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 JUNE 30, 1998


                           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 June 30, 1998,  registrant had 10,641,718 shares of Class A Common Stock, and
76,835 shares of Class B Common Stock, all no par value, issued and outstanding.









                            Exhibit Index at Page 17

<PAGE>

                                      INDEX


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

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

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

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

Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..............................10


PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K....................................17

          Signature...........................................................19


<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   June 30,         December 31,
                                                                     1998               1997
                                                                  (unaudited)         (audited)
                                                                -------------      -------------
<S>                                                             <C>                <C>          
                                     ASSETS

Current assets:
   Cash and cash equivalents                                    $   5,005,000      $   6,045,000
   Accounts receivable - net                                        3,974,000          2,711,000
   Inventories                                                      5,977,000          5,181,000
   Prepaid expenses                                                   135,000            138,000
                                                                -------------      -------------

      Total current assets                                         15,091,000         14,075,000

Property, plant and equipment - net                                 5,411,000          4,775,000
Intangible assets - net                                             5,188,000          5,535,000
Other assets                                                        1,202,000            850,000
                                                                -------------      -------------

                                                                $  26,892,000      $  25,235,000
                                                                =============      =============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                             $   1,334,000      $   1,436,000
   Accrued liabilities                                                917,000          1,146,000
   Customer deposits                                                1,356,000          1,073,000
   Accrued payroll                                                    941,000            783,000
   Warranty reserve                                                   481,000            477,000
   Current portion of notes payable                                    38,000             27,000
                                                                -------------      -------------

      Total current liabilities                                     5,067,000          4,942,000
                                                                -------------      -------------
Notes payable, less current portion                                 8,633,000          8,342,000
                                                                -------------      -------------
Commitments and contingencies
Shareholders' equity:
   Common stock:
      Class A and B - 10,719,000 and 10,679,000 shares
      issued and outstanding at June 30, 1998 and
      December 31, 1997, respectively                              24,329,000         24,285,000
   Common stock warrants                                              192,000          2,197,000
   Additional paid in capital                                       4,828,000          2,823,000
   Accumulated deficit                                            (16,156,000)       (17,354,000)
                                                                -------------      -------------

      Total shareholders' equity                                   13,192,000         11,951,000
                                                                -------------      -------------

                                                                $  26,892,000      $  25,235,000
                                                                =============      =============


     See Accompanying Notes to Unaudited Consolidated Financial Statements.

</TABLE>
<PAGE>
--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations - Three Months
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                  Three Months Ended June 30,
                                                                 -----------------------------
                                                                     1998              1997
                                                                     ----              ----
                                                                           (unaudited)
<S>                                                              <C>              <C>
Net sales                                                        $  9,087,000     $  7,607,000
Cost of sales                                                       4,052,000        3,674,000
                                                                 ------------     ------------

Gross profit                                                        5,035,000        3,933,000
                                                                 ------------     ------------

Operating expenses:
   Selling and marketing                                            1,396,000        1,430,000
   Research and development                                         1,031,000          932,000
   General and administrative                                       1,249,000          812,000
   Amortization of intangible assets                                  173,000          182,000
                                                                 ------------     ------------

                                                                    3,849,000        3,356,000

Income from operations before other income and expense              1,186,000          577,000

Other income and expense:
   Gain on sale of Pulsarr                                                 --        4,989,000
   Investment and other income                                         49,000          112,000
   Interest expense                                                  (177,000)        (296,000)
                                                                 ------------     ------------

Income before income taxes                                          1,058,000        5,382,000

Provision for income taxes                                             42,000           15,000
                                                                 ------------     ------------

Net income                                                       $  1,016,000     $  5,367,000
                                                                 ============     ============

Earnings per share (Note 5):
   Basic                                                         $       0.10     $       0.47
                                                                 ============     ============
   Diluted                                                       $       0.08     $       0.34
                                                                 ============     ============

Average shares outstanding - assuming dilution                     14,677,000       16,338,000
                                                                 ============     ============


     See Accompanying Notes to Unaudited Consolidated Financial Statements.

</TABLE>
<PAGE>
--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations - Six Months
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30,
                                                                 ------------------------------
                                                                   1998                1997
                                                                   ----                ----
                                                                          (unaudited)
<S>                                                              <C>               <C>         
Net sales                                                        $ 16,190,000      $ 16,944,000
Cost of sales                                                       7,822,000         8,404,000
                                                                 ------------      ------------

Gross profit                                                        8,368,000         8,540,000
                                                                 ------------      ------------

Operating expenses:
   Selling and marketing                                            2,333,000         2,683,000
   Research and development                                         2,181,000         1,951,000
   General and administrative                                       2,025,000         1,844,000
   Amortization of intangible assets                                  347,000           381,000
                                                                 ------------      ------------

                                                                    6,886,000         6,859,000

Income from operations before other income and expense              1,482,000         1,681,000

Other income and expense:
   Gain on sale of Pulsarr                                                 --         4,989,000
   Investment and other income                                        111,000           169,000
   Interest expense                                                  (345,000)         (656,000)
                                                                 ------------      ------------

Income before income taxes                                          1,248,000         6,183,000

Provision for income taxes                                             50,000            47,000
                                                                 ------------      ------------

Net income                                                       $  1,198,000      $  6,136,000
                                                                 ============      ============

Earnings per share (Note 5)
   Basic                                                         $       0.11      $       0.54
                                                                 ============      ============
   Diluted                                                       $       0.09      $       0.40
                                                                 ============      ============

Average shares outstanding--assuming dilution                      14,676,000        16,282,000
                                                                 ============      ============


     See Accompanying Notes to Unaudited Consolidated Financial Statements.

</TABLE>
<PAGE>
--------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30,
                                                                 ------------------------------
                                                                   1998                1997
                                                                   ----                ----
                                                                          (unaudited)
<S>                                                              <C>               <C>
Cash flows from operating activities:
   Net income                                                    $  1,198,000      $  6,136,000
   Adjustments to reconcile net income to net cash
      (used in) provided by operating activities:
      Gain on sale of Pulsarr                                              --        (4,989,000)
      Depreciation and amortization                                   674,000           633,000
      Changes in assets and liabilities:
         Accounts receivable                                       (1,264,000)         (916,000)
         Inventories                                                 (797,000)         (260,000)
         Prepaid expenses and other assets                           (349,000)           33,000
         Accounts payable, short-term borrowings,
            accrued liabilities, customer deposits,
            accrued payroll and warranty reserve                      162,000           547,000
                                                                 ------------      ------------

            Net cash (used in) provided by
            operating activities                                     (376,000)        1,184,000
                                                                 ------------      ------------

Cash (used in) provided by investing activities:
   Proceeds from the sale of Pulsarr                                       --         7,010,000
   Purchases of property and equipment                               (962,000)         (310,000)
                                                                 ------------      ------------

            Net cash (used in) provided by
            investing activities                                     (962,000)        6,700,000
                                                                 ------------      ------------

Cash (used in) provided by financing activities:
   Notes payable to bank and others, net                              291,000        (1,273,000)
   Proceeds from exercise of stock options                              7,000            14,000
                                                                 ------------      ------------

            Net cash (used in) provided by
            financing activities                                      298,000        (1,259,000)
                                                                 ------------      ------------

Net (decrease) increase in cash                                    (1,040,000)        6,625,000

Cash and cash equivalents, beginning of the period                  6,045,000         1,909,000
                                                                 ------------      ------------

Cash and cash equivalents, end of period                         $  5,005,000      $  8,534,000
                                                                 ============      ============


     See Accompanying Notes to Unaudited Consolidated Financial Statements.

</TABLE>
<PAGE>
--------------------------------------------------------------------------------
              ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES

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

Note 1.  Principles of Consolidation

In the opinion of the  management of Advanced  Machine Vision  Corporation  (the
"Company" or "AMV"), the accompanying  consolidated financial statements,  which
have not been audited by independent  accountants  (except for the balance sheet
as of  December  31,  1997),  reflect  all  adjustments  (consisting  of  normal
recurring accruals) necessary to present fairly the Company's financial position
at June 30,  1998,  and December 31,  1997,  the results of  operations  for the
three- and six-month periods ended June 30, 1998 and 1997 and cash flows for the
six-month periods ended June 30, 1998 and 1997. The financial statements include
the  accounts  of the Company and its four  wholly-owned  subsidiaries,  Applied
Laser  Systems,  Inc.,  SRC VISION,  Inc.  ("SRC"),  ARC  Netherlands BV and its
respective subsidiary, Pulsarr Holding BV ("Pulsarr") (see Note 6) to its May 6,
1997  disposition  date,  and Ventek,  Inc.  ("Ventek").  The Company's  current
operating subsidiaries are SRC and Ventek.

Certain  notes and other  information  are  condensed  or omitted in the interim
financial  statements  presented in this  Quarterly  Report on Form 10-Q.  These
financial  statements  should be read in  conjunction  with the  Company's  1997
annual report on Form 10-K.

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

Note 3.  Financing

In April  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 convertible into the Company's Class A Common Stock
at $1.875 per share.  In  connection  with the  borrowing,  the  Company  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  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 in the quarter  ended
September 30, 1997. In July 1996,  AMV issued the following  notes in connection
with the acquisition of Ventek:  (i) a 6.75%  $1,000,000 note due July 23, 1999;
(ii) a 6.75%  $2,250,000 note due July 23, 1999  convertible  into the Company's
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.

In April 1998, AMV entered into a credit relationship with Bank of America NT&SA
for a line of credit ("LOC") and a new mortgage. The LOC Business Loan Agreement
provides that AMV can borrow the lesser of $2,000,000 or the collateral value of
pledged marketable securities, for interest at prime rate or the bank's offshore
rate plus  1.85% and has an April  30,  1999  expiration  date.  The  $3,000,000
mortgage  replaced  the 9.75%  $2,680,000  prior  mortgage,  provides  for fixed
interest at 8.3% and is due on May 1, 2008.

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

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.  On  September  25,  1997,  the three key  employees
contributed  back to the  Company  1,800,000  shares  which were  canceled.  The
remaining 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. If any of the  conditions are not met,
the stock will be forfeited and returned to the Company.

Between  March 8, 1997 and July 31,  1998,  188,400  Unit  Purchase  Options (to
acquire  1,696,000  shares of stock)  originally  issued in connection  with the
Company's  1992 initial  public  offering,  135,000  Laidlaw  warrants,  300,000
Gerinda  warrants,  the  Company's  Class  A,  B  and  C  Warrants  to  purchase
approximately  11.4  million  shares  and,  275,000  Class  D  Warrants  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.

In June  1998,  the Class I Warrant  was  amended to reduce the number of shares
issuable pursuant to the warrant from 1,000,000 to 250,000.

In June and July 1998, 250,000 Class D Warrants expired.


Schedule of Outstanding Stock,  Warrants and Potential  Dilution:  The following
table  summarizes,  as of July 31, 1998,  outstanding  common  stock,  potential
dilution to the outstanding common stock upon exercise of warrants or conversion
of convertible  debt, and proforma  proceeds or debt reduction from the exercise
or conversion 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          Common                          Proceeds
                                   Amount Outstanding         Stock After      Conversion        or Debt
       Security                     at July 31, 1998          Conversion          Price         Reduction
---------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>                 <C>          <C>
Outstanding Common Stock:                                     10,719,000
Warrants (expiration date):

   G (2/28/99)                          240,000                  240,000        $   2.00     $    480,000
   I (7/23/01)                          250,000 (A)              250,000            2.25          563,000
   J (9/30/99)                          300,000                  300,000            2.03          609,000
                                                            ------------                     ------------

                                                                 790,000                        1,652,000
                                                            ------------                     ------------
Convertible Debt (due date):
   6.75% Notes (4/16/01)           $    900,000                  423,000            2.13          900,000
   6.75% Ventek Note (7/23/99)     $  2,250,000                1,000,000            2.25        2,250,000
   Ventek Note (7/23/99)           $  1,529,000 (A)            1,800,000                        1,529,000
                                                            ------------                     ------------

                                                               3,223,000                        4,679,000
                                                            ------------                     ------------
Potentially outstanding shares
   and proforma proceeds
   or reduction of debt                                       14,732,000                     $  6,331,000
                                                            ============                     ============

(A)  The Company  issued the  $1,529,000  note and Class I Warrant in connection
     with the Ventek  acquisition (see Note 3). 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.

</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.

On  July 31, 1998, AMV had outstanding  options to purchase  3,603,000 shares of
Class A Common Stock,  3,121,000 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 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.

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

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

Note 5.  Earnings Per Share

The computation of earnings per share is presented in the following tables:
<TABLE>
<CAPTION>
                                                           For the Three Months Ended June 30,
                                        ------------------------------------------------------------------------
                                                      1998                                    1997
                                        ---------------------------------       --------------------------------
                                            Income             Shares              Income              Shares
                                        -------------       -------------       -------------      -------------
<S>                                     <C>                 <C>                 <C>                <C>
Calculation of EPS
Income (loss) available to
   common shareholders                  $   1,016,000          10,715,000       $   5,367,000         13,398,000
Reduction for contingently
   returnable shares as all conditions
   were not met as of period end                   --            (200,000)                 --         (2,000,000)
                                        -------------       -------------       -------------      -------------
Income (loss) available to
   common shareholders                  $   1,016,000          10,515,000       $   5,367,000         11,398,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Basic EPS                               $        0.10                           $       0.47
----------------------------------------------------------------------------------------------------------------

Effect of Dilutive Securities:
Stock options and warrants              $          --             938,000       $          --            544,000
Note and stock appreciation
   rights agreement                            25,000           1,800,000              25,000          1,800,000
Convertible debt                               63,000           1,424,000             137,000          2,596,000
                                        -------------       -------------       -------------      -------------
Income available to common
   shareholders and assumed
   conversions                          $   1,104,000          14,677,000       $   5,529,000         16,338,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Diluted EPS                             $        0.08                           $       0.34
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                            For the Six Months Ended June 30,
                                        ------------------------------------------------------------------------
                                                      1998                                    1997
                                        ---------------------------------       --------------------------------
                                            Income             Shares              Income              Shares
                                        -------------       -------------       -------------      -------------
<S>                                     <C>                    <C>              <C>                   <C>       
Calculation of EPS
Income (loss) available to
   common shareholders                  $   1,198,000          10,714,000       $   6,136,000         13,342,000
Reduction for contingently
   returnable shares as all conditions
   were not met as of period end                   --            (200,000)                 --         (2,000,000)
                                        -------------       -------------       -------------      -------------
Income (loss) available to
   common shareholders                  $   1,198,000          10,514,000       $   6,136,000         11,342,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Basic EPS                               $        0.11                           $       0.54
----------------------------------------------------------------------------------------------------------------

Effect of Dilutive Securities:
Stock options and warrants              $          --             938,000       $          --            544,000
Note and stock appreciation
   rights agreement                            50,000           1,800,000              50,000          1,800,000
Convertible debt                              126,000           1,424,000             274,000          2,596,000
                                        -------------       -------------       -------------      -------------
Income available to common
   shareholders and assumed
   conversions                          $   1,374,000          14,676,000       $   6,460,000         16,282,000
                                        =============       =============       =============      =============

----------------------------------------------------------------------------------------------------------------
Diluted EPS                             $        0.09                           $       0.40
----------------------------------------------------------------------------------------------------------------
</TABLE>

The  number of shares of common  stock,  along with  their  respective  exercise
prices,  underlying options,  warrants and convertible debt, which were excluded
from the  computation of diluted EPS because their exercise  prices were greater
than the average market price of common stock, are listed below.
<TABLE>
<CAPTION>
                                                                          June 30,
                                                                 ---------------------------
                                                                     1998            1997
                                                                 ------------    -----------
<S>                                                              <C>             <C>
Number of shares of common stock exercisable from:
   Options                                                            541,000      1,609,000
   Warrants                                                           375,000     14,155,000
                                                                 ------------    -----------

                                                                      916,000     15,764,000
                                                                 ============    ===========

   Exercise price ranges                                          $2.19-$4.94    $1.56-$5.00
</TABLE>

Note 6.  Acquisition and Sale of Pulsarr

On March 1, 1996, the Company  acquired all of the outstanding  capital stock of
Pulsarr  for cash of $6.5  million  and  notes  payable  of $1.3  million.  This
acquisition was accounted for under the purchase method of accounting.

On May 6, 1997,  the Company sold its Pulsarr  subsidiary to Barco NV of Belgium
for $8.4 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 $5  million  gain on the sale was  largely  a result  of  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 condensed  combined  statements of operations,  shown below as  supplemental
information, assume that Pulsarr was sold at the beginning of 1997. However, the
proforma  combined  balances are not  necessarily  indicative of balances  which
would have  resulted  had the  divestiture  occurred as of the  beginning of the
three- and six-month periods ending June 30, 1997. Condensed combined statements
of operations are presented below:
<TABLE>
<CAPTION>
                                    Three Months Ended June 30,        Six Months Ended June 30,
                                 ------------------------------      -----------------------------
                                      1998            1997               1998             1997
                                 --------------   -------------      -------------   -------------
                                    (Actual)       (Proforma)          (Actual)        (Proforma)
<S>                              <C>              <C>                <C>             <C>
Sales                            $    9,087,000   $   7,259,000      $  16,190,000   $  14,386,000
                                 ==============   =============      =============   =============
Gross profit                     $    5,035,000   $   3,822,000      $   8,368,000   $   7,622,000
                                 ==============   =============      =============   =============
Net income                       $    1,016,000   $     411,000      $   1,198,000   $   1,139,000
                                 ==============   =============      =============   =============
Earnings per share:
    Basic                        $         0.10   $        0.04      $       0.11    $        0.10
                                 ==============   =============      ============    =============
    Diluted                      $         0.08   $        0.04      $       0.09    $        0.09
                                 ==============   =============      ============    =============
</TABLE>

Note 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:

                                                     June 30,       December 31,
                                                       1998             1997
                                                   -------------   -------------

Raw materials                                      $   2,229,000   $   1,584,000
Work-in-process                                        1,977,000       1,359,000
Finished goods                                         1,771,000       2,238,000
                                                   -------------   -------------

                                                   $   5,977,000   $   5,181,000
                                                   =============   =============

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

On March 1, 1996, the Company  acquired  Pulsarr.  In May 1997, the Company sold
Pulsarr for $8.4 million (see Note 6 to the Consolidated  Financial Statements).
The discussion  below pertains to the operations of AMV with Pulsarr through its
disposition date.

The Company's backlog at June 30, 1998, was $4,991,000 compared to $2,464,000 as
of June 30, 1997.

Results of Operations - Comparison  between three months ended June 30, 1998 and
June 30, 1997

Sales for the three months ended June 30, 1998 ("Q2 1998") were  $9,087,000,  up
19% when  compared to sales for the three months ended June 30, 1997 ("Q2 1997")
of  $7,607,000.  Sales for Q2 1997 included  Pulsarr sales of $348,000,  whereas
sales for Q2 1998 did not  include  any sales for Pulsarr due to its sale in May
1997. The increase in sales is due to increased demand for SRC products.

Gross profit  increased by  $1,102,000 to $5,035,000 in Q2 1998 when compared to
$3,933,000 of gross profit in Q2 1997. In Q2 1998, gross profit was 55% of sales
as compared to 52% in Q2 1997. The increase in gross profits is due  principally
to a change in product mix and the elimination of lower margin Pulsarr products.

Selling and  marketing  expense  decreased by $34,000 in Q2 1998 from Q2 1997 to
$1,396,000  amounting  to 15% of sales in Q2 1998.  Similar  expenses in Q2 1997
were $1,430,000, or 19% of sales. The decrease in selling and marketing expenses
as a percentage of sales is due to the spreading of the fixed sales costs over a
larger sales base.

Research and development expenses were $1,031,000 and $932,000 in Q2 1998 and Q2
1997,  or 11% and 12% of sales,  respectively.  The  increase  in  research  and
development  expenses is related to new projects,  which include  developing new
lighting, camera and software technologies.

General and administrative  expenses increased $437,000 to $1,249,000 in Q2 1998
from $812,000 in Q2 1997. The increase in general and administrative expenses is
due principally to costs associated with a project of reevaluating the financial
and  operational  processes and  procedures at SRC in  preparation  for possible
future growth of SRC's business.

On May 6,  1997,  AMV sold  Pulsarr  to Barco NV of  Belgium  for $8.4  million,
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 decrease in interest expense is due to reduced debt balances.

Net income for Q2 1998 was $1,016,000 as compared to net income of $5,367,000 in
Q2 1997.  Excluding the gain on the sale of Pulsarr,  net income for Q2 1997 was
$378,000.

Results of  Operations -  Comparison  between six months ended June 30, 1998 and
June 30, 1997

Sales  for the  six  months  ended  June  30,  1998  ("the  1998  Period")  were
$16,190,000,  down 4% when  compared to sales for the six months  ended June 30,
1997 ("the 1997 Period") of $16,944,000. The decrease is due to the exclusion of
Pulsarr's  sales of $2,558,000  and a decrease in Ventek's  sales of $1,302,000.
These decreases were largely offset by increased sales at SRC of $3,106,000.

Gross profit  decreased by 2% to  $8,368,000 in the 1998 Period when compared to
$8,540,000 of gross profit in the 1997 Period.  In 1998, gross profit was 52% of
sales as compared to 50% in 1997.  The  increase in gross profit as a percentage
of sales is due to a change in product mix to higher margin  products at SRC and
the elimination of lower margin Pulsarr products.

Selling and  marketing  expense  decreased  13% in the 1998 Period from the 1997
Period to $2,333,000  amounting to 14% of sales in 1998. Similar expenses in the
1997  Period  were  $2,683,000,  or 16% of sales.  The  decrease  in selling and
marketing  expenses as a percent of sales is the result of  spreading  the fixed
sales costs at SRC over a larger sales base.

Research and  development  expenses were  $2,181,000  and $1,951,000 in the 1998
Period and the 1997 Period, or 14% and 12% of sales, respectively.  The increase
in research and  development  expense in 1998 is related to new projects,  which
include developing new lighting, camera and software technologies.

General and administrative expenses increased $181,000 to $2,025,000 in the 1998
Period  from  $1,844,000  in the  1997  Period.  The  increase  in  general  and
administrative expenses is due principally to costs associated with a project of
reevaluating  the financial and  operational  processes and procedures at SRC in
preparation for possible future growth of SRC's business.

On May 6,  1997,  AMV sold  Pulsarr  to Barco NV of  Belgium  for $8.4  million,
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 decrease in interest expense is due to reduced debt balances.

Net income for 1998 was  $1,198,000 as compared to a net income of $6,136,000 in
1997.  Excluding the gain on the sale of Pulsarr, net income for the 1997 Period
was $1,147,000.

Liquidity and Capital Resources

The Company's cash balance and working capital were $5,005,000 and  $10,024,000,
respectively,  at June  30,  1998 as  compared  to  $6,045,000  and  $9,133,000,
respectively,  at December 31, 1997.  The  Company's  long-term  debt and equity
balances at June 30, 1998 and December 31, 1997 were similar.

During the 1998 Period,  net cash used in operating  activities totaled $376,000
compared to cash  provided by operating  activities  of  $1,184,000  in the 1997
Period.  Larger  increases in  receivables,  inventories and other assets in the
1998 Period as  compared  to the 1997  Period  caused the change in cash used in
operations in the 1998 Period as compared to cash generated in the 1997 Period.

Cash used in  investment  activities  totaled  $962,000 in 1998 compared to cash
provided by investment  activities of $6,700,000 in 1997. The Company  purchased
3.4 acres of land  adjacent to its Medford,  Oregon  facility for  approximately
$460,000  during the 1998  Period.  The 1997 Period  includes  approximately  $7
million  provided  from  the  sale  of  Pulsarr.  The  Company  has no  material
commitments for capital expenditures at June 30, 1998.

Cash provided by financing  activities  totaled  $298,000 in 1998 as compared to
cash used in financing  activities of  $1,259,000  in 1997.  In April 1998,  the
Company  refinanced  its  existing  $2,680,000  mortgage  due  2003  with  a new
$3,000,000  mortgage due 2008. The mortgage interest rate was lowered from 9.75%
to 8.3%.  Additionally,  the Company  obtained a  $2,000,000  revolving  line of
credit that will expire on April 30,  1999.  The 1997 Period  includes the final
payment  of  $1,265,000  related  to the  payoff of a  convertible  subordinated
secured note.

Management  believes that the Company has sufficient  cash to enable the Company
to sustain its  operations  and to adequately  fund the cash flow expected to be
used in operating activities for the next twelve months.

Cautionary Statements and Risk Factors
The Company and its  representatives  may from time to time make written or oral
forward-looking  statements with respect to long-term objectives or expectations
of the Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.

The words or phrases "will  likely," "are  expected to," "is  anticipated,"  "is
predicted,"  "forecast," "estimate," "project," "plans to continue," "believes,"
or similar expressions identify "forward-looking  statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. Such  forward-looking
statements  are  subject to certain  risks and  uncertainties  that could  cause
actual results to differ materially from historical earnings and those presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  In connection  with the "Safe Harbor"  provisions on the Private
Securities  Litigation  Reform Act of 1995,  the  Company is hereby  identifying
important  factors that could affect the  Company's  financial  performance  and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements  expressed with respect to future periods in any
current statements.

The Company cautions that the following list of important factors may not be all
inclusive,  and it specifically declines to undertake any obligation to publicly
revise any  forward-looking  statements that have been made to reflect events or
circumstances  after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. Among the factors that could have an impact
on the Company's  ability to achieve its operating results and growth plan goals
and/or affect the market price of the Company's stock are:

     * The Company's history of losses and negative cash flow.
     * Fluctuations in quarterly operating results and seasonality in certain of
       of the Company's markets.
     * Rapid technological change in the Company's markets and the need for new
       product development.
     * Market acceptance of the Company's new products.
     * AMV's dependence on certain markets and the need to expand into new
       markets.
     * The lengthy sales cycle for the Company's products.
     * The Company's highly competitive marketplace.
     * The dependence on certain suppliers.
     * The risks associated with dependence upon significant customers and
       reliance on certain distributors.
     * The risks associated with international sales.
     * The uncertain ability to manage growth and integrate acquired businesses.
     * Risks associated with acquisitions and other relationships.
     * Dependence upon key personnel.
     * The Company's ability to protect its intellectual property.
     * The possibility of product liability or other legal claims.
     * Exposure to possible warranty and litigation claims.
     * The possible need for additional financing.
     * The impact of the 1998 Shareholder Rights Plan.
     * The inability of the Company or its suppliers or customers to remedy
       potential problems with information systems related to the arrival of the
       year 2000.

These risk factors are discussed in further detail below.

History of Losses;  Negative Cash Flow:  Prior to 1995 and in 1996,  the Company
experienced losses and negative operating cash flow. The Company believes it may
operate at a negative cash flow for certain periods in the future due to (i) the
need to fund  certain  development  projects,  (ii) cash  required  to enter new
market areas,  (iii) irregular  bookings by customers due to seasonality in some
markets and the  relatively  high per-unit cost of the Company's  products which
may cause  fluctuations in quarterly or yearly revenues,  (iv) cash required for
the  repayment  of debt,  especially  $3.25  million  due in July 1999,  and (v)
possible cash needed to fully  integrate SRC's and Ventek's  operations.  If the
Company is unable to  consistently  generate  sustained  positive cash flow from
operations, the Company must rely on debt or equity financing.

Although the Company achieved  profitability in 1995, 1997 and the first half of
1998, 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 loss for the 1996 year.

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  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.
For  example,  the Company may  experience  lower sales and order  levels in the
first  quarter  when  compared  with the  preceding  fourth  quarter  due to the
seasonality  of  certain  harvested  food  items  and the  timing  of  annual or
semi-annual  customer plant shut-downs  during which systems are installed.  The
Company  expects  these  seasonal  patterns to continue,  though their impact on
revenues is expected to decline as the Company  continues to expand its presence
in non-agricultural and other markets which are less seasonal.

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 the Company's  products depend
in part on the  continuing  development  and  deployment of new  technology  and
services and  applications.  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  noncompetitive  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.

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 markets 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 other 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
non-food 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  cyclical,  and  saturation  of that market and the
potential  inability to identify and develop new markets could adversely  affect
Ventek's  growth  rate.  The Company may not be able to  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
$150,000  to  $600,000  price  range for each  system and  possibly  significant
ancillary costs required for a customer to install the system, the purchase of a
machine  vision system can  constitute a substantial  capital  investment  for a
customer  (which  may need more than one  machine  for its  particular  proposed
application)  requiring lengthy consideration and evaluation.  In particular,  a
potential customer must develop a high degree of assurance that the product will
meet its needs,  successfully  interface with the customer's own  manufacturing,
production or processing system,  and have minimal warranty,  safety and service
problems.  Accordingly,  the time lag from  initiation  of marketing  efforts to
final sales can be lengthy.

Competition:  The markets for the Company's products are highly  competitive.  A
major  competitor  of the Company  introduced  several years ago a new flat-belt
optical  sorter  product which has increased  the  competition  that the Company
faces. In the case of Ventek, the wood industry continues to develop alternative
products to plywood  (e.g.,  oriented  strand board) which do not require vision
systems  for  quality  control.  Some of 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,  the  Company  may not 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 an unaffiliated  customer  totaling 14% of sales in 1997 and to two
unaffiliated  customers  totaling 13% and 12% of sales in 1996. Sales to another
two unaffiliated  customers totaled 19% and 16% of sales in 1995. Ventek's sales
have been to a relatively small number of multi-location  plywood manufacturers.
In the emerging  pulp wood  industry,  the Company  utilizes a single  exclusive
distributor for its products in North America.  In much of the United States and
in many areas in the rest of the world,  the Company  has  entered an  agreement
with FMC Corporation to be its exclusive sales representative. While the Company
strives to create long-term  relationships with its customers,  distributors and
representatives,  there can be no assurance that they will continue  ordering or
selling additional systems.  The Company may continue to be dependent on a small
number of customers,  distributors and representatives,  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.  For  example,  the  possibility  of  sales  to  Indonesian
customers has been adversely  affected by the recent  currency  devaluation.  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.

Uncertain Ability to Manage Growth and Integrate Acquired Businesses: As part of
its business strategy,  the Company intends to pursue rapid growth. In March and
July 1996, the Company  acquired  Pulsarr and Ventek.  Pulsarr was  subsequently
sold in May 1997. A growth  strategy  involving the integration of new entities,
such as Ventek,  will require the  establishment of a sales  representative  and
distribution  relationships,  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.

Risks   Associated  With   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  presently has no  understandings,  commitments  or agreements
with respect to any further  acquisition,  the Company  anticipates  that 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.  For these
reasons,  any  acquisition  or joint  venture by the Company may have an adverse
effect on the  Company's  results of  operations  or may result in  dilution  to
existing shareholders.  If additional attractive opportunities become available,
the Company may decide to pursue them actively. Any future acquisitions or joint
ventures may 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.

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,  such patents may not 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,  patent 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,  the Company may not be able
to maintain  product  liability  insurance  on  acceptable  terms in the future.
Litigation,  regardless of its outcome,  could result in substantial cost 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.  In the past, the Company has incurred higher warranty  expenses
related to new products than it typically incurs with established products.  The
Company may 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.

Possible  Need  for  Additional  Financing:  The  Company  may  seek  additional
financing;  however,  the  Company  may  not be able to  obtain  any  additional
financing on terms satisfactory to the Company,  if at all. Potential  increases
in the number of outstanding shares of the Company's Class A Common Stock due to
convertible  debt,  warrants and stock options,  a substantial  loss in 1996 and
debt incurred for the acquisition of Ventek due in 1999, may limit the Company's
ability to negotiate additional debt or equity financing.

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

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

While the  Company is not aware of any  current  intent to acquire a  sufficient
number of shares of the Company's  common stock to trigger  distribution  of the
Rights,  existence of the Rights could discourage offers for the Company's stock
that may exceed the  current  market  price of the stock,  but that the Board of
Directors deems inadequate.

Year 2000 Issues:  AMV has established a company-wide  initiative to examine the
implications  of the Year 2000 on the  Company's  computing  systems and related
technologies,  and to assess the  potential  need for  changes.  The Company has
identified areas of potential business impact, and appropriate  modifications to
its  computing   systems  are  underway.   Management   believes  this  will  be
accomplished  in a  timely  manner.  The  Company  is  also  communicating  with
suppliers and customers to coordinate Year 2000 conversion.  Management does not
currently  believe that the costs related to the Company's  compliance  with the
Year 2000 issue will have a material  adverse effect on the Company's  financial
position,  results of operations or cash flows.  However,  in the event that the
Company or any of the Company's  significant  suppliers or customers  experience
disruptions  due to the Year  2000  issue,  the  Company's  operations  could be
adversely affected.
<PAGE>
                           PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

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

  3.1      Restated Articles of Incorporation of the Company as amended to date.
           (8)

  3.2      Restated and Amended By-Laws of the Company. (2)

  4.1      Form of Class D Warrant Agreement. (1)

  4.2      Form of Class G Warrant Agreement. (3)

  4.3      Form of Class H Warrant Agreement. (7)

  4.4      Form of Class I Warrant Agreement. (5)

  4.5      Form of Laidlaw Warrant Agreement. (5)

  4.6      Form of stock option agreement. (4)

  4.7      Form of 1997 Restricted Stock Plan and restricted stock agreement.
           (6)

  4.8      Rights Agreement dated February 27, 1998 between the Company and
           American Stock Transfer and Trust Company. (12)

  4.9      Amendment to Class I Warrant Agreement. (14)

  10.1     Form of Indemnity Agreement between the Company and each of its
           officers and directors. (1)

  10.2     Employment Agreement between Alan R. Steel and the Company dated
           January 1, 1998. (13)

  10.3     Employment Agreement between William J. Young and the Company dated
           January 1, 1998. (13)

  10.4     Employment Agreement between William J. Young and SRC VISION, Inc.
           dated January 1, 1998. (13)

  10.5     Employment Agreement between James Ewan and SRC VISION, Inc. dated
           January 1, 1998. (13)

  10.6     Subscription Agreement dated April 9, 1996, between the Company
           and Swiss American Securities, Inc., as agent for Credit Suisse,
           related to the private placement of $3,400,000 of convertible
           secured notes. (3)

  10.7     Convertible Secured Note dated April 17, 1996, between the Company
           and Ilverton International, Inc. (7)

  10.8     Asset Purchase Agreement dated July 24, 1996, by and among AMV,
           Ventek and the shareholders of Ventek. (5)

  10.9     $1,000,000 Note dated July 24, 1996, between AMV and Ventek. (5)

  10.10    $2,250,000 Convertible Note dated July 24, 1996, between AMV and
           Ventek. (5)

  10.11    $1,125,000 Note dated July 24, 1996, between AMV and Ventek. (5)

  10.12    Stock Appreciation Rights Agreement dated July 24, 1996 between AMV
           and Ventek. (5)

  10.13    Form of Employment Agreement dated July 24, 1996 between Ventek and
           each of the four stockholders of Ventek. (5)

  10.14    Pledge and Security Agreement dated July 24, 1996, by and among AMV,
           AMV Subsidiary, Inc., Ventek and Solin and Associates, P.C. (5)

  10.15    1997 SRC VISION, Inc. Stock Option Plan and forms of stock option
           agreements. (11)

  10.16    Plan of Merger between ARC Capital and AMV to effect an amendment to
           the Company's Articles of Incorporation to change the Company's name
           from ARC Capital to Advanced Machine Vision Corporation. (8)

  10.17    Share Purchase Agreement dated April 29, 1997 between Barco NV and
           ARC Netherlands BV. (9)

  10.18    Settlement Agreement dated August 12, 1997. (10)

  10.19    1997 Nonqualified Stock Option Plan and form of option agreement.
           (10)

  10.20    Business Loan Agreement dated April 30, 1998 between AMV and Bank of
           America NT&SA, together with related documents.

  10.21    Promissory Note dated April 24, 1998 to Bank of America NT&SA,
           together with related documents.

  10.22    $250,000 Note dated June 5, 1998 from Rodger A. Van Voorhis to
           Ventek. (14)

   27      Financial Data Schedule.

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

  (1)      Previously filed as an exhibit to Form S-1 (File No. 33-45126).

  (2)      Previously filed as an exhibit to Form S-3 (File No. 333-10847).

  (3)      Filed with the SEC on April 14, 1996, as an exhibit to the Company's
           Form 10-K for the year ended December 31, 1995.

  (4)      Filed with the SEC as an exhibit to Form S-1 (File No. 33-45126).

  (5)      Filed with the SEC on July 30, 1996, as an exhibit to the Company's
           Form 8-K dated July 24, 1996.

  (6)      Filed with the SEC on January 22, 1997, as an exhibit to the
           Company's Form 8-K dated January 9, 1997.

  (7)      Filed with the SEC on May 14, 1996, as an exhibit to the Company's
           Form 10-Q for the quarter ended March 31, 1996.

  (8)      Filed with the SEC on May 14, 1997 as an exhibit to the Company's
           Form 10-Q for the quarter ended March 31, 1997.

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

  (10)     Filed with the SEC on October 30, 1997 as an exhibit to the Company's
           Form 10-Q for the quarter ended September 30, 1997.

  (11)     Filed with the SEC on March 31, 1997 as an exhibit to the Company's
           Form 10-K for the year ended December 31, 1996.

  (12)     Filed with the SEC on February 20, 1998 as an exhibit to the
           Company's Form 8-A.

  (13)     Filed with the SEC on February 27, 1998 as an exhibit to the
           Company's Form 8-K regarding implementation of a stock rights program
           and employment contracts.

  (14)     Filed with the SEC on June 15, 1998 as an exhibit to the Company's
           Form 8-K dated June 5, 1998.

(b)  Reports on Form 8-K:

           On February 27, 1998, a Form 8-K was filed regarding the
           implementation of a stock rights program and employment contracts.

           On June 15, 1998, a Form 8-K was filed regarding a $250,000 loan to a
           director and reduction in the number of shares of common stock
           issuable upon exercise of the Class I Warrant.

                                    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.



        August 4, 1998                           /s/  Alan R. Steel
-------------------------------                  -------------------------------
                                                         Alan R. Steel
                                                    Vice President, Finance
                                                 (Principal Financial and duly
                                                      Authorized Officer)