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, 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 June 30, 1997,  registrant had 13,304,857 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

<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


<PAGE>


                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

================================================================================
Advanced Machine Vision Corporation

Consolidated Balance Sheets
================================================================================

<TABLE>
<CAPTION>

                                                                                   June 30,         December 31,
                                                                                     1997               1996
                                                                                  -----------       ------------
                                                                                  (unaudited)         (audited)
                                     ASSETS
<S>                                                                             <C>                <C>          
Current assets:
     Cash and cash equivalents                                                  $   8,534,000      $   1,909,000
     Accounts receivable, net                                                       3,637,000          4,979,000
     Inventories                                                                    4,941,000          8,132,000
     Prepaid expenses                                                                 103,000            391,000
                                                                                -------------      -------------

              Total current assets                                                 17,215,000         15,411,000
Property, plant and equipment, net                                                  4,435,000          6,488,000
Intangible assets, net                                                              5,873,000          7,876,000
Other assets                                                                          923,000          1,163,000
                                                                                -------------      -------------

                                                                                $  28,446,000      $  30,938,000
                                                                                =============      =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                           $   1,170,000      $   1,897,000
     Short-term borrowings                                                                 --            947,000
     Accrued liabilities                                                            1,209,000          1,299,000
     Customer deposits                                                                705,000          2,463,000
     Accrued payroll                                                                1,122,000            707,000
     Warranty reserve                                                                 405,000            479,000
     Current portion of notes payable                                                  25,000          1,706,000
                                                                                -------------      -------------

              Total current liabilities                                             4,636,000          9,498,000
                                                                                -------------      -------------
Notes payable, less current portion                                                10,857,000         14,940,000
                                                                                -------------      -------------
Commitments and contingencies
Shareholders' equity:
     Common stock:
         Class A - no par value, one vote per share: 60,000,000
              shares authorized, 13,305,000 and 11,140,000
              shares issued and outstanding at June 30, 1997
              and December 31, 1996, respectively                                  25,926,000         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 June 30, 1997 and
              December 31, 1996, respectively                                          62,000             72,000
     Common stock warrants                                                          2,377,000          2,403,000
     Additional paid in capital                                                     2,822,000          2,797,000
     Accumulated deficit                                                          (18,234,000)       (24,370,000)
     Cumulative translation adjustment                                                     --            (50,000)
                                                                                -------------      -------------

              Total shareholders' equity                                           12,953,000          6,500,000
                                                                                -------------      -------------

                                                                                $  28,446,000      $  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 June 30,
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (unaudited)


<S>                                                                             <C>              <C>         
Net sales                                                                       $  7,607,000     $  6,419,000
Cost of sales                                                                      3,674,000        3,821,000
                                                                                ------------     ------------

Gross profit                                                                       3,933,000        2,598,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         1,430,000          877,000
     Research and development                                                        932,000        1,125,000
     General and administrative                                                      812,000        1,181,000
     Amortization of intangible assets                                               182,000           99,000
                                                                                ------------     ------------

                                                                                   3,356,000        3,282,000

Income (loss) from operations before other income and expense                        577,000         (684,000)

Other income and expense:
     Gain on sale of Pulsarr                                                       4,989,000               --
     Investment and other income                                                     112,000           36,000
     Interest expense                                                               (296,000)        (252,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                  5,382,000         (900,000)

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

Net income (loss)                                                               $  5,367,000     $   (900,000)
                                                                                ============     ============

Earnings (loss) per share (Note 5)                                              $      0.22      $      (0.08)
                                                                                ===========      ============

</TABLE>

          See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                       2
<PAGE>




================================================================================
Advanced Machine Vision Corporation

Consolidated Statements of Operations
================================================================================

<TABLE>
<CAPTION>


                                                                                   Six Months Ended June 30,
                                                                                    1997              1996
                                                                                    ----              ----
                                                                                          (unaudited)


<S>                                                                             <C>              <C>         
Net sales                                                                       $ 16,944,000     $ 10,032,000
Cost of sales                                                                      8,404,000        5,955,000
                                                                                ------------     ------------

Gross profit                                                                       8,540,000        4,077,000
                                                                                ------------     ------------

Operating expenses:
     Selling and marketing                                                         2,683,000        1,691,000
     Research and development                                                      1,951,000        1,943,000
     General and administrative                                                    1,844,000        2,064,000
     Amortization of intangible assets                                               381,000          194,000
     Charge for acquired in-process technology                                            --        4,915,000
     Charge for royalty expense                                                           --          647,000
                                                                                ------------     ------------

                                                                                   6,859,000       11,454,000

Income (loss) from operations before other income and expense                      1,681,000       (7,377,000)

Other income and expense:
     Gain on sale of Pulsarr                                                       4,989,000               --
     Investment and other income                                                     169,000          104,000
     Interest expense                                                               (656,000)        (424,000)
                                                                                ------------     ------------

Income (loss) before income taxes                                                  6,183,000       (7,697,000)

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

Net income (loss)                                                               $  6,136,000     $ (7,697,000)
                                                                                ============     ============

Earnings (loss) per share (Note 5)                                              $      0.28      $      (0.74)
                                                                                ===========      ============

</TABLE>

          See Accompanying Notes to Unaudited Consolidated Financial Statements.

                                       3
<PAGE>
================================================================================
Advanced Machine Vision Corporation

Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
                                                                                      Six Months Ended June 30,
                                                                                       1997              1996
                                                                                       ----              ----
                                                                                             (unaudited)
<S>                                                                                <C>              <C>            
Cash flows from operating activities:
   Net (loss) income                                                               $  6,136,000     $   (7,697,000)
   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                                                              --            647,000
     Depreciation and amortization                                                      633,000            473,000
     Changes  in  assets  and   liabilities   (net  of  amounts   purchased   in
       acquisition):
       Accounts receivable                                                             (916,000)           (36,000)
       Inventories                                                                     (260,000)        (1,689,000)
       Prepaid expenses and other assets                                                 33,000           (697,000)
       Accounts payable, short-term borrowings, accrued liabilities,
         customer deposits, accrued payroll, and warranty reserve                       547,000          2,735,000
                                                                                   ------------     --------------

         Net cash (used in) provided by operating activities                          1,184,000         (1,349,000)
                                                                                   ------------     --------------

Cash (used in) provided by investing activities:
   Proceeds from the sale of Pulsarr                                                  7,010,000                 --
   Acquisition of Pulsarr                                                                    --         (6,225,000)
   Purchases of property and equipment                                                 (310,000)        (1,361,000)
                                                                                   -------------    --------------

         Net cash provided by (used in) investing activities                          6,700,000         (7,586,000)
                                                                                   ------------     ---------------

Cash (used in) provided by financing activities:
   Notes payable to bank and others, net                                             (1,273,000)         4,270,000
   Proceeds from common stock issuances                                                      --          2,000,000
   Proceeds from exercise of stock options                                               14,000             60,000
   Debt issuance costs                                                                       --           (400,000)
                                                                                   ------------     --------------

         Net cash provided by financing activities                                   (1,259,000)         5,930,000
                                                                                   ------------     --------------

Net (decrease) increase in cash                                                       6,625,000         (3,005,000)

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

Cash and cash equivalents, end of the period                                       $  8,534,000     $    1,166,000
                                                                                   ============     ==============
</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 June 30, 1997,  and December 31,  1996,  the results of  operations  and cash
flows for the three- and  six-month  periods  ended June 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).

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 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
principal  amount is due in April 2001.  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 July 1996, AMV issued the following  notes in connection with the acquisition
of  Ventek:  (i) the  6.75%  $1,000,000  note due July  23,  1999;  (ii) a 6.75%
$2,250,000 note due July 23, 1999  convertible into the Company's Class A Common
Stock at $2.25 per share;  and (iii) a  $1,125,000  note and stock  appreciation
rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock
or at the Company's  option,  in cash on July 23, 1999, or (b) solely in cash in
the event AMV  Common  Stock is  delisted  from the  Nasdaq  Stock  Market.  The
$1,125,000 note and stock appreciation  rights payable were valued at $1,529,000
on the  acquisition  date based upon an  independent  appraisal  received by the
Company. All three notes are secured by all of the issued and outstanding shares
of Ventek.

4.   Stock Transactions; Shares Eligible For Future Sale; Effect Of Warrants,
     Options And Convertible Securities; Possible Dilution
==========================================================

In March 1996, the Company sold 1,400,000  shares of its Class A Common Stock in
a private  Regulation S offering to foreign  investors at $1.625 per share,  the
market price on the date the related Subscription Agreement was entered into. In
connection with the private  placement,  the Company paid finders fees and other
costs of approximately  $700,000 and issued 240,000 warrants to purchase Class A
Common Stock at $2.00 per share.

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

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

On March 8,  1997,  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,   thereby  reducing  potentially  outstanding  shares  and
proforma proceeds in the table below by 2,130,000 and $7,804,000, respectively.

Schedule of  Outstanding  Stock,  Warrants,  Units and Potential  Dilution:
---------------------------------------------------------------------------
The following table summarizes, as of August 2, 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 August 2, 1997      Factor       Conversion         Price      Reduction
          -----------------------------------------------------------------------------------------------------
<S>         <C>                          <C>                <C>      <C>                 <C>       <C>         
          Common Stock:
          Class A                                                       13,304,857
          Class B                                                           93,502
                                                                     -------------

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

                                                                        13,855,306                      45,121,000
                                                                     -------------                 ---------------
         Convertible Debt (due date):
          6.75% Notes (4/16/01)          3,400,000                       1,600,000          2.13         3,400,000
          6.75% Ventek Note (7/23/99)    2,250,000                       1,000,000          2.25         2,250,000
          Ventek Note (7/23/99)          1,529,000 (B)                   1,800,000                       1,529,000
                                                                     -------------                 ---------------

                                                                         4,400,000                       7,179,000
                                                                     -------------                 ---------------
         Potentially outstanding shares and proforma
            proceeds and reduction of debt                              31,653,665                 $    52,300,000
                                                                     =============                 ===============

<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 addition, on June 30, 1997, AMV had outstanding options to purchase 3,338,000
shares of Class A Common  Stock,  2,876,000  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 June 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  earnings  per  common  share for the three and six
months ended June 30, 1997 is as follows:

<TABLE>
<CAPTION>

                                                                Three months           Six months
                                                               ended June 30,        ended June 30,
                                                                    1997                  1997
                                                                -------------        --------------

<S>                                                           <C>                   <C>          
Net income as reported                                        $   5,367,000         $   6,136,000
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                50,000
Reduction in interest expense as the result of the
    assumed retirement of all short-term and long-term
    borrowing                                                       259,000               580,000
Increase in interest income as the result of the
    investment of excess cash generated from the
    assumed exercise of all options and warrants                    555,000             1,105,000
                                                              -------------         -------------

Net income                                                    $   6,206,000         $   7,871,000
                                                              =============         =============

Earnings per share                                            $        0.22         $        0.28
                                                              =============         =============

</TABLE>

<TABLE>
<CAPTION>

                                                                Three months           Six months
                                                               ended June 30,        ended June 30,
                                                                    1997                  1997
                                                               --------------        --------------

<S>                                                              <C>                   <C>       
Weighted average shares outstanding:
    Common stock                                                 13,398,000            13,342,000
    Reduction for contingently returnable shares as
       all conditions were not met as of period end.             (2,000,000)           (2,000,000)
    Shares relating to a note and stock appreciation
       rights agreement, issued on July 24, 1996                  1,800,000             1,800,000
    Assumed aggregate exercise of all stock options
       and warrants                                              17,194,000            17,194,000
    Assumed repurchase of common shares, limited to
       20% of currently outstanding common shares                (2,280,000)           (2,280,000)
                                                              -------------         -------------

Shares used in calculations                                      28,112,000            28,056,000
                                                              =============         =============

</TABLE>

The computation of primary earnings per share for the three and six months ended
June 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 10,854,000 and 10,388,000, respectively, were used in calculating
earnings per share.

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 June 30,
                               --------------------------------------------------------------------------------
                                                1997                                       1996
                               ---------------------------------------  ---------------------------------------
                                                                Per                                       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         $ 5,367,000       13,398,000             $   (900,000)    10,854,000
Reduction for contingently
   returnable shares as all
   conditions were not met
   as of period end                     --       (2,000,000)                      --             --
                               -----------     ------------             ------------    -----------
Income (loss) available to
   common shareholders         $ 5,367,000       11,398,000   $ 0.47    $   (900,000)    10,854,000     $ (0.08)
                                                              ======                                    =======

Effect of Dilutive Securities
Note and stock appreciation
   rights agreement                 25,000        1,800,000                       --             --
Stock options                           --          544,000                       --             --
Convertible debt                   137,000        2,596,000                       --             --
                               -----------     ------------             ------------    -----------

Diluted EPS:
Income (loss) available to
   common shareholders
   and assumed conversions     $ 5,529,000       16,338,000   $ 0.34    $   (900,000)    10,854,000     $ (0.08)
                               ===========     ============   ======    ============    ===========     =======

</TABLE>

<TABLE>
<CAPTION>

                                                                   Proforma
                               --------------------------------------------------------------------------------
                                                        For the Six Months Ended June 30,
                               --------------------------------------------------------------------------------
                                                1997                                       1996
                               ---------------------------------------  ---------------------------------------
                                                                Per                                       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         $ 6,136,000       13,342,000             $ (7,697,000)    10,388,000
Reduction for contingently
   returnable shares as all
   conditions were not met
   as of period end                     --       (2,000,000)                      --             --
                               -----------     ------------             ------------    -----------
Income (loss) available to
   common shareholders         $ 6,136,000       11,342,000   $ 0.54    $ (7,697,000)    10,388,000     $ (0.74)
                                                              ======                                    =======

Effect of Dilutive Securities
Note and stock appreciation
   rights agreement                 50,000        1,800,000                       --             --
Stock options                           --          544,000                       --             --
Convertible debt                   274,000        2,596,000                       --             --
                               -----------     ------------             ------------    -----------

Diluted EPS:
Income (loss) available to
   common shareholders
   and assumed conversions     $ 6,460,000       16,282,000   $ 0.40    $ (7,697,000)    10,388,000     $ (0.74)
                               ===========     ============   ======    ============    ===========     =======

</TABLE>

Options to purchase 2,795,000 shares of common stock between $1.56 and $4.94 and
warrants to purchase  14,155,000  shares of common stock between $1.88 and $5.00
were not included in the  computation  of Diluted EPS because such  options' and
warrants'  exercise  prices were  greater  than the average  market price of the
common shares.

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

<TABLE>
<CAPTION>

                                                   Computation Before                Computation After
                                                    December 15, 1997                December 15, 1997
                                           -------------------------------    --------------------------------
                                             Three months     Six months        Three months      Six months
                                            ended June 30,  ended June 30,     ended June 30,   ended June 30,
                                                 1997            1997               1997             1997
----------------------------------------------------------  --------------     --------------   --------------
<S>                                             <C>             <C>                <C>             <C>    
         Primary or Basic EPS                   $ 0.22          $ 0.28             $ 0.47          $  0.54
         Fully Diluted or Diluted EPS           $ 0.22          $ 0.28             $ 0.34          $  0.40

</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 six-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  acquisitions  occurred as of the beginning of such three- and six-month
periods  presented.  Proforma  condensed  combined  statements of operations are
presented below:

<TABLE>
<CAPTION>

                                               Three months ended June 30,       Six months ended June 30,
                                                 1997            1996               1997             1996
                                            --------------   -------------      -------------   -------------
<S>                                         <C>              <C>                <C>             <C>          
             Sales                          $    7,259,000   $   5,860,000      $  14,386,000   $  10,499,000
                                            ==============   =============      =============   =============
             Gross profit                   $    3,822,000   $   3,237,000      $   7,622,000   $   5,655,000
                                            ==============   =============      =============   =============
             Net income (loss)              $      407,000   $     310,000      $   1,135,000   $    (841,000)
                                            ==============   =============      =============   =============
             Earnings (loss) per share      $        0.03    $        0.02      $       0.09    $       (0.07)
                                            =============    =============      ============    =============

</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:

<TABLE>
<CAPTION>

                                                                                  June 30,      December 31,
                                                                                    1997             1996
                                                                                -------------   -------------

<S>                                                                             <C>             <C>          
           Raw materials                                                        $   1,396,000   $   2,662,000
           Work-in-process                                                          1,524,000       2,234,000
           Finished goods                                                           2,021,000       3,236,000
                                                                                -------------   -------------

                                                                                $   4,941,000   $   8,132,000
                                                                                =============   =============

</TABLE>

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

On  March  1,  1996,  the  Company  acquired  Pulsarr.  On  July 24,  1996,  the
Company acquired Ventek.  The discussion below pertains to the operations of AMV
with Pulsarr and Ventek included from their respective acquisition dates. In May
1997,  the Company  sold  Pulsarr for $8.4  million in cash (see  Liquidity  and
Capital Resources below).

The Company's  backlog at June 30, 1997, was $2,464,000,  a decrease of 76% when
compared to the $10,385,000 backlog as of June 30, 1996. After excluding Pulsarr
from, and including Ventek in, both periods,  backlog was $2,464,000 at June 30,
1997 as compared to $8,748,000 at June 30, 1996. The 1997 backlog is expected to
be shipped within nine months.

Results of Operations - Comparison  between three months ended June 30, 1997 and
June 30,  1996
--------------
Sales  for  the  three  months  ended June 30, 1997 ("Q2 1997") were $7,607,000,
up 19% when  compared  to sales for the three  months  ended June 30,  1996 ("Q2
1996") of $6,419,000.  The increase is due to the inclusion of Ventek's sales of
$880,000  and an  increase  of  $2,814,000  in sales at SRC,  offset by  reduced
Pulsarr sales due to the sale of Pulsarr.

Cost of sales was 48% of sales in Q2 1997 and 60% in Q2 1996.

Gross  profit  increased  by 51% to  $3,933,000  in Q2  1997  when  compared  to
$2,598,000 of gross profit in Q2 1996. In Q2 1997, gross profit was 52% of sales
as compared to 40% in Q2 1996.  The increase in gross profit as a percentage  of
sales is primarily  related to the higher margin Ventek products  included in Q2
1997,  an  increase  in the overall  sales  volume at SRC which  allowed for the
spreading  of fixed costs over a larger sales based as well as a change in sales
mix.

Selling  and  marketing  expense  increased  63% in Q2  1997  from  Q2  1996  to
$1,430,000  amounting  to 19% of sales in Q2 1997.  Similar  expenses in Q2 1996
were $877,000,  or 14% 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.

Research and development expenses were $932,000 and $1,125,000 in Q2 1997 and Q2
1996,  or  12%  and  18%  of  sales,  respectively.  The  reduced  research  and
development level in Q2 1997 was due principally to the sale of Pulsarr.

General and  administrative  expenses  decreased $369,000 to $812,000 in Q2 1997
from $1,181,000 in Q2 1996. The decrease in general and administrative  expenses
is due principally to the sale of Pulsarr.

The  increase in  amortization  of  intangible  assets is  primarily  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  expenses 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 the  result  of the  increase  in  debt
outstanding.

Net income for Q2 1997 was  $5,367,000  as compared to a net loss of $900,000 in
Q2 1996 as a result of the factors discussed above.

Results of  Operations -  Comparison  between six months ended June 30, 1997 and
June 30, 1996
-------------
Sales  for the  six  months  ended  June  30,  1997  ("the  1997  Period")  were
$16,944,000,  up 69% when  compared  to sales for the six months  ended June 30,
1996 ("the 1996 Period") of $10,032,000. The increase is due to the inclusion of
Ventek's sales of $2,308,000,  an increase of $5,329,000 in sales at SRC, offset
by reduced Pulsarr sales due to the sale of Pulsarr.

Cost of sales was 50% of sales in the 1997 Period and 59% in the 1996 Period.

Gross profit increased by 109% to $8,540,000 in the 1997 Period when compared to
$4,077,000 of gross profit in the 1996 Period.  In 1997, gross profit was 50% of
sales as compared to 41% in 1996.  The  increase in gross profit as a percentage
of sales is primarily  related to 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 based as well as a change in sales
mix.

Selling  and  marketing  expense  increased  59% in the 1997 Period from 1996 to
$2,683,000  amounting  to 16% of  sales in 1997.  Similar  expenses  in the 1996
Period were  $1,691,000,  or 17% of sales. The decrease in selling and marketing
expenses as a percent of sales is the result of  spreading of fixed costs over a
larger sales base.

Research and  development  expenses were  $1,951,000  and $1,943,000 in the 1997
Period and the 1996 Period, or 12% and 19% 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  $220,000 to $1,844,000 in 1997
from $2,064,000 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 the  result  of the  increase  in  debt
outstanding.

Net income for 1997 was  $6,136,000  as compared to a net loss of  $7,697,000 in
1996.  Net income for 1997  includes a gain on the sale of Pulsarr of $4,989,000
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 $1,147,000 as compared to a
loss of  $2,135,000  for 1996  primarily  as a result of the  increase  in sales
discussed above.

Liquidity and Capital Resources
-------------------------------
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
June 30, 1997, the Company had $12,579,000 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 will
pay  royalties of 7% of certain  vision system sales through the earlier of June
30, 2003, or the date at which  aggregate  royalty  payments  equal  $1,600,000.
Until  aggregate  royalty  payments  equal  $1,600,000,  maximum  annual royalty
payments are $400,000  through 1996. The final $400,000  installment was paid in
July 1996.  During the quarter  ended  March 31,  1996,  the  Company  wrote off
against income $647,000 of deferred royalty expense related to the settlement as
all  royalties  had been  earned and no  significant  future  economic  life was
estimated to exist.

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

The Company's  ALSO  operation,  AMV's only business  prior to the February 1994
acquisition of SRC, had suffered losses since inception.  The operations of ALSO
were sold in October 1995.  In 1995,  SRC generated  operating  profits  (before
allocation of corporate  overhead  expenses).  Even though SRC reached operating
profitability  in 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 January  1997,  the Company sued Credit  Suisse to fulfill its  obligation to
fund $1.6 million pursuant to a Subscription Agreement dated May 14, 1996. There
can be no assurance  that the Company  will  prevail in this suit,  although the
Company believes it has a contractual right to the funding.

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

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

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

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

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

Need for  Additional  Financing:
--------------------------------
The Company may seek additional  financing;  however,  there can be no assurance
the  Company  will  be  able  to  obtain  any  additional  financing  on   terms
satisfactory  to the  Company,  if at all.  The (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
$500,000  price range for each system,  the purchase of a machine  vision system
can constitute a substantial  capital  investment for a customer (which may need
more than one machine for its particular proposed application) requiring lengthy
consideration and evaluation. In particular, a potential customer must develop a
high  degree of  assurance  that the product  will meet its needs,  successfully
interface  with the  customer's  own  manufacturing,  production  or  processing
system, and have minimal warranty, safety and service problems. Accordingly, the
time lag from initiation of marketing efforts to final sales can be lengthy.

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

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

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

<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 or current  directors  or  employees  of AMV,  in  lawsuits in the
Superior  Courts  for Los  Angeles  County and Orange  County,  California.  The
lawsuits were  consolidated  in February,  1994,  and were litigated in Superior
Court for Los Angeles County in September and October, 1995.

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

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

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

Credit Suisse, Max Khan and Konrad Meyer
----------------------------------------
On January 9, 1997,  the Company sued Credit  Suisse,  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 believes 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 claims that Credit  Suisse's  failure to
fund has  limited  AMV's  ability to finance its  business  plan for Pulsarr and
other operations and, as a result,  will adversely impact AMV's credibility with
investors and financial analysts.  Any erosion of credibility or, alternatively,
the dilution of  shareholder  value caused by alternate  financing may, in turn,
adversely impact the Company's ability to raise debt and equity financing.

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

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 has no
voting rights over the pledged  shares,  the Company  believes  that  Ilverton's
refusal to return the shares is related to the Credit  Suisse  action  described
above.

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

(a)  Exhibits

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

    27            Financial Data Schedule.

(b)  Reports on Form 8-K:

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

                  On August 6, 1995, a Form 8-K was filed  establishing the date
                  for the Company's 1997 Annual Meeting of stockholders.


                                    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 8, 1997                          /s/  Alan R. Steel
-------------------------------                 --------------------------------
                                                     Alan R. Steel
                                                 Vice President - Finance
                                               (Principal Financial and duly
                                                   Authorized Officer)