-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IYJeqHegN09Xgy9fdJdoUJXJArKh/LYZDAF9QgIyE+AbyEgugcu7E8DPcAplLN/+ 0peLJ8NW1KeeZicqlNcpyQ== 0000950135-98-000373.txt : 19980202 0000950135-98-000373.hdr.sgml : 19980202 ACCESSION NUMBER: 0000950135-98-000373 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980130 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDUSTRIAL IMAGING CORP CENTRAL INDEX KEY: 0000799514 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 050396504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-15520 FILM NUMBER: 98518094 BUSINESS ADDRESS: STREET 1: 847 ROGERS ST STREET 2: C/O ONE LOWELL RESEARCH CENTER CITY: LOWELL STATE: MA ZIP: 01852 BUSINESS PHONE: 4018614228 MAIL ADDRESS: STREET 1: 2 CHARLES ST. CITY: PROVIDENCE STATE: RI ZIP: 02904 FORMER COMPANY: FORMER CONFORMED NAME: ORBIS INC DATE OF NAME CHANGE: 19920703 10QSB 1 INDUSTRIAL IMAGING CORPORATION 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 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 ------------------------------------------------------------- (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 --- --- 2 INDUSTRIAL IMAGING CORPORATION INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER ----------- 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
The accompanying notes are an integral part of the financial statements. -2- 3 INDUSTRIAL IMAGING CORPORATION BALANCE SHEETS
(UNAUDITED) SEPTEMBER 30, MARCH 31, 1997 1997 ------------- ----------- 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 =========== ===========
The accompanying notes are an integral part of the financial statements. -3- 4 INDUSTRIAL IMAGING CORPORATION STATEMENTS OF OPERATIONS
SIX MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------- ------------------------------- 1997 1996 1997 1996 ----------- --------- --------- --------- 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 =========== ========= ========= =========
The accompanying notes are an integral part of the financial statements. -4- 5 INDUSTRIAL IMAGING CORPORATION STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, ------------------------------------ 1997 1996 ----------- ---------- 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
The accompanying notes are an integral part of the financial statements. -5- 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:
September 30, 1997 March 31, 1997 ------------------ -------------- 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 ========== ==========
-6- 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 -7- 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. -8- 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 -9- 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. -10- 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. -11- 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 -12- 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. -13- 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 -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S 10-Q FOR THE 3 MONTHS AND 6 MONTHS ENDING 9/30/97. 1 U.S. DOLLARS 3-MOS MAR-31-1998 JUL-01-1997 SEP-30-1997 1 14,677 0 358,473 (31,000) 1,404,364 1,769,825 26,493 0 1,815,958 2,983,885 450,000 0 0 66,206 (1,684,133) 1,815,958 906,999 906,999 962,677 962,677 491,438 0 50,880 (597,996) 0 (597,996) 0 0 0 (597,996) (.09) (.09)
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