<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-15520
INDUSTRIAL IMAGING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 05-0396504
--------------------------------- ------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
847 ROGERS STREET, LOWELL, MASSACHUSETTS 01852
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(Address of principal executive offices) (Zip code)
(978) 937-5400
-----------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 1997, the Company had outstanding 6,620,668 shares of Common
Stock, $.01 par value per share.
Transitional Small Business Disclosure Format (check one)
Yes No X
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INDUSTRIAL IMAGING CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
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<S> <C>
Item 1. Financial Statements
Balance Sheets at September 30, 1997 and March 31, 1997 3
Statements of Operations for the Six Months and Three Months
Ended September 30, 1997 and 1996 4
Statements of Cash Flows for the Three Months Ended
September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Managements's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal proceedings 13
Item 2. Changes in Securities 13
Item 3. Default upon Senior Securities 13
Item 4. Submission of Matters to a vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 3
<TABLE>
INDUSTRIAL IMAGING CORPORATION
BALANCE SHEETS
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................................................ $ 14,677 $ 62,103
Accounts receivable, net of allowance for doubtful accounts of
$31,000 at September 30, 1997 and March 31, 1997, respectively ............................ 327,473 493,778
Inventory ................................................................................... 1,404,364 1,877,979
Prepaid expenses ............................................................................ 23,311 53,398
----------- -----------
Total current assets ...................................................................... 1,769,825 2,487,258
Property and equipment, net .................................................................... 26,493 34,256
Patents, net ................................................................................... 8,854 61,979
Other assets ................................................................................... 10,786 10,786
----------- -----------
Total assets .............................................................................. $ 1,815,958 $ 2,594,279
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable ............................................................................... 465,000 480,404
Accounts payable ............................................................................ 1,065,917 2,497,890
Deferred revenue ............................................................................ 312,787 242,938
Accrued expenses ............................................................................ 1,140,181 957,953
----------- -----------
Total current liabilities ................................................................. 2,983,885 4,179,185
Notes payable -- long-term portion ............................................................. 450,000 450,000
----------- -----------
Total liabilities ......................................................................... 3,433,885 4,629,185
Commitments and contingencies
Shareholders' deficit:
Common stock, par value $.01 per share, authorized
8,700,000 shares, 6,620,668 and 5,867,498 shares issued
and outstanding at September 30, 1997 and March 31,
1997, respectively ........................................................................ 66,206 58,675
Series A Preferred Stock, par value $.01 per share,
authorized 1,000,000 shares, 0 shares issued and outstanding
at September 30, 1997 and March 31, 1997, respectively .................................... -- --
Additional paid-in capital .................................................................. 7,337,665 5,872,588
Accumulated deficit ......................................................................... (9,021,798) (7,966,169)
----------- -----------
Total shareholders' deficit ............................................................... (1,617,927) (2,034,906)
----------- -----------
Total liabilities and shareholders' deficit ............................................. $ 1,815,958 $ 2,594,279
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 4
<TABLE>
INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -------------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Product ......................................... $ 1,407,178 $ 781,500 $ 805,493 $ 265,000
Service ......................................... 206,592 147,005 101,506 68,886
----------- --------- --------- ---------
1,613,770 928,505 906,999 333,886
----------- --------- --------- ---------
Cost of revenues:
Product ......................................... 1,515,930 683,257 870,057 332,654
Service ......................................... 150,824 139,678 92,620 64,964
----------- --------- --------- ---------
1,666,754 822,935 962,677 397,618
----------- --------- --------- ---------
Gross profit ...................................... (52,984) 105,570 (55,678) (63,732)
----------- --------- --------- ---------
Operating expenses:
Research and development ........................ 223,199 283,275 109,750 126,119
Sales and marketing ............................. 220,314 162,033 124,058 98,791
General and administrative ...................... 455,047 335,077 245,252 171,202
----------- --------- --------- ---------
Total operating expenses .................... 898,560 780,385 479,060 396,112
----------- --------- --------- ---------
Loss from operations .............................. (951,544) (674,815) (534,738) (459,844)
Other income (expense):
Interest expense ................................ (98,866) (32,164) (50,880) (15,254)
Other, net ...................................... (5,220) 166 (12,378) (300)
----------- --------- --------- ---------
Other income (expense), net ................. (104,086) (31,998) (63,258) (15,554)
Loss before income taxes .................... (1,055,630) (706,813) (597,996) (475,398)
Provision for income taxes ........................ -- -- -- --
----------- --------- --------- ---------
Net loss .......................................... $(1,055,630) $(706,813) $(597,996) $(475,398)
=========== ========= ========= =========
Net loss per share ................................ $ (.16) $ (.17) $ (.09) $ (.11)
=========== ========= ========= =========
Weighted Average common outstanding ............... 6,425,193 4,125,398 6,611,602 4,367,037
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................................... $(1,055,630) $(706,812)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ....................................................................... 7,763 13,797
Amortization ....................................................................... 53,125 53,125
Changes in assets and liabilities:
Accounts receivable ............................................................. 166,305 (29,630)
Inventory ...................................................................... 473,615 (535,732)
Prepaid expenses ............................................................... 30,087 4,695
Accounts payable ............................................................... (59,379) 989,181
Deferred revenue ............................................................... 69,849 (438,083)
Accrued expenses ............................................................... 182,228 (165,219)
----------- ---------
Net cash used in operating activities .............................................. (132,037) (814,678)
----------- ---------
Cash flows from investing activities:
Capital expenditures ................................................................... -- (23,604)
----------- ---------
Net cash used in investing activities .................................................. -- (23,604)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of nonconvertible debt .......................................... -- 100,000
Principal payments on nonconvertible debt .............................................. (15,403) (18,637)
Proceeds from issuance of convertible debt ............................................. -- 200,000
Proceeds from issuance of stock (net) .................................................. 100,014 597,036
----------- ---------
Net cash provided from financing activities .......................................... 84,611 878,399
----------- ---------
Net increase (decrease) in cash ...................................................... (47,426) 40,117
Cash, beginning of period .................................................................. 62,103 10,011
----------- ---------
Cash, end of period ........................................................................ $ 14,677 $ 50,128
Supplemental cash flows information:
Cash paid during the period for interest ............................................... $ 42,902 $ 7,042
Noncash items:
Debt and accrued interest converted to equity
during the period .................................................................... 1,372,593 200,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 6
INDUSTRIAL IMAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The financial statements of Industrial Imaging Corporation (the "Company")
included herein have been prepared pursuant to the Securities and Exchange
Commission for the quarterly reports on Form 10-QSB and do not include all of
the information and footnote disclosure required by generally accepted
accounting principles. These statements should be read in conjunction with the
financial statements and notes thereto for the year ended March 31, 1997
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
The financial statements and notes herein are unaudited, except for the balance
sheet as of March 31, 1997, but in the opinion of management include all the
adjustments (consisting only of normal and recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows of
the Company.
The results of operations for the three and six months ended September 30, 1997
are not necessarily indicative of the results to be achieved for any future
period or for the entire year ended March 31, 1998.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out (FIFO) basis. At September 30,1997 and March 31, 1997,
inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------ --------------
<S> <C> <C>
Raw materials $1,041,777 $1,189,313
Work in process 270,684 356,859
Finished goods 91,903 331,807
---------- ----------
$1,404,364 $1,877,979
========== ==========
</TABLE>
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<PAGE> 7
NOTE C - THE EXCHANGE
On November 16, 1995, the Board of Directors of the Company approved a
transaction with Orbis, Inc. ("Orbis"), a publicly held corporation, whose only
activity had been expenses during the fiscal year relating to filing fees and
minimal overhead costs. Orbis has had no significant revenue for the last four
fiscal years. On December 5, 1996, the Orbis stockholders approved the
transaction between Triple I Corporation (the "Company") and Orbis, whereby the
stockholders of Triple I exchanged 100% of the outstanding Common Stock of
Triple I for 90% of the outstanding common stock of Orbis (the "Exchange"). On
February 1, 1997, the Exchange was completed as the Company obtained approval
from 100% of its shareholders. The Exchange was accounted for as a capital stock
transaction and will be treated as a recapitalization of Triple I with Triple I
as the acquiror (reverse acquisition).
In connection with the Exchange, Orbis reincorporated from a Rhode Island
corporation to a Delaware corporation and changed its name to Industrial Imaging
Corporation via a merger of Orbis into Industrial Imaging Corporation. As a
result, Triple I became a wholly owned subsidiary of Industrial Imaging
Corporation. In anticipation of the Exchange, the Company changed its year-end
from September 30 to March 31.
NOTE D - SHAREHOLDERS' EQUITY
In May 1997, the Company and Centennial Technologies Inc. ("Centennial"), a
shareholder in the Company, agreed to terminate the purchase agreement. The
Company liquidated amounts owed to Centennial under the agreement by paying
approximately $132,000 in cash and agreeing to issue 600,000 shares of common
stock to pay the remaining balance of approximately $1.2 million.
In May 1997, a shareholder of the Company exercised warrants and purchased
100,014 shares of the Company's common stock at $1.00 per share.
In July 1997, a vendor agreed to convert $89,915 of debt to 43,648 shares of
the Company's common stock. In August, 1997, another vendor agreed to convert
$19,015 of debt to 9,508 shares of the Company's common stock.
NOTE E - SUBSEQUENT EVENTS
In November 1997, an outside investor executed a Securities Purchase Agreement
to invest
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<PAGE> 8
$3 million in the Company by purchasing 3,000,000 shares of the Company's common
stock at $1.00 per share. In accordance with the agreement, the Company also
issued warrants to purchase 1,000,000 shares of common stock at $1.00 per share
through November 12, 2002, and issued warrants to purchase 1,000,000 shares of
common stock at $2.00 per share through November 12, 2002. The investor was
granted demand registration rights starting six months from the closing date for
both the common shares purchased and the warrants granted. In addition, a
representative of the investor holds a seat on the board of directors. The
agreement contains certain covenants which restrict future activities of the
company including but not limited to mergers or acquisitions, borrowings,
issuance of securities, payment of dividends, granting a security interest in
company assets, and the purchase or sale of assets. The investment has been
funded and closing and issuance costs (including commissions) amounted to
approximately $250,000.
In November, 1997, the Company offered a 50% discount of the exercise price to
all warrantholders of the Company's common stock for a specified period of time,
which has expired. Warrantholders exercised warrants to purchase 1,187,406
shares of common stock at prices from $.25 per share to $.60 per share. The
Company received $252,145 in cash. The Company also received a promissory note
from an officer of the Company for $125,000, with interest and principal payable
in four years, and accruing interest at an rate of 8.5% per annum. The stock
purchased is pledged as collateral against the note. In addition, a director of
the Company cancelled a promissory note due from the Company for $100,000 for
the exercise of warrants at a total exercise price of $98,480. The balance of
the note payable plus accrued interest were paid to the noteholder in cash. The
Company also repaid a $15,000 note payable to a director plus accrued interest
which amount is undetermined at this time. The impact of these transactions will
result in the Company taking a charge in Fiscal 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This report contains forward looking statements regarding anticipated increases
in revenues, markets and other matters. These statements, in addition to
statements made in conjunction with the words "anticipate", "expect", "intend",
"seek", and similar expressions, are forward-looking statements. These
statements involve a number of risks and uncertainties, including but not
limited to, the impact of competitive products and pricing, product demand and
market acceptance, new product development, availability of raw materials,
fluctuations in operating results and other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission.
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<PAGE> 9
Industrial Imaging Corporation designs, manufactures and markets automated
optical, vision and industrial imaging systems for inspection and identification
of defects in PCBs and laser plotters for creation of PCB artwork and
phototools. The Company operates under the trade name of AOI International and
has manufacturing operations based in Lowell, Massachusetts with customers
located in the United States, Europe, and Asia.
The Company acquired Triple I as part of the Exchange, whereby the shareholders
of Triple I received 90% ownership of the Company in exchange for 100% of Triple
I's outstanding Common Stock (the "Exchange"). The Exchange was effective on
February 1, 1997. Prior to the Exchange, Orbis had not had revenues from
operations since 1992, and therefore, the impact of Orbis on the financial
statements of Industial Imaging is immaterial.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTH PERIODS ENDING SEPTEMBER 30, 1997 ("SIX MONTHS
1997") AND 1996 ("SIX MONTHS 1996")
Revenues for the Six Months 1997 were $1,613,770 as compared to $928,505 for the
Six Months 1996, an increase of $685,265. Product revenues were $1,407,178 for
the Six Months 1997 as compared to $781,500 for the Six Months 1996. This
increase was due primarily to an increase in sales volume. Service revenues
increased from $147,005 to $206,592 for the Six Months 1996 and 1997,
respectively, due to an increase in services performed.
Cost of revenues for the Six Months 1997 was $1,666,754 as compared to $822,935
for the Six Months 1996, an increase of $843,819, resulting primarily from an
increase in sales volume and increased manufacturing costs. Gross profit
decreased from $105,570 for the Six Months 1996 to $(52,984) for the Six Months
1997, due to increased cost of parts due to the Company's limited cash position
and manufacturing delays caused by a lack of materials on hand. The Company
believes that its recent receipt of $3,000,000 in an equity investment will
result in an improved availability of materials at somewhat lower costs on a
more timely basis, thereby improving manufacturing inefficiencies.
Operating expenses increased from $780,385 to $898,560 for the Six Months 1996
and 1997, respectively. Research and development expenses decreased by
approximately $60,000 from the Six Months 1996 to the Six Months 1997, due to a
larger amount of expenses in the prior year relating to the development of the
AOI-2500 system. Sales and marketing expenses were $162,033 for the Six Months
1996 as compared to $220,314 for the Six Months 1997. The increase of these
expenses was primarily due to the hiring of a Vice President of Sales and
Marketing, the hiring of a marketing administrator, the Company's attendence in
trade shows and increased travel costs for sales and marketing. General and
administrative expenses increased
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<PAGE> 10
from $335,077 to $455,047 for the Six Months 1996 and 1997, respectively. This
increase was attributable to increased legal fees as well as an increase in
travel and insurance costs.
Interest expense was $32,164 for the Six Months 1996 as compared to $98,866 for
the Six Months 1997. The increase primarily relates to the increase in debt of
$450,000 as well as increased use of factoring for the Six Months 1997.
The net loss increased to $1,055,630 for the Six Months 1997 from $706,813 for
the Six Months 1996 due to the aforementioned. The Company did not recognize an
income tax benefit due to the uncertainty surrounding the realization of the
deferred tax assets in future income tax returns. The Company has recorded a
full valuation allowance against its otherwise recognizable deferred tax assets.
COMPARISON OF THE THREE MONTH PERIODS ENDING SEPTEMBER 30, 1997 ("THREE MONTHS
1997") AND 1996 ("THREE MONTHS 1996")
Revenues for the Three Months 1997 were $906,999 as compared to $333,886 for the
Three Months 1996, an increase of $573,113. Product revenues were $805,493 for
the Three Months 1997 as compared to $265,000 for the Three Months 1996. This
increase was due primarily to an increase in the sales volume, which amounted to
approximately $435,000 in revenues, and price increases of approximately
$105,000 in revenues. Service revenues increased from $68,886 to $101,506 for
the Three Months 1996 and 1997, respectively, due to an increase in services
performed.
Cost of revenues for the Three Months 1997 was $962,677 as compared to $397,618
for the Three Months 1996, an increase of $565,059, resulting primarily from an
increase in sales volume and increased manufacturing costs. Gross profit
decreased from $(63,732) for the Three Months 1996 to $(55,678) for the Three
Months 1997, due to the aformentioned factors.
Operating expenses increased from $396,112 to $479,060 for the Three Months 1996
and 1997, respectively. Research and development expenses decreased by $16,369
from the Three Months 1996 to the Three Months 1997 due to a larger amount of
expenses in the prior year relating to the development of the AOI-2500 system.
Sales and marketing expenses were $98,791 for the Three Months 1996 as compared
to $124,058 for the Three Months 1997. The increase of these expenses was
primarily due to the hiring of a Vice President of Sales and Marketing, the
hiring of a marketing administrator, the Company's attendence in trade shows and
increased travel costs for sales and marketing. General and administrative
expenses increased from $171,202 to $245,252 for the Three Months 1996 and 1997,
respectively. This increase was attributable to increased legal fees as well as
an increase in travel and insurance costs.
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<PAGE> 11
Interest expense was $15,234 for the Three Months 1996 as compared to $50,880
for the Three Months 1997. The increase relates to the increase in debt of
$450,000 as well as increased use of factoring of accounts receivable.
The net loss increased to $597,996 for the Three Months 1997 from $475,378 for
the Three Months 1996 due to the aforementioned. The Company did not recognize
an income tax benefit due to the uncertainty surrounding the realization of the
deferred tax assets in future income tax returns. The Company has recorded a
full valuation allowance against its otherwise recognizable deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses since inception that have continued
through December 31, 1997. In addition, the financial statements of the Company
for Fiscal 1994, Fiscal 1995, Six Months 1996, and Fiscal 1997 were prepared on
the assumption that the Company will continue as a going concern and do not
include any adjustments that would result if the Company would cease as a going
concern. The report of the independent accountants contain an explanatory
paragraph as to the Company's ability to continue as a going concern. Among the
factors cited by the auditors as raising substantial doubt as to the Company's
ability to continue as a going concern is that the Company has suffered
recurring losses from operations, has a net working capital deficiency and has
an accumulated deficit of $9,021,798 as of September 30, 1997.
The Company's operations to date have been funded by equity investments,
borrowing from banks, investors and stockholders, factoring of accounts
receivable, and to a limited extent, cash flow from operations. In addition, the
Company raised $3 million of new equity in November, 1997. At September 30,
1997, the Company had cash of $14,677 and a working capital deficit of
$1,214,060. During Three Months 1997, cash used in operating activities was
$132,032. The Company currently has no outstanding material commitments for
capital expenditures. In May 1997, a shareholder of the Company exercised
warrants and purchased 100,014 shares of the Company's common stock at $1.00 per
share. In May 1997, the Company and Centennial Technologies Inc. ("Centennial"),
a shareholder in the Company, agreed to terminate a purchase agreement to which
they had been parties. The Company liquidated amounts owed to Centennial under
the agreement by paying approximately $132,000 in cash and agreeing to issue
600,000 shares of common stock to payoff the remaining balance of approximately
$1.2 million. In July, 1997, a vendor agreed to convert $89,915 of debt to
43,648 shares of the Company's common stock. In August, 1997, another vendor
agreed to convert $19,015 of debt to 9,508 shares of the Company's common stock.
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<PAGE> 12
The Company derives most of its annual revenues from a relatively small number
of sales of products, systems and upgrades, with product prices ranging from
$185,000 to $600,000 per system. As a result, accounts receivable is expected to
fluctuate based on the number of systems sold in each period and the timing of
the individual sales within each period. Moreover, any delay in the recognition
of revenue for single products or a delay in shipment to customers, systems or
upgrades would have a material adverse effect on the Company's results of
operations for a given accounting period. In addition, some of the Company's net
sales have been realized near the end of a quarter. Accordingly, a delay in a
customer's acceptance or in a shipment scheduled to occur near the end of a
particular quarter could materially adversely affect the Company's results of
operations for that quarter. Inventory decreased by $473,615 from March 31, 1997
to September 30, 1997, due to shipments and sales of the Company's product as
well as a decrease in purchasing of inventory during that period resulting from
lack of credit terms from vendors.
Accounts payable decreased from $2,497,890 at March 31, 1997 to $1,065,917 at
September 30, 1997, primarily due to the conversion of approximately $1.3
million owed to Centennial which was converted to equity in May 1997, as
described above as well as conversions of accounts payable in July and August of
1997.
In November 1997, Imprimus Investors, LLP executed a Securities purchase
agreement to invest $3 million in the Company by purchasing 3,000,000 shares of
the Company's common stock at $1.00 per share. In accordance with the agreement,
the Company also issued warrants to purchase 1,000,000 shares of common stock at
$1.00 per share through November 12, 2002, and issued warrants to purchase
1,000,000 shares of common stock at $2.00 per share through November 12, 2002.
The investor was granted demand registration rights starting six months from the
closing date for both the common shares purchased and the warrants granted. In
addition, a representative of the investor holds a seat on the Board of
Directors. The agreement contains certain covenants which restrict future
activities of the Company including, but not limited to, mergers or
acquisitions, borrowings, issuance of securities, payment of dividends, granting
a security interest in company assets, and the purchase or sale of assets. The
investment has been funded and closing and issuance costs (including
commissions) amounted to approximately $250,000.
To fund operations in the future, the Company will rely on proceeds from the
Imprimus equity investment and cash flow from anticipated sales. The Company's
management believes that the funds provided by the equity investment and cash
flow from anticipated future product sales, will be sufficient to fund
continuing operations through the end of Fiscal 1998.
In November 1997, the Company offered a 50% discount of the exercise price to
all
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<PAGE> 13
warrantholders of the Company's common stock for a specified period of time,
which has expired. Warrantholders exercised warrants to purchase 1,187,406
shares of common stock at prices from $.25 per share to $.60 per share. The
Company received $252,145 in cash, received a promissory note from an officer of
the Company for $125,000 with interest and principal payable in four years, and
accruing interest at a rate of 8.5% per annum. The stock purchased is pledged as
collateral against the note. In addition, a director of the Company exchanged a
promissory note due from the Company for $100,000 for the exercise of warrants
at a total exercise price of $98,480. The balance of the note payable plus
accrued interest were paid to the noteholder in cash. The Company also agreed to
repay a $15,000 note payable to a director plus accrued interest. The impact of
these transactions will result in the Company taking a charge in Fiscal 1998.
INFLATION
To date, inflation has not had a material effect on the Company's business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. Not applicable
ITEM 2. CHANGES IN SECURITIES. None
ITEM 3. DEFAULT UPON SENIOR SECURITIES. Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is filed herewith:
Exhibit No. Title
----------- -----
27 Financial Data Schedule
(b) Reports on form 8-K. No reports on Form 8-K were filed during
the quarter for which this report is filed.
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<PAGE> 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: January 30, 1998 By: /s/ Juan J. Amodei, Ph.D.
--------------------------------- -----------------------------------
Juan J. Amodei, Ph.D.
Chairman, Chief Executive Officer,
and President
Date: January 30, 1998 By: /s/ Bryan M. Gleason
--------------------------------- -----------------------------------
Bryan M. Gleason
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE 3 MONTHS AND 6 MONTHS ENDING 9/30/97.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 14,677
<SECURITIES> 0
<RECEIVABLES> 358,473
<ALLOWANCES> (31,000)
<INVENTORY> 1,404,364
<CURRENT-ASSETS> 1,769,825
<PP&E> 26,493
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,815,958
<CURRENT-LIABILITIES> 2,983,885
<BONDS> 450,000
0
0
<COMMON> 66,206
<OTHER-SE> (1,684,133)
<TOTAL-LIABILITY-AND-EQUITY> 1,815,958
<SALES> 906,999
<TOTAL-REVENUES> 906,999
<CGS> 962,677
<TOTAL-COSTS> 962,677
<OTHER-EXPENSES> 491,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,880
<INCOME-PRETAX> (597,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (597,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597,996)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
