U.S. Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-QSB

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to________

Commission file number: 0-26998

ALCOHOL SENSORS INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)

New York 11-3104480
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)

11 Oval Drive, Islandia, New York 11722
(Address of principal executive offices)

(516) 342-1515
(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value $.001
per share - 8,757,268 shares outstanding as of November 14, 1997.

Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]

PART I. FINANCIAL INFORMATION

Item Page

Item 1. Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996. . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 1997 and 1996. . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996. . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . . 6

Item 2. Management's Discussion and Analysis or Plan of Operation . . . . 10

ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, December 31,
1997 1996
------------- ------------
(Unaudited) (Note)
ASSETS
Current assets:

Cash and cash equivalents . . . . . . . . . . . $ 3,204,693 $ 3,042,051
Accounts receivable, net. . . . . . . . . . . . 56,907 16,392
Inventory . . . . . . . . . . . . . . . . . . . 619,883 287,462
Prepaid expenses. . . . . . . . . . . . . . . . 167,747 138,295
------------- -------------
Total current assets . . . . . . . . . . . 4,049,230 3,484,200

Fixed assets, net. . . . . . . . . . . . . . . . 369,236 367,618
Other assets . . . . . . . . . . . . . . . . . . 14,166 23,084
------------- -------------
$ 4,432,632 $ 3,874,902
------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 332,903 $ 703,955
Accrued expenses. . . . . . . . . . . . . . . . 193,493 215,802
Due to related party. . . . . . . . . . . . . . 86,668 153,513
Loans payable and accrued interest to
officers/shareholders . . . . . . . . . . . . 346,155 282,880
Note payable. . . . . . . . . . . . . . . . . . 500,000 500,000
Accrued and unpaid dividends. . . . . . . . . . 175,625 --
Deposits. . . . . . . . . . . . . . . . . . . . 10,000 10,000
Total current liabilities . . . . . . . . . . 1,644,844 1,866,150
------------- -------------
Accrued litigation settlement cost . . . . . . . 124,864 1,208,813

Shareholders' equity:
Series A nonredeemable 9% cumulative preferred stock:
833,333 shares authorized; 833,333 issued and
outstanding (liquidation value: $2,675,625 and
$2,506,875, at September 30, 1997 and December
31, 1996, respectively) . . . . . . . . . . . 2,500,000 2,500,000
Series B 8% redeemable convertible preferred
stock: 600 shares authorized; 300 shares
issued and outstanding at September 30, 1997
(liquidation value: $3,000,000). . . . . . . 2,685,000 --
Common stock, par value $.001 per share:
25,000,000 authorized; 8,811,690 and 8,776,690
shares issued and outstanding as of September 8,777 8,777
Additional paid-in capital. . . . . . . . . . . 12,767,417 11,419,483
Accumulated deficit . . . . . . . . . . . . . . (15,070,291) (12,900,000)
Accumulated foreign currency translation
adjustment. . . . . . . . . . . . . . . . . . (5,325) (5,633)
------------- -------------
2,885,612 1,022,627
Less treasury stock, at cost: 55,672 shares
of common stock . . . . . . . . . . . . . . . (222,688) (222,688)
------------- -------------
Total shareholders' equity . . . . . . . . 2,662,924 799,939
------------- -------------
Total liabilities and shareholders' equity $ 4,432,632 $ 3,874,902
<FN>

Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
</FN>

ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996

Net sales. . . . . . . . . .. . . $ 31,454 $ 19,372 $ 65,417 $ 19,372
Cost of goods sold . . . . . . . . 15,560 6,911 33,893 6,911
---------- ---------- ------------ ------------
Gross profit . . . . . . . . . . . 15,894 12,461 31,524 12,461

Costs and expenses:
Cost of merchandise shipped -
subsequently recalled . . . . -- -- -- 556,809
Research and development. . . . . 76,273 192,366 229,069 368,094
Selling, general and administrative 761,865 734,139 1,845,469 2,009,279
Litigation settlement . . . . . . 59,895 -- 59,895 382,683
---------- ---------- ----------- ------------
(Loss) from operations. . . . (882,139) (914,044) (2,102,909) (3,304,404)

Interest and other income. . . . . 12,021 24,458 54,953 73,436
Interest expense . . . . . . . . . (12,632) (17,015) (30,085) (38,733)
---------- ---------- ----------- ------------
Net (loss) . . . . . . . . . . $ (882,750) $(906,601) $(2,078,041) $(3,269,701)
----------- ---------- ----------- ------------

Net (loss) per share . . . . . . . $ (.11) $ (.11) $ (.26) $ (.39)
----------- ---------- ------------ ------------

Weighted average number of common
shares outstanding. . . . . . . 8,741,857 8,545,757 8,740,190 8,349,093
---------- ---------- ----------- ------------

<FN>
See notes to condensed consolidated financial statements.
</FN>

ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30,
1997 1996

Cash flows from operating activities:

Net (loss) . . . . . $ (2,078,041) $ (3,269,701)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization . . . . . . . . . 63,000 45,000
Issuance of option for services . . . . . . . . 235,000 --
Changes in operating assets and liabilities:
(Increase) in accounts receivable . . . . . . . (40,515 (104,607)
(Increase) decrease in inventory. . . . . . . . (332,421) (372,284)
(Increase) in prepaid expenses and
other current assets. . . . . . . . . . . . . (29,452) 71,456
Decrease in restricted cash . . . . . . . . . . -- 1,017,317
Decrease in other assets. . . . . . . . . . . . 8,918 --
(Decrease) in amounts due to related party. . . (66,845) --
(Decrease) in deposit . . . . . . . . . . . . . -- (14,922)
Increase (decrease) in accounts payable and
accrued expenses . . . . . . . . . . . . . . . (393,361) 193,668
Increase in accrued interest to officers. . . . 7,275 --
Increase in amounts due officers. . . . . . . . 56,000 --
Increase (decrease) in accrued litigation
settlement . . . . . . . . . . . . . . . . . . 59,895 --
Increase in other assets. . . . . . . . . . . . 307 --
------------- -------------
Net cash (used in) operating activities. . (2,510,240) (2,434,073)
------------- -------------

Cash flows from investing activities:
Sales of marketable securities . . . . . . . . . . -- 1,980,300
Acquisition of fixed assets. . . . . . . . . . . . (64,618) (47,823)
------------- -------------
Net cash (used by) investing activities. . (64,618) 1,932,477
------------- -------------

Cash flows from financing activities:
Proceeds from sale of Series B Preferred
Stock, net of expenses . . . . . . . . . . . . 2,685,000 --
Proceeds from sale of common stock . . . . . . . . 52,500 238,988
Proceeds from notes payable, convertible notes
and warrants . . . . . . . . . . . . . . . . . -- 482,683
------------- -------------
Net cash provided by financing activities. 2,737,500 721,671
------------- -------------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . 162,642 220,075
Cash and cash equivalents - Beginning of period. . 3,042,051 524,231
------------- -------------
Cash and cash equivalents - End of period. . . . . $ 3,204,693 $ 744,306
------------- -------------

Supplemental disclosure of non-cash financing activities:
In March 1997, certain officers and members of management contributed 315,000
shares of Common Stock to the Company to settle litigation that had been accrued
in the amount of $1,143,844.
In June 1997, certain officers exchanged $230,000 of liabilities for options
to purchase 115,000 shares of Common Stock.

Supplemental disclosure of cash flow information:
Interest paid during the period. . . . . . . . . . $ 17,899 $ 28,790

<FN>
See notes to condensed consolidated financial statements.
</FN>

ALCOHOL SENSORS INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation.

The accompanying unaudited condensed consolidated financial statements have
been prepared by Alcohol Sensors International, Ltd. (the "Company"), without
audit, in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date but does not include
all the information and footnote disclosures required by generally accepted
accounting principles for complete financial statements. These financial
statements should be read in conjunction with the audited financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB/A
No. 1, filed on April 28, 1997 (Commission File No.: 0-26998).

Operating results for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.

2. Significant Accounting Policies.

Loss per share of common stock:

Net loss per share of common stock is based on the weighted average number
of shares outstanding during each period.

Inventory:

Inventory, consisting of electronic components, is stated at the lower of
cost (first in - first out basis) or market. Inventory, at September 30, 1997,
is comprised of finished goods, of $183,944, and components of $435,939.

3. Product Recall.

In the late spring of 1996, the Company became aware of inconsistencies in
certain integral components of the Company's Sens-O-Lock product manufactured
for the Company and other manufacturing and quality control problems. The
Company discontinued manufacturing of the Sens-O-Lock units and recalled the
product. During the second quarter of 1996, the Company determined to develop a
new technology for its Sens-O-Lock product line and wrote down inventory by
approximately $556,000 in connection therewith.

4. Note Payable.

The Company has a line of credit of $500,000, bearing interest at the prime
rate, which is secured by a $500,000 certificate of deposit. The amount
outstanding under this line of credit was $500,000 at December 31, 1996 and
September 30, 1997. The amount of the certificate of deposit is included in cash
and cash equivalents.

5. Legal Proceedings.

The Company and certain of its former officers were named as defendants in
an action commenced in September 1997 in the New York State Supreme Court,
County of Nassau, captioned Guisepina Aucello v. Robert Whitney, John Ruocco and
Alcohol Sensors International, Ltd. The Plaintiff alleges that, in February
1990, Plaintiff entered into an exclusive "Distributor Agreement" with "Alcohol
Sensors, Inc." wherein Plaintiff was granted a regional license to market,
distribute and install a certain "automotive alcohol sensor" device to which the
Defendant, "AS Inc.," owned the patent rights. Plaintiff alleges damages of
$1,000,000. The Company believes that Plaintiff's claims against the Company to
be without merit and intends to vigorously defend itself in the action. The
Company is in the process of preparing its answer in this action. The ultimate
outcome of this action is unknown at this time.

6. Computation of Loss per Share.

The Company's loss per share, as reflected in the condensed consolidated
financial statements, has been computed as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996

Net (loss) . . . . . . . . . . . $ (882,750) $ (906,601) $ (2,078,041) $ (3,269,701)
Cumulative dividend on Series A
Preferred Stock . . . . . . . . (56,250) -- (168,750) --
Cumulative dividend on Series B
Preferred Stock . . . . . . . . (36,000) -- (36,000) --
----------- ----------- ------------- -------------
Net (loss) attributable to common
stock . . . . . . . . . . . . . $ (975,000) $ (906,601) $ (2,282,791) $ (3,269,701)
----------- ----------- ------------- -------------
Weighted average number of common
shares outstanding. . . . . . . 8,741,857 8,545,757 8,740,190 8,349,093
----------- ----------- ------------- -------------
Net loss per share . . . . . . . $ (.11) $ (.11) $ (.26) $ (.39)
----------- ----------- ------------- -------------

7. Series B 8% Redeemable Convertible Preferred Stock.

On September 26, 1997, the Company sold and issued to Milbright Estates
Ltd. (the "Purchaser"), (a) a total of 300 shares of 8% Series B Convertible
Preferred Stock (the "Series B Preferred Stock") and (b) a Warrant (the
"Warrant") to purchase 50,000 shares of the common stock, par value $.001 per
share (the "Common Stock"), of the Company, for total gross proceeds of
$3,000,000. In connection with the sale and issuance of the Series B Preferred
Stock and Warrant, the Company issued warrants (the "Third Party Warrants") to
purchase an aggregate 100,000 shares of Common Stock to third parties and paid
certain of such third parties an aggregate of $300,000.

The Series B Preferred Stock is convertible, at the option of the holder,
into shares of Common Stock at any time following the earlier of (a) the
effectiveness of a registration statement for the Common Stock into which the
Series B Preferred Stock is convertible (the "Registration Statement") or (b)
120 days from the date of original issuance of the Series B Preferred Stock (the
"Original Issuance Date"). Notwithstanding the foregoing, the Series B Preferred
Stock is convertible, (a) with respect to 100 shares, at any time on or after
November 24, 1997, (b) with respect to an additional 100 shares, at any time on
or after December 24, 1997 and (c) with respect to any other shares, at any time
on or after January 23, 1998. Each share of Series B Preferred Stock shall be
convertible into that number of shares of Common Stock as is determined by
dividing (a) the sum of (i) $10,000 plus (ii) the amount of all accrued but
unpaid or accumulated dividends on the share of Series B Preferred Stock being
so converted by (b) the Conversion Price (as defined below) in effect at the
time of conversion. The "Conversion Price" of the Series B Preferred Stock will
be equal to the lower of (a) $4.03125, the average of closing bid prices of a
share of Common Stock as quoted on The Nasdaq Stock Market for the ten

consecutive trading days immediately preceding the Original Issuance Date or (b)
82.5% of the average closing bid price of a share of Common Stock as quoted on
The Nasdaq Stock Market for the ten consecutive trading days immediately
preceding the date of the conversion notice delivered to the Company. If not
sooner converted, all outstanding shares of Series B Preferred Stock shall be
subject to automatic conversion two years after the Original Issuance Date.

Unless the approval of the Company's shareholders has previously been
obtained, the Company is not required to issue any Common Stock upon conversion
of the Series B Preferred Stock to the extent that (a) the issuance of such
Common Stock, when taken together with all prior issuances of Common Stock upon
conversion of Series B Preferred Stock, would result in the issuance by the
Company of a number of shares of Common Stock equal to or greater than 20% of
the number of shares of Common Stock outstanding on the date of initial issuance
of the Series B Preferred Stock (a "20% Issuance"), and such 20% Issuance
requires the prior approval of the shareholders of the Company pursuant to any
applicable rule, regulation, stated policy, practice or interpretation of The
Nasdaq Stock Market or (b) the Board of Directors of the Company determines in
good faith that the issuance of such Common Stock upon conversion (whether or
not constituting a 20% Issuance) otherwise requires the prior approval of the
shareholders of the Company pursuant to any applicable rule, regulation, stated
policy, practice or interpretation of any stock exchange or stock market on
which the Common Stock then listed or admitted to trading (the "Stockholder
Approval Requirement"). Following the first conversion of Series B Preferred
Stock to which a 20% Issuance is applicable, the Company is required to (a) give
notice to all holders of the Series B Preferred Stock that the Company is unable
to issue any further Common Stock upon conversion of Series B Preferred Stock,
and that the Series B Preferred Stock cannot be converted without compliance
with the Stockholder Approval Requirement, and (b) take one of the following
actions, at its election, within twenty days following the date of such notice:
(i) the Company shall notify all such holders of the Series B Preferred Stock
that the Company intends to seek shareholder approval pursuant to the
Stockholder Approval Requirement, in which event the Company shall thereafter
take all action necessary to call a meeting of its shareholders as promptly as
reasonably practicable to vote on such matter; (ii) the Company shall obtain
from the stock exchange or stock market on which the Common Stock is then listed
a waiver of the Stockholder Approval Requirement and shall commence any mailing
to stockholders notifying them of such waiver that is required by the rules of
such stock exchange or stock market; or (iii) the Company shall notify all such
holders of the Series B Preferred Stock that it is redeeming Series B Preferred
Stock pursuant to the redemption provisions of the Series B Preferred Stock. In
the event that the Company elects to seek stockholder approval, and such
stockholder approval is not obtained within 75 days following the date of the
Company's notice to the holders of the Series B Preferred Stock that it intends
to seek such stockholder approval, the Company shall promptly following the end
of such 75 day period notify all holders of the Series B Preferred Stock that
the Company is redeeming Series B Preferred Stock. If the Stockholder Approval
Requirement is complied with or if a waiver of or exception to the Stockholder
Approval Requirement is obtained, the conversion rights of the holders of the
Series B Preferred Stock shall be reinstated.

If the Company is required to redeem Series B Preferred Stock pursuant to
the provisions thereof, the Company shall (a) issue the Maximum Number of Shares
of Common Stock (as defined below) to the holder of Series B Preferred Stock who
have requested conversion and (b) redeem, out of funds legally available
therefor, all of the Series B Preferred Stock that remain after such conversion
at a price per share of Series B Preferred Stock equal to $12,200 (subject to
adjustment) plus an amount equal to all dividends, if any, accrued but unpaid on
such shares as of the earlier of the date fixed for redemption or the maturity
date. For purposes of the Series B Preferred Stock, the "Maximum Number of
Shares of Common Stock" shall mean the greatest number of shares of Common Stock
that may be issued upon conversion of shares of Series B Preferred Stock without
causing a 20% Issuance.

required to redeem any of the Series B Preferred Stock. On September 30, 1997,
the Conversion Price was $4.10625, which would have resulted in an aggregate
886,344 shares of Common Stock being issued if the Series B Preferred Stock was
fully converted as of such date. (On November 14, 1997, the Conversion Price was
$2.2945312, which would have resulted in an aggregate 1,318,633 shares of Common
Stock being issued if the Series B Preferred Stock was fully converted as of
such date.)

The Company intends to seek shareholder approval at the next annual meeting
of the shareholders of the Company, regardless of whether the Maximum Number of
Shares of Common Stock has been issued or whether a Stockholder Approval
Requirement is necessary as of the date of such annual meeting. The Company's
directors and executive officers have indicated their intent to vote for
approval of the issuance of all shares of Common Stock to be issued upon the
conversion of the Series B Preferred Stock in full, including any issuance of
shares of Common Stock exceeding the Maximum Number of Shares of Common Stock.

Item 2. Management's Discussions and Analysis or Plan of Operations.

Statements contained in this Quarterly Report on Form 10-QSB that are not
based upon historical fact are "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements included
in this Form 10-QSB involve known and unknown risks, uncertainties and other
factors which could cause actual results, performance (financial or operating)
or achievements expressed or implied by such forward looking statements not to
occur or be realized. Such forward looking statements generally are based upon
the best estimates by the Company or future results, performance or achievement,
based upon current conditions and the most recent results of operations. Forward
looking statements may be identified by the use of forward looking terminology
such as "may," "will," "expect," "believe," "estimate," "anticipate,"
"continue," or similar terms, variations of those terms or the negative of those
terms.

Potential risks and uncertainties include, among other things, such factors
as the results of the Company's research and development efforts related to
technology for the next generation Sens-O-Lock product, the quality of the
components, manufacturing, design and quality control of the current and future
generations of the Sens-O-Lock product, the enactment and enforcement of laws
relating to the use of products such as the Company's Sens-O-Lock product in
connection with sentencing for alcohol-related crimes and violations, the level
of insurance industry adoption of discounts, if any, for the use of products
such as the Company's Sens-O-Lock product, the amount of sales of the Company's
products, the competitive environment within the industry in which the Company
competes, the level and costs incurred in connection with the Company's product
development efforts, market acceptance of the Company's products, certain
technological considerations, availability of parts and components, competition,
dependence on key personnel and the other factors including those disclosed and
discussed in this "Item 2. Management's Discussion and Analysis or Plan of
Operation" and in other sections of this Form 10-QSB. Readers of this Form
10-QSB should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward looking statements.

General

The Company markets and sells electronic after-market safety products,
including a patent-pending line of ignition interlock devices under the
Sens-O-Lock brand name. The Company's Sens-O-Lock equipment is designed to
detect, evaluate and assist in the prevention of an alcohol impaired driver from
operating a vehicle. The Company also markets and sells, under the WeatherEye
brand name, a line of modular products designed to automatically engage and
adjust the headlights and taillights of automobiles depending upon weather and
sunlight conditions.

After the Company's initial sale of approximately 700 Sens-O-Lock units,
the Company became aware in late Spring 1996 of inconsistencies in certain
integral components manufactured for the Company and other manufacturing and
quality control problems. As a result, in the second quarter of 1996, the
Company discontinued manufacturing of the Sens-O-Lock product, recalled the
Sens-O-Lock units which had been sold, ceased marketing efforts and wrote down
its inventory by approximately $556,000. Since that time, the Company has
devoted substantial resources to research and development of new technology for
and the design of the next ("second") generation Sens-O-Lock product line,
developing new relationships with other component suppliers and manufacturers,
improving the Company's component and manufacturing quality control procedures,
enhancing the Sens-O-Lock operating software to meet the requirements for
foreign markets and developing marketing strategies for the Sens-O-Lock product
line.

The Company has conducted various tests upon the prototypes of its second
generation Sens-O-Lock product, utilizing the results of the Company's research
and development efforts. These pre-production prototypes have been placed in
U.S. and European automobiles. The Company completed final parts procurement and
an initial production of approximately 500 second generation Sens-O-Lock units
during September and October 1997. The second generation Sens-O-Lock product
will be required to undergo certification testing prior to actual United States
market introduction for the legislative market, pursuant to National Highway
Transportation Safety Administration guidelines. The Company believes that, for
the U.S. voluntary and commercial markets, no such testing is required.

The Company continues to evaluate other sensing technologies currently in
use within the industry. The Company intends to continue to utilize its research
and development efforts to ensure that the Company's proprietary technology
remains "cutting edge" while providing the Company with alternative technical
options for different specified target markets, or to improve or exhance its
products.

The Company has continued its development of a network of independent
representatives and dealers covering most of the continental United States to
sell, install and service its Sens-O-Lock product. The Company's business
strategy will concentrate on penetrating three markets: (a) the voluntary
market, which includes parents of teenage drivers; (b) individuals subject to
legislative or judicial supervision (e.g., persons convicted of alcohol-related
or other crimes or violations); and (c) the commercial market comprising truck,
bus and taxi fleets. The Company intends to seek insurance discounts to help
drive the market for Sens-O-Lock product and to assist in the lobbying for
stricter federal and state laws requiring drivers convicted of alcohol-related
or other crimes or violations to install an ignition interlock device. The
Company is evaluating strategies, marketing plans and programs which the Company
expects will enable it to work jointly with major insurance companies to enhance
their respective markets. However, there can be no assurance that the Company
and such or other insurance companies will agree upon a strategy, plan or
program or that any such strategy, plan or program, if adopted, or the Company's
independent lobbying efforts, will result in revenues to the Company or the
commercial success of its products.

Results of Operations

Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996

Net Sales. The Company had net sales of $31,454 for the three months ended
September 30, 1997, an increase of 62.4% from net sales of $19,372 for the three
months ended September 30, 1996. In the 1997 period, the Company's net sales
were attributable to $8,912 in initial sales of the second generation
Sens-O-Lock product, shipments of which commenced in September 1997, as well as
$22,542 of sales of WeatherEye units. In 1996, the Company's net sales were
derived solely from the WeatherEye product. The Company has completed the
manufacture and assembly of approximately 500 second generation Sens-O-Lock
devices and, in the 1997 fourth quarter, expects to complete a further
production run of at least an additional 500 units. The Company has received
purchase orders for over 464 units from its dealer/distributor network, but has
refrained from filling such purchase orders so as to have available sufficient
product to fill the needs of its insurance market customers, which market the
Company believes would be more profitable and would provide better payment terms
than that obtainable from the Company's dealer/distributor network; however, no
assurance can be given that sales to insurance market customers can or will be
effected or that such sales, if any, will be profitable to the Company or on
better payment terms.

Cost of Goods Sold. Cost of goods sold for the three-month period ended
September 30, 1997 was $15,560, an increase of 125.1% from $6,911 in the 1996
period. Costs of goods sold in the 1997 period were $12,173 attributable to the
Company's Weather Eye products and $3,387 attributable to the second generation
Sens-O-Lock product. Costs of goods sold consists primarily of product costs,
freight charges, royalties and inventory allowances for damaged and obsolete
products.

Costs and Expenses. Research and development expenses for the three-month
period ended September 30, 1997 were $76,273, a decrease of approximately 60.4%
from $192,366 for the three months ended September 30, 1996, primarily due to
the focus of the Company in addressing specific areas related to the new
technology incorporated into the current generation Sens-O-Lock product compared
to more general research and development expenses on this and other technologies
during the 1996 period.

Selling, general and administration expenses for the three-month period
ended September 30, 1997 were $761,865, an increase of approximately 3.8% from
$734,139 for the three months ended September 30, 1996, primarily as a result of
the settlement of contract claims by certain former directors and officers of
the Company, partially offset by a reduction in the number of employees and an
approximate 70% deferral or reduction in the salaries of the Company's executive
officers and other employees.

Litigation settlement costs for the three-month period ended September 30,
1997 were $59,895, relating to the settlement of an arbitration action involving
a former employee. There were no litigation settlement costs in the 1996
three-month period.

Interest and Other Income. Interest and other income for the three-month
period ended September 30, 1997 was $12,021, a decrease of approximately 50.9%
from $24,458 for the three months ended September 30, 1996, primarily as a
result of higher average cash balances during the 1996 period.

Interest Expense. Interest expense for the three-month period ended
September 30, 1997 was $12,632, a decrease of approximately 25.8% from $17,015
for the three months ended June 30, 1996, primarily as a result of the
availability of cash resulting from the sale of the Company's Series A 9%
Non-redeemable Cumulative Preferred Stock (the "Series A Preferred Stock") in
December 1996.

Net Loss. As a result of the foregoing, the net loss for the 1997 period
was $882,750, a decrease of approximately 2.6% from $906,601 for the 1996
period. The net loss per share for the 1997 period was $.11 compared to $.11 for
the 1996 period, as a result of the reduced net loss for the 1997 period, offset
by the effect of the cumulative dividend on the Series A Stock and Series B 8%
Convertible Preferred Stock (the "Series B Preferred Stock") for the 1997
period.

Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996

Net Sales. The Company had net sales of $65,417 for the nine months ended
September 30, 1997, an increase of approximately 237.7% from $19,372 for the
nine months ended September 30, 1996, after adjustment for the recall of the
Company's first generation Sens-O-Lock product. The Company's sales, in the 1996
period, were solely of its Weather-Eye devices compared to sales of both the
second generation Sens-O-Lock ($8,912) and WeatherEye ($56,505) products in the
1997 period.

Cost of Goods Sold. Cost of goods sold for the nine-month period ended
September 30, 1997 was $33,893, an increase of 390.4% from $6,911 in the 1996
nine-month period, after adjustment for the recall of the first generation
Sens-O-Lock product. All costs of goods sold in the 1996 period were for the
Company's Weather Eye products, which was released in September 1996.

Costs and Expenses. For the nine-month period ended September 30, 1996, the
Company incurred costs of $556,026 with respect to the Sens-O-Lock product
shipped during the first six months of 1996 which was subsequently recalled. No
similar costs were incurred in the 1997 six-month period.

Research and development expenses for the nine-month period ended September
30, 1997 were $229,069, a decrease of approximately 37.8% from $368,094 for the
nine months ended September 30, 1996, primarily due to the narrowing of the
Company's research and development needs as the second generation Sens-O-Lock
was more fully developed.

Selling, general and administration expenses for the nine-month period
ended September 30, 1997 were $1,845,469, a decrease of approximately 8.2% from
$2,009,279 for the nine months ended September 30, 1996, primarily as a result
of a reduction in the number of employees and an approximate 70% deferral or
reduction in the salaries of the Company's executive officers and other
employees, partially offset by the settlement of contract claims by certain
former directors and officers of the Company.

Litigation settlement costs for the nine-month period ended September 30,
1997 were $59,895, a decrease of approximately 84.3% from $382,683 for nine
months ended September 30, 1996.

Interest and Other Income. Interest and other income for the nine-month
period ended September 30, 1997 was $54,953, a decrease of approximately 25.2%
from $73,436 for the nine months ended September 30, 1996, primarily as a result
of lower cash balances.

Interest Expense. Interest expense for the nine-month period ended
September 30, 1997 was $30,085, a decrease of approximately 22.3% from $38,733
for the nine months ended September 30, 1996, primarily as a result of the
availability of cash resulting from the sales of the Series A Stock in December
1996 and Series B Stock in September 1997.

Net Loss. As a result of the foregoing, the net loss for the 1997
nine-month period was $2,078,041, a decrease of approximately 36.4% from
$3,269,701 for the 1996 nine-month period. The net loss per share for the 1997
nine-month period was $.26 compared to $.39 for the 1996 period, as a result of
the reduced net loss for the 1997 nine-month period, partially offset by the
effect of the cumulative dividend on the Series A Stock for the 1997 nine-month
period.

Liquidity and Capital Resources

During the nine month period ended September 30, 1997, the Company's cash
and cash equivalents increased by $162,642 from $3,042,051 at December 31, 1996
to $3,204,693 at September 30, 1997, primarily as a result of the proceeds from
financing activities of $2,737,500, offset by cash used in operating activities
of $2,510,240 and in investing activities of $64,618. At September 30, 1997, the
Company had working capital of $2,404,386, an increase of $786,336 from working
capital of $1,618,050 at December 31, 1996. The Company believes that its
existing cash and cash equivalents and cash generated from operations, if any,
should be sufficient for existing operations for the next twelve months.

On September 26, 1997, the Company sold and issued to the Purchaser,
Milbright Estates Ltd., (a) a total of 300 shares of Series B Preferred Stock
and (b) a Warrant to purchase 50,000 shares of Common Stock, for total gross
proceeds of $3,000,000. In connection with the sale and issuance of the Series B
Preferred Stock and Warrant, the Company issued Third Party Warrants to purchase
an aggregate 100,000 shares of Common Stock to third parties and paid certain of
such third parties an aggregate of $300,000. See Note 7 to the Condensed
Consolidated Financial Statements.

If the Company is required to redeem Series B Preferred Stock pursuant to
the provisions thereof, the Company shall (a) issue the Maximum Number of Shares
of Common Stock to the holder of Series B Preferred Stock who have requested
conversion and will (b) redeem, out of funds legally available therefor, all of
the Series B Preferred Stock that remain after such conversion at a price per
share of Series B Preferred Stock equal to $12,200 (subject to adjustment) plus
an amount equal to all dividends, if any, accrued but unpaid on such shares as
of the earlier of the date fixed for redemption or the maturity date.

On the Original Issuance Date, the Company had 8,756,018 shares of Common
Stock outstanding and Nasdaq requires approval of a 20% Issuance. Accordingly,
the Maximum Number of Shares of Common Stock is 1,751,203 and the average of the
closing bid prices of a share of Common Stock for the ten trading days
immediately preceding the giving of a conversion notice with respect to all of
the Series B Preferred Stock would need to be lower than $2.0765 in order for
the Maximum Number of Shares of Common Stock to be reached and the Company
required to redeem any of the Series B Preferred Stock. On September 30, 1997,
the Conversion Price was $4.10625, which would have resulted in an aggregate
886,344 shares of Common Stock being issued if the Series B Preferred Stock was
fully converted as of such date. (On November 14, 1997, the Conversion Price was
$2.2945312, which would have resulted in an aggregate 1,318,633 shares of Common
Stock being issued if the Series B Preferred Stock was fully converted as of
such date.)

The Company intends to seek shareholder approval at the next annual meeting
of the shareholders of the Company, regardless of whether the Maximum Number of
Shares of Common Stock has been issued or whether a Stockholder Approval
Requirement is necessary as of the date of such annual meeting. The Company's
directors and executive officers have indicated their intent to vote for
approval of the issuance of all shares of Common Stock to be issued upon the
conversion of the Series B Preferred Stock in full, including the issuance of
shares of Common Stock exceeding the Maximum Number of Shares of Common Stock.

In the event that the shareholders of the Company do not approve the
issuance of shares of Common Stock in excess of the Maximum Number of Shares of
Common Stock and the market price of the Common Stock fell below $2.0765 per
share, the Company's shareholders' equity would be reduced by $2,685,000 (minus
the amount allocated to Series B Preferred Stock actually converted prior to
such date) and the Company's liabilities would be increased by an equivalent
amount. Upon subsequent conversion(s) of Series B Preferred Stock, the amount(s)
allocated to such Series B Preferred Stock actually so converted would be
thereafter treated as shareholders' equity with a corresponding reduction in the
Company's liabilities until the Maximum Number of Shares of Common Stock is
reached. Once the Maximum Number of Shares of Common Stock is reached the
Company would be required to redeem any remaining outstanding Series B Preferred
Stock. There can be no assurance that the shareholders of the Company will
approve the issuance of shares of Common Stock in excess of the Maximum Number
of Shares of Common Stock, the market price of the Common Stock will not fall
below $2.0765 per share for a ten consecutive trading day period or, in such
event and at such time, that the Company will have sufficient available funds to
redeem the Series B Preferred Stock.

The Company's operating activities for the first nine months of 1997 used
cash of $2,745,240, primarily as a result of the net loss of $2,078,041, an
increase in inventory of $332,421 as the Company prepared for the release of the
current generation Sens-O-Lock product, and a decrease in accounts payable and
accrued expenses of $393,361.

The Company's net cash provided by financing activities for the nine months
ended September 30, 1997 was $2,972,500, as the result of the sale in September
1997 of the Series B Stock for net proceeds of $2,685,000 and $52,500 from
exercise of certain of the warrants sold in the Company's initial public
offering.

In order to conserve cash, commencing in March 1997, certain of the
Company's officers deferred a portion of their salaries. As of June 10, 1997,
the amount of deferred salary totaled $230,000. On June 10, 1997, those officers
agreed to the cancellation of $230,000 of such deferred salary in exchange for
the issuance of options to purchase an aggregate 115,000 shares of Common Stock.
These options are exercisable through June 9, 2002 at $2.00 per share. On June
10, 1997, the closing price of the Common Stock was $2-9/16 per share.

The Company has established a plan of operation pursuant to which the
Company intends to purchase raw materials, components and manufacturing services
to assemble Sens-O-Lock units which the Company anticipates selling to the
Company's developing dealer network and to the insurance market. The Company
intends to fund additional research and development, including engineering,
personnel costs, laboratory equipment, purchases, rental costs and independent
laboratory testing services, through its current cash and cash flow generated by
the anticipated sales of the second generation Sens-O-Lock product, along with
the Company's WeatherEye products. There can be no assurance, however, that the
Company will be successful in attaining its sales goals, nor that attaining such
goals will have the desired effect on the Company's cash resources. If the
Company does not attain its revenue and cash collection goals or if the
Company's cash resources are not sufficient, it may be necessary to obtain
additional sources of financing. There can be no assurance that such financing
will be available on terms acceptable to the Company or on a timely basis or at
all.

Currency Fluctuations

The Company anticipates marketing internationally, as well as in the United
States. To the extent the Company is able to market its products in foreign
countries, the Company will become subject to the risks associated with
international sales, including, but not limited to, regulatory controls imposed
by foreign governments, shipping delays, customs duties and export quotas and
other trade restrictions, increased collection risks and international
political, regulatory and economical developments, any one of which could have
an adverse effect on the Company's operating results. To the extent that
revenues are derived in currencies other than U.S. Dollars, the Company's
operating results may be affected adversely by fluctuations in currency exchange
rates. The Company has not engaged in currency-hedging transactions intended to

reduce the effect of fluctuations in currency exchange rates on the Company's
foreign business operations. Even if the Company were to determine that it was
in its best interests to enter into any such hedging transactions in the future,
there can be no assurance that the Company will be able to do so or that such
transactions, if entered into, will materially reduce the effect of fluctuations
in currency exchange rates on the Company's foreign business operations.

Inflation

The Company believes that inflation has generally not had a material impact
on its operations.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Reference is hereby made to Item 3 to the Company's Annual Report on Form
10-KSB/A No. 1 for the fiscal year ended December 31, 1996 (page 14), filed
April 28, 1997 (Commission File No.: 0-26998), and Item 1 of Part II to the
Company's Annual Report on Form 10-QSB for the quarter ended June 30, 1997 (page
13), filed August 14, 1997, and to the references therein, for a discussion of
all material pending legal proceedings to which the Company or any of its
subsidiaries are parties.

Item 2. Changes in Securities and Use of Proceeds.

On September 26, 1997, the Company consummated the sale of 300 shares of
Series B Preferred Stock and warrant to purchase 50,000 shares of Common Stock
at $4.265625 per share (subject to adjustment) to a single investor for
aggregate gross proceeds of $3,000,000 in private transactions exempt from
registration under Section 4(2) of the Securities Act and Rule 506 of Regulation
D promulgated thereunder. In connection with such sale, the Company paid
$300,000 and issued five year warrants to purchase an aggregate 100,000 shares
of Common Stock at an exercise price of $4.265625 per share. Reference is made
to the Company's Current Report on Form 8-K (Date of Report: September 26, 1997)
(Commission File No.: 0-26998), filed with the Securities and Exchange
Commission (the "Commission") on October 7, 1997, and Note 7 to the Company's
condensed consolidated financial statement included herein for further
disclosures with respect to such transaction, which disclosures are incorporated
herein by reference thereto.

All net proceeds received by the Company in connection with its initial
public offering, which commenced, and the registration statement (Registration
No. 33-96752) for which was declared effective, on November 9, 1995, have been
utilized in full.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

Recent Developments:

By letter dated September 26, 1997 (the "Nasdaq Letter"), Nasdaq notified
the Company that Nasdaq staff was concerned about various aspects of the
Company's financial and operating status. The Nasdaq Letter went on to note
Nasdaq's desire to "obtain a more thorough understanding of the [C]ompany's
business strategy, market opportunities and operations" and, in furtherance
thereof, requested specified information and documents.

Under the rules of Nasdaq, which the Company is required to comply with
pursuant to the Company's listing agreement with Nasdaq, Nasdaq may request any
additional information or documentation deemed necessary to make a determination
regarding a security's initial or continued inclusion. In addition, the Nasdaq
rules grant Nasdaq "broad discretionary authority over the initial and continued
inclusion of securities in Nasdaq in order to maintain the quality and public
confidence in its market. Under such broad discretion . . . [Nasdaq] may deny
initial inclusion or apply additional or more stringent criteria for the initial
or continued inclusion of particular securities or suspend or terminate the
inclusion of particular securities based on any event, condition, or
circumstance which exists or occurs that makes initial or continued inclusion of
the securities in Nasdaq inadvisable or unwarranted in the opinion of [Nasdaq],
even though the securities meet all enumerated criteria for initial or continued
inclusion in Nasdaq."

The Company's management believes that the Company is in full compliance
with all enumerated criteria for continued inclusion in Nasdaq. In fact, since
the date of the Nasdaq Letter, the Company has introduced the second generation
Sens-O-Lock at the Birmingham, England Motor Show, commenced shipment of the
second generation Sens-O-Lock devices to customers and has obtained financing
which, management believes, will be sufficient for the Company's needs to
commence marketing and full production of the second generation Sens-O-Lock
product line. Such events have been communicated to Nasdaq in connection with
the Company's formal response to the Nasdaq Inquiry. However, there can be no
assurance that the Company's response to the Nasdaq Inquiry will allay Nasdaq's
concerns regarding the status of the Company and/or the Company's ability to
successfully launch the second generation Sens-O-Lock, that Nasdaq will not deny
the continued inclusion thereon of the Company's securities, that Nasdaq will
not apply additional or more stringent criteria for the continued inclusion
thereon of the Company's securities or that the Company would be capable of
complying with any additional or more stringent criteria for the continued
inclusion on Nasdaq of the Company's securities, if imposed. Any delisting of
the Company's securities from Nasdaq could cause a precipitous decline in the
market value of the Company's securities and adversely affect the liquidity of
the Company's securities.

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

(a) Exhibits.

Set forth below are all exhibits to this Quarterly Report on Form 10-QSB.

Exhibit
Number Description

10.1 Securities Purchase Agreement, dated September 24, 1997, by and
between the Company and Milbright Estates, Ltd. (minus attachments
and exhibits thereto). (Incorporated by reference to Exhibit "10.1"
to the Company's Current Report on Form 8-K (Date of Report:
September 26, 1997) (Commission File No.: 0-26998), filed with
the Commission on October 7, 1997).
10.2 Registration Rights Agreement, dated September 24, 1992, by and
between the Company and Milbright Estates, Ltd. (Incorporated by
reference to Exhibit "10.2" to the Company's Current Report on
Form 8-K (Date of Report: September 26, 1997) (Commission File No.
0-26998), filed with the Commission on October 7, 1997).
27 Financial Data Schedule.

(b) Reports on Form 8-K.

On October 7, 1997, the Company filed a Current Report on Form 8-K (Date of
Report: September 26, 1997) with the Commission reporting, as an Item 5
disclosure, the Company's sale of 300 shares of Series B Preferred Stock for
gross proceeds of $3,000,00. There were no financial statements included in such
Form 8-K.

SIGNATURES

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

ALCOHOL SENSORS INTERNATIONAL, LTD.

Dated: November 19, 1997 By:/s/ Steven A. Martello
Steven A. Martello, President
(Principal Executive Officer)

Dated: November 19, 1997 By:/s/ Michael A. Sylvester
Michael A. Sylvester
Executive Vice President of Sales,
Treasurer and Chief Financial Officer
(Principal Financial Officer)

ALCOHOL SENSORS INTERNATIONAL, LTD.
FORM 10-QSB - QUARTER ENDED SEPTEMBER 30, 1997

Exhibit Index

Exhibit
Number Description

10.1 Securities Purchase Agreement, dated September 24, 1997, by and
between the Company and Milbright Estates, Ltd. (minus attachments
and exhibits thereto). (Incorporated by reference to Exhibit "10.1"
to the Company's Current Report on Form 8-K (Date of Report:
September 26, 1997) (Commission File No.: 0-26998), filed with the
Commission on October 7, 1997).
10.2 Registration Rights Agreement, dated September 24, 1992, by and
between the Company and Milbright Estates, Ltd. (Incorporated by
reference to Exhibit "10.2" to the Company's current report on
Form 8-K (Date of Report: September 26, 1997) (Commission File No.
0-26998), filed with the Commission on October 7, 1997).
27 Financial Data Schedule.