------------------------------------------------------
In our capacity as Company management, we may from time to time make written or
oral forward-looking statements with respect to our long-term objectives or
expectations which may be included in our filings with the Securities and
Exchange Commission, reports to stockholders and information provided in our web
site.
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. We wish to caution you 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, we are calling to your attention important
factors that could affect our financial performance and could cause actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
The following list of important factors may not be all inclusive, and we
specifically decline 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 our ability to achieve expected operating results and growth plan goals
and/or affect the market price of our stock are:
* A history of losses and negative cash flow.
* Fluctuations in quarterly operating results and seasonality in certain of
our markets.
* Rapid technological change in our markets and the need for new product
development.
* Market acceptance of our new products.
* Our dependence on certain markets and the need to expand into new markets.
* The lengthy sales cycle for our products.
* Our highly competitive marketplace.
* The dependence on certain suppliers.
* The risks associated with dependence upon significant customers and
reliance on certain distribution channels.
* 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.
* Our ability to protect our 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.
* Our inability or our suppliers' or customers' inabilities 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 and in certain
fiscal quarters thereafter, we experienced losses and negative operating cash
flow. We believe that we may operate at a negative cash flow for certain periods
in the future due to (a) the need to fund certain development projects, (b) cash
required to enter new market areas, (c) irregular bookings by customers due to
seasonality or economic downturns in some markets and the relatively high
per-unit cost of our products which may cause fluctuations in quarterly or
yearly revenues, and (d) cash required for the repayment of debt, especially
$2.5 million due in July 2000. If we are unable to consistently generate
sustained positive cash flow from operations, we must rely on debt or equity
financing.
Although we achieved profitability in 1995, 1997 and 1998, there can be no
assurance as to future profitability on a quarterly or annual basis.
Fluctuations in Quarterly Operating Results; Seasonality: We have 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 our control. 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 us or our 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 our business and operating results. Moreover, due to
the relatively fixed nature of many of our costs, including personnel and
facilities costs, we 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 our results of operations for that
quarter. For example, a significant portion of our quarterly net sales depends
upon sales of a relatively small number of high-priced systems. Thus, changes in
the number of 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 our machine vision systems' average selling
price changes, the addition or cancellation of sales may exacerbate quarterly
fluctuations in revenues and operating results.
Our operating results may also be affected by certain seasonal trends. For
example, we 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. We expect these patterns to
continue.
Rapid Technological Change; Product Development: The markets for our machine
vision products are characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions and enhancements. For
example, we believe that the 1995 introduction by Key Technology, Inc. of its
new line of vision sorting equipment adversely affected our bookings in late
1995 and 1996. Sales of our products depend in part on the continuing
development and deployment of new technology and services and applications. Our
success will depend to a significant extent upon our ability to enhance existing
products and develop new products that gain market acceptance. We cannot be sure
that we will be successful in selecting, developing and manufacturing new
products or enhancing existing products on a timely or cost-effective basis or
that products or technologies developed by others will not render our products
non-competitive or obsolete. Moreover, we may encounter technical problems in
connection with product development that could result in the delayed
introduction of new products or product enhancements.
Market Acceptance of New Products: Our future operating results will depend upon
our ability to successfully introduce and market, on a timely and cost-effective
basis, new products and enhancements to existing products. We are currently
marketing a new generation of high-speed software and digital signal processing
technology designed to significantly improve system performance. In 1998 and
1999, we placed machines incorporating the new technology at several customer
locations as trial units. Converting these systems to sales will depend upon
completion of product development and ultimate acceptance by the customers. We
cannot be sure that a market for these systems 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.).
Dependence on Certain Markets and Expansion Into New Markets: Our future success
and growth depends 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 our 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, longer product evaluation periods
or other factors could have an adverse effect on our results of operations. We
also intend to expand the marketing of our 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 our 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 our growth rate. We
may not be able to successfully penetrate additional food and non-food markets
or expand further in foreign markets.
Lengthy Sales Cycle: The marketing and sales cycle for our 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 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 our products are highly competitive. Several years
ago, a major competitor introduced a new optical sorter product that has
increased the competition that we face. 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 our
competitors may have substantially greater financial, technical, marketing and
other resources than we have. Important competitive factors in our markets
include price, performance, reliability, customer support and service. Although
we believe that we currently compete effectively with respect to these factors,
we may not be able to compete effectively in the future.
Dependence Upon Certain Suppliers: Certain key components and subassemblies used
in our products are currently obtained from sole sources or a limited group of
suppliers, and we do not have any long-term supply agreements to ensure an
uninterrupted supply of these components. Although we seek 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 our results of operations and damage
customer relationships. The purchase of certain of the components used in our
products require an eight- to twelve-week lead time for delivery. An
unanticipated shortage of such components could delay our ability to timely
manufacture units, damage customer relations, and have a material adverse effect
on us. In addition, a significant increase in the price of one or more of these
components or subassemblies could negatively affect our results of operations.
Dependence Upon Significant Customers and Distribution Channel: We 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. Ventek's sales
have been to a relatively small number of multi-location plywood manufacturers.
In the emerging pulp wood industry, we utilize a single exclusive distributor
for our products in North America. In 1998, FMC Corporation became our exclusive
or non-exclusive sales representative in much of the United States and in many
areas in the rest of the world. While we strive to create long-term
relationships with our customers, distributors and representatives, there can be
no assurance that they will continue ordering or selling additional systems. We
may continue to be dependent on a small number of customers, distributors and
representatives, the loss of which would adversely affect our business.
Risk of International Sales: Due to our export sales, we are 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 our 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 was adversely affected by that country's currency devaluation when
compared to the U. S. dollar over the past few years. In addition, the laws of
certain foreign countries may not protect our 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
our business strategy, we intend to pursue rapid growth. In March and July 1996,
we acquired Pulsarr and Ventek. Pulsarr was subsequently sold in May 1997. A
growth strategy involving the integration of new entities may require the
establishment of additional sales representative and distribution relationships,
expanded customer service and support, increased personnel throughout the
Company and the continued implementation and improvement of our operational,
financial and management information systems. We may be unable to attract
qualified personnel or to accomplish other measures necessary for successful
integration of entities that may be acquired in the future or for internal
growth, and we may be unable to successfully manage expanded operations. As we
expand, we may from time to time experience constraints that will adversely
affect our ability to satisfy customer demand in a timely fashion. Failure to
manage growth effectively could negatively affect our financial condition and
results of operations.
Risks Associated With Acquisitions: We may pursue strategic acquisitions or
joint ventures in addition to the acquisitions of Pulsarr (subsequently divested
in May 1997) and Ventek as part of our growth strategy. While we presently have
no understandings, commitments or agreements with respect to any further
acquisition, we anticipate that one or more potential opportunities may arise 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 may have
an adverse effect on our results of operations or may result in dilution to
existing shareholders. If additional attractive opportunities become available,
we may decide to pursue them actively.
Dependence Upon Key Personnel: Our success depends to a significant extent upon
the continuing contributions of key management, technical, sales and marketing
and other key personnel. Except for William J. Young, our President and Chief
Executive Officer, Alan R. Steel, our Chief Financial Officer, Dr. James Ewan,
SRC's President and Chief Executive Officer, and the four former stockholders of
Ventek, we do not have long-term employment agreements or other arrangements
with employees which would encourage them to remain with the Company. Our future
success also depends upon our 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 our business and operating results.
Intellectual Property: Our competitive position may be affected by our ability
to protect proprietary technology. Although we have a number of United States
and foreign patents, such patents may not provide meaningful protection for our
product innovations. We may experience additional intellectual property risks in
international markets where we may lack patent protection.
Product Liability and Other Legal Claims: From time to time, we may be involved
in litigation arising out of the normal course of business, including product
liability, patent and other legal claims. While we have a general liability
insurance policy which includes product liability coverage up to an aggregate
amount of $10 million, we 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 and diversion of effort. Any
infringement claims or litigation against us could materially and adversely
affect our business, operating results and financial condition. If a substantial
product liability or other legal claim against us was sustained that was not
covered by insurance, there could be an adverse effect on our financial
condition and marketability of the affected products.
Warranty Exposure and Performance Specifications: We generally provide a
one-year limited warranty on our products. In addition, for certain
custom-designed systems, we contract to meet certain performance specifications.
In the past, we have incurred higher warranty expenses related to new products
than we typically incur with established products. We may incur substantial
warranty expenses in the future with respect to new products, as well as
established products, or with respect to our obligations to meet performance
specifications, which may have an adverse effect on our results of operations
and customer relationships.
Possible Need for Additional Financing: We may seek additional financing;
however, we may not be able to obtain additional financing on terms satisfactory
to us, if at all. Potential increases in the number of outstanding shares of our
Common Stock due to convertible debt and preferred stock and stock options, a
substantial loss in 1996 and debt incurred for the acquisition of Ventek due in
2000, may limit our ability to negotiate additional debt or equity financing.
Shareholder Rights Plan: In February 1998, we 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 our 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 our 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 Common Stock. If AMV
is then merged into, or is acquired by, another corporation, we have the
opportunity to either (a) redeem the rights or (b) 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 our Board of Directors, the offer is inadequate.
In October 1998, FMC acquired 119,106 shares of our Series B Preferred Stock,
which, if converted into Common Stock in accordance with its terms, represented
a 10% ownership position in the Company on that date. FMC also received a
five-year option to acquire 15% of our 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
FMC acquired the shares 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, our
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. In December 1998,
we amended the Shareholder Rights Plan to permit FMC to purchase on the open
market up to 1,600,000 shares of Common Stock without such purchase being a
triggering event.
While we are not aware of any other circumstance that might result in the
acquisition of a sufficient number of shares of our Common Stock to trigger
distribution of the Rights, existence of the Rights could discourage offers for
our stock that may exceed the current market price of the stock, but that the
Board of Directors deems inadequate.
Year 2000 Issues: We are aware of the potential for industry-wide business
disruption which could occur due to problems related to the "Year 2000" issue.
We believe we have a prudent plan in place to address this issue within the
Company and its supply chain. The components of this plan include: an assessment
of internal systems for modification and/or replacement, communication with
external suppliers to determine their state of readiness to maintain an
uninterrupted supply of goods and services to the Company, and an evaluation of
products sold by us to customers as to the ability of the products to work
properly after the turn of the century.
Internal Systems: Our process for achieving Year 2000 compliance for internal
systems is as follows:
1. Develop an inventory of all internal systems that may be affected by Year
2000 issues;
2. Determine the Year 2000 compliance status of each internal system;
3. Prioritize the importance of Year 2000 compliance for each internal system;
4. Determine the method to be used to achieve compliance (modify, replace,
cease use);
5. Complete the planned action;
6. Test the system.
We have completed the six steps for internal systems in use throughout the
Company that may be affected by Year 2000 issues. During the quarter ended
September 30, 1999, the Company determined that one of its internal systems was
not completely Year 2000 compliant. The Company is presently modifying this
system and Year 2000 compliance will be achieved by December 31, 1999. All the
Company's other internal systems are Year 2000 compliant.
Suppliers: We have initiated a program to survey the Year 2000 readiness of our
major and critical suppliers. We have sent letters to these suppliers outlining
our approach towards the Year 2000 issue and asking for either their
certification that their product is Year 2000 compliant or their commitment to
resolve any issues they may have. We have identified suppliers that we view as
critical to our business. We have defined a critical supplier as one whose
inability to continue to provide goods and services would have a serious adverse
impact on our ability to produce, deliver and collect payment for our product.
To date, we have received responses from nearly all critical suppliers. We are
following up on those suppliers who have not responded.
Products: The main functionality of our products is not affected by the date
function. Our products shipped subsequent to June 1998 are Year 2000 compliant.
For products shipped prior to June 1998, we have provided instructions to our
customers on how to make our equipment fully compliant. We have contacted all
customers to ensure they have ample time to become fully complaint.
Costs: Costs incurred in our Year 2000 compliance effort are expensed as
incurred and funded with cash generated from operations. These costs are
included in the normal, recurring costs incurred for product development and
systems maintenance and are not material to our results of operations, nor are
they expected to be in the future. There have been no significant deferrals of
other information technology projects.
Contingency Plan: Having completed remediation and testing of our major Year
2000 projects, our "worst-case scenario" would be a failure of multiple critical
suppliers that supply raw components for an extended period of time that would
materially impair our ability to ship our products in a timely manner to our
customers. Although the occurrence of this scenario could have a material
adverse effect on the Company, we do not have a basis to determine at this time
whether such a scenario is reasonably likely to occur. We believe that suppliers
present the greatest risk to disruption of our operations because of our limited
ability to influence actions of third parties or to estimate the level and
impact of their non-compliance. The contingency plans for our suppliers include
carrying a reasonable level of additional inventory of critical components and
identifying alternative supply sources.
We have also completed contingency plans for our internal systems. These plans
include manual work around processes and storing additional sets of backup data
before December 31, 1999.
Risks: Although we believe we are taking prudent action related to the
identification and resolution of issues related to the Year 2000, our assessment
is still in progress. We may never be able to know with certainty whether
certain critical suppliers are compliant. Failure of critical suppliers to make
their computer systems Year 2000 compliant could result in delaying deliveries
of products and services to us. If such delays are extensive, they could have a
material adverse effect on our business.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities. Such
failures could negatively affect our results of operations, liquidity and
financial condition. Due to the general uncertainty inherent in the Year 2000
issue, resulting in part from the uncertainty of the Year 2000 readiness of
third-party suppliers, we are unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on our results of
operations, liquidity or financial position. The Year 2000 compliance project is
expected to reduce, but not eliminate, our level of uncertainty about the Year
2000 issue and, in particular, about the Year 2000 compliance and readiness of
its critical suppliers. We believe that, with the completion of the Year 2000
compliance project as scheduled, the possibility of significant interruptions to
normal operations should be reduced.
<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. (9)
3.2 Restated and Amended By-Laws of the Company. (2)
4.1 Form of Class G Warrant Agreement. (5)
4.2 Form of Class H Warrant Agreement. (8)
4.3 Form of Class I Warrant Agreement. (6)
4.4 Form of stock option plan and stock option agreement. (1)
4.5 Form of 1997 Restricted Stock Plan and restricted stock agreement.
(7)
4.6 Form of amendments to restricted stock agreements. (19)
4.7 Rights Agreement dated February 27, 1998 between the Company and
American Stock Transfer and Trust Company ("AST"). (13)
4.8 Amendment to Rights Agreement between the Company and AST. (20)
4.9 Amendment to Class I Warrant Agreement. (15)
4.10 Form of Certificate of Determination for Series A Junior
Participating Preferred Stock. (16)
4.11 Form of Certificate of Determination for Series B Preferred Stock.
(18)
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. (14)
10.3 Employment Agreement between William J. Young and the Company dated
January 1, 1998. (14)
10.4 Employment Agreement between William J. Young and SRC VISION, Inc.
dated January 1, 1998. (14)
10.5 Employment Agreement between James Ewan and SRC VISION, Inc. dated
January 1, 1998. (14)
10.6 Stock Purchase Agreement dated March 1, 1996 (without exhibits)
between Meijn Beheer BV and ARC Netherlands BV, a wholly-owned
subsidiary of the Company. (4)
10.7 Stock Purchase Agreement dated March 1, 1996 between J. C. Scholt
and ARC Netherlands BV, a wholly-owned subsidiary of the Company.
(4)
10.8 Convertible Note dated March 1, 1996 issued in connection with that
certain Stock Purchase Agreement dated March 1, 1996 between
J. C. Scholt and ARC Netherlands BV. (4)
10.9 Subscription Agreement dated January 18, 1996 between the Company
and Swiss American Securities, Inc., as agent for Credit Suisse
related to the private placement of 1,400,000 shares of the
Company's Class A Common Stock. (4)
10.10 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. (5)
10.11 Convertible Secured Note dated April 17, 1996, between the Company
and Ilverton International, Inc. (8)
10.12 $1,000,000 Note dated July 24, 1996, between AMV and Ventek. (6)
10.13 $2,250,000 Convertible Note dated July 24, 1996, between AMV and
Ventek. (6)
10.14 $1,125,000 Note dated July 24, 1996, between AMV and Ventek. (6)
10.15 Stock Appreciation Rights Agreement dated July 24, 1996 between AMV
and Ventek. (6)
10.16 Form of Employment Agreement dated July 24, 1996 between Ventek and
each of the four stockholders of Ventek. (6)
10.17 Pledge and Security Agreement dated July 24, 1996, by and among AMV,
AMV Subsidiary, Inc., Ventek and Solin and Associates, P.C. (6)
10.18 1997 SRC VISION, Inc. Stock Option Plan and forms of stock option
agreements. (12)
10.19 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. (9)
10.20 Share Purchase Agreement dated April 29, 1997 between Barco NV and
ARC Netherlands BV. (10)
10.21 Settlement Agreement dated August 12, 1997. (11)
10.22 1997 Nonqualified Stock Option Plan and form of option agreement.
(11)
10.23 Promissory Note dated April 24, 1998 to Bank of America NT&SA,
together with related documents. (17)
10.24 $250,000 Note dated June 5, 1998 from Rodger A. Van Voorhis to
Ventek. (15)
10.25 Series B Preferred Stock Purchase Agreement between AMV and FMC
Corporation dated October 14, 1998. (18)
10.26 Intellectual Property and Security Agreement dated October 14, 1998
between SRC VISION, Inc. and FMC Corporation. (18)
10.27 1998 Senior Management and Director Stock Purchase Plan. (20)
10.28 Business Loan Agreement dated April 12, 1999 between AMV and Bank of
America NT&SA. (21)
27 Financial Data Schedule.
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(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 October 5, 1995, as an exhibit to the Company's
Form 8-K dated October 2, 1995.
(4) Filed with the SEC on March 6, 1996, as an Exhibit to the Company's Form
8-K dated March 1, 1996.
(5) 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.
(6) Filed with the SEC on July 30, 1996, as an exhibit to the Company's Form
8-K dated July 24, 1996.
(7) Filed with the SEC on January 22, 1997, as an exhibit to the Company's
Form 8-K dated January 9, 1997.
(8) 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.
(9) 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.
(10) Filed with the SEC on May 9, 1997 as an exhibit to the Company's Form
8-K regarding the sale of Pulsarr.
(11) 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.
(12) 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.
(13) Filed with the SEC on February 20, 1998 as an exhibit to the Company's
Form 8-A.
(14) 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.
(15) Filed with the SEC on June 15, 1998 as an exhibit to the Company's Form
8-K dated June 5, 1998.
(16) Filed with the SEC on February 27, 1998 as an exhibit to the Company's
Form 8-A dated February 27, 1998.
(17) Filed with the SEC on August 4, 1998 as an exhibit to the Company's Form
10-Q dated August 4, 1998.
(18) Filed with the SEC on October 19, 1998 as an exhibit to the Company's
Form 8-K dated October 14, 1998.
(19) Filed with the SEC on October 30, 1998 as an exhibit to the Company's
Form 10-Q dated October 30, 1998.
(20) Filed with the SEC on January 14, 1999 as an exhibit to the Company's
Form 8-K dated December 22, 1998.
(21) Filed with the SEC on May 11, 1999 as an exhibit to the Company's Form
10-Q dated May 11, 1999.
(b) Reports on Form 8-K:
None
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.
November 12, 1999 /s/ Alan R. Steel
- ---------------------------- ----------------------------------
Alan R. Steel
Vice President, Finance
(Principal Financial and duly
Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1999 financial statements and is qualified in it entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> ADVANCED MACHINE VISION CORPORATION
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
2,579
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