SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


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


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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




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

                                                                Yes |X|   No |_|

On September 30, 1997, registrant had 10,503,217 shares of Class A Common Stock,
and  93,502  shares  of Class B  Common  Stock,  all no par  value,  issued  and
outstanding.




                            Exhibit Index at Page 20

                                       i

<PAGE>


                                      INDEX



                                                                     Page Number
                                                                     -----------

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets .........................................1
          Consolidated Statements of Operations ...........................2 - 3
          Consolidated Statements of Cash Flows ...............................4

          Notes to Unaudited Consolidated Financial Statements ...........5 - 12

Item 2.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations .........................12 - 18


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings .............................................19 - 20

Item 6.   Exhibits and Reports on Form 8-K ...................................20

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











                                       ii


<PAGE>

                          PART I. FINANCIAL INFORMATION
                          =============================


Item 1.  Financial Statements
--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 September 30,      December 31,
                                                                                     1997              1996
                                                                                --------------     -------------
                                                                                 (unaudited)         (audited)
                                     ASSETS
                                     ======

Current assets:
<S>                                                                             <C>                <C>
     Cash and cash equivalents                                                  $   5,581,000      $   1,909,000
     Accounts receivable, net                                                       3,248,000          4,979,000
     Inventories                                                                    5,338,000          8,132,000
     Prepaid expenses                                                                  72,000            391,000
                                                                                -------------      -------------

              Total current assets                                                 14,239,000         15,411,000
Property, plant and equipment, net                                                  4,501,000          6,488,000
Intangible assets, net                                                              5,699,000          7,876,000
Other assets                                                                          859,000          1,163,000
                                                                                -------------      -------------

                                                                                $  25,298,000      $  30,938,000
                                                                                =============      =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ====================================

Current liabilities:
     Accounts payable                                                           $   1,281,000      $   1,897,000
     Short-term borrowings                                                                 --            947,000
     Accrued liabilities                                                            1,178,000          1,299,000
     Customer deposits                                                              1,878,000          2,463,000
     Accrued payroll                                                                1,347,000            707,000
     Warranty reserve                                                                 407,000            479,000
     Current portion of notes payable                                                  25,000          1,706,000
                                                                                -------------      -------------

              Total current liabilities                                             6,116,000          9,498,000
                                                                                -------------      -------------
Notes payable, less current portion                                                 8,351,000         14,940,000
                                                                                -------------      -------------
Commitments and contingencies
Shareholders' equity:
     Common stock:
         Class A - no par value, one vote per share: 60,000,000
              shares authorized, 10,503,000 and 11,140,000
              shares issued and outstanding at September 30, 1997
              and December 31, 1996, respectively                                  24,144,000         25,648,000
         Class B - no par value, one vote per share: 3,000,000
              shares authorized, 94,000 and 110,000 shares
              issued and outstanding at September 30, 1997 and
              December 31, 1996, respectively                                          62,000             72,000
     Common stock warrants                                                          2,197,000          2,403,000
     Additional paid in capital                                                     2,822,000          2,797,000
     Accumulated deficit                                                          (18,394,000)       (24,370,000)
     Cumulative translation adjustment                                                     --            (50,000)
                                                                                -------------      -------------

              Total shareholders' equity                                           10,831,000          6,500,000
                                                                                -------------      -------------

                                                                                $  25,298,000      $  30,938,000
                                                                                =============      =============

</TABLE>

     See Accompanying Notes to Unaudited Consolidated Financial Statements.


                                       1

<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                Three Months Ended September 30,
                                                                                --------------------------------
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (unaudited)

<S>                                                                             <C>              <C>         
Net sales                                                                       $  5,861,000     $ 10,097,000
Cost of sales                                                                      2,832,000        5,003,000
                                                                                ------------     ------------

Gross profit                                                                       3,029,000        5,094,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         1,089,000        1,539,000
     Research and development                                                      1,029,000          988,000
     General and administrative                                                      581,000        1,093,000
     Amortization of intangible assets                                               174,000          180,000
                                                                                ------------     ------------

                                                                                   2,873,000        3,800,000
                                                                                ------------     ------------

Income (loss) from operations before other income and expense                        156,000        1,294,000

Other income and expense:
     Investment and other income                                                     106,000           35,000
     Interest expense                                                               (428,000)        (344,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                   (166,000)         985,000

Provision for (benefit from) income taxes                                             (6,000)              --
                                                                                ------------     ------------

Net income (loss)                                                               $   (160,000)    $    985,000
                                                                                ============     ============

Earnings (loss) per share (Note 5)                                              $     (0.01)     $       0.07
                                                                                ===========      ============

</TABLE>



     See Accompanying Notes to Unaudited Consolidated Financial Statements.


                                       2
<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                Nine Months Ended September 30,
                                                                                -------------------------------
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (unaudited)

<S>                                                                             <C>              <C>         
Net sales                                                                       $ 22,805,000     $ 20,129,000
Cost of sales                                                                     11,236,000       10,958,000
                                                                                ------------     ------------

Gross profit                                                                      11,569,000        9,171,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         3,772,000        3,230,000
     Research and development                                                      2,980,000        2,931,000
     General and administrative                                                    2,425,000        3,157,000
     Amortization of intangible assets                                               555,000          374,000
     Charge for acquired in-process technology                                            --        4,915,000
     Charge for royalty expense                                                           --          647,000
                                                                                ------------     ------------

                                                                                   9,732,000       15,254,000

Income (loss) from operations before other income and expense                      1,837,000       (6,083,000)

Other income and expense:
     Gain on sale of Pulsarr                                                       4,989,000               --
     Investment and other income                                                     275,000          139,000
     Interest expense                                                             (1,084,000)        (768,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                  6,017,000       (6,712,000)

Provision for income taxes                                                            41,000               --
                                                                                ------------     ------------

Net income (loss)                                                               $  5,976,000     $ (6,712,000)
                                                                                ============     ============

Earnings (loss) per share (Note 5)                                              $      0.29      $      (0.61)
                                                                                ===========      ============

</TABLE>



     See Accompanying Notes to Unaudited Consolidated Financial Statements.


                                       3

<PAGE>

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 Nine Months Ended September 30,
                                                                                ---------------------------------
                                                                                       1997              1996
                                                                                       ----              ----
                                                                                             (unaudited)

<S>                                                                                <C>              <C>            
Cash flows from operating activities:
   Net (loss) income                                                               $  5,976,000     $   (6,712,000)
   Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
     Gain on sale of Pulsarr                                                         (4,989,000)                --
     Charge for acquired in-process technology                                               --          4,915,000
     Charge for royalty expense                                                              --            247,000
     Charge for deferred debt issuance costs                                            233,000                 --
     Depreciation and amortization                                                      963,000            825,000
     Changes in assets and liabilities (net of amounts
       purchased in acquisition):
       Accounts receivable                                                             (527,000)          (725,000)
       Inventories                                                                     (657,000)        (1,660,000)
       Prepaid expenses and other assets                                               (111,000)          (548,000)
       Accounts payable, short-term borrowings, accrued liabilities,
         customer deposits, accrued payroll, and warranty reserve                     2,034,000          1,940,000
                                                                                   ------------     --------------

         Net cash (used in) provided by operating activities                          2,922,000         (1,718,000)
                                                                                   ------------     --------------

Cash (used in) provided by investing activities:
   Proceeds from the sale of Pulsarr                                                  7,010,000                 --
   Acquisition of Pulsarr/Ventek                                                             --         (5,797,000)
   Purchases of property and equipment                                                 (533,000)        (1,515,000)
                                                                                   ------------     --------------

         Net cash provided by (used in) investing activities                          6,477,000         (7,312,000)
                                                                                   ------------     --------------

Cash (used in) provided by financing activities:
   Notes payable to bank and others, net                                             (3,779,000)         4,690,000
   Proceeds from (repurchase of) common stock                                        (1,962,000)         1,971,000
   Proceeds from exercise of stock options                                               14,000             65,000
   Debt issuance costs                                                                       --           (400,000)
                                                                                   ------------     --------------

         Net cash provided by financing activities                                   (5,727,000)         6,236,000
                                                                                   ------------     --------------

Net (decrease) increase in cash                                                       3,672,000         (2,704,000)

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

Cash and cash equivalents, end of the period                                       $  5,581,000     $    1,467,000
                                                                                   ============     ==============

</TABLE>


     See Accompanying Notes to Unaudited Consolidated Financial Statements.


                                       4


<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"), 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 September 30, 1997, and December 31, 1996, the results of operations and cash
flows for the three- and nine-month  periods ended  September 30, 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 to its May 6,  1997
disposition date, and Ventek, Inc. ("Ventek") from its July 24, 1996 acquisition
date (see Note 6 regarding the sale of Pulsarr). 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  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 6 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 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.

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 August 1997, the warrants were repurchased
by the Company (see Note 4).

In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note. Interest on the note was 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 note
is secured by 54% of the stock of ARC  Netherlands  BV. 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 August and
September  1997,  AMV  repurchased  the warrants and paid off $2,500,000 of this
note leaving $900,000  outstanding,  which is due in April 2001 (see Note 4). In
conjunction  with this early  pay-off,  AMV wrote off $233,000 of deferred  debt
issuance costs.  This amount is included in interest expense on the accompanying
Consolidated Statement of Operations.

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
----------------------------------------------------------
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 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.

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 (the "10% Shares"), 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 (the "90%  Shares"),  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. On September 25, 1997,
the  three  key  employees  contributed  back  to the  Company  the  90%  Shares
(1,800,000  shares) which were  canceled.  If any of the  conditions are not met
with respect to the outstanding 10% Shares,  the related shares of stock will be
forfeited and returned to the Company.

On March 8,  1997,  April 1, 1997 and  August 2,  1997,  188,400  Unit  Purchase
Options  originally  issued in connection with the Company's 1992 initial public
offering,  135,000 Laidlaw warrants and 300,000 Gerinda warrants,  respectively,
expired unexercised.

In August 1997,  the Company  purchased  1,001,640  shares of its Class A Common
Stock,  300,000  Class F Warrants  and  340,000  Class H  Warrants  in a private
transaction for $1.9 million.

In September 1997, the Company purchased at par $2.5 million of the $3.4 million
outstanding  6.75% Convertible Note.

Schedule  of  Outstanding  Stock,  Warrants, Units and Potential  Dilution:  The
following table summarizes,  as of September 30, 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 September 30, 1997    Factor       Conversion         Price      Reduction
          ------------------      ---------------------  ----------   --------------    ----------    ---------
<S>      <C>                             <C>                 <C>     <C>                 <C>       <C>         
         Common Stock:
          Class A                                                       10,503,217
          Class B                                                           93,502
                                                                     -------------

         Total currently outstanding                                    10,596,719
         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
          G (2/28/99)                      240,000            1            240,000          2.00           480,000
          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
                                                                     -------------                 ---------------

                                                                        13,215,306                      43,833,000
                                                                     -------------                 ---------------
         Convertible Debt (due date):
          6.75% Notes (4/16/01)            900,000                         423,529          2.13           900,000
          6.75% Ventek Note (7/23/99)    2,250,000                       1,000,000          2.25         2,250,000
          Ventek Note (7/23/99)          1,529,000 (B)                   1,800,000                       1,529,000
                                                                     -------------                 ---------------

                                                                         3,223,519                       4,679,000
                                                                     -------------                 ---------------
         Potentially outstanding shares and proforma
            proceeds and reduction of debt                              27,035,554                 $    48,512,000
                                                                     =============                 ===============

<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.
</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 September 1997, the Company adopted the 1997  Nonqualified  Stock Option Plan
covering  500,000 shares of Class A Common Stock. On September 30, 1997, AMV had
outstanding  options  to  purchase  3,641,000  shares  of Class A Common  Stock,
3,149,000 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.  The assumed  exercise of all of
AMV's  options  and  warrants   would  result  in  the  aggregate   proceeds  of
approximately  $51,426,000  as of September  30, 1997.  These  proceeds are then
assumed to be used in the following order:

  a)   Repurchase up to 20% of the number of AMV common shares currently
       outstanding.

  b)   Reduce all short-term and long-term borrowings.

  c)   Invest the remaining proceeds in US government securities or commercial
       paper.

The  computation of primary loss per share for the three months ended  September
30, 1997,  and the nine months  ended  September  30,  1996,  as required by APB
Opinion No. 15,  paragraph 38, was not dilutive and therefore,  the net loss, as
reported,  and  the  weighted  average  shares  outstanding  of  12,665,000  and
10,998,000, respectively, were used in calculating loss per share.

The computation of primary  earnings per common share for the three months ended
September 30, 1996 and the nine months ended September 30, 1997 is as follows:

<TABLE>
<CAPTION>
                                                                    Three Months Ended       Nine Months Ended
                                                                    September 30, 1996      September 30, 1997
                                                                    ------------------      ------------------

<S>                                                                    <C>                     <C>          
Net income as reported                                                 $     985,000           $   5,976,000
Reduction in interest expense accreted to a non-interest
    bearing note and stock appreciation rights agreement
    payable by the issuance of up to 1,800,000 shares of
    Class A Common Stock or, at AMV's option, in cash in
    three years                                                               25,000                  75,000
Reduction in interest expense as the result of the assumed
    retirement of all short-term and long-term borrowing                     318,000                 779,000
Increase in interest income as the result of the investment
    of excess cash generated from the assumed exercise of
    all options and warrants                                                 593,000               1,163,000
                                                                       -------------           -------------

Net income                                                             $   1,922,000           $   7,993,000
                                                                       =============           =============

Earnings per share                                                     $        0.07           $        0.29
                                                                       =============           =============

</TABLE>

<TABLE>
<CAPTION>
                                                                    Three Months Ended       Nine Months Ended
                                                                    September 30, 1996      September 30, 1997
                                                                    ------------------      ------------------

<S>                                                                       <C>                     <C>       
Weighted average shares outstanding:
    Common stock                                                          10,887,000              11,382,000
    Reduction for contingently returnable shares as all
       conditions were not met as of period end                                   --                (200,000)
    Shares relating to a note and stock appreciation
       rights agreement, issued on July 24, 1996                           1,330,000               1,800,000
    Assumed aggregate exercise of all stock options
       and warrants                                                       19,191,000              16,810,000
    Assumed repurchase of common shares, limited
       to 20% of currently outstanding common shares                      (2,178,000)             (2,119,000)
                                                                       -------------           -------------

Shares used in calculations                                               29,230,000              27,673,000
                                                                       =============           =============

</TABLE>

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

The  Financial  Accounting  Standards  Board has 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 ending 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.  The EPS amounts computed
above in accordance with APB 15 will be adjusted as of December 15, 1997, to the
amounts shown in the following table.

<TABLE>
<CAPTION>
                                                                   Proforma
                               --------------------------------------------------------------------------------
                                                      For the Quarter Ended September 30,
                               --------------------------------------------------------------------------------
                                                1997                                       1996
                               --------------------------------------   ---------------------------------------
                                                               Per         Income                          Per
                                  Income         Shares       Share        (Loss)          Shares         Share
                                (Numerator)   (Denominator)   Amount     (Numerator)    (Denominator)    Amount
                               ------------   -------------   -------   ------------    -------------   -------
<S>                            <C>               <C>          <C>       <C>              <C>            <C>    
Basic EPS:
Income (loss) available to
   common shareholders         $  (160,000)      11,065,000             $    985,000     10,887,000
Reduction for contingently
   returnable shares as all
   conditions were not met
   as of period end                     --         (200,000)                      --             --
                               -----------     ------------             ------------    -----------
Income (loss) available to
   common shareholders         $  (160,000)      10,865,000   $(0.01)   $    985,000     10,887,000     $  0.09
                                                              ======                                    =======

Effect of Dilutive Securities:
Note and stock appreciation
   rights agreement                     --               --                   25,000      1,330,000
Stock options                           --               --                       --        569,000
Convertible debt                        --               --                  187,000      4,190,000
                               -----------     ------------             ------------    -----------

Diluted EPS:
Income (loss) available to
   common shareholders
   and assumed conversions     $  (160,000)      10,865,000   $(0.01)   $  1,172,000     16,976,000     $  0.07
                               ===========     ============   ======    ============    ===========     =======

</TABLE>

<TABLE>
<CAPTION>
                                                                   Proforma
                               --------------------------------------------------------------------------------
                                                    For the Nine Months Ended September 30,
                               --------------------------------------------------------------------------------
                                                1997                                       1996
                               --------------------------------------   ---------------------------------------
                                                               Per         Income                          Per
                                  Income         Shares       Share        (Loss)          Shares         Share
                                (Numerator)   (Denominator)   Amount     (Numerator)    (Denominator)    Amount
                               ------------   -------------   -------   ------------    -------------   -------
<S>                            <C>               <C>          <C>       <C>              <C>            <C>    
Basic EPS:
Income (loss) available to
   common shareholders         $ 5,976,000       11,382,000             $ (6,712,000)    10,551,000
Reduction for contingently
   returnable shares as all
   conditions were not met
   as of period end                     --         (200,000)                      --             --
                               -----------     ------------             ------------    -----------
Income (loss) available to
   common shareholders         $ 5,976,000       11,182,000   $ 0.53    $ (6,712,000)    10,551,000     $ (0.64)
                                                              ======                                    =======

Effect of Dilutive Securities:
Note and stock appreciation
   rights agreement                 75,000        1,800,000                       --             --
Stock options                           --          973,000                       --             --
Convertible debt                   189,000        1,422,000                       --             --
                               -----------     ------------             ------------    -----------

Diluted EPS:
Income (loss) available to
   common shareholders
   and assumed conversions     $ 6,240,000       15,377,000   $ 0.41    $ (6,712,000)    10,551,000     $ (0.64)
                               ===========     ============   ======    ============    ===========     =======

</TABLE>

Options to purchase  820,000  shares of common stock between $2.03 and $4.94 and
warrants to purchase  13,212,000  shares of common stock between $2.03 and $4.17
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.

In summary,  EPS computed under the APB 15 and FAS 128 methods for the three and
nine months ended September 30, 1997 are as follows:

<TABLE>
<CAPTION>
                                                   Computation Before                 Computation After
                                                    December 15, 1997                 December 15, 1997
                                           -------------------------------    --------------------------------
                                             Three Months     Nine Months       Three Months      Nine Months
                                                 ended           ended              ended            ended
                                             September 30,   September 30,      September 30,    September 30,
                                                 1997            1997               1997             1997
                                           ---------------   -------------      -------------    -------------

<S>                                             <C>             <C>                <C>             <C>    
         Primary or Basic EPS                   $(0.01)         $ 0.29             $(0.01)         $  0.53
         Fully Diluted or Diluted EPS           $(0.01)         $ 0.29             $(0.01)         $  0.41

</TABLE>

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.

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

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 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.

The  proforma  condensed  combined  statements  of  operations,  shown  below as
supplemental information,  assume (i) that the acquisition of Ventek occurred as
of the  beginning  of the 1996  three-  and  nine-month  periods,  and (ii) that
Pulsarr  was  sold at the  beginning  of such  periods.  However,  the  proforma
combined  balances are not  necessarily  indicative of balances which would have
resulted had the  acquisition  and  divestiture  occurred as of the beginning of
such  three- and  nine-month  periods  presented.  Proforma  condensed  combined
statements of operations are presented below:

<TABLE>
<CAPTION>

                                                   Three months Ended                 Nine Months Ended
                                                      September 30,                     September 30,
                                                 1997            1996               1997             1996
                                           ---------------   -------------      -------------   -------------
<S>                                         <C>              <C>                <C>             <C>          
             Sales                          $    5,861,000   $   7,065,000      $  20,247,000   $  17,564,000
                                            ==============   =============      =============   =============
             Gross profit                   $    3,029,000   $   4,032,000      $  10,651,000   $   9,687,000
                                            ==============   =============      =============   =============
             Net income (loss)              $     (160,000)  $     983,000      $     975,000   $     142,000
                                            ==============   =============      =============   =============
             Earnings (loss) per share      $       (0.01)   $        0.07      $       0.08    $        0.01
                                            =============    =============      ============    =============

</TABLE>


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. Inventories consisted of:


                                            September 30,    December 31,
                                                1997             1996
                                            -------------    -------------
           Raw materials                    $   1,491,000    $   2,662,000
           Work-in-process                      1,889,000        2,234,000
           Finished goods                       1,958,000        3,236,000
                                            -------------    -------------

                                            $   5,338,000    $   8,132,000
                                            =============    =============

                                       12


<PAGE>

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,  May  1997,  the  Company  sold  Pulsarr  for  $8.4  million  in cash (see
Liquidity and Capital Resources below).

The  Company's  backlog at  September  30,  1997,  was  $7,655,000  compared  to
$13,598,000  as of September  30, 1996.  After  excluding  Pulsarr,  backlog was
$10,899,000  at September  30, 1996.  The 1997 backlog is expected to be shipped
within nine months.

Results of Operations - Comparison between three months ended September 30, 1997
and September 30, 1996

Sales for the three months ended September 30, 1997 ("Q3 1997") were $5,861,000,
down  42% when  compared to sales for the three  months ended September 30, 1996
("Q3 1996")  of $10,097,000.  Sales  for  Q3  1996  included  Pulsarr  sales  of
$3,032,000, whereas sales for  Q3 1997 did not include any sales for Pulsarr due
to its sale in May 1997.  The  remaining  decrease in sales relates primarily to
reduced sales at Ventek.

Cost of sales was 48% of sales in Q3 1997 and 50% in Q3 1996.

Gross  profit  decreased  by 41% to  $3,029,000  in Q3  1997  when  compared  to
$5,094,000 of gross profit in Q3 1996. In Q3 1997, gross profit was 52% of sales
as compared to 50% in Q3 1996.  The increase in gross profit as a percentage  of
sales is due to the  exclusion of the lower margin  Pulsarr  products  during Q3
1997 versus their inclusion during Q3 1996.

Selling  and  marketing  expense  decreased  29% in Q3  1997  from  Q3  1996  to
$1,089,000  amounting  to 19% of sales in Q3 1997.  Similar  expenses in Q3 1996
were $1,539,000, or 15% of sales. The increase in selling and marketing expenses
as a  percent  of sales is the  result  of  increased  commissions  and  general
marketing  activities  during  the  quarter.  The  overall  decrease  in dollars
expended for selling and marketing in Q3 1997 was due to the sale of Pulsarr.

Research and development expenses were $1,029,000 and $988,000 in Q3 1997 and Q3
1996,  or 18% and 10% of sales,  respectively.  As a  percentage  of sales,  the
increased  level of research and development in Q3 1997 was due to a lower sales
base.

General and  administrative  expenses  decreased $512,000 to $581,000 in Q3 1997
from $1,093,000 in Q3 1996. The decrease in general and administrative  expenses
is due principally to the sale of Pulsarr.

The decrease in amortization  of intangible  assets is primarily due to the sale
of Pulsarr.

The  increase  in  investment  and  other  income is the  result of higher  cash
balances available for investment.

The  increase in interest  expense is due to  inclusion  of $233,000 of deferred
debt  issuance  costs  written  off in  September  1997 as a result of the early
repayment of $2,500,000 of convertible notes payable.

The net loss for Q3 1997 was  $160,000  as compared to net income of $985,000 in
Q3 1996 as a result of the factors discussed above.

Results of Operations - Comparison  between nine months ended September 30, 1997
and September 30, 1996

Sales  for  the  nine months ended September 30, 1997 ("the 1997  Period")  were
$22,805,000, up 13% when  compared  to sales for the nine months ended September
30, 1996 ("the 1996 Period") of $20,129,000.  The increase is due to an increase
of  $5,193,000 in sales at SRC,  the  inclusion  of  nine months of Ventek sales
in the 1997 Period versus approximately two months in the 1996 Period, offset by
reduced Pulsarr sales due to the sale of Pulsarr.

Cost of sales was 49% of sales in the 1997 Period and 54% in the 1996 Period.

Gross profit increased by 26% to $11,569,000 in the 1997 Period when compared to
$9,171,000 of gross profit in the 1996 Period.  In 1997, gross profit was 51% of
sales as compared to 46% in 1996.  The  increase in gross profit as a percentage
of sales is primarily  related to a larger  volume of the higher  margin  Ventek
products included in 1997, an increase in the overall sales volume at SRC, which
allowed for the  spreading of fixed costs over a larger sales base, as well as a
change in sales mix.

Selling  and  marketing  expense  increased  17% in the 1997 Period from 1996 to
$3,772,000  amounting  to 17% of  sales in 1997.  Similar  expenses  in the 1996
Period were  $3,230,000,  or 16% of sales. The increase in selling and marketing
expenses  as a percent  of sales is the  result  of  increased  commissions  and
general marketing activities.

Research and  development  expenses were  $2,980,000  and $2,931,000 in the 1997
Period and the 1996 Period, or 13% and 15% of sales, respectively.  The decrease
in research and  development  expense in 1997, as a percentage of sales,  is due
principally to the spreading of fixed costs over a larger sales base.

General and  administrative  expenses  decreased  $732,000 to $2,425,000 in 1997
from $3,157,000 in 1996. The decrease in general and administrative  expenses is
due principally to the sale of Pulsarr.

The increase in  amortization  of intangible  assets is  principally  due to the
acquisition of Ventek.

On May 6, 1997,  AMV sold  Pulsarr to Barco NV of  Belgium  for $8.4  million in
cash,  resulting in a gain of $4,989,000.  AMV had purchased Pulsarr on March 1,
1996  for $7.8  million.  This  gain  primarily  represents  a  recovery  of the
$4,915,000  charge for acquired  in-process  technology  expensed in the quarter
ended March 31, 1996.

The  increase  in  investment  and  other  income is the  result of higher  cash
balances available for investment.

The increase in interest  expense is  primarily  due to inclusion of $233,000 of
deferred  debt issuance  costs written off in September  1997 as a result of the
early repayment of $2,500,000 of convertible notes payable.

Net income for 1997 was  $5,976,000  as compared to a net loss of  $6,712,000 in
1996.  Net income for 1997  includes a gain on the sale of Pulsarr of $4,989,000
and a charge of $233,000  relating to the  write-off of deferred  debt  issuance
costs,  while the net loss for 1996  includes a charge for  acquired  in-process
technologies  of  $4,915,000  and a charge  for  deferred  royalty  expenses  of
$647,000.  Income before  special items for 1997 was $1,220,000 as compared to a
loss of $1,150,000 for 1996 as a result of the factors discussed above.

Liquidity  and  Capital  Resources

In August and September 1997,  the  Company purchased  1,001,640 shares of Class
A  Common  Stock  and  640,000  warrants  to purchase Class A Common  Stock  for
$1,962,000, and $2,500,000 of its $3,400,000 6.75% Convertible Note at par.

On May 6, 1997, the Company  received net proceeds of  approximately  $7,000,000
from the sale of Pulsarr.

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
September 30, 1997, the Company had $8,123,000 in working capital.

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 paid
royalties of 7% of certain  vision system sales through the earlier of September
30, 2003, or the date at which aggregate  royalty payments  equaled  $1,600,000.
Until aggregate  royalty  payments  equaled  $1,600,000,  maximum annual royalty
payments were $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. 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 six of the last eight 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.  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 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  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. Increases in outstanding shares of
the Company's Class A Common Stock in recent years 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 in 1997, the Company has had a history of operating 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),  (v) cash paid in 1997 for the purchase of stock,
warrants and debt,  and (vi)  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  operating  profitability in 1995, the second half
of 1996 and in 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 (i)
outstanding  shares  of the  Company's  Class  A  Common  Stock  due to  private
placements and implementation of the 1997 Restricted Stock Plan, (ii) April 1995
and April 1996 private placements of convertible debt, (iii) substantial loss in
1996,  (iv) debt  incurred  for the  acquisition  of  Ventek,  and (v) 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  $550,000  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 unaffiliated  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 sales,  income and 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.


                                       18

<PAGE>


                           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 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,  Max Khan and Konrad Meyer
(together,  "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.  Ilverton  International,
Inc. ("Ilverton"), an entity that the Company believed to be controlled by Meyer
and holder of the Company's $3,400,000 Convertible Secured Note, was later added
as a defendant to the suit. The Company claimed that Credit Suisse's  failure to
fund limited  AMV's  ability to finance its business  plan for Pulsarr and other
operations and, as a result, adversely impacted AMV's credibility with investors
and financial  analysts.  The suit also claimed that Messrs. Khan and Meyer, who
had previously  provided  investment  banking services to AMV,  persuaded Credit
Suisse to breach the Subscription Agreement.

In a  related  action,  on June  26,  1997,  the  Company  sued  Swiss  American
Securities,  Inc. ("SASI"),  Credit Suisse's U. S. Agent, and Ilverton,  seeking
the return of the common stock of the Company's SRC VISION, Inc. subsidiary that
was pledged as security for the $2,160,000 Convertible Subordinated Secured Note
to Ilverton that was paid off in April 1997. The agreement  governing the pledge
required Ilverton, upon payment of the note, to instruct SASI, the holder of the
pledged shares,  to return the pledged shares to AMV.  Although  Ilverton had no
voting rights over the pledged  shares,  the Company  believed  that  Ilverton's
refusal to return the shares was related to the Credit Suisse  action  described
above.

In August and September  1997,  all matters among the Company and the defendants
were settled  resulting in the dismissal  with prejudice of all claims among the
parties.  In  connection  with the  settlement,  AMV  purchased  from  Ilverton,
1,001,640  shares of the Company's  Class A Common Stock,  640,000 Class F and H
Warrants and $2.5 million of Convertible Secured Note.

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

(a)  Exhibits

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

  10.1         Settlement Agreement dated August 12, 1997.

  10.2         1997 Nonqualified Stock Option Plan and form of option agreement.

    27         Financial Data Schedule.

(b)  Reports on Form 8-K:

               On August 8, 1997, a Form 8-K was filed  establishing the date
               for the Company's 1997 Annual Meeting of stockholders.

               On  August  12,  1997,  a Form 8-K was filed  regarding  AMV's
               purchase  of  1,001,640  shares  of Class A Common  Stock  and
               warrants to purchase 640,000 shares of Class A Common Stock.

               On September  15, 1997, a Form 8-K was filed  regarding  AMV's
               purchase of $2.5 million of the $3.4 million outstanding 6.75%
               Convertible Secured Note.

               On  September  29, 1997,  a Form 8-K was filed  regarding  the
               retirement  of 1.8  million  shares  of Class A  Common  Stock
               contributed to the Company by William J. Young,  Alan R. Steel
               and James Ewan, officers and/or directors of AMV.



                                    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.


       October 30, 1997                              /s/  Alan R. Steel
-------------------------------                 --------------------------------
                                                          Alan R. Steel
                                                    Vice President - Finance
                                                 (Principal Financial and duly
                                                       Authorized Officer)


                                       20