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, 2000


                           Commission File No. 0-20097


                       ADVANCED MACHINE VISION CORPORATION


                            A California Corporation
                   IRS Employer Identification No. 33-0256103
                             3709 Citation Way #102
                                Medford, OR 97504
                             Telephone: 541-776-7700




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

                                                                Yes |X|   No |_|

On March 31, 2000, registrant had 12,879,084 shares of Class A Common Stock, and
47,669 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 Statement of Shareholders' Equity...................3
         Consolidated Statements of Cash Flows............................4
         Notes to Unaudited Consolidated Financial Statements.............5

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


Part II. Other Information

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

         Signature.......................................................20

<PAGE>

                          PART I. FINANCIAL INFORMATION
                          -----------------------------

Item 1.  Financial Statements
--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   March 31,        December 31,
                                                                                     2000               1999
                                                                                     ----               ----
                                                                                  (unaudited)         (audited)
<S>                                                                             <C>                <C>
                                     ASSETS
Current assets:
     Cash and cash equivalents                                                  $   2,298,000      $   5,889,000
     Accounts receivable, net of allowance for doubtful
         accounts of $205,000 at March 31, 2000 and
         December 31, 1999                                                          2,687,000          1,601,000
     Inventories (Note 6)                                                           8,572,000          8,399,000
     Prepaid expenses                                                                 218,000            206,000
     Current deferred tax asset                                                       870,000            870,000
                                                                                -------------      -------------
              Total current assets                                                 14,645,000         16,965,000
Property, plant and equipment - net                                                 4,713,000          4,860,000
Intangible assets, net                                                              3,995,000          4,175,000
Deferred tax asset                                                                  1,230,000          1,230,000
Other assets                                                                          722,000            790,000
                                                                                -------------      -------------
                                                                                $  25,305,000      $  28,020,000
                                                                                =============      =============

               LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
                     AND NON-REDEEMABLE SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                           $   1,375,000      $     937,000
     Short-term borrowings (Note 3)                                                        --          2,000,000
     Accrued liabilities                                                              638,000            388,000
     Customer deposits                                                              1,917,000          1,569,000
     Accrued payroll                                                                  665,000            714,000
     Warranty reserve                                                                 351,000            373,000
     Current portion of notes payable (Note 3)                                         43,000             43,000
                                                                                -------------      -------------
              Total current liabilities                                             4,989,000          6,024,000
                                                                                -------------      -------------

Notes payable to related parties, less current portion                              2,500,000          2,500,000
Notes payable, less current portion                                                 3,784,000          3,794,000
                                                                                -------------      -------------
              Total notes payable                                                   6,284,000          6,294,000
                                                                                -------------      -------------
Commitments and contingencies Mandatorily redeemable preferred stock:
     Series B - No par value; 119,106 shares authorized and outstanding
        at March 31, 2000 and December 31, 1999
        (aggregate liquidation preference of $2,620,000)                            2,579,000          2,579,000
                                                                                -------------      -------------

Non-redeemable shareholders' equity:
     Common stock:
         Class A and B - No par value;  63,000,000 shares authorized;
            12,927,000 and 12,970,000 shares issued and outstanding
            at March 31, 2000 and December 31, 1999, respectively                  26,053,000         26,103,000
     Additional paid in capital                                                     5,020,000          5,020,000
     Accumulated deficit                                                          (19,596,000)       (18,007,000)
     Accumulated other comprehensive income                                           (24,000)             7,000
                                                                                -------------      -------------
              Total non-redeemable shareholders' equity                            11,453,000         13,123,000
                                                                                -------------      -------------
                                                                                $  25,305,000      $  28,020,000
                                                                                =============      =============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,
                                                                                 ----------------------------
                                                                                    2000              1999
                                                                                    ----              ----
                                                                                          (unaudited)
<S>                                                                             <C>              <C>
Net sales                                                                       $  5,388,000     $  5,158,000
Cost of sales                                                                      2,822,000        2,504,000
                                                                                ------------     ------------

Gross profit                                                                       2,566,000        2,654,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         1,422,000          947,000
     Research and development                                                      1,253,000        1,260,000
     General and administrative                                                    1,191,000          794,000
     Amortization of intangible assets                                               180,000          180,000
                                                                                ------------     ------------

                                                                                   4,046,000        3,181,000

Income (loss) from operations before other income and expense                     (1,480,000)        (527,000)

Other income and expense:
     Investment and other income                                                      59,000           67,000
     Interest expense                                                               (168,000)        (140,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                 (1,589,000)        (600,000)

Provision for (benefit from) income taxes                                                 --          (24,000)
                                                                                ------------     ------------

Net income (loss)                                                               $ (1,589,000)    $   (576,000)
                                                                                ============     ============

Earnings (loss) per share (Note 5):
     Basic                                                                      $     (0.13)     $      (0.05)
                                                                                ===========      ============
     Diluted                                                                    $     (0.13)     $      (0.05)
                                                                                ===========      ============

Shares used in per-share calculations:
     Basic                                                                        12,285,000       11,520,000
                                                                                ============     ============
     Diluted                                                                      12,285,000       11,520,000
                                                                                ============     ============
</TABLE>

     See Accompanying Notes to Unaudited Consolidated Financial Statements.

<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Mandatorily Redeemable Preferred Stock and
   Non-Redeemable Shareholders' Equity (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                               Non-Redeemable Shareholders' Equity
                                              -----------------------------------------------------------------
                     Mandatorily Redeemable
                         Preferred Stock                                                            Accumulated
                            Series B             Common Stock          Additional                      Other
                     ----------------------   -------------------       Paid in     Accumulated    Comprehensive    Comprehensive
                     Shares      Amount       Shares       Amount       Capital       Deficit       Income (Loss)   Income (Loss)
                     ------      ------       ------       ------     ------------  ------------   -------------    -------------

<S>                 <C>      <C>          <C>           <C>           <C>           <C>            <C>               <C>
Balance,
 December 31,
 1999                119,106 $ 2,579,000    12,970,000  $ 26,103,000  $  5,020,000  $(18,007,000)  $       7,000

Repurchase of
 Common Stock             --          --       (43,000)      (50,000)           --            --              --
Translation
 adjustment               --          --            --            --            --            --         (31,000)       (31,000)
Net loss                  --          --            --            --            --    (1,589,000)             --     (1,589,000)
                   --------- -----------  ------------  ------------  ------------  ------------   -------------    -----------

Balance,
 March 31, 2000      119,106 $ 2,579,000    12,927,000  $ 26,053,000  $  5,020,000  $(19,596,000)  $     (24,000)
                   ========= ===========  ============  ============  ============  ============   =============
Comprehensive loss                                                                                                  $(1,620,000)

</TABLE>


          See Accompanying Notes to Consolidated Financial Statements.

<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,
                                                                                 ----------------------------
                                                                                    2000              1999
                                                                                    ----              ----
                                                                                          (unaudited)
<S>                                                                             <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                          $ (1,589,000)    $   (576,000)
     Adjustments to reconcile net income to net cash
         (used in) provided by operating activities:
         Depreciation and amortization                                               371,000          373,000
     Changes in assets and liabilities:
         Accounts receivable                                                      (1,086,000)          35,000
         Inventories                                                                (173,000)        (447,000)
         Prepaid expenses and other assets                                            56,000          119,000
         Accounts payable, accrued liabilities, customer
              deposits, accrued payroll and warranty reserve                         965,000          (89,000)
                                                                                ------------     ------------

                  Net cash used in operating activities                           (1,456,000)        (585,000)
                                                                                ------------     ------------

Cash used in investing activities:
     Purchases of property and equipment                                             (55,000)         (22,000)
                                                                                ------------     ------------

                  Net cash used in investing activities                              (55,000)         (22,000)
                                                                                ------------     ------------

Cash used in financing activities:
     Notes payable to bank and others, net                                        (2,010,000)        (759,000)
     Repurchase of common stock                                                      (50,000)              --
                                                                                ------------     ------------

                  Net cash used in financing activities                           (2,060,000)        (759,000)
                                                                                ------------     ------------

Effect of exchange rate changes on cash                                              (20,000)              --
                                                                                ------------     ------------

Net (decrease) in cash                                                            (3,591,000)      (1,366,000)

Cash and cash equivalents, beginning of the period                                 5,889,000        4,423,000
                                                                                ------------     ------------

Cash and cash equivalents, end of period                                        $  2,298,000     $  3,057,000
                                                                                ============     ============

</TABLE>


     See Accompanying Notes to Unaudited Consolidated Financial Statements.

<PAGE>

              ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.      Principles of Consolidation
-------      ---------------------------

In the opinion of the  management of Advanced  Machine Vision  Corporation  (the
"Company" or "AMV"), the accompanying  consolidated financial statements,  which
have not been audited by independent  accountants  (except for the balance sheet
as of  December  31,  1999),  reflect  all  adjustments  (consisting  of  normal
recurring accruals) necessary to present fairly the Company's financial position
at March 31, 2000,  and December 31,  1999,  the results of  operations  for the
three-month  period  ended  March 31,  2000 and cash  flows for the  three-month
period ended March 31, 2000.  The financial  statements  include the accounts of
the Company and its four wholly-owned subsidiaries, Applied Laser Systems, Inc.,
SRC VISION, Inc. ("SRC"),  ARC Netherlands BV and Ventek, Inc.  ("Ventek").  The
Company's current operating subsidiaries are SRC and Ventek.

Certain  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  1999
annual report on Form 10-K.

Note 2.      Nature of Operations
-------      --------------------

Through  its  subsidiaries,   the  Company  designs,  manufactures  and  markets
computer-aided  vision defect detection and sorting and defect removal equipment
for use in a variety of industries, including food processing, wood products and
recycling.   The  Company's  systems  combine  optical  and  mechanical  systems
technologies  to perform diverse  scanning,  analytical  sensing,  measuring and
sorting  applications  on a variety of products such as food,  wood and plastic.
The Company sells its products throughout the world.

Note 3.      Financing
-------      ---------

In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note, $900,000 of which remains outstanding at March 31, 2000. The nominal 6.75%
interest rate may be adjusted upward on each  anniversary date (April 13) of the
note if the market price of the  Company's  Common Stock fails to reach  certain
levels.  In April 2000,  the interest  rate was adjusted to 11.25%,  the maximum
permitted  under  the  note.  The  note is  secured  by 54% of the  stock of ARC
Netherlands  BV. The note is  convertible  into the  Company's  Common  Stock at
$2.125 per share.

In July 1996, AMV issued the following  notes in connection with the acquisition
of  Ventek:  (i) a  6.75%  $1,000,000  note  due  July  23,  1999;  (ii) a 6.75%
$2,250,000 note due July 23, 1999 convertible into the Company's Common Stock at
$2.25 per  share;  and (iii) a  $1,125,000  note and stock  appreciation  rights
payable  (a) by  issuance of up to  1,800,000  shares of Common  Stock or at the
Company's  option,  in cash on July 23, 1999, or (b) solely in cash in the event
AMV Common Stock is delisted from the Nasdaq Stock Market.  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.

In February 1999, the Ventek notes were restructured. $750,000 of the $1,000,000
note  was  prepaid.  The  maturity  dates  of the  remaining  $250,000  and  the
$2,250,000  note were extended to July 23, 2000. The $1,125,000 note was paid in
full by  delivery  of  1,800,000  restricted  shares and the stock  appreciation
rights were cancelled.

In 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 and March 31, 2000, 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.  On April 25, 2000, the expiration date of
the line was extended from April 30, 2000 to July 31, 2000.

A $2.9  million  mortgage  note  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.

Note 4.      Equity  Transactions; Reduction in Outstanding Securities;
             Effect of Remaining Warrants, Options and Convertible Securities;
             Stock Rights Plan
-------      -----------------------------------------------------------------

In October  1998,  the Company sold  119,106  shares of  Mandatorily  Redeemable
Series B Preferred  Stock  ("Preferred  Stock") to FMC  Corporation  ("FMC") for
$2,620,000.  The Preferred Stock is convertible  into 1,191,000 shares of Common
Stock,  which,  if converted,  represents a 10% ownership  position based on the
number of common  shares  outstanding  on the  transaction  date.  Each share of
Preferred  Stock is  allowed  ten votes in  matters  placed  before  the  common
stockholders  except in the  election  of  directors,  in which case FMC has the
right  to elect  one  director.  The  Preferred  Stock  pays no  dividends.  The
Preferred Stock has a $22 per share liquidation preference.  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 of the Common Stock (as
defined) 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.

In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong  incentives  to enhance the Company's  growth.  The
total  number of shares of Common Stock  issuable  under the 1997 Plan shall not
exceed 2,000,000. Under the 1997 Plan, there are currently 650,000 shares issued
to  seven  key  employees  of the  Company.  The  shares  cannot  be  traded  or
transferred  unless a payment of $.75 to $1.80 per share is made by the employee
to AMV. If the payment is not made,  the stock will be forfeited and returned to
the Company.

In January 2000, the Company  purchased 42,800 shares of its Common Stock on the
open market.

Schedule of Outstanding Stock,  Warrants and Potential  Dilution:  The following
table  summarizes,  as of March 31, 2000,  outstanding  common stock,  potential
dilution to the outstanding  common stock upon conversion of convertible debt or
preferred  stock,  and proforma  proceeds or debt reduction from the exercise or
conversion. The table also sets forth the conversion prices and debt due dates.
<TABLE>
<CAPTION>

                                   Number or Principal                Common         Exercise or      Proforma
                                   Amount Outstanding               Stock After      Conversion         Debt
          Security                  at March 31, 2000               Conversion          Price         Reduction
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>                         <C>                      <C>      <C>

Outstanding Common Stock                                            12,927,000

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

Convertible Preferred Stock                119,100                   1,191,000
                                                                  ------------

Potentially outstanding shares
    and proforma proceeds
    or reduction of debt                                            15,541,000                      $  3,150,000
                                                                  ============                      ============
</TABLE>

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

In  addition  to the FMC option  described  above,  on March 31,  2000,  AMV had
outstanding  options to purchase 3,164,000 shares of Common Stock,  2,632,000 of
which are under its stock option plans.

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

Stock Rights Plan:  In February  1998,  the Company  implemented  a stock rights
program.  Pursuant to the program,  stockholders  of record on February 27, 1998
received a dividend  of one right to  purchase  for $15 one  one-hundredth  of a
share of a newly created  Series A Junior  Participating  Preferred  Stock.  The
rights are  attached  to AMV's  Common  Stock and will also  become  attached to
shares issued in the future.  The rights will not be traded  separately and will
not become exercisable until the occurrence of a triggering event, defined as an
accumulation  by a single  person or group of 20% or more of AMV's Common Stock.
The rights  will expire on February  26, 2008 and are  redeemable  at $.0001 per
right.

After a triggering  event,  the rights will detach from the Common Stock. If AMV
is then merged into, or is acquired by, another corporation, the Company has the
opportunity  to either (i) redeem the rights or (ii) permit the rights holder to
receive in the merger stock of AMV or the  acquiring  company equal to two times
the exercise price of the right (i.e., $30). In the latter instance,  the rights
attached to the acquirer's  stock become null and void. The effect of the rights
program is to make a potential acquisition of the Company more expensive for the
acquirer  if,  in the  opinion  of  AMV's  Board  of  Directors,  the  offer  is
inadequate.

In  December  1998,  the Rights  Plan was amended to permit FMC to acquire up to
1,600,000  shares  of AMV  Common  Stock on the open  market  without  causing a
triggering event.

In February 2000, the Company's Board of Directors  determined that the proposed
merger with Key  Technology,  Inc.  ("Key")  (see Note 7) will not  constitute a
triggering event.

Note 5.      Earnings (Loss) Per Share
-------      -------------------------

The  computation  of earnings  (loss) per share is  presented  in the  following
tables:
<TABLE>
<CAPTION>
                                                          For the Three Months Ended March 31,
                                        ------------------------------------------------------------------------
                                                      2000                                    1999
                                        ---------------------------------       --------------------------------
                                            (Loss)             Shares              (Loss)              Shares
                                            ------             ------              ------              ------
<S>                                     <C>                    <C>              <C>                   <C>
Calculation of EPS
Income (loss) available to
   common shareholders                  $  (1,589,000)         12,935,000       $    (576,000)        11,914,000
Reduction for contingently
   returnable shares as all conditions
   were not met as of period end                   --            (650,000)                 --           (394,000)
                                        -------------       -------------       -------------      -------------
Income (loss) available to
   common shareholders                  $  (1,589,000)         12,285,000       $    (576,000)        10,520,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share         $       (0.13)                          $      (0.05)
----------------------------------------------------------------------------------------------------------------

Effect of Dilutive Securities:
Stock options and warrants              $          --                  --       $          --                 --
Convertible debt                                   --                  --                  --                 --
Preferred stock                                    --                  --                  --                 --
                                        -------------       -------------       -------------      -------------
Income (loss) available to
   common shareholders and
   assumed conversions                  $  (1,589,000)         12,285,000       $    (576,000)        11,520,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share       $       (0.13)                          $      (0.05)
----------------------------------------------------------------------------------------------------------------
</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.

                                                            March 31,
                                                  -----------------------------
                                                      2000             1999
                                                  -------------   -------------
Number of shares of common stock
 exercisable from:
   Options                                            3,164,000       3,253,000
   Warrants                                                  --         300,000
   Convertible debt                                   1,424,000       1,424,000
   Preferred stock                                    1,191,000       1,191,000
                                                  -------------   -------------

                                                      5,779,000       6,168,000

   Exercise price ranges                          $0.81 - $3.00   $1.00 - $3.00

Note 6.    Inventories
-------    -----------

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

                                                     March 31,        Dec. 31,
                                                       2000             1999
                                                   -------------   -------------

           Raw materials                           $   3,433,000   $   3,034,000
           Work-in-process                             1,835,000       1,603,000
           Finished goods                              3,304,000       3,762,000
                                                   -------------   -------------

                                                   $   8,572,000   $   8,399,000
                                                   =============   =============

Note 7.    Possible Sale of the Company
-------    ----------------------------

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.   1/40 of a new warrant to  purchase 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 Preferred
Stock.  On April 24, 2000,  FMC reached an agreement with the Company and Key to
vote for the merger.

As part of the acquisition  process, a Form S-4 registration  statement has been
filed by Key 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 July 2000. Reference is made to the Company's recent filings with
the SEC for a more complete description of the transaction.

Note 8.    New Accounting Pronouncements
-------    -----------------------------

In June 1998, the FASB issued SFAS 133,  Accounting  for Derivative  Instruments
and Hedging  Activities.  SFAS 133  establishes  new  accounting  treatment  for
derivatives  and  hedging  activities  and  supercedes  and  amends a number  of
existing accounting standards.  For the Company, this pronouncement,  as amended
by SFAS 137, will be effective in 2001 and is not anticipated to have a material
effect on the consolidated financial statements.

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin No. 101 ("SAB 101"),  Revenue  Recognition,  which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements  filed with the SEC. SAB 101 outlines the basic criteria that must be
met to  recognize  revenue and  provides  guidance  for  disclosures  related to
revenue  recognition  policies.  The Company believes that the impact of SAB 101
will not have a material effect on the consolidated financial statements.

Note 9.    Subsequent Event
-------    ----------------

In May  2000,  the  Company  entered  into an  agreement  to sell  its  minority
investment in SourceNet Corporation,  an early-stage communications company, for
approximately $1.6 million, which will generate a $1.3 million gain.

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

The Company's backlog at March 31, 2000 was $4,102,000 compared to $5,645,000 as
of March 31, 1999.

Results of Operations - Comparison between three months ended March 31, 2000 and
March 31, 1999
--------------
Sales for the three months ended March 31, 2000 ("Q1 2000") were $5,388,000,  up
4% when  compared to sales for the three months ended March 31, 1999 ("Q1 1999")
of  $5,158,000.  The $230,000  increase in sales is  primarily  due to increased
sales relating to veneer processing applications.

Gross profit  decreased  by $88,000 to  $2,566,000  in Q1 2000 when  compared to
$2,654,000 of gross profit in Q1 1999. Gross profit as a percentage of sales was
48% in Q1 2000 and 51% in Q1 1999.  The decrease in gross profit as a percentage
of sales is due to a change in the product mix sold to lower margin products and
discounts granted with the introduction of new products.

Selling and marketing  expense  increased by $475,000 in Q1 2000 from Q1 1999 to
$1,422,000  amounting  to 26% of sales in Q1 2000.  Similar  expenses in Q1 1999
were $947,000,  or 18% of sales. The increase in selling and marketing  expenses
in terms of both the  dollar  amount and as a  percentage  of sales is due to an
increase  in  marketing  activities  associated  with  the  introduction  of new
products and the penetration of new geographical areas.

Research and development  expenses were $1,253,000 and $1,260,000 in Q1 2000 and
Q1 1999, or 23% and 24% of sales, respectively.

General and administrative  expenses increased $397,000 to $1,191,000 in Q1 2000
from  $794,000 in Q1 1999.  The  increase  is  primarily a result of $180,000 of
legal  fees  related  to the  possible  merger  with Key and  $150,000  of stock
compensation  expense.  The stock compensation  expense was recorded pursuant to
300,000 variable plan options granted to certain directors.  The market price of
the Company's common stock exceeded the exercise price of these options at March
31, 2000.

The net loss for Q1 2000 was  $1,589,000  as compared to net loss of $576,000 in
Q1 1999.

Liquidity and Capital Resources
-------------------------------
The Company's cash balance and working  capital were  $2,298,000 and $9,656,000,
respectively,  at March 31,  2000 as  compared to  $5,889,000  and  $10,941,000,
respectively, at December 31, 1999.

During  Q1 2000,  net  cash  used in  operating  activities  totaled  $1,456,000
compared to cash used for operating  activities  of $585,000 in Q1 1999.  The Q1
2000 usage was due to the net loss and increases in receivables and inventories.
The Q1 1999 usage was due to the net loss and increase in inventory.

Cash used in investment  activities  totaled $55,000 in Q1 2000 compared to cash
used in investment activities of $22,000 in Q1 1999. The Company has no material
commitments for capital expenditures at March 31, 2000.

Cash used in financing  activities  totaled $2,060,000 in Q1 2000 as compared to
cash used in financing  activities of $759,000 in Q1 1999. In January 2000,  the
Company  purchased  42,800  shares of its common  stock for  $50,000 on the open
market.  In February 2000, the Company repaid the $2,000,000  outstanding  under
its line of credit.  In February 1999, the Company paid $750,000 of a $1,000,000
note  and  issued  1,800,000  shares  of Class A Common  Stock in  payment  of a
$1,529,000 note as part of the Ventek debt restructuring.

In October  1998,  the Company  received  $2,620,000  from FMC  Corporation  for
119,106  shares  of  newly  issued  Series  B  Preferred  Stock  (see  Note 4 to
Consolidated Financial Statements).

In April 1999, the Company  entered into a Business Loan Agreement  providing up
to $2,500,000 of working capital financing (see Note 3 to Consolidated Financial
Statements).

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.

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.  On April 24, 2000, FMC agreed to vote in favor of
the merger.

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.

<PAGE>

                           PART II. OTHER INFORMATION

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

(a)  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)

   2.3    Amendment  No. 2 to Agreement  and Plan of Merger dated April 24, 2000
          among the Company, Key and KTC. (24)

   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)

   10.30  Agreement  dated April 24, 2000 among the  Company,  Key, KTC and FMC.
          (24)

   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.

     (23) Previously  filed with the SEC on March 30,  2000 as an exhibit to the
          Company's Form 10-K dated March 15, 2000.

     (24) Previously  filed  with the SEC on May 8,  2000 as an  exhibit  to the
          Company's Form 8-K dated May 8, 2000.

(b)  Reports on Form 8-K:

     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.

     On May 8, 2000, a Form 8-K was filed with the SEC regarding an Agreement by
     and among the Company, Key and FMC Corporation.

<PAGE>


                                    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 15, 2000                             /s/  Alan R. Steel
------------------------------------             -------------------------------
                                                         Alan R. Steel
                                                    Vice President, Finance
                                                 (Principal Financial and duly
                                                       Authorized Officer)