U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
January 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition prior from
__________ to __________
Commission File No. 0 21245
Image Systems Corporation
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota (State or Other Jurisdiction of Incorporation or
Organization)
41-1620497 (I.R.S. Employer Identification No.)
6103 Blue Circle Drive, Minnetonka, Minnesota 55343
(Address of Principal Executive Offices)
(612) 935-1171
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes _X_ No ____
As of February 21, 1997, there were 4,441,347 shares of Common
Stock, $0.01 par value per share, outstanding.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
BALANCE SHEETS
JANUARY 31, APRIL 30,
1997 1996
ASSETS (unaudited)
CURRENT ASSETS:
Cash 713,910 686,432
Accounts receivable, net 1,122,364 1,284,896
Inventory 1,591,033 1,318,606
Prepaid expenses 12,399 6,232
Deferred tax asset 33,825 33,825
Total current assets 3,473,531 3,329,991
PROPERTY AND EQUIPMENT:
Land 396,043
Construction in
progress-building 953,116
Furniture and Equipment 399,688 310,615
Less maturities of
long-term depreciation (200,490) (162,420)
5,021,888 3,478,186
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable 408,908 290,745
Accrued liabilities 363,288 278,307
Income taxes payable 50,106 421,976
Current maturities
of long-term debt 16,593 9,131
Total current liabilities 838,895 1,000,159
LONG-TERM DEBT,
less current maturities 937,399
STOCKHOLDERS' INVESTMENT:
Common stock, no par value,
10,000,000 authorized,
4,441,347 and 4,333,222
share issued and outstanding 1,092,414 963,976
Retained earnings 2,153,180 1,514,051
Total stockholders'
Investment 3,245,594 2,478,027
5,021,888 3,478,186
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
For the Quarters Ended For the Nine Months Ended
January 31, January 31, January 31, January 31,
1997 1996 1997 1996
NET SALES 2,110,714 2,092,602 5,929,344 5,139,638
COST OF PRODUCTS SOLD 1,337,992 1,317,715 3,686,264 3,214,952
Gross Profit 772,722 774,887 2,243,080 1,924,686
OPERATING EXPENSES
Product development 122,497 123,011 357,722 342,274
Selling 213,263 163,806 570,553 465,652
Administrative 106,852 87,638 313,301 247,193
Total Operating
Expenses 442,612 374,455 1,241,576 1,055,119
Operating Income 330,110 400,432 1,001,504 869,567
INTEREST INCOME 12,428 6 34,320 1,031
INTEREST EXPENSE (13) (2,189) (4,960) (4,507)
Net Income
Before Income Taxes 342,525 398,249 1,030,864 866,091
PROVISIONS FOR
INCOME TAX 130,165 153,128 391,735 321,578
NET INCOME 212,360 245,121 639,129 544,513
NET INCOME PER SHARE .05 .06 .15 .13
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,434,811 4,333,222 4,391,347 4,333,222
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
January 31, January 31,
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITES:
Net Income 639,129 544,513
Adjustments to reconcile
net income to cash from
operating activities-
Depreciation 38,070 33,900
Changes in current
operating items
Accounts receivable 162,532 (219,352)
Inventory (272,427) (427,287)
Prepaid expenses (6,167) (8,356)
Accounts payable 118,163 21,518
Accrued liabilities 84,981 41,328
Income taxes payable (371,870) 23,328
Net cash from operating
activites 392,411 9,592
CASH FLOWS FROM
INVESTING ACTIVITES:
Land (396,043)
Buildings (953,116)
Furniture and
Equipment additions (89,073) (43,820)
Net cash used in
investing activites (1,438,232) (43,820)
CASH FLOWS FROM
FINANCING ACTIVITES:
Repayment to
bank equipment loan (9,131) (14,383)
Borrowings from bank
real estate loan 953,992
Borrowings from bank
line of credit 45,000
Exercise of stock
warrants 120,000
Exercise of stock
options 8,438
Net cash from financing
activites 1,073,299 30,617
Net increase (decrease)
in cash 27,478 (3,611)
CASH AT BEGINNING OF PERIOD 686,432 46,075
CASH AT END OF PERIOD 713,910 42,464
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid 38,943 4,384
Taxes paid 763,605 298,250
See Accompanying Notes To Financial Statements
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
January 31, 1997 and January 31, 1996
(Unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES:
The unaudited interim financial statements furnished herein
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods presented. The operating results for the nine months
ended January 31, 1997 are not necessarily indicative of the
operating results to be expected for the full fiscal year.
These statements should be read in conjunction with the
Company's most recent audited financial statements dated April
30, 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The company was formed on September 1, 1988 to design, assemble
and market high resolution monitors for use with computers.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1997 Versus January 31, 1996
Net sales for the three months ended January 31, 1997 increased
$18,112 or .9% compared to the three months ended January 31,
1996. Selling higher revenue monitors is the primary reason for
the increase.
Gross profit decreased $2,165 or .3% for the three months ended
January 31, 1997 compared to the three months ended January 31,
1996. The gross profit percentage decreased from 37.0% to 36.6%
or a decrease of .4%. Selling a smaller quantity of monitors
resulted in a less efficient level of production.
For the quarter ended January 31, 1997 product research and
development expenses decreased $514 or .4% compared to the
quarter ended January 31, 1996.
Selling expenses for the quarter ended January 31, 1997
increased $49,457 or 30.2% over the comparable quarter ended
January 31, 1996. The primary reasons for the increase are
increased salaries, commissions and increased travel and trade
show expenses.
Administrative expenses increased $19,214 or 21.9% for the three
months ended January 31, 1997 compared to the three months ended
January 31, 1996. The increase is a result of adding two office
personnel and increased office expenses.
For the quarter ended January 31, 1997 interest income increased
to $12,428 from $6 for the quarter ended January 31, 1996. Cash
generated from operations has allowed the company to deposit
excess cash in government trust funds with suitable interest
income rates.
Interest expense for the quarter ended January 31, 1997 is $13
compared to $2,189 for the quarter ended January 31, 1996.
Reduction of the bank equipment loan to zero on September 14,
1996 and the minor use of the bank line of credit due to excess
cash flow from operations are the reasons for the decrease of
interest expense. During the quarter ended January 31, 1997
interest of $24,036 incurred on the real estate loan has been
capitalized as part of the cost of building under construction.
The provision for income taxes decreased $22,963 or 15% for the
three months ended January 31, 1997 compared to the three months
ended January 31, 1996. The decrease is due to the decrease in
income before taxes.
Nine Months Ended January 31, 1997 versus January 31, 1996
Net sales for the nine months ended January 31, 1997 increased
$789,706 or 15.4% compared to the nine months ended January 31,
1996. The Company is selling more units to a greater
international customer base and selling a product mix with a
higher average selling price per unit. To give stronger support
to international sales the Company has appointed the Dutch
company, Cablon, to be the European support center and in the
Far East the Company has appointed Data 2000 in Korea and Osaka
Micro Computer in Japan. To increase our products visibility,
the Company is displaying its products at additional trade
shows. Besides the Radiological Society of North America (RSNA)
conference held in December 1996, we are displaying at the
Hospital Information and Management conference and SPIE, a
medical imaging conference in February 1997. During March 1997
the Company will attend the ECR in Vienna, Austria which is the
European version of the RSNA and in April 1997 there are
medical imaging conferences in both Korea and Japan at which the
Company will be showing products. At the Air Traffic Control
conference during October 1996 and at the RSNA conference during
December 1996 the Company introduced a large, high bright flat
panel to supplement its CRT displays. This unique product is
being displayed along with other products and continues to
generate a great deal of interest. This panel is also being
displayed at the Air Traffic Control conference in Maastrich,
The Netherlands, in February 1997. Production for the panel
commences in May 1997.
Gross profit increased $318,394 or 16.5% for the nine months
ended January 31, 1997 as compared to the nine months ended
January 31, 1996. Better optimum levels of production during
the first two quarters increased the gross profit from 37.4% to
37.8%.
Product research and development expenses for the nine months
ended January 31, 1997 increased $15,448 or 4.5% compared to the
nine months ended January 31, 1996. Research has concentrated
on improving digital controls, producing faster video boards,
providing a high bright flat panel that is sunlight readable,
and producing The Calibrator to assure consistent viewing
quality for multiple monitors.
Selling expenses for the nine months ended January 31, 1997
increased $104,901 or 22.5% over the nine months ended January
31, 1996. Additional personnel expenses, increased commissions
due to increased sales volume, and higher trade show and travel
expenses are the primary reasons for the increase.
Administrative expenses for the nine months ended January 31,
1997 increased $66,108 or 26.7% compared to the nine months
ended January 31, 1996. Additional employee and office expenses
as a result of increased sales volume are the primary reasons
for the increase.
Interest income for the nine months ended January 31, 1997
totaled $34,320 compared to $1,031 for the nine months ended
January 31, 1996. Increased net income allowed the Company to
deposit excess cash in government trust funds with adequate
interest income rates.
The provision for income taxes increased $70,157 for the nine
months ended January 31, 1997 compared to the nine months ended
January 31, 1996. The increase is due to the increase of
$164,773 income before taxes and to the increase in state income
tax.
Liquidity and Capital Resources
Cash from operating activities totaled $392,411 for the nine
months ended January 31, 1997 compared to the $9,592 total for
the comparable period ending January 31, 1996. This increase of
$382,819 is primarily due to increased cash from net income and
improved utilization of accounts receivable, inventory and
accounts payable offset by additional cash used for income taxes.
Cash used for investing activities totaled $1,438,232 for the
nine months ended January 31, 1997 compared to $43,820 used for
the nine months ended January 31, 1996. The increase is due to
the purchase of land during June, 1996 for $396,043 and to the
new building in the process of construction on the land site for
$953,116. The 30,000 square foot warehouse, production, and
office building has been completed and the company officially
took possession on February 17, 1997. The total building cost
will be $1.2 million including capitalized interest and an
additional $100,000 is being spent for office equipment,
production equipment, warehouse equipment and moving expense.
Net cash from financing activities totaled $1,073,299 for the
nine months ended January 31, 1997 compared to $30,617 from
financing activities for the nine months ended October 31, 1996.
Cash from the exercise of stock warrants during September, 1996
and cash from the bank loan to purchase land and construct a
building on the land site are the primary increases for the cash
inflow. The Company obtained a short term bank loan commitment
of $500,000 during June 1996 to purchase land and for beginning
construction of a new building. This loan was amended on
October 23, 1996 to a long term real estate loan commitment
maximum of $1,220,000. Through May 7, 1997 interest is being
accrued and paid monthly at a variable rate of 1% per annum
above the prime rate. Interest will be adjusted to a fixed rate
of .5% per annum above the prime rate on May 1, 1997 and on May
1, 2002. Beginning June 1, 1997 the monthly principal and
interest shall be paid in equal monthly installments based on a
twenty year amortization with a final balloon payment due on May
1, 2007.
The Company's primary source of liquidity at January 31, 1997 is
cash of $713,910, a bank line of credit of $500,000, a real
estate loan of $1,220,000 and the option to add $94,000 to the
bank term loan to purchase capital equipment to meet production
and research needs. The bank line of credit was renewed for one
year on August 23, 1996. The real estate loan commenced on
October 23, 1996 and matures on May 1, 2007. The capital
equipment loan was renegotiated on June 14, 1996 and matures in
five years on June 14, 2001. During February 1997 the Company
was accepted for listing on the Small Cap NASDAQ Market and
began listing its stock under the symbol IMSG. The Company
believes that cash, cash from operations, a bank line of credit,
and existing bank loans will be adequate to meet the anticipated
short term liquidity and capital resource requirements of its
business.
Part 2. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Image systems Corporation
Registrant
By:/s/___________________________
Dean Scheff, Chief Executive Officer
and Chief Financial Officer
(Principal Executive Officer and
Principal Financial Officer)
Dated February 28, 1997
