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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
================================================================================
                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1997
                         COMMISSION FILE NUMBER 0-15520

                         INDUSTRIAL IMAGING CORPORATION
    ------------------------------------------------------------------------
             (Exact name of registrant 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
               ---------------------------------------------------
               (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                                 TITLE OF CLASS
                          ----------------------------
                          Common Stock, $.01 par value

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 60 days.
                                   Yes      No X .
                                      ---     ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    X
                               ---
        The issuer's revenue for the fiscal year ending March 31, 1997 was
$1,823,576.

        The aggregate market value of the voting stock held by non-affiliates of
the Issuer, based upon the average of the bid and ask prices of the Common Stock
as reported by the OTC Bulletin Board on January 21, 1998 was approximately
$11,570,000 for the Common Stock. As of January 21, 1998, 10,890,201 shares of
Common Stock, $.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None


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                                     PART I

ITEM 1.  BUSINESS

        This report contains forward-looking statements regarding anticipated
increases in revenues, marketing of products and proposed products and other
matters. These statements, in addition to statements made in conjunction with
the words "anticipate", "expect", "believe", "seek", "estimate", and similar
expressions are forward-looking statements that involve a number of risks and
uncertainties. The following is a list of factors, among others, that would
cause actual results to differ materially from the forward-looking statements:
business conditions and growth in certain market segments and in the general
economy, an increase in competition, increased or continued market acceptance of
the Company's products and proposed products, and other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.

GENERAL

        Industrial Imaging Corporation designs, manufactures and markets
automated optical, vision and industrial imaging systems for inspection and
identification of defects in printed circuit boards ("PCB") and distributes
Laser Plotters and Helios(TM) Film for creation of PCB artwork and phototools.
Members of the Company's management were pioneers in the field of automated
optical inspection of PCBs. These individuals developed the product line while
working at Itek Corporation ("Itek") now a part of Hughes Corporation, through
close cooperation between Itek and Digital Equipment Corporation ("DEC"). The
prototype and initial production models developed by Itek and DEC were later
completed and marketed by AOI Systems, Inc., which sold its assets and product
base to the Company's subsidiary, Triple I Corporation ("Triple I").

        Virtually all electronic equipment use PCBs, which contain conductors
that interconnect electronic components. As such, PCBs are essential parts to
consumer electronic and automotive products, telecommunications and computer
components, industrial and medical equipment and military and aerospace
applications. However, PCBs are susceptible to conductor defects, such as
electrical shorts, open circuits and insufficient or excessive conductor widths,
which interfere with the interconnections between electronic components attached
to the finished boards. Moreover, the trend is towards the placement of more
complex miniaturized components in greater surface density and having decreased
conducting line widths. To avoid and cure defects, PCB manufacturers have sought
the use of automated optical inspection and remote sensing to satisfy industry
demands for the precise quality of finished PCBs and assemblies. The Company has
already developed an installed base of customers in the United States, Europe
and Asia, which include some of the largest PCB manufacturers in Sweden, France,
Germany and Japan.

        Since 1994, the Company has accomplished a number of major strategic
goals, including the following:

     *.........INTRODUCTION OF A NEW GENERATION OF INSPECTION SYSTEMS. In May
               1996, the Company commenced production of its new AOI-2500 Series
               of modular

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               advanced automated inspection systems. Management believes that
               this new generation of products accurately detects defects in PCB
               production at speeds greater than conventional optical inspection
               systems with a detection capability that permits inspection of
               fine lines and difficult geometric patterns. Management believes
               that the unique modular design of the AOI-2500 Series offers
               customers optimum flexibility and ease of upgrading their
               systems. Because the mechanical portions of each model in the
               series are identical, a customer can purchase the lowest priced
               model and upgrade at an appropriate time based on its needs and
               inspection requirements.

     *.........IMPRIMUS INVESTORS LLC EQUITY INVESTMENT. In November 1997,
               Imprimus Investors LLC ("Imprimus"), and the Company executed a
               Securities Purchase Agreement whereby Imprimus invested $3
               million into the Company in exchange for three million shares of
               Common Stock at $1.00 per share. In accordance with the
               agreement, the Company also issued warrants to purchase one
               million shares of Common Stock at $2.00 per share through
               November 12, 2002, and issued warrants to purchase one million
               shares of Common Stock at $1.00 per share through November 12,
               2002. (SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").

     *.........POLAROID LICENSE AND EQUITY INVESTMENT. In November 1994, the
               Company entered into the Polaroid Agreement. The Polaroid
               Agreement gives both companies royalty free access to each
               others' patents, technology and know-how for use in their
               respective fields of business. In addition, the Polaroid
               Agreement seeks to promote the development, marketing and sales
               of an photo plotter system in the field of PCB manufacturing
               consisting of equipment designed by the Company and other
               Polaroid partners using Polaroid's new Helios(TM) Film. As part 
               of the Polaroid Agreement, the Company has been granted the
               exclusive right to market Polaroid's Helios(TM) Film and laser
               plotters within the PCB industry, subject to the Company
               satisfying certain ongoing sales and performance milestones. The
               Company is aggressively seeking sales opportunities for the
               Helios(TM) Film and the laser plotters that utilize the 
               Helios(TM) Film. The Company estimates the current annual market 
               for inspection systems for the PCB manufacturing industry alone 
               to be in the range of $100 to $150 million. This market consists 
               of approximately 2,500 PCB manufacturers domestically and
               internationally. The Company and Polaroid are currently
               negotiating to resolve a dispute regarding contract milestones
               and exclusivity. (See "Polaroid Agreement" and "LEGAL
               PROCEEDINGS").

     *.........AWARD OF ARPA CONTRACT. In August 1994, the Company received a
               grant of up to $462,000 from the United States Department of
               Energy Advanced Research Project Agency ("ARPA"), as part of
               ARPA's technology reinvestment project (the "ARPA Contract"). The
               Company is obligated to share in the costs of the project for
               approximately an additional $462,000. Through March 31, 1997, the
               Company had incurred $320,000 in project expenses and had
               received $320,000 in matching funds from ARPA. Under the terms of
               the ARPA Contract, the Company is developing new automated
               optical inspection techniques to enable 

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               inspection systems to measure the position and movement speed of
               the product being inspected. The results of this project and the
               development of the new automated optical inspection system, if
               successful, may significantly improve the performance of
               inspection systems for PCBs and other manufactured components.

        The Company's strategy is to continue to enhance its existing systems
and products, to develop new systems for further automation of the PCB field and
to develop its existing technologies and capabilities for additional
applications. The Company believes it has leveraged its management expertise and
technology to expand industrial imaging technologies into a number of
electronics markets where high quality industrial inspection and reproduction
capabilities are required. The Company markets its products under the name AOI
International.

HISTORY

        The Company's asset and product base was acquired in 1992 from AOI
Systems, Inc. by the Company's subsidiary, Triple I. Certain members of the
Company's management were pioneers in the automated optical inspection field.
These individuals developed the Company's product line while working at Itek,
which is now part of Hughes Corporation. The product line was developed through
close cooperation between Itek and DEC. DEC was a knowledgeable user who funded
part of the development and acted as an advisor, customer and beta site for the
prototype and initial production models, which were later marketed by AOI
Systems.

        In February 1997, the Company acquired Triple I, a privately held
Delaware corporation, in a transaction whereby the shareholders of Triple I
exchanged 100% of the outstanding Triple I Common Stock, $.01 par value, for
approximately 90% ownership of the Company (the "Exchange"). As part of the
Exchange, all Triple I outstanding warrants and options were transferred to the
Company.

        Prior to the Exchange, the Company was a publicly held Rhode Island
corporation known as Orbis, Inc. Orbis initially designed and manufactured
software for use by health maintenance organizations, but had not had revenues
from operations since 1992. Orbis's Common Stock, $.01 par value per share, was
listed on NASDAQ after its initial public offering in 1987, but was delisted in
October 1992 when operating revenues diminished. Since that date, the stock has
been quoted on the OTC Bulletin Board, where limited trading of the shares has
occurred. Immediately prior to the Triple I Transaction, Orbis reincorporated
under the laws of Delaware, completed an 18:1 reverse split of its Common Stock
and changed its name to Industrial Imaging Corporation. Unless otherwise
indicated, all per share data relating to the number of shares of Common Stock
outstanding has been adjusted to give effect to such reverse stock split.

THE PCB INDUSTRY

        PCBs are the basic interconnecting platforms for the electronic
components that comprise most electronic equipment. PCBs contain the electronic
circuitry required to interconnect those components which, when operating
together, perform a specified function. An assembly of one or more
interconnected PCBs working together form an essential part of most electronic
products. The design of conductor patterns is developed with the help of a
Computer-Aided Design ("CAD") package, and later optimized for manufacturing at
the PCB manufacturing plant

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by using a Computer-Aided Manufacturing ("CAM") system.

        PCBs are manufactured through a series of complex steps. Generally, a
board is made of one or more layers of fiberglass (or other material with
insulating qualities) laminated with a conducting material. Holes are then
drilled into the board in a specific pattern and the inner part of each hole is
plated with conducting metal. The board or layer is then coated with a thin
layer of light-sensitive material ("photoresist"). A transparent film containing
the desired circuitry pattern corresponding to the drilled pattern on the board
("production phototool"), which has been either copied from an artwork master or
produced directly by a photoplotter connected to a CAD/CAM data base, is then
laid on the photoresist. The board or layer is then exposed to light, which
transfers the conductor pattern from the production phototool to the
photoresist. Subsequent development of the photoresist and a chemical etching
process leave the desired conductor pattern printed on the board after excess
conducting material is removed. PCBs may be single-sided or double-sided, and
more complex PCBs may be multilayered.

        PCBs are susceptible to conductor defects, such as electrical shorts,
open circuits and insufficient or off-measure conductor widths, which may impair
or interfere with the electrical interconnections between electronic components
mounted on the finished boards. The trend towards more complex and compact
electronic products that utilize large-scale integrated circuits requires the
production of high-density PCBs with finer conductor lines, reduced spacing
between those lines and multiple layers. For such complex multilayer boards,
production yield drops dramatically as the number of likely defects increases,
unless in-process inspection is used. Inspection is required throughout PCB
production to identify such defects, which are then repaired, if possible, or
discarded. Early detection of these defects increases the possibility of
successful repair and reduces the number and cost of unusable boards.

PRODUCTS

        The Company's current products are automated vision systems sold to the
PCB manufacturing industry. The Company's products were developed by the current
Company management team while employed by Itek (now a part of Hughes
Corporation) in the 1980's through close collaboration with DEC. The Company's
systems are quality control and yield enhancement tools used for automated
optical inspection of PCBs to determine the presence of flaws such as conductor
breaks, short circuits, missing features and conductor width violations at
various stages of the PCB manufacturing process. In addition, the Company's
systems can generate statistical reports of defects in real-time to assist in
the control of the PCB manufacturing process, which can result in substantially
improved yields. These improved yields, in conjunction with the advantages in
quality control offered by the Company's systems, provide a major economic
incentive for companies in the PCB industry to purchase and use the Company's
products. The Company estimates that the market size of the PCB industry
approached $30 billion in 1997.

        The Company presently offers 'in-line" systems capable of inspecting
almost any product at speeds ranging from three square feet per minute to over
sixty square feet per minute, with current prices that range from $185,000 for
the Company's AOI-190A model to approximately $600,000 for some of the models
from the Company's new AOI-2500 Series.

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        PCB AUTOMATED OPTICAL INSPECTION SYSTEMS

        Each of the Company's AOI systems consists of an optomechanical/scanning
and a processing unit. The optomechanical unit includes a moving platform that
carries the PCB or artwork being inspected, and a scanning unit which acquires
an image of the board, digitizes it and transmits it to the electronic
processing unit. The electronic unit processes and enhances the image to allow
efficient analysis and interpretation of the acquired images. The proprietary
structure of the electronic logic unit enables real time parallel processing, a
requirement for performing each defect detection at very high speeds.

        The Company's AOI systems incorporate both the "design rule check" and
"reference comparison" methods of inspection. The design rule check method
involves inspecting the circuitry of PCBs pursuant to a pre-programmed algorithm
and detecting defects by applying prescribed rules to find flaws in the pattern
of the circuitry. The reference comparison method involves an intelligent
comparison of the subject PCB to a perfect "golden" board or to circuit pattern
representations stored in a CAD or CAM database.

        The Company's systems can easily be integrated into the production
processes of most PCB manufacturing facilities and can be employed at several
stages during PCB manufacturing to inspect the artwork design master, the
production phototools, the photoresist before the etching, the etched inner
layers before lamination and the outer layers before attachment of electronic
components. The systems are designed for operational simplicity and require no
special skills or experience to operate. The design of each system permits easy
maintenance and service. As a result, the Company believes that the use of its
AOI systems significantly reduces the overall production costs of PCBs.

        AOI-190 SERIES

        The AOI-190 Series is the Company's basic optical inspection system.
This system provides manufacturers of PCBs with a means to inspect PCB products
for quality and analyze the information to achieve higher yields at an
economical price. The AOI-190 inspection system provides a number of special
features that clearly distinguish it from its competitors, including but not
limited to the following:

     *         The in-line conveyorized transport provides automated operation
               when linked to commercially available handling equipment.
               Communication is maintained between the host computer and the
               multi-functional evaluation/repair station (described below).
               Part identification is achieved through a bar code labeling
               device so that critical information moves throughout the system
               with reduced possibility of error, and tracking of parts and
               information throughout the manufacturing facility can be
               automated;

     *         The linking of the AOI-190 inspector to the evaluation/repair
               station enables the customer to set-up or repair products while
               inspection is being conducted on the inspector with no
               interruptions or waiting periods. This feature significantly

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               enhances throughput. In addition, management believes the AOI-190
               is the only system on the market in which throughput can be
               increased and features added by software and hardware upgrades
               that are not expensive, and which do not require major design
               changes, such as those offered by the competition. This is due to
               the open architecture and modularity inherent in the Company's
               AOI-190; and

     *         AOI-190 can be interfaced to most-available CAM systems to permit
               direct "downloading" of set-up data.

        The Company presently manufactures and markets three models of the
AOI-190 that currently range in price from $150,000 to $230,000, although
various options can reduce or increase the cost of a specific system.

        AOI-2500 SERIES

        The AOI-2500 Series is a new generation of automatic optical inspectors
designed to maximize productivity in demanding PCB operations. Prototypes were
field tested in 1995, and full production of the series began in May 1996. The
series includes four models, the AOI-1900, the AOI-1900X, the AOI-2500, and the
AOI-3200 depending on the width of the PCB's being inspected. Each model has the
option of a standard or a high speed version. These models currently range in
price from $320,000 to $600,000.

        As with the AOI-190, the AOI-2500 has a mechanical transport which
enables it to be placed in-line in the manufacturing process. The Company's
systems continue to be the only ones with this capability. The AOI-2500 Series
inspectors have the same overall functionality as the AOI-190 Series inspectors,
but with a significantly enhanced level of both performance and modularity. In
particular:

     *         The AOI-2500 systems have an improved illumination system and
               higher resolution cameras, which permit it to inspect product
               with smaller features than can be inspected with the AOI-190, and
               it can find much smaller defects.

     *         The AOI-2500 systems have a wider range of speeds than the
               AOI-190, with much higher speeds available for inspecting the
               more standard PCB designs.

     *         The AOI-2500 systems have enhanced image processing electronics
               and more general purpose processing power, which enable it to
               detect a wider range of defects.

        Due to the modularity of the design and the fact that the mechanical
portions of the machines in this series are identical, the customer can choose
the lowest price model that can meet its requirements without risking
obsolescence as either the width of their product changes, or the factory
throughput increases. This is a further extension of the Company's philosophy of
obsolescence-proof machines through the ability to continuously upgrade.

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        AOI ER 35-36 EVALUATION AND REPAIR (E/R STATION)

        The AOI E/R Station enables the user to view, classify and repair
defects as well as create inspection set-up files without interrupting ongoing
inspection at the inspection station. Ergonomically designed, the user may
position the E/R Station's display monitors for optimum viewing comfort and
easily access the defective PCB for repair. Convenient bar code labeling
facilitates defect evaluation and eliminates inspection data confusion.
Automated camera positioning precisely displays a magnified, crisp image of
artwork and PCBs and of each reported defect on a high-resolution color monitor,
significantly reducing operator fatigue.

        A computer generated reticle offers very precise measurement of defects.
Defects requiring repair or additional evaluation may be marked or optionally
photographed with a Polaroid freeze-frame camera for further review. Video
recording of complete inspection data is also available. The inspection station
defect report for the PCB under evaluation is simultaneously displayed on a
separate screen. This report includes defect number, location and type of
defect. To maximize throughput, defects are automatically sorted by user defined
levels of severity. Additionally, defects may be further classified for yield
analysis and process control using the included SPC software package, which can
produce numerous reports. The Company's Evaluation/Repair Station and series of
inspection stations combine to provide a complete automated optical inspection
system for real-time process control and yield improvement.

        ARTWORK/PHOTOTOOL IMAGING SYSTEMS

        In PCB manufacturing, the design of the conductor patterns are developed
with the help of a CAD software package, and later optimized for manufacturing
at the PCB manufacturing plant by using a CAM system. The CAM system then drives
a laser plotter that first generates the pattern on silver halide film. This
silver halide film often becomes the photo tool (mask) to expose the photoresist
that defines the conductor pattern on the PCB surface.

        The image manipulation that is done in the CAM system ensures that the
final design meets all of the design rule criteria and makes optimum use of the
base material. The digital image generated in the CAM system contains all of the
information which is required both for generating the artwork and also for
establishing the criteria for inspection of the artwork and completed PCB
product. Because of this, it is customary now to treat the optical inspector,
the CAM and the laser plotter as an integrated "front-end" system.

POLAROID AGREEMENT

        On November 28, 1994, the Company and Polaroid entered into the Polaroid
Agreement. Under the Polaroid Agreement, Polaroid and the Company are granted
royalty free access to each others' patents, technology and know-how for use in
their respective fields of business for a period of eight (8) years. The Company
is also granted the exclusive right to market and sell Helios(TM) Film to the
PCB market. To maintain this exclusive right, the Company is required to achieve
certain performance milestones, which include sales requirements for the
Helios(TM) Film and for the sale of laser plotters. On January 7, 1997, the
Company and Polaroid agreed that Polaroid will not act with respect to the
quarterly performance milestones under the Polaroid Agreement until May 31,
1997, the date by which the annual performance milestones had to have


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been met. No such performance milestones apply to Triple I's agreement with
Polaroid granting it access to Polaroid's other technology. The consequence of
failing to achieve the annual performance milestones by May 31, 1997 would that
the Company's exclusive right to sell and market the Helios(TM) Film to the PCB
market could at Polaroid's option be converted to a nonexclusive right. The
Company and Polaroid are involved in a dispute relating to whether the company
did in fact meet its milestones under the Polaroid Agreement. The Company is
currently negotiating to resolve the dispute and believes the ultimate
resolution of this dispute will not have a material adverse effect on the
results of operations.(SEE "LEGAL PROCEEDINGS").

        The strategic partnership between the Company and Polaroid provides the
Company with significant complementary technological, marketing and product
advantages, including, but not limited to, the following:

     *         Polaroid's Helios(TM) Film technology has been market tested and 
               is presently in production; and

     *         Polaroid's recording technology and devices have been developed
               through research and cooperation by Polaroid and other partners
               (and which will be enhanced by the Company through the
               state-of-the-art advanced optical concepts being developed by the
               Company under ARPA sponsorship).

        These advantages, combined with the strengths and features of the
Company's AOI systems, enable the Company to provide its customers with the
system and the Helios(TM) Film necessary for production of defect free artwork
and phototools.

        POLAROID's HELIOS(TM) FILM AND PLOTTERS

        Polaroid has developed the Helios(TM) Film, a dry process film with many
superior performance characteristics compared to the imaging films currently
being used in the manufacture of PCBs. The Polaroid product is expected to be
less prone to deterioration with use than silver halide and diazo. This permits
repeated use of the Helios(TM) Film as both master and phototool, eliminating
the current practice that often requires both tools. This should also eliminate
most defects introduced by the relatively poor quality of diazo. The Helios(TM)
Film also shows promise for imaging PCB designs with very small features,
performance difficult to achieve with present technology.

        As the Helios(TM) Film is a dry process product, potential customers
will benefit from elimination of chemicals and their effluent, a major concern
in an industry that is closely scrutinized by environmental agencies. The dry
process film also eliminates the need for "dark room" facilities for creating
the phototools. The film will be marketed under private label. The Company will
be distributing laser plotters under a private label. The plotter for recording
on Helios Film was developed in cooperation between Polaroid and Heidelberg for
the graphic arts industry, and later modified by the Company, for use in the PCB
industry. Both products were introduced in the quarter ending December 31, 1996.

PRODUCTS UNDER DEVELOPMENT

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        The Company intends to further develop and enhance its own proprietary
technology to better serve the industrial imaging and inspection markets and
exploit the synergy between its own technology in the field of image
acquisition, processing and reconstruction and the technology of Polaroid. The
Company currently has an engineering and product development staff of five
individuals, and a group of customer support engineers, who assist the Company's
customers in integrating the Company's products into the customer's work
environment. This engineering work provides the Company an opportunity to keep
abreast of new market opportunities for the Company's technologies. During the
fiscal year ended March 31, 1997, and the six-month period ended March 31, 1996,
the Company's expenditures on research and development amounted to $440,207 and
$427,778 respectively.

        The Company's management believes that the major technological
innovations that the Company has access to, through its previous work and its
strategic partnership with Polaroid, will permit the Company to make major
improvements in its PCB product line as well as create opportunities for
expansion into other market areas, such as optical velocity tracking, optical Z
dimension (three dimensional) gauging and advanced imaging devices. Management
believes that the addition of depth and color will permit broadening the
applicability of this product to types of PCBs that presently cannot be
inspected and significantly increase the performance of the equipment in regard
to defect detection, and improve the ability to discriminate between real
defects and oxidation or discoloration flaws which are often flagged as defects,
but judged not to be of consequence. As a result, the Company believes it will
be able to increase the features of its present models and simplify its
software. Although no assurance can be given, the Company also intends to expand
into other inspection and industrial imaging markets, such as flat-panel
displays and other products requiring precise high-resolution optical
measurements to monitor quality control within the manufacturing process.

        The Company's success in developing and selling new and enhanced
products depends upon a variety of factors, including accurate prediction of
future customer requirements, introduction of new products on schedule,
cost-effective manufacturing, product performance in the field, and raising
additional funds. The Company's new product decisions and development
commitments must anticipate the equipment needed to satisfy the requirements for
inspection processes one or more years in advance of sales. Any failure to
accurately predict customer requirements and to develop new generations of
products to meet those requirements would have a substantial material adverse
effect on the Company's business, financial condition and results of operations.
New product transitions could adversely affect sales of existing systems, and
product introductions could contribute to quarterly fluctuations in operating
results as orders for new products commence and orders for existing products or
enhancements of existing products fluctuate. The costs to the Company of
complying with environmental laws are minimal have not had a material effect on
the results of operations.

CUSTOMERS

        The Company's customers include manufacturers of PCBs both domestically
and internationally. The Company sells to a limited number of customers as the
Company's market is dominated by a few major companies. As a result, any delay
in the recognition of revenue could have a material adverse effect on the
Company's results of operations in any given 


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accounting period. For the year ended March 31, 1997 ("Fiscal 1997"), the
Company had sales to four customers that accounted for 28%, 25%, 15% and 12% of
revenues. For the six months ending March 31, 1996 ("Six Months 1996"), the
Company had sales to two customers that accounted for 39% and 31% of revenues.
For the year ended September 30, 1995 ("Fiscal 1995"), the Company had sales to
four customers that accounted for 18%, 17% 16% and 15% of total revenues. For
the year ended September 30, 1994 ("Fiscal 1994"), the Company had four
customers that accounted for 26%, 22%, 15% and 12% of revenues. The failure to
replace these sales with sales to other customers in succeeding periods would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company expects that sales to relatively few
customers will continue to account for a high percentage of the Company's
revenues in any accounting period in the foreseeable future and therefore,
quarterly and annual results could vary greatly. A reduction in orders from any
such customer or the cancellation of any significant order could have a material
adverse effect on the Company's business, financial condition and results of
operations. None of the Company's customers has entered into a long-term
agreement requiring it to purchase the Company's products.

        During Fiscal 1997, Six Months 1996 and Fiscal 1995, the Company's
foreign revenues accounted for 80%, 94% and 91%, respectively, of the Company's
revenues. These sales were made primarily in Europe. The high percentage of
foreign revenues is due to the existence of an established network of
distributors in Europe and Asia, along with a market representative in Europe
for the Company's products, and the limited resources available to the Company
to market its products in the United States. Although the Company generally
requires advance deposits or letters of credit from customers, the Company
sometimes extends credit to its foreign customers and collection may be more
difficult in the event of a default. To help expand into the United States
market, the Company hired a new Vice President of Marketing in January 1997.

        Management expects that revenues from foreign customers will continue to
account for a significant portion of future revenues. The Company has been and
will continue to be subject to risks associated with foreign customers in
general, including political instability, embargoes, shipping delays, custom
duties, import and export quotas and other trade restrictions, all of which
could have a material adverse effect on the Company's operations, or could have
a significant adverse impact on the Company's ability to deliver products on a
competitive and timely basis. Recent events in the Asian markets, specifically
the recent devaluation of some Asian currencies, the current banking crises, and
a general economic downturn, could have an adverse effect on the Company's
ability to effectively market its products in this market. Although the Company
generally sells products to large, well-funded corporations or requests letters
of credit from less creditworthy customers, the Company could experience
difficulties in obtaining or enforcing judgments with respect to receivables
outside the United States. The Company's foreign sales have been and are
expected to be made in U.S. dollars. A strengthening in the dollar relative to
the currencies of those countries where the Company does business would increase
the prices of its products as stated in those currencies, and may adversely
affect the Company's sales in those countries. To the extent the Company lowers
its prices to reflect a change in exchange rates, the profitability of the
Company's business in those markets may be adversely affected. In the past,
there have been significant fluctuations in the exchange rates between the
dollar and the currencies in those countries in which the Company does business.

SALES AND MARKETING STRATEGY

                                       11


<PAGE>   12


        The Company's strategy is to emphasize the broad range of competitive
performance and cost advantages of its products and the ability to upgrade
systems because of their modular designs. The AOI-190 Series is expected to be
marketed to the customers that to date have not purchased any vendor's system,
and to those accounts replacing outdated medium performance equipment. The
AOI-2500 Series product is expected to be promoted to larger PCB manufacturers
that require high productivity and higher technology requirements. Key elements
of the Company's marketing strategy include:

     *         emphasizing product performance advantages such as in-line
               conveyorized material handling, ease-of-use, high throughput,
               high reliability, flexible, affordable service policies and
               upgrade paths and a more cost-effective solution;

     *         expanding the Company's direct sales force in the United States,
               particularly on the west coast; and

     *         increasing international sales through additional support of the
               Company's existing representative and distributor network,
               including joint seminars, sales calls and product showings and
               the addition of distributors in other parts of the world.

        The Company currently employs two full-time, in-house, employees
dedicated to sales and marketing. In addition, the Company relies upon the
efforts of eight distributors and/or sales representatives located in Europe and
Asia. The Company promotes its products through institutional advertising,
distribution of product literature and promotional videotapes throughout the
industries its products service, and exhibits and product presentations at
industry and trade shows, such as Productronica, The Institute for
Interconnecting and Packaging Electronic Circuits (IPC) and the Japan Printed
Circuit Association (JPCA).

        Pending the outcome of current negotiations, the Company intends to
introduce new products that are developed from its strategic alliance with
Polaroid both domestically and in Japan through beta site testing (installed at
a customer's site) and field trials. Subsequently, it intends to launch an
advertising campaign designed to inform potential customers of the economic and
performance benefits offered by these products, emphasizing both Polaroid's
corporate image for creative technology and the Company's reputation for a high
level of service and quality assurance. These products are expected to then be
marketed throughout the United States, Europe and Asia through the Company's
sales and marketing staff and its international network of agents and
distributors.

        The Company also plans to utilize the benefits of the Polaroid Agreement
to address the customer's preference to purchase an integrated "front-end"
system, which includes an AOI system, a CAM and a laser plotter. Customers
prefer to buy these components from one supplier to ensure the compatibility of
interfaces and the efficiency of the most sophisticated aspect in PCB
manufacturing. Through the Polaroid Agreement, the Company gains access to
critical advanced technology for its base business, inspection systems, as well
as an exclusive license to sell Polaroid's proprietary Helios(TM) Film in the
PCB artwork and phototool markets. Using these benefits, the Company is working
to increase volume sales per customer and to establish new


                                       12


<PAGE>   13


OEM agreements and strategic alliances with suppliers of CAM and laser plotter
products.

        COMPETITION

        The optical inspection systems industry is intensely competitive. The
Company competes with many companies in the United States and Europe, several of
which have substantially greater financial, technical, sales and managerial
resources than the Company and may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the promotion and sale of their products than the Company. The
Company believes that in the future the principal competitive factors will be
product functionality and performance (e.g., speed, ease of use, accuracy and
reliability), the development of improved products through research and
development, customer support services, customer relations and price. No
assurance can be given that the Company will compete successfully with existing
or potential future competitors.

        The Company believes that its products enjoy significant technical
advantages over those of its competition for the following reasons:

     *    RELIABILITY AND LIMITED DOWN-TIME. The Company believes that its
     products enjoy significantly higher reliability and less down-time than
     those of its competition. These benefits can be attributed to the more
     advanced in-line design of the Company's products, which employ few moving
     parts, and are therefore less prone to equipment failures, and the
     availability of direct diagnostic links, via modem, whereby the Company's
     in-house service technicians can diagnose and troubleshoot the Company's
     products in the field directly from the Company's facilities.

     *    VERSATILE PRODUCTS THAT CAN BE EASILY UPGRADED. The Company's products
     are designed to be significantly less prone to obsolescence than those of
     its competition. Unlike those of the Company's competition, the Company's
     products are designed to be more highly dependent upon software with a very
     modular hardware design that may be easily upgraded to add more features.

     *    INCREASED ACCURACY AND HIGHER THROUGHPUT. The Company believes that
     its products, as a result of its unique in-line system with multiple
     stationary cameras, achieve a higher throughput at most levels of
     resolution, resulting in enhanced productivity and overall performance.

     *    COMPLETE INTEGRATION OF DESIGN, INSPECTION AND REPAIR SYSTEMS. The
     Company's products together allow for the integrated implementation of a
     complete automated inspection system for real-time process control and
     yield improvement through inspection, evaluation and repair. When combined
     with the laser plotters and advanced Helios(TM) Film currently being tested
     by the Company, the Company's product line will have the added advantage of
     offering a complete integrated solution to the "front needs" of PCB
     manufacturers.

        The Company believes that the quality of its products, its ability to
quickly and adequately respond to the needs of its customers, its early
recognition of trends in the


                                       13


<PAGE>   14



development of AOI related products, and its increasing product and brand name
recognition are important competitive factors in achieving market penetration
for its products. In addition, the Company believes that it will be able to
distinguish itself from its competition as a result of the Company's broad
selection of inspection products, proprietary technology and access to other
advanced technology and products by virtue of the Company's relationship with
Polaroid as well as funded development through ARPA and similar programs.

BACKLOG

        The Company's backlog for products and services was approximately $1.5
million at March 31, 1997 (of which $390,000 represented plotters), compared to
$675,000 at March 31, 1996. At December 31, 1997, the Company's backlog for
products and services was approximately $1.3 million (of which approximately
$500,000 represented plotters). The Company defines backlog to include only
those systems, accessories, upgrades and service agreements with respect to
which firm purchase orders have been received. Cancellations of product purchase
orders are sometimes subject to penalties, depending upon the time of
cancellation. Although a significant indicator of business levels, backlog is
not necessarily representative of future sales. The Company believes its backlog
at December 31, 1997 will be recognized in revenue in the next six to twelve
months.

MANUFACTURING

        The Company's manufacturing work force consists of a small group of
individuals who are each trained to cover several areas of production. Emphasis
is on performing final assembly, test and integration while maintaining critical
skills in each aspect of production: machining, PCB assembly and rework, cable
fabrication, electric-mechanical subassembly, optical alignment and electrical
test. The Company believes that production lead time, product quality and
customer response are key elements to its success.

        The Company's systems have a number of highly complex components.
Although the Company manufactures some of the subassemblies used in its systems,
most are purchased from unaffiliated subcontractors, typically to the Company's
specifications. None of the Company's suppliers is obligated to provide the
Company with any specific quantity of components or subassemblies over any
specific period. Certain of the components and subassemblies included in the
Company's products are obtained from a limited group of suppliers. In addition,
because the Company believes that subsystem vendors have increased their
manufacturing expertise, the Company expects to continue to obtain virtually all
of its components and subassemblies from third parties in order to devote its
resources toward systems design, software development and systems integration,
its primary areas of competence.

        From March 1996 through December 1996, the Company utilized an agreement
("Purchasing Agreement") with Centennial Technologies, Inc. ("Centennial"),
under which Centennial would purchase raw materials and certain components on
its own account and sell them to the Company at the same price. During this
time, the Company was able to obtain adequate and timely delivery of critical
subassemblies and components through the Purchasing Agreement, although it has
experienced occasional delays. The Company did not make any purchases through
Centennial after December 31, 1996, which significantly limited the 


                                       14


<PAGE>   15


Company's ability to purchase such materials. It experienced more significant
delays after December 1996 because of payment terms that required cash in
advance or cash on delivery. The Company was never a customer of Centennial nor
was Centennial ever a customer of the Company. (SEE "MANAGEMEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS")

        In November 1997, the Company received a major equity investment from
Imprimus and is using some of these funds to purchase materials to restabilize
its supply of raw materials. In addition, the Company is presently negotiating
with its major suppliers to reestablish credit terms for the purchase of
materials, components and subassemblies. No assurance can be given that the
Company will be successful in its negotiations or that it will obtain favorable
financing terms, if at all. Further, because the manufacture of these components
and subassemblies is very complex and requires long lead times, and although
alternative sources are available, such sources may not be readily available. As
a result, no assurance can be given that delays or shortages caused by suppliers
will not occur in the future. Any disruption of the Company's supply of critical
components and subassemblies could prevent the Company from meeting its
manufacturing schedules, which could damage relationships with customers and
would have a material adverse effect on the Company's business, financial
condition and results of operations.

        Due to recent increases in demand, the average time between order and
shipment of the Company's systems has increased over the last fiscal year. The
Company's ability to increase its manufacturing capacity in response to an
increase in demand is limited given the complexity of the manufacturing process,
the lengthy lead times necessary to obtain critical components and the need for
highly skilled personnel. The failure of the Company to keep pace with customer
demand would lead to further extensions of delivery times, which could deter
customers from placing additional orders, and could adversely affect product
quality. There can be no assurance that the Company will be successful in
increasing or be able to fund increasing its manufacturing capacity.

        Rapid growth of the Company's business, of which no assurance can be
given, may significantly strain the Company's management, operational and
technical resources. If the Company is successful in obtaining rapid market
penetration of its products, the Company will be required to deliver increasing
volumes of highly complex products and components to its customers on a timely
basis at a reasonable cost to the Company. No assurance can be given that the
Company's efforts to expand its manufacturing and quality assurance activities
will be successful or that the Company will be able to satisfy increased
commercial scale production on a timely and cost-effective basis. In addition to
the levels of support currently provided, including the ability to modify its
technology and products to meet end-user requirements, the Company will also be
required to continue to improve its operational, management and financial
systems and controls. Failure to effectively manage such growth could have a
material adverse effect on the business of the Company.

GOVERNMENTAL REGULATIONS AND INDUSTRY STANDARDS

        The Company's products and worldwide operations are subject to numerous
governmental regulations designed to protect the health and safety of operators
of manufacturing 


                                       15


<PAGE>   16


equipment. In particular, the EU has recently issued regulations relating to
electromagnetic fields, electrical power and human exposure to laser radiation.
The Company believes that its products currently comply with all applicable
material governmental health and safety regulations, including those of the EU,
and with any voluntary industry standards currently in effect.

PATENTS AND PROPRIETARY INFORMATION

        The Company holds five United States patents expiring between August
2003 and October 2005. The Company also holds two patents issued in Israel and
England expiring in June 2004.

        The Company's products require technical know-how to engineer and
manufacture and are based, in part, upon proprietary technology. To the extent
proprietary technology is involved, the Company relies on patents, copyrighted
software and trade secrets that it seeks to protect, in part, through
confidentiality agreements. There can be no assurance that such agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known to, or
independently developed by, existing or potential competitors of the Company.
The Company may be involved from time to time in litigation to determine the
enforceability, scope and validity of its rights. In addition, no assurance can
be given that the Company's products will not infringe any patents of others.
Litigation could result in substantial cost to the Company and diversion of
effort by the Company's management and technical personnel.

EMPLOYEES

        As of December 31, 1997, the Company had 25 full-time employees and one
part-time employee along with six independent contractors, of which eight were
in sales, marketing and service, six were in engineering and product
development, six were in administration and finance, and 12 were in
manufacturing.

        None of the Company's employees are represented by a labor union. The
Company considers its relationships with its employees to be satisfactory. The
Company's financial performance will depend significantly upon the continued
contributions of its officers and key management, technical, sales and support
personnel, many of whom would be difficult to replace. In addition, the Company
believes that certain of its former employees currently provide services or
technical support to the Company's customers or competitors. No assurance can be
given that the Company will be successful in attracting or retaining qualified
personnel.

ITEM 2.  PROPERTIES

        The Company maintains its corporate headquarters, executive offices and
principal research, developing, engineering and manufacturing facilities in
approximately 14,000 square feet in Lowell, Massachusetts pursuant to a renewed
lease as of December 1, 1995, which expires on November 30, 1998. The Company's
manufacturing operations in this facility occupy 6,000 square feet of space. The
Company estimates that the current space is sufficient for shipment of up to
three systems per month. The minimum annual rental for these premises is
approximately 


                                       16

<PAGE>   17


$119,000. The Company is responsible for payment of real estate taxes, which are
approximately $13,000 per year, and maintenance. The Company believes that these
facilities are adequate to meet its current needs. If additional space is
required, the Company believes that adequate facilities are available at
competitive prices.

ITEM 3. LEGAL PROCEEDINGS

        The Company is currently involved in litigation with Polaroid. On August
5, 1997 (after the May 31, 1997 end of the contract year), Polaroid filed a
complaint in Middlesex County (Massachusetts) Superior Court, in which Polaroid
sought to declare the Company in default of its milestone obligations and to
convert the arrangement to a non-exclusive relationship. The Company disputed
this action and, when Polaroid refused to negotiate, a Superior Court judge
entered a temporary restraining order prohibiting Polaroid from converting the
agreement to a non-exclusive relationship. Polaroid subsequently sought to have
the order overturned and the judge again found in favor of the Company,
extending the temporary restraining order. This order was subsequently converted
to a preliminary injunction. Polaroid has brought counterclaims, alleging breach
of conflict and breach of the duty of good faith and fair dealing. The Company
disputed those counterclaims and served a Motion to Dismiss causing Polaroid to
amend its counterclaims. The Company has answered the amended counterclaims and
disputes their validity. Currently, the Company is in negotiations with Polaroid
to resolve the dispute. The outcome cannot be predicted, although the Company
believes the ultimate resolution of this disupte will not have a material
adverse effect on the Company's results of operations. The Company is not
involved in any other litigation of a material nature.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        The Company did not submit any matters during the fourth quarter of the
fiscal year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        The Company's stock is traded on the OTC Bulletin Board. Until January
1997, the Company traded with the symbol ORBS. As part of its acquisition of
Triple I Corporation, the Company completed an 18:1 reverse stock split and
changed its trading symbol to INIM.

        As of January 21, 1998, the Company had 255 holders of record of its
Common Stock. Management believes that there are approximately 500 beneficial
owners of the Company's Common Stock.

        For the fiscal quarters reported below, the following table sets forth
the range of high and low bid quotations for the Common Stock for the relevant
periods as reported by the OTC Bulletin Board. Such quotations represent
inter-dealer quotations without adjustment for retail


                                       17

<PAGE>   18



markups, markdowns or commissions and may not represent actual transactions. The
quotations have been adjusted to reflect the 18:1 reverse stock split. The
quotations represent interdealer quotations, do not include retail mark-ups or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>

                                                            HIGH BID               LOW BID
                                                            --------               -------
COMMON STOCK

 Fiscal Year 1996

<S>                                                         <C>                    <C>  
     First Quarter...................................       $ 5 1/16               $ 1 11/16
     Second Quarter .................................       $ 5 1/16               $ 1 11/16
     Third Quarter ..................................       $ 5 1/16               $ 1 11/16
     Fourth Quarter .................................       $ 5 1/16               $ 1 11/16

Fiscal Year 1997

    First Quarter ...................................       $ 2 13/16              $ 2 13/16
    Second Quarter...................................       $ 2 13/16              $ 2 13/16
    Third Quarter....................................       $ 2 13/16              $ 2 1/4
    Fourth Quarter...................................       $ 4 1/4                $ 2 3/4

Fiscal Year 1998

    First Quarter....................................       $ 3 1/4                $ 1 1/8
    Second Quarter...................................       $ 1 3/8                $ 1 1/8
    Third Quarter....................................       $ 1 1/8                $   7/8
    Fourth Quarter (Through January 21, 1998)........       $ 1                    $   7/8
</TABLE>

DIVIDENDS

        The Company has not paid any cash dividends on its Common Stock since
inception and does not anticipate the payment of cash dividends on its Common
Stock in the foreseeable future. It is expected that any earnings which may be
generated from operations will be used to finance the growth of the Company.

ITEM 6.  SELECTED FINANCIAL DATA

        The following summary financial information of the Company is qualified
in its entirety by, and should be read in conjunction with, the Company's
audited Financial Statements and notes thereto. This data represents the
financial information of Triple I for the year ended March 31, 1997 and includes
Orbis Inc., for the period from the effective date of the exchange of February
1, 1997, through March 31, 1997. Prior to the Exchange, Triple I had a September
30 year end. As part of the Exchange, Triple I adopted a March 31 year end,
which is evidenced by the six month period from September 30, 1995 to March 31,
1996, which includes financial information for Triple I only. Financial
information for the years ended September 30, 1995, 1994 and 1993 includes only
Triple I.


                                       18



<PAGE>   19




STATEMENTS OF OPERATIONS DATA:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         
                                                         Fiscal Years Ended
                                                            September 30,                   Six Months          Year
                                              ------------------------------------------       Ended            Ended
                                                   1993           1994           1995      March 31,1996   March 31, 1997
                                                   ----           ----           ----      -------------   --------------
<S>                                           <C>            <C>             <C>             <C>             <C>      
Revenues                                      $   353,520    $ 1,310,148     $ 1,225,023     $   580,366     $ 1,823,876
         Cost of revenues                         710,511      1,197,065       1,142,582         551,449       1,609,987
                                              -----------    -----------     -----------     -----------     ----------- 
         Gross profit (loss)                     (356,991)       113,083          82,441          28,917         213,589

Operating expenses:

         Research and development                 448,875        468,075         505,147         427,778         440,207
         Sales and marketing                      275,323        370,859         218,704         125,370         361,392
         Merger expenses                                                                                         179,787
General and administrative                        668,625        680,824         814,094         541,285         857,948
                                              -----------    -----------     -----------     -----------     ----------- 
         Total operating expenses               1,392,823      1,519,758       1,537,945       1,094,433       1,839,334
                                              -----------    -----------     -----------     -----------     ----------- 

Loss from operations                           (1,749,814)    (1,406,675)     (1,455,504)     (1,065,516)     (1,625,745)
Other income (expense)                            (80,291)       (99,888)       (119,622)        (94,305)       (268,809)
                                              -----------    -----------     -----------     -----------     ----------- 
Net loss                                      $(1,830,105)   $(1,506,563)    $(1,575,126)    $(1,159,821)    $(1,894,554)
Net loss per common share                          $(3.99)        $(1.45)         $(1.05)          $(.55)          $(.44)
Weighted average number of                                                                         
  common shares outstanding                       458,405      1,039,025       1,507,099       2,105,823       4,257,727
                                                                                                
</TABLE>

<TABLE>
<CAPTION>

BALANCE SHEET DATA:
                                                         Fiscal Years Ended                 
                                                            September 30,                     Six Months         Year
                                                ----------------------------------------         Ended          Ended
                                                    1993         1994            1995       March 31, 1996  March 31, 1997
                                                    ----         ----            ----       --------------  --------------
<S>                                             <C>           <C>            <C>              <C>          <C>       
Total current assets                            $   678,705   $   744,803    $   860,682      $   807,559  $   2,487,258

Working capital deficit                             349,083       777,346      1,748,891        1,566,430      1,691,927

Total assets                                      1,231,906     1,167,675      1,143,002        1,019,444      2,594,279

Total liabilities                                 1,192,788     2,117,120      3,267,573        2,373,989      4,629,185

Accumulated deficit                              (1,830,105)   (3,336,668)    (4,911,794)      (6,071,615)    (7,861,380)

Stockholders' equity (deficit)                       39,118      (949,445)    (2,124,571)      (1,354,545)    (2,034,906)

</TABLE>


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


ITEM 7. MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL 


                                       19


<PAGE>   20

CONDITION AND RESULTS OF OPERATIONS

GENERAL

         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. Members of the Company's management were pioneers in the field
of automated optical inspection of PCBs. These individuals developed the
Company's product line while working at Itek, now a part of Hughes Corporation,
through close cooperation between Itek and DEC. The prototype and initial
production models developed by Itek and DEC were later completed and marketed by
AOI Systems, Inc., a predecessor to the Company's subsidiary, Triple I.

        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. The information provided below
represents the financial information of Triple I for the year ended March 31,
1997 and includes Orbis for the period from the effective date of the Exchange
of February 1, 1997 through March 31, 1997. Prior to the Exchange, Triple I had
a September 30 year end. As part of the Exchange, Triple I adopted a March 31
year end, which is evidenced by the six-month period from September 30, 1995 to
March 31, 1996, which includes financial information for Triple I only.
Financial information for the years ended September 30, 1995, and 1994 includes
only Triple I.

        The following discussion and analysis should be read in conjunction with
the Financial Statements of the Company (including the Notes thereto) commencing
on page F-1 of this report.

RESULTS OF OPERATIONS

YEAR ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED TO THE SIX MONTHS ENDED 
MARCH 31, 1996 ("SIX MONTHS 1996")

        As explained above, the periods being compared are the year ended March
31, 1997 as compared to the Six Months 1996. Thus, the comparison shows wide
variation in absolute dollar amounts as well as the relationships due to volume
differences. Revenues for the year ended March 31, 1997 were $1,823,576 as
compared to $580,366 for the Six Months 1996, an increase of $1,243,210. Product
revenues were $1,525,625 in Fiscal 1997 as compared to $419,782 in the Six
Months 1996. This increase was due primarily to an increase in the number of
units sold, which amounted to approximately $863,000 in revenues, and an
increase in prices, which amounted to approximately $380,000 in revenues.
Service revenues were $297,951 in Fiscal 1997 as compared to $160,584 in the Six
Months 1996. This increase was due in part to increased levels of business
during the one year period as opposed to the six month period. Due to the level
of technical and marketing expertise necessary to support its existing and new
customers, the Company must attract highly qualified and well-trained personnel.
There can be only a limited number of persons with the requisite skills to serve
in these positions and it may become increasingly 


                                       20


<PAGE>   21


difficult for the Company to hire such personnel. The Company's planned
expansion may also significantly strain the Company's management, manufacturing,
financial and other resources. There can be no assurance that the Company's
systems, procedures, controls and existing space will be adequate to support the
Company's operations. Failure to manage the Company's growth properly could have
a material adverse effect on the Company's future financial condition, revenues
and operating results.

        Cost of revenues for Fiscal 1997 was $1,609,987 as compared to $551,449
for the Six Months 1996, an increase of $1,058,538, resulting from an increase
in sales volume. Gross profit increased to $213,589 or approximately 11.7% in
Fiscal 1997 as compared to $28,917 or approximately 4.9% in the Six Months 1996,
due to fixed manufacturing costs being a lesser percentage of revenue for 1997
as compared to 1996.

        Operating expenses are less sensitive to volume changes at this level of
sales than cost of sales. Operating expenses for Fiscal 1997 were $1,839,334 as
compared to $1,094,433 in 1996, an increase of $744,901. Research and
development expenses were $440,207 in Fiscal 1997 as compared to $427,778 in the
Six Months 1996, which appears to remain the same for the Six Months 1996 and
Fiscal 1997 primarily due to significant expenditures in research and
development expenses relating to the development of the Company's AOI-2500
Series in 1996 and the recording of approximately $120,000 of cost
reimbursements from the Department of Energy relating to the contract with the
Company to research optics as an offset to and decrease of research and
development expense in Fiscal 1997. Sales and marketing expenses were $361,392
in Fiscal 1997 as compared to $125,370 in the Six Months 1996. The more than
doubling 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 in
Fiscal 1997. General and administrative expenses were $857,948 in Fiscal 1997 as
compared to $541,285 in the Six Months 1996. The Six Months 1996 expense
included a $200,000 one time fee paid to Centennial for the Centennial
Agreement. In addition, 1997 expenses included Orbis expenses for the the period
February 1, 1997, to March 31, 1997, compensation expense relating to stock
options, merger expenses of $179,787,and increased legal, audit and travel
costs.

        Interest expenses were $89,257 in Fiscal 1997 as compared to $94,305 in
the Six Months 1996. The less than doubling of interest was due to the reduction
in debt, primarily related to the conversion of $1,270,637 of debt to equity in
February 1996, partially offset by the 1997 bridge financing. Other expense was
$179,552 in Fiscal 1997 and primarily consisted of an expense recorded for the
market value of shares granted in conjunction with the 1997 bridge financing.

        The net loss increased to $1,894,554 in Fiscal 1997 as compared to
$1,159,821 in the Six Months 1996. This increase is primarily due to the
aforementioned increase in sales, an increase in gross margins which was more
than offset by the increase in operating expenses as well as other expenses
explained above.

SIX MONTHS ENDED MARCH 31, 1996 ("SIX MONTHS 1996") AND SIX MONTHS ENDED 
MARCH 31, 1995 UNAUDITED ("INTERIM 1995")

        Revenues for Six Months 1996 were $580,366 as compared to $584,828 for
Interim 1995. Product revenues were $419,782 for Six Months 1996 as compared to
$474,600 for


                                       21


<PAGE>   22


Interim 1995. This decrease was due to fewer systems being sold during the Six
Months 1996 period. Service revenues were $160,584 in Six Months 1996 as
compared to $110,228 in Interim 1995, due to an increase in customer service
provided by the Company.

        Cost of revenues was $551,449 for Six Months 1996 as compared to
$559,133 for Interim 1995. Gross margin increased to $28,917 or approximately 5%
for Six Months 1996 from $25,695 or approximately 4% for Interim 1995.

        Operating expenses were $1,094,433 for Six Months 1996 as compared to
$805,988 in Interim 1995, an increase of $288,445. Research and development
expenses were $427,778 in Six Months 1996 as compared to $279,266 in Interim
1995, primarily due to increased research and development expenses associated
with the development of the Company's AOI-2500 Series. Sales and marketing
expenses were $125,370 in Six Months 1996 as compared to $106,584 in Interim
1995, resulting from an increase in expenditures for trade shows and
advertising. General and administrative expenses were $541,285 in Six Months
1996 as compared to $420,138 in Interim 1995, primarily due to a one-time
non-refundable fee of $200,000 paid by the Company to Centennial pursuant to the
terms of the Purchasing Agreement.

        Interest expense increased to $94,305 in Six Months 1996 from $58,748 in
Interim 1995 as a result of increased borrowings and increased use of factoring
of accounts receivable.

        The net loss increased to $1,159,821 in Six Months 1996 as compared to
$841,412 in Interim 1995. This change is primarily due to the aforementioned
increase in operating expenses as well as an increase in interest expense from
borrowings.

YEAR ENDED SEPTEMBER 30, 1995 ("FISCAL 1995") COMPARED TO THE YEAR ENDED
SEPTEMBER 30, 1994 ("FISCAL 1994")

        Revenues were $1,225,023 in Fiscal 1995 as compared to $1,310,148 in
Fiscal 1994, a decrease of 7%. Product revenues were $986,660 in Fiscal 1995 as
compared to $936,783 in Fiscal 1994. This increase was due to a price increase
of $136,000 partially offset by decreases of units shipped of $86,000. Service
revenues were $238,363 in Fiscal 1995 as compared to $373,365 in Fiscal 1994 as
a result of a decrease in contract services provided to customers.

        Cost of revenues was $1,142,582 or 93% of revenues for Fiscal 1995 as
compared to $1,197,065 or 91% of revenues for Fiscal 1994. Gross margin was
$82,441 or 7% in Fiscal 1995 as compared to $113,083 or 9% in Fiscal 1994. Since
fixed overhead costs accounted for a significant portion of the Company's cost
of sales, if and when revenues increase, gross margins are expected to improve
as fixed costs become a decreasing percentage of revenues.

        Operating expenses for Fiscal 1995 were $1,537,945 as compared to
$1,519,758 for Fiscal 1994. Research and development expenses increased to
$505,147 in Fiscal 1995 from $468,075 in Fiscal 1994. Sales and marketing
expenses were $218,704 in Fiscal 1995 as compared to $370,859 in Fiscal 1994.
This decrease was primarily due to a reduction in expenditures for trade shows,
advertising and travel expenses. General and administrative expenses were
$814,094 in Fiscal 1995 as compared to $680,824 in Fiscal 1994 to, primarily due
to hiring a chief financial officer and increased use of technical consultants.


                                       22

<PAGE>   23


        Interest expense was $126,189 in Fiscal 1995 as compared to $83,311 in
Fiscal 1994 as a result of increased borrowings and the use of factoring of
accounts receivable.

        Due to the uncertainty of realizing the tax benefits of net loss
carryforwards, no provision for income tax benefit was made for either Fiscal
1995 or Fiscal 1994.

        Net loss was $1,575,126 for Fiscal 1995 as compared to $1,506,563 for
Fiscal 1994, due to the consistency of revenues, cost of sales and operating
expenses.

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 $7,966,169 as of March 31, 1997. The auditors note
that the Company's capital requirements may change depending upon numerous
factors, including the demand for the Company's product. Management believes
that the investment by Imprimus of $3 million in November 1997 will provide the
additional capital funding that the Company needs to aggressively pursue market
penetration. In view of the Company's current financial condition, the Company
plans to continue to aggressively manage its working capital and expenses while
pursuing product sales opportunities as well as strategic or other business
relationships. (See Note B to the Financial Statements)

        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 March 31, 1997,
the Company had cash of $62,103, and a working capital deficit of $1,691,927.
During 1997, Six Months 1996, Fiscal 1995 and Fiscal 1994 cash used in operating
activities was $1,376,031, $662,535, $775,226 and $1,169,231 respectively.
Capital expenditures were $23,603, $0, $0 and $14,996 for 1997, Six Months 1996,
Fiscal 1995 and Fiscal 1994, respectively. The Company has no outstanding
material commitments for capital expenditures. During 1997, the Company raised
(i) $816,496 from private equity sales to affiliates and partially from the 1996
Private Placement and (ii) $635,230 (net) from the issuance of debt. During Six
Months 1996, the Company raised $559,210, net, from sales of Common Stock during
the 1996 Private Placement and $107,118 from the net issuance of debt. For
Fiscal 1995, cash provided by financing activities was $781,444, which was
comprised of $400,000 from Common Stock sales and $381,444 from issuances of
debt. Net cash provided by financing activities was $1,134,612 for Fiscal 1994,
consisting of proceeds from sales of Common Stock of $518,000 and from net
issuances of debt of $616,612. The net increases in cash for Fiscal 1994, Fiscal
1995, Six Months 1996 and 1997 were $0, $6,218, $3,793 and $52,092,
respectively.

        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


                                       23


<PAGE>   24


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. The accounts receivable balance increased from $92,586 at
March 31, 1996 to $493,778 at March 31, 1997, due to a sale where the balance
was collected in Fiscal 1998.

        Fluctuations in inventory will be caused by changes in production
levels, timing of materials inflows, amount of sales and the timing of shipments
to customers. Inventory was $1,877,979 and $682,886 as of March 31, 1997 and
March 31, 1996, respectively. The increase in inventory of $1,195,093 or 175%
was primarily caused by an increase in raw materials to facilitate anticipated
production increases and an increase in work in process. Finished goods also
increase slightly during the period. Both the increases in raw materials and
work in process were intended to support increased production to fill
anticipated increases in cutomer demand and system sales. In addition, the
Company has increased inventory balances to support increased production levels
in anticipation of increased sales shipments. The increases in inventory
balances in 1997 were for the most part, financed through the Purchasing
Agreement.

        When the Company acquired the assets and product base of AOI Systems,
Inc., the Company became responsible for $130,000 of indebtedness to certain
creditors of AOI Systems, Inc. This indebtedness incurs interest at 8.0% per
annum and became due and payable on January 30, 1995. The Company renegotiated
the note in July 1994 to require interest only payments at a rate of 8.0%, due
monthly. The Company recently paid $10,000 towards interest due and is currently
negotiating an extension of the due date. As several installments have not been
paid for a period of thirty days past their due dates, the noteholder, at his
option, may declare the note due and payable upon demand.

        In December 1992, the Company received $50,000 from a stockholder in
return for a subordinated promissory note bearing an interest rate of 8.4% per
annum, due on December 31, 1996. The note provides that the Company is in
default if the amount due is not received within 90 days of the maturity date.
Upon an event of default, the noteholder may, upon written notice to the
Company, declare the note immediately due and payable. As of January 29, 1998,
the note has not been repaid. The Company has not received any demand notices
and plans to continue paying the quarterly interest payments as they become due.
(SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS")

        From August 1993 through June 1995, various stockholders of the Company,
including Dr. Harry Hsuan Yeh, Mr. Joseph Teves, the Massachusetts Technology
Development Corporation (the "MTDC") and the Massachusetts Community Development
Finance Corporation (the "CDFC"), loaned the Company an aggregate of
approximately $1,200,000 to help fund operations. These loans were made pursuant
to various promissory notes with various due dates through August 22, 1999.
These notes provide for interest at per annum rates ranging from 8.4% to 10%. In
February 1996, these noteholders agreed to convert the principal and interest
due on the notes into 1,270,637 shares of the Company's Common Stock, on the
basis of 


                                       24


<PAGE>   25


one share of Common Stock for every one dollar of debt converted. Dr. Yeh and
Mr. Teves did not convert all of their outstanding debt and each received a
promissory note for $100,000 bearing an interest rates of 10% and 8.4% per
annum, respectively, for the amounts due to them from the Company. The maturity
date for the notes to Dr. Yeh and Mr. Teves was October 23, 1996. The notes
provide that the Company is in default if the amount due is not paid within 90
days of the maturity date. Upon an event of default, the noteholder may, upon
written notice to the Company, declare the note immediately due and payable. The
Company has not received any demand notices from the noteholders. Dr. Yeh also
forgave a $100,000 loan to the Company in return for a warrant to purchase
150,000 shares of Common Stock, exercisable until February 6, 1999 at $1.00 per
share which was recorded as paid in capital on the balance sheet.

        In November 1995, the Company completed a 1995 Bridge Financing ("1995
Bridge Financing") as part of the 1996 Private Placement, whereby certain
affiliates loaned $255,000 to the Company in return for $255,000 in subordinated
promissory notes bearing an interest rate of 10% per annum, due May 24, 1996,
and warrants to purchase 250,000 shares of Common Stock, exercisable until
November 1998, at an exercise price of $1.00 per share. The following affiliates
participated in the 1995 Bridge Financing: Dr. Juan J. Amodei, Dr. Joseph
Bordogna, Mr. Joseph Teves, Polaroid and Centennial. To date, $150,000 has been
repaid towards the outstanding balance. The notes provide that the Company is in
default if the amount due is not paid within 90 days of the maturity date. Upon
an event of default, the noteholder may, upon written notice to the Company,
declare the note immediately due and payable. The Company has not received any
demand notices from the noteholders.

        In February 1996, the Company commenced the 1996 Private Placement,
which involved the sale of the Company's Common Stock for $1.00 per share. When
the 1996 Private Placement was completed in April 1996, the Company had sold
880,000 shares of Common Stock and received net proceeds of $797,036, which
included a purchase of 250,000 shares by Centennial.

        In March 1996, the Company entered into the Purchasing Agreement,
whereby Centennial would purchase raw materials and certain components on its
own account and sell them to the Company at the same price. Payment for such
purchases were due upon the receipt of final payment from customers for the
products containing such materials purchased through Centennial. Originally,
Centennial agreed to allow the Company to purchase up to a total of $750,000
worth of materials at any one time, which could be increased to $1,500,000. The
Company paid a one-time nonrefundable fee of $200,000 for this credit facility.
The outstanding balance on this facility on December 31, 1996 was approximately
$1,300,000. In May, 1997, the amount due to Centennial was satisfied through a
cash payment of approximately $132,000 and a conversion of the remaining amount
into 600,000 shares of the Company's Common Stock. The Company did not make any
purchases through Centennial after December 31, 1996, which significantly
limited the Company's ability to purchase such materials. The Company was never
a customer of Centennial nor was Centennial ever a customer of the Company. As
described below, the Company has received a major equity investment from
Imprimus Investors and will use some of these funds to purchase materials. In
addition, the Company is presently negotiating with its major suppliers to
reestablish credit terms for the purchase of materials, components and
subassemblies. No assurance can be given that the Company will be successful in
its negotiations or that it will obtain favorable financing terms, if at all.
(SEE "BUSINESS" AND "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS")


                                       25


<PAGE>   26


        In June 1996, MTDC purchased 200,000 shares of Common Stock, at a price
of $1.00 per share. In May 1996, Centennial had loaned $200,000 to the Company
in the form of a convertible note bearing an interest rate of 10% per annum,
which automatically converted to 200,000 shares of Common Stock upon the
purchase of stock by MTDC. Upon MTDC's purchase in June 1996, Centennial
converted the note to shares of Common Stock on the same terms as the MTDC stock
purchase and later purchased another 250,000 shares of Common Stock at $1.00 per
share.

        In August 1996, Centennial loaned the Company $100,000, in return for a
three month promissory note for the amount borrowed, bearing a per annum
interest rate equal to the prime rate plus 4%, and warrants to purchase 100,000
shares of Triple I's Common Stock exercisable for a period of five years from
the date of issuance, at an exercise price of $1.00 per share. The warrants were
exercised for the Company's Common Stock in January 1997 and the proceeds were
used to pay the outstanding balance of the $100,000 promissory note.

        In November 1996, Centennial loaned Triple I $130,000 in return for a
three month promissory note for the amount borrowed, bearing an interest rate
equal to the prime rate plus 4%, and warrants to purchase 130,000 shares of the
Triple I's Common Stock exercisable for a period of five years from the date of
issuance, at an exercise price of $1.00 per share. The warrants were exercised
to purchase the Company's Common Stock in January 1997 and the proceeds were
used to pay the outstanding balance of the $130,000 promissory note.

        In December 1996, Dr. Harry Hsuan Yeh loaned $150,000 to Triple I, in
return for a twelve-month promissory note. On January 15, 1997, this note was
converted to a two year subordinated promissory note, bearing an interest rate
of 10% per annum, which was issued to Dr. Yeh along with 44,100 shares of Common
Stock. On January 22, 1997, Dr. Yeh loaned another $50,000 to the Company in
exchange for a subordinated promissory note and 14,700 shares of Common Stock.
Both subordinated promissory notes contain the same terms as the Bridge Notes
(defined below) and payment is accelerated in the event the Company raises a
certain amount of equity financing.

        In February 1997, the Company commenced the 1997 Bridge Financing and
sold five (5) units ("Units"), each Unit consisting of a $50,000 subordinated
promissory note bearing an annual interest rate of 10% ("Bridge Notes") and
10,714 shares of Common Stock. Aggregate gross proceeds to the Company were
$250,000 as of February 14, 1997. The Bridge Notes are payable two years after
the date of the Bridge Notes and payment is accelerated in the event the Company
raises a certain amount of equity financing.

        In November 1997, Imprimus executed a Securities Purchase Agreement to
invest $3 million in the Company by purchasing three million shares of the
Company's Common Stock at $1.00 per share. In accordance with the agreement, the
Company also issued warrants to purchase one million shares of Common Stock at
$1.00 per share through November 12, 2002, and issued warrants to purchase one
million 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, the investor will hold 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 


                                       26


<PAGE>   27


interest in company assets, and the purchase or sale of assets. The investment
has been funded and closing and issuance costs (including commissions) amounted
to approximately $250,000.

        In November, 1997, the Company offered a 50% discount of the exercise
price to all warrantholders of the Company's common stock for a specified period
of time, which has expired. Warrantholders exercised warrants to purchase
1,187,406 shares of Common Stock at prices from $.25 per share to $.60 per
share. The Company received $252,145 in cash, received a promissory note from an
officer of the Company for $125,000, interest and principal is payable in four
years, and accrues 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 in exchange 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.
The impact of these transactions will result in the Company taking a charge in
Fiscal 1998.

        To fund operations in the future, the Company will rely on proceeds from
the Imprimus equity investment and cash flow from anticipated sales. The
Company's management believes that the funds provided by the equity investment
and cash flow from anticipated future product sales, will be sufficient to fund
continuing operations through the end of fiscal 1998.

INFLATION

To date, inflation has not has a material effect on the Company's business.

CHANGES IN ACCOUNTING STANDARDS

        Accounting Pronouncements - In February 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128. "Earning Per Share" which is effective for fiscal years ending
after December 31, 1997, including interim periods. Earlier adoption is not
permitted. However, the statement permits disclosure of pro forma earnings per
share amounts computed under SFAS 128 in the notes to the financial statements
in periods prior to adoption. The statement requires restatement of all prior
period earnings per share data presented after the effective date. SFAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share and is substantially similar to the standards recently issued by the
International Accounting Standards Committee 


                                       27


<PAGE>   28


entitled International Accounting Standards, Earnings Per Share. The Company
will adopt SFAS 128 in fiscal 1998 and has not yet determined its impact.

        In June 1997, the FASB issued two additional statements. SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" are both effective for years beginning after
December 15, 1997. Adoption of these standards are not expected to impact the
financial results of the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See Item 14 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        No change in the Company's independent accountants occurred during the
Company's two most recent fiscal years, nor did any disagreements occur on any
matter of accounting principles or practices or financial statement disclosure
that would be required to be reported on a Form 8-K.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

        The current directors and executive officers of the Company, their ages
and their positions held with the Company are as follows:

<TABLE>
<CAPTION>
        NAME                         AGE                            TITLE
        ----                         ---                            -----

<S>                                  <C>             <C>                                   
Juan J. Amodei, Ph.D..............   63              Chief Executive Officer, President,
                                                     Secretary and Chairman of the Board of 
                                                     Directors

Bryan M. Gleason..................   47              Chief Financial Officer and Treasurer

K. Michael Chase..................   53              Vice President of Manufacturing and Field
                                                     Service of Triple I

Richard J. Royston................   66              Vice President of Research of Triple I

Richard A. Desrosiers.............   55              Vice President of Sales of Triple I

Joseph Bordogna, Ph.D.............   64              Director
</TABLE>


                                       28


<PAGE>   29


<TABLE>
<CAPTION>

<S>                                  <C>             <C>        
Charles G. Broming................   48              Director

Joseph A. Teves...................   49              Director

Harry Hsuan Yeh, Ph.D.............   71              Director

Shaiy Pilpel, Ph.D. ..............   46              Director
</TABLE>

        The following is a brief summary of the background of the directors and
executive officers named above:

        JUAN J. AMODEI, PH.D., 63, has served as the Chief Executive Officer,
Chairman of the Board of Directors, President and Secretary of Industrial
Imaging since December 1996. Dr. Amodei has served as Chairman of the Board,
Chief Executive Officer, President and Secretary of Triple I since October 1992.
From September 1986 to October 1992, Dr. Amodei served as Chairman of the Board
of AOI Systems, Inc., a spin-off of Itek Optical Systems, where Dr. Amodei
served as President from March 1976 to August 1986. Dr. Amodei holds a Bachelor
of Science degree from Case Institute of Technology and both a Masters in
Electrical Engineering and a Ph.D. in Electrical Engineering from the University
of Pennsylvania. Dr. Amodei is a Trustee of the University of Pennsylvania and
Chairman of the Board of Overseers of the School of Engineering and Applied
Science.

        BRYAN M. GLEASON, 47, has served as Chief Financial Officer ("CFO") and
Treasurer of Industrial Imaging since December 1996. Beginning in May 1996, Mr.
Gleason served as the CFO and Treasurer for Triple I. Mr. Gleason was the CFO
and Treasurer of Network Six, a public company specializing in systems
integration from 1993 to 1996. From 1982 to 1993, Mr. Gleason was Vice President
and Corporate Controller of Winthrop Financial Associates, a publicly held
investment and management firm with a portfolio in excess of $6 billion. Mr.
Gleason received a Bachelor of Science Degree with a concentration in Accounting
at Northeastern University. Mr. Gleason is a Certified Public Accountant.

        K. MICHAEL CHASE, 52, has served as Triple I's Vice President of
Manufacturing and Field Service since October 1992. From September 1990 to
October 1992, Mr. Chase served as Vice President of Manufacturing for AOI
Systems, Inc. From August 1987 to July 1990, Mr. Chase served as the Vice
President of Operations for Datasec Corporation, a manufacturer of computer
equipment. Mr. Chase holds both a Bachelor of Engineering degree and a Master of
Engineering degree from Rensselaer Polytechnic Institute.

        RICHARD J. ROYSTON, 66, has served as Triple I's Vice President of
Research since October 1992. From September 1986 to October 1992, Mr. Royston
served as Vice President of AOI Systems, Inc. in several capacities. Mr. Royston
holds a Masters of Arts degree in Mathematics from Oxford University and a
Bachelor of Science degree in Mathematics from the University of London.


                                       29


<PAGE>   30


        RICHARD A. DESROSIERS, 55, has served as Triple I's Vice President of
Sales since January 1997. Prior to joining the Company in January 1997, Mr.
Desrosiers served as President of D Squared Associates, a manufacturer's
representative and management consulting firm serving the PCB industry. From
March 1991 to January 1996, Mr. Desrosiers was a general manager and senior
engineer for Hadco Corporation. Prior to that he held various technical
positions at Parlex Corporation, Teledyne Electro Mechanisms and Wang
Laboratories. Mr. Desrosiers holds a Bachelor of Science Degree in engineering
from Western New England College, a Masters Degree in Electrical Engineering
from the Naval Postgraduate School and a Master in Business Administration
degree from New Hampshire College. Mr. Desrosiers is a retired Commander from
the U.S. Navy.

        JOSEPH BORDOGNA, PH.D., 64, has served as a member of Industrial
Imaging's Board of Directors since December 1996. He has served as a member of
Triple I's Board of Directors since April 1993. Dr. Bordogna is presently Acting
Deputy Director and Chief Operating Officer of the National Science Foundation
("NSF"), having served at NSF as Director of Engineering from 1991 to 1996. He
is also the International President of the Institute of Electrical and
Electronics Engineers. From 1981 to 1990, Dr. Bordogna was Dean of the School of
Engineering and Applied Science at the University of Pennsylvania, and continues
to hold the position of Dean of Engineering Emeritus and Alfred Fitler Moore
Professor of Engineering . Dr. Bordogna also serves as a Director of University
City Science Center, a regional science and technology transfer park located in
Philadelphia, Pennsylvania, chairs the Board of Directors of Weston, Inc. a
privately held comprehensive environment company located in West Chester,
Pennsylvania, and is President-elect of the Institute of Electrical and
Electronic Engineers. Dr. Bordogna received a Bachelor of Science degree and
Ph.D. in electrical engineering from the University of Pennsylvania and a Master
of Science degree in electrical engineering from the Massachusetts Institute of
Technology.

        CHARLES G. BROMING, 48, has served as a member of Industrial Imaging's
Board of Directors since December 1996. He has served as a Director of Triple I
since February 1996. Mr. Broming is presently an Investment Officer for the
Massachusetts Community Development Finance Corporation ("CDFC"), a state owned
corporation that provides financing for businesses in financially distressed
communities within Massachusetts. Prior to joining CDFC in 1994, Mr. Broming was
a business consultant for Recoll Management Corporation, a privately held
company that specializes in the recovery and collection of distressed loans.
From 1990 to 1991, Mr. Broming ran CGB Associates, an independent management
consulting business. Mr. Broming received a Bachelor of Arts degree from
University of California, Riverside and a Master in Business Administration
degree from University of Michigan, Ann Arbor.

        JOSEPH A. TEVES, 49, has served as a member of Industrial Imaging's
Board of Directors since December 1996. He has served as a member of Triple I's
Board of Directors since May 1994. In January 1997, Mr. Teves joined Separation
Technologies, Inc. as Chairman and Chief Executive Officer. Separation
Technologies, Inc. is a closely held company which processes minerals. From 1988
through 1996, Mr. Teves was the President of Distrigas Corporation, a 


                                       30


<PAGE>   31


privately held company located in Everett, Massachusetts engaged in the import,
export and distribution of liquid natural gas. Mr. Teves has also served as a
Director of the New England Gas Association since 1989 and has served as a
management consultant to companies within the gas industry. Mr. Teves holds a
degree in Business Administration from the Massachusetts State College at Salem.

        HARRY HSUAN YEH, PH.D., 71, has served as a member of Industrial
Imaging's Board of Directors since December 1996. Dr. Yeh has served as a member
of Triple I's Board of Directors since 1992. Dr. Yeh is Chairman of Sinonar
Corporation, a Taiwanese company founded by Dr. Yeh in 1982 engaged in the
manufacture of amorphous silicon devices and solar cells. Dr. Yeh is a graduate
of Chai-Tung University in China and holds a Ph.D. in Mechanical Engineering
from the Massachusetts Institute of Technology.

        SHAIY PILPEL, PH. D., 46, has served as a member of Industrial Imaging's
Board of Directors since November 1997. Dr. Pilpel curently serves as a Senior
Vice President of Wexford Management LLP, an investment banking firm. From 1995
to 1996, Dr. Pilpel was a managing Director of Canadian Imperial Bank of
Commerce where he headed the Mortgage Arbitrage snd Quantitative Strategies
proprietary trading group and prior to that, was a portfolio manager for
Steinhardt Partners. Dr. Pilpel received a Bachelor of Science degree in
philosophy from the Tel Aviv University, a Masters of Science degree in
Mathematics from the Hebrew University in Jerusalem, a Ph.D. in Statistics from
the University of California at Berkeley and an M.B.A. from Columbia University.
Dr. Pilpel is a retired Lieutenant from the Israel Defense Force.

ITEM 11.  EXECUTIVE COMPENSATION

        The following table sets forth the compensation paid to Dr. Juan J.
Amodei, the Company's Chief Executive Officer, Chairman of the Board of
Directors, President and Secretary and Triple I's Chief Executive Officer,
Chairman of the Board of Directors, President and Secretary during the year
ended March 31, 1997, six months ended March 31, 1996 and the fiscal years ended
September 30, 1995 and September 30, 1994. No other executive officers of
Industrial Imaging or Triple I received total compensation in excess of $100,000
in any of those periods.

                                       31



<PAGE>   32



<TABLE>
<CAPTION>

                                                  Summary Compensation Table
                                                     Annual Compensation
    ----------------------------------------------------------------------------------------------------------------

                                             Annual Compensation                     Long Term Compensation
                              --------------------------------------------     -------------------------------------

              (a)                  (b)             (c)              (d)               (e)                (g)

                                                                                  Other Annual        Securities
       Name and Principal                                                         Compensation        Underlying
       Position(1)              Year(2)             Salary(3)     Bonus ($)           ($)4            Options (#)
    -----------------------     -------             ---------    ----------       ------------        -----------

<S>                               <C>               <C>              <C>              <C>                <C>                    
    Dr. Juan J. Amodei,           1997              $110,500         --               8,400                --
    Chief Executive               1996               $55,250         --               4,200              40,000
    Officer                       1995               110,500         --               8,400                --
                                  1994               110,500         --               8,400                --
</TABLE>

---------------------
1  See "MANAGEMENT -- Employment Agreements."
2  During Fiscal 1994 and 1995, Dr. Amodei's salary was paid by Triple I,
   according to the terms of his employment agreement with Triple I. Triple I
   assigned this Agreement to Industrial Imaging in connection with the Exchange
   with Industrial Imaging. As part of its Exchange, Triple I changed its year
   end to March 31. Therefore, the fiscal year for 1996 constitutes the six
   month period from September 30, 1995 to March 31, 1996.
3  Amounts shown indicate cash compensation earned and received by executive
   officers. Executive officers participate in group health and other benefits
   generally available to all employees of the Company.
4  This amount is comprised entirely of an automobile allowance.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                            Number of           Value of Unexercised
                                                                      Securities Underlying     In-the-Money Options
                                                                       Unexercised Options at       Exercisable/
                               Shares Acquired           Value          FY-End Exercisable/        Unexercisable      
           Name                   on Exercise          Realized          Unexercisable(1)            ($)(2)(3)  
           (a)                       (b)                 (c)                  (d)                       (e)   
   ------------------         ----------------        ----------      -----------------------   --------------------

<S>                                   <C>             <C>                <C>                     <C>     
   Dr. Juan J. Amodei                    0                                 72,000 / 50,000        $144,000/$100,000
</TABLE>


(1)      See "Summary Compensation Table."

(2)      In-the-Money options are those options for which the fair market value
         of the underlying Common Stock is greater than the exercise price of
         the option.

(3)      The value of unexercised options is determined by multiplying the
         number of options held by the difference in the fair market value of
         the Common Stock underlying the options at the end of the Fiscal Year
         1997 (as determined by the average of the high and low bid price of the
         Company as reported by OTC Bulletin Board, which were $3.25 to $2.75
         per share, respectively) and the exercise price of the options granted.

COMMITTEES


                                       32


<PAGE>   33


        In October, 1997, the Board of Directors established an Audit Committee
and a Compensation Committee.

        Messrs. Broming and Teves serve as members of the audit Committee. The
Audit Committee is concerned primarily with recommending the selection of, and
reviewing of the Company's independent auditors and reviewing the effectiveness
of the Company's accounting policies and practices, financial reporting and
internal controls. The audit Committee reviews any transactions which involve a
potential conflict of interest and the scope of independent audit coverages,
fees charged by the independent auditors, and internal control systems. To date,
the Audit Committee has not held any meetings.

        Dr. Bordogna and Mr. Teves serve on the Compensation Committee. The
compensation Committee is responsible for setting and administering the policies
which govern annual compensation for the Company's executives. The Compensation
Committee negotiates and proposes to the Board of Directors compensation
arrangements for officers, other key employees, certain consultants and
directors of the Company. Following review and approval by the Compensation
Committee of the compensation policies, all issues pertaining to executive
compensation are submitted to the Board of Directors. To date, the Compensation
Committee has not held any meetings.

COMPENSATION OF DIRECTORS

        Currently none of the directors receives fees for their service as
directors. The Company is considering whether to provide a fee to non-employee
directors. In October 1997, the Board of Directors voted to award non-qualified
stock options to non-employee directors. Options will be granted at 5,000 per
year over the next five years. In October 1997, options to purchase 5,000 shares
were awarded to each non-employee director at an exercise price of $1.00 per
share.

EMPLOYMENT AGREEMENTS

        Effective as of October 31, 1995, Triple I entered into an employment
and non-competition agreement (the "Agreement") with Dr. Juan J. Amodei. The
Agreement was subsequently assigned to the Company as part of the Exchange with
Triple I. The Agreement provides for an annual base salary of $110,500 through
December 31, 1998, with bonuses and salary increases as the Board of Directors
or Compensation Committee determine. Thereafter, the Agreement shall be
automatically renewed for successive periods of three years, unless the Company
gives Dr. Amodei not less than six months written notice of non-renewal. The
Agreement also provides for vacation, insurance and certain other benefits as
may be determined by the Company. Dr. Amodei is also entitled to receive
severance in the event his employment is terminated by the Company without cause
(the "Severance Benefits"). The Severance Benefits are equal to his
"Compensation Package" for a period of one year following the date of the
termination of his employment. Dr. Amodei's Compensation Package includes his
base salary and all other benefits to which he is entitled, including his most
recent bonus for the prior fiscal year annualized over the remaining term of the
Agreement.


                                       33

<PAGE>   34


        In the event of a Change in Control in the Company, Dr. Amodei will
receive certain benefits as provided in the Agreement. A Change in Control is
defined generally as: the acquisition by an individual, entity or group not a
current stockholder of the Company or affiliated with the Company, of fifty
percent (50%) or more of the outstanding shares of Common Stock outstanding
immediately before the Change of Control. A Change of Control does not include
the Company's Exchange with Triple I or any public offering of the Company's
securities as approved by the Board of Directors.

        In the event of a Change of Control, Dr. Amodei shall have the option to
terminate his employment with three month's notice. If within nine months of a
Change of Control, (i) Dr. Amodei's duties are reduced, or (ii) he decides to
terminate his employment; or (iii) he is terminated by the Company, then he is
entitled to receive: (a) an amount equal to his Compensation Package for a
period of one year, payable in a lump sum; and (b) the immediate removal of all
loan guarantees and the repayment of all loans placed by him on behalf of or for
the benefit of the Company.

        The Agreement also contains non-competition provisions for a period of
one year following termination, a confidentiality provision and an ownership
provision in the Company's favor for techniques, discoveries and inventions
arising during the term of his employment.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

        Section 16(a) of the Securities Exchange Act of 1934, as amended,
("Section 16(a)") requires executive officers, directors, and persons who
beneficially own more than ten percent (10%) of the Company's stock to file
initial reports of ownership on Form 3 and reports of changes in ownership on
Form 4 with the Securities and Exchange Commission (the "Commission") and any
national securities exchange on which the Company's securities are registered.
Executive officers, directors and greater than ten percent (10%) beneficial
owners are required by the Commission's regulations to furnish the Company with
copies of all Section 16(a) forms they file.

        Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all its executive officers, directors and greater than
ten percent (10%) beneficial owners complied with all applicable Section 16(a)
filing requirements through March 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by (i) each of the Company's directors,
(ii) each person who is known by the Company to beneficially own more than 5% of
its voting securities, and (iii) all directors and executive officers as a
group. Except as otherwise listed, the stockholders listed


                                       34


<PAGE>   35


below have sole voting and investment powers with respect to the shares
indicated.
<TABLE>
<CAPTION>

                                                                     Number of
                                                                      Shares                   Approximate
                                                                   Beneficially               Percentage of
Name of Beneficial Owner(2)                                           Owned                    Ownership(1)
---------------------------                                           -----                    ------------

<S>                                                                  <C>                         <C>   
Shaiy Pilpel, Ph.D. (3)                                              5,000,000                   38.79%

Imprimus Investors, LLC (3)(4)                                       5,000,000                   38.79%

Harry Hsuan Yeh, Ph.D. (5)                                           1,535,563                   14.10%

Centennial Technologies, Inc. (6)                                    1,625,000                   14.79%

Juan J. Amodei, Ph.D. (7)                                              905,714                    8.18%

Massachusetts Technology Development                                   860,142                    6.24%
       Corporation (8)

Polaroid Corporation (9)                                               827,228                    7.43%

Massachusetts Community                                                786,811                    7.04%
     Development Finance Corporation (10)

Charles Broming (10)(11)                                               786,811                    7.04%

Shirley Hsin-Hui Wang (12)                                             342,400                    4.72%

Joseph A. Teves (13)                                                   263,896                    2.42%


Joseph Bordogna, Ph.D. (14)                                             85,013                        *

All Officers and Directors as a group
      (9 persons) (1)(2)(3)(5)(8)(9)(11)(12)
      (13)                                                          13,414,920                   64.41%
</TABLE>

--------------
*       Indicates less than 1%.

(1)     Pursuant to the rules of the Securities and Exchange Commission, shares
        of Common Stock which an individual or group has a right to acquire
        within 60 days pursuant to the exercise of options and warrants are
        deemed to be outstanding for the purpose of computing the percentage
        ownership of such individual or group but are not deemed to be

                                       35


<PAGE>   36


        outstanding for the purpose of computing the percentage ownership of any
        other person shown in the table.

(2)     The address for Drs. Amodei, Bordogna and Yeh and Mr. Teves is c/o
        Industrial Imaging Corporation, 847 Rogers Street, Lowell, Massachusetts
        01852. The address for Massachusetts Technology Development Corporation
        is 148 State Street, Boston, Massachusetts 02109. The address for
        Centennial Technologies is 7 Lopez Road, Wilmington, Massachusetts
        01887. The address for Polaroid Corporation is 549 Technology Square,
        Cambridge, Massachusetts 02139. The address for Mr. Broming and
        Massachusetts Community Development Corporation is 10 Post Office
        Square, Suite 1090, Boston, Massachusetts 02109. The address for Shirley
        Wang is c/o Mr. Howard Yao, 2895 North Beverly Glen Boulevard, Los
        Angeles, California 90077. The address for Dr. Pilpel and Imprimus
        Investors, LLC, is c/o Wexford Management, LLC, 411 West Putnam Avenue,
        Greenwich, Connecticut, 06830.

(3)     Includes warrants to purchase 2,000,000 shares of Common Stock at
        exercise prices ranging from $1.00 to $2.00 per share.

(4)     Dr. Pilpel, a director of the Company, is also an investment officer of
        Imprimus Investors, LLC. As such, Dr. Pilpel retains voting control over
        shares owned by Impimus Investors, LLC.

(5)     Excludes warrants to purchase 248,145 shares of Common Stock at an
        exercise price of $1.00 per share and options to purchase 5,000 shares
        of Common Stock at an exercise price of $1.00 per share.

(6)     Includes warrants to purchase 95,000 shares of Common Stock at an
        exercise price of $1.00 per share.

(7)     Includes (i) warrants to purchase 108,729 shares of Common Stock with an
        exercise price of $1.00 (ii) options to purchase 32,000 shares of Common
        Stock at an exercise price of $.20 per share; and (iii) options to
        purchase 40,000 shares of Common Stock at an exercise price of $1.00.
        Excludes warrants to purchase 206,245 shares of Common Stock at an
        exercise price of $1.00 per share.

(8)     Includes (i) warrants to purchase 180,380 shares of Common Stock at an
        exercise price of $1.00. Excludes warrants to purchase 180,380 shares of
        Common Stock at an exercise price of $1.00 per share.

(9)     Includes warrants to purchase 250,028 shares of Common Stock at an
        exercise price of $1.00 per share.

(10)    Includes warrants to purchase 280,790 shares of Common Stock with
        exercise price of $1.00 per share. Excludes warrants to purchase 32,040
        shares of Common Stock at an


                                       36


<PAGE>   37


        exercise price of $1.00 per share and options to purchase 5,000 shares
        of Common Stock at an exercise price of $1.00 per share.

(11)    Mr. Broming, a director of the Company, is also an Investment Officer of
        the Massachusetts Community Development Finance Corporation. As such,
        Mr. Broming retains voting control over the shares owned by the
        Massachusetts Community Development Finance Corporation.

(12)    Excludes warrants to purchase 88,100 shares of Common Stock exercisable
        at $1.00 per share.

(13)    Excludes (i) warrants to purchase 28,470 shares of Common Stock at an
        exercise price of $1.00 per share (ii) warrants to purchase 14,675
        shares of Common Stock at an exercise price of $1.00 per share (iii)
        4,510 shares issuable upon exercise of outstanding warrants granted to
        Mr. Teves' adult son, to purchase 4,510 shares of Common Stock at an
        exercise price of $1.00 per share and (iv) and options to purchase 5,000
        shares of Common Stock at an exercise price of $1.00 per share.

(14)    Excludes warrants to purchase 63,135 shares of Common Stock at an
        exercise price of $1.00 per share and options to purchase 5,000 shares
        of Common Stock at an exercise price of $1.00 per share.

(15)    Includes (i) 10,800 shares issuable upon exercise of the vested portion
        of options to purchase 12,400 shares of Common Stock at an exercise
        price of $.20 per share and 5,600 shares issuable upon exercise of the
        vested portion of an option to purchase 34,000 shares of Common Stock at
        an exercise price of $1.00 per share held by Michael Chase, the
        Company's Vice President of Manufacturing and Field Service; (ii) 15,600
        shares issuable upon exercise of the vested portion of an option to
        purchase 17,600 shares of Common Stock at an exercise price of $.20 per
        share and 11,200 shares issuable upon exercise of the vested portion of
        an option to purchase 38,000 shares of Common Stock at an exercise price
        of $1.00 per share held by Richard J. Royston, the Company's Vice
        President of Research; and (iii) 20,000 shares issuable upon exercise of
        the vested portion of an option to purchase 60,000 shares of Common
        Stock at an exercise price of $1.00 per share held by Bryan Gleason, the
        Company's Chief Financial Officer.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               In November 1997, Imprimus, 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


                                       37


<PAGE>   38


warrants granted. In addition, the investor will hold a seat on the board of
directors. The agreement contains certain covenants which restrict future
activities of the company including 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 Dr. Amodei, an officer and director of the Company, for
$125,000, interest and principal payable in four years, and which accrues
interest at an rate of 8.5% per annum to purchase 500,000 shares at $.25 per
share. The stock purchased is pledged as collateral against the note. In
addition, Mr. Teves, 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 to purchases 196,961 shares at $.50 per share. 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.
Dr. Yeh, a director of the Company exercised warrants to purchase 382,474 shares
of the Company's Common Stock at $.50 per share, paid in cash. Dr. Bordogna, a
director of the Company, exercised warrants to purchase 23,472 shares of the
Company's Common Stock at $.50 per share, paid in cash. In addition, certain
employees of Schneider Securities, Inc., the Placement Agent for the 1997 Bridge
Financing and the 1996 Private Placement exercised warrants to purchase 69,229
shares of the Company's Common Stock for cash at a price of $.60 per share.

        In May 1997, the Company and Centennial, a 14.8% stockholder of the
Company, agreed to terminate the Purchasing Agreement. The Company liquidated
amounts owed to Centennial under the agreement by paying approximately $132,000
in cash and issuing 600,000 shares of Common Stock to pay off the remaining
balance of approximately $1.2 million.

        In May 1997, MTDC, a 6.2% stockholder of the Company, exercised a
warrant and purchased 100,014 shares of the Company's Common Stock, at a price
of $1.00 per share.

        In December 1996, Dr. Harry Hsuan Yeh, a director and 14.1% stockholder
of the Company loaned $150,000 to the Company, in return for a promissory note.
On January 15, 1997, this note was converted to a two year subordinated
promissory note, bearing an interest rate of 10% per annum, which was issued to
Dr. Yeh along with 44,100 shares of Common Stock. On January 22, 1997, Dr. Yeh
loaned another $50,000 to the Company in exchange for a two year subordinated
promissory note and 14,700 shares of Common Stock. Both notes contain the same
terms as the Bridge Notes.

        In November 1996, Centennial, a 14.8% stockholder of the Company, loaned
the Company $130,000 in return for a three month promissory note for the amount
borrowed, 


                                       38



<PAGE>   39


bearing an interest rate equal to the prime rate plus 4% per annum and warrants
to purchase 130,000 shares of the Company's Common Stock exercisable for a
period of five years from the date of issuance, at an exercise price of $1.00
per share. The warrants were exercised to purchase the Company's Common Stock in
January 1997 and the proceeds were used by the Company to pay the outstanding
balance of the $130,000 promissory note. (SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS")

        In August 1996, Centennial loaned the Company $100,000, in return for a
three month promissory note for the amount borrowed, bearing an interest rate
equal to the prime rate plus 4% per annum, and warrants to purchase 100,000
shares of Triple I's Common Stock exercisable for a period of five years from
the date of issuance, at an exercise price of $1.00 per share. The warrants were
exercised for the Company's Common Stock in January 1997 and the proceeds were
used to pay the outstanding balance of the $100,000 promissory note. (SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS")

        From March 1996 through December 1996, the Company utilized the
Purchasing Agreement under which Centennial would purchase raw materials and
certain components on its own account and sell them to the Company at the same
price. Payment for such purchases were due upon the receipt of final payment
from customers for the products containing such materials purchased through
Centennial. Originally, Centennial agreed to allow the Company to purchase up to
a total of $750,000 worth of materials at any one time, which could be increased
to $1,500,000. The Company paid a one-time nonrefundable fee of $200,000 for
this credit facility. Centennial used the fee to purchase 200,000 shares of the
Company's Common Stock in May, 1996, at $1.00 per share. The outstanding balance
on December 31, 1996 was approximately $1,300,000. The Company has not made any
purchases through Centennial since December 31, 1996, which significantly
limited the Company's ability to purchase such materials. In May, 1997, the
amount due to Centennial was satisfied through a partial cash payment of the
amount due and a conversion of the remaining amount into 600,000 shares of the
Company's Common Stock. All outstanding balanced due to Centennial were
liquidated at that time. (See Purchase Agreement attached as Exhibit No. 10b).

        In June 1996, MTDC, a 13.4% stockholder of the Company, purchased
200,000 shares of Common Stock, at a price of $1.00 per share. In May 1996,
Centennial had loaned $200,000 to the Company in the form of a convertible note
bearing an interest rate of 10% per annum, which automatically converted to
200,000 shares of Common Stock upon the purchase of stock by MTDC. Upon MTDC's
purchase in June 1996, Centennial converted the note to shares of Common Stock
on the same terms as the MTDC stock purchase. (SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS")

        In February 1996, in connection with the 1996 Private Placement, certain
affiliates of the Company converted outstanding debt to Common Stock as follows:


                                       39


<PAGE>   40


<TABLE>
<CAPTION>

                                                Outstanding Loan              Common Shares
Name                                               Balance ($)                  Issued (#)
----                                               -----------                -------------

<S>                                                  <C>                         <C>
Massachusetts Community
   Development Finance Corporation                   506,021                     506,021
Juan J. Amodei, Ph.D.                                 45,985                      45,985
Joseph Bordogna, Ph.D.                                17,271                      17,271
Massachusetts Technology
   Development Corporation                           379,728                     379,728
Joseph A. Teves                                       66,935                      66,935
Harry Hsuan Yeh, Ph.D.                               187,289                     187,289
</TABLE>

        Dr. Yeh and Mr. Teves did not convert all their debt and each received a
promissory note for $100,000 bearing interest rates of 10% and 8.4% per annum,
respectively, for the remaining amounts due to them from the Company. The
original due date for the notes was October 23, 1996. The notes provide that the
Company is in default if the amount due is not paid within 90 days of the
maturity date. Upon an event of default the noteholder may, upon written notice
to the Company, declare the note immediately due and payable. The Company has
not received any demand notices from the noteholders. Mr. Teves cancelled this
note in exchange for the exercise of warrants. Dr. Yeh also forgave a $100,000
promissory note from the Company in return for a warrant to purchase 150,000
shares of Common Stock, exercisable until February 6, 1999 at $1.00 per share.
(SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS")

        In November 1995, the Company completed a 1995 Bridge Financing, whereby
certain affiliates loaned $255,000 to the Company in return for $255,000 in
promissory notes bearing an interest rate of 10% per annum and warrants to
purchase an aggregate of 250,000 shares of Common Stock, execisable until
November 1998, at $1.00 per share. The following affiliates participated in the
1995 Bridge Financing: Dr. Amodei, Dr. Bordogna, Mr. Teves, Polaroid and
Centennial. Approximately $150,000 has been repaid towards the outstanding
balance. The original maturity date for the notes was May 24, 1996. The notes
provide that the Company is in default if amount due is not paid within 90 days
of the maturity date. Upon an event of default, the noteholder may, upon written
notice to the Company, declare the note immediately due and payable. The Company
has not received any demand notices from the noteholders and plans to pay the
total amount due out of the proceeds of the Offering. (SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS")

        As part of the 1996 Private Placement, warrants to purchase 958,925
shares of Common Stock were issued pro rata to the stock and optionholders of
Triple I as of September 30, 1995 ("Stockholder Warrants"). The Stockholder
Warrants have an exercise price of $1.00 and are exercisable after the earlier
of (a) February 28, 2001 (five years from the closing of the 1996 Private
Placement), (b) upon the attainment of $12,000,000 in annual revenues or
$1,000,000 in pretax net income in Fiscal 1997 or (c) upon the attainment of
$15,000,000 in annual revenues or 


                                       40


<PAGE>   41



$1,500,000 in pretax net income in Fiscal 1998. The following affiliates
received Stockholder Warrants: Dr. Juan J. Amodei (206,245), Dr. Harry Hsuan Yeh
(248,145), Mr. Joseph A. Teves (28,970), CDFC (32,040), Dr. Joseph Bordogna
(14,675), MTDC (63,135), Polaroid (180,380) and Shirley Hsin-Hiu Wang (88,100).
(SEE "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT").

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        The following exhibits are filed herewith:
<TABLE>
<CAPTION>

   EXHIBIT
  NO. TITLE
  ---------

(a)     EXHIBITS

<S>       <C>    <C>                  
  1       --     Not applicable.
  2       --     Agreement of Merger, dated December 9, 1996.
  3a      --     Certificate of Incorporation.
  3b      --     Bylaws, as amended.
  4       --     Sections of Bylaws and Certificate of Incorporation defining the rights of
                 security-holders (contained in Exhibits 3a and 3b).
  5       --     Not applicable.
  6       --     Not applicable.
  7       --     Not applicable.
  8       --     Not applicable.
  9       --     Not applicable.
**10a     --     License and Collaboration Agreement dated November, 1992 between the
                 Company and Polaroid Corporation, with amendments.
  10b     --     Purchase agreement dated March 31, 1996 between the Company and Centennial
                 Technologies, Inc., and the termination thereof.
  10c     --     1996 Stock Option Plan.
  10d     --     Employment Agreement with Juan J. Amodei, Ph.D.
  10e     --     Lease Agreement between the Company and John Hancock Mutual Life Insurance
                 Company, dated October 31, 1995, as amended.
  10f     --     Form of the Shareholder Exchange Agreement by and between Orbis, Inc., Triple
                 I Corporation, and the Shareholders of Triple I Corporation.
  10g     --     Form of Subscription Agreement between the Company and investors in the 1997
                 Bridge Financing.
  10h     --     Form of Subscription Agreement between the Company and Dr. Harry Hsuan
                 Yeh.
  10i     --     Form of Subscription Agreement between the Company and investors in the 1996

</TABLE>

                                       41


<PAGE>   42

<TABLE>
<CAPTION>

<S>     <C>    <C>                  
               Private Placement.
10j     --     Securities Purchase Agreement between the Company and Imprimus Investors
               LLC, dated November 12, 1997
10k            Form of Class A and Class B Warrants issued by the Company to Imprimus
               Investors LLC
10l            Registration Rights Agreement between the Company and Imprimus Investors
               LLC, dated November 12, 1997
11      --     Not applicable.
12      --     Not applicable.
13      --     Not applicable.
14      --     Not applicable.
15      --     Not applicable.
16      --     Not applicable.
18      --     Not applicable.
21      --     Subsidiaries of the Company
23      --     Not applicable.
24      --     Not applicable.
25      --     Not applicable.
26      --     Not applicable.
27      --     Financial Data Schedule

</TABLE>

** Certain information is withheld and being filed separately with the
   Commission pursuant to a request for confidential treatment.


                                       42



<PAGE>   43


                                   SIGNATURES

        In accordance with Section 13 or 15(d) 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.

                                   INDUSTRIAL IMAGING CORPORATION

Date: January 29, 1998            By: /s/ Juan J. Amodei,Ph.D.
                                      ------------------------------------------
                                           Juan J. Amodei, Ph.D.
                                           President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

        NAME                           CAPACITY                                DATE
        ----                           --------                                ----

<S>                                 <C>                                        <C> 
/s/ Juan J. Amodei, Ph.D.           President, Chief Executive Officer,        January 29, 1998
------------------------------      and Chairman of the Board of
Juan J. Amodei, Ph.D.               Directors (Principal Executive Officer)

/s/ Bryan M. Gleason                Chief Financial Officer, Vice              January 29, 1998
------------------------------      President and Treasurer           
Bryan M. Gleason                    (Principal Financial and Principal
                                    Accounting Officer)               
                                    
/s/ Joseph Bordogna, Ph.D.          Director                                   January 29, 1998
------------------------------
Joseph Bordogna, Ph.D.

/s/ Joseph A. Teves                 Director                                   January 29, 1998
------------------------------
Joseph A. Teves

/s/ Charles G. Broming              Director                                   January 29, 1998
------------------------------
Charles G.Broming
</TABLE>

                                       43


<PAGE>   44

                        REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Shareholders of
    Industrial Imaging Corporation:

        We have audited the accompanying balance sheets of Industrial Imaging
Corporation as of March 31, 1997 and March 31, 1996 and the related statements
of operations and shareholders' equity (deficit) and cash flows for the year
ended March 31, 1997, the period from October 1, 1995 to March 31, 1996 and the
years ended September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Industrial Imaging
Corporation at March 31, 1997 and March 31, 1996, and the results of its
operations and its cash flows for the year ended March 31, 1997, the period from
October 1, 1995 to March 31, 1996 and the years ended September 30, 1995 and
1994 in conformity with generally accepted accounting principles.

        The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency and stockholders' deficit that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Boston, Massachusetts
January 16, 1998

                                      F-1

<PAGE>   45






                         INDUSTRIAL IMAGING CORPORATION

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            March 31,      March 31,
                                                                                               1997          1996
                                                                                            ---------      ---------
                                        ASSETS
Current assets:

<S>                                                                                         <C>           <C>          
    Cash...............................................................................     $    62,103   $    10,011
    Accounts receivable, net of allowance for doubtful accounts of $31,000 
      and $20,000 at March 31, 1997 and 1996, respectively (Notes C and D).............         493,778        92,586
    Inventory (Notes C and E)..........................................................       1,877,979       682,886
    Prepaid expenses...................................................................          53,398        22,076
                                                                                            -----------   -----------
      Total current assets.............................................................       2,487,258       807,559
Property and equipment, net (Notes C and F)............................................          34,256        32,870
Patents, net (Notes C and G)...........................................................          61,979       168,229

Other assets...........................................................................          10,786        10,786
                                                                                            -----------   -----------
      Total assets.....................................................................       2,594,279   $ 1,019,444
                                                                                            ===========   ===========

                         LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
    Notes payable (Notes J and K)......................................................         480,404       495,174
    Accounts payable...................................................................       2,497,890       281,094
    Deferred revenue (Notes C and H)...................................................         242,938       667,387
    Accrued expenses (Note I)..........................................................         957,953       930,334
                                                                                            -----------   -----------
      Total current liabilities........................................................       4,179,185     2,373,989
Notes payable B long-term portion (Notes J and K)......................................         450,000         --
                                                                                            -----------   -----------
      Total liabilities................................................................       4,629,185     2,373,989

Commitments and contingencies (Note H)
Shareholders' deficit 
 (Notes J, K, L, and O):
    Common stock, par value $.01 per share, authorized 8,700,000 shares,
      5,867,498 and 3,537,037 shares issued and outstanding at March 31, 1997,
      and March 31, 1996, respectively.................................................          58,675        35,370

    Series A Preferred Stock, par value $.01 per share, authorized 1,000,000
      shares, 0 and 633,200 shares issued and outstanding at March 31, 1997, and
      March 31, 1996, respectively.....................................................            --           6,332

    Series B Preferred Stock, par value $.01 per share, authorized 300,000 shares, 0
      shares issued and outstanding at March 31, 1997 and March 31, 1996,                            
      respectively.....................................................................            --            --
    Additional paid-in capital.........................................................       5,872,588     4,675,368
    Accumulated deficit................................................................      (7,966,169)   (6,071,615)
                                                                                            -----------   -----------
      Total shareholders' deficit......................................................      (2,034,906)   (1,354,545)
                                                                                            -----------   -----------
        Total liabilities and shareholders' deficit....................................     $ 2,594,279   $ 1,019,444
                                                                                            ===========   ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                       F-2


<PAGE>   46
'


                         INDUSTRIAL IMAGING CORPORATION

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       12 Months            6 Months            12 Months           12 Months
                                                         Ended                Ended                Ended               Ended
                                                     March 31, 1997      March 31, 1996     September 30, 1995  September 30, 1994
                                                     --------------      --------------     ------------------  ------------------
Revenues (Note C):

<S>                                                    <C>                 <C>                 <C>                <C>          
    Product........................................    $    1,525,625      $    419,782        $    986,660       $     936,783
    Service........................................           297,951           160,584             238,363             373,365
                                                       --------------      ------------        ------------       -------------
                                                            1,823,576           580,366           1,225,023           1,310,148
                                                       --------------      ------------        ------------       -------------
Cost of revenues:

    Product........................................         1,341,919           450,746             730,180             783,213
    Service........................................           268,068           100,703             412,402             413,852
                                                       --------------      ------------        ------------       -------------
                                                            1,609,987           551,449           1,142,582           1,197,065
                                                       --------------      ------------        ------------       -------------
Gross profit.......................................           213,589            28,917              82,441             113,083
                                                       --------------      ------------        ------------       -------------
Operating expenses:

    Research and development (Notes C and H).......           440,207           427,778             505,147             468,075
    Sales and marketing............................           361,392           125,370             218,704             370,859
    General and administrative.....................           857,948           541,285             814,094             680,824
    Merger Expenses (Note R).......................           179,787
                                                       --------------      ------------        ------------       -------------
        Total operating expenses...................         1,839,334         1,094,433           1,537,945           1,519,758
                                                       --------------      ------------        ------------       -------------
Loss from operations...............................        (1,625,745)       (1,065,516)         (1,455,504)         (1,406,675)
Other income (expense):
    Interest expense (Notes D and J)                          (89,257)          (94,305)           (126,189)            (83,311)
    Other, net (Note Q)............................          (179,552)            --                  6,567             (16,577)
                                                       --------------      ------------        ------------       -------------
        Other income (expense), net................          (268,809)          (94,305)           (119,622)            (99,888)
        Loss before income taxes...................        (1,894,554)       (1,159,821)         (1,575,126)         (1,506,563)

Provision for income taxes (Notes C and M).........            --                --                   --                  --
                                                       --------------      ------------        ------------       -------------
Net loss...........................................    $   (1,894,554)     $ (1,159,821)       $ (1,575,126)      $  (1,506,563)
                                                       ==============      ============        ============       =============

Net loss per share.................................    $         (.44)     $       (.55        $      (1.05)      $       (1.45)
                                                       ==============      ============        ============       =============

Weighted Average common outstanding................         4,257,727         2,105,823           1,507,099           1,039,025
                                                       ==============      ============        ============       =============
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      F-3

<PAGE>   47







                         INDUSTRIAL IMAGING CORPORATION

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           12 Months         6 Months           12 Months           12 Months
                                                             Ended             Ended              Ended               Ended
                                                         March 31, 1997    March 31, 1996   September 30, 1995  September 30, 1994
                                                         --------------    --------------   ------------------  ------------------

Cash flows from operating activities:
<S>                                                         <C>             <C>                 <C>                <C>          
    Net loss.........................................       $(1,894,554)    $(1,159,821)        $(1,575,126)       $(1,506,563)
    Adjustments to reconcile net loss to net cash
    used in operating activities:
        Loss on disposal of fixed assets.............              --              --                  --                5,554
        Depreciation.................................            22,217          17,310              34,612             33,290
        Compensation relating to stock options.......            26,400            --                  --                 --
        Shares issued in conjunction with bridge 
          loan.......................................           171,297            --                  --                 --
        Amortization.................................           106,250          53,125             106,250            106,250
        Provision for doubtful accounts..............              --              --               (14,707)             9,704
        Changes in assets and liabilities:
        Accounts receivable..........................          (401,192)        (38,058)            201,843           (193,219)
        Inventory....................................        (1,195,093)        111,935            (302,483)            70,493
        Prepaid expenses.............................           (31,322)        (16,961)              5,686             (1,384)
        Other assets.................................              --              --                  (310)            (1,076)
        Accounts payable.............................         2,216,796         (18,279)            113,506             78,350
        Deferred revenue.............................          (424,449)        (12,338)            364,072             45,538
        Accrued expenses.............................            27,619         400,552             291,431            183,832
                                                            -----------     -----------         -----------        ----------- 
        Net cash used in operating activities........        (1,376,031)       (662,535)           (775,226)        (1,169,231)
                                                            -----------     -----------         -----------        ----------- 
Cash flows from investing activities:
    Capital expenditures.............................           (23,603)           --                  --              (14,996)
    Proceeds from sale of fixed assets...............              --              --                  --                1,307
                                                            -----------     -----------         -----------        ----------- 
    Net cash used in investing activities............          (23,603)            --                  --              (13,689)
                                                            -----------     -----------         -----------        ----------- 
Cash flows from financing activities:
    Proceeds from issuance of nonconvertible debt....           719,000         260,702             381,444            648,001
    Principal payments on nonconvertible debt........          (283,770)       (153,584)               --              (31,389)
    Proceeds from issuance of convertible debt.......           200,000            --                  --                 -- 
    Proceeds from issuance of stock (net)............           816,496         559,210             400,000            518,000
                                                            -----------     -----------         -----------        ----------- 
      Net cash provided from financing activities....         1,451,726         666,328             781,444          1,134,612
                                                            -----------     -----------         -----------        ----------- 
      Net increase (decrease) in cash................            52,092           3,793               6,218            (48,308)
Cash, beginning of period............................            10,011           6,218                --               48,308
                                                            -----------     -----------         -----------        ----------- 
Cash, end of period..................................       $    62,103     $    10,011         $     6,218        $        --
                                                            ===========     ===========         ===========        =========== 
Supplemental cash flows information:
    Cash paid during the period for interest.........       $    45,092     $     6,963         $    49,500        $    47,200
Noncash items:
    Debt and accrued interest converted to equity
      during the period..............................           200,000       1,270,637
     Forgiveness of debt/contributed capital.........                           100,000
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      F-4
<PAGE>   48


                         INDUSTRIAL IMAGING CORPORATION

                       STATEMENT OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                          Series A Convertible
                                             Preferred Stock         Common Stock      Additional                   Total
                                          --------------------   -------------------    Paid-in    Accumulated  Shareholders'
                                                                                        Capital      Deficit       Equity
                                                                                       ----------  -----------  -------------
                                           Shares      Amount     Shares     Amount
                                          --------    --------   --------   --------                                             

<S>                                       <C>       <C>         <C>         <C>       <C>         <C>             <C>        
Balance at September 30, 1993..........    397,200  $   3,972     753,200   $  7,532  $1,857,719  $(1,830,105)    $    39,118
Issuance of Series A convertible
    preferred stock and common             200,000      2,000     200,000      2,000      96,000                      100,000
    stock for cash, October 1993.......
Issuance of Series A convertible
    preferred stock                         20,000        200      20,000        200       9,600                       10,000
    and common stock for cash,
       October 1993....................
Issuance of Series A convertible
    preferred stock and common              16,000        160      16,000        160       7,680                        8,000
    stock for cash, November 1993......
Issuance of common stock for cash,                                288,600      2,886     397,114                      400,000
July 1994..............................
Net loss                                                                                           (1,506,563)     (1,506,563)
                                          --------  ---------  ----------   --------  ----------  -----------     ----------- 
Balance at September 30, 1994..........    633,200      6,332   1,277,800     12,778   2,368,113   (3,336,668)       (949,445)
Issuance of common stock for cash,
    December 1994                                                 288,600      2,886     397,114                      400,000
Net loss                                                                                           (1,575,126)     (1,575,126)
                                          --------  ---------  ----------   --------  ----------  -----------     ----------- 
Balance at September 30, 1995..........    633,200      6,332   1,566,400     15,664   2,765,227   (4,911,794)     (2,124,571)
Issuance of common stock for debt
    and interest conversion............                         1,270,637     12,706   1,257,931                    1,270,637
Issuance of common stock for cash,
    net of issuance costs of $140,790..                           700,000      7,000     552,210                      559,210
Issuance of warrants in exchange for
    forgiveness of debt................                                                  100,000                      100,000
Net loss                                                                                           (1,159,821)     (1,159,821)
                                          --------  ---------  ----------   --------  ----------  -----------     ----------- 
Balance at March 31, 1996..............    633,200  $   6,332   3,537,037   $ 35,370  $4,675,368  $(6,071,615)    $(1,354,545)
Issuance of common stock for cash,
    net of issuance costs of $32,964 ..                           830,000      8,300     788,736                      797,036
Exercise of warrants for cash..........                           230,000      2,300     227,700                      230,000
Shares issued in conjunction with                                 112,370      1,124     170,173                      171,297
bridge loans...........................
Compensation expense relating to                                                          26,400                       26,400
stock options..........................
Recapitalization of Orbis, Inc.........                           524,891      5,249     (15,789)                     (10,540)
Conversion of preferred shares to         (633,200)    (6,332)    633,200      6,332                                     --    
common stock......
Net loss                                                                                           (1,894,554)     (1,894,554)
                                          --------  ---------  ----------   --------  ----------  -----------     ----------- 
                                             --          --    $5,867,498    $58,675  $5,872,588  $(7,966,169)    $(2,034,906)
                                          ========  =========  ==========   ========  ==========  ===========     =========== 

</TABLE>


     The accompanying notes are an integral part of the financial statements.

                                      F-5
<PAGE>   49



                         INDUSTRIAL IMAGING CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

A.  ORGANIZATION AND DESCRIPTION OF BUSINESS

    Nature of Business

        Triple I Corporation (the "Company" or "Triple I"), a Delaware
corporation, was organized as a successor to AOI Systems, Inc., whose assets and
technologies it purchased in October 1992, for the purpose of manufacturing and
selling optical inspection systems in the printed circuit board industry. 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.

    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 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 will be 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). The costs of the Exchange will be charged to
other expense and no goodwill will be recorded.

        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.

    Change in Year-End

        In anticipation of the Exchange, the Company changed its year-end from a
twelve-month period ending September 30 to a twelve-month period ending March
31. The financial statements include presentation of the transition period
beginning October 1, 1995 and ending on March 31, 1996.



                                      F-6

<PAGE>   50

                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


B.  MANAGEMENT'S FINANCING AND CAPITAL FORMATION PLANS

        Since its inception, the Company has suffered recurring losses from
operations resulting in a net shareholders' deficit at March 31, 1997 and has
been unable to pay certain debt obligations. The remedies available to the debt
holders include immediate demand of payment and foreclosure. These conditions
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The ultimate success of the Company is dependent
upon its ability to continue to raise financing and significantly increase
contract revenue or product sales. However, the Company's capital requirements
may change depending upon numerous factors, including the demand for the
Company's product. In November 1997, the Company raised $3 million in a private
equity transaction. Management believes that with this additional capital, it
will have adequate funds to aggressively pursue market penetration. In view of
the Company's current financial condition, the Company plans to continue to
aggressively manage its working capital and expenses while pursuing product
sales opportunities as well as strategic or other business relationships.

C.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Principles of Consolidation

    The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany transactions and balances have
been eliminated in consolidation.

    Inventories

        Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out (FIFO) basis.

    Property And Equipment

        Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the lesser of the
estimated useful lives of the assets, 3 to 5 years, or lease term. Maintenance
and repair costs are expensed as incurred; renewals and betterments are
capitalized. Upon the sale or retirement of fixed assets, the accounts are
relieved of the cost and the related accumulated depreciation with any resulting
gain or loss included in income.

    Patents

        Purchased patents are valued at cost and amortized on a straight-line
basis over five years.

    Revenue Recognition


                                      F-7

<PAGE>   51

                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


        Sales of inspection systems and evaluation units are recorded when
customer acceptance requirements are met. Revenue from service maintenance
contracts is deferred and is recognized over the term of the contract, generally
one year. Revenue from government grants is recognized when specific contract
requirements have been met and no significant contingencies remain under the
contract. The Company generally requires payment from customers in U.S. dollars
as part of its normal payment terms. Fluctuations in foreign exchange rates to
date have not had a material effect on the Company's financial statements.

    Income Taxes

        The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires the use of an asset and liability approach for financial
accounting and reporting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the carrying amount and the tax bases of assets
and liabilities using the current statutory tax rates. If it is more likely than
not that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.

    Net Loss Per Common Share

    Net loss per common share is computed based upon the weighted average number
of common shares and common equivalent shares (using the treasury method)
outstanding after certain adjustments described below. Common equivalent shares
are not included in the per-share calculations where the effect of their
inclusion would be antidilutive.

    Research And Development

        Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred. Cost reimbursement under
collaborative research agreements are recorded as offsets to research and
development expenses.

    Use Of Estimates

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.


                                      F-8


<PAGE>   52


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Accounting Pronouncements

        In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128. "Earning
Per Share" which is effective for fiscal years ending after December 31, 1997,
including interim periods. Earlier adoption is not permitted. However, the
statement permits disclosure of pro forma earnings per share amounts computed
under SFAS 128 in the notes to the financial statements in periods prior to
adoption. The statement requires restatement of all prior period earnings per
share data presented after the effective date. SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share and
is substantially similar to the standards recently issued by the International
Accounting Standards Committee entitled International Accounting Standards,
Earnings Per Share. The Company will adopt SFAS 128 in fiscal 1998 and has not
yet determined its impact.

        In June 1997, the FASB issued two additional statements. SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" are both effective for years beginning after
December 15, 1997. Adoption of these standards are not expected to impact the
financial results of the Company.

    Concentrations of Credit Risk

    A significant portion of the Company's sales are to customers whose
principal activities relate to the printed circuit board industry, included a
heavy concentration of sales to customers in foreign countries. (See note P).
Although the Company generally requires advance deposits or letters of credit
from customers, the Company sometimes extends credit to its foreign customers
and collection may be more difficult in the event of a default.

D.  ACCOUNTS RECEIVABLE

        In the normal course of business, the Company extends credit terms on a
customer-by-customer basis based on its evaluation of collectibility exposure.
Management's estimates of losses in this area are recorded through an evaluation
of the adequacy of the allowance for doubtful accounts. The risk of loss from
any concentrations of credit risk with respect to trade receivables is mitigated
by management's evaluation and provision, the policy of securing larger dollar
sales with substantial deposits at order and ship dates, and the incentive for
customers to maintain their credit standing in order to receive ongoing
technical service.

        During the year ended March 31, 1997 and the six months ended March 31,
1996, accounts receivable in the amounts of $347,500 and $261,400, respectively,
were factored, without recourse, to a related party. Specific invoices were sold
under individual purchase and



                                      F-9



<PAGE>   53


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


sale agreements. The Company receives a portion of the value of a receivable at
the date of the sale. Subsequent receipts of sold receivables are forwarded in
full to the factor. Interest is calculated at Prime + 4% over the time the money
owed the factor is outstanding. The transaction is completed when the Company
receives the remaining balance of the receivable, net of interest charges, from
the factor. Interest on these contracts totaled $21,257, $16,201, $7,642 and
$3,415 during the year ended March 31, 1997, the six months ended March 31,
1996, and the years ended September 30, 1995 and 1994, respectively.

E.  INVENTORIES

    Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                      MARCH 31,           MARCH 31,
                                                                        1997                1996
                                                                      ---------           ---------
<S>                                                                    <C>                 <C>     
                  Raw materials................................        $949,895            $356,805

                  Work in process..............................         596,277              28,049

                  Finished goods...............................         331,807             298,032
                                                                     ----------            --------
                                                                     $1,877,979            $682,886
                                                                     ==========            ========
</TABLE>

F.  PROPERTY AND EQUIPMENT

        Property and equipment consists of the following:
<TABLE>
<CAPTION>

                                                                                   MARCH 31,        MARCH 31,
                                                                                    1997              1996
                                                                                   ---------        ---------
<S>                                                                               <C>               <C>      
                     Machinery and equipment..................................    $  55,613         $  55,613
                     Computer equipment, including $10,001 in capital
                        leases in 1997 and 1996 respectively..................       61,837            38,234
                     Computer software........................................       14,949            14,949
                     Furniture and fixtures...................................       24,837            24,837
                                                                                   --------          --------
                                                                                    157,236           133,633
                     Less: accumulated depreciation and amortization..........      122,980           100,763
                                                                                   --------          --------
                                                                                   $ 34,256          $ 32,870
                                                                                   ========          ========
</TABLE>

        Depreciation expense for the year ended March 31, 1997, six months ended
March 31, 1996, and the years ended September 30, 1995 and 1994, was $22, 217,
$17,310, $34,612 and $33,290, respectively.

G.  INTANGIBLE ASSETS



                                      F-10


<PAGE>   54


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


        The Company holds several patents that were purchased. These patents are
stated at the acquisition cost of $531,250 and are amortized using the
straight-line method over 5 years. Amortization expense was $106,250, $53,125,
$106,250, and $106,250 for the year ended March 31, 1997, the six months ended
March 31, 1996, and the years ended September 30, 1995, and 1994, respectively.

    The Company periodically reviews the propriety of carrying amounts of its
intangible assets as well as the amortization periods to determine whether
current events and circumstances warrant adjustment to the carrying value or
estimates useful lives. At each balance sheet date, management evaluates whether
there has been a permanent impairment in the value of goodwill by assessing the
carrying value of goodwill against anticipated future cash flows from related
operating activities. Factors which management considers in performing this
assessment include current operating results, trends, and prospects and, in
addition, demand, competition and other economic factors.

H. COMMITMENTS AND CONTINGENCIES

        The Company is obligated under a lease agreement for an office and
manufacturing facility in Lowell, Massachusetts, expiring on November 30, 1998.

        Under the terms of the lease, the Company must pay base rent of $9,970
per month plus the Company's pro rata share of certain costs paid by the
landlord. Total rent expense was $133,639, $66,084, $93,233, and $76,179 for the
year ended March 31, 1997, the six months ended March 31, 1996, and the years
ended September 30, 1995 and 1994, respectively.

    The amount of future minimum lease payments under the operating lease is as
follows:

<TABLE>
<CAPTION>
<S>                                                                <C>    
               1998..............................................  $119,638
               1999..............................................    79,760
                                                                   --------
               Total minimum lease payments......................  $199,398
                                                                   ========
</TABLE>

        On August 1, 1994 the Company entered into a cooperative agreement with
the U.S. Department of Energy Advanced Research Project Agency ("ARPA") to
research optics. The Company is finalizing its obligation under the contract. As
of March 31, 1997, the Company had incurred $320,000 in project expenses and had
received $320,000 in matching funds from ARPA which have been recorded as cost
reimbursement against research and development expense to the extent of costs
incurred.

        On November 28, 1994 the Company entered into an eight-year license and
collaboration agreement with Polaroid Corporation ("Polaroid") to promote the
development, marketing, and sales in the field of printed circuit board
production, and to collaborate in the fields of Automatic Inspection and PCB
PhotoTool generation.


                                      F-11



<PAGE>   55

    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


        Under the Polaroid Agreement, the Company is required to meet certain
sales and performance milestones to maintain the Company's exclusivity
concerning the technology. The Company and Polaroid are in the process of
resolving a dispute regarding exclusivity. Management believes that the ultimate
resolution of this dispute will not have a material effect on the Company=s
financial statements.

        In March 1996, the Company entered into a purchase agreement with
Centennial Technologies, Inc. ("Centennial") whereby Centennial had agreed to
purchase components and materials up to $3 million on behalf of the Company and
resell them to the Company. The Company has agreed to pay Centennial upon full
payment from the Company's customers as systems are sold. The agreement is
effective until June 30, 1997 and purchases must be specifically authorized by
Centennial. As of March 31, 1996, Centennial had authorized purchases for the
first $750,000. In accordance with the agreement, the Company incurred a one
time non-refundable fee of $200,000, which is included in General and
Administrative expenses for the six months ended March 31, 1996. In May 1997,
the Company and Centennial 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 off the remaining balance of approximately $1.2 million.

I.  ACCRUED EXPENSES

        Accrued expenses consist of the following:
<TABLE>
<CAPTION>

                                                                               March 31,     March 31,
                                                                                 1997          1996
                                                                               ---------     ---------
<S>                                                                            <C>           <C>     
                  Accrued vacation                                             $106,343      $ 88,999
                  Accrued professional fees                                     131,546       161,803
                  Accrued payroll and related expenses                          356,890       297,317
                  Accrued warranty                                              115,885        79,611
                  Accrued Centennial fee                                           --         200,000
                  Accrued interest and other                                    247,289       102,604
                                                                               --------      --------
                                                                               $957,953      $930,334
                                                                               ========      ========
</TABLE>

J.  DEBT

    The following is a summary of the Company's debt obligations:
<TABLE>
<CAPTION>
                                                                                             March 31,       March 31,
                                                                                                1997            1996
                                                                                             ---------       ---------
<S>                                                                                         <C>              <C>     
Collateralized demand note with assignee for the benefit of creditors for
    the former AOI Systems, Inc., due January 30, 1995. The note was
    renegotiated in July 1994 to require interest 
    only payments at a rate of 8.0%, due monthly.....................................        $130,000         $130,000

Uncollateralized subordinated note with a related party, principal due December 31,
     1996, interest rate of 8.4%, interest only payments due quarterly...............          50,000           50,000

</TABLE>


                                      F-12


<PAGE>   56


    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>

<S>                                                                                          <C>               <C>           
Uncollateralized note with a related party, principal due October 23, 1996, interest
     rate of 10% payable at maturity.................................................         100,000          100,000
Uncollateralized note with a related party, principal due October 23, 1996, interest
     rate of 8.4% payable at maturity................................................         100,000          100,000
Uncollateralized note with a related party, principal due June 6, 1996, interest
     rate of 10% payable at maturity.................................................          15,000           25,000
Uncollateralized note with a related party, principal due June 6, 1996, interest
     rate of 10% payable at maturity.................................................          15,000           15,000
Uncollateralized note with a related party, principal due June 6, 1996, interest
     rate of 10% payable at maturity.................................................           5,000            5,000
Uncollateralized note with a related party, principal due June 6, 1996, interest
     rate of 10% payable at maturity.................................................             --            10,000
Uncollateralized note with a related party, principal due June 6, 1996, interest
     rate of 10% payable at maturity.................................................          50,000           50,000
Uncollateralized note with a related party, principal due January 15, 1999, interest
     rate of 10% payable at maturity.................................................         150,000
Uncollateralized note with a related party, principal due January 21, 1999, interest
     rate of 10% payable at maturity.................................................          50,000
Uncollateralized note with a related party, principal due February 6, 1999, interest
     rate of 10% payable at maturity.................................................          50,000
Uncollateralized note with a related party, principal due February 6, 1999, interest
     rate of 10% payable at maturity.................................................          50,000
Uncollateralized note with a related party, principal due February 6, 1999, interest
     rate of 10% payable at maturity.................................................          50,000
Uncollateralized note with a related party, principal due February 6, 1999, interest
     rate of 10% payable at maturity.................................................          25,000
Uncollateralized note with a related party, principal due February 6, 1999, interest
     rate of 10% payable at maturity.................................................          25,000
Uncollateralized note with a related party, principal due February 11, 1999,
     interest rate of 10% payable at maturity........................................          50,000
Uncollateralized note, principal due in nine monthly payments of $3,467 plus
     interest at 8.1%................................................................          13,866            5,702
Capital lease obligations............................................................           1,538            4,472
                                                                                             --------         --------
                                                                                              930,404          495,174
Less amounts due within one year.....................................................         480,404          495,174
                                                                                             --------         --------
                                                                                             $450,000         $   -- 
                                                                                             ========         ========
</TABLE>

        In February 1996, the Company and various debt holders entered into an
agreement to convert $1,270,637 in unpaid debt and interest into 1,270,637
shares of the Company's common stock and warrants to purchase 150,000 shares of
common stock at $1.00 per share through February 6, 1999. In addition, the
Company and certain debt holders agreed to extend the maturity on $200,000 in
notes until October 23, 1996, however, a portion of this debt is still
outstanding.


                                      F-13

<PAGE>   57


    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


        In May 1996, the Company issued a note to a related party for $200,000,
bearing interest of 10% per annum, due May 1997. In June 1996, the related party
converted this $200,000 unpaid debt into 200,000 shares of common stock, and
purchased 250,000 shares of common stock at $1.00 per share. In August 1996, the
Company issued a note to a related party for $100,000 bearing interest of 12.25%
per annum, due September 1996. This note was repaid in January 1997 plus accrued
interest. In November 1996, the Company issued a note to a related party for
$130,000 bearing interest of 12.25% per annum, due 90 days from the date of
issuance. This note was repaid in January 1996 plus accrued interest. In
December 1996, the Company issued a note to a related party for $150,000 due in
December 1999, bearing interest of 10% per annum.

        In January 1997, a shareholder of the Company converted a loan in the
amount of $150,000 to a subordinated note which bears interest at 10% per annum
and is payable in January 1999. The Company issued 44,100 shares of common stock
to the noteholder in conjunction with this transaction. The common stock was
recorded in equity at $1.00 per share or a total of $44,100 which the Company
deemed to be fair market value with the offset to other expense. Payment of this
note is accelerated in the event the Company raises a certain amount of equity
financing. In addition, a shareholder of the Company loaned the Company $50,000
in January 1997. The Company issued a subordinated promissory note which bears
interest at 10% per annum and is due in two years. Payment of this note is
accelerated in the event the Company raises a certain amount of equity
financing. In addition, the Company issued 14,700 shares of common stock to the
noteholder in conjunction with this transaction. The common stock was recorded
in equity at $1.00 per share or a total of $14,700 which the Company deemed to
be fair market value with the offset to other expense.

        In January 1997, the Company through Schneider Securities, Inc. (the
"Placement Agent"), commenced the 1997 bridge financing through the sale of 5
units, each of which consists of a $50,000 subordinated promissory note bearing
interest at an annual rate of 10% and 10,714 shares of the Company's common
stock. The promissory notes are due two years after issue and payment is
accelerated in the event the Company raises a certain amount of equity
financing. In February 1997, the Company raised $250,000 through the sale of 5
units and issued 53,570 shares of common stock. The common stock was recorded in
equity at $2.10 per share or a total of $112,497 which the Company deemed to be
fair market value, based upon the recent exchange, with the offset to other
expense.

        The above debt instruments contain numerous covenants and remedies upon
default including immediate demand of payment and foreclosure. As of March 31,
1997, the Company had not repaid various borrowings that had become due and
therefore is in default. In addition, the collateralized note is secured by all
assets of the Company.


                                      F-14


<PAGE>   58


    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


K.  SHAREHOLDERS' EQUITY

        The Company's Board of Directors approved a 20-for-1 stock split of the
common and preferred stock in February 1996. Accordingly, share information for
all periods has been adjusted to reflect the split.

        Through Schneider Securities, Inc. (the "Placement Agent"), the Company
raised $559,210 (net of issuance costs of $140,790) from February 1996 through
March 1996. In April 1996, the Company raised $147,036 (net of issuance costs of
$32,964) for the Private Placement (the "Private Placement"). The Company also
issued warrants as part of the Private Placement, which were issued with an
exercise price equal to the price of the common stock issued during the Private
Placement. In accordance with the Private Placement, the Company issued to the
Placement Agent warrants for the purchase of 88,000 shares of common stock
exercisable on April 27, 1997 at an exercise price of $1.20 per share. In
addition, the Company issued warrants to purchase 44,000 shares of the Company's
common stock at an exercise price of $1.20 per share, to legal counsel in
conjunction with the Private Placement. The Company accounts for the warrants at
fair value. At the date of issuance, the value of the warrants was not material.

         In June 1996, a related party purchased 200,000 shares of common stock
at $1.00 per share. In January 1997, a shareholder exercised warrants to
purchase 230,000 shares of common stock at $1.00 per share.

        As of March 31, 1997, the Company had not repaid various borrowings that
had become due and therefore was in default. In February 1996, the Company and
various debt holders entered into an agreement to convert $1,270,637 of unpaid
debt and interest into 1,270,637 shares of the Company's common stock. In
addition, one debt holder agreed to exchange $100,000 of debt for warrants to
purchase 150,000 shares of the Company's common stock at $1.00 per share through
February 6, 1999.

        The Company has 5,867,498 and 3,537,037 shares of voting common stock
issued and outstanding at March 31, 1997 and March 31, 1996, respectively.
Holders of common stock are entitled to receive dividends only when declared by,
and at the discretion of, the Board of Directors. An aggregate of 800,000 shares
of voting common stock are reserved as follows: 200,000 shares for options under
the 1992 Stock Option Plan; and 600,000 share for options under the 1995 Stock
Option Plan.

        The Company has authorized 1,000,000 shares of preferred stock, with a
par value of $.01 per share. At March 31, 1997 and March 31, 1996, 0 and 633,000
shares were issued and outstanding. In February, 1997, 633,000 preferred shares
were converted to common shares on a one for one basis. The holders of the
shares of preferred stock vote in certain circumstances and receive dividends in
parity with holders of the common stock. Dividends are noncumulative for the
Series A stock, while annual dividends are cumulative for the Series B Stock at
10% of the 


                                      F-15




<PAGE>   59
    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


redemption value of $1.39.

        The Series A and Series B Stock are convertible at the option of the
holder into shares of the Company=s common stock at a conversion rate using a
conversion price that will be adjusted in certain instances such as dilutive
issuances of equity securities, as defined. At March 31, 1996 and September 30,
1995, the per share conversion rate for the Series A Stock was $4.80 divided by
the initial conversion price of $4.80, or one for one. At March 31, 1996 and
September 30, 1995, the per share conversion rate for the Series B Stock was
$1.39 divided by the initial conversion price of $1.39, also one for one.

        Upon liquidation, dissolution or winding up of the Company, holders of
the Series A and Series B Stock, in parity with one another, are entitled to
receive, prior and in preference to the holders of shares of stock ranking
junior to the Series A and Series B stock, an amount equal to $4.80 and $1.39
per share, respectively. In addition, Series B stockholders are entitled to any
accrued dividends at the date of liquidation.

        As of March 31, 1997 and March 31, 1996, no Series B stock was
outstanding and no dividends were declared or accrued by the Company.

        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, the investor holds a seat on the board of directors. The agreement
contains certain covenants which restrict future activities of the company
including 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.

L.  STOCK WARRANTS

        The Company has issued stock warrants as part of certain debt and equity
transactions and accounts for warrants when issued at fair value. At date of
issuance the value of these warrants was not material. The following summarizes
the warrant issuances for the three classes of stock authorized by the Company.


                                      F-16
<PAGE>   60



    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    Common Stock Warrants

        In December 1993 the Company issued to an officer, who personally
guaranteed corporate indebtedness, warrants to purchase 500,000 shares of common
stock at $.50 per share through December 22, 1998. Also in December 1993 the
Company issued in connection with debt, warrants to purchase 20,000 shares of
common stock at $.20 per share through December 22, 2003. In August 1994 the
Company issued to several directors and stockholders, warrants to purchase
160,000 and 180,340 shares of common stock at $1.25 and $1.39 per share,
respectively, through August 22, 2004 and August 22, 2002, respectively. In
October 1994, the Company issued in connection with debt, warrants to purchase
72,140 shares of common stock at $1.39 per share through October 5, 2002. In
December 1994, in connection with certain equity financing, the Company issued
warrants to purchase 72,160 shares of common stock at $1.39 per share through
December 15, 2002. In June 1995, the Company issued in connection with debt,
warrants to purchase 203,480 shares of common stock at $1.39 per share through
April 6, 2003.

        In October 1995, in connection with debt, the Company issued warrants to
purchase 250,000 shares of common stock at $1.00 per share through October 1998.
The Company, in February 1996, also issued warrants to purchase 150,000 shares
of common stock at $1.00 per share through February 1999, in conjunction with
the debt conversion and forgiveness of debt.

        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, and received a promissory note
from an officer of the Company for $125,000, interest and principal is payable
in four years, and accrues 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 in
exchange 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. The impact of these transactions will result in the Company taking a
charge in Fiscal 1998.

    Series B Preferred Stock Warrants

        In 1994 the Company issued warrants for the purchase of 180,380 and
20,000 shares of Series B Preferred Stock at $1.39 per share through August 22,
2004 and December 22, 2003, respectively. In September 1994 the Company issued
warrants for the purchase of 16,000 shares of Series B Preferred Stock at $1.39
per share through September 15, 2004. All of these warrants were converted to
common stock warrants in February 1997.


                                      F-17


<PAGE>   61



    
                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


M.  INCOME TAXES

        At March 31, 1997, the Company had net operating loss ("NOL")
carryforwards of approximately $6,800,000 for federal and Massachusetts income
tax purposes. These carryforwards expire through 2012. In addition, the Company
had Research and Experimentation ("R&E") credit carryforwards of approximately
$60,000 and $25,000 for federal and Massachusetts income tax purposes,
respectively. Utilization of these NOL and R&E credit carryforwards may be
limited pursuant to the provisions of Section 382 of the Internal Revenue Code.

        The components of the deferred tax assets and liabilities are as follows
(dollars in thousands):

<TABLE>
<CAPTION>

                                                                                  MARCH 31,       MARCH 31,
                                                                                    1997            1996
                                                                                  ---------       ---------
<S>                                                                                   <C>           <C> 
                  Deferred Tax Assets/(Liabilities):
                  Accrued expenses and other ...............................      $    451      $     280
                  Patents ..................................................           133            104
                  R&E credits ..............................................            85             85
                  NOL carryforwards ........................................         2,762          2,202
                                                                                  --------      ---------
                  Total deferred tax asset .................................         3,431          2,671
                  Valuation allowance ......................................        (3,431)        (2,671)
                                                                                  --------      ---------
                  Net deferred tax asset ...................................           --            --
                                                                                  ========      =========
</TABLE>

        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.

N.  EMPLOYEE BENEFIT PLAN

        Effective October 26, 1992, the Company implemented a deferred
compensation plan (the "Plan") under Section 401(k) of the Internal Revenue
Code. Under the Plan, employees are permitted to contribute, subject to certain
limitations. The Company's contribution to the Plan is discretionary and the
Company has not contributed to the Plan since its inception.

O.  EMPLOYEE STOCK OPTION PLAN

        During 1993, the Company adopted, subject to shareholder approval, a
stock award and incentive plan which permits the issuance of options or stock
appreciation rights (SARs) to selected employees and independent contractors of
the Company. The plan reserves 200,000 shares of common stock for grant and
provides that the term of each award be determined by the Board of Directors
charged with administering the plan.


                                      F-18



<PAGE>   62


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


        Under the terms of the plan, options granted may be either nonqualified
or incentive stock options and the exercise price, determined by the Board of
Directors, may not be less than the fair market value of a share on the date of
grant. SARs and limited SARs granted in tandem with an option shall be
exercisable only to the extent the underlying option is exercisable and the
grant price shall be equal to the exercise price of the underlying option. All
options granted in 1993 and 1994 had an exercise price of $.20 per share. 42,140
options were granted in October of 1992 to employees who transferred to Triple I
from AOI Systems; these options were immediately exercisable. All other options
granted during 1993 and 1994 vest over a five-year period. In September 1995,
the Company granted to certain employees, 34,060 options with an exercise price
of $1.00 per share, vesting over a five-year period. Also during September 1995,
the Company granted to an officer of the Company, 40,000 options with an
exercise price of $1.00 per share, vesting over a two-year period. In May 1996
and January 1997 the Company granted 100,000 options and 50,000 options
respectively, at $1.00 per share to officers of the Company. Also, in November
1996, 130,600 options were granted to employees at $1.00 per share. During the
year ended March 31, 1997, the Company, in connection with certain stock option
grants, recognized $26,400 in compensation expense, due to extending the
exercise period which resulted in a remeasurement date.

         Details of stock options are as follows:
<TABLE>
<CAPTION>
                                                                                        WEIGHTED 
                                                                                        AVERAGE
                                                                                         SHARES     EXERCISE PRICE
                                                                                        --------    --------------

<S>                                                                                     <C>           <C>         
                   Year ended September 30, 1993
                        Granted...................................................         62,940     $     .20
                        Exercised.................................................              0
                        Canceled..................................................              0
                                                                                        ---------     ---------
                        Outstanding at end of year................................         62,940           .20
                                                                                        ---------     ---------
                        Exercisable at end of year................................         42,140           .20
                                                                                        =========     =========
                   Year ended September 30, 1994
                        Granted...................................................         63,000           .20
                        Exercised.................................................              0
                        Canceled..................................................          1,600           .20
                                                                                        ---------     ---------
                        Outstanding at end of year................................        124,340           .20
                                                                                        ---------     ---------
                        Exercisable at end of year................................         45,700           .20
                                                                                        =========     =========
                   Year ended September 30, 1995
                        Granted...................................................         74,060          1.00
                        Exercised.................................................              0
                        Canceled..................................................              0
                                                                                        ---------     ---------
                        Outstanding at end of year................................        198,400           .50
                                                                                        ---------     ---------
                        Exercisable at end of year................................         62,220           .20
                                                                                        =========     =========
                   Six months ended March 31, 1996
                        Granted...................................................              0

</TABLE>

                                      F-19
<PAGE>   63

                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


<TABLE>
<CAPTION>

<S>                                                                                     <C>         <C>         
                        Exercised.................................................              0
                        Canceled..................................................          2,000        1.00
                                                                                        ---------   ---------
                        Outstanding at end of year................................        196,400         .49
                                                                                        ---------   ---------
                        Exercisable at end of year................................         71,940   $     .20
                                                                                        =========   =========
                   Year ended March 31, 1997
                        Granted...................................................        280,600        1.00
                        Exercised.................................................              0
                        Canceled..................................................              0
                        Outstanding at end of year................................        477,000         .79
                                                                                        ---------   ---------
                        Exercisable at end of year................................        114,872         .38
                                                                                        =========   =========
</TABLE>

    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). SFAS 123 is effective for periods beginning after
December 15, 1995, and requires that companies either recognize compensation
expense for grants of stock, stock options, and other equity instruments based
on fair value, or provide pro forma disclosure of net income and earnings per
share in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 for the year ended March 31, 1997 and has
applied APB Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized.

    Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net income and earnings per share for
the years ended March 31, 1997 and March 31, 1996 would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                   MARCH 31, 1997                MARCH 31, 1996
                              -------------------------     ---------------------------
                                               Loss Per                        Loss Per
                               Net Income       Share        Net Income         Share
                              ------------    ---------     ------------       --------
<S>                           <C>               <C>         <C>                 <C>    
As reported                   $(1,894,554)      $ (.44)     $(1,159,821)        $ (.55)
Pro Forma                     $(1,916,682)      $ (.45)     $(1,164,526)        $ (.55)
</TABLE>

        The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to Fiscal
1996 and additional awards in the future years are anticipated.

        The fair value of each stock option is estimated on the date of grant
using the Minimum


                                      F-20


<PAGE>   64

                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


Value option-pricing model with the following assumptions: an expected life of
six years, no dividends, and risk free interest rates of 6.2% and 6.1% for the
years ended March 31, 1997 and March 31, 1996, respectively. The fair value of
options granted in the year ended March 31, 1997 and the six months ended March
31, 1996 was $280,600 and $0.

The following table summarizes information about stock options at March 31,
1997:

<TABLE>
<CAPTION>

                         
                                       Options Outstanding                       Options Exercisable
                       --------------------------------------------------    -----------------------------
                       Weighted Average
  Range of                  Number       Contractual     Weighted Average       Number    Weighted Average
Exercise Prices          Outstanding        Life          Exercise Price     Exercisable   Exercise Price
---------------          -----------        ----          --------------     -----------   --------------
<S>                        <C>              <C>               <C>               <C>             <C>  
  $0.20                    124,140          6.20              $0.20             88,460          $0.20
  $1.00                    302,860          9.17              $1.00             26,412          $1.00
  $4.00                     50,000          9.77              $4.00                  0
                           -------                                             -------
$0.20-4.00                 477,000          8.46              $1.11            114,872          $0.38
                           =======                                             =======
</TABLE>

P.  SIGNIFICANT CUSTOMERS AND DOMESTIC AND EXPORT SALES

    Significant Customers

        Sales to significant customers were as follows:

<TABLE>
<CAPTION>
                                    YEAR ENDED                SIGNIFICANT                PERCENTAGE OF
                                  MARCH 31, 1997               CUSTOMERS       AMOUNT      REVENUES
                           -----------------------------      -----------      ------    -------------
                           <S>                                <C>             <C>             <C>
                           1997.........................      Customer A      $515,272        28%

                           1997.........................      Customer B       460,000        25%

                           1997.........................      Customer C       274,781        15%

                           1997.........................      Customer D       227,230        12%

                                    FOR THE SIX
                                   MONTHS ENDED               SIGNIFICANT                PERCENTAGE OF
                                  MARCH 31, 1996               CUSTOMERS       AMOUNT      REVENUES
                           -----------------------------      -----------      ------    -------------
                           1996.........................      Customer A      $226,059        39%
                                                              
                           1996.........................      Customer B       180,000        31%
                                                              
                                                              
                                                              
                                     YEAR ENDED               SIGNIFICANT                PERCENTAGE OF
                                  SEPTEMBER 30, 1995           CUSTOMERS       AMOUNT      REVENUES
                           -----------------------------      -----------      ------    -------------
                           1995.........................      Customer A      $225,000        18%
                                                              
                           1995.........................      Customer B       209,248        17%
                                                              
</TABLE>                                                      
                                                        

                                      F-21


<PAGE>   65


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>

                           <S>                                <C>             <C>             <C>
                           1995.........................      Customer C       197,000        16%
                                                              
                           1995.........................      Customer D       178,066        15%
                                                              
                           1994.........................      Customer A       341,052        26%
                                                              
                           1994.........................      Customer B       291,572        22%
                                                              
                           1994.........................      Customer C       198,000        15%
                                                              
                           1994.........................      Customer D       150,000        12%
</TABLE>
                                                              
                                                              
    Domestic and Export Sales                                 
                                                              
        Domestic and export sales as a percentage of revenues were as follows:
                                                              
<TABLE>
<CAPTION>
                                                                              YEAR ENDED
                                                                            MARCH 31, 1997
                                                                      --------------------------
                                                                        AMOUNT              %
                                                                      -----------       --------
                  <S>                                                  <C>                 <C>
                  Domestic........................................     $  377,835            20%
                  Europe..........................................        990,808            54%
                  Asia............................................        484,933            26%


                                                                           SIX MONTHS ENDED
                                                                            MARCH 31, 1996
                                                                      --------------------------
                                                                        AMOUNT              %
                                                                      -----------       --------
                  Domestic........................................     $   37,328             6%
                  Europe..........................................        532,112            92%
                  Asia............................................         10,926             2%

  
                                                                               YEAR ENDED
                                                                           SEPTEMBER 30, 1995
                                                                      --------------------------
                                                                        AMOUNT              %
                                                                      -----------       --------
                  Domestic........................................     $  114,701             9%
                  Europe..........................................      1,095,642            90%
                  Asia............................................         14,680             1%


                                                                             YEAR ENDED
                                                                          SEPTEMBER 30, 1994
                                                                      --------------------------
                                                                        AMOUNT              %
                                                                      -----------       --------
                  Domestic........................................     $  500,545            38%
                  Europe..........................................        664,965            51%
                  Asia............................................        144,638            11%

</TABLE>


                                      F-22



<PAGE>   66


                         INDUSTRIAL IMAGING CORPORATION

                   NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)


Q. OTHER EXPENSE

    Included in other expense is $171,297, which represents the cost of shares
of the Company's common stock issued in conjunction with loans made to the
Company in January and February, 1997. (See Note J).

R.  MERGER EXPENSES

        The costs of the Exchange with Orbis, consisting of legal costs,
printing costs, and accounting costs amounted to $179,787, and have been
included in operating expenses. (See Note A).



                                      F-23