SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 0-20097
Advanced Machine Vision Corporation
(Exact name of registrant as specified in its charter)
California 33-0256103
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3709 Citation Way #102
Medford, Oregon 97504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 776-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, no par value
Preferred Share
Purchase Rights
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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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 9, 2000, was approximately $17,600,000. (All officers and
directors of the registrant are considered affiliates; Class B Common Stock is
assumed to be equal in value to Class A Common Stock.)
On March 9, 2000, the registrant had 12,921,884 shares of Class A Common Stock
and 47,669 shares of Class B Common Stock, all no par value, issued and
outstanding.
See Page 56 for Exhibit Index
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Part I
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Item 1. Business
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History
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From inception in 1987 until early 1990, Advanced Machine Vision Corporation's
("AMV" or the "Company") predecessor company, Applied Laser Systems ("ALS"), was
principally engaged in research and development and organizational activities
and its revenues were insignificant. Beginning in early 1990, ALS engaged in the
business of designing, developing, manufacturing and marketing laser diode
devices. In March 1992, ALS completed its initial public offering, the proceeds
of which were used to repay bridge financing and other loans, and for working
capital.
In February 1994, the Company acquired all of the issued and outstanding capital
stock of Simco/Ramic Corporation, now SRC VISION, Inc. ("SRC") for $8.1 million
in cash. During late 1993 and early 1994, AMV entered a number of other proposed
acquisition transactions. In Spring 1994, a new management team was hired for
AMV. By September 1994, AMV terminated the other acquisition transactions
resulting in significant losses in 1994. Following these terminations, the
Company restructured to concentrate on its SRC-based vision systems business. In
October 1995, the Company sold the ALS operation for cash. In March 1996, the
Company acquired Netherlands-based Pulsarr Holding BV ("Pulsarr"), and, in July
1996, the Company acquired the assets and operations of Ventek, Inc. ("Ventek"),
both of which were also engaged in designing and marketing automated vision
systems. In May 1997, the Company sold Pulsarr after receiving an unsolicited
offer. The current operating subsidiaries of AMV are SRC and Ventek.
Business
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Pending Merger
In February 2000, the Company entered into an Agreement and Plan of Merger with
Key Technology, Inc. ("Key"), a competitor. Completion of the transaction, which
is described elsewhere in this Form 10-K, is subject to the approvals of the
holders of the Company's Series B Preferred Stock and Common Stock, as well as
other terms and conditions. The description of the Company's business below does
not include reference to Key's business other than as a competitor. Key is a
public company and its stock is traded on the Nasdaq National Market under the
symbol "KTEC."
The Company
The Company designs, develops, manufactures and markets machine vision systems
that process images not discernible to the human eye. These systems combine
technologies in four key areas (lighting, cameras, processors and software) to
improve quality, enhance yield, reduce production costs and increase throughput
in a variety of markets and applications where human vision is inadequate due to
fatigue, visual acuity or speed. Where needed, AMV employs highly specialized
mechanical technologies to help customers integrate machine vision systems into
their production processes. Applications include quality control in the
processing of food, pulp wood, tobacco, and plastics for recycling, and quality
control and automated process control in wood panel production.
Since its founding in 1964, SRC has evolved from a single-product company (an
optical device to measure length and diameter of freshly cut logs) serving the
timber industry, into a provider of machine vision systems for a number of
processing industries. In 1984, SRC released its first machine vision product, a
fully automated defect removal system for the french fry processing industry,
designed to improve productivity and quality. The system utilized proprietary
material conveying systems, light sources, linear array CCD cameras, image
processing software, and standard bus based electronics to detect defective
french fries and efficiently remove them from a rapidly moving product stream.
SRC built upon its experience in potato processing to develop machine vision
systems for other food processing customers. These new systems increasingly
possessed more sophisticated capabilities, such as fully automated sorting and
continuous high volume product analysis.
From 1984 through the present, SRC has continued to advance and refine its core
technologies to increase the speed and improve the accuracy of its machine
vision products. Approximately 30 patents have resulted from these ongoing
efforts. Additionally, many more patent applications have been filed. Early SRC
systems for the food processing industry benefited from state-of-the-art
microprocessors which have been replaced with more powerful microprocessors as
they became available over time. When full color recognition systems were first
introduced in 1987, SRC responded to the need for color signal processing by
developing a three-color image processing system. SRC then invented a
high-resolution "RGB" (red green blue) or "true color" camera because
commercially available cameras lacked the ability to detect the precise color of
objects being viewed. The true color camera significantly increased the accuracy
of SRC's color processing machine vision systems. SRC used the experience it
gained developing the true color camera to develop a high resolution
panchromatic camera, so that customers who require only black and white image
processing can achieve the same level of precision made possible by SRC's true
color camera.
SRC has further increased the visual discrimination capabilities of its machine
vision systems with lighting, spectral analysis and mechanical technologies.
Since 1989, SRC has developed specialty lamps that take advantage of the
different reflective properties of items being processed on a single conveyer.
SRC began adding to its spectral characterization capability in 1992. During
this period, SRC developed several mechanical technologies, including high-speed
ejection modules, high-speed material handling, air-assist stabilization and
high-speed video motion analysis to facilitate processing on a high-speed
conveyer. SRC continued to make significant technological advances until 1993
when previous management reduced expenditures on research and development
resulting in a technology gap.
Following the acquisition of SRC in 1994, the Company embarked upon a plan to
revitalize its growth potential through significantly increased research and
development efforts and a reassessment of marketing goals. At the same time, the
Company established a new management team dedicated to identifying untapped
markets for machine vision systems. New management targeted marketing efforts at
niche markets in non-food processing industries such as plastics for recycling,
pulp wood and tobacco, which have resulted in higher average per-unit sales
prices. For a discussion of the Company's current technology and research and
development expenditures, see "Technology, Engineering and Research and
Development" below.
Ventek was founded in 1991 by three engineers who were an integral part of the
design and development of the "Infrascan" scanner. In the early 1970's, the
Infrascan became the industry standard for detecting defects in wood veneer and
it remained the standard until 1994, when Ventek introduced its "New Vision"
system. Ventek's experience in wood panel production complements the Company's
lighting, camera, processing and software capabilities. The addition of Ventek
in July 1996 gave the Company its first machine vision system application in the
wood panel production industry. The Company has enhanced the level of precision
by incorporating SRC's high-speed line-scan camera into Ventek's veneer scanning
systems, thereby increasing their ability to separate the product into various
grades, as well as to detect and remove defects. This improved grading
capability is expected to increase the yield of high margin grades by correctly
identifying them and minimizing waste, enabling customers to increase margins on
the product produced from any given amount of raw inputs.
Industry Background
Machine Vision: Like human vision, machine vision requires sensing elements and
image processors. The camera and lighting components of machine vision systems
are capable of sensing images beyond the region of the electromagnetic energy
spectrum called "visible light." Machine vision systems working outside the
visible light range can often provide significantly enhanced discrimination
capabilities beyond that detectable to the human eye. For example, in plastics
recycling, this capability allows machine vision systems to discriminate between
two different types of plastics, PVC and PET, both of which are the same color.
Under the right kind of non-visible light, the different reflective properties
of these two plastics make them easily distinguishable to a high-speed camera.
In addition, machine vision systems are capable of clearly viewing and reacting
to objects moving at speeds of up to 1,200 feet per minute. The processor and
software components of machine vision systems are capable of rapidly processing
and analyzing signals with a high level of uniformity. Because machine vision
systems do not fatigue, they are often preferable for high-speed, repetitive
scanning or viewing of objects over indefinite periods of time, as required in
many production processes.
Quality Control: Processing applications typically combine a computer-based
conveyor system with a machine vision system. The conveyor presents a moving
stream of raw product to a high-speed inspection camera. Data gathered by the
camera is processed by the computer using specially developed software with the
goal of identifying the location on the conveyor of defective items for the
express purpose of rejecting such defective material. Processors of food, pulp
wood, tobacco and recycled plastics products must process large quantities of
raw product through different stages, including defect detection and sorting to
remove defective pieces and inspect for quality. In the agricultural area, the
frequency and severity of defects in the raw product is highly variable,
depending upon a variety of factors affecting crops.
Historically, defect detection, removal and quality control in the industries
addressed by the Company have been labor intensive and dependent upon and
limited by the variability of the work force. These functions are performed by a
work force that is frequently unskilled and subject to a high turnover rate.
Large numbers of individual workers stand along a conveyor and visually identify
and manually remove defective pieces from the stream of moving product. These
manual methods cause inconsistent defect removal, as well as limited throughput
that varies based upon the number and abilities of the workers. Manual methods
also usually cause excessive amounts of good product to be discarded along with
defective product. The industry has sought to replace these manual methods with
automated systems that achieve higher yield and better quality at reduced costs.
Automated Process Control: Many types of manufacturing and processing require
machine vision systems because of the increasing demands for speed and accuracy.
In high-volume manufacturing processes, the demand for production of quality
products has driven the need for 100% inspection. The identification of defects
in a continuous stream of plywood veneer for wood panel production is the
Company's first such application. However, while machine vision systems have
been successfully used to identify and remove defects in panel production and
other industries, human eyes and hands are typically still used to repair
defects, grade and sort various types of products. Other companies, such as
Cognex Corporation, have and are addressing this need, but must combine their
pattern recognition software and computer hardware with lighting and cameras
provided by other entities. The Company believes that its ability to adapt its
proprietary lighting and cameras gives it an advantage over companies that must
rely on outside suppliers for these key components.
AMV Solutions
The Company seeks to provide its customers with a competitive advantage by
reducing high labor costs, increasing yields and throughput and improving
quality control. The Company's machine vision systems are capable of automated
defect detection and removal and real-time quality analysis. These machine
vision systems use advanced optical inspection technology to help customers
recover more of the good product (higher yield) and remove a higher percentage
of defective product (quality control) than the manual sorting and defect
removal methods historically used by food processors. In the wood panel
production industry, increasing the number of decisions made by machine vision
systems can also result in increased throughput, higher yield and more accurate
grading with fewer line workers. Machine vision systems of the type produced by
AMV can add significant value in environments where raw product is highly
variable by improving the uniformity of finished product.
Machine vision technology used for inspection and control of processes (beyond
defect removal) throughout manufacturing can eliminate adding cost to defective
products, thereby reducing the finished product scrap rate. Machine vision
systems can be used for automated process control to add value and improve
efficiency in highly repetitive processes, such as grading and statistical
collection, that require speed, accuracy and rapid throughput. In addition,
machine vision systems are capable of providing real-time feedback that could
enable manufacturers to rapidly alter or modify production specifications to
achieve a high level of consistent quality not previously achievable. Thus,
automated process control applications present an opportunity for AMV to achieve
higher margins, while achieving substantial cost savings for customers through
the reduction of direct labor and improved product quality.
Strategy
The Company seeks to establish itself as the technological leader and premier
provider of machine vision systems in the markets it serves by adapting its core
competencies in camera, lighting, processing and software to meet customer
needs. The Company believes that the 1996 acquisition of Ventek and continuous
development of vision systems apart from mechanical product handling equipment
can increase gross margins and enable the Company to enter new higher margin
markets. Important elements of the Company's growth strategy include:
* Leverage Expertise in Lighting, Camera, Processing and Software
Technologies: The Company believes its core competitive strength is its
breadth and depth of expertise in optical, lighting, processing and
software technologies. The Company has developed this expertise over a
period of years and continues to expand its capabilities through research
and development. AMV seeks to expand the applications for its technology
and to capitalize on its ability to apply its technology to develop new
products and product enhancements.
* Identify and Target Key Niche Markets: The Company will seek to identify
well-defined, niche markets with the potential of higher per unit profit
margins. The Company believes that it will achieve higher margins where
customers require the full range of its machine vision systems'
capabilities in automated process control as well as in quality control. In
order to gain increased acceptance and market penetration for its machine
vision systems, AMV will continue to focus on forming strategic
relationships with leading companies in its target markets. The Company
believes this method of strategic market penetration to be very effective.
The Company believes that its previous relationship with Union Carbide, the
proposed acquisition of the Company by Key, and current relationships with
FMC Corporation ("FMC") and CAE Machinery, Ltd. and others demonstrate
recognition of the technical advantages of its systems.
* Customize Technology to Meet Customer Needs: AMV designs its products to be
adaptable to individual customer requirements. AMV believes that this
flexibility, particularly in lighting and camera capabilities, gives it a
competitive advantage in being able to respond rapidly to changing needs in
existing and new markets. AMV adapts, customizes and integrates its machine
vision systems to solve customers' particular problems and therefore
satisfy customers' needs.
* Expand Sales and Distribution: The Company intends to expand its regional
sales and service office concept. In 1997, the Company established its
Eindhoven-based European sales and service center. The Company has also
added two sales offices in the Southeastern United States for tobacco and
wood veneer support. The Company may add additional sales offices in the
future. The Company plans to strategically locate these regional sales and
service offices and to equip them, financing permitting, with demonstration
systems to facilitate customers' testing their products on systems similar
to the equipment that they would order from AMV. In 1998, the Company
entered a representative agreement with FMC whereby FMC will act as a sales
representative in many parts of the world.
* Aggressively Pursue Use of Trial Units at Customer Sites: The Company will
seek to place increased numbers of trial units at potential customers'
sites. AMV's experience with trial units has been successful because a
company which has a trial unit machine vision system installed in its
facility will frequently decide to retain and purchase the unit. Trial
units provide potential customers with the opportunity to experience a
reduction in their production cost prior to making the capital commitment
involved in purchasing one or more of the Company's machine vision systems.
* Evaluate and Pursue New Vision Related Products: The Company will seek to
identify technologies and capabilities that enhance its product offerings
and market applications through joint ventures, acquisitions, partnerships
or other business relationships.
Products
AMV currently offers the following products:
Product Industry Applications
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VHS OPTISORT(TM) Food processing, Potato Chips, French Fries,
Plastics recycling Whole Potatoes, Vegetables,
Polyethyl Teraphthalate
Green/Clear
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KROMA-SORT(R) Food processing, Vegetables, Plastic Flake
Plastics recycling
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SPECTRA-SORT(TM) Food processing, Potato Products, Cereals,
Plastics recycling Vegetables
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Prism(TM) Food processing Potato Products, Vegetables,
Other Food Items
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Pulp Wood Sorter Forest industry Wood Chips
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Tobacco Sorter II Tobacco Tobacco, Dry Food Products
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"New Vision" Veneer Plywood Veneer Softwood Veneer Production
Scanning System
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"Sequoia Sentry" Plywood Veneer Softwood Veneer Production
Dryer Control System
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GS2000 Veneer Grading Plywood Veneer Softwood Veneer Production
System
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AMV's machine vision systems utilize lighting, camera and software components,
and housing and structural components made principally of stainless steel. They
are modular in design, which provides flexibility in configuration to allow
adaptability to products of many types of industries. The mechanical design of
these systems is extremely sturdy and conforms to various industry regulations
and standards.
Defect Detection and Removal: The technology used in AMV's machine vision
systems is capable of viewing, discriminating between usable versus defective
pieces in periods ranging from 20 to 60 milliseconds (thousandths of a second),
and removing the defect while the product is traveling at speeds of 500 to 1,200
feet per minute. Initially, the product stream is mono-layered (arranged into a
single layer) by a vibrating infeed conveyor belt, and fed onto the main
conveyor by a steep infeed chute. The chute accelerates the product to separate
product units in the flow direction. Mono-layering and creating a sufficient
space between each piece of product inspected, such as individual raisins,
facilitate rapid, accurate analysis by AMV's image processing hardware and
software.
Once separated, product is moved through the system by the high-speed main belt
conveyor. Customers select the belt color to provide a sharp contrast with the
product being sorted. Lighting is selected to maximize the difference in the
images reflected by acceptable and defective pieces of product. Intense,
specially conditioned fluorescent or exotic gas discharge-produced light
illuminates the product beneath AMV's high-speed line-scan camera. High-speed
imaging in the camera module stores and compares light levels reflected by each
piece of product. Levels that fall within discrimination windows selected by the
operator are considered defects.
During the scanning and analysis, the system processor monitors the conveyor
belt position of each defective piece and tracks it through the short distance
to the downstream end of the main conveyor. The distance between the point at
which the camera detects the moving product and the point at which the jet of
air expels the defective piece ranges from two to 25 inches. Just as each
defective piece is leaving the main conveyor, a short jet of air is released
from one or more of the finely tuned ejectors. This jet of air rapidly changes
the paths of the defective pieces downward so that they miss the main outfeed
chute. Accepts are unaffected, pass across the gap to be gently decelerated on
the outfeed chute, and then travel on to downstream processing equipment.
AMV's machine vision systems allow the customer to establish basic sorting
criteria prior to running the system and are easily fine-tuned for day-to-day
changes in product characteristics and light levels.
Markets, Customers and Applications
While comprehensive data regarding the Company's markets is limited, the
Automated Imaging Association estimated the North American machine vision market
to be about $1.3 billion in 1998. The Company believes the worldwide market is
significantly larger.
To further its growth strategy, the Company is actively pursuing expansion in
both its current markets and by identifying and entering into new niche markets
(i.e., markets that are well defined and have the potential for higher profit
margins and in which there is little competition). At the same time, AMV engages
in continuous modifications of its lighting, camera, processing and software
technologies to adapt them for new applications. Until recently, the Company
marketed its machine vision systems primarily for quality control in sorting
applications. However, the Company believes that many additional applications
for its machine vision systems exist in both food and non-food markets,
particularly in the area of automated process control. The Company believes its
ability to respond to customers' needs in niche markets by customizing,
developing and integrating its core technology will allow it to penetrate these
markets.
Food: The Company's largest market is the food processing industry. Within food
processing, the largest market sectors for the Company's products have been
potatoes (principally french fries), vegetables and snack foods. The Company has
also penetrated fruits, cereals and confections, as well as a variety of other
market sectors. Customers in the food industry include McCain, Lamb Weston, Del
Monte Foods, PepsiCo, Inc. (Frito-Lay, Inc.) and Hershey Chocolate USA.
AMV's systems are used by fruit and vegetable processors where field-harvested
products are cleaned, graded, automatically sorted, blanched and processed prior
to freezing, canning or packaging for sale to institutional and retail markets.
Principal fruit and vegetable market sectors for the Company are potato
products, green beans, peas, corn, carrots, onions, raisins and peaches. The
Company's prospects for sales in the vegetable and fruit industry benefit from
its proprietary color automated defect removal systems, since defect detection
in most fruit and vegetable applications requires color analysis. In contrast,
the potato industry has been able to achieve effective detection of good and bad
product using black and white optical scanning technology.
Snack food processors use AMV's machine vision systems in a variety of
applications. Candy manufacturers scan product to remove partially wrapped
pieces. Potato chip manufacturers use AMV's vision capabilities to ensure
consistent color and quality.
Tobacco: AMV's machine vision systems provide tobacco companies sorting
capability to remove impurities and foreign matter from a stream of raw tobacco.
AMV has sold systems to leading U. S. and international tobacco companies,
particularly in Japan. AMV believes market growth for tobacco systems shows
great promise based upon the high degree of acceptance demonstrated by its
customers and the significant size of the worldwide tobacco processing market.
The Company utilizes the services of several manufacturers and sellers of
tobacco processing machinery systems worldwide, whereby such entities represent
AMV on a non-exclusive basis in all areas of the world outside of North America
and Japan.
Plywood Veneer: The Company has targeted the need for detecting and eliminating
defects (edge cuts, knots and dark color) from the peeled ribbon of veneer used
in wood panel production for the plywood market. Since its introduction in 1994,
the Company's New Vision veneer scanning system has gained wide acceptance in
the North American plywood industry. The Company believes that it has placed
systems in approximately 85% of the North American softwood veneer production
lines, but has not yet penetrated foreign markets to any significant extent with
only eleven systems sold outside of North America.
The New Vision veneer scanning machine vision system allows identification of
open voids, wane and closed defects in a fast-moving stream of wood veneer used
in plywood production just after a log is peeled. After defect identification,
the New Vision instructs a clipper (manufactured by another company) to cut the
veneer immediately before and after the defect. The New Vision reduces the
amount of good wood attached to the defect and ensures complete defect
identification at the beginning of the plywood production process, which
decreases the number of downgraded panels, increases dryer efficiency by
eliminating material that ultimately becomes dry waste and reduces re-clipping
of previously undetected defects. The savings provided by the New Vision system
in the form of higher portions of good wood recovered create significant added
value for customers. Major customers include Georgia-Pacific, Boise Cascade,
Champion International and Columbia Forest Products.
The Company believes that its market share in green veneer scanning reflects the
level of confidence that customers have for the reliability and performance of
its products. However, green veneer scanning or initial inspection of the veneer
represents only one point in the wood vertical panel production market. There
are approximately eight other potential defect detection applications in both
the green and dry (i.e., after the veneer has been dried before lay-up and
lamination) veneer processing. In addition, the Company believes that further
market potential exists in grading and matching of hardwood and furniture-grade
veneers. Thus, existing and potential new customers who process wood at other
steps in the multi-step panel production process are an untapped market for the
Company's machine vision systems. For example, in 1998 the Company introduced
its Sequoia Sentry veneer dryer control system that measures moisture in veneer
exiting the dryer to determine if additional time in the dryer is necessary. In
1999, the Company introduced its GS2000 veneer grading system that enables a
more consistent grading of panels than human inspection. The Company will seek
to leverage Ventek's brand name recognition in green veneer scanning to reach
customers at multiple points in the vertical market for wood panel production so
that existing and new customers can benefit from the full range of the Company's
technological capabilities.
Forest Products: The pulp wood industry is beginning to recognize the benefits
of using machine vision to separate contaminants in pulp wood. Heavy duty AMV
machine vision systems, such as the Pulp Wood Sorter, have been developed to
sort bark, rot and other undesirable wood parts from high quality wood chips
used in making paper. The sorter is able to identify bark, rot and trash and
automatically remove unwanted material from a fast-moving, continuous stream of
wood chips. As a result, high value chips can be economically recovered from
lower quality and formerly unusable limbs and small trees. After sorting for
bark and darker content, the wood chips command a higher market price because
they require less chemical processing in the manufacture of paper products. CAE
Machinery, Ltd. is the Company's exclusive distributor of the Pulp Wood Sorter
in North America.
Based on interest from major pulp producers, AMV believes that a large potential
market for this process exists worldwide. Other potential applications for AMV
machine vision systems for the forest products industry include inspection and
grading for finished lumber and reclamation of wood yard wastes.
Plastics Recycling: Because different types of plastics used in consumer
products have different characteristics, they must be separated prior to use in
recycled products. AMV's proprietary lighting and camera technologies take
advantage of different reflective properties of these plastics to enable
producers of recycled plastics to accurately separate valuable materials that
could otherwise be wasted. Plastics used in recycled plastics products include
PET (polyethyl teraphthalate) used for transparent soda bottles, NHDPE (natural
high-density polyethylene) used for translucent milk and other fluid bottles,
and colored HDPE used for a variety of opaque, colored bottles, such as those
used for motor oil and dishwashing detergent. Another type of plastic, PVC
(polyvinyl chloride), has melting characteristics different from PET or HDPE.
AMV has developed technologies that (i) separate plastics by melting point,
which is necessary to ensure purity of the recycled material and to prevent
costly shut-downs of equipment used by recyclers in the processes, and (ii)
separate plastics by color, which is vital to the remarketing of the recycled
material. Customers in the plastics recycling market include Union Carbide, Inc.
and Wellman Industries.
Worldwide demand for plastics drives the need for AMV's machine vision systems
in the recycling business. Key factors that may impact the demand for recycled
plastics are the cost for virgin plastics and recycling regulations. If the
price of petroleum products and virgin plastics increases in the future, the
demand for recycled plastics may increase. Management of worldwide petroleum
supplies (e.g., foreign country production cutbacks) may also lead to increased
U. S. and foreign government regulations regarding the use of recycled plastics.
If the demand for recycled plastics products increases due to price or
regulations, demand for the Company's machine vision sorting systems may also
rise. However, there can be no assurance that the use of recycled plastics will
reach a level that would create an opportunity for the Company to increase sales
of systems to that market.
Technology, Engineering and Research and Development
Technology
Lighting: AMV has developed a number of proprietary technologies that form the
foundation of its vision systems, particularly in the areas of lighting and
cameras. The performance of machine vision systems is analogous to human vision
insofar as the ability to see is only as good as the lighting and optics permit.
However, machine vision performance can be optimized through the use of
specialized lighting to improve the contrast between one part of an object and
another part of the same object, with the two parts having differing reflection
properties. AMV has developed proprietary lighting technology to enhance the
contrast discrimination for objects that have nearly identical visual properties
in the visible light range. AMV's proprietary lighting systems are manufactured
in-house.
Optimizing the performance of a machine vision system requires an understanding
of the spectral characteristics of the object being analyzed. This means that
the reflective properties of the object must be characterized as a function of
the varying color of light (i.e. wavelength of light) by which it is
illuminated. This process of characterizing the reflection of the object as a
function of the wavelength of light is called spectral analysis or spectroscopy.
AMV's spectroscopy laboratory is fully equipped to measure the reflective
properties of customer products with lighting that ranges from ultraviolet (UV)
to infrared (IR). This ability to determine the spectral characteristics of an
object allows AMV to eliminate trial and error approaches to lighting and camera
configurations and, therefore, ensures optimal visual discrimination capability
of AMV vision systems. To better serve its customers, AMV has developed a
portable spectrometer that can be taken into the field for applications where
measurements must be made on location due to the mutability or perishability of
the customer's product.
Cameras: Machine vision systems that have full color perception capability are
limited by the camera's ability to represent true color. True color means that
the color seen by both the human observer and the machine vision system's camera
must result in the same interpretation. The Company's full color cameras use
three fundamental colors: red, green and blue (RGB). The best color
representation can be achieved when each of the R, G, and B sensor elements
(i.e. pixels) are optically coincident. This means that when the RGB camera is
looking at a specific point on an object, all three (RGB) sensor arrays (charged
couple devices, or "CCD's") have corresponding R, G & B pixels looking at the
same spot. Color accuracy and, therefore, performance depends on the ability of
its camera to accurately align the RGB CCD's. SRC has a patented alignment
process for building its commercial full color line-scan cameras.
Processing: An accurate interpretation of images created using lighting and
cameras depends on the image processing capabilities of the rest of the machine
vision system. Real-time image processing is accomplished by high-speed
electronic signal processors (hardware) and detection algorithms (software).
Successive generations of AMV vision systems have grown from
pan-chromatic/gray-scale systems to full color vision. The current generation
product makes extensive use of DSP (digital signal processor) chips that allow
commonality within the machine with very high throughput performance and highly
flexible functional expansion capability.
The Company's current generation processor, the Advanced Vision Platform
("AVP"), has been designed so that it can be kept current with only minor design
changes and upgrades. This allows the bulk of ongoing engineering efforts to
concentrate on value-added engineering. AVP is a combination of a Windows NT
5.0/Intel Pentium 2 base and a "super-pipelined" sorter engine. This industry
standard platform allows us to make easy upgrades to new technology (Pentium 3,
off-the-shelf communication cards, Windows 2000, etc.). The "super-pipelined"
sorter allows the Company to concentrate significant computational speed in the
sorter engine. The three-inch by five-inch cards that make up the individual
stages of the pipeline sorter enable fast and inexpensive upgrades to
incorporate new technology, allow field upgrades to new hardware and give AMV
the flexibility to expand the pipeline where needed for a specific customer
application.
AVP, in its current configuration, has eight times the color recognition
capability of its predecessor, while simultaneously running faster cameras and
more sophisticated sort algorithms, and will allow the opportunity to provide
shape recognition. The flexible pipeline architecture allows AMV to expand any
subsection of the pipeline that requires additional power to meet specific
needs.
Software: High-speed vision requires efficient software algorithms. AMV
maintains a software group that develops specialized proprietary detection
algorithms to achieve real-time signal processing. Multiple generations of
detection algorithms have resulted in continual refinement of image processing
capability. This in-house software resource is also responsible for the creation
of user-friendly Graphics User Interfaces (GUI) that make AMV products easy to
learn, use and maintain. This enables workers in a customer's production process
to achieve the benefits of AMV's systems without extensive and time-consuming
training.
Research and Development
The Company anticipates research and development expenditures in 2000 will
approximate the amount incurred in 1999. Some of the more significant research
and development projects undertaken in recent years were the development of an
application-specific tobacco machine vision system for sorting, and processing
enhancements for existing and new systems. Further research and development
efforts are expected to flow from these activities, including faster cameras, a
more cost-effective material handling system and enhanced lighting.
AMV's research and development group conducts new product research and
development, provides support engineering for released products and project
engineering for custom systems. The R&D group includes electronic, mechanical
and software engineers, mathematicians and technical support personnel. Ongoing
development activities include improvements to current products and development
of new products. The Company provides engineering support for products in all of
its locations.
AMV's research and development expenses, of which greater than 95% relate to new
products or new applications, have been as follows:
Fiscal year ended December 31, 1997................... $ 3,950,000
Fiscal year ended December 31, 1998................... $ 5,024,000
Fiscal year ended December 31, 1999................... $ 4,758,000
Marketing and Sales
A principal AMV marketing strategy is to determine which new niche market or
application to pursue, and to form a strategic relationship with a leading
company in that market. AMV's objective in such an alliance is (i) to interest
the leader in purchasing AMV's machine vision systems, which may lead to further
sales to other companies in the field that follow industry trends, and (ii) to
obtain the benefit of direct customer input and participation during the product
design phase of adapting the AMV system to the new market or application. AMV
has identified new niche market opportunities for application of its machine
vision technology initially in each of its food, pulp wood, tobacco and plastics
for recycling markets.
Focused Customer Strategy: In recent years, the Company has established certain
contractual and non-contractual relationships with existing customers, potential
customers, representatives, distributors and others. The purpose of this focused
customer strategy is to access such customers' knowledge and contacts within the
applicable industries to identify customer needs and expand sales. Relationships
entered into since 1994 include the following:
<TABLE>
<CAPTION>
Name and/or Potential
Type of Company Industry Application Description of Relationship
- --------------- -------- ----------- ---------------------------
<S> <C> <C> <C>
1. FMC Corporation Food Fruit and vegetable An exclusive and non-exclusive sales
sorting representative agreement for the sale
of machine vision systems to the food
industry in many areas of the world.
2. CAE Machinery, Ltd. Pulp wood Wood chip sorting AMV seeks to capitalize on the
(major supplier to the reputation of CAE in the
North American wood technologically conservative forest
products industry) products industry in North America to
speed the adoption of machine vision
sorting technology by that industry.
3. Columbia Forest Wood veneer Further automation Agreement to mutually explore further
Products of veneer processing automation of hardwood plywood
manufacturing processes.
4. Boise Cascade Wood veneer Further automation Agreement to develop dryer temperature
of veneer processing control and moisture detection for
dried veneer panels.
5. COMAS, S.p.A. Tobacco Tobacco sorting COMAS contributes market access as
(manufacturer of well as extensive product handling
tobacco processing experience for improving AMV sorter
equipment designs to accelerate market
penetration with better performing
machines.
6. Union Carbide Plastics Recycling whole Processing of post-consumer colored
recycling bottles and plastic HDPE (high-density polyethylene used
flakes for translucent milk and other fluid
bottles) to create PRISMA(TM)standard
plastics (PRISMA(TM) is a set of color
standards that allows for manufacture
of consistently colored HDPE containers
which require certain portions of post-
consumer material).
</TABLE>
The Company believes that adapting current AMV machine vision systems for new
applications through strategic relationships such as these will contribute to
base business growth and accelerate entry into new niche markets.
Sales and Distribution: AMV has a direct sales force of nine employees. It also
markets its products through representatives pursuant to various agreements
covering different geographical areas. Prior to September 30, 1996, AMV offered
its products for sale outside the United States and Canada through Ham & Hak
Engineering BV and its Foodectronics subsidiary. On September 30, 1996, SRC and
Ham & Hak terminated their ten-year exclusive distribution contract. In June
1997, the Company established SRC VISION BV in Eindhoven, The Netherlands, as
its sales and service center in Europe. In 1998, the Company entered a
representation agreement with FMC to sell machine vision systems to the food
industry in many areas of the world.
Marketing Through Trial Units: AMV occasionally enters into Site Lease
Agreements with potential customers that provide for a trial period (generally
from two to four months, but in some cases, up to one year) for the customer to
test a system. The potential customer pays a monthly rental fee for the trial
units, which is then credited against the purchase price when the customer
purchases the system. Due to the high success rate in customer sales resulting
from the use of these trial units as a marketing tool, the Company intends to
seek to increase the placement of trial units in new potential customer sites.
International Sales: International sales (i.e., sales outside the United States)
for the years ended December 31, 1999, 1998 and 1997 accounted for 41%, 33% and
33% of net sales, respectively. Foreign sales are primarily denominated in U. S.
dollars, or, in some cases, Dutch guilders.
Backlog
AMV's backlog for its products was approximately $2,482,000 at December 31,
1999, as compared to $2,457,000 at December 31, 1998. Shipment of all the
backlog orders is scheduled to take place within nine months. Backlog includes
only those orders for which a purchase order has been received and for which a
delivery schedule has been established by AMV. However, such orders can be
subject to cancellation by the customer. Because of the timing of orders,
customer changes in delivery schedule, cancellation of orders and trial period
programs that are not included in backlog, backlog as of any particular date may
not be representative of AMV's actual sales for any succeeding fiscal period.
Manufacturing and Supplies
The Company manufactures, assembles and ships its products from its facilities
in Medford and Eugene, Oregon. The Company's Medford facility has a vertically
integrated manufacturing process, beginning with sheets and bars of stainless
steel that are cut and configured, then welded to the Company's specifications
for its components and machines. The Medford operation also manufactures or
assembles many of the components and subassemblies used in its machines, such as
the processing unit, air jet expulsion component, frames and related systems.
Additionally, all proprietary components are manufactured by AMV in Medford,
such as its RGB Cyclops(TM) color cameras used for optical scanning in the
KROMA-SORT(R) systems, and various lights and lamps developed by the Company for
certain of the systems. The Company's Ventek (Eugene) operation integrates
hardware components manufactured by outside suppliers. The Company's machine
vision systems incorporate its proprietary software and algorithms. Basic system
assembly is relatively consistent among product models using similarly
fabricated parts for the machine structure. Most systems are customized as to
number of cameras, lighting configurations and certain other features.
The Company has a computerized manufacturing inventory control system that
integrates and monitors purchasing, inventory control and production. Each
vision system is tested prior to delivery to a customer. The Company's quality
control process tests for reliability and conformance with product
specifications.
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 and lenses
required in RGB Cyclops(TM) color cameras are obtained from a single source
supplier. 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. 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.
Warranty and Customer Service
AMV generally provides a one-year limited warranty on its products. Since 1994,
there have not been any claims under AMV's warranty program that materially
affected AMV's operations. AMV also provides telephone customer support services
and offers annual service agreements.
In addition, for certain custom-designed systems, the Company contracts to meet
certain performance specifications for specific applications. The Company has
incurred higher warranty expenses related to new products, especially on
products that have not yet been proven to be commercially viable, than it
typically incurs with established products. There can be no assurance that the
Company will not incur substantial warranty expenses in the future related to
new products as well as established products, which may have an adverse effect
on its results of operations and customer relationships.
Competition
The vision automation system industry is subject to intense competition. Some of
AMV's major competitors are substantially larger in size and have greater
financial resources than AMV. Some of its competitors sell machines that are
less expensive than AMV's. In some instances, a potential customer may select
the less expensive alternative even though the AMV system provides greater
sorting capability. Currently, Key, Pulsarr and Elbicon (owned by Barco NV of
Belgium), Sortex/Buhler Allen Machinery, ESM/Satake, Oldenburg, Morvue
Electronics and Coe International are believed to be AMV's direct competitors.
There may be other competitors of AMV in addition to the ones listed above. AMV
competes with its competitors on the basis of quality, technology, systems
solutions and price. There can be no assurance that AMV will continue to
successfully differentiate its products from those of its competitors.
Patents and Trademarks
AMV has been issued or assigned approximately 28 United States patents, and has
applied for five other United States patents relating to its products, including
various inspection and detection systems. In addition, AMV has obtained or has
applied for patent protection for certain of these systems in selected foreign
countries. AMV believes that two of these patents, a system for stabilizing
articles on a conveyor and an RGB camera, are important to its business. These
two patents expire in March 2011 and September 2008, respectively. Other than
the two patents described in the previous sentence, AMV does not consider any of
the present patents significant to its current operations. These patents expire
at various times over a six-year period commencing in April 2005. Additionally,
SRC has nine trademarks: VHS OPTISORT(TM), KROMA-SORT(R), SPECTRA-SORT(TM),
Length and Defect Analyzer(TM), Optical Woodchip Sorter, Quadra-View(R), ODSS
II(TM), SRC VISION(R), Tobacco Sorter(TM) and others.
The Company also attempts to protect its trade secrets and other proprietary
information through proprietary information agreements with employees and
consultants and other security measures. There can be no assurance that these
measures will be successful in protecting the Company's proprietary rights. The
laws of certain countries in which the Company's products are or may be
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
There can be no assurance that third parties will not assert infringement of
other claims against the Company with respect to existing or future products or
that licenses will be available on reasonable terms, or at all, with respect to
Company patents or any third-party technology. Litigation to prevent
infringement of Company patents or to determine the validity of any third-party
claims could result in significant expense to the Company and divert the efforts
of the Company's technical and management personnel, whether or not such
litigation is determined in favor of the Company. The Company is not aware of
any threatened or pending patent actions other than that of the Lemelson
Medical, Educational and Research Foundation, Limited Partnership ("Lemelson")
described in Item 3 below.
Employees
At December 31, 1999, the Company had 182 full-time employees, including 63 in
manufacturing, 40 in engineering, research and development, 51 in marketing,
sales and service and 28 in general administration and finance. None of the
Company's employees is represented by a labor union. The Company considers its
employee relations to be excellent.
Item 2. Properties
- --------------------------------------------------------------------------------
AMV corporate offices occupy approximately 2,600 square feet of rented space in
Medford, Oregon pursuant to a three-year lease expiring in 2001. The lease is
renewable.
The principal executive office and manufacturing facilities of SRC (a total of
approximately 82,000 square feet) are located on an approximately 6.4 acre
parcel of land in Medford, Oregon. SRC owns the land and building, subject to a
deed of trust securing an approximately $3 million loan made by Bank of American
National Trust and Savings Association ("BofA"). The loan bears interest at 8.3%
and is due May 1, 2008. SRC also owns 3.4 acres of land adjacent to its facility
for possible future expansion.
Ventek occupies approximately 12,000 square feet of a building in Pioneer
Business Park located in Eugene, Oregon that also houses a principal supplier of
mechanical components for its vision systems. The space is leased at a monthly
base rent of $6,610 pursuant to a three-year agreement, with the right to extend
the term an additional two years.
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
Numerous users of the Company's products have received notice of patent
infringement from Lemelson alleging that their use of the Company's products
infringes certain patents transferred to Lemelson by the late Jerome H.
Lemelson. Certain of these users have notified the Company that, in the event it
is subsequently determined that their use of the Company's products infringes
any of Lemelson's patents, they may seek indemnification from the Company for
damages or expenses resulting from this matter.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
None.
<PAGE>
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
The Company's Common Stock has been quoted on the Nasdaq Stock Market since
March 10, 1992. The symbol is AMVC.
Common Stock Market Price
Per Share of Class A Common Stock:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended 1999 March 31 June 30 Sept. 30 Dec. 31
- ------------------ ------------- ------------- ------------- -----------
High $ 1.25 $ 1.44 $ 1.28 $ 1.19
Low 0.97 0.94 1.09 0.75
Quarter Ended 1998 March 31 June 30 Sept. 30 Dec. 31
- ------------------ ------------- ------------- ------------- -----------
High $ 2.34 $ 2.38 $ 2.16 $ 1.56
Low 1.78 1.81 1.50 1.06
</TABLE>
On December 31, 1999, there were 140 record owners of the Company's Common
Stock. The majority of outstanding shares of Common Stock are held of record by
a nominee holder on behalf of an unknown number of ultimate beneficial owners.
The Company believes that the total number of beneficial owners of its common
shares was approximately 2,300.
The Company has not declared or paid any cash dividends upon its common stock
since its inception. The Company does not anticipate paying any cash dividends
in the foreseeable future. It is anticipated that earnings, if any, that may be
generated from operations will be used to finance the operations of the Company.
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------
The selected financial data for the Company presented below is derived from the
Company's audited financial statements included in Items 7 and 8 below. In
October 1995, the Company sold its laser operations. The laser operations have
been treated as a discontinued business in the selected financial data.
In February 1994, the Company acquired SRC. In March and July of 1996, the
Company acquired Pulsarr and Ventek, respectively. In May 1997, the Company sold
Pulsarr. Purchased entity operations account for a large portion of the
fluctuation in amounts between fiscal years. Selected financial data should be
read in light of these facts and in conjunction with the financial statements,
notes to financial statements and other financial information included in Items
7 and 8.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 24,312,000 $ 27,041,000 $ 31,974,000 $ 29,938,000 $ 19,394,000
Cost of sales 12,212,000 12,585,000 16,042,000 15,794,000 11,194,000
------------ ------------ ------------ ------------ ------------
Gross profit 12,100,000 14,456,000 15,932,000 14,144,000 8,200,000
Operating expenses 14,617,000 13,894,000 12,914,000 12,882,000 7,546,000
Charge for acquired in-process technology -- -- -- 4,915,000 --
Charge for royalty expense -- -- -- 647,000 --
Gain on sale of Pulsarr -- -- 4,989,000 -- --
Interest and other (expense)-net (378,000) (403,000) (892,000) (960,000) 461,000
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations (2,895,000) 159,000 7,115,000 (5,260,000) 1,115,000
Loss from discontinued operations -- -- -- -- (173,000)
Provision for (benefit from) income taxes -- (2,083,000) 99,000 -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (2,895,000) $ 2,242,000 $ 7,016,000 $ (5,260,000) $ 942,000
============ ============ ============ ============ ============
Basic earnings (loss) per share:
Continuing operations $ (0.24) $ 0.21 $ 0.64 $ (0.49) $ 0.12
Discontinued operations -- -- -- -- (0.02)
------------ ------------ ------------ ------------ ------------
Total $ (0.24) $ 0.21 $ 0.64 $ (0.49) $ 0.10
============ ============ ============ ============ ============
Diluted earnings (loss) per share:
Continuing operations $ (0.24) $ 0.18 $ 0.49 $ (0.49) $ 0.11
Discontinued operations -- -- -- -- (0.02)
------------ ------------ ------------ ------------ ------------
Total $ (0.24) $ 0.18 $ 0.49 $ (0.49) $ 0.09
============ ============ ============ ============ ============
Weighted average number of common
stock outstanding 12,639,000 10,717,000 11,202,000 10,704,000 9,451,000
Balance Sheet Data:
Current assets $ 16,965,000 $ 17,231,000 $ 14,075,000 $ 15,411,000 $ 10,391,000
Current liabilities 6,024,000 5,131,000 4,942,000 9,498,000 3,501,000
Working capital 10,941,000 12,100,000 9,133,000 5,913,000 6,890,000
Total assets 28,020,000 29,839,000 25,235,000 30,938,000 17,628,000
Long-term debt 6,294,000 7,862,000 8,342,000 14,940,000 4,875,000
Mandatorily redeemable preferred stock 2,579,000 2,579,000 -- -- --
Total non-redeemable shareholders' equity 13,123,000 14,267,000 11,951,000 6,500,000 9,252,000
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Introduction
The Company acquired Pulsarr and Ventek in 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,
----------------------------------------------------------------------------
1999 1998 1997
------ ------ ------
Amount % Amount % Amount %
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 24,312 100.0% $ 27,041 100.0% $ 31,974 100.0%
Cost of sales 12,212 50.2% 12,585 46.5% 16,042 50.2%
-------- ----- -------- ----- -------- -----
Gross profit 12,100 49.8% 14,456 53.5% 15,932 49.8%
-------- ----- -------- ----- -------- -----
Operating expenses:
Selling and marketing 5,948 24.5% 4,762 17.6% 4,930 15.4%
Research and development 4,758 19.6% 5,024 18.6% 3,950 12.4%
General and administrative 3,191 13.1% 3,413 12.6% 3,303 10.3%
Goodwill amortization 720 3.0% 695 2.6% 731 2.3%
-------- ----- -------- ----- -------- -----
14,617 60.1% 13,894 51.4% 12,914 40.4%
-------- ----- -------- ----- -------- -----
Income (loss) before other income
and expense (2,517) (10.4)% 562 2.1% 3,018 9.4%
Gain on sale of Pulsarr -- -- -- -- 4,989 15.6%
Investment and other income 191 0.8% 286 1.1% 371 1.2%
Interest expense (569) (2.3)% (689) (2.5)% (1,263) (4.0)%
-------- ----- -------- ----- -------- -----
Income (loss) before income taxes (2,895) (11.9)% 159 0.6% 7,115 22.3%
Provision for (benefit from) income
taxes -- -- (2,083) (7.7)% 99 (0.3)%
-------- ----- -------- ----- -------- -----
Net income (loss) $ (2,895) (11.9)% $ 2,242 8.3% $ 7,016 21.9%
======== ===== ======== ===== ======== =====
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Sales for 1999 were $24,312,000, down 10% when compared to sales for 1998 of
$27,041,000. The decrease in sales in 1999 resulted primarily from an 18%
decrease, or $2,548,000 to $11,733,000, in sales of food machine vision systems.
Sales of non-food machine vision systems decreased by 1%, or $181,000 to
$12,579,000.
Cost of sales was 50.2% of sales in 1999 and 46.5% in 1998.
Gross profit decreased by 16% to $12,100,000 in 1999 when compared to
$14,456,000 of gross profit in 1998. In 1999, gross profit was 49.8%, as
compared to 53.5% 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 were
higher due to 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 profit as a percentage of sales.
Selling and marketing expenses increased $1,186,000 in 1999 to $5,948,000 when
compared to $4,762,000 in 1998. 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 $4,758,000 and $5,024,000 in 1999 and
1998, or 19.6% and 18.6% of sales, respectively. The increase in research and
development expenses as a percentage of sales is due to the inability to spread
the fixed research and development costs over a smaller sales base.
General and administrative expenses decreased $222,000 to $3,191,000 in 1999
from $3,413,000 in 1998. The decrease is due principally to costs associated
with a 1998 project of reevaluating the financial and operational processes and
procedures at SRC in anticipation of possible future growth of SRC's business.
General and administrative expenses do not include any of these costs in 1999.
The decrease in investment and other income is the result of lower cash balances
available for investment during most of the year.
The decrease in interest expense is primarily due to lower outstanding debt
balances in 1999.
The net loss for 1999 was $2,895,000 as compared to net income of $2,242,000 in
1998. Net income in 1998 includes a benefit from deferred income taxes of
$2,100,000.
Fiscal 1998 Compared to Fiscal 1997
Sales for 1998 were $27,041,000, down 15% when compared to sales for 1997 of
$31,974,000. Sales of non-food machine vision systems decreased 15% or
$2,164,000 to $12,760,000. Sales of food machine vision systems decreased 16% or
$2,769,000 to $14,281,000. Pulsarr sales, which were comprised entirely of food
machine vision systems, aggregated $2,558,000 in 1997 and represent the primary
cause for the decrease in sales of food machine vision systems.
Cost of sales was 46.5% of sales in 1998 and 50.2% in 1997.
Gross profit decreased by 9% to $14,456,000 in 1998 when compared to $15,932,000
of gross profit in 1997. In 1998, gross profit was 53.5%, as compared to 49.8%
in 1997. The increase in gross profit as a percentage of sales in 1998 as
compared to 1997 is primarily related to the exclusion of the lower-margin
Pulsarr products as well as a change in sales mix to higher-margin products.
Selling and marketing expenses decreased $168,000 in 1998 to $4,762,000 when
compared to $4,930,000 in 1997. Selling and marketing expenses in 1997 included
$260,000 relating to Pulsarr as compared to none in 1998. This decrease was
partially offset by increased sales and service personnel at both SRC and
Ventek.
Research and development expenses were $5,024,000 and $3,950,000 in 1998 and
1997, or 18.6% and 12.4% of sales, respectively. Research and development
expenses in 1997 included $178,000 relating to Pulsarr as compared to none in
1998. The increased expenses were incurred to accelerate completion of the
Company's next generation of food sorter and vision system processor, as well as
to develop new products for the processing of softwood veneer.
General and administrative expenses increased $110,000 to $3,413,000 in 1998
from $3,303,000 in 1997. General and administrative expenses in 1997 included
$343,000 relating to Pulsarr as compared to none in 1998. The increase is
primarily the result of costs associated with a project of reevaluating the
financial and operational processes and procedures in preparation for possible
future growth in business, as well as an increase in personnel costs.
The decrease in goodwill amortization is due to the exclusion of goodwill
related to Pulsarr in 1998 as compared to 1997.
The decrease in investment and other income is the result of lower cash balances
available for investment.
The decrease in interest expense is primarily due to lower debt balances
outstanding. Additionally, interest expense in 1997 included $233,000 of
deferred debt issuance costs written off as the result of the early repayment of
$2,500,000 of convertible notes payable.
The benefit from income taxes of $2,083,000 is composed of a benefit from
deferred income taxes of $2,100,000 to recognize a deferred tax asset, partially
offset by a provision for current income taxes of $17,000 due pursuant to the
Alternative Minimum Tax rules of the Internal Revenue Code. The Company has
assessed its past earnings history and trends, budgeted sales and the expiration
dates of carry-forwards and determined that it is more likely than not that
$2,100,000 of the deferred tax asset will be realized. A valuation allowance is
maintained against the remaining deferred tax asset. The valuation allowance
increased $1,058,000 in 1999. The increase occurred as a result of management's
assessment of the asset's ultimate realizability.
Net income for 1998 was $2,242,000 as compared to $7,016,000 in 1997. Net income
for 1998 includes a benefit from deferred taxes of $2,100,000, while net income
for 1997 includes a gain on the sale of Pulsarr of $4,989,000 and a charge
relating to the write-off of deferred debt issuance costs. Income before special
items was $142,000 for 1998 compared to $2,260,000 for 1997 as a result of the
factors described above.
Liquidity and Capital Resources
The Company's cash balance and working capital was $5,889,000 and $10,941,000,
respectively, at December 31, 1999 compared to $4,423,000 and $12,100,000,
respectively, at December 31, 1998. The Company's debt-to-equity ratio was .53
at December 31, 1999 and .51 at December 31, 1998.
During 1999, net cash provided by operating activities totaled $693,000 compared
to cash used in operating activities of $3,109,000 in 1998 and cash provided by
operating activities of $3,797,000 in 1997. The change in accounts receivable
generated cash of $2,472,000 in 1999 and used cash of $1,363,000 in 1998, and
resulted primarily from the granting of longer payment terms to one customer in
1998. The balance owed from this customer as of December 31, 1998 was entirely
collected in 1999. Operating activities utilized $1,020,000, $2,199,000 and
$499,000 in 1999, 1998 and 1997, respectively, in cash to fund an increase in
inventories. A decrease in prepaid expenses and other assets provided cash of
$699,000 in 1999 as compared to increases in prepaid expenses and other assets
that used cash of $760,000 and $186,000 in 1998 and 1997, respectively.
Reductions in accounts payable, accrued liabilities, accrued payroll and
warranty reserve, partially offset by an increase in customer deposits, used
cash of $113,000 and $539,000 in 1999 and 1998, respectively.
Cash used in investment activities totaled $438,000 in 1999 compared to cash
used in investment activities of $1,383,000 in 1998 and cash provided by
investment activities of $5,996,000 in 1997. Cash resources of $438,000,
$1,383,000 and $1,014,000 were used to acquire property and equipment in 1999,
1998 and 1997, respectively. The Company has no material commitments for capital
expenditures at December 31, 1999.
Cash provided by financing activities totaled $1,211,000 in 1999 as compared to
cash provided by financing activities of $2,870,000 in 1998 and cash used by
financing activities of $5,657,000 in 1997. In November 1999, the Company
completely drew down its $2,000,000 line of credit. In February 1999, an
agreement was reached with the former owners of Ventek pursuant to which the
Company prepaid $750,000 of debt that would have otherwise been due on July 23,
1999, and issued 1,800,000 shares of restricted Common Stock in prepayment of
another note. The maturity date of the remaining $2,500,000 was changed to July
23, 2000. A second extension, until July 23, 2001, of the $2,500,000 debt was
obtained in December 1999 (see Note 6). In 1998, the Company received net
proceeds of $2,579,000 from the sale of preferred stock to FMC Corporation, and
in April, refinanced its 9.75% $2,680,000 mortgage with a new 8.3% $3,000,000
mortgage. In 1997, cash generated from operations and the sale of Pulsarr was
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
Common Stock for $1,962,000 in August 1997.
Due to operating losses incurred in 1999, the Company was in violation of a cash
flow covenant with respect to the $2,000,000 line of credit and the $3,000,000
mortgage note as of December 31, 1999. The bank waived compliance with the
covenant for the line of credit subject to the Company's amending the line to
secure future borrowings with cash instruments satisfactory to the bank. In
February 2000, the amendment was executed and the $2,000,000 previously borrowed
was paid off. The bank also waived compliance with the covenant for the mortgage
note.
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.
Inflation
The Company has not been materially affected by general inflation.
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.
* 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.
* The planned merger with Key Technology, Inc.
* 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
$3.4 million due in 2001. 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 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. While some of these systems have been converted to
sales, ultimate success will depend upon completion of product development and
further 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. Information
prepared by the Automated Imaging Association indicates that the North American
machine vision market was approximately $1.3 billion in 1998. While we do not
compete in all aspects of this market, the food and wood products segments are
served by approximately 35 companies, many of which are larger and may have
significantly greater financial, technical and marketing resources than the
Company. For example, Elbicon and Pulsarr are owned by Barco NV of Belgium, a
$700 million sales company. Other competitors include Oldenburg, Allen
Machinery, Sortex/Buhler, ESM/Stake and Key.
Several years ago, Key, 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 two unaffiliated customers in 1999 totaling 13% of sales each, 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.
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.
Numerous users of the Company's products have received notice of patent
infringement from the Lemelson Medical, Educational & Research Foundation,
Limited Partnership ("Lemelson") alleging that their use of the Company's
products infringes certain patents transferred to Lemelson by the late Jerome H.
Lemelson. Certain of these users have notified the Company that, in the event it
is subsequently determined that their use of the Company's products infringes
any of the Partnership's patents, they may seek indemnification from the Company
for damages or expenses resulting from this matter. We cannot estimate the
amount of liability, if any, that may result from this matter.
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,
substantial losses in 1996 and 1999 and debt due in 2001, 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.
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.
In February 2000, the Company's Board of Directors determined that the merger
with Key will not be a triggering event.
Planned Merger with Key Technology, Inc.: In February 2000, the Company entered
into an Agreement and Plan of Merger with Key whereby the Company would be
acquired by Key. The transaction is subject to the approval of FMC, holder of
the Company's Series B Preferred Stock, and AMV's common stockholders, as well
as certain other conditions. If FMC fails to give its consent by March 31, 2000,
Key has agreed to make a public tender for all of AMV's outstanding Common Stock
subject to various conditions.
If the merger is not completed for any reason, the Company may be subject to a
number of material risks, including the following:
* The Company may be required under certain circumstances to pay Key a
termination fee of $500,000 or $2,000,000;
* The price of the Company's Common Stock may decline to the extent that the
relevant current market price reflects a market assumption that the merger
will be completed;
* Costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
* Key will have obtained sufficient information about the Company to possibly
create a competitive advantage.
In addition, the Company's customers, strategic partners or suppliers, in
response to the announcement of the merger, may delay or defer decisions
concerning the Company. Any delay or deferral of those decisions by customers,
strategic partners or suppliers could have a material adverse effect on the
business of the Company, regardless if whether the merger is ultimately
completed. Similarly, current and prospective AMV employees may experience
uncertainty about their future roles as Key's plans with regard to these
employees are announced or executed. This may adversely affect the Company's
ability to attract and retain key management, sales, marketing and technical
personnel.
Further, if the merger is terminated, and the Company's Board of Directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than the price to be paid in the merger. In addition,
while the merger agreement is in effect and subject to very narrowly defined
exceptions, AMV is prohibited from soliciting, initiating or encouraging or
entering into certain transactions, such as a merger, sale of assets or other
business combination, with any party other than Key.
Year 2000 Issues: In response to Year 2000 compliance issues, the Company
developed and executed a systematic approach to identifying and assessing
potential Year 2000 issues. The process consisted of modifying or replacing
equipment and software and performing testing to ensure that all systems were
Year 2000 compliant after modifications were installed, or that any failure to
be Year 2000 compliant would not have a material impact on the Company, as well
as developing contingency plans in the event of Year 2000 failures. These phases
were completed in 1999. As of the date of this filing, the Company has not
experienced any significant Year 2000 issues with respect to its computer
hardware and software systems. While the Company believes that the risk is low,
it is early in the Year 2000, and there is a possibility that a Year 2000
compliance failure related to the Company's hardware or software systems may
occur. The Company will continue to monitor its systems for such an occurrence.
The main functionality of our products was not affected by the date functions.
Our products shipped subsequent to June 1998 were Year 2000 complaint. For
products shipped prior to June 1998, we provided instructions to our customers
on how to make our equipment fully compliant. As of the date of this filing, the
Company is not aware of any material Year 2000 issues with respect to its
products.
The Company also assessed the Year 2000 readiness of its major and critical
suppliers using letters. As of the date of this filing, none of the Company's
major or critical suppliers has been found to be non-compliant.
Costs incurred in our Year 2000 compliance effort were expensed as incurred and
funded with cash generated from operations. These costs were included in the
normal, recurring costs incurred for system maintenance and were not material to
our results of operations.
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
- --------------------------------------------------------------------------------
The Company does not hold material amounts of derivative financial instruments,
other financial instruments or derivative commodity instruments, and
accordingly, has no material market risk to report under this item.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
Page
----
Report of Independent Accountants 26
Financial Statements:
Consolidated Balance Sheets -
December 31, 1999 and 1998 27
Consolidated Statements of Operations -
Fiscal Years Ended December 31, 1999, 1998 and 1997 28
Consolidated Statements of Mandatorily Redeemable Shareholders'
Equity and Non-Redeemable Shareholders' Equity -
Fiscal Years Ended December 31, 1999, 1998 and 1997 29
Consolidated Statements of Cash Flows -
Fiscal Years Ended December 31, 1999, 1998 and 1997 30
Notes to Consolidated Financial Statements 31
Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts 61
Consent of Independent Accountants 62
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Advanced Machine Vision Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on Page 56 present fairly in all material
respects, the financial position of Advanced Machine Vision Corporation and its
subsidiaries (the "Company") at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the index appearing under Item 14(a)(1) and (2) on
page 56 present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed more fully in Note 1, the Company has restated its 1998 financial
statements to account for a redemption feature included in the October 1998
Preferred Stock Agreement with FMC Corporation. The carrying value of the
Preferred Stock of $2,579,000, which was previously presented as a component of
stockholders' equity, has been reclassified as mandatorily redeemable preferred
stock, outside of shareholders' equity, at December 31, 1998. The restatement of
the 1998 financial statements had no effect on the Company's net income, total
assets or total liabilities.
PricewaterhouseCoopers LLP
Portland, Oregon
February 29, 2000
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,889,000 $ 4,423,000
Accounts receivable, net of allowance for doubtful
accounts of $205,000 at December 31, 1999 and
$230,000 at December 31, 1998 1,601,000 4,073,000
Inventories (Note 2) 8,399,000 7,379,000
Prepaid expenses 206,000 181,000
Current deferred tax asset (Note 7) 870,000 1,175,000
------------- -------------
Total current assets 16,965,000 17,231,000
Property, plant and equipment - net (Notes 3 and 6) 4,860,000 5,274,000
Intangible assets, net (Note 4) 4,175,000 4,894,000
Deferred tax asset (Note 7) 1,230,000 925,000
Other assets 790,000 1,515,000
------------- -------------
$ 28,020,000 $ 29,839,000
============= =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 937,000 $ 984,000
Short-term borrowings (Note 6) 2,000,000 --
Accrued liabilities (Notes 5 and 9) 388,000 997,000
Customer deposits 1,569,000 1,151,000
Accrued payroll 714,000 761,000
Warranty reserve 373,000 448,000
Current portion of notes payable (Note 6) 43,000 790,000
------------- -------------
Total current liabilities 6,024,000 5,131,000
------------- -------------
Notes payable to related portion, less current portion (Note 6) 2,500,000 4,779,000
Notes payable, less current portion (Note 6) 3,794,000 3,083,000
------------- -------------
Total notes payable 6,294,000 7,862,000
------------- -------------
Commitments and contingencies (Note 9)
Mandatorily redeemable preferred stock (Note 10):
Series B - No par value; 119,106 shares authorized and
outstanding at December 31, 1999 and 1998 (aggregate
liquidation preference of $2,620,000) 2,579,000 2,579,000
------------- -------------
Non-redeemable shareholders' equity (Notes 8 and 10): Common stock:
Class A and B - No par value; 63,000,000 shares authorized;
12,970,000 and 10,720,000 shares issued and outstanding
at December 31, 1999 and 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 (18,007,000) (15,112,000)
Accumulated other comprehensive income 7,000 30,000
------------- -------------
Total non-redeemable shareholders' equity 13,123,000 14,267,000
------------- -------------
$ 28,020,000 $ 29,839,000
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 24,312,000 $ 27,041,000 $ 31,974,000
Cost of sales 12,212,000 12,585,000 16,042,000
------------ ------------ ------------
Gross profit 12,100,000 14,456,000 15,932,000
------------ ------------ ------------
Operating expenses:
Selling and marketing 5,948,000 4,762,000 4,930,000
Research and development 4,758,000 5,024,000 3,950,000
General and administrative 3,191,000 3,413,000 3,303,000
Goodwill amortization 720,000 695,000 731,000
------------ ------------ ------------
14,617,000 13,894,000 12,914,000
------------ ------------ ------------
Income (loss) before other income and expense (2,517,000) 562,000 3,018,000
Other income and expense:
Gain on sale of Pulsarr -- -- 4,989,000
Investment and other income 191,000 286,000 371,000
Interest expense (569,000) (689,000) (1,263,000)
------------ ------------ ------------
Income (loss) before income taxes (2,895,000) 159,000 7,115,000
Provision for (benefit from) income taxes (Note 7) -- (2,083,000) 99,000
------------ ------------ ------------
Net income (loss) $ (2,895,000) $ 2,242,000 $ 7,016,000
============ ============ ============
Earnings (loss) per share (Note 10):
Basic $ (0.24) $ 0.21 $ 0.64
Diluted $ (0.24) $ 0.18 $ 0.49
Shares used in per-share calculations:
Basic 12,084,000 10,517,000 11,002,000
Diluted 12,084,000 14,735,000 14,888,000
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Mandatorily Redeemable Preferred Stock and
Non-Redeemable Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mandatorily Non-Redeemable Shareholders' Equity
Redeemable -------------------------------------------------------------------------
Preferred Stock Accumulated
Series B Common Stock Common Additional Other Compre-
----------------- ----------------------- Stock Paid in Accumulated Comprehen- hensive
Shares Amount Shares Amount Warrants Capital Deficit sive Income Income
------ ---------- ---------- ----------- ----------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 -- -- 11,250,000 $25,720,000 $ 2,403,000 $2,797,000 $(24,370,000) $(50,000)
Issuance of restricted stock -- -- 2,000,000 -- -- -- -- --
Retirement of restricted stock -- -- (1,800,000) -- -- -- -- --
Repurchase of Class A Common
Stock and Class F and H
Warrants -- -- (1,001,000) (1,782,000) (180,000) -- -- --
Exercise of options -- -- 97,000 97,000 -- -- -- --
Partial conversion of note
payable -- -- 133,000 250,000 -- -- -- --
Expiration of warrants -- -- -- -- (26,000) 26,000 -- --
Translation adjustment -- -- -- -- -- -- -- 50,000 $ 50,000
Net income -- -- -- -- -- -- 7,016,000 -- 7,016,000
------- ---------- ---------- ----------- ----------- ---------- ------------ -------- ----------
Balance, December 31, 1997 -- -- 10,679,000 24,285,000 2,197,000 2,823,000 (17,354,000) --
Comprehensive income 1997 $7,066,000
==========
Expiration of warrants -- -- -- -- (2,087,000) 2,087,000 -- --
Exercise of options -- -- 8,000 8,000 -- -- -- --
Issuance of restricted stock -- -- 33,000 36,000 -- -- -- --
Issuance of mandatorily
redeemable preferred stock 119,106 2,579,000 -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- 30,000 $ 30,000
Net income -- -- -- -- -- -- 2,242,000 -- 2,242,000
------- ---------- ---------- ----------- ----------- ---------- ------------ -------- ----------
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
Comprehensive income 1998 $2,272,000
==========
Conversion of note payable -- -- 1,800,000 1,774,000 -- -- -- --
Expiration of warrants -- -- -- -- (110,000) 110,000 -- --
Issuance of restricted stock -- -- 450,000 -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- (23,000) $ (23,000)
Net (loss) -- -- -- -- -- -- (2,895,000) -- (2,895,000)
------- ---------- ---------- ----------- ---------- ---------- ------------ -------- -----------
Balance, December 31, 1999 119,106 $2,579,000 12,970,000 $26,103,000 $ -- $5,020,000 $(18,007,000) $ 7,000
======= ========== ========== =========== ========== ========== ============ ========
Comprehensive (loss) 1999 $(2,918,000)
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,895,000) $ 2,242,000 $ 7,016,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Benefit from deferred income taxes -- (2,100,000) --
Gain on sale of Pulsarr -- -- (4,989,000)
Charge for deferred debt issuance costs -- -- 233,000
Depreciation and amortization 1,550,000 1,610,000 1,369,000
Changes in assets and liabilities (net of amounts
purchased/sold in acquisition/divesture):
Accounts receivable 2,472,000 (1,363,000) 11,000
Inventories (1,020,000) (2,199,000) (499,000)
Prepaid expenses and other assets 699,000 (760,000) (186,000)
Accounts payable, accrued liabilities, customer
deposits, accrued payroll and warranty reserve (113,000) (539,000) 842,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 693,000 (3,109,000) 3,797,000
----------- ----------- -----------
Cash (used in) provided by investing activities:
Proceeds from sale of Pulsarr -- -- 7,010,000
Purchases of property and equipment (438,000) (1,383,000) (1,014,000)
----------- ----------- -----------
Net cash (used in) provided by investing activities (438,000) (1,383,000) 5,996,000
----------- ----------- -----------
Cash (used in) provided by financing activities:
Proceeds from line of credit borrowings 2,000,000 -- --
Notes payable to bank and others - net (789,000) 283,000 (3,792,000)
Proceeds from issuance of mandatorily redeemable
preferred stock -- 2,579,000 --
Proceeds from exercise of stock options -- 8,000 97,000
Repurchase of Common Stock and Warrants -- -- (1,962,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities 1,211,000 2,870,000 (5,657,000)
----------- ----------- -----------
Net increase (decrease) in cash 1,466,000 (1,622,000) 4,136,000
Cash and cash equivalents, beginning of the period 4,423,000 6,045,000 1,909,000
----------- ----------- -----------
Cash and cash equivalents, end of the period $ 5,889,000 $ 4,423,000 $ 6,045,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 532,000 $ 583,000 $ 939,000
Income taxes $ -- $ 62,000 $ 20,000
Supplemental disclosures of non-cash investing and financing
activities
Conversion of debt, including accrued interest, to equity $ 1,774,000 $ -- $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Presentation: The consolidated financial statements include the
accounts of Advanced Machine Vision Corporation ("AMV" or the "Company") and its
four wholly-owned subsidiaries: SRC VISION, Inc. and its wholly-owned SRC VISION
BV subsidiary ("SRC"); Ventek, Inc. ("Ventek"); ARC Netherlands BV (inactive)
and its respective wholly-owned subsidiary, Pulsarr Holding BV ("Pulsarr"), from
its March 1, 1996 acquisition date to its May 6, 1997 disposition date (see Note
4); and Applied Laser Systems, Inc. (inactive).
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 applications, 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 plastics.
The Company sells its products throughout the world (see Note 11).
Effects of Restatements: As described in Note 10, the Company issued 119,106
shares of Series B Preferred Stock ("Preferred Stock") to FMC Corporation in
October 1998.
The Preferred Stock is subject to redemption requirements that are outside the
control of the Company under certain change-in-control circumstances as defined
in the preferred stock purchase agreement. Those circumstances include (i) a
sale of all or substantially all of the assets of the Company, (ii) a
liquidation or dissolution of the Company, (iii) the consummation of any
transaction resulting in a new "beneficial owner" of more than 37.5 percent of
the Company's Common Stock, (iv) a change in the majority of the Company's Board
of Directors, and (v) a combination or merger of the Company with or into a new
entity in which the Company's Common Stockholders hold less than 80 percent of
the surviving entity. Under such circumstances, the holders of Preferred Stock
are entitled to receive, prior to and in preference to any distribution of any
of the assets of the Company to the holders of Common Stock, an amount equal to
the greater of (a) $22.00 per share or (b) the market value of the Company's
Common Stock issuable upon conversion of such shares of Preferred Stock,
calculated as the average of the closing price of the Common Stock for the
forty-five consecutive trading days immediately preceding the date of
repurchase.
The Company has restated its 1998 financial statements to account for the
redemption features of the Preferred Stock. The carrying value of the Preferred
Stock of $2,579,000, which was previously presented as a component of
stockholders' equity, has been reclassified as mandatorily redeemable, outside
of shareholders' equity, at December 31, 1998.
The restatement of the 1998 financial statements for the matter described above
had no effect on the Company's net income, total assets or total liabilities.
The following table sets forth the overall effect of the restatement on the
Company's shareholders' equity:
December 31, 1998
-----------------
Shareholders' equity prior to restatement $16,846,000
Non-redeemable shareholders' equity after restatement $14,267,000
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Period: The Company utilizes a 52- to 53-week fiscal year ending on
the Sunday closest to the end of the fiscal period. Fiscal periods shown ended
January 2, 2000, January 3, 1999 and December 27, 1997. In these financial
statements, the fiscal periods are shown as December 31 for clarity of
presentation.
Cash Equivalents: For financial reporting purposes, cash equivalents consist
primarily of money market instruments and bank certificates of deposit that have
original maturities of three months or less.
Concentrations of Credit Risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of money market
instruments and trade receivables. The Company invests its excess cash in money
market instruments and certificates of deposit with high credit quality
financial institutions, and by policy, limits the amount of credit exposure to
any one issuer. Concentrations of credit risk with respect to trade receivables
exist because the Company's subsidiaries rely heavily on a relatively small
number of customers (see Note 11). The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses and such losses, to date,
have been within management's expectations.
Inventories: Inventories are stated at the lower of cost or net realizable
value, with cost determined principally by use of the first-in, first-out
method.
Property, Plant, and Equipment: Property, plant and equipment are stated at
cost. Depreciation and amortization are computed by either the straight-line or
an accelerated method over the estimated useful lives of the assets, which range
from three to twenty years. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in operations for the period. The cost
of maintenance and repairs is charged to expense as incurred; significant
renewals and betterments are capitalized.
Intangible Assets: Intangible assets primarily represent the excess of the
purchase price of acquisitions over the fair value of net assets acquired
("goodwill"). The gross cost of intangible assets aggregated $7,536,000 as of
December 31, 1999 and 1998. Intangible assets are being amortized on the
straight-line basis over seven to fifteen years (see Note 4). Accumulated
amortization aggregated $3,361,000 and $2,642,000 as of December 31, 1999 and
1998, respectively. The Company assesses the recoverability of its intangible
assets and to date has not had any significant impairments.
Long-Lived Assets: Statement of Financial Accounting Standard No. 121 (FAS 121),
Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
Be Disposed Of, requires that long-lived assets and certain identifiable
intangible assets to be held and used by a company be reviewed for impairment
whenever events or changes in circumstances indicate that expected future cash
flows (undiscounted and without interest charges) for individual subsidiaries
may not be sufficient to support the recorded assets. If undiscounted cash flows
are not sufficient to support the recorded assets, an impairment is recognized
to reduce the carrying value of the assets based on expected discounted cash
flows of the subsidiary.
Revenue Recognition: The Company recognizes revenue upon shipment of products
or, in the case of trial units, upon the customer's acceptance of the product.
Customer deposits represent monies received in advance of shipment of products.
Research and Development Costs: Research and development costs are expensed as
incurred. Research and development expense is related to developing new products
and to improving existing products or processes.
Earnings (Loss) Per Share: Earnings (loss) per share for 1999, 1998 and 1997
have been computed in accordance with Statement of Financial Accounting
Standards No. 128 (FAS 128), "Earnings per Share."
Changes in Classification: Certain reclassifications have been made to the
fiscal 1998 and 1997 financial statements to conform with the financial
statement presentation for fiscal 1999. Such reclassifications had no effect on
the Company's results of operations or shareholders' equity.
Income Taxes: The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income
Taxes. FAS 109 requires the recognition of deferred tax assets and liabilities
for the expected tax effects from differences between the financial reporting
and tax bases of assets and liabilities. In estimating future tax effects, FAS
109 generally considers all expected future events other than enactments of
changes in tax law or statutorily imposed rates.
Stock-Based Compensation: The Company uses the intrinsic value based method in
accounting for its stock option plans as prescribed by Accounting Principle
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (see Note
8).
Fair Value of Financial Assets and Liabilities: Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of the fair value of certain financial assets
and liabilities. The Company estimates the fair value of its monetary assets and
liabilities based upon the existing interest rates related to such assets and
liabilities compared to current market rates of interest for similar nature and
degree of risk. The Company estimates that the carrying value of all of its
monetary assets and liabilities approximates fair value as of December 31, 1999.
Foreign Currency Translation: All assets and liabilities of foreign subsidiaries
are translated into U. S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
fiscal year. The resulting translation adjustments are recorded as a component
of other comprehensive income.
Comprehensive Income: The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" as of January 1, 1998.
Translation adjustments represent the Company's only Other Comprehensive Income
item.
Note 2 - Inventories
- --------------------------------------------------------------------------------
Inventories consist of the following:
December 31,
--------------------------------
1999 1998
------------- -------------
Raw materials $ 3,034,000 $ 2,837,000
Work-in-process 1,603,000 1,563,000
Finished goods 3,762,000 2,979,000
------------- -------------
$ 8,399,000 $ 7,379,000
============= =============
Note 3 - Property, Plant and Equipment
- --------------------------------------------------------------------------------
Property, plant and equipment consist of the following:
December 31,
--------------------------------
1999 1998
------------- -------------
Land $ 1,338,000 $ 1,338,000
Buildings 3,970,000 3,734,000
Machinery and equipment 883,000 869,000
Furniture, fixtures and office equipment 1,983,000 2,026,000
------------- -------------
8,174,000 7,967,000
Less: accumulated depreciation (3,314,000) (2,693,000)
------------- -------------
$ 4,860,000 $ 5,274,000
============= =============
Substantially all of the property, plant and equipment is secured by a note
payable (see Note 6). Depreciation expense aggregated $830,000, $915,000 and
$638,000, respectively, for 1999, 1998 and 1997.
Note 4 - Acquisitions
- --------------------------------------------------------------------------------
SRC: On February 2, 1994, the Company purchased all of the outstanding shares of
stock of SRC for $8.1 million in cash. The Company has accounted for this
acquisition using the purchase method. The cost of the acquisition was allocated
to the assets acquired and liabilities assumed on the bases of their fair values
at the date of acquisition. Goodwill of $2.6 million was recorded as the
difference between the acquisition cost and the fair values of the assets
acquired and liabilities assumed. The Company is amortizing goodwill over seven
years using the straight-line method.
Pulsarr: On March 1, 1996, the Company acquired all of the outstanding capital
stock of Pulsarr for cash of $6.5 million and notes payable aggregating $1.3
million. The acquisition was accounted for under the purchase method of
accounting. The $7.8 million purchase price was allocated based on the fair
values of the identifiable assets of Pulsarr as follows: $1.1 million
represented the fair values of net tangible assets of Pulsarr, $4.9 million
represented acquired in-process technology that was charged to operations, and
the remainder of $1.8 million represented existing technologies and goodwill to
be amortized over fifteen years. The fair values of the acquired in-process
technology and existing technologies and goodwill were determined from
independent appraisals received by the Company.
On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of Belgium
for $8.4 million resulting in a gain of approximately $5 million. The sale
resulted in net cash proceeds to AMV of approximately $7 million and a reduction
of current and long-term debt of approximately $4.6 million. The gain on the
sale of Pulsarr is largely a result of the previous reduction in the carrying
value of AMV's investment in Pulsarr due to the $4.9 million charge for acquired
in-process technology the Company recorded in the quarter ended March 31, 1996
in conjunction with this acquisition.
Ventek: On July 24, 1996, the Company acquired certain assets and the business
of Ventek, subject to certain liabilities. The purchase price was approximately
$5.1 million in notes and other securities (see Note 6). The Company also issued
a warrant to purchase 1,000,000 shares of Class A Common Stock. In 1998, the
warrant was reduced to 250,000 fully vested shares, and was subsequently
eliminated upon the restructuring of the acquisition notes (see Note 6). The
acquisition was accounted for under the purchase method of accounting. The $5.1
million purchase price was allocated based on the fair values of the
identifiable assets of Ventek as follows: $.2 million represented the fair
values of net tangible assets of Ventek, and the remaining $4.9 million
represented goodwill to be amortized over fifteen years.
The consolidated results of operations for the Company include SRC's, Pulsarr's
and Ventek's results of operations from their respective acquisition dates, and
in the case of Pulsarr, through its disposition date in May 1997.
Note 5 - Accrued Liabilities
- --------------------------------------------------------------------------------
Accrued liabilities consist of the following:
December 31,
--------------------------------
1999 1998
------------- -------------
Commissions $ 111,000 $ 359,000
Interest 75,000 317,000
Legal and accounting fees 90,000 176,000
Income taxes 34,000 34,000
Other 78,000 111,000
------------- ------------
$ 388,000 $ 997,000
============= ============
Note 6 - Financing Arrangements
- --------------------------------------------------------------------------------
As of December 31, 1999, the Company had a borrowing facility with a commercial
bank that provided for a secured operating line of credit up to $2,000,000. At
the option of the Company, interest is stated at the prime rate plus .50% or at
an "offshore rate" plus 2.35%. The Business Loan Agreement governing the line of
credit contains covenants requiring certain levels of cash flow, tangible equity
and working capital. At December 31, 1999, the Company had borrowed the entire
$2,000,000 under the line and was not in compliance with the cash flow covenant.
The bank waived compliance with the covenant subject to an amendment being
executed by the Company, which would require that security for the line be
changed from receivables, inventory and machinery and equipment to cash
instruments. On February 29, 2000, the Company executed the amendment and paid
back the entire amount borrowed. The amended line expires on April 30, 2000.
Long-term debt consists of the following:
December 31,
--------------------------------
1999 1998
------------- -------------
Mortgage note (SRC) $ 2,937,000 $ 2,973,000
6.75% convertible note 900,000 900,000
6.75% note (Ventek) 250,000 1,000,000
6.75% convertible note (Ventek) 2,250,000 2,250,000
Ventek note -- 1,529,000
------------- -------------
6,337,000 8,652,000
Less: current maturities (43,000) (790,000)
------------- -------------
$ 6,294,000 $ 7,862,000
============= =============
The SRC mortgage note is payable to a bank in monthly installments of $24,000
including interest at 8.3%, with the remaining unpaid balance due on May 1,
2008. The note is secured by substantially all of SRC's property, plant and
equipment and is guaranteed by the Company. The loan agreement contains certain
covenants and restrictions including limitations on incurrence of debt. At
December 31, 1999, the Company was in violation of the cash flow covenant of the
mortgage loan agreement. The Company has obtained a temporary waiver of this
covenant through December 31, 2000.
In April 1996, in connection with the acquisition of Pulsarr, the Company raised
a net of $3,000,000 in a private placement of $3,400,000 of convertible secured
notes. The notes presently bear interest at 10.75% payable quarterly. The
interest rate may be adjusted upward on each anniversary date of the notes if
the market price of the Company's Class A Common Stock fails to reach certain
levels. The maximum possible coupon interest rate is 11.25% if none of the
market price thresholds are met. The principal amount will be due in April 2001.
The notes are secured by 54% of the stock of ARC Netherlands BV, a wholly-owned
subsidiary of the Company established to purchase Pulsarr. The notes are
convertible into the Company's Common Stock at $2.125 per share. In connection
with the borrowing, the Company paid a finder's fee of $400,000 and issued
340,000 warrants to purchase Common Stock at $2.125 per share. In September
1997, the Company prepaid $2,500,000 of the note. The 340,000 warrants issued in
conjunction with this borrowing were repurchased in August 1997.
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. The $1,125,000 note and stock appreciation rights
payable were valued at $1,529,000 on the acquisition date based upon an
independent appraisal received by the Company. All three notes are secured by
all of the issued and outstanding shares of Ventek. The three notes are payable
to Veneer Technology, Inc., a company owned by the four former stockholders of
Ventek, all of whom are current employees of the Company.
In February 1999, the Ventek notes were restructured. $750,000 of the $1,000,000
note was prepaid, and the maturity date of the remaining $250,000 was extended
to July 23, 2000. The maturity date of the $2,250,000 note was extended to July
23, 2000. The $1,125,000 note was paid in full by delivery of 1,800,000
restricted shares (see Note 10) and the stock appreciation rights were
cancelled.
In December 1999, the Ventek notes were again restructured by extending the due
dates to July 23, 2001 and increasing the interest rate by 1% to 7.75%.
As of December 31, 1999, the aggregate amount of minimum maturities of long-term
debt, as adjusted for the Ventek debt restructuring, are as follows:
2000--$43,000; 2001--$3,446,000; 2002--$50,000; 2003--$55,000; 2004--$59,000 and
thereafter $2,684,000.
Note 7 - Income Taxes
- --------------------------------------------------------------------------------
Income (loss) before income taxes is composed of the following:
1999 1998 1997
------------ ------------ --------------
Domestic $ (2,843,000) $ 366,000 $ 2,143,000
Foreign (52,000) (207,000) 4,972,000
------------ ------------ --------------
$ (2,895,000) $ 159,000 $ 7,115,000
============ ============ ==============
The components of the provision for income taxes are as follows:
1999 1998 1997
------------ ------------ --------------
Federal:
Current $ -- $ 17,000 $ 99,000
Deferred (947,000) 59,000 870,000
------------ ------------ -------------
Total federal (947,000) 76,000 969,000
------------ ------------ -------------
State:
Deferred (111,000) 15,000 107,000
------------ ------------ -------------
Total state (111,000) 15,000 107,000
------------ ------------ -------------
Increase (decrease) in
valuation allowance 1,058,000 (2,174,000) (977,000)
------------ ------------ -------------
Total provision $ -- $ 99,000 $ --
============ ============ =============
The tax effect of temporary differences between financial reporting and the tax
bases of assets and liabilities relate to the following:
December 31,
--------------------------------
1999 1998
------------- -------------
Deferred tax asset:
Loss carry-forwards $ 5,913,000 $ 4,686,000
Property basis differences 1,005,000 876,000
Reserves and accruals 291,000 563,000
Research and development costs 47,000 69,000
Alternative minimum taxes 74,000 77,000
------------- ------------
7,329,000 6,271,000
Deferred tax asset valuation allowance (5,229,000) (4,171,000)
------------- ------------
Net deferred tax asset $ 2,100,000 $ 2,100,000
============= ============
The Company has recognized a deferred tax asset of $2,100,000. The recognized
deferred tax asset is based upon expected utilization of the temporary
differences as well as a portion of the net operating loss carry-forwards.
The Company has assessed its past earnings history and trends, budgeted sales
and the expiration dates of carry-forwards and has determined that it is more
likely than not that $2,100,000 of the deferred tax asset will be realized. The
remaining valuation allowance of $5,229,000 as of December 31, 1999 is
maintained against the net operating loss carry-forwards, which the Company has
determined may not be realized.
The increase in the valuation allowance of $1,058,000 in 1999 was the result of
the net increase in temporary differences that was caused primarily from the
losses incurred in 1999.
The net reduction in the valuation allowance of $2,174,000 in 1998 was the
result of the utilization of the net operating loss carry-forwards to reduce
current income taxes, partially offset by the net changes in temporary
differences.
The Company has net operating loss carry-forwards of approximately $15,500,000.
Such carry-forwards may be used to offset taxable income, if any, in future
years through their expirations in 2005 to 2015. Because of the substantial
change in the Company's ownership, which occurred as a result of the initial
public offering in March 1992, the annual amount of tax loss carry-forward that
can be utilized is limited. Utilization of approximately $2,700,000 of the above
carry-forwards is limited to approximately $475,000 per year. Such limitation
could result in the expiration of a part of the carry-forwards before their
utilization.
The provision for (benefit from) income taxes differs from an amount computed
using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision for (benefit from) income
taxes at federal statutory rate $ (967,000) $ 124,000 $ 2,419,000
State taxes (benefit) -- 15,000 107,000
Non-taxable gain on sale of Pulsarr -- -- (1,696,000)
Realized benefit from utilizing net
operating loss carry-forward -- (271,000) (1,302,000)
Deferred tax valuation allowance 1,058,000 (1,903,000) 370,000
Alternative Minimum Tax -- 17,000 99,000
Other (91,000) (65,000) 102,000
----------- ----------- -----------
$ -- $(2,083,000) $ 99,000
=========== =========== ===========
</TABLE>
Note 8 - Employee Benefit and Stock Option Plans
- --------------------------------------------------------------------------------
The Company sponsors a defined contribution 401(k) plan covering substantially
all employees. Pursuant to the provisions of the plan, eligible participants may
elect to contribute up to 15% of their base compensation, subject to certain
limitations, and the Company may, at its option, match employee contributions up
to a certain percentage. No Company matching has occurred under the plan.
The Company maintains several stock option plans under which non-qualified and
incentive stock options for the Company's Common Stock have been granted to
directors, officers and other employees. The plans are administered by the Stock
Option Committee of the Board of Directors (the "Committee"). Additionally, the
Company has occasionally granted non-plan options to directors, officers or
consultants on terms similar to plan options. The stock option price per share
for options granted is determined by the Committee and is based on the market
price of the Company's common stock on the date of grant, and each option is
exercisable within the period and in the increments as determined by the
Committee, except that no option can be exercised later than ten years from the
date it was granted. The stock options generally vest over one to four years.
The terms of non-plan options are determined by the full Board of Directors or
the Compensation Committee of the Board.
The following table sets forth the options granted, forfeited and exercised
during the three years ended December 31, 1999, and their respective weighted
average exercise price per share:
Weighted
Shares Average
Under Option Price Per Share
------------ ---------------
Balance at December 31, 1996 3,127,000 $ 2.00
Granted 1,194,000 1.75
Exercised (97,000) 1.00
Canceled (775,000) 2.21
----------- ------
Balance at December 31, 1997 3,449,000 $ 1.89
Granted 528,000 1.86
Exercised (8,000) 1.00
Canceled (539,000) 4.05
----------- ------
Balance at December 31, 1998 3,430,000 $ 1.55
Granted 205,000 1.22
Canceled (417,000) 2.50
----------- ------
Balance at December 31, 1999 3,218,000 $ 1.41
=========== ======
The following table sets forth information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Price
- -------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
0.81-1.00 1,333,000 5 years 1.00 1,300,000 1.00
1.03-2.19 1,810,000 7 years 1.64 639,000 1.53
3.00 75,000 4 years 3.00 75,000 3.00
----------- -----------
3,218,000 2,014,000
=========== ===========
</TABLE>
At December 31, 1998 and 1997, 1,911,000 and 2,172,000 options, respectively,
were exercisable. As of December 31, 1999, there were 641,000 shares available
for future grants.
In September 1999, the Company decreased the exercise price on 300,000 options
previously granted to three members of the Board of Directors from $1.69 to
$1.25 per share. These options will now be accounted for pursuant to a variable
stock option plan, and compensation expense will be recorded to the extent that
the quoted market price of the Company's common stock exceeds the revised
exercise price.
In January 1997, the Company established an SRC stock option plan (the "SRC
Plan") under which incentive and non-qualified stock options for SRC's common
stock may be granted to directors, officers and other employees. The plan is
administered by the Stock Option Committee of the Board of Directors of SRC (the
"SRC Committee"). The stock option price per share for options granted under the
SRC Plan is determined by the SRC Committee and is based on the fair market
value of the Company's common stock on the date of grant, and each option is
exercisable within the period and in the increments as determined by the SRC
Committee, except that no option may be exercised before the ninth anniversary
date of grant unless there shall have been an IPO of SRC's common stock, and
except that no option can be exercised later than ten years from the date it was
granted.
In January 1997, SRC granted a total of 342,000 options under the SRC Plan to
purchase SRC common stock at $1.86 per share. The options become exercisable on
January 10, 2006 and expire one year thereafter. Upon completion of an initial
public offering of SRC's common stock, the vesting of such options will
accelerate so that 100% will be exercisable on the third anniversary date of the
IPO. As of December 31, 1999, there were 291,000 options under grant and 105,000
shares available for future grant under the SRC Plan.
Disclosure Requirements of Statement of Financial Accounting Standards No. 123
("FAS 123"): The Company has elected to account for its stock-based compensation
plans under APB 25. FAS 123 requires that the Company provide proforma
information regarding net income and earnings per share as if the Company had
accounted for the stock options granted under the fair value method of the
statement. The fair value of options granted was estimated using the
Black-Scholes model. The Company's proforma information follows:
1999 1998
------------- ------------
Proforma net income (loss) $ (3,231,000) $ 1,746,000
Proforma diluted earnings (loss) per share $ (0.27) $ 0.14
The fair value of the options granted was $0.66 and $1.05 in 1999 and 1998,
respectively, and estimated using the following weighted average assumptions:
1999 1998
------------- ------------
Risk-free interest rate 5.65% 5.32%
Dividend yield 0% 0%
Expected life of option 5 years 5 years
Volatility factor 58% 61%
The above information is based on historical activity and may not represent
future trends.
Note 9 - Commitments and Contingencies
- --------------------------------------------------------------------------------
Numerous users of the Company's products have received notice of patent
infringement from Lemelson Medical, Educational and Research Foundation, Limited
Partnership ("Lemelson") alleging that their use of the Company's products
infringes certain patents transferred to Lemelson by the late Jerome H.
Lemelson. Certain of these users have notified the Company that, in the event it
is subsequently determined that their use of the Company's products infringes
any of the Lemelson's patents, they may seek indemnification from the Company
for damages or expenses resulting from this matter. The amount of liability, if
any, that may result from this matter cannot be estimated at this time.
Note 10 - Mandatorily Redeemable and Non-Redeemable Shareholders' Equity and
Earnings (Loss) Per Share
- --------------------------------------------------------------------------------
Preferred Stock: In October 1998, the Company sold 119,106 shares of mandatorily
redeemable Preferred Stock ("Preferred Stock") (the entire authorized number of
such shares) to FMC Corporation ("FMC") for $2,579,000. The Preferred Stock is
convertible into 1,191,060 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. Upon the occurrence of a change in control (as defined),
FMC has the right to require the Company to repurchase all or part of the
Preferred Stock at a price in cash equal to the greater of (a) $22.00 per share
or (b) the market value of the Company's Common Stock issuable upon conversation
of the Preferred Stock, calculated as the average of the closing bid price of
the Common Stock for the 45 consecutive trading days immediately preceding the
date of repurchase, subject to the Company's ability to legally do so under
California General Corporation Law. FMC also has a five-year one-time 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 (as defined) of the Common Stock or $2.20 per share.
So long as any shares of Preferred Stock are outstanding, the Company must
obtain the consent of the holders of a majority of the then-outstanding shares
of Preferred Stock to (i) take any action which adversely alters or changes or
may adversely alter or change the rights, preferences or privileges of the
Preferred Stock; (ii) increase or decrease the authorized number of shares of
Preferred Stock; (iii) create (by reclassification or otherwise) any class or
series of shares having rights, preferences or privileges senior to or on a
parity with the Preferred Stock; (iv) redeem or repurchase any shares of capital
stock except in certain instances; (v) merge with or into any other entity or
enter into any other corporate reorganization, recapitalization, sale of control
or any transaction that, directly or indirectly, results in the sale, license,
lease, transfer, conveyance or other disposition of all or substantially all of
the assets or properties of the Company; (vi) sell, license, lease, transfer,
convey or otherwise dispose of the Company's intellectual property in which FMC
received a security interest; (vii) amend or waive any provision of the
Company's Articles of Incorporation or By-laws; (viii) acquire assets or
securities of another person or entity if the aggregate consideration paid in
all such transactions (other than those in the ordinary course of business)
combined exceeds $2,000,000 or any one such transaction exceeds $500,000; (ix)
issue any additional equity securities or any other securities convertible or
exchangeable into equity securities (other than issuance of shares of Common
Stock pursuant to employee stock options or other employee stock plans in effect
as of the FMC transaction date and, with the approval of the Board of Directors,
shares of Common Stock to unrelated third parties, in arms-length transactions
that do not exceed 100,000 shares for any fiscal year); or (x) approve the
liquidation, dissolution or winding up of the Company.
The provisions of the preferred stock also provide that if FMC desires to
transfer the preferred stock, the Company has the right of first refusal to
acquire such shares. For as long as the preferred stock is outstanding, if the
Company intends to issue equity securities other than to FMC, or as permitted,
FMC shall have the right to acquire a portion of such securities to retain its
percentage ownership immediately prior to such issuance.
The Company and FMC also entered a Representative Agreement whereby FMC would
undertake to sell the Company's machine vision products to the food processing
industry in many areas of the world. The Representative Agreement may be
terminated for or without cause. Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock upon the later of (i) the
third anniversary of the date of issuance or (ii) the sixtieth day after the
termination of the Representative Agreement.
Common Stock: The authorized number of shares of no par value Class A Common
Stock and no par value Class B Common Stock are 60,000,000 and 3,000,000,
respectively. Upon sale or transfer, each share of Class B Common Stock is
automatically convertible into one share of Class A Common Stock. Both the Class
A and Class B Common Stock are entitled to one vote per share. As of December
31, 1999, there were 12,922,000 shares of Class A Common Stock and 48,000 shares
of Class B Common Stock outstanding. For purposes of this report, the Class A
and B shares are referred to as "Common Stock."
Schedule of Outstanding Stock, Convertible Debt, Preferred Stock and Potential
Dilution: The following table summarizes outstanding Common Stock as of December
31, 1999, potential dilution to the outstanding Common Stock upon the conversion
of convertible debt or preferred stock, and proforma proceeds from the debt
conversion. The table also sets forth the conversion prices and debt due dates.
<TABLE>
<CAPTION>
Number or Principal Common Stock Proforma
Amount Outstanding After Conversion Debt
Security at December 31, 1999 Conversion Price Reduction
- --------------------------- -------------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Common Stock: 12,970,000
------------
Convertible Debt (due date):
6.75% Notes (4/16/01) $ 900,000 423,000 $ 2.13 900,000
6.75% Ventek Note (7/23/01) $ 2,250,000 1,000,000 2.25 2,250,000
------------ ------------
1,423,000 3,150,000
------------ ------------
Preferred Stock: 119,100 1,191,000
------------
Potentially outstanding shares
and proforma proceeds and
reduction of debt 15,584,000 $ 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, on December 31, 1999, AMV had outstanding options to purchase
3,218,000 shares of Common Stock, 2,586,000 of which are under its stock option
plans (see Note 8).
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 that 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 the 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.
1997 Restricted Stock Plan: 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 and stock price. The total number of shares of Common Stock issuable
under the 1997 Plan shall not exceed 2,000,000.
In January 1997, the Company's Board of Directors awarded 2,000,000 shares of
restricted Common Stock to three key employees of the Company. In September
1997, 1,800,000 shares were donated back to the Company and retired. The
remaining 200,000 shares cannot be traded or transferred unless a payment of
$1.80 per share is made by the employee to AMV. If payment is not made, the
related shares of stock will be forfeited and returned to the Company.
In February 1999 and December 1999, the Company's Board of Directors awarded
350,000 and 100,000 shares of restricted Common Stock, respectively, to four key
employees of the Company. The shares cannot be traded or transferred unless a
payment of $1.25 per share is made by the employee to AMV between February 1,
2000 and January 31, 2001 for the 350,000 shares, and payment of $.75 per share
is made by the employee to AMV before July 23, 2002 for the 100,000 shares. If
these conditions are not met, the related shares will be forfeited and returned
to the Company.
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.
In February 2000, the Company's Board of Directors determined that the proposed
merger with Key Technology, Inc. ("Key") (see Note 13) will not constitute a
triggering event.
Stock Repurchase: On December 29, 1999, the Company's Board of Directors
authorized the Company to purchase, from time to time, up to $1,000,000 of the
Company's common stock in the open market. 42,800 shares were repurchased
subsequent to December 31, 1999.
Earnings (Loss) Per Share: Earnings (loss) per share, calculated in accordance
with FAS 128, is presented in the following table:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- -------------------------
Income Shares (Loss) Shares Income Shares
--------- -------- --------- -------- -------- -----------
(In thousands except per-share data)
<S> <C> <C> <C> <C> <C> <C>
Calculation of EPS
Income (loss) available to
common shareholders $ (2,895) 12,639 $ 2,242 10,717 $ 7,016 11,202
Reduction for contingently
returnable shares as all
conditions were not
met as of period end -- (555) -- (200) -- (200)
--------- -------- --------- -------- ------- ---------
Income (loss) available to
common shareholders $ (2,895) 12,084 $ 2,242 10,517 $ 7,016 11,002
- --------------------------------------------------------------------------------------------------------------------
Basic EPS $ (0.24) $ 0.21 $ 0.64
- --------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Stock options and warrants -- -- -- 744 -- 663
Preferred stock -- -- -- 251 -- --
Note and stock appreciation
rights agreement -- -- 100 1,800 100 1,800
Convertible debt -- -- 252 1,423 252 1,423
--------- -------- --------- -------- ------- ---------
Income (loss) available to
common shareholders
and assumed conversions $ (2,895) 12,084 $ 2,594 14,735 $ 7,368 14,888
========= ======== ========= ======== ======= =========
- --------------------------------------------------------------------------------------------------------------------
Diluted EPS $ (0.24) $ 0.18 $ 0.49
- --------------------------------------------------------------------------------------------------------------------
</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 because their exercise
prices were greater than the average market price of common stock or inclusion
of such shares would be antidilutive, are listed below.
1999 1998 1997
-------------- ------------- -------------
Number of shares of common
stock exercisable from:
Options 3,218,000 2,113,000 1,135,000
Warrants -- 790,000 13,215,000
Convertible debt 1,423,000 -- --
Preferred stock 1,191,000 -- --
-------------- ------------- -------------
5,832,000 2,903,000 14,350,000
============== ============= =============
Exercise price ranges $0.81 - $3.00 $1.41 - $3.00 $2.00 - $4.94
Note 11 - Business Segment and Geographic Information
- --------------------------------------------------------------------------------
The Company operates in one industry--designing, manufacturing and marketing of
computer-aided vision defect detection and sorting and defect removal equipment.
The Company has subsidiaries located in the United States and The Netherlands.
Revenue transfers between geographic areas, and other intergeographical
eliminations are not material. Net sales and long-lived assets by geographic
areas are as follows:
1999 1998 1997
-------------- ------------- -------------
Net sales:
Domestic $ 14,308,000 $ 18,215,000 $ 21,417,000
International 10,004,000 8,826,000 10,557,000
-------------- ------------- -------------
Total net sales $ 24,312,000 $ 27,041,000 $ 31,974000
============== ============= =============
Long-lived assets:
Domestic $ 9,705,000 $ 11,498,000 $ 11,107,000
International 120,000 185,000 53,000
-------------- ------------- -------------
Total long-lived assets $ 9,825,000 $ 11,683,000 $ 11,160,000
============== ============= =============
During 1999, the Company sold equipment to two different customers, each
approximating 13% of total net sales. No single customer accounted for more than
10% of total net sales in 1998. During 1997, the Company sold equipment to a
single customer approximating 14% of total net sales.
During 1999, net sales to one customer, located in Russia, approximated 13% of
total net sales. No single international country accounted for more than 10% of
net sales in 1998 or 1997. Location of the customer is the basis for
identification of net sales.
International long-lived assets are located in the Netherlands.
Note 12 - Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters Ended March 31 June 30 September 30 December 31 Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1999
Sales $ 5,158,000 $ 7,198,000 $ 6,646,000 $ 5,310,000 $ 24,312,000
Gross profit 2,654,000 4,233,000 3,015,000 2,198,000 12,100,000
Net income (loss) (576,000) 210,000 (484,000) (2,045,000) (2,895,000)
Basic earnings (loss) per share (0.05) 0.02 (0.04) (0.17) (0.24)
Diluted earnings (loss) per share (0.05) 0.02 (0.04) (0.17) (0.24)
Fiscal 1998
Sales $ 7,103,000 $ 9,087,000 $ 5,546,000 $ 5,305,000 $ 27,041,000
Gross profit 3,333,000 5,035,000 2,879,000 3,209,000 14,456,000
Net income 182,000 1,016,000 75,000 969,000 2,242,000
Basic earnings per share 0.02 0.10 0.01 0.09 0.21
Diluted earnings per share 0.02 0.08 0.01 0.07 0.18
</TABLE>
Note 13 - Subsequent Event
- --------------------------------------------------------------------------------
On February 15, 2000, the Company entered into an Agreement and Plan of Merger
with Key, whereby the Company would be acquired by Key. Key is a public company
and its stock is traded on the Nasdaq National Market under the symbol "KTEC."
Pursuant to the agreement, Key would pay the following for each Company common
share:
a. Cash of $1.00.
b. 1/10 of a new share of Key convertible preferred stock that can be sold back
to Key after two years for the equivalent of $1.00.
c. 1/10 of a new warrant to purchase 1/40 of a share of Key common stock that
can be sold back to Key immediately for the equivalent of $.25.
The agreement specifies other terms, conditions, representations and warranties
for each party. Completion of the transaction is contingent upon approval of the
Company's common stockholders and FMC, the holder of all the Company's Series B
Preferred Stock. If FMC does not consent to the merger, Key has agreed to make a
tender offer for all of the Company's Common Stock.
As part of the acquisition process, registration documents will be filed by both
Key and the Company with the Securities and Exchange Commission ("SEC").
Completion of the transaction, which is subject to SEC and other approvals as
indicated above, is expected by mid-2000. Reference is made to the Company's
recent filings with the SEC for a more complete description of the transaction.
<PAGE>
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Age Position
- -------------------- --- -------------------------------------------
William J. Young 57 President and Chief Executive Officer and
Chairman of the Board of Directors
James Ewan, Ph.D. 51 President and Chief Executive Officer of
SRC VISION, Inc. and Director
Alan R. Steel 55 Vice President of Finance, Chief Financial
Officer and Secretary
Haig S. Bagerdjian 42 Director
Vikram Dutt 58 Director
Marc T. Giles 44 Director
Robert M. Loeffler 76 Director
Jack Nelson 49 Director
Rodger A. Van Voorhis 42 President, Ventek, Inc. and Director
William J. Young became President and Chief Executive Officer of the Company
effective February 1, 1994, and Chairman of the Board in September 1994. Mr.
Young was the President and Chief Executive Officer of Volkswagen of America
from 1991 through March 1993, where he was responsible for all the company's
operations in the United States, which exceeded $2.2 billion in revenue
annually. As CEO of Volkswagen of America, Mr. Young also served as President of
V-Crest Systems, Inc., a computer services company serving 1,200 automobile
agencies, and as a Director of VCI, Inc. a $2 billion financial services
company. From January 1989 through December 1991, Mr. Young served as Vice
President of Sales and Marketing of Volkswagen United States and its 700 dealers
operating in the North American market. From 1982 through 1988, Mr. Young headed
W.J. Young and Associates, an automotive marketing consulting company. From 1979
through May 1983, Mr. Young was the General Manager of the Volkswagen Division
of Volkswagen of America, where he was responsible for implementing the sales
and marketing strategies of the Volkswagen Division and the maintenance and
financial health of the Volkswagen dealer organization of 950 dealers. Prior to
1979, Mr. Young served in the capacity of National Sales Manager, and held other
management positions in the Volkswagen organization and other companies. Mr.
Young is a director of Lithia Automotive Group, a public company.
Dr. James Ewan became President and Chief Executive Officer of the Company's SRC
VISION, Inc. ("SRC") subsidiary in May 1994 and a Director of the Company in
1996. Before joining SRC, Dr. Ewan was with Teledyne Corporation from 1985 to
1994 where he was President of Teledyne Microwave and General Manager of
Teledyne Monolithic Microwave. At Teledyne Microwave, Dr. Ewan was responsible
for restructuring the company from primarily a military electronics company to
one that derived half of revenues from commercial applications. Dr. Ewan led
Teledyne Monolithic Microwave from its start-up phase until it was eventually
merged into Teledyne Microwave as an operating division. Prior to Teledyne, Dr.
Ewan was Section Manager of the Gallium-Arsenide Microelectronics Center of The
Aerospace Corporation from 1980 to 1985. While at Aerospace, Dr. Ewan was
responsible for the development of a range of state-of-the-art compound
semiconductor technology, device and circuit processing and digital and analog
circuit design.
Alan R. Steel became Vice President of Finance and Chief Financial Officer on
March 14, 1994. Mr. Steel was previously the Vice President and Chief Financial
Officer of DDL Electronics, Inc. ("DDL"), a New York Stock Exchange listed
company, since 1983. From 1980 to 1983, he served as Controller for DDL. While
at DDL, Mr. Steel was responsible for handling New York Stock Exchange
compliance, financial and SEC reporting, public and private equity offerings and
shareholder relations. From 1975 to 1980, he served as financial manager for
ARCO Transportation Company, a subsidiary of Atlantic Richfield Company. From
1974 to 1975 he was the Director of Internal Control at Atlantic Richfield
Company. From 1967 to 1974, Mr. Steel was a certified public accountant with
Arthur Andersen & Company.
Rodger Van Voorhis joined the Company's Ventek, Inc. ("Ventek") subsidiary in
1992 as Vice President of Operations and became President in 1996 and a director
of the Company in 1996. Mr. Van Voorhis was previously an Assistant Vice
President of Marketing for United Financial Systems, and held various management
positions at Morvue Electronics, Inc., a designer and manufacturer of wood
veneer defect scanning systems. On July 24, 1996, Mr. Van Voorhis entered into a
five-year employment agreement with Ventek that provides for an annual base
salary of $150,000 and a $375 monthly automobile allowance. The contract
provides that if Mr. Van Voorhis is terminated other than for cause before July
24, 1999, he shall be paid his base salary until that date. Effective February
1, 1999, Mr. Van Voorhis' base salary was changed to $175,000.
Haig S. Bagerdjian is currently Executive Vice President and Chief Legal Officer
of Syncor International Corporation, and President and Chief Executive Officer
of Syncor Overseas Ltd. Syncor is a Woodland Hills, California-based operator of
domestic and international nuclear pharmacy service centers, at which he has
been employed since 1991. From 1987 to 1991, he served in several executive
level positions at Calmark Holding Corporation. He also was General Counsel for
American Adventure, Inc., which was a subsidiary of Calmark Holding. Mr.
Bagerdjian received a J.D. from Harvard Law School and is admitted to the State
Bar of California.
Since 1983, Vikram Dutt has been the President of Aaron, Dutt and Edwards, Inc.,
a Chicago, Illinois consulting firm specializing in consulting and
administration of pension and profit sharing plans. Mr. Dutt received a B.S. in
Chemical Engineering and an M.B.A. from the University of Illinois.
Marc T. Giles became director of the Company in October 1998 concurrent with
FMC's investment in the Company's Preferred Stock. Mr. Giles has been General
Manager of FMC Corporation's FoodTech Food Systems and Handling Division of FMC
FoodTech since January 1997. Mr. Giles joined FMC in January 1988 as director of
marketing and sales for SeparaSystems, FMC's joint venture with DuPont. From
March 1992 to May 1994, he was with FMC's Citrus Systems as marketing manager.
From 1994, Mr. Giles had been director of business development for FMC FoodTech
until named General Manager. Before joining FMC, Mr. Giles was with Norton
Company in a variety of sales and marketing positions. Mr. Giles earned a
Bachelor of Arts degree in economics from Union College in New York.
Since 1978, Robert Loeffler has been a Director, Chairman of the Audit Committee
and member of the Executive Committee and Compensation Committee at PaineWebber
Group, Inc. From 1987 to 1991, Mr. Loeffler was attorney of counsel to Wyman,
Bautzer, Kuchel & Silbert in Los Angeles, California. Prior to that, he spent
ten years as Partner and Managing Partner at Jones, Day, Reavis & Pogue in Los
Angeles prior to his retirement from the firm. From 1965 to 1973, Mr. Loeffler
served in a variety of positions at the asset management company, Investors
Diversified Services, Inc. (IDS), including Chief Legal Officer. Mr. Loeffler
received an LL.B., magna cum laude from Harvard Law School. He is admitted to
the state bars of New York, California, Minnesota and Oklahoma.
Jack Nelson, Esq. served as the Chairman of the Board, Chief Executive Officer
and Treasurer of Caprius, Inc. (or its predecessor companies), a public company,
from 1991 until 1999, and was Vice Chairman from 1990 until June 1991. Caprius
is a designer and manufacturer of breast imaging equipment used to detect breast
cancer. From January 1986 to December 1993, Mr. Nelson was an attorney at the
firm of Zaslowsky, Marx & Nelson.
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
Compensation of Directors
The Company currently compensates directors who are not also officers or
employees of the Company ("outside" directors) for attending Board meetings and
committee meetings in the form of stock options. Generally, outside directors
will be granted options to purchase 100,000 shares of Common Stock at the
closing price determined on the date such person becomes a director of AMV. The
options vest 25% upon becoming a director, with the remaining 75% vesting 25%
per year over the next three years, subject to service as a director. Members of
the Stock Option, Audit, and Compensation Committees receive $400 per meeting
not held in conjunction with a regularly scheduled board meeting. William J.
Young, James Ewan and Rodger Van Voorhis receive no compensation as directors.
All directors are reimbursed for expenses incurred in attending board and
committee meetings.
Executive Compensation
The following table sets forth the compensation for the Chief Executive Officer
("CEO") and each executive officer who received over $100,000 in cash
compensation for the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation ------------------------------
--------------------------------- Restricted Stock
Name and Principal Positions Year Salary Bonus Other Options-# Awards- # (1) (2)
- ---------------------------- ---- ------ ----- ----- ----------- ------------------
<S> <C> <C> <C> <C>
William J. Young 1999 $ 250,000 $ -- $ -- -- --
President & Chief Executive 1998 257,000 -- -- -- --
Officer 1997 250,000 75,000 -- -- 107,500
James Ewan 1999 $ 227,000 $ -- $ 32,500 (3) 75,000 --
President of SRC VISION, Inc. 1998 241,000 -- 32,500 (3) -- --
1997 225,000 75,000 23,500 (3) -- 69,500
Alan R. Steel 1999 $ 143,000 $ -- $ -- -- --
Vice President, Finance and 1998 147,000 -- -- -- --
Chief Financial Officer 1997 143,000 35,000 -- -- 55,500
(1) Restricted stock awards are comprised of the following:
Mr. Young Dr. Ewan Mr. Steel
--------- -------- ---------
Shares granted January 1997 952,000 572,000 476,000
Shares donated back to the Company in 1997 (857,000) (515,000) (428,000)
---------- --------- ----------
Remaining from January 1997 grant 95,000 (a) 57,000 (a) 48,000 (a)
Restricted bonus shares 12,500 (b) 12,500 (b) 7,500 (b)
---------- --------- ----------
Net restricted shares 107,500 69,500 55,500
========== ========= ==========
(a) These restricted shares cannot be traded or transferred unless a
payment of $1.80 per share is made by the employee to the Company. If
this condition is not met, the shares of stock will be forfeited and
returned to the Company. On December 31, 1999, there was no value to
the named executives for the restricted shares since the market value
per share was less than the $1.80 required payment.
(b) These restricted shares were granted in addition to each executive's
cash bonus for 1997. The shares became unrestricted on January 1, 1999.
The value (as determined by independent valuation) of the restricted
shares on the date of issuance (January 1, 1998) was $13,375, $13,375
and $8,025 for Messrs. Young, Ewan and Steel, respectively.
(2) The restricted shares have the same voting and dividend rights as all other
Class A Common Stock.
(3) In 1996, the Company authorized a 7.5%, $100,000 loan to Dr. Ewan, which
loan was funded in 1997. The loan is secured by real property. The loan,
including interest thereon, is due on February 20, 2002. However, if Dr.
Ewan ceases to be an employee of the Company, its parent, its subsidiary or
an affiliated entity before February 20, 2002, Dr. Ewan shall pay to the
Company, on his termination date, in full payment of the Note and accrued
interest thereon, an amount equal to (i) the unpaid principal balance
("Principal"), less (ii) the Principal multiplied by a fraction, the
numerator of which shall be the number of days from February 20, 1997 that
Dr. Ewan was an employee, and the denominator of which is 1,825 (five years
times 365 days). All Principal and accrued interest will be forgiven on
February 20, 2002 if Dr. Ewan is an employee on that date. The amounts
shown represent the amount of Principal and interest forgiveness
attributable to each year.
</TABLE>
Employment Agreements
Effective January 1, 1998, Messrs. Young, Ewan and Steel entered into individual
two-year employment agreements providing for annual salaries of $262,500,
$250,000 and $150,150, respectively. The agreements shall be automatically
renewed for one additional year for each year subsequent to 1999 unless the
Executive or the Company gives notice to the other, in writing, at least 30 days
prior to the expiration of 1998 or, thereafter, 13 months prior to the
expiration of the agreements, of its or his desire to terminate the agreements
or modify their terms. Except for salary and defined duties (see the above
table), the terms of each Executive's separate employment agreement with the
Company are the same. Each employment agreement provides that if the Executive
is terminated by the Company at any time other than for cause, he is entitled to
severance equal to 2.99 times base salary (excluding bonuses). Additionally, the
Company provides each Executive with the use of a car.
Limitation of Liability and Indemnification Matters
The Company's Restated Articles of Incorporation limit the liability of its
directors. As permitted by amendments to the California General Corporation Law
enacted in 1987, directors will not be liable to AMV for monetary damages
arising from a breach of their fiduciary duty as directors in certain
circumstances. Such limitation does not affect liability for any breach of a
director's duty to AMV or its stockholders (i) with respect to approval by the
director of any transaction from which he derives an improper personal benefit,
(ii) with respect to acts or omissions involving an absence of good faith, that
he believes to be contrary to the best interest of AMV or its stockholders, that
involve intentional misconduct or a knowing and culpable violation of law, that
constitute an unexcused pattern or inattention that amounts to an abdication of
his duty to AMV or its stockholders, or that show a reckless disregard for his
duty to AMV or its stockholders in circumstances in which he was, or should have
been aware, in the ordinary course of performing his duties, of a risk of
serious injury to AMV or its stockholders, or (iii) based on transactions
between AMV and its directors or another corporation with interrelated directors
or on improper distributions, loans or guarantees under applicable sections of
the California General Corporation Law. Such limitation of liability also does
not affect the availability of equitable remedies such as injunctive relief or
rescission. AMV has been informed that in the opinion of the Securities and
Exchange Commission, indemnification provisions, such as those contained in
AMV's Restated Articles of Incorporation, are unenforceable with respect to
claims arising under federal securities laws and, therefore, do not eliminate
monetary liability of directors.
AMV's Amended and Restated Bylaws provide that AMV shall indemnify its directors
and officers to the full extent permitted by California law, including
circumstances in which indemnification is otherwise discretionary under
California law, and AMV has entered into indemnity agreements with its directors
and officers providing such indemnity.
Stock Options
The following table sets forth information with respect to options granted to
the named AMV executive officers during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
Percent
Number of of total Potential Realizable
Securities Options/ Value at Assumed
Underlying SARs Annual Rates of Stock
Options/ Granted to Price Appreciation
SARs Employees Exercise of for Option Term
Granted in Fiscal Base Price Expiration -------------------------
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James Ewan 75,000 (1) 36% $ 1.25 7/20/09 $ 59,000 $ 149,000
(1) The options will vest on July 20, 2002.
</TABLE>
No options were exercised by the named executive officers in 1999. The following
table sets forth information concerning options held by each of the named
executive officers, and the value of options held at December 31, 1999:
Number of Shares
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options at
December 31, 1999 December 31, 1999 (1)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ------------------------- -------------------------
William J. Young 500,000/0 $0/$0
James Ewan 300,000/75,000 $0/$0
Alan R. Steel 250,000/0 $0/$0
(1) Amounts are shown as the difference between exercise price and fair market
value (based on a December 31, 1999 closing price of $.78 per share).
In 1997 in connection with their appointments as directors, Messrs. Bagerdjian,
Dutt and Loeffler were each granted an option to purchase 100,000 shares of
Common Stock for $1.69 per share. During 1999, the Board of Directors reduced
the exercise price to $1.25 per share.
1991, 1994 and 1997 Stock Option Plans
The Company has adopted three stock option plans, the 1991 Stock Option Plan
(the "1991 Plan"), the 1994 Stock Option Plan (the "1994 Plan") and the 1997
Nonqualified Stock Option Plan (the "1997 Plan" adopted by the Company's Board
of Directors on September 23, 1997) (collectively the "Plans"), covering
1,000,000, 2,000,000 and 500,000 shares, respectively, of Common Stock, pursuant
to which officers, non-employee directors and employees of the Company, as well
as other persons who render services to or are otherwise associated with the
Company, are eligible to receive incentive and/or nonqualified stock options.
The terms of the Plans are substantially the same, except that incentive stock
options are not permitted under the 1997 Plan. The 1991 Plan expires in December
2001. The 1994 Plan expires in November 2004. The 1997 Plan expires in September
2007. The Plans are administered by the Stock Option Committee of the Board of
Directors, currently consisting of Jack Nelson and Robert M. Loeffler. The
selection of participants, allotments of shares, determination of price and
other conditions of purchase of options will be determined by the Board or the
Stock Option Committee at its sole discretion in order to attract and retain
persons instrumental to the success of the Company. Incentive stock options
granted under the 1991 and 1994 Plans are exercisable for a period of up to ten
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Stock on the date of the grant, except that the
term of an incentive stock option granted under the Plans to a shareholder
owning more than 10% of the voting power of the Company on the date of grant may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the Common Stock on the date of the grant. Non-qualified
options granted under the Plans may be granted at less than the fair market
value of the Common Stock on the date of grant.
As of December 31, 1998, options to purchase 641,317 shares of Common Stock were
available for future grant under the Plans.
SRC Stock Option Plan
During the year ended December 31, 1997, the Board of Directors approved the
adoption of the SRC VISION, Inc. 1997 Stock Option Plan (the "SRC Plan")
covering 396,000 shares of SRC's common stock, pursuant to which officers,
directors, employees and other persons providing significant services to SRC are
eligible to receive incentive and/or non-qualified stock options. The SRC Plan,
which expires in August 2007, is administered by the Stock Option Committee of
SRC's Board of Directors. The selection of participants, allotments of shares,
determination of price and other conditions of purchase of options will be
determined by SRC's Board or the Stock Option Committee at its sole discretion
in order to attract and retain persons instrumental to the success of SRC.
Incentive stock options granted under the SRC Plan are exercisable for a period
of up to ten years from the date of grant at an exercise price which is not less
than the fair market value of SRC's common stock on the date of the grant,
except that the term of an incentive stock option granted under the SRC Plan to
a shareholder owning more than 10% of the voting power of SRC on the date of
grant may not exceed five years and its exercise price may not be less than 110%
of the fair market value of the SRC common stock on the date of the grant.
Non-qualified options granted under the SRC Plan may be granted at less than the
fair market value of the SRC common Stock on the date of grant.
The SRC Plan was established in contemplation of a possible future initial
public offering ("IPO") of SRC common stock to raise long-term growth capital
for SRC. While the Company has no current specific plans to effect such an
offering, the Company's Board of Directors determined that it would be in the
best interest of AMV, as the only stockholder of SRC, to "incentivize" key
directors and employees of SRC prior to an IPO in order to retain the services
of such individuals.
The following table sets forth information with respect to SRC options granted
to the named AMV executive officers during the year ended December 31, 1997. No
SRC options have been granted since 1997.
<TABLE>
<CAPTION>
Exercise
Name and Number of Price
Relationship to SRC Options Granted ($/Share)(1) Expiration Vesting
------------------- --------------- ------------ ---------- -------
<S> <C> <C> <C> <C>
William J. Young, 42,660 $ 1.86 01/09/07 100% on 01/10/06 (2)
Chairman of the Board
James Ewan, President 152,300 $ 1.86 01/09/07 100% on 01/10/06 (2)
and Chief Executive Officer
and Director
Alan R. Steel, Chief Financial 25,005 $ 1.86 01/09/07 100% on 01/10/06 (2)
Officer and Director
(1) The exercise price represents fair market value on the grant date as
determined by independent valuation.
(2) Upon completion of an IPO, vesting will accelerate to 100% on the third
anniversary date of the IPO.
</TABLE>
As of December 31, 1999, options to purchase 105,000 shares of SRC common stock
are available for future grant under the SRC Plan.
1997 Restricted Stock Plan
In January 1997, the Board of Directors adopted the 1997 Restricted Stock Plan
to compensate for past performance, and to retain the services of, selected
officers and directors of the Company and its subsidiaries. A maximum of
2,000,000 shares of Common Stock may be issued under the 1997 Restricted Stock
Plan, which is administered by the Board of Directors. Subject to the provisions
of the 1997 Restricted Stock Plan, the Board may interpret the provisions of,
and adopt amendments to, the plan. Stock awards under the 1997 Restricted Stock
Plan are subject to terms and conditions as determined by the Board. As of
December 31, 1999, 200,000 shares of restricted stock were outstanding pursuant
to the 1997 Restricted Stock Plan.
On February 9, 1999 and December 13, 1999, 350,000 and 100,000 restricted shares
of Common Stock, respectively, were issued from the 1997 Restricted Stock Plan
to Veneer Technology, Inc., a company owned equally by the four former owners of
Ventek, including Mr. Van Voorhis, all of whom are currently key employees of
Ventek. The shares cannot be transferred or traded unless a payment of $1.25 or
$.75 per share, respectively, is made to AMV before January 31, 2001 or July 23,
2002, respectively. If payment is not made by the required date, the shares will
be forfeited and returned to the Company.
1998 Senior Management and Director Stock Purchase Plan
On December 22, 1998, the Board of Directors approved the adoption of the 1998
Senior Management and Director Stock Purchase Plan (the "1998 Plan") to advanced
the interests of the Company by providing stock ownership opportunities for
senior management. The 1998 Plan provided that the Company would loan up to an
aggregate of $100,000 to Messrs. Young, Ewan, Van Voorhis and Steel to purchase
Common Stock on the open market. The 1998 Plan provided that purchases must be
made by March 22, 1999 (the period from December 22, 1998 to March 22, 1999
being the "Plan Period") and that any amounts advanced under the 1998 Plan would
be secured by stock purchased from loan proceeds. During the Plan Period, Mr.
Young borrowed $25,000 to purchase 22,222 shares of Common Stock. The 1998 Plan
terminated on March 22, 1999.
Shareholder Rights Plan
In February 1998, the Company implemented a stock rights program. The Rights
Plan is designed to protect the Company's shareholders against abusive takeover
tactics and to ensure that each shareholder is treated fairly in any transaction
involving an acquisition of control of the Company, such as partial or
two-tiered tender offers that do not treat all shareholders fairly and equally.
The Rights do not affect any takeover proposal, which the Board believes is in
the best interests of the Company's shareholders. The overriding objective of
the Board in adopting the Rights Plan is to preserve and maximize the Company's
value for all shareholders.
Pursuant to the program, stockholders of record on February 27, 1998 received a
dividend of one right to purchase for $15.00 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 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 for a nominal price, 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 AMV Common Stock owned by the acquirer will
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 on the open market without causing a triggering event.
Report of the Compensation Committee on Executive Compensation
During the fiscal year ended December 31, 1999, the Company had a Compensation
Committee of the Board of Directors (the "Committee") consisting of directors
Jack Nelson and Robert M. Loeffler. The compensation of the executive officers
of the Company, including those of the executive officers named in the Executive
Compensation table above, is determined by the Committee.
The Company's executive compensation programs are designed to:
* provide competitive levels of base compensation in order to attract, retain
and motivate high quality employees;
* tie individual total compensation to individual performance and the success
of the Company; and
* align the interests of the Company's executive officers with those of its
stockholders.
In the last five years, the Company has been transformed from a single business
entity founded in 1987 to a holding company with two operating subsidiaries.
Past and current compensation programs reflect the change in business
organization. In view of the relatively brief evolution of the executive
management team, the Company's executive compensation program has a limited
history, with focus being upon base salary and stock-based compensation, such as
grants of stock options and restricted stock.
Base Compensation
In determining base compensation for the Company's executive officers, the
Committee assesses the relative contribution of each executive officer to the
Company, the background and skills of each individual and the particular
opportunities and problems which the individual confronts in his position with
the Company. These factors are then assessed in the context of competitive
market factors, including competitive opportunities with other companies. The
Committee may also supplement base compensation through discretionary bonuses
and/or grants of stock-based compensation in the course of its ongoing
assessments of the performance of the Company's executive officers. In making
its assessments of the Company's executive officers, other than Mr. Young, the
Committee gives significant consideration to the views of Mr. Young including
with respect to awards of stock options.
Stock Options
The Committee believes that the Company, its shareholders and its executive
officers and other employees are well served by stock-based compensation.
Accordingly, the Committee views options granted under the 1991 and the 1994
Plans, the SRC Plan and the restricted stock grants under the 1997 Restricted
Stock Plan and for bonus purposes, as important to an effective executive
compensation policy. The same rationale is also applicable to the Company's
outside directors, pursuant to which awards are granted to new directors meeting
specified criteria.
Chairman of the Board, President and Chief Executive Officer
In determining the compensation of the Chairman of the Board, President and
Chief Executive Officer, the Committee focused upon the programs described
above.
Mr. Young, the Company's Chairman, President and Chief Executive Officer, was
hired in February 1994. Mr. Young receives a base salary and has been granted
stock options and restricted stock. The Committee believes that stock-based
compensation granted to Mr. Young closely aligns his interests with those of the
Company's stockholders.
The Committee believes that the factors described in this report are significant
for determining the Company's performance, and consequently, compensation of
officers; but stockholders should be aware that these are not the only factors
which influence Company stock value or overall performance, and that the same
factor may not be the most significant in any succeeding period. Also, the
achievement of targeted objectives by the Company in any period may not be
solely indicative of the Company's future performance.
Compensation Committee
Robert M. Loeffler
Jack Nelson
<PAGE>
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1999, AMV's Board of Directors had a
Compensation Committee consisting of two directors--Jack Nelson and Robert M.
Loeffler. There are no interlocks between the Company and other entities
involving the Company's executive officers and board members who serve as
executive officers or board members of other entities.
Comparative Stock Performance
The chart below sets forth a line graph comparing the performance of the
Company's Common Stock against the Nasdaq Stock Market - US Index and a peer
group index (Nasdaq Non-Financial Stock Index) for the five years ended December
31, 1999. During the period prior to December 31, 1994, the Company was
primarily engaged in the design, manufacture, and marketing of laser diode
devices. The Company purchased SRC and Ventek, Inc., manufacturers of vision
systems used in defect identification and machine sorting and defect removal
equipment, in 1994 and 1996. As most of the Company's competitors in this
business are privately held, a directly comparable peer group index is not
available. Therefore, the Nasdaq Non-Financial Stock Index was selected as the
peer group index.
The indices assume that the value of the investment in Advanced Machine Vision
Corporation Common Stock and each index was $100 on December 31, 1994, and that
dividends, if any, were reinvested. The performance graph is provided as
required under federal proxy rules.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
12/31/94 12/30/95 12/29/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Advanced Machine
Vision Corporation $ 100.00 $ 240.60 $ 203.00 $ 251.90 $ 142.80 $ 94.00
Nasdaq Stock Market-
US Index 100.00 141.30 173.90 213.10 300.20 542.40
Nasdaq Non-Financial
Stocks 100.00 139.30 169.20 198.10 290.30 559.40
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 10, 2000, by (i) each person who is known
by AMV to own beneficially more than 5% of outstanding Common Stock; (ii) each
of AMV's directors and named executive officers; and (iii) all executive
officers and directors of AMV as a group:
<TABLE>
<CAPTION>
Shares Acquirable Pursuant to: (2)
----------------------------------
Shares Owned Conversion Approximate
---------------------------- of Debt or Percent of
Name and Address Unrestricted Restricted (1) Options Preferred Stock Total Ownership
- ---------------- ------------ -------------- ------- --------------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
FMC Corporation -- -- 1,598,282 1,191,060 2,789,342 17.9%
200 East Randolph Drive
Chicago, IL 60601 (5)
Wellington Management 1,025,000 -- -- -- 1,025,000 8.0%
Company, LLP
75 State Street
Boston, MA 02109 (3)
Ashford Capital
Management, Inc. (6) 960,000 -- -- -- 960,000 7.5%
P. O. Box 4172
Wilmington, DE 19807
William J. Young 291,378 117,222 500,000 -- 908,600 6.7%
3709 Citation Way #102
Medford, OR 97504
Rodger A. Van Voorhis 74,000 2,250,000 -- 333,333 2,657,333 20.0%
4030 W First Avenue #100
Eugene, OR 97402 (4)
Dr. James Ewan 50,000 57,000 300,000 -- 407,000 3.1%
2067 Commerce Drive
Medford, OR 97504
Alan R. Steel 31,500 48,000 250,000 -- 329,500 2.5%
3709 Citation Way #102
Medford, OR 97504
Jack Nelson, Esq. -- -- 100,000 -- 100,000 *
281 E Linden Avenue
Englewood, NJ 07631
Vikram Dutt -- -- 100,000 -- 100,000 *
432 N Clark #003
Chicago, IL 60610
Robert M. Loeffler -- -- 100,000 -- 100,000 *
10701 Wilshire Blvd. #1401
Los Angeles, CA 90024
Haig S. Bagerdjian -- -- 100,000 -- 100,000 *
6464 Canoga Avenue
Woodland Hills, CA 91367
All executive officers and 4,702,433 31.9%
directors as a group
(ten persons)
* Less than 1%.
(1) Reference is made to Note 2 of the Executive Compensation table in Item 11
of this Form 10-K for a description of restrictions.
(2) Represents shares acquirable as of December 31, 1999 and 60 days
thereafter.
(3) Pursuant to Schedule 13G, filed with the Securities and Exchange Commission
on February 9, 2000.
(4) 25,000 of the unrestricted shares are owned by Whamdyne. 2,250,000
restricted shares are owned by Veneer. The shares acquirable upon
conversion relate to convertible debt issued to Veneer. Mr. Van Voorhis is
a 25% owner of both Whamdyne LLC and Veneer Technology, Inc. and is,
therefore, deemed to be a beneficial owner of such shares. See also
"Certain Transactions."
(5) Pursuant to Schedule 13G, filed with the Securities and Exchange Commission
on February 15, 2000.
(6) Pursuant to Schedule 13G, filed with the Securities and Exchange Commission
on February 9, 2000.
</TABLE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Concurrent with the Company's July 1996 acquisition of the assets, operations
and name of Ventek, Inc. (the remaining business being renamed Veneer
Technology, Inc. ("Veneer")), Rodger A. Van Voorhis was appointed a director of
the Company. Mr. Van Voorhis remains a stockholder of Veneer, a private company
engaged in real estate and other business.
In connection with the acquisition, AMV issued the following notes due July 23,
1999 to Veneer: (i) a 6.75% $1,000,000 note; (ii) a 6.75% $2,250,000 note
convertible into the Company's Common Stock at $2.25 per share; and (iii) a 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, or (b) solely in cash in
the event AMV Common Stock is delisted from the Nasdaq Stock Market. The
$2,250,000 note also contains a provision giving Veneer the right to sell back
to AMV up to 1,000,000 shares of AMV Common Stock received upon conversion for
consideration consisting of SRC common stock owned by AMV, but only if an IPO of
SRC common stock is completed before the maturity date of the note. The number
of shares of SRC common stock to be paid shall be determined by dividing the
total market value (as defined) of the shares of AMV Common Stock to be sold by
70% of the IPO price of SRC's common stock. The Company also issued a warrant to
purchase 1,000,000 shares (subsequently reduced to 250,000 shares) of Common
Stock at $2.25 per share.
In February 1999, the Ventek notes were restructured. $750,000 of the $1,000,000
note was prepaid, and the maturity date of the remaining $250,000 was extended
to July 23, 2000. The maturity date of the $2,250,000 note was 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 canceled. In addition,
the remaining 250,000 Class I Warrants were canceled.
In December 1999, the Ventek notes were again restructured by extending the due
dates to July 23, 2001 and increasing the interest rate by 1% to 7.75%.
In September 1998, Ventek entered into a one-year lease for 8,000 square feet of
manufacturing and office space. The lessor is TEV, LLC ("TEV"), which is 50%
owned by Whamdyne LLC ("Whamdyne"). Mr. Van Voorhis is a 25% owner of Whamdyne.
During 1998 and 1999, Ventek paid a total of $34,560 as rent to TEV.
In October 1998, the Company sold 119,106 shares of Series B Preferred Stock to
FMC for $2,620,000. The preferred stock is convertible into 1,191,000 shares of
Common Stock, which, if converted, represented 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
shareholders 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 an
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. If FMC
exercises its 15% option, it will be entitled to elect one additional director.
The option expires October 14, 2003.
<PAGE>
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1,2. Financial Statements and Schedules.
The financial statements and schedules of the Company are set
forth in the "Index to Financial Statements and Financial
Statement Schedules" on page 25.
3. Exhibits.
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger by and among Key Technology, Inc.
("Key"), KTC Acquisition Corp. ("KTC") and the Company dated
February 15, 2000, as amended February 29, 2000. (22)
2.2 Agreement regarding Tender Offer between Key and the Company
dated February 15, 2000, as amended February 29, 2000. (22)
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 ("BofA"). (21)
10.29 Amendment to Business Loan Agreement Dated February 29, 2000
between AMV and BofA.
23 Consent of Independent Accountants.
27 Financial Data Schedule
- ----------------------
(1) Previously filed as an exhibit to Form S-1 (File No. 33-45126).
(2) Previously filed as an exhibit to Form S-3 (File No. 333-10847).
(3) Filed with the SEC on 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.
(22) Filed with the SEC on March 10, 2000 as an exhibit to the Company's
Form 8-K dated March 10, 2000.
(b) Reports on Form 8-K:
On October 19, 1998, a Form 8-K was filed with the SEC regarding the
completion of FMC's purchase of 119,106 shares of the Company's Series B
Preferred Stock.
On January 14, 1999, a Form 8-K was filed with the SEC regarding the
adoption of the 1998 Senior Management and Director Stock Purchase Plan and
an amendment to the Company's Stock Rights Agreement.
On February 16, 1999, a Form 8-K was filed with the SEC regarding a
restructuring of debt due to the former owners of Ventek.
On December 20, 1999, a Form 8-K was filed with the SEC regarding a
restructuring of debt due to the former owners of Ventek.
On January 5, 2000, a Form 8-K was filed with the SEC regarding the
Company's proposal to purchase approximately one million shares of its
common stock on the open market.
On March 10, 2000, a Form 8-K was filed with the SEC regarding an Agreement
and Plan of Merger and Agreement Regarding Tender Offer by and among the
Company, Key and KTC.
<PAGE>
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 15, 2000 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----------- --------------
<S> <C> <C>
/s/ William J. Young Chairman of the Board of Directors,
- -------------------------------------- Chief Executive Officer and President,
William J. Young Principal Executive Officer March 15, 2000
/s/ Alan R. Steel Chief Financial Officer, Principal
- -------------------------------------- Financial and Accounting Officer
Alan R. Steel March 15, 2000
/s/ Haig S. Bagerdjian Director March 22, 2000
- --------------------------------------
Haig S. Bagerdjian
/s/ Vikram Dutt Director March 17, 2000
- --------------------------------------
Vikram Dutt
/s/ James Ewan Director March 20, 2000
- --------------------------------------
James Ewan
Director March __, 2000
- --------------------------------------
Marc T. Giles
/s/ Robert M. Loeffler Director March 13, 2000
- --------------------------------------
Robert M. Loeffler
Director March __, 2000
- --------------------------------------
Jack Nelson
/s/ Rodger A. Van Voorhis Director March 23, 2000
- --------------------------------------
Rodger A. Van Voorhis
</TABLE>
<PAGE>
Advanced Machine Vision Corporation
Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended December 31, 1997, 1998 and 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged Balance
beginning cost and to other at end
of period expenses accounts Deductions of period
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for excess and obsolete
inventory $ 436,000 $ 271,000 $ -- $ -- $ 707,000
============== ============= ============ =========== ===========
Allowance for doubtful accounts $ 280,000 $ -- $ (100,000) $ -- $ 180,000
============== ============= ============ =========== ===========
Deferred tax asset valuation $ 7,322,000 $ -- $ -- $ (977,000) $ 6,345,000
============== ============= ============ =========== ===========
Year ended December 31, 1998:
Allowance for excess and obsolete
inventory $ 707,000 $ (145,000) $ -- $ -- $ 562,000
============== ============= ============ =========== ===========
Allowance for doubtful accounts $ 180,000 $ 50,000 $ -- $ -- $ 230,000
============== ============= ============ =========== ===========
Deferred tax asset valuation $ 6,345,000 $ -- $ -- $(2,174,000) $ 4,171,000
============== ============= ============ =========== ===========
Year ended December 31, 1999:
Allowance for excess and obsolete
inventory $ 562,000 $ (199,000) $ -- $ -- $ 363,000
============== ============= ============ =========== ===========
Allowance for doubtful accounts $ 230,000 $ (25,000) $ -- $ -- $ 205,000
============== ============= ============ =========== ===========
Deferred tax asset valuation $ 4,171,000 $ -- $ 1,058,000 $ -- $ 5,299,000
============== ============= ============ =========== ===========
</TABLE>
Exhibit 23
----------
Consent of Independent Accountants
- --------------------------------------------------------------------------------
We hereby consent to the incorporation by reference in 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 February 29,
2000 relating to the financial statements and financial statement schedule,
which appear in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Portland, Oregon
March 30, 2000
Bank of America
================================================================================
Amendment to Documents
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of February 29, 2000, is
between Bank of America, N. A. formerly known as Bank of America NT & SA (the
"Bank") and Advanced Machine Vision Corporation (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan Agreement
dated as of April 12, 1999 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment shall
have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS IS RESTATED IN ITS
ENTIRETY.
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The Amount of the line
of credit (the "Facility No. 1 Commitment") is Two Million and
00/100 Dollars ($2,000,000.00).
(b) This is a revolving line of credit providing for cash advances.
During the availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit to exceed the
Facility No. 1 Commitment and the limitations specified in
paragraph 1.3 below.
1.2 Availability Period. The line of credit is available between the date
of this agreement and April 30, 2000, or such earlier date as the
availability may terminate as provided in this Agreement (the
"Facility No. 1 Expiration Date").
1.3 Borrowing Base.
(a) Marketable Collateral. The Borrower's obligations to the Bank
under this facility will be secured by marketable collateral of
the following types and otherwise acceptable to the Bank:
Advance Margin Call
Collateral Type Percentage Percentage
--------------- ---------- ----------
Cash 100% 100%
U. S. Government Securities 90% 95%
U. S. Agency Securities 80% 85%
Auction Securities, Corporate
Bonds, Com'l Paper 80% 85%
Investment grade only: A1/P1 or better.
(b) Advance Rate. No extension of credit will be made under this
facility if, as a result, the principal balance outstanding under
this facility would exceed the Borrowing Base. The "Borrowing
Base" is the sum of the amounts determined by multiplying the
Collateral Value by the Advance Percentage for each type of
collateral securing this facility.
(c) Margin Call. The principal balance outstanding under this
facility must not exceed at any one time the sum of the amounts
determined by multiplying the Collateral Value by the Margin Call
Percentage for each type of collateral securing this facility. If
this limit is exceeded, the Borrower shall have two banking days
from the date the Borrower is notified by the Bank of such
noncompliance, to either pledge additional collateral acceptable
to the Bank, in its sole discretion, or reduce the principal
balance outstanding under this facility so that, in either case,
the principal balance outstanding is less than the Borrowing
Base. This two-day notice period and opportunity to cure shall
not apply if the collateral threatens to decline speedily in
value, and in such case the Borrower agrees that the Bank may
immediately at the Bank's sole option (i) declare amounts due
under this Agreement to be immediately due and payable, and/or
(ii) sell all or any part of the collateral.
(d) The "Collateral Value" of collateral shall be determined at any
given time as follows:
(i) Collateral Value will be the market value of the securities
pledged as determined from time to time by the Bank's
Corporate Treasury/Institutional Investment Sales office in
Seattle.
(e) If no event of default has occurred under this Agreement or would
result from such action, the Borrower may (i) sell or trade the
collateral, or substitute new collateral for existing collateral,
or (ii) withdraw any part of the collateral, provided that, in
any event, the new collateral shall be acceptable to the Bank in
its sole discretion and the principal balance outstanding under
this facility shall be less than the Borrowing Base.
(f) If any of the collateral is ever margin stock, the Borrower will
provide the Bank a Form U-1 Purpose Statement, and the Bank and
the Borrower will comply with the restrictions imposed by
Regulation U of the Federal Reserve, which may require a
reduction in the Advance Percentage of the margin stock
collateral.
(g) If any of the collateral is or may be considered restricted or
control securities for purposes of Rule 144 of the Securities and
Exchange Commission, the Borrower shall provide, in form and
substance acceptable to the Bank, such information concerning the
securities as may be required by the Bank, together with an
agreement regarding Rule 144 executed by the owner of the
securities. The Advance Percentage and Margin Call Percentage for
securities covered by Rule 144 may be set by the Bank at a lower
rate than specified above.
For regulatory reasons, the Bank will not accept as collateral
Ineligible Securities while they are being underwritten by Banc
of America Securities LLC, or for thirty days thereafter. Banc of
America Securities LLC is a wholly-owned subsidiary of Bank of
America Corporation, and is a registered broker-dealer which is
permitted to underwrite and deal in certain Ineligible
Securities. "Ineligible Securities" means securities which may
not be underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. ss. 24, Seventh), as amended.
1.4 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Prime Rate plus 0.5
percentage points.
(b) The Prime Rate is the rate of interest publicly announced from
time to time by the Bank as its Prime Rate. The Prime Rate is set
by the Bank based on various factors, including the Bank's costs
and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans.
The Bank may price loans to its customers at, above, or below the
Prime Rate. Any change in the Prime Rate shall take effect at the
opening of business on the day specified in the public
announcement of a change in the Bank's Prime Rate.
1.5 Repayment Terms
(a) The Borrower will pay interest on February 28, 2000, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit
no later than the Facility No. 1 Expiration Date.
(c) Any interest period for an optional interest rate (as described
below) shall expire no later than the Expiration Date.
1.6 Optional Interest Rates. Instead of the interest rate based on the
Bank's Prime Rate, the Borrower may elect the optional interest rates
listed below during interest periods agreed to by the Bank and the
Borrower. The optional interest rates shall be subject to the terms
and conditions described later in this Agreement. Any principal amount
bearing interest at an optional rate under this Agreement is referred
to as a "Portion." The following optional interest rates are
available:
(a) The IBOR Rate plus 2.35 percentage points.
2. OPTIONAL INTEREST RATES.
2.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on
the first day of each month during the interest period. At the end of
any interest period, the interest rate will revert to the rate based
on the Prime Rate, unless the Borrower has designated another optional
interest rate for the Portion. No Portion will be converted to a
different interest rate during the applicable interest period. Upon
the occurrence of an event of default under this Agreement, the Bank
may terminate the availability of optional interest rates for interest
periods commencing after the default occurs.
2.2 IBOR Rate. The election of IBOR Rates shall be subject to the
following terms and requirements.
(a) The interest period during which the IBOR Rate will be in effect
will be no shorter than 30 days and no longer than one year. The
last day of the interest period will be determined by the Bank
using the practices of the offshore dollar inter-bank market.
(b) Each IBOR Rate Portion will be for an amount not less than the
following:
(i) for interest periods of 91 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) For interest periods of between 30 days and 90 days, Five
Hundred Thousand Dollars ($500,000).
(c) The Borrower may not elect an IBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last
day of the applicable interest period.
(d) The "IBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
IBOR Rate = IBOR Base Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "IBOR Base Rate" means the interest rate at which the Bank's
Grand Cayman Branch, Grand Cayman, British West Indies,
would offer U.S. dollar deposits for the applicable interest
period to other major banks in the offshore dollar
inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation
D, rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(e) Each prepayment of an IBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a
prepayment fee as described below. A "prepayment" is a payment of
an amount on a date earlier than the scheduled payment date for
such amount as required by this Agreement.
(f) The prepayment fee shall be in an amount sufficient to compensate
the Bank for any loss, cost or expense incurred by it as a result
of the prepayment, including any loss of anticipated profits and
any loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain such Portion or from fees
payable to terminate the deposits from which such funds were
obtained. The Borrower shall also pay any customary
administrative fees charged by the Bank in connection with the
foregoing. For purposes of this paragraph, the Bank shall be
deemed to have funded each Portion by a matching deposit or other
borrowing in the applicable inter-bank market, whether or not
such Portion was in fact so funded.
(g) The Bank will have no obligation to accept an election for an
IBOR Rate Portion if any of the following described events has
occurred and is continuing:
(i) dollar deposits in the principal amount, and for periods
equal to the interest period, of an IBOR Rate Portion are
not available in the offshore dollar inter-bank market; or
(ii) the IBOR Rate does not accurately reflect the cost of an
IBOR Rate Portion.
2.3 Paragraph 4.1 is amended to read in its entirety as follows:
4.1 Personal Property. The Borrower's obligations to the Bank under
this Agreement will be secured by personal property the Borrower
now owns or will own in the future as listed below. The
collateral is further defined in security agreement(s) executed
by the Borrower. In addition, all personal property collateral
securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the Federal Truth in Lending law,
unless the Borrower has otherwise agreed in writing). All
personal property collateral securing any other present or future
obligations of the Borrower to the Bank shall also secure this
Agreement.
(a) Cash.
(b) Marketable securities.
For regulatory reasons, the Bank will not accept as collateral
Ineligible Securities while they are being underwritten by Banc
of America Securities LLC, or for thirty days thereafter. Banc of
America Securities LLC is a wholly-owned subsidiary of Bank of
America Corporation, and is a registered broker-dealer which is
permitted to underwrite and deal in certain Ineligible
Securities. "Ineligible Securities" means securities which may
not be underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. ss. 24, Seventh), as amended.
2.4 Paragraph 4.2 is deleted in its entirety.
2.5 In Subparagraph 5.3(b) the account number "2801407797" is substituted
for the account number "2801300995."
2.6 In Subparagraph 5.4(a) the account number "2801407797" is substituted
for the account number "2801300995."
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a)
there is no event which is, or with notice or lapse of time or both
would be, a default under the Agreement except those events, if any,
that have been disclosed in writing to the Bank or waived in writing
by the Bank, (b) the representations and warranties in the Agreement
are true as of the date of this Amendment as if made on the date of
this Amendment, (c) this Amendment is within the Borrower's powers,
has been duly authorized, and does not conflict with any of the
Borrower's organizational papers, and (d) this Amendment does not
conflict with any law, agreement, or obligation by which the Borrower
is bound.
4. Effect of Amendment. Except as provided in this Agreement, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of this
Agreement.
Bank of America, N.A. Advanced Machine Vision Corporation
By:_______________________________ By:__________________________________
Alan R. Steel
Vice President, Finance and CFO
By:__________________________________
William J. Young
Chairman, President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
December 31, 1999 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> ADVANCED MACHINE VISION CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,889
<SECURITIES> 0
<RECEIVABLES> 1,806
<ALLOWANCES> 205
<INVENTORY> 8,399
<CURRENT-ASSETS> 16,965
<PP&E> 8,174
<DEPRECIATION> 3,314
<TOTAL-ASSETS> 28,020
<CURRENT-LIABILITIES> 6,024
<BONDS> 6,294
2,579
0
<COMMON> 26,103
<OTHER-SE> (12,980)
<TOTAL-LIABILITY-AND-EQUITY> 28,020
<SALES> 24,312
<TOTAL-REVENUES> 24,312
<CGS> 12,212
<TOTAL-COSTS> 26,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> (2,895)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,895)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
