SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


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


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997


                           Commission File No. 0-20097
                     --------------------------------------


                       ADVANCED MACHINE VISION CORPORATION


                            A California Corporation
                   IRS Employer Identification No. 33-0256103
                               2067 Commerce Drive
                                Medford, OR 97504
                            Telephone: 541-776-7700


                            Former Name: ARC Capital
                            ------------------------


Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                                                Yes |X|   No |_|

On March 31, 1997, registrant had 13,296,524 shares of Class A Common Stock, and
101,835  shares  of  Class  B  Common  Stock,  all  no  par  value,  issued  and
outstanding.




                            Exhibit Index at Page 16

<PAGE>


                                      INDEX



                                                                     Page Number

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets..........................................1
          Consolidated Statements of Operations................................2
          Consolidated Statements of Cash Flows................................3

          Notes to Unaudited Consolidated Financial Statements.............4 - 9

Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..........................9 - 15


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings..............................................15 - 16

Item 6.   Exhibits and Reports on Form 8-K....................................16

          Signature...........................................................16


<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements
================================================================================
Advanced Machine Vision Corporation
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
                                                                                   March 31,        December 31,
                                                                                     1997               1996
                                                                                   ---------        ------------
                                                                                  (unaudited)         (audited)
                                     ASSETS
Current assets:
<S>                                                                             <C>                <C>          
     Cash and cash equivalents                                                  $   2,710,000      $   1,909,000
     Accounts receivable, net                                                       4,931,000          4,979,000
     Inventories                                                                    8,479,000          8,132,000
     Prepaid expenses                                                                 630,000            391,000
                                                                                -------------      -------------

              Total current assets                                                 16,750,000         15,411,000
Property, plant and equipment, net                                                  6,297,000          6,488,000
Intangible assets, net                                                              7,546,000          7,876,000
Other assets                                                                        1,467,000          1,163,000
                                                                                -------------      -------------

                                                                                $  32,060,000      $  30,938,000
                                                                                =============      =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                           $   2,378,000      $   1,897,000
     Short-term borrowings                                                            799,000            947,000
     Accrued liabilities                                                            1,621,000          1,299,000
     Customer deposits                                                              2,471,000          2,463,000
     Accrued payroll                                                                  942,000            707,000
     Warranty reserve                                                                 469,000            479,000
     Current portion of notes payable                                               1,443,000          1,706,000
                                                                                -------------      -------------

              Total current liabilities                                            10,123,000          9,498,000
                                                                                -------------      -------------
Notes payable, less current portion                                                14,551,000         14,940,000
                                                                                -------------      -------------
Commitments and contingencies
Shareholders' equity:
     Common stock:
         Class A - no par value, one vote per share: 60,000,000
              shares authorized, 13,297,000 and 11,140,000
              shares issued and outstanding at March 31, 1997
              and December 31, 1996, respectively                                  25,920,000         25,648,000
         Class B - no par value, one vote per share:  3,000,000
              shares authorized, 102,000 and 110,000 shares
              issued and outstanding at March 31, 1997 and
              December 31, 1996, respectively                                          66,000             72,000
     Common stock warrants                                                          2,403,000          2,403,000
     Additional paid in capital                                                     2,797,000          2,797,000
     Accumulated deficit                                                          (23,601,000)       (24,370,000)
     Cumulative translation adjustment                                               (199,000)           (50,000)
                                                                                -------------      -------------

              Total shareholders' equity                                            7,386,000          6,500,000
                                                                                -------------      -------------

                                                                                $  32,060,000      $  30,938,000
                                                                                =============      =============

                      See Accompanying Notes to Unaudited Consolidated Financial Statements.

</TABLE>

<PAGE>

================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,
                                                                                 ----------------------------
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (unaudited)

<S>                                                                             <C>              <C>         
Net sales                                                                       $  9,337,000     $  3,613,000
Cost of sales                                                                      4,730,000        2,134,000
                                                                                ------------     ------------

Gross profit                                                                       4,607,000        1,479,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         1,253,000          814,000
     Research and development                                                      1,019,000          818,000
     General and administrative                                                    1,032,000          883,000
     Amortization of intangible assets                                               199,000           95,000
     Charge for acquired in-process technology                                            --        4,915,000
     Charge for royalty expense                                                           --          647,000
                                                                                ------------     ------------

                                                                                   3,503,000        8,172,000
                                                                                ------------     ------------

Income (loss) from operations before other income and expense                      1,104,000       (6,693,000)

Other income and expense:
     Investment and other income                                                      57,000           68,000
     Interest expense                                                               (360,000)        (172,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                    801,000       (6,797,000)

Provision for income taxes                                                            32,000               --
                                                                                ------------     ------------

Net income (loss)                                                               $    769,000     $ (6,797,000)
                                                                                ============     ============

Earnings (loss) per share                                                       $      0.06      $       (0.69)
                                                                                -----------      ------------

Weighted average shares outstanding                                               13,086,000        9,899,000
                                                                                ============     ============

                      See Accompanying Notes to Unaudited Consolidated Financial Statements.
</TABLE>
<PAGE>

================================================================================
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
                                                                                    Three Months Ended March 31,
                                                                                    ----------------------------
                                                                                       1997              1996
                                                                                       ----              ----
                                                                                             (unaudited)
<S>                                                                                <C>              <C>            
Cash flows from operating activities:
   Net (loss) income                                                               $    769,000     $ (6,797,000)
   Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
     Charge for acquired in-process technology                                               --        4,915,000
     Charge for royalty expense                                                              --          647,000
     Depreciation and amortization                                                      370,000          232,000
     Changes in assets and liabilities (net of amounts purchased
       in acquisition):
       Accounts receivable                                                                4,000          527,000
       Inventories                                                                     (630,000)        (671,000)
       Prepaid expenses and other assets                                               (499,000)        (667,000)
       Accounts payable, short-term borrowings, accrued liabilities,
         customer deposits, accrued payroll, and warranty reserve                       989,000          913,000
                                                                                   ------------     ------------

         Net cash (used in) provided by operating activities                          1,003,000         (901,000)
                                                                                   ------------     ------------

Cash (used in) provided by investing activities:
   Acquisition of Pulsarr                                                                    --       (3,897,000)
   Purchases of property and equipment                                                 (142,000)        (160,000)
                                                                                   ------------     ------------

         Net cash provided by (used in) investing activities                           (142,000)      (4,057,000)
                                                                                   ------------     -------------

Cash (used in) provided by financing activities:
   Notes payable to bank and others, net                                                (75,000)         176,000
   Proceeds from common stock issuances                                                      --        2,000,000
   Proceeds from exercise of stock options                                               15,000           20,000
                                                                                   ------------     ------------

         Net cash provided by financing activities                                      (60,000)       2,196,000
                                                                                   ------------     ------------

Net (decrease) increase in cash                                                         801,000       (2,762,000)

Cash and cash equivalents, beginning of the period                                    1,909,000        4,171,000
                                                                                   ------------     ------------

Cash and cash equivalents, end of the period                                       $  2,710,000     $  1,409,000
                                                                                   ============     ============

                      See Accompanying Notes to Unaudited Consolidated Financial Statements.
</TABLE>
<PAGE>

              ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
================================================================================
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

1.   Principles Of Consolidation
--------------------------------
In the opinion of the  management of Advanced  Machine Vision  Corporation  (the
"Company"  or  "AMV"),  formerly  ARC  Capital,  the  accompanying  consolidated
financial  statements,  which have not been audited by  independent  accountants
(except for the balance sheet as of December 31, 1996),  reflect all adjustments
(consisting  of normal  recurring  accruals)  necessary  to  present  fairly the
Company's  financial  position at March 31, 1997,  and  December  31, 1996,  the
results of operations and cash flows for the three month periods ended March 31,
1997 and 1996. The financial  statements include the accounts of the Company and
its four wholly-owned  subsidiaries,  Applied Laser Systems, Inc. ("ALSO"),  SRC
VISION, Inc. ("SRC"), ARC Netherlands bv and its respective subsidiary,  Pulsarr
Holding bv ("Pulsarr"),  from its March 1, 1996,  acquisition  date, and Ventek,
Inc.  ("Ventek") from its July 24, 1996,  acquisition date (see Note 8 regarding
the sale of Pulsarr in May 1997).

Certain  notes and other  information  are  condensed  or omitted in the interim
financial  statements  presented in this  Quarterly  Report on Form 10-Q.  These
financial  statements  should be read in  conjunction  with the  Company's  1996
annual report on Form 10-K.

2.   Nature Of Operations
-------------------------
In February 1994, the Company acquired all of the issued and outstanding capital
stock of SRC for $8.1 million in cash. In March 1996,  the Company  acquired all
of the issued and  outstanding  stock of Pulsarr  for cash of $6.5  million  and
notes payable of $1.3 million (see Note 8 regarding the sale of Pulsarr for $8.4
million in cash in May 1997).  In July 1996,  the Company  acquired the business
and certain assets of Ventek,  subject to certain liabilities,  for $5.1 million
in notes and other  securities.  The  operations  of each of the three  acquired
entities  are  included  in  the  consolidated  financial  results  since  their
respective  acquisition dates. Through these subsidiaries,  the Company designs,
manufactures and markets  computer-aided vision defect detection and sorting and
defect  removal  equipment for use in a variety of  industries,  including  food
processing,  wood products and recycling.  The Company's systems combine optical
and mechanical  systems  technologies  to perform diverse  scanning,  analytical
sensing,  measuring  and sorting  applications  on a variety of products such as
food, wood and plastic. The Company sells its products throughout the world.

3.   Financing
--------------
In April  1995,  the  Company  borrowed  $2,160,000  pursuant  to a  convertible
subordinated  secured  note.  Interest  on the note was 10.25%  and was  payable
semi-annually.  The note was secured by the issued and outstanding capital stock
of SRC.  The note was  convertible  into the  Company's  Class A Common Stock at
$1.875 per share. In connection  with the borrowing,  the Company paid a finders
fee of $160,000 and issued 300,000  warrants to purchase Class A Common Stock at
$1.875  per  share.  In  October  1996 and March  1997,  $645,000  and  $250,000
principal amounts of the note were converted by the debtholders into 344,000 and
133,000  shares  of Class A Common  Stock.  The  remaining  principal  amount of
$1,265,000 was paid in April 1997.

In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note. Interest on the note is 6.75% and is payable quarterly.  The interest rate
may be adjusted upward on each  anniversary date of the note if the market price
of the Company's  Class A Common Stock fails to reach certain  levels.  In April
1997,  the interest  rate was  adjusted to 9.75%.  The maximum  possible  coupon
interest  rate is 11.25% if none of the market  price  thresholds  are met.  The
principal  amount is due in April 2001.  The note is secured by 54% of the stock
of ARC Netherlands bv, a wholly-owned  subsidiary of the Company  established to
purchase  Pulsarr.  The note is  convertible  into the Company's  Class A Common
Stock at $2.125 per share. In connection with the borrowing,  the Company paid a
finders fee of $400,000 and issued  340,000  warrants to purchase Class A Common
Stock at $2.125 per share.

In July 1996, AMV issued the following  notes in connection with the acquisition
of  Ventek:  (i) the  6.75%  $1,000,000  note due July  23,  1999;  (ii) a 6.75%
$2,250,000 note due July 23, 1999  convertible into the Company's Class A Common
Stock at $2.25 per share;  and (iii) a  $1,125,000  note and stock  appreciation
rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock
or at the Company's  option,  in cash on July 23, 1999, or (b) solely in cash in
the event AMV  Common  Stock is  delisted  from the  Nasdaq  Stock  Market.  The
$1,125,000 note and stock appreciation  rights payable were valued at $1,529,000
on the  acquisition  date based upon an  independent  appraisal  received by the
Company. All three notes are secured by all of the issued and outstanding shares
of Ventek.

4.   Stock Transactions; Shares Eligible For Future Sale; Effect Of Warrants,
     Options And Convertible Securities; Possible Dilution
----------------------------------------------------------
In March 1996, the Company sold 1,400,000  shares of its Class A Common Stock in
a private  Regulation S offering to foreign  investors at $1.625 per share,  the
market price on the date the related Subscription Agreement was entered into. In
connection with the private  placement,  the Company paid finders fees and other
costs of approximately  $700,000 and issued 240,000 warrants to purchase Class A
Common Stock at $2.00 per share.

On February 15,  1996,  the Company  redeemed all 497,094  shares of its Class E
Common Stock for nominal consideration. Also on that date, the 3,002,906 Class E
Warrants  to  purchase  Class A Common  Stock  ceased  to exist  because  escrow
conditions related to the warrants were not met.

In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong  incentives  to enhance the Company's  growth.  The
total  number  of shares of Class A Common  Stock  issuable  under the 1997 Plan
shall not exceed  2,000,000.  In January 1997, the Company's  Board of Directors
awarded  2,000,000  shares  of  restricted  Class A Common  Stock  to three  key
employees of the Company.  As to 10% of the stock,  such shares cannot be traded
or  transferred  unless (i) the  employee  remains in the employ of the  Company
until  January  10,  2000 and (ii) a  payment  of $1.80 per share is made by the
employee  to AMV.  As to 90% of the  stock,  such  stock  cannot  be  traded  or
transferred  unless,  in addition to the conditions in the prior  sentence,  the
market price of the stock as quoted by Nasdaq or other applicable stock exchange
for any 30 consecutive days prior to the third  anniversary date of the award is
at least $20 per share.  If any of these  conditions  are not met,  the  related
shares of stock will be forfeited and returned to the Company.

On March 8, 1997 and April 1, 1997,  188,400 Unit  Purchase  Options  originally
issued in connection with the Company's 1992 initial public offering and 135,000
Laidlaw   warrants,   respectively,   expired   unexercised,   thereby  reducing
potentially  outstanding  shares and  proforma  proceeds  in the table  below by
1,830,000 and $6,304,000, respectively.

Schedule of  Outstanding  Stock,  Warrants,  Units and Potential  Dilution:  The
following  table  summarizes,  as of April 1, 1997,  outstanding  common  stock,
potential dilution to the outstanding common stock upon exercise of warrants and
conversion  of  convertible  debt,  and proforma  proceeds  from the exercise of
warrants.  The table  also sets  forth the  exercise  or  conversion  prices and
warrant expiration and debt due dates.

<TABLE>
<CAPTION>
                                                                                                      Proforma
                                   Number or Principal                Class A Common                  Proceeds
                                   Amount Outstanding    Conversion     Stock After     Conversion     or Debt
          Security                  at April 1, 1997       Factor       Conversion         Price      Reduction
          -----------------------------------------------------------------------------------------------------
<S>                                    <C>                   <C>     <C>                 <C>       <C>         
         Common Stock:
          Class A                       13,296,524                      13,296,524
          Class B                          101,835                         101,835
                                                                     -------------

         Total currently outstanding                                    13,398,359
                                                                     -------------
         Warrants (expiration date):
          A (3/9/98)                     2,941,963           1.4         4,118,748       $  2.84   $    11,697,000
          B (3/9/98)                     4,354,863 (A)       1.4         6,096,808          4.17        25,424,000
          C (3/9/98)                       846,250           1.4         1,184,750          2.21         2,618,000
          D (6/30/98-7/31/98)              275,000            1            275,000          2.75           756,000
          F (4/12/98)                      300,000            1            300,000          1.88           564,000
          G (2/28/99)                      240,000            1            240,000          2.00           480,000
          H (4/16/01)                      340,000            1            340,000          2.13           724,000
          I (7/23/01)                    1,000,000 (B)        1          1,000,000          2.25         2,250,000
          J (9/30/99)                      300,000            1            300,000          2.03           608,000
          Gerinda (8/97)                   300,000            1            300,000          5.00         1,500,000
                                                                     -------------                 ---------------

                                                                        14,155,306                      46,621,000
                                                                     -------------                 ---------------
         Convertible Debt (due date):
          10.25% Notes (4/13/97)       $ 1,265,000 (C)                     675,000          1.88         1,265,000
          6.75% Notes (4/16/01)          3,400,000                       1,600,000          2.13         3,400,000
          6.75% Ventek Note (7/23/99)    2,250,000                       1,000,000          2.25         2,250,000
          6% Note (2/28/01)                980,000 (D)                     441,486          2.22           980,000
          Ventek Note (7/23/99)          1,529,000 (B)                   1,800,000                       1,529,000
                                                                     -------------                 ---------------

                                                                         5,516,486                       9,424,000
                                                                     -------------                 ---------------
         Potentially outstanding shares and proforma
            proceeds and reduction of debt                              33,070,151                 $    56,045,000
                                                                     =============                 ===============

<FN>

     (A)  Includes 1,412,900 outstanding plus 2,941,963 assuming exercise of the
          Class A Warrants.

     (B) The  Company  issued  the  $1,529,000  note  and  Class  I  Warrant  in
         connection  with the  Ventek  acquisition  (see  Note  5).  The note is
         payable (a) at the  Company's  option,  in cash or by delivery of up to
         1,800,000 shares of Class A Common Stock on the third  anniversary date
         of the note;  or (b)  solely in cash in the event AMV  Common  Stock is
         delisted from the Nasdaq Stock Market. The Warrant vests 25% in each of
         the next four years if sales and earnings objectives are achieved.

     (C) This note was paid in full in April 1997.

     (D) This note was paid in full in May 1997 in conjunction  with the sale of
         Pulsarr (see Note 8).
</FN>
</TABLE>

The proforma amounts above are for illustrative purposes only. Unless the market
price of AMV's Class A Common  Stock rises  significantly  above the exercise or
conversion  prices,  it is unlikely  that any warrants will be exercised or that
the debt will be converted.

In  addition,  on March  31,  1997,  AMV had  outstanding  options  to  purchase
3,370,000 shares of Class A Common Stock, 2,783,000 of which are under its stock
option plans.

The existence of these  outstanding  warrants,  options,  and convertible  debt,
including  those  granted or to be granted  under  AMV's Stock  Option  Plans or
otherwise,  and potentially issuable shares pursuant to antidilution  provisions
of warrant  agreements  could  adversely  affect AMV's  ability to obtain future
financing.  The price which AMV may receive for the Class A Common  Stock issued
upon exercise of options and warrants, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of Class A Common Stock at
the time such options and warrants are exercised or debt is  converted.  For the
life of the warrants,  options and  convertible  debt, the holders are given, at
little or no cost, the  opportunity to profit from a rise in the market price of
their Class A Common Stock without assuming the risk of ownership. Moreover, the
holders of the options and warrants might be expected to exercise them at a time
when AMV would,  in all  likelihood,  be able to obtain needed  capital by a new
offering of its  securities on terms more  favorable  than those provided for by
the options and warrants.

5.   Earnings (Loss) Per Share
------------------------------
Earnings  (loss) per share is computed  based on the weighted  average number of
common  shares and dilutive  common  equivalent  shares  outstanding  during the
period.  Dilutive common  equivalent  shares consist of the shares relating to a
note and stock appreciation right agreement, options and warrants.

As Advanced  Machine Vision  Corporation  has  outstanding  options and warrants
which, in the aggregate,  exceed 20% of the common stock  currently  outstanding
(see Note 4), AMV is required to follow the provisions of Accounting  Principles
Board (APB) Opinion No. 15, paragraph 38, in calculating  earnings per share, if
dilutive.  APB 15,  paragraph 38, assumes the aggregate  exercise of all options
and warrants and certain  other  computations.  If earnings  (loss) per share so
computed resulted in a lower earnings or greater loss per share when compared to
earnings (loss) per share excluding such items, such amount would be reported in
the financial statements.  The APB 15, paragraph 38 calculation was not dilutive
for the quarters ended March 31, 1997 and 1996.

Fully  diluted and primary  earnings  (loss) per share are the same  amounts for
each period presented.

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting  Standards  No.  128,  "Earnings  per Share"  (FAS 128).  The changes
required by FAS 128 adjust the  calculation  of  earnings  per share (EPS) under
generally accepted accounting principles in the U. S. to be more consistent with
international  standards.  Under the new  standard,  companies  will replace the
reporting of "primary" EPS with "basic" EPS. Basic EPS is calculated by dividing
the income  available to common  stockholders by the weighted  average number of
common shares outstanding for the period, without consideration for common stock
equivalents.  "Fully diluted" EPS will be replaced by "Diluted" EPS. Diluted EPS
is computed  similarly to fully diluted EPS under the  provisions of APB Opinion
No. 15. FAS 128 will be effective for periods  beginning after December 15, 1997
and early application is not permitted.  However,  proforma EPS amounts computed
pursuant to FAS 128 are permitted and are shown below.

<TABLE>
<CAPTION>
                                                                   Proforma
                               ---------------------------------------------------------------------------------
                                                        For the Quarter Ended March 31,
                               ---------------------------------------------------------------------------------
                                                1997                                       1996                 
                               ---------------------------------------  ----------------------------------------
                                                                Per                                       Per
                                  Income         Shares        Share       (Loss)          Shares        Share
                                (Numerator)   (Denominator)   Amount     (Numerator)    (Denominator)   Amount
                                -----------   -------------   ------     -----------    -------------   ------
<S>                            <C>               <C>                    <C>               <C>           <C>   
Basic EPS:
Income (loss) available to
   common shareholders         $   769,000       13,398,000             $ (6,797,000)     9,899,000
Reduction for contingently
   returnable shares as all
   conditions were not met
   as of period end                     --       (2,000,000)                      --             --
                               -----------     ------------             ------------    -----------
Income (loss) available to
   common shareholders         $   769,000       11,398,000   $ 0.07    $ (6,797,000)     9,899,000     $ (0.69)
                                                              ======                                    =======

Effect of Dilutive Securities
Note and stock appreciation
   rights agreement                 25,000        1,800,000                       --             --
Stock options                           --          686,000                       --             --
Convertible debt                   137,000        3,716,000                       --             --
                               -----------     ------------             ------------    -----------

Diluted EPS:
Income (loss) available to
   common shareholders
   and assumed conversions     $   931,000       17,600,000   $ 0.05    $ (6,797,000)     9,899,000     $ (0.69)
                               ===========     ============   ======    ============    ===========     =======
</TABLE>

Options to purchase 2,684,000 shares of common stock between $1.69 and $4.84 and
warrants to purchase  14,290,000  shares of common stock between $1.88 and $5.00
were not included in the  computation  of Diluted EPS because such  options' and
warrants'  exercise  prices were  greater  than the average  market price of the
common shares.

6.   Acquisitions Of Pulsarr and Ventek
---------------------------------------
On March 1, 1996, the Company  acquired all of the outstanding  capital stock of
Pulsarr for cash of $6.5 million and notes payable of $1.3 million.  On July 24,
1996, the Company acquired certain assets and the business of Ventek, subject to
certain  liabilities,   for  approximately  $5.1  million  in  notes  and  other
securities.  These  acquisitions  are accounted for under the purchase method of
accounting. On May 6, 1997, Pulsarr was sold (see Note 8).

The consolidated results of operations include Pulsarr's and Ventek's results of
operations from their respective acquisition dates.

The  proforma  condensed  combined  statements  of  operations,  shown  below as
supplemental information, assume the acquisitions of Pulsarr and Ventek occurred
as of the  beginning  of the 1996  three-month  period.  However,  the  proforma
combined  balances are not  necessarily  indicative of balances which would have
resulted had the  acquisitions  occurred as of the beginning of such three-month
period presented.  Proforma condensed combined  statements of operations for the
1996 three-month period are presented below:

                                                   Three months ended March 31,
                                                      1997             1996
                                                  -------------   -------------
                                                     Actual          Proforma

     Sales                                        $   9,337,000   $   6,324,000
                                                  =============   =============
     Gross profit                                 $   4,607,000   $   3,381,000
                                                  =============   =============
     Net income (loss)                            $     769,000   $  (1,063,000)
                                                  =============   =============
     Earnings (loss) per share                    $       0.06    $       (0.08)
                                                  ============    =============

See the Company's  report of Form 8-K,  filed with the  Securities  and Exchange
Commission on May 9, 1997, for proforma financial information excluding Pulsarr.

7.   Inventories
----------------
Inventories  are  stated at the lower of cost or market  and  include  material,
labor and related manufacturing  overhead.  The Company determines cost based on
the first-in, first-out (FIFO) method.

                                                    March 31,     December 31,
                                                      1997            1996
                                                  -------------   -------------

     Raw materials                                $   2,719,000   $   2,662,000
     Work-in-process                                  2,995,000       2,234,000
     Finished goods                                   2,765,000       3,236,000
                                                  -------------   -------------

                                                  $   8,479,000   $   8,132,000
                                                  =============   =============

8.   Subsequent Event
---------------------
On May 6, 1997,  the Company sold its Pulsarr  subsidiary to Barco NV of Belgium
for $8.4 million in cash, resulting in a gain of approximately $5.0 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
Company  had  purchased  Pulsarr on March 1, 1996 for cash of $6.5  million  and
notes  payable  of $1.3  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 (see the Company's report on Form 8-K, filed with the Securities and
Exchange Commission on May 9, 1997, for proforma financial information excluding
Pulsarr).

     Item 2.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations
================================================================================
On  March  1, 1996,  the Company acquired Pulsarr. On July 24, 1996, the Company
acquired Ventek.  The  discussion  below  pertains to the operations of AMV with
Pulsarr  and  Ventek  included  from  their respective acquisition dates. In May
1997,  the Company  sold  Pulsarr for $8.4  million in cash (see  Liquidity  and
Capital Resources below).

The Company's  backlog at March 31, 1997, was $6,616,000,  a decrease of 5% when
compared to the $6,947,000 backlog as of March 31, 1996.  Excluding Pulsarr from
both periods, backlog was $3,820,000 at March 31, 1997 as compared to $2,701,000
at March 31,  1996.  The 1997  backlog is  expected  to be shipped  within  nine
months.

Results of Operations - Comparison between three months ended March 31, 1997 and
March 31, 1996
--------------
Sales for the three months ended March 31, 1997 ("Q1 1997") were $9,337,000,  up
158%  when  compared  to  sales  for  the  three  months  ended  March  31, 1996
("Q1  1996") of  $3,613,000.  The  increase is due to the inclusion of Pulsarr's
($1,782,000) and  Ventek's  ($1,428,000) sales and an increase of  $2,514,000 in
sales at SRC.

Cost of sales was 51% of sales in Q1 1997 and 59% in Q1 1996.

Gross  profit  increased  by 212% to  $4,607,000  in Q1 1997  when  compared  to
$1,479,000  of gross  profit in Q1 1996.  In Q1 1997,  gross  profit  was 49% as
compared to 41% in Q1 1996.  The  increase in gross  profit as a  percentage  of
sales is primarily  related to the higher margin Ventek products  included in Q1
1997,  an  increase  in the overall  sales  volume at SRC which  allowed for the
spreading  of fixed costs over a larger sales based as well as a change in sales
mix.

Selling  and  marketing  expense  increased  54% in Q1  1997  from  Q1  1996  to
$1,253,000  amounting  to 13% of sales in Q1 1997.  Similar  expenses in Q1 1996
were $814,000,  or 23% of sales. The decrease in selling and marketing  expenses
as a percent of sales is the result of  spreading  of fixed  costs over a larger
sales base.

Research and development expenses were $1,019,000 and $818,000 in Q1 1997 and Q1
1996, or 11% and 23% of sales, respectively. The larger research and development
level in Q1 1997 was due principally to $95,000 of Pulsarr and $87,000 of Ventek
expenses.

General and administrative  expenses increased $149,000 to $1,032,000 in Q1 1997
from $883,000 in Q1 1996. The increase in general and administrative expenses is
due principally to the addition of Pulsarr and Ventek.

The increase in amortization of intangible  assets is due to the acquisitions of
Pulsarr and Ventek.

The decrease in investment and other income is the result of lower cash balances
available for investment.

The  increase  in  interest  expense  is the  result  of the  increase  in  debt
outstanding relating to the acquisitions of Pulsarr and Ventek.

Net income for Q1 1997 was $769,000 as compared to a net loss of  $6,797,000  in
Q1 1996. Q1 1996  included  special  charges of $4,915,000  and $647,000 for the
write-off of acquired in-process technology and royalty expense, respectively.

Liquidity and Capital Resources
-------------------------------
On May 6, 1997, the Company  received net proceeds of  approximately  $7,000,000
from the sale of Pulsarr,  which  increased  AMV's cash  balance on that date to
approximately $8,500,000.

In March 1996, the Company received $2,000,000 from the sale of 1,400,000 shares
of Class A Common  Stock  pursuant to a private  placement.  In April 1996,  the
Company received $3,000,000 representing the net proceeds of a private placement
of  convertible  debt.  In October  1995,  the  Company  received  approximately
$1,052,000  from the sale of its laser  diode  operations.  In April  1995,  the
Company  received  $2,000,000  representing  the  net  proceeds  from a  private
placement of convertible  debt. The cash generated from these  transactions  was
used to finance  the  acquisition  of Pulsarr  and to provide  funds for working
capital purposes.

The Company's  principal  sources of operating  capital have been funds from the
above transactions, its overseas Regulation S offerings in September and October
1993 and in February 1994 and its initial  public  offering in March 1992. As of
March 31, 1997,  the Company had $6,627,000 in working  capital,  which has been
substantially enhanced by the sale of Pulsarr.

As a result of the settlement in July 1992 of a lawsuit  alleging certain patent
infringements,  SRC entered into a royalty agreement, pursuant to which SRC will
pay  royalties of 7% of certain  vision system sales through the earlier of June
30, 2003, or the date at which  aggregate  royalty  payments  equal  $1,600,000.
Until  aggregate  royalty  payments  equal  $1,600,000,  maximum  annual royalty
payments are $400,000  through 1996. The final $400,000  installment was paid in
July 1996.  During the quarter  ended  March 31,  1996,  the  Company  wrote off
against income $647,000 of deferred royalty expense related to the settlement as
all  royalties  had been  earned and no  significant  future  economic  life was
estimated to exist.

The  Company  intends to continue to market its vision  systems  technology  and
products,  and will  evaluate  selected  acquisition  opportunities.  Additional
investments will be required for capital equipment,  marketing and R & D for the
Company to remain competitive.  For example,  funds must be expended to complete
development  of the  Company's  next  generation  of  processor  to enhance  the
Company's ability to effectively compete in certain markets with Key Technology,
Inc.'s  (the  Company's   principal   competitor)  1995  product   introduction.
Furthermore,   if  the  Company  consummates   additional  technology  intensive
acquisitions, additional equipment and R&D investments may be necessary, perhaps
to a greater extent than for the Company's existing operations.

The Company's  ALSO  operation,  AMV's only business  prior to the February 1994
acquisition of SRC, had suffered losses since inception.  The operations of ALSO
were sold in October 1995.  In 1995,  SRC generated  operating  profits  (before
allocation of corporate  overhead  expenses).  Even though SRC reached operating
profitability in five of the last seven quarters and had a history of profitable
operations  prior to its  acquisition  by AMV,  there can be no  assurance  that
long-term profitability will be realized.  Pulsarr has operated profitably since
1990.  Ventek has  operated  profitably  since 1992.  The Company  operates in a
highly competitive environment, which environment may be intensified by the fact
that Pulsarr is now owned by a company substantially larger and with far greater
financial resources than AMV. Delays and difficulties  relating to technological
changes in turnaround  situations often occur, any of which would materially and
adversely affect the Company's cash flow. Furthermore, operational and marketing
difficulties  may occur relating to the  integration  of the recently  completed
acquisition of Ventek.

The acquisition of Pulsarr  occurred on March 1, 1996. In connection  therewith,
the Company paid approximately  $6.5 million to the sellers.  Cash received from
the March and April 1996  placements of stock and notes detailed above generated
approximately  $5,000,000 for the purchase.  The balance of the cash payments of
approximately  $1,500,000 was paid from the Company's current cash balances. The
Company received net proceeds of approximately  $7,000,000 when Pulsarr was sold
in May 1997.

The  acquisition  of  Ventek  occurred  in  July  1996.  Consideration  for  the
transaction  was  approximately  $5.1 million in notes and other  securities  as
described in Note 3 in this Form 10-Q.

Prior to 1995,  the Company had a history of negative  operating  cash flow. The
Company  believes it will operate at a negative cash flow during certain periods
in  the  future  due to  payment  of  notes  issued  in  connection  with  prior
financings,  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.  In April 1997, the Company paid off the
$1,265,000  of the  10.25%  Convertible  Subordinated  Secured  Note  when  due.
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.  Until the Company is
able to consistently generate sustained positive cash flow from operations,  the
Company must rely on debt or equity financing.

In January  1997,  the Company sued Credit  Suisse to fulfill its  obligation to
fund $1.6 million pursuant to a Subscription Agreement dated May 14, 1996. There
can be no assurance  that the Company  will  prevail in this suit,  although the
Company believes it has a contractual right to the funding.

In  connection  with  the   acquisition  of  Pulsarr,   the  Company  wrote  off
approximately  $4.9  million  of  acquired  in-process  technology  in the first
quarter  of 1996  (which  loss was  offset by a $5 million  gain  recorded  when
Pulsarr  was sold in the second  quarter  of 1997).  This  non-recurring  charge
contributed to substantial reported losses in that quarter even though sales for
such period,  including  Pulsarr from its acquisition  date,  increased from the
same period in the prior year.

There can be no assurance the Company will be able to obtain future financing on
terms  satisfactory  to  the  Company,  if  at  all.  The  recent  increases  in
outstanding  shares  of the  Company's  Class  A  Common  Stock  due to  private
placements  and the 1997  Restricted  Stock Plan,  the April 1995 and April 1996
private  placements of  convertible  debt,  notes issued in connection  with the
acquisition of Ventek,  a substantial loss in 1996, and the number of securities
issuable upon exercise of warrants and convertible  debt may limit the Company's
ability to negotiate additional debt or equity financing.

Cautionary Statements and Risk Factors
--------------------------------------
The Company may, from time to time, make forward looking statements that involve
risks and uncertainties.  Factors associated with the forward looking statements
which could cause actual results to differ  materially  from those stated appear
below. Readers should carefully consider the following cautionary statements and
risk factors.

History of Losses;  Negative Cash Flow:  Other than in 1995,  the second half of
1996 and the first quarter of 1997,  the Company has had a history of losses and
negative  operating cash flow. The Company believes it may operate at a negative
cash  flow in the  future  due to (i)  the  need  to  fund  certain  development
projects,  (ii) cash required to enter new market areas,  (iii)  interest  costs
associated with recent financings,  (iv) cash required for the repayment of debt
(e.g.,  the $1.3 million paid in April  1997),  and (v) possible  cash needed to
fully integrate Ventek's  operations.  Until the Company is able to consistently
generate sustained positive cash flow from operations,  the Company must rely on
debt or equity financing.

Although the Company achieved profitability in 1995, the second half of 1996 and
the  first  quarter  of 1997,  there  can be no  assurance  as to the  Company's
profitability  on a quarterly  or annual basis in the future.  Furthermore,  the
non-recurring  expenses in early 1996 resulted in a significant overall loss for
the 1996 year.

Need for  Additional  Financing:  The  Company  may seek  additional  financing;
however,  there can be no  assurance  the  Company  will be able to  obtain  any
additional financing on terms satisfactory to the Company, if at all. The recent
increases in (i) outstanding shares of the Company's Class A Common Stock due to
private  placements and  implementation  of the 1997 Restricted Stock Plan, (ii)
the April 1995 and April 1996 private  placements of convertible  debt,  (iii) a
substantial loss in 1996, (iv) debt incurred for the acquisition of Ventek,  and
(v) the number of securities  issuable upon exercise of warrants and convertible
debt may limit the  Company's  ability to  negotiate  additional  debt or equity
financing.

Uncertain Ability to Manage Growth and Integrate Acquired Businesses: As part of
its business  strategy,  the Company intends to pursue growth. In March and July
1996, the Company acquired Pulsarr and Ventek, respectively,  which had sales in
1995 of approximately  $11.4 million and $4.4 million,  respectively,  and would
have added approximately 80% to the Company's 1995 sales on a proforma basis. In
May 1997, AMV sold Pulsarr.  A growth  strategy will require the  integration of
new entities, such as Ventek, the establishment of distribution relationships in
foreign countries,  expanded customer service and support,  increased  personnel
throughout the Company and the continued  implementation  and improvement of the
Company's operational, financial and management information systems. There is no
assurance  that the Company  will be able to attract  qualified  personnel or to
accomplish other measures necessary for its successful  integration of Ventek or
other  acquired  entities  or for  internal  growth,  or that  the  Company  can
successfully  manage expanded  operations.  As the Company expands,  it may from
time to time experience  constraints  that will adversely  affect its ability to
satisfy  customer  demand  in  a  timely  fashion.   Failure  to  manage  growth
effectively could adversely affect the Company's financial condition and results
of operations.

Rapid Technological Change;  Product Development:  The markets for the Company's
machine  vision  products  are  characterized  by rapidly  changing  technology,
evolving  industry   standards  and  frequent  new  product   introductions  and
enhancements.  For example,  the Company believes that the 1995  introduction by
Key  Technology,  Inc.  of its new line of vision  sorting  equipment  adversely
affected bookings in late 1995 and 1996. Sales of products such as those offered
by the Company  depend in part on the continuing  development  and deployment of
emerging  technology and new services and applications based on such technology.
The Company's  success will depend to a  significant  extent upon its ability to
enhance  its  existing  products  and  develop  new  products  that gain  market
acceptance.  There can be no assurance  that the Company will be  successful  in
selecting,  developing and  manufacturing new products or enhancing its existing
products on a timely or  cost-effective  basis or that products or  technologies
developed by others will not render the  Company's  products  non-competitive or
obsolete.  Moreover,  the Company may encounter technical problems in connection
with its product  development  that could result in the delayed  introduction of
new  products  or product  enhancements.  Failure to develop or  introduce  on a
timely basis new products or product enhancements that achieve market acceptance
would materially and adversely affect the Company's business,  operating results
and financial condition.

Market  Acceptance of New Products:  The Company's future operating results will
depend upon its ability to  successfully  introduce and market,  on a timely and
cost-effective basis, new products and enhancements to existing products.  There
can be no  assurance  that  new  products  or  enhancements,  if  developed  and
manufactured,  will achieve market  acceptance.  The Company is currently in the
initial  prototype stage of development on a new high speed software and digital
signal   processing   technology   designed  to  significantly   improve  system
performance.  There  can be no  assurance  that a market  for this  system  will
develop  (i.e.,  that a need for the system will exist,  that the system will be
favored over other  products on the market,  etc.) or, if a market does develop,
that the  Company  will be able,  financially  or  operationally,  to market and
support the system successfully.

Dependence on Certain Markets and Expansion Into New Markets: The future success
and growth of the Company is  dependent  upon  continuing  sales in domestic and
international food processing market as well as successful  penetration of other
existing  and  potential  markets.  A  substantial   portion  of  the  Company's
historical  sales  has been in the  potato  and  vegetable  processing  markets.
Reductions in capital equipment expenditures by such processors due to commodity
surpluses,  product price fluctuations,  changing consumer  preferences or other
factors could have an adverse effect on the Company's results of operations. The
Company  also  intends  to expand the  marketing  of its  processing  systems in
additional  food  markets such as meat and granular  food  products,  as well as
nonfood markets such as plastics,  wood products and tobacco,  and to expand its
sales  activities in foreign markets.  In the case of Ventek,  the wood products
market  served is  narrow,  and  saturation  of that  market  and the  potential
inability to identify and develop new markets could  adversely  affect  Ventek's
growth  rate.  There  can be no  assurance  that the  Company  can  successfully
penetrate  additional  food and  non-food  markets or expand  further in foreign
markets.

Lengthy Sales Cycle:  The sales cycle in the marketing and sale of the Company's
machine vision systems,  especially in new markets or in a new  application,  is
lengthy and can be as long as three years. Even in existing markets,  due to the
$100,000 to  $500,000  price range for each  system,  the  purchase of a machine
vision system can  constitute a substantial  capital  investment  for a customer
(which may need more than one machine for its particular  proposed  application)
requiring  lengthy  consideration  and  evaluation.  In particular,  a potential
customer must develop a high degree of assurance  that the product will meet its
needs, successfully interface with the customer's own manufacturing,  production
or processing  system,  and have minimal warranty,  safety and service problems.
Accordingly,  the time lag from  initiation of marketing  efforts to final sales
can be lengthy.

Competition:  The markets for the Company's products are highly  competitive.  A
major  competitor  of the Company has recently  made a new product  introduction
which  has  increased  the  competition  that  the  Company  faces.  Some of the
Company's competitors, including Pulsarr which was sold in May 1997 to a company
significantly  larger  than  AMV,  may  have  substantially  greater  financial,
technical, marketing and other resources than the Company. Important competitive
factors  in the  Company's  markets  include  price,  performance,  reliability,
customer  support and service.  Although the Company  believes that it currently
competes  effectively  with respect to these factors,  there can be no assurance
that the Company will be able to continue to compete effectively in the future.

Dependence Upon Certain Suppliers: Certain key components and subassemblies used
in the Company's  products are currently obtained from sole sources or a limited
group  of  suppliers,  and the  Company  does  not  have  any  long-term  supply
agreements to ensure an uninterrupted  supply of these components.  Although the
Company seeks to reduce  dependence  on sole or limited  source  suppliers,  the
inability to obtain sufficient sole or limited source components as required, or
to develop  alternative  sources if and as  required,  could result in delays or
reductions in product  shipments which could materially and adversely affect the
Company's results of operations and damage customer relationships.  The purchase
of certain of the components used in the Company's  products  require an 8 to 12
week lead time for delivery. An unanticipated  shortage of such components could
delay  the  Company's  ability  to timely  manufacture  units,  damage  customer
relations,  and have a material  adverse effect on the Company.  In addition,  a
significant  increase  in the  price  of one or  more  of  these  components  or
subassemblies could adversely affect the Company's results of operations.

Dependence Upon Significant Customers and Distribution Channel: The Company sold
equipment to two  unaffiliated  customers  totaling 13% and 12% of sales in 1996
and to two  customers  totaling  19% and 16% of sales in 1995.  Sales to another
unaffiliated  customer totaled 15% of sales in 1994. Ventek's sales have been to
a relatively small number of multi-location plywood  manufacturers.  The Company
usually  receives  orders of from one to several  machine  vision  systems,  but
occasionally  receives  larger  orders.  While  the  Company  strives  to create
long-term  relationships  with its customers and  distributors,  there can be no
assurance that they will continue ordering  additional systems from the Company,
or that  orders  will not be  delayed  due to  customer  capital  appropriations
procedures or other circumstances  beyond the control of the Company. In certain
instances,  the  Company's  cash  flow  may  become  negatively  affected  where
investments  have been made in  inventory in  anticipation  of an order and such
order is delayed by the customer.  The Company may continue to be dependent on a
small number of customers and  distributors,  the loss of which would  adversely
affect the Company's business.

Risk of International  Sales: Due to its export sales, the Company is subject to
the risks of conducting business  internationally,  including unexpected changes
in regulatory requirements; fluctuations in the value of the U. S. dollar, which
could increase the sales prices in local currencies of the Company's products in
international  markets;  delays in obtaining export licenses,  tariffs and other
barriers  and  restrictions;  and the  burdens  of  complying  with a variety of
international  laws. In addition,  the laws of certain foreign countries may not
protect the Company's  intellectual property rights to the same extent as do the
laws of the United States.

Fluctuations  in  Quarterly  Operating  Results;  Seasonality:  The  Company has
experienced  and  may in  the  future  experience  significant  fluctuations  in
revenues and  operating  results from quarter to quarter as a result of a number
of factors, many of which are outside the control of the Company.  These factors
include the timing of significant  orders and shipments,  product mix, delays in
shipment,  capital spending patterns of customers,  competition and pricing, new
product introductions by the Company or its competitors,  the timing of research
and  development  expenditures,  expansion of marketing and support  operations,
changes  in  material   costs,   production   or  quality   problems,   currency
fluctuations,  disruptions in sources of supply,  regulatory changes and general
economic conditions. These factors are difficult to forecast, and these or other
factors  could have a material  adverse  effect on the  Company's  business  and
operating results.  Moreover,  due to the relatively fixed nature of many of the
Company's costs, including personnel and facilities costs, the Company would not
be  able to  reduce  costs  in any  quarter  to  compensate  for any  unexpected
shortfall  in net  sales,  and such a  shortfall  would  have a  proportionately
greater  impact on the  Company's  results of operations  for that quarter.  For
example, a significant portion of the Company's quarterly net sales depends upon
sales of a relatively small number of high-priced systems.  Thus, changes in the
number of such  high-priced  systems  shipped in any given  quarter  can produce
substantial  fluctuations  in net sales,  gross  profits,  and net  income  from
quarter to quarter.  In  addition,  in the event the  Company's  machine  vision
systems'  average selling price  increases,  of which there can be no assurance,
the addition or cancellation of sales may exacerbate  quarterly  fluctuations in
revenues and operating results.

The Company's operating results may also be affected by certain seasonal trends.
The Company  typically  experiences  lower  sales and order  levels in the first
quarter when  compared with the  preceding  fourth  quarter due primarily to the
seasonality  of  certain  harvested  food items and the fact that  shipments  to
certain  customers occur during such customers'  December plant  shutdowns.  The
Company  expects  these  seasonal  patterns to continue,  though their impact on
revenues  will  decline  as the  Company  continues  to expand its  presence  in
nonagricultural and other markets which are less seasonal.

Risks  Associated With Possible  Acquisitions:  The Company may pursue strategic
acquisitions  or joint  ventures  in  addition  to the  acquisitions  of Pulsarr
(subsequently  divested in May 1997) and Ventek as part of its growth  strategy.
While the Company has no understandings,  commitments or agreements with respect
to any  further  acquisition,  one or more  potential  opportunities  may become
available  in  the  future.   Acquisitions  and  joint  ventures  would  require
investment of operational and financial  resources and could require integration
of dissimilar operations, assimilation of new employees, diversion of management
resources,  increases in  administrative  costs and additional  costs associated
with debt or equity financing. There can be no assurance that any acquisition or
joint  venture by the Company will not have an adverse  effect on the  Company's
results of operations  or will not result in dilution to existing  shareholders.
If additional attractive  opportunities become available, the Company may decide
to  pursue  them  actively.  There can be no  assurance  that the  Company  will
complete  any  future  acquisitions  or  joint  ventures  or that  such a future
transaction will not materially and adversely affect the Company.

Dependence  Upon Key Personnel:  The Company's  success depends to a significant
extent upon the continuing contributions of its key management, technical, sales
and  marketing  and other key  personnel.  Except  for  William  J.  Young,  the
Company's  President and Chief Executive  Officer,  Alan R. Steel, the Company's
Chief  Financial  Officer,  Dr. James Ewan,  SRC's President and Chief Executive
Officer,  and the four former  stockholders of Ventek, the Company does not have
long-term  employment  agreements or other  arrangements  with such  individuals
which would  encourage  them to remain with the Company.  The  Company's  future
success also depends upon its ability to attract and retain  additional  skilled
personnel.  Competition  for such employees is intense.  The loss of any current
key  employees or the inability to attract and retain  additional  key personnel
could have a material  adverse  effect on the  Company's  business and operating
results.  There can be no assurance  that the Company will be able to retain its
existing personnel or attract such additional skilled employees in the future.

Intellectual Property: The Company's competitive position may be affected by its
ability to protect its proprietary technology. Although the Company has a number
of United States and foreign  patents,  there can be no assurance  that any such
patents will provide  meaningful  protection  for its product  innovations.  The
Company may experience  additional  intellectual property risks in international
markets where it may lack patent protection.

Product Liability and Other Legal Claims:  From time to time, the Company may be
involved  in  litigation  arising  out of the  normal  course  of its  business,
including  product  liability  and other legal  claims.  While the Company has a
general liability  insurance policy which includes product liability coverage up
to an  aggregate  amount  of $10  million,  there can be no  assurance  that the
Company will be able to maintain product liability insurance on acceptable terms
or that its insurance will provide adequate coverage against potential claims in
the  future.  There can be no  assurance  that  third  parties  will not  assert
infringement claims against the Company, that any such assertion of infringement
will  not  result  in  litigation  or that the  Company  would  prevail  in such
litigation. Furthermore,  litigation, regardless of its outcome, could result in
substantial  cost to and  diversion of effort by the Company.  Any  infringement
claims or litigation  against the Company could  materially and adversely affect
the  Company's  business,  operating  results  and  financial  condition.  If  a
substantial  product  liability  or other legal claim  against the Company  were
sustained that was not covered by insurance, there could be an adverse effect on
the Company's financial condition and marketability of the affected products.

Warranty Exposure and Performance Specifications: The Company generally provides
a  one-year  limited  warranty  on  its  products.  In  addition,   for  certain
custom-designed  systems,  the Company  contracts  to meet  certain  performance
specifications for a specific application. In the past, the Company has incurred
higher warranty  expenses  related to new products than it typically incurs with
established  products. There can be no assurance that the Company will not incur
substantial  warranty  expenses  in  the future with respect to new products, as
well  as  established  products,  or  with  respect  to  its obligations to meet
performance specifications, which may have an adverse  effect on its  results of
operations and customer relationships.


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
==========================

Ford & Cohn
-----------
In March 1993, Wilson Ford, Robert Paul and Maxwell Cohn (together  "Claimants")
brought various claims against AMV and William Patridge,  Asif Ahmad and Nagaraj
Murthy,  past or current  directors  or  employees  of AMV,  in  lawsuits in the
Superior  Courts  for Los  Angeles  County and Orange  County,  California.  The
lawsuits were  consolidated  in February,  1994,  and were litigated in Superior
Court for Los Angeles County in September and October, 1995.

Ford, a consultant to AMV, claims that AMV breached an agreement dated September
17,  1987,  and  subsequently  amended  on August 16,  1988,  by which he was to
receive 25,000 shares of stock of CNVS, Inc., predecessor to AMV, at no cost and
an option to purchase 25,000 additional shares in the future upon the occurrence
of  specified  events.  Ford  claims he was  promised  that this total of 50,000
shares in the Company would amount to 5% of the  outstanding  shares.  Ford also
claims AMV owes him  royalties  under a royalty  agreement for certain low light
video camera  technology.  AMV contends  that Ford was never  promised  that his
interest  would  amount to 5% of the  outstanding  shares,  that Ford  failed to
fulfill his obligations under the royalty agreement,  and that Ford's claims are
barred under  various  legal  theories.  Based on these  allegations,  Ford made
claims for breach of contract  and breach of the covenant of good faith and fair
dealing.

The Claimants  contend that  statements  allegedly  made by William  Patridge to
United States Alcohol Testing of America,  Inc.  ("USAT") caused USAT to rescind
an Asset Purchase  Agreement with the Claimants.  The Claimants  allege that the
statements  concerning  outstanding  lawsuits and  disputes  between AMV and the
Claimants  were false and meant to disrupt  the  business  relationship  between
Prime Lasertech and USAT. The Claimants  allegedly would have benefited from the
Asset  Purchase  Agreement  as  shareholders  and/or  licensees.  Based on these
allegations,   the  Claimants   made  claims  for   intentional   and  negligent
interference with prospective advantage, intentional and negligent infliction of
emotional distress, and civil conspiracy.

On October 2, 1995, a jury awarded  $375,000 to the  Claimants,  which  included
$281,000 of punitive  damages for the breach of contract claim.  The Company has
filed motions with the court to eliminate the punitive portion of the award. AMV
believes  such damages are improper  because (i) the  claimants  did not ask for
punitive  damages in the contract claim, and (ii) such damages cannot be awarded
for breach of contract under  applicable  state laws. AMV is also  attempting to
overturn the balance of the breach of contract  award based on the fact that the
claim was made after the statute of  limitations  had  expired.  AMV has made an
appeal  to  overturn  the  verdict  based on these  factors  and  certain  other
irregularities  that  occurred  during the trial,  which AMV  believes  unfairly
affected the jury's  decision.  Due to the fact that a verdict was  rendered,  a
$93,000 loss on the breach of contract  claim was recorded as a liability in the
fourth quarter of 1995.

Credit Suisse, Max Khan and Konrad Meyer
----------------------------------------
On January 9, 1997,  the Company sued Credit Suisse in Jackson  County,  Oregon,
seeking $1,600,000 in fulfillment of Credit Suisse's  contractual  obligation to
fund a Private Placement  Subscription Agreement dated May 14, 1996. The Company
claims that Credit Suisse's failure to fund has limited AMV's ability to finance
its  business  plan for Pulsarr  and other  operations  and,  as a result,  will
adversely impact AMV's  credibility with investors and financial  analysts.  Any
erosion of credibility  or,  alternatively,  the dilution of  shareholder  value
caused by  alternate  financing  may, in turn,  adversely  impact the  Company's
ability to raise debt and equity financing.

The suit also claims that Messrs.  Khan and Meyer,  who had previously  provided
investment  banking  services  to AMV,  persuaded  Credit  Suisse to breach  the
Subscription Agreement.

Item 6.  Exhibits And Reports On Form 8-K
=========================================

(a)  Exhibits
-------------

Exhibit
Number            Description
-------           -----------

    3             Amended and Restated Articles of Incorporation.

    10            Share Purchase Agreement dated April 29, 1997 between Barco NV
                  and ARC Netherlands BV (1)

    27            Financial Data Schedule.

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

    (1)           Filed  with  the  Securities and Exchange Commission on May 9,
                  1997  as  an  exhibit  to the Company's Form 8-K regarding the
                  sale of Pulsarr.

 (b) Reports on Form 8-K:
-------------------------

                  On  January  22  1997 a  Form  8-K  was  filed  regarding  the
                  resignation  of  a  director,  the  appointment  of  four  new
                  directors, and adoption of the 1997 Restricted Stock Plan.

                  On May 9,  1997,  a Form 8-K was filed  regarding  the sale of
                  Pulsarr and the resignation of two directors.

                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

            May 13, 1997                              /s/  Alan R. Steel
  -------------------------------              --------------------------------
                                                         Alan R. Steel
                                                    Vice President - Finance
                                                 (Principal Financial and duly
                                                      Authorized Officer)