-----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, L4NUZ/PuU/cFj5hT0cA/E17X/f3YD9KTHu2OtM5xu77OYjmFvQN0OvsJEARlKzj/ p9/1WFxyExEEu5FbI5TsyQ== 0000950135-98-001088.txt : 19980218 0000950135-98-001088.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950135-98-001088 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 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: 98543385 BUSINESS ADDRESS: STREET 1: ONE LOWELL RESEARCH CENTER STREET 2: 847 ROGERS STREET CITY: LOWELL STATE: MA ZIP: 01852 BUSINESS PHONE: (978) 937-5400 MAIL ADDRESS: STREET 1: ONE LOWELL RESEARCH CENTER STREET 2: 847 ROGERS STREET CITY: LOWELL STATE: MA ZIP: 01852 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 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 mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 December 31, 1997, the Company had outstanding 10,890,201 shares of Common Stock, $.01 par value per share. Transitional Small Business Disclosure Format (check one) YES X NO . --- --- 2 INDUSTRIAL IMAGING CORPORATION INDEX PART I - FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements Balance Sheets at December 31, 1997 and March 31, 1997 3 Statements of Operations for the Nine Months and Three Months Ended December 31, 1997 and 1996 4 Statements of Cash Flows for the Nine Months Ended December 31, 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 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 2 3 INDUSTRIAL IMAGING CORPORATION BALANCE SHEETS
(UNAUDITED) DECEMBER 31, MARCH 31, 1997 1997 ------------ ------------ ASSETS Current assets: Cash ............................................................................. $ 1,635,720 $ 62,103 Accounts receivable, net of allowance for doubtful accounts of $31,000 at December 31, 1997 and March 31, 1997, respectively ............................. 353,721 493,778 Inventory ........................................................................ 1,489,771 1,877,979 Prepaid expenses ................................................................. 90,092 53,398 ------------ ------------ Total current assets ........................................................... 3,569,304 2,487,258 Property and equipment, net .......................................................... 24,264 34,256 Patents, net ......................................................................... 61,979 Other assets ......................................................................... 12,262 10,786 ------------ ------------ Total assets ................................................................... $ 3,605,830 $ 2,594,279 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Notes payable .................................................................... 407,987 480,404 Accounts payable ................................................................. 396,436 2,497,890 Deferred revenue ................................................................. 338,022 242,938 Accrued expenses ................................................................. 898,112 957,953 ------------ ------------ Total current liabilities ...................................................... 2,040,557 4,179,185 Notes payable - long-term portion .................................................... 450,000 450,000 ------------ ------------ Total liabilities .............................................................. 2,490,557 4,629,185 Commitments and contingencies Shareholders' deficit: Common stock, par value $.01 per share, authorized 20,000,000 shares, 10,890,201 and 5,867,498 shares issued and outstanding at December 31, 1997 and March 31, 1997, respectively .......................................... 108,902 58,675 Series A Preferred Stock, par value $.01 per share, authorized 1,000,000 shares, 0 shares issued and outstanding at December 31, 1997 and March 31, 1997, respectively ................................................................... -- -- Additional paid-in capital ....................................................... 10,794,439 5,872,588 Accumulated deficit .............................................................. (9,663,068) (7,966,169) ------------ ------------ 1,240,273 (2,034,906) Note receivable from officer ..................................................... (125,000) ------------ Total shareholders' deficit .................................................... 1,115,273 (2,034,906) ------------ ------------ Total liabilities and shareholders' deficit .................................. $ 3,605,830 $ 2,594,279 ============ ============
3 4 INDUSTRIAL IMAGING CORPORATION STATEMENTS OF OPERATIONS
NINE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Revenues: Product ....................... $ 1,828,677 $ 1,190,489 $ 421,499 $ 408,989 Service ....................... 326,275 270,889 119,683 123,884 ----------- ----------- ----------- ----------- 2,154,952 1,461,378 541,182 532,873 ----------- ----------- ----------- ----------- Cost of revenues: Product ....................... 1,963,373 964,317 447,443 281,060 Service ....................... 219,870 192,346 69,046 52,668 ----------- ----------- ----------- ----------- 2,183,243 1,156,663 516,489 333,728 ----------- ----------- ----------- ----------- Gross profit ...................... (28,291) 304,715 24,693 199,145 ----------- ----------- ----------- ----------- Operating expenses: Research and development ...... 329,457 410,079 106,258 126,804 Sales and marketing ........... 396,652 250,732 176,338 88,699 General and administrative .... 665,876 521,837 210,829 186,760 ----------- ----------- ----------- ----------- Total operating expenses .. 1,391,985 1,182,648 493,425 402,263 ----------- ----------- ----------- ----------- Loss from operations .............. (1,420,276) (877,933) (468,732) (203,118) Other income (expense): Interest expense .............. (142,523) (72,851) (43,657) (40,687) Other, net .................... (134,100) (331) (128,880) (497) ----------- ----------- ----------- Other income (expense), net (276,623) (73,182) (172,537) (41,184) Loss before income taxes .. (1,696,899) (951,115) (641,269) (244,302) Provision for income taxes ........ -- -- -- -- ----------- ----------- ----------- ----------- Net loss .......................... $(1,696,899) $ (951,115) $ (641,269) $ (244,302) =========== =========== =========== =========== Net loss per share ................ $ (.23) $ (.23) $ (.07) $ (.06) =========== =========== =========== =========== Weighted average common outstanding 7,266,867 4,206,237 8,976,861 4,367,037 =========== =========== =========== ===========
4 5 INDUSTRIAL IMAGING CORPORATION STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss ............................................ $(1,696,899) $ (951,115) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation .................................... 9,992 16,842 Amortization .................................... 61,979 79,688 Compensation expense ............................ 125,000 Changes in assets and liabilities: Accounts receivable .......................... 140,057 (216,933) Inventory ................................... 388,208 (1,029,720) Prepaid expenses ............................ (36,694) (211,264) Other assets ................................ (1,476) Accounts payable ............................ (564,606) 1,445,499 Deferred revenue ............................ 95,084 (503,658) Accrued expenses ............................ (59,841) 249,645 ----------- ----------- Net cash used in operating activities ........... (1,539,196) (1,121,017) ----------- ----------- Cash flows from investing activities: Capital expenditures ................................ -- (22,109) ----------- ----------- Net cash used in investing activities ............... -- (22,109) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of nonconvertible debt ....... 76,771 453,596 Principal payments on nonconvertible debt ........... (50,707) (47,205) Proceeds from issuance of convertible debt .......... 200,000 Proceeds from issuance of stock (net) ............... 3,086,749 597,036 ----------- ----------- Net cash provided from financing activities ....... 3,112,813 1,203,427 ----------- ----------- Net increase (decrease) in cash ................... 1,573,617 60,301 Cash, beginning of period ............................... 62,103 10,011 ----------- ----------- Cash, end of period ..................................... $ 1,635,720 $ 70,312 =========== =========== Supplemental cash flows information: Cash paid during the period for interest ............ $ 42,902 $ 7,042 Noncash items: Debt converted to equity during the period .......... 1,536,847 200,000 Warrants exercised for promissory note .............. 125,000 -- Warrants exercised by canceling note ................ 98,481 --
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 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 nine months ended December 31, 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 December 31,1997 and March 31, 1997, inventories consist of the following:
December 30, 1997 March 31, 1997 ----------------- -------------- Raw materials $ 915,868 $1,189,313 Work in process 277,818 356,859 Finished goods 296,085 331,807 ---------- ---------- $1,489,771 $1,877,979 ========== ==========
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 6 7 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 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 payoff 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. In November 1997, another vendor agreed to convert $164,254 of debt to 82,127 shares of the Company's common stock. In November 1997, an outside investor 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 $265,000. In November 1997, the Company offered a 50% discount of the exercise price to all warrant holders of the Company's common stock for a specified period of time, which has expired. Warrant holders 7 8 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 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 will be paid to the noteholder in cash. The Company also agreed to repay a $15,000 note payable to a director plus accrued interest. The Company recognized compensation expense relating to these transactions in the amount of $125,000, which has been included in other expenses. 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 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 Industrial Imaging is immaterial. RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTH PERIODS ENDING DECEMBER 31, 1997 ("NINE MONTHS 1997") AND 1996 ("NINE MONTHS 1996") Revenues for the Nine Months 1997 were $2,154,952 as compared to $1,461,378 for the Nine 8 9 Months 1996, an increase of $693,574. Product revenues were $1,828,677 for the Nine Months 1997 as compared to $1,190,489 for the Nine Months 1996. This increase was due primarily to an increase in the sales volume, which amounted to approximately $850,000 in revenues, partially offset by decreases in prices of approximately $210,000 in revenues. Service revenues increased from $270,889 to $326,275 for the Nine Months 1996 and 1997, respectively, due to an increase in services performed. Cost of revenues for the Nine Months 1997 was $2,183,243 as compared to $1,156,663 for the Nine Months 1996, an increase of $1,026,580, resulting primarily from an increase in sales volume and increased manufacturing costs. Gross profit decreased from $304,715 for the Nine Months 1996 to $(28,291) for the Nine Months 1997, due to increased cost of parts as a result of 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 $1,182,648 to $1,391,985 for the Nine Months 1996 and 1997, respectively. Research and development expenses decreased by approximately $80,000 from the Nine Months 1996 to the Nine 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 $250,732 for the Nine Months 1996 as compared to $396,652 for the Nine 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 attendance in trade shows, an increase in commissions expense, and increased travel costs for sales and marketing. General and administrative expenses increased from $521,837 to $665,876 for the Nine Months 1996 and 1997, respectively. This increase was attributable to increased legal fees as well as an increase in travel and insurance costs. Interest expenses were $72,851 for the Nine Months 1996 as compared to $142,523 for the Nine Months 1997. The increase primarily relates to the increase in debt of $450,000 as well as increased use of factoring for the Nine Months 1997. Other expenses increased by approximately $134,000 from the Nine Months 1996 to the Nine Months 1997 due mostly to taking a $125,000 compensation charge relating to warrants exercised at a discount. The net loss increased to $1,636,696 for the Nine Months 1997 from $951,115 for the Nine 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 DECEMBER 31, 1997 ("THREE MONTHS 1997") AND 1996 ("THREE MONTHS 1996") Revenues for the Three Months 1997 were $541,182 as compared to $532,873 for the Three Months 1996, an increase of $8,309. Product revenues were $421,499 for the Three Months 1997 as 9 10 compared to $408,989 for the Three Months 1996. This moderate increase was due primarily to an increase in the sales volume of approximately $86,000, partially offset by price decreases of approximately $74,000 in revenues. Service revenues decreased slightly from $123,884 to $119,683 for the Three Months 1996 and 1997, respectively, due to an decrease in services performed. Cost of revenues for the Three Months 1997 was $516,489 as compared to $333,728 for the Three Months 1996, an increase of $182,761, resulting primarily increased manufacturing costs. Gross profit decreased from $199,145 for the Three months 1996 to $24,693 for the Three Months 1997, as a result of the aforementioned and to increased cost of parts as a result of 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 $402,263 to $493,425 for the Three Months 1996 and 1997, respectively. Research and development expenses decreased by $20,546 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 $88,699 for the Three Months 1996 as compared to $176,338 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 attendance in a major trade show in Europe during the Three Months 1997, and increased travel costs for sales and marketing. General and administrative expenses increased from $186,760 to $210,829 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 expenses were fairly consistent for the Three Months 1997 as compared to the Three Months 1996. Other expenses increase by approximately $128,000 from the Three Months 1996 to the Three Months 1997 due mostly to taking a $125,000 compensation charge relating to warrants exercised at a discount. The net loss increased to $641,269 for the Three Months 1997 from $244,302 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 10 11 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 an accumulated deficit, which amounted to $9,663,068 as of December 31, 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 December 31, 1997, the Company had cash of $1,635,720 and a working capital of $1,528,747. During Three Months 1997, cash used in operating activities was $1,539,196. The Company currently has no outstanding material commitments for capital expenditures. In May 1997, a shareholder of the Company exercised warrants and purchases 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 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 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. In November 1997, another vendor agreed to convert $164,254 of debt to 82,127 shares of the Company's common stock. 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 $388,208 from March 31, 1997 to December 31, 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. With the recent capital infusion, the Company intends to increase inventory levels to increase production based on anticipated growing demand. Accounts payable decreased by $2,101,454 during the nine month period. Of this change, $1,536,847 was due to the debt to equity conversions as mentioned above, and $564,606 was due to paydowns of balances due. 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 11 12 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 warrant holders of the Company's common stock for a specified period of time, which has expired. Warrant holders 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 is payable in four years, 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 will be paid to the noteholder in cash. The Company also agreed to repay a $15,000 note payable to a director plus accrued interest. The Company recognized compensation expense relating to these transactions in the amount of $125,000, which has been included in other expenses. 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: 12 13 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: February 17, 1998 By: /s/Juan J. Amodei Juan J. Amodei Chairman, Chief Executive Officer, and President Date: February 17, 1998 By: /s/Bryan M. Gleason Bryan M. Gleason Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SUMMARY SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S 10Q FOR THE 3 MONTH PERIOD ENDED DECEMBER 31, 1997. 1 U. S. DOLLARS 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 1 1,635,720 0 384,721 (31,000) 1,489,771 3,569,304 24,264 0 3,605,830 2,040,557 450,000 0 0 108,902 1,006,371 3,605,830 541,182 541,182 516,489 516,489 (622,305) 0 43,657 (641,269) 0 (641,269) 0 0 0 (641,269) (.07) (.07)
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