<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 JUNE 30, 1997
COMMISSION FILE NUMBER 0-15520
INDUSTRIAL IMAGING CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 05-0396504
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(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
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(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
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As of June 30, 1997, the Company had outstanding 6,567,512 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 1 - FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements
<S> <C>
Balance Sheets at June 30, 1997 and March 31, 1997 3
Statements of Operations for the three months ended
June 30, 1997 and 1996 4
Statements of Cash Flows for the three months ended
June 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 11
Item 2. Changes in Securities 11
Item 3. Default upon Senior Securities 11
Item 4. Submission of Matters to a vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
</TABLE>
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INDUSTRIAL IMAGING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 16,358 $ 62,103
Accounts receivable, net of allowance for doubtful accounts of $31,000 at June 30,
1997 and March 31, 1997, respectively............................................ 230,273 493,778
Inventory (Note B)................................................................. 1,730,250 1,877,979
Prepaid expenses................................................................... 22,477 53,398
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Total current assets............................................................. 1,999,358 2,487,258
Property and equipment, net............................................................ 30,375 34,256
Patents, net........................................................................... 36,417 61,979
Other assets........................................................................... 10,786 10,786
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Total assets..................................................................... 2,075,936 $ 2,594,279
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Notes payable...................................................................... 465,372 480,404
Accounts payable................................................................... 1,137,174 2,497,890
Deferred revenue................................................................... 215,423 242,938
Accrued expenses................................................................... 936,828 957,953
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Total current liabilities........................................................ 2,754,797 4,179,185
Notes payable -- long-term portion..................................................... 450,000 450,000
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Total liabilities................................................................ 3,204,797 4,629,185
Commitments and contingencies
Shareholders' deficit (Note D):
Common stock, par value $.01 per share, authorized 8,700,000 shares,
6,567,512 and 5,567,498 shares issued and outstanding at June 30, 1997 and
March 31, 1997, respectively..................................................... 65,675 58,675
Series A Preferred Stock, par value $.01 per share, authorized 1,000,000 shares,
0 shares issued and outstanding at June 30, 1997 and March 31, 1997, -- --
respectively.....................................................................
Series B Preferred Stock, par value $.01 per share, authorized 300,000 shares,
0 shares issued and outstanding at June 30, 1997 and March 31, 1997, respectively -- --
Additional paid-in capital......................................................... 7,229,266 5,872,588
Accumulated deficit................................................................ (8,423,802) (7,966,169)
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Total shareholders' deficit...................................................... (1,128,861) (2,034,906)
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Total liabilities and shareholders' deficit.................................... $ 2,075,936 $ 2,594,279
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
JUNE 30, 1997 JUNE 30, 1996
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<S> <C> <C>
Revenues:
Product.............................................. $ 601,685 $ 516,500
Service.............................................. 105,086 78,119
------------ ------------
706,771 594,619
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Cost of revenues:
Product.............................................. 645,873 360,115
Service.............................................. 58,204 65,202
------------ ------------
704,077 425,317
------------ ------------
Gross profit............................................. 2,694 169,302
------------ ------------
Operating expenses:
Research and development............................. 113,449 157,156
Sales and marketing.................................. 96,256 63,242
General and administrative........................... 209,795 163,875
------------ ------------
Total operating expenses......................... 419,500 384,273
------------ ------------
Loss from operations..................................... ( 416,806) (214,971)
Other income (expense):
Interest expense..................................... (47,986) (16,910)
Other, net........................................... 7,158 466
------------ ------------
Other income (expense), net...................... (40,828) (16,444)
Loss before income taxes......................... (457,634) (231,415)
Provision for income taxes .............................. -- --
------------ ------------
Net loss................................................. $ (457,634) $ (231,415)
============ ============
Net loss per common and common equivalents............... $ (.07) $ (.06)
============ ============
Weighted average common shares outstanding............... 6,236,736 3,881,103
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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INDUSTRIAL IMAGING CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
JUNE 30, 1997 JUNE 30, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (457,634) $ (231,415)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.................................... 3,881 7,751
Amortization.................................... 26,562 26,563
Changes in assets and liabilities:
Accounts receivable........................... 263,505 (36,885)
Inventory..................................... 147,729 (159,145)
Prepaid expenses.............................. 30,921 7,474
Accounts payable.............................. (97,051) 333,383
Deferred revenue.............................. (27,515) (517,137)
Accrued expenses.............................. (21,125) (138,757)
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Net cash used in operating activities........... (130,727) (708,168)
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Cash flows from investing activities:
Capital expenditures................................ -- (17,100)
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Net cash used in investing activities............... -- (17,100)
------------ -----------
Cash flows from financing activities:
Principal payments on nonconvertible debt........... (15,032) (13,398)
Proceeds from issuance of convertible debt.......... -- 200,000
Proceeds from issuance of stock (net)............... 100,014 597,036
------------ -----------
Net cash provided from financing activities....... 84,982 783,638
------------ -----------
Net increase (decrease) in cash................... (45,745) 58,370
Cash, beginning of period............................... 62,103 10,011
------------ -----------
Cash, end of period..................................... $ 16,358 $ 68,381
============ ===========
Supplemental cash flows information:
Cash paid during the period for interest............ $ 13,564 $ 6,509
Noncash items:
Debt and accrued interest converted to equity during
the period........................................ $ 1,263,663 $ 200,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
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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 months ended June 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 June 30,1997 and March 31, 1997,
inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
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<S> <C> <C>
Raw materials $1,250,918 $1,189,313
Work in process 171,957 356,859
Finished goods 307,375 331,807
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$1,730,250 $1,877,979
========== ==========
</TABLE>
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 ("Triple I") and Orbis, whereby the
stockholders of Triple I exchanged 100% of the outstanding Common Stock of
Triple I for 90% of the
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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.
NOTE E-SUBSEQUENT EVENTS
In November, 1997, an outside investor invested $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, received a promissory note from an officer of
the Company for $125,000 with interest and principal
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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 which is undetermined at this point.
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, 1997 ("THREE MONTHS 1997")
AND 1996 ("THREE MONTHS 1996")
Revenues for the Three Months 1997 were $706,771 as compared to $594,619 for the
Three Months 1996, an increase of $112,152. Product revenues were $601,685 for
the Three Months 1997 as compared to $516,500 for the Three Months 1996. This
increase was due primarily to an increase in the sales volume, which amounted to
approximately $215,000, partially offset by
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<PAGE> 9
price decreases of approximately $131,000. Service revenues increased from
$78,119 to $105,086 for the Three Months 1996 and 1997, respectively, due to an
increase in services performed.
Cost of revenues for the Three Months 1997 was $704,077 as compared to $425,317
for the Three Months 1996, an increase of $278,760, resulting primarily from an
increase in sales volume and increased manufacturing costs. As a result, gross
profit decreased to $2,694 for the Three Months 1997 from $169,302 for the Three
Months 1996, due to the aformentioned factors.
Operating expenses increased from $384,273 to $419,500 for the Three Months 1996
and 1997, respectively. Research and development expenses decreased by $43,707
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 $63,242 for the Three Months 1996 as compared
to $96,256 for the Three Months 1997. The increase in sales expenses was
primarily due to the hiring of a Vice President of Sales and Marketing, the
hiring of a marketing administrator, the Company's attendance at trade shows and
increased travel costs for sales and marketing. General and administrative
expenses increased from $163,875 to 209,795 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.
Interest expense was $16,910 for the Three Months 1996 as compared to $47,986
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 $457,634 for the Three Months 1997 from $231,415 for
the Three Months 1996. 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 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 had
an accumulated deficit of $8,423,802 as of June 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 June 30, 1997, the Company had cash of $16,358,
and a working capital deficit of $755,439.
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<PAGE> 10
During Three Months 1997, cash used in operating activities was $130,727. 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., 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 pay off the remaining balance of approximately $1.2 million.
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
decreased from $493,778 at March 31, 1997, to $230,273 at June 30, 1997, due to
a Fiscal 1997 sale where the balance was collected in Fiscal 1998.
Accounts payable decreased from $2,497,890 at March 31, 1997 to $1,137,174 at
June 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.
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 exercisable through November 12, 2002, and issued warrants to
purchase 1,000,000 shares of Common Stock at $2.00 per share exercisable 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, the investor has appointed an individual who has
been elected to 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, received
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<PAGE> 11
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.
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.
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
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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> 12
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 ENDING 6/30/97
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 16,358
<SECURITIES> 0
<RECEIVABLES> 261,273
<ALLOWANCES> (31,000)
<INVENTORY> 1,730,250
<CURRENT-ASSETS> 1,999,358
<PP&E> 30,375
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,075,936
<CURRENT-LIABILITIES> 2,754,797
<BONDS> 450,000
0
0
<COMMON> 65,675
<OTHER-SE> (1,194,536)
<TOTAL-LIABILITY-AND-EQUITY> 2,075,936
<SALES> 706,771
<TOTAL-REVENUES> 706,771
<CGS> 704,077
<TOTAL-COSTS> 704,077
<OTHER-EXPENSES> 412,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,986
<INCOME-PRETAX> (457,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (457,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (457,634)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
