SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                     --------------------------------------

                                    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

                     --------------------------------------

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
<PAGE>

                                     Part I
                                     ------

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
--------

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
--------------------------------------------------------------------------------
  VHS OPTISORT(TM)          Food processing,        Potato Chips, French Fries,
                            Plastics recycling      Whole Potatoes, Vegetables,
                                                    Polyethyl Teraphthalate
                                                    Green/Clear
--------------------------------------------------------------------------------
  KROMA-SORT(R)             Food processing,        Vegetables, Plastic Flake
                            Plastics recycling
--------------------------------------------------------------------------------
  SPECTRA-SORT(TM)          Food processing,        Potato Products, Cereals,
                            Plastics recycling      Vegetables
--------------------------------------------------------------------------------
  Prism(TM)                 Food processing         Potato Products, Vegetables,
                                                    Other Food Items
--------------------------------------------------------------------------------
  Pulp Wood Sorter          Forest industry         Wood Chips
--------------------------------------------------------------------------------
  Tobacco Sorter II         Tobacco                 Tobacco, Dry Food Products
--------------------------------------------------------------------------------
  "New Vision" Veneer       Plywood Veneer          Softwood Veneer Production
  Scanning System
--------------------------------------------------------------------------------
  "Sequoia Sentry"          Plywood Veneer          Softwood Veneer Production
  Dryer Control System
--------------------------------------------------------------------------------
  GS2000 Veneer Grading     Plywood Veneer          Softwood Veneer Production
  System
--------------------------------------------------------------------------------

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>