<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549



                                    FORM 10-Q
   (Mark One)

     [ X ]          QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         For the Quarterly Period Ended
                                  June 30, 1997
                                        

     [   ]          TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                              OF THE EXCHANGE ACT

                         For the Transition Period From
                          ____________ to ____________
                                        
                         Commission file number 0-19688
                                        
                           DESTRON FEARING CORPORATION
                                        
             (Exact name of Registrant as specified in its charter)
                                        

            Delaware                                        84-1079037
(State or other jurisdiction of incorporation               (I.R.S. Employer
or organization)                                            Identification No.)

                               490 Villaume Avenue
                            South St. Paul, MN  55075
                                 (612) 455-1621
                    (Address of principal executive offices)
                                        
                                        
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant 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 August 13, 1997, there were 13,293,982 outstanding shares of Common Stock.

<PAGE>
                                        
                                        
                           DESTRON FEARING CORPORATION
                                        
                                        
                                        
                                    FORM 10-Q
                                        
                       FOR THE QUARTER ENDED JUNE 30, 1997
                                        
                                        
                                      INDEX
                                        
                                        
                                        
                                                                                
                                                                            Page
                                                                            ----

PART I -- FINANCIAL INFORMATION

            Item 1 --    Financial Statements                                 3


            Item 2 --    Management's Discussion and Analysis of 
                         Financial Condition and Results of Operations        9


PART II -- OTHER INFORMATION

            Item 1 --    Legal Proceedings                                   12


            Item 6 --    Exhibits and Reports on Form 8K                     13

            Signatures                                                       13



                                - 2 -

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-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

                         PART 1.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
DESTRON FEARING CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(in thousands, except share and per share amounts)
-------------------------------------------------------------------------------


                   ASSETS                             June 30,    September 30,
                                                        1997         1996
                                                      ---------   -------------
CURRENT ASSETS:
  Cash and cash equivalents                              $2,056         $39
  Accounts receivable, net                                1,803       1,016
  Inventories, net                                        5,913       7,219
  Prepaid expenses and other current assets                  67          28
                                                      ---------   -------------
      Total current assets                                9,839       8,302

PROPERTY AND EQUIPMENT, net                               2,054       2,104
INVESTMENT IN JOINT VENTURE                                 225         225
GOODWILL, net                                             2,022       2,085
OTHER ASSETS, net                                           220         306
                                                      ---------   -------------
                                                        $14,360     $13,022
                                                      ---------   -------------
                                                      ---------   -------------

                   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Line of credit                                          $  --        $866
  Accounts payable                                          471       5,597
  Accrued liabilities                                       492         528
  Current portion of long-term obligations                2,464          47
                                                      ---------   -------------
      Total current liabilities                           3,427       7,038

LONG-TERM OBLIGATIONS,
     net of current portion                               3,431       1,688
                                                      ---------   -------------
      Total liabilities                                   6,858       8,726
                                                      ---------   -------------
SHAREHOLDERS' EQUITY:
     Common stock, $.01 par value;
        20,000,000 shares authorized;
        13,294,000 and 11,641,000 shares
        issued and outstanding, respectively                133         116
      Additional paid-in capital                         19,789      16,692
      Accumulated deficit                               (12,420)    (12,512)
                                                      ---------   -------------
     Total shareholders' equity                           7,502       4,296
                                                      ---------   -------------
                                                        $14,360     $13,022
                                                      ---------   -------------
                                                      ---------   -------------


                   The accompanying notes are an integral part
                       of these consolidated balance sheets.          


                                      - 3 -

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DESTRON FEARING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands, except per share amounts)
-------------------------------------------------------------------------------

                                            Quarter Ended   Nine Months Ended 
                                              June 30,           June 30,
                                          ----------------  -----------------
                                           1997      1996      1997     1996
                                          -------   ------   -------  --------
NET REVENUE                               $3,058    $2,167   $10,272    $8,849

COSTS AND EXPENSES:
   Cost of sales                           2,054     1,671     6,505     6,248
   Selling, general and administrative       884       882     2,621     3,441
   Research and development                  247       203       640       683
   Interest expense and other                 63       159       414       187
                                          -------   ------   -------  --------
   Total costs and expenses                3,248     2,915    10,180    10,559
                                          -------   ------   -------  --------
INCOME (LOSS) BEFORE INCOME TAXES           (190)     (748)       92    (1,710)

PROVISION FOR INCOME TAXES                    --        --        --        --
                                          -------   ------   -------  --------
NET INCOME (LOSS)                          ($190)    ($748)      $92   ($1,710)
                                          -------   ------   -------  --------
                                          -------   ------   -------  --------
NET INCOME (LOSS) PER COMMON AND
  COMMON EQUIVALENT SHARE                 ($0.01)   ($0.06)    $0.01    ($0.15)
                                          -------   ------   -------  --------
                                          -------   ------   -------  --------
WEIGHTED AVERAGE NUMBER OF 
  COMMON AND COMMON EQUIVALENT
  SHARES OUTSTANDING                      13,294    11,640    12,694    11,479
                                          -------   ------   -------  --------
                                          -------   ------   -------  --------



                   The accompanying notes are an integral part
                   of these consolidated financial statements.


                                      - 4 -

<PAGE>

DESTRON FEARING CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands)
-------------------------------------------------------------------------------


                                                             Nine Months Ended
                                                                  June 30,
                                                             ------------------
                                                               1997      1996
                                                             -------    -------
OPERATING ACTIVITIES:
   Net income (loss)                                             $92    ($1,710)
   Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
      Depreciation and amortization                              377        357
      Equity in income of joint venture and other                 --        (18)
      Changes in operating items:
         Accounts receivable                                    (787)       548
         Inventories                                           1,306     (2,761)
         Prepaid expenses and other current assets               (39)        49
         Royalties receivable                                     --        402
         Accounts payable and accrued liabilities               (872)       484
                                                             -------    -------
         Net cash provided by (used in) operating activities      77     (2,649)
                                                             -------    -------
INVESTING ACTIVITIES:
   Purchases of fixed assets                                    (178)      (241)
   Change in other assets                                         --        117
                                                             -------    -------
         Net cash used in investing activities                  (178)      (124)
                                                             -------    -------
FINANCING ACTIVITIES:
   Issuance of common stock, net                               3,114      2,047
   Borrowings under long-term obligations                         --      1,558
   Repayments of long-term obligations                          (130)    (1,538)
   Net borrowings (repayments) on bank line of credit           (866)       707
                                                             -------    -------
         Net cash provided by financing activities             2,118      2,774
                                                             -------    -------
NET CHANGE IN CASH                                             2,017          1

CASH, beginning of period                                         39         62
                                                             -------    -------
CASH, end of period                                           $2,056        $63
                                                             -------    -------
                                                             -------    -------
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid                                                $407       $326
                                                             -------    -------
                                                             -------    -------
NON-CASH FINANCING TRANSACTION:
   Conversion of account payable to term loan                 $4,290         $0
                                                             -------    -------
                                                             -------    -------



                   The accompanying notes are an integral part
                   of these consolidated financial statements.


                                      - 5 -

<PAGE>


DESTRON FEARING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(unaudited)
-------------------------------------------------------------------------------


1.   GENERAL

The information included in the accompanying consolidated interim financial
statements is unaudited and should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the most recent
Annual Report on Form 10-KSB filed for Destron Fearing Corporation and its
subsidiaries (collectively, the "Company"). In the opinion of management, all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented have been reflected herein.  The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the entire fiscal year.

2.   RELATIONSHIP WITH SCHERING-PLOUGH

In January 1995, the Company entered into an agreement with Schering-Plough
Animal Health ("Schering-Plough"), under which Schering-Plough would market and
distribute a companion animal permanent identification product manufactured by
the Company. 

In October 1995, Schering-Plough notified the Company that it would suspend
purchases for an indefinite period of time to allow for the sales of its
existing inventories.  In response to this notification, the Company began to
curtail the purchase of materials required to manufacture and package the
product.  However, as a result of previous commitments, the Company was unable
to discontinue certain purchases from its suppliers.  As of June 30, 1997 and
September 30, 1996, inventories included readers, transponders and other
components and packaging of $2,927,000 and $3,678,000 related to the Company's
agreement with Schering-Plough.  The Company has the right to recover the costs
of certain of these inventories under this agreement.

Management believes that the cost of inventories on hand will be realized
through sales of the product to Schering-Plough or other customers, or through
enforcement of the Company's rights under the agreement to receive reimbursement
from Schering-Plough.  However, it is also possible that the Company will be
required to dispose of these inventories through alternate means, which could
result in significant losses.

3.   INVENTORIES

Inventories are valued at the lower of first in, first out cost or market, and
consist of the following (in thousands):



                                       June 30, 1997     September 30, 1996
                                       -------------     ------------------
Raw materials                                $2,742              $3,352
Finished goods                                3,171               3,867
                                       -------------     ------------------
     Total inventories                       $5,913              $7,219
                                       -------------     ------------------
                                       -------------     ------------------



                                - 6 -

<PAGE>


4.   PRIVATE PLACEMENTS OF COMMON STOCK

In December 1995, the Company completed a private placement of 625,000 shares of
common stock for gross proceeds of $2.0 million.  A portion of these proceeds
was used to retire an outstanding $600,000 term loan, with the remaining
proceeds expected to be used to finance working capital needs and new product
development.

In January 1997, the Company sold an aggregate of 650,000 shares of common stock
to two United States investors for gross proceeds of $1.3 million.  Also in
January 1997, the Company sold an aggregate of 1,000,000 shares of common stock
in a private placement to three foreign investors pursuant to Regulation S under
the Securities Act of 1933 for gross proceeds of $2,000,000.  The proceeds from
these offerings have been and will be used to finance working capital needs and
new product development.

5.   LEGAL PROCEEDINGS

Destron is party to litigation in which it is asserting infringement by a
competitor of one of the Company's patents related to certain of its technology.
The defendants assert that the patent is not infringed, is invalid and is
unenforceable.  The defendants also have asserted antitrust and unfair
competition claims against the Company and Hughes Aircraft Company (Hughes).

The trial in the litigation commenced on January 8, 1996.  On January 29, 1996,
the jury in the trial returned a verdict in favor of the Company, found that the
defendants had willfully infringed on the Company's patent, and awarded damages
of $444,000, including prejudgment interest.  The defendants have appealed the
judgment against them, and the Company cross-appealed the failure of the court
to increase Destron's damages.  On July 24, 1997, the Court of Appeals for the
Federal Circuit handed down its decision in the appeal.  The decision of the
Court of Appeals affirmed the trial court's judgment, holding the Company's
patent is valid and was willfully infringed by the competitors.  In addition,
the issue of inequitable conduct was remanded to the trial court for further
proceedings as to the Company's intent in prosecuting the patent application
before the United States Patent Office.  The Company anticipates that the
parties will file briefs in the trial court, although no specific proceedings
have been scheduled.  In the meantime, the permanent injunction preventing the
competitors from further sales or offers for sale of the infringing animal
identification transponder remains in place.  While management and its legal
counsel continue to believe that the final outcome of this litigation will not
have a significant impact on the Company's future financial position, cash flows
or results of operations, there can be no assurance of the ultimate outcome of
the litigation.

On December 17, 1996, three competitors filed a lawsuit against the Company and
its United States distributor, Schering-Plough, in the United States District
Court for the District of Minnesota.  The plaintiffs alleged that the defendants
participated in unfair competition, breached an oral contract and infringed on
three of the plaintiffs' United States patents.  On January 24, 1997, the
plaintiffs withdrew this lawsuit in its entirety.

On April 21, 1997, four plaintiffs (including the three competitors identified
in the foregoing paragraph) filed a lawsuit against the Company and Schering-
Plough and another of the Company's competitors in the United States District
Court for the District of Minnesota.  The plaintiffs allege that the defendants
participated in unfair competition, breached an oral agreement and infringed on
three of the plaintiffs' United States patents and requested that the Court
award compensatory and treble damages of an unspecified amount.  

On May 16, 1997, the plaintiffs amended the lawsuit and, in their complaint as
amended, the plaintiffs allege patent infringement, false advertising, unfair
competition and attempted monopolization on the part of the Company, among other
matters, stemming from the ISO standards.  While management of the Company is
unable, at this time, to estimate the potential impact of this litigation, the
Company and its legal counsel believe that its products do not infringe any
valid asserted claims of the patents owned by the plaintiffs, that the false
advertising and unfair competition claims are without merit, that the Company is
likely to prevail on the attempted monopolization claim, and that the ultimate
outcome of this litigation will not have a significant 

                                - 7 -

<PAGE>

adverse impact on the Company's future financial position, cash flows or 
result of operations. However, any litigation has an inherent risk of loss at 
trial, and there can be no assurance of the ultimate outcome of this lawsuit. 
Furthermore, the costs of litigation could be substantial.

6.   PRIVATE PLACEMENT OF DEBT

In March 1996, the Company borrowed a total of $875,000 (and an additional
$25,000 in April 1996) from private investors through the issuance of unsecured
notes due October 21, 1997 and bearing interest at the rate of 11% per annum. 
As part of the transaction, the Company issued warrants to the noteholders to
purchase a total of 147,539 shares of the Company's common stock.  The warrants
are exercisable at $4.8125 per share for a term of five (5) years beginning
March 21, 1996.  The value of these warrants at the time of issuance was not
deemed to be significant.  Funds received from these notes were used to retire
indebtedness that was due on March 21, 1996, and to provide additional working
capital for operations.

7.   REAL ESTATE LOAN

In April 1996, the Company borrowed $658,000 from a commercial bank through the
issuance of a promissory 8.98% note collateralized by its real estate.  The
proceeds of the loan were used to retire a previous bank loan and industrial
development revenue bonds and to provide additional working capital for
operations. 

8.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). 
This standard establishes new guidelines for computing and presenting earnings
(loss) per share (EPS).  Management believes that the adoption of SFAS No. 128
will not have a material impact on the Company's calculation of EPS.













                                - 8 -

<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RELATIONSHIP WITH SCHERING-PLOUGH

In January 1995, the Company entered into an agreement with Schering-Plough
under which Schering-Plough would market and distribute a companion animal
permanent identification product manufactured by the Company. 

In October 1995, Schering-Plough notified the Company that it would suspend
purchases for an indefinite period of time to allow for the sales of its
existing inventories.  In response to this notification, the Company began to
curtail the purchase of materials required to manufacture and package the
product.  However, as a result of previous commitments, the Company was unable
to discontinue certain purchases from its suppliers.  As a result, at June 30,
1997, the Company had an outstanding balance payable to a vendor of $4,290,000
which was converted into a promissory note in June 1997 (see "Liquidity and
Capital Resources"), and had remaining approximately $2,927,000 of inventory
related to the Schering-Plough agreement.  The Company has the right to recover
the costs of certain of these inventories under this agreement.

Management believes that the cost of inventories on hand will be realized
through sales of the product to Schering-Plough or other customers, or through
enforcement of the Company's rights under the agreement to receive reimbursement
from Schering-Plough.  However, it is also possible that the Company will be
required to dispose of these inventories through alternate means, which could
result in significant losses.

RESULTS OF OPERATIONS

Net revenue for the quarter ended June 30, 1997 of $3,058,000 was 41% higher
than the $2,167,000 reported for the comparable quarter of fiscal 1996.  For the
nine-month period, fiscal 1997 revenue of $10,272,000 increased 16% from the
prior year's revenue of $8,849,000.  Radio Frequency Identification Devices
(RFID) revenue increased 100% during the third quarter and 27% for the nine-
month period compared to such revenue in the last year's comparable quarters,
principally because of higher sales into the European companion animal market
and the United States fisheries industry, and the introduction of RFID products
into the companion animal market in Japan.  Visual identification revenue rose
6% in the third quarter of fiscal 1997 over the previous year and 5% for the
nine-month period compared to the previous year, principally as the result of a
general price increase this year.

Cost of sales of $2,054,000 for the third quarter and $6,505,000 for the nine-
month period were higher by 23% and 4%, respectively, than the comparable fiscal
1996 periods because of higher net revenue for both periods in fiscal 1997. 
Gross profit percentages increased to 33% during the third quarter of fiscal
1997 from 23% in fiscal 1996 and to 37% for the nine month period from 29% for
the comparable period of last year.  The improvement in the gross margins
resulted from a more profitable product mix, higher margins on the sales of
electronic readers and greater efficiency in the manufacturing of visual
identification products.

Selling, general and administrative expenses of $884,000 in the third quarter
ended June 30, 1997 were virtually unchanged from last year's $882,000.  For the
nine-month period, these expenses declined 24% from the prior year period from
$3,441,000 to $2,621,000, primarily as a result of a $652,000 decrease in legal
fees.

Research and development expenses were $247,000 in the third quarter of fiscal
1997 compared to $203,000 for the third quarter of last year, or an increase of
22%.  Higher outside production development expense, increased travel related
expenses and greater salary expense resulting from personnel additions accounted
for the growth in this year's third quarter expense.  For the nine-month period,
research and development expenses declined 6% from $683,000 last year to
$640,000 in fiscal 1997, principally because of declines in the use of
independent consultants this year.

                                - 9 -

<PAGE>


Interest and other of $63,000 in the third quarter of fiscal 1997 was 60% lower
than the $159,000 reported for the prior year primarily because of lower
interest expense resulting from reduced average borrowings and higher interest
income.  For the nine-month period of fiscal 1997, interest and other of
$414,000 exceeded the $187,000 reported for the comparable fiscal 1997 period
because of 1) the recognition of imputed interest on an outstanding balance
payable to a vendor in fiscal 1997 and 2) offsetting income recognized in fiscal
1996 from the collection of a $137,000 note that had been written off in a prior
fiscal year.

The Company derives a significant portion of its revenue from export sales.  The
gross profit and cash requirements of these sales do not vary materially from
the requirements of its domestic sales.   

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has utilized financing sources such as public and
private equity offerings and borrowings from financial institutions and
individual investors to fund its operating activities.  The Company believes
that its cash on hand at June 30, 1997 and funds available under its existing
credit agreement combined with funds generated by operations and from private
placements of common stock in January 1997 will provide the Company with
adequate liquidity and capital resources for working capital and other cash
requirements.  

However, the information set forth in the preceding paragraph is forward-looking
information.  Therefore, if, for any reason (including, without limitation,
those described below), the Company's operations require more capital than
anticipated, revenues do not reach anticipated levels, or cash flow needs are
greater than planned, the Company may need additional financing prior to the end
of fiscal 1997 in order to maintain its operations.  There can be no assurance
that the Company would be able to obtain any required additional financing when
needed or that such financing, if obtained, would be on terms favorable or
acceptable to the Company.  If the Company was unable to obtain additional
financing when needed and under acceptable conditions, it would be required to
significantly scale back plans for growth and perhaps reduce the scope of its
operations.  Factors that may affect the Company's revenues, use of capital,
expenses and/or cash flow, and that would cause actual results to differ
materially from those anticipated include, but are not limited to, the
introduction of competing products with performance equivalent to or exceeding
that of the Company's products, a claim (whether or not successfully made) that
the Company's products infringe a patent held by another company or individual,
any performance problems involving the Company's products, changes in technology
that could cause the Company's products to become obsolete, the departure of key
members of management and/or key employees, regulatory requirements that would
make the Company's products difficult or uneconomical to produce, and general
economic conditions.

The Company's operating activities provided $77,000 during the nine-month period
ended June 30, 1997.  Funds were generated from $92,000 of net income for the
period, depreciation and amortization of $377,000, and a decrease in inventories
of $1,306,000. Additionally, funds were used to finance an increase in accounts
receivable of $787,000 and decreases in accounts payable and accrued liabilities
of $872,000.

The Company's financing activities provided net cash of $2,118,000 during the
nine months ended June  30, 1997, principally through the issuance of common
stock in private placements which generated $3,114,000, offset by reductions in
its net borrowings on a bank line of credit of $866,000.

As of June 30, 1997, the Company had net working capital of $6,412,000 with a
current ratio of 2.9 to 1, which represents a $5,148,000 increase in working
capital from September 30, 1996.  The increase is primarily due to the
conversion of a vendor account payable into a term loan (see discussion below).

                                - 10 -

<PAGE>

In June 1993, the Company entered into a $750,000 revolving credit agreement
with private investors (the "Lenders") that was amended in November 1993 to
reduce the principal to $600,000 and convert the indebtedness to a term loan. 
One of the Lenders was a director of the Company through November 1995.  This
term was repaid in November 1995 from the proceeds of the private placement of
common stock discussed below.

In September 1994, the Company borrowed a total of $610,000 from private
investors (including certain executive officers and directors) through the
issuance of unsecured notes bearing interest at the rate of 12% per annum, due
March 21, 1996.  Funds received on these notes were used to reduce outstanding
borrowings under the Company's bank line of credit and to provide additional
working capital for operations.  These notes were repaid in March 1996 from the
proceeds of the 11% unsecured notes discussed below.

In December 1995, the Company completed a private placement of 625,000 shares of
common stock for proceeds of $2.0 million.  A portion of these proceeds was used
to retire the outstanding $600,000 term loan with the Lenders, with the
remaining proceeds used to finance working capital needs and new product
development.

In March and April 1996, the Company borrowed a total of $900,000 from private
investors through the issuance of unsecured notes due October 21, 1997 and
bearing interest at the rate of 11% per annum. Funds received from these notes
were used to retire the $610,000 indebtedness that was due on March 21, 1996,
and to provide additional working capital for operations.

In April 1996, the Company borrowed $658,000 from a commercial bank through the
issuance of an 8.98% promissory note collateralized by its real estate.  The
proceeds of the loan were used to retire a previous bank loan and industrial
development revenue bonds, and provide additional working capital for
operations.

In January 1997, the Company sold an aggregate of 650,000 shares of common stock
to two United States investors for gross proceeds of $1.3 million.  Also in
January 1997, the Company sold an aggregate of 1,000,000 shares of common stock
in a private placement to three foreign investors pursuant to Regulation S under
the Securities Act of 1933 for gross proceeds of $2,000,000.

In June 1997, the Company entered into a $3,000,000 revolving credit facility
with Coast Business Credit, a division of Southern Pacific Thrift & Loan
Association of Los Angeles, California.  The credit facility is secured by all
of the company's receivables, inventory, investment property, equipment and
general intangibles, as defined in the agreement.  The agreement is effective
through June 30, 1999, with provisions for automatic extensions of the maturity
date.  Interest on the credit facility is paid monthly at a rate equal to the
greater of eight percent (8%) or prime plus one and three-quarters percent
(1 3/4%).  At June 30, 1997, the Company had no borrowings under the facility 
and had a maximum availability under the borrowing formula of $2,463,000.  The 
new revolving credit facility replaces a previous credit line agreement with a 
bank. It will be used for general corporate working capital needs.

In June 1997, the Company completed an agreement with a vendor whereby
$4,290,000 of an account payable was converted into a promissory note.  The note
provides for monthly payments of $125,000 in the current fiscal year, $150,000
in fiscal 1998 and $175,000 in fiscal 1999.  An additional principal payment of
$600,000 is required in October 1998 and further principal payments are called
for under certain conditions set forth in the agreement.  The note bears
interest at 7.25% per annum with increases to 9.25% and 11.25% per annum at the
beginning of fiscal years 1998 and 1999, respectively.  The scheduled term of
the note is twenty-seven (27) months, with the final payment due in August 1999.

                                - 11 -

<PAGE>

                           PART II.  OTHER INFORMATION
                                        
                                        
Item 1.   Legal Proceedings

          In November 1993, the Company initiated a lawsuit for patent
          infringement against three competitors in the U.S. District Court in
          Colorado.  (The patent involved is No. 5,211,129, which relates to the
          Company's injectable transponder technology.)  At a hearing on
          November 12, 1993, the Court found that it did not have jurisdiction
          in Colorado over two of the competitors and dismissed the Colorado
          case against them without prejudice.  The Court suggested that the
          third competitor may be an infringer on the patent, but did not order
          the temporary injunction requested by the Company.

          On December 1, 1993, the two dismissed competitors commenced an action
          against the Company in U.S. District Court for Southern Illinois
          requesting actual damages of $20,000,000 This action was subsequently
          transferred to the U.S. District Court of Colorado.   In the suit, the
          plaintiffs sought to invalidate the above-described patent of the
          Company and alleged unfair competition, violation of U.S. antitrust
          laws, interference with business relationships and abuse of process
          due to the actions the Company had allegedly taken in obtaining,
          announcing and enforcing its patent rights against the plaintiffs.

          The trial in the litigation commenced on January 8, 1996.  On January
          29, 1996, the jury in the trial returned a verdict in favor of the
          Company and found that the defendants had willfully infringed on the
          Company's patent and awarded damages of $444,000, including
          prejudgment interest.    The defendants have appealed the judgment
          against them, and the Company cross-appealed the failure of the court
          to increase Destron's damages.  On July 24, 1997, the Court of Appeals
          for the Federal Circuit handed down its decision in the appeal.  The
          decision of the Court of Appeals affirmed the trial court's judgment,
          holding the Company's patent is valid and was willfully infringed by
          the competitors.  In addition, the issue of inequitable conduct was
          remanded to the trial court for further proceedings as to the
          Company's intent in prosecuting the patent application before the
          United States Patent Office.  The Company anticipates that the parties
          will file briefs in the trial court, although no specific proceedings
          have been scheduled.  In the meantime, the permanent injunction
          preventing the competitors from further sales or offers for sale of
          the infringing animal identification transponder remains in place. 
          While management and its legal counsel continue to believe that the
          ultimate outcome of this litigation will not have a significant impact
          on the Company's future financial position, cash flows or results of
          operations, there can be no assurance of the ultimate outcome or
          effect of the litigation.

          On December 17, 1996, three competitors filed a lawsuit against the
          Company and its United States distributor, Schering-Plough, in the
          United States District Court for the District of Minnesota.  The
          plaintiffs alleged that the defendants participated in unfair
          competition, breached an oral contract and infringed on three of the
          plaintiffs' United States patents.  On January 24, 1997, the
          plaintiffs withdrew this lawsuit in its entirety.

          On April 21, 1997, four plaintiffs (including the three competitors
          identified in the foregoing paragraph) filed a lawsuit against the
          Company and Schering-Plough and another of the Company's competitors
          in the United States District Court for the District of Minnesota. 
          The plaintiffs allege that the defendants participated in unfair
          competition, breached an oral agreement and infringed on three of the
          plaintiffs' United States patents and requested that the Court award
          compensatory and treble damages of an unspecified amount.  

                                - 12 -

<PAGE>

          On May 16, 1997, the plaintiffs amended the lawsuit and, in their
          complaint as amended, the plaintiffs allege patent infringement, false
          advertising, unfair competition and attempted monopolization on the
          part of the Company, among other matters, stemming from the ISO
          standards.  While management of the Company is unable, at this time,
          to estimate the potential impact of this litigation, the Company and
          its legal counsel believe that its products do not infringe any valid
          asserted claims of the patents owned by the plaintiffs, that the false
          advertising and unfair competition claims are without merit, that the
          Company is likely to prevail on the attempted monopolization claim,
          and that the ultimate outcome of this litigation will not have a
          significant adverse impact on the Company's future financial position,
          cash flows or result of operations.  However, any litigation has an
          inherent risk of loss at trial, and there can be no assurance of the
          ultimate outcome of this lawsuit.  Furthermore, the costs of
          litigation could be substantial.



Item 6.   Exhibits and Reports on Form 8-K

          a.    Exhibits:

                  Exhibit 11.1        Calculation of Net Income (Loss)
                                      Per Common and Common Equivalent Share

          b.   Reports on Form 8-K

                  Registrant filed a Current Report dated May 16, 1997,
                  reporting that four plaintiffs (including a competitor)
                  filed an amended complaint to a lawsuit that these parties
                  filed on April 21, 1997 against the Company and Schering-
                  Plough Animal Health and another of the Company's
                  competitors, all as described above.
                      

                                   SIGNATURES


In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                   DESTRON FEARING CORPORATION
                                   (Registrant)

                                   
                                   /S/ Thomas J. Ahmann                         
                                   ----------------------------
                                   By  Thomas J. Ahmann
                                   Vice President Finance,
                                   Chief Financial Officer
                                   and Principal Accounting Officer








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