<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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 (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 No X
--- ---
As of June 30, 1998, the Company had outstanding 10,890,201 shares of Common
Stock, $.01 par value per share.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
1
<PAGE> 2
INDUSTRIAL IMAGING CORPORATION
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NUMBER
------------
Item 1. Financial Statements
Balance Sheets at June 30, 1998 and March 31, 1998 3
Statements of Operations for the three months ended
June 30, 1998 and 1997 4
Statements of Cash Flows for the three months ended
June 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Managements's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal proceedings 9
Item 2. Changes in Securities 9
Item 3. Default upon Senior Securities 9
Item 4. Submission of Matters to a vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures
2
<PAGE> 3
INDUSTRIAL IMAGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
------------ -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash.................................................................................... $ 227,805 $ 671,195
Accounts receivable, net of allowance for doubtful accounts of $31,000 at June 30,
1998 and March 31, 1998, respectively............................................. 587,827 214,450
Inventory (Note B).................................................................. 1,987,908 1,995,194
Prepaid expenses.................................................................... 34,961 75,282
----------- -----------
Total current assets.............................................................. 2,838,501 2,956,121
Property and equipment, net............................................................. 56,478 59,150
Other assets............................................................................ 44,418 7,600
----------- -----------
Total assets...................................................................... 2,939,397 $ 3,022,871
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Notes payable....................................................................... 713,402 715,334
Accounts payable.................................................................... 790,963 599,795
Deferred revenue.................................................................... 511,237 342,705
Accrued expenses.................................................................... 828,338 834,212
----------- -----------
Total current liabilities......................................................... 2,843,940 2,492,036
Notes payable -- long-term portion...................................................... 135,000 152,217
----------- -----------
Total liabilities................................................................. 2,978,940 2,644,253
Commitments and contingencies
Shareholders' deficit (Note C):
Common stock, par value $.01 per share, authorized 20,000,000 shares,
10,890,201 shares issued and outstanding at June 30, 1998 and
March 31, 1998 ................................................................... 108,902 108,902
Series A Preferred Stock, par value $.01 per share, authorized 1,000,000 shares,
0 shares issued and outstanding at June 30, 1998 and March 31, 1998, -- --
respectively......................................................................
Series B Preferred Stock, par value $.01 per share, authorized 300,000 shares,
0 shares issued and outstanding at June 30, 1998 and March 31, 1998, respectively -- --
Additional paid-in capital.......................................................... 10,794,439 10,794,439
Accumulated deficit................................................................. (10,817,884) (10,399,723)
Note receivable..................................................................... (125,000) (125,000)
----------- ------------
Total shareholders' deficit....................................................... (39,543) 378,618
----------- -----------
Total liabilities and shareholders' deficit..................................... $ 2,939,397 $ 3,022,871
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Revenues:
Product............................................... $1,026,660 $ 601,685
Service............................................... 110,871 105,086
---------- ----------
1,137,531 594,619
---------- ----------
Cost of revenues:
Product............................................... 790,319 645,873
Service............................................... 71,252 58,204
---------- ----------
861,571 704,077
---------- ----------
Gross profit.............................................. 275,960 2,694
---------- ----------
Operating expenses:
Research and development.............................. 242,644 113,449
Sales and marketing................................... 200,607 96,256
General and administrative............................ 226,933 209,795
---------- ----------
Total operating expenses.......................... 670,184 419,500
---------- ----------
Loss from operations...................................... (394,224) (416,806)
Other income (expense):
Interest expense...................................... (30,656) (47,986)
Other, net............................................ 6,719 7,158
---------- ----------
Other income (expense), net....................... (23,937) (40,828)
Loss before income taxes.......................... (418,161) (457,634)
Provision for income taxes................................ -- --
---------- ----------
Net loss.................................................. $ (418,161) $ (457,634)
========== ==========
Net loss per common and common equivalents................ $ (.04) $ (.07)
========== ==========
Weighted average common shares outstanding................ 10,890,201 6,236,736
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (418,161) $ (457,634)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................. 6,472 37,881
Amortization................................................. --- 26,562
Changes in assets and liabilities:
Accounts receivable........................................ (373,377) 263,505
Inventory.................................................. 7,286 147,729
Prepaid expenses........................................... 40,321 30,921
Other assets .............................................. (36,818) --
Accounts payable........................................... 191,178 (97,051)
Deferred revenue........................................... 168,532 (27,515)
Accrued expenses........................................... (5,874) (21,125)
---------- ---------
Net cash used in operating activities........................ (420,441) (130,727)
---------- ---------
Cash flows from investing activities:
Capital expenditures............................................. (3,800)
-----------
Net cash used in investing activities............................ (3,800)
-----------
Cash flows from financing activities:
Principal payments on nonconvertible debt........................ (19,149) (15,032)
Proceeds from issuance of convertible debt....................... ---
Proceeds from issuance of stock (net)............................ 100,014
---------- ---------
Net cash provided from financing activities.................... (19,149) 84,982
---------- ---------
Net increase (decrease) in cash................................ (443,390) (45,745)
Cash, beginning of period............................................ 671,195 62,103
---------- ---------
Cash, end of period.................................................. $ 227,805 $ 16,358
========== =========
Supplemental cash flows information:
Cash paid during the period for interest......................... $ 7,974 $ 13,564
Noncash items:
Debt and accrued interest converted to equity during
the period..................................................... $ --- $ 1,263,663
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<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, 1998
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, 1998, 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 months ended June 30, 1998 are not
necessarily indicative of the results to be achieved for any future period or
for the entire year ended March 31, 1999.
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 June 30,1998 and March 31, 1998,
inventories consist of the following:
JUNE 30, 1998 MARCH 31, 1998
-------------- ----------------
Raw materials $ 843,726 $ 746,748
Work in process 458,487 366,320
Finished goods 685,695 882,126
---------- ----------
$1,987,908 $1,995,194
========== ==========
NOTE C-SHAREHOLDERS' EQUITY
In the last quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting standards No. 128, "Earnings per Share", which requires the
presentation for both basic and diluted earnings per share on the face of the
Statements of Operations and the restatement of all prior periods earnings per
share amounts. Assumed exercise of options and warrants are not included in the
calculation of diluted earnings per share since the effect would be
antidilutive. Accordingly, basic and diluted net loss per share do not differ
for any period presented.
6
<PAGE> 7
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.
Industrial Imaging Corporation (the "Company") 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 (See note C). 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 Industrial Imaging is immaterial.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDING JUNE 30, 1998 ("THREE MONTHS 1998")
AND 1997 ("THREE MONTHS 1997")
Revenues for the Three Months 1998 were $1,137,531 as compared to $706,771
for the Three Months 1997, an increase of $430,760. Product revenues were
$1,026,660 for the Three Months 1998 as compared to $601,685 for the Three
Months 1997. This increase was due primarily to an increase in the volume of
units sold. Service revenues increased from $105,086 to $110,871 for the Three
Months 1997 and 1998, respectively, due to a slight increase in services
performed.
Cost of revenues for the Three Months 1998 was $861,571 as compared to
$704,077 for the Three Months 1997, an increase of $157,494, resulting primarily
from an increase in sales volume. As a result, gross profit increased to
$275,960 for the Three Months 1998 from $2,694 for the Three Months 1997, due to
the aforementioned factors. It is anticipated that gross margin will increase
with increases in sales as fixed and indirect overhead costs are absorbed over
more systems sales.
Operating expenses increased from $419,500 to $670,184 for the Three Months
1997 and 1998, respectively. Research and development expenses increased by
$129,195 from the Three Months 1997 to the Three Months 1998 due to expanding of
the engineering staff and the related expenses, and additional development of
the AOI-2500 series. Sales and marketing expenses were $96,256 for the Three
Months 1997 as compared to $200,607 for the Three Months 1998. The increase in
sales expenses was primarily due to an increase in commissions relating to
higher revenue and increased commissions paid to sales representatives, staff
additions, and increased costs related to trade shows. General and
administrative expenses increased to $226,933 from 209,795 for the Three Months
1998 and 1997, respectively. This increase was attributable to increased legal
and accounting costs, partially offset by a decrease in amortization.
Interest expense was $47,986 for the Three Months 1997 as compared to
$30,656 for the Three Months 1998. The decrease relates to the decreased use of
factoring of accounts receivable.
7
<PAGE> 8
Due to the aforementioned, The net loss decreased to $418,161 for the Three
Months 1998 from $457,634 for the Three Months 1997. 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 continued
through June 30, 1998. 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 had an accumulated
deficit of $10,937,074 as of June 30, 1998. 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. Management believes that anticipated future financings will
provide the additional capital funding that the Company needs to aggressively
pursue market penetration. In view of the Company's current financial condition,
the Company plans to continue to aggressively manage its working capital and
expenses while pursuing product sales opportunities as well as strategic or
other business relationships. In addition, the Company is currently seeking bank
financing as well as additional equity investments. There can be no assurance
that the Company can attract additional capital at favorable rates, if at all.
In the event the Company is unable to raise additional capital, it may be
required to take additional steps which could include a merger or sale of the
Company, or seeking protection under bankruptcy laws. At June 30, 1998, the
Company had cash of $227,805, and a working capital deficit of $5,439.
During Three Months 1998, cash used in operating activities was $420,441.
The Company currently has no outstanding material commitments for capital
expenditures.
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 will
likely continue 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. The accounts receivable
balance increased from $214,450 at March 31, 1998, to $587,827 at June 30, 1998,
due to a sale of a system at the end of the quarter.
Accounts payable increased from $599,785 at March 31, 1998 to $790,963 at
June 30, 1998, primarily due to an increase in the aging of accounts payable.
Deferred revenue increased by $168,532 as a result of increased down payments
from customers.
8
<PAGE> 9
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. On June 29, 1998, a form 8K was filed
reporting the appointment of BDO Seidman, L.L.P., and was
reported as an exhibit to the Company's Form 10KSB.
9
<PAGE> 10
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: AUGUST 14, 1998 By: /s/ JUAN J. AMODEI, PH.D.
- -------------------------------- ------------------------------
Juan J. Amodei, Ph.D.
Chairman, Chief Executive Officer,
and President
Date: AUGUST 14, 1998 By: /s/ BRYAN M. GLEASON
- -------------------------------- -------------------------
Bryan M. Gleason
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the company's 10Q for
the quarter ended June 30, 1998.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 227,805
<SECURITIES> 0
<RECEIVABLES> 587,827
<ALLOWANCES> 0
<INVENTORY> 1,987,908
<CURRENT-ASSETS> 2,762,311
<PP&E> 56,478
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,939,397
<CURRENT-LIABILITIES> 2,843,940
<BONDS> 0
0
0
<COMMON> 10,903,341
<OTHER-SE> (10,942,884)
<TOTAL-LIABILITY-AND-EQUITY> 2,939,397
<SALES> 1,137,531
<TOTAL-REVENUES> 1,137,531
<CGS> 861,571
<TOTAL-COSTS> 861,571
<OTHER-EXPENSES> 663,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,656
<INCOME-PRETAX> (418,161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (418,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418,161)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
