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 July 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 September 1, 1997, there were 4,451,347 shares of Common
Stock, no par value per share, outstanding.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
BALANCE SHEETS
7-31-97 4-30-97
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash 919,561 486,540
Accounts Receivable, net 1,130,724 1,191,238
Inventory 1,640,742 1,587,454
Prepaid expenses 23,480 16,466
Deferred tax asset 98,825 98,825
Total current assets 3,813,332 3,380,523
PROPERTY AND EQUIPMENT:
Land 396,043 396,043
Building 1,255,062 1,246,548
Furniture and fixtures 206,464 191,751
Production equipment 261,800 257,917
Less accumulated depreciation (235,724) (211,724)
5,696,977 5,261,058
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Checks issued not yet
presented for pymt ----- 117,160
Accounts payable 592,135 380,767
Accrued liabilities 353,840 329,713
Income taxes payable 128,224 36,371
Current maturities of
long-term debt 22,900 20,469
Total current liabilities 1,097,099 884,480
LONG-TERM DEBT, less current maturities 993,530 933,523
Total liabilities 2,090,629 1,818,003
STOCKHOLDERS' INVESTMENT:
Undesignated stock, 5,000,000 shares authorized;
no shares issued and outstanding
Common stock, no par value,
5,000,000 shares authorized
4,451,347 issued and outstanding 1,102,414 1,102,414
Retained earnings 2,503,934 2,340,641
Total stockholders' investment 3,606,348 3,443,055
5,696,977 5,261,058
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
For The First Quarter Ended
7-31-97 7-31-96
NET SALES 2,123,336 1,583,955
COST OF PRODUCTS SOLD 1,362,562 1,004,642
Gross Profit 760,774 579,313
OPERATING EXPENSES
Product Development 170,800 120,939
Selling 197,050 159,979
Administrative 121,193 107,397
Total Operating Expenses 489,043 388,315
Operating Income 271,731 190,998
INTEREST INCOME 10,706 11,297
INTEREST EXPENSE (27,291) (4,880)
Net Income Before Income Taxes 255,146 197,415
PROVISION FOR INCOME TAXES 91,853 75,020
NET INCOME 163,293 122,395
NET INCOME PER SHARE 0.04 0.03
WEIGHTED AVERAGE SHARES
OUTSANDING 4,451,347 4,341,502
See Accompanying Notes to Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
For The First Quarter Ended
7-31-97 7-31-96
OPERATING ACTIVITIES:
Net income 163,293 122,395
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 24,000 12,690
Change in operating items:
Accounts receivable 60,514 543,882
Inventory (53,288) (199,301)
Prepaid expenses (7,014) (1,781)
Accounts payable 94,208 139,155
Accrued liabilities 24,127 (39,106)
Income taxes payable 91,853 (283,585)
Net cash provided by
operating activites 397,693 294,349
INVESTING ACTIVITES:
Land ----- (394,875)
Buildings (8,514) -----
Furniture and equipment (18,596) (6,613)
Net cash used for investing
activites (27,110) (401,488)
FINANCING ACTIVITES:
Repayment on bank borrowings (203,570) (5,524)
Borrowings from bank line of credit ----- 5,000
Borrowings from bank
real estate loan 266,008 389,000
Exercise of stock warrants ----- 57,142
Net cash provided by
financing activities 62,438 445,618
+
Net increase in cash 433,021 338,479
CASH AT BEGINNING OF PERIOD 486,540 686,432
CASH AT END OF PERIOD 919,561 1,024,911
SUPPLEMENTAL DISCLOSURES:
Interest paid 26,313 3,422
Taxes paid 0 358,605
See Accompanying Notes to Financial Statements
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(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 three months
ended July 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, 1997.
Recently Issued Accounting Standard
During fiscal 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," which establishes a new methodology
for calculating earnings per share. SFAS No. 128 is effective
for financial statement periods ending after December 15, 1997.
Management believes that the adoption of SFAS No. 128 will not
have a significant effect on earnings per share.
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 July 31, 1997 Versus July 31, 1996
Net sales for the three months ended July 31, 1997 increased
34.1% or $539,381 over the quarter ended July 31, 1996. A
greater customer base resulted in a 34.3% increase in the
quantity of sold monitors. A relationship has been formed with
IBM to market a high bright large format flat panel to the
medical imaging and air traffic control customers.
Gross profit increased $181,461 or 31.3% for the quarter ended
July 31, 1997 over the comparable 1996 quarter. Gross profit
percentages decreased from 36.6% to 35.8%. Increased personnel
costs account for the lower gross margin percentage.
For the quarter ended July 31, 1997 product research and
development expenses increased $49,861 or 41.2% over the
comparable 1996 period. The primary reasons for the increase
are the addition of an engineer and the increased activity in
the Research and Development area. Research continues in
forming a deflection board from through hole to surface mounted
technology. Research to turn hardware control into software
control via micro controllers also continues. Development of
the 17 inch metal and plastic monitor resulted in receiving
American, Canadian, and European emissions, immunity, and safety
approvals.
Selling expenses increased 23.2% or $37,071 for the quarter
ended July 31, 1997 compared to the quarter ended July 31, 1996.
The increase is due to increased commissions on higher sales
volume and to adding a sales support person.
For the three months ended July 31 , 1997 administrative
expenses increased $13,796 or 12.8% over the quarter ended July
31, 1996. An additional office person and additional office
expenses are the reasons for the modest increase.
Interest income decreased slightly from $11,297 to $10,706 for
the quarter ended July 31, 1997 compared to the quarter ended
July 31, 1996. Cash used for building and equipment has
decreased the excess cash in the government trust account
resulting in decreased interest income.
For the quarter ended July 31, 1997 interest expense increased
from $4,880 to $27,291 or $22,411 over the comparable 1996
quarter. The increase is due to the increase in the real estate
loan to finance the new building.
The provision for income taxes increased $16,833 or 22.4% for
the quarter ended July 31, 1997 compared to the quarter ended
July 31, 1996. The increase is due to the increase in net
income before taxes. The effective tax rate decreased from 38%
to 36% for the quarter ended July 31, 1997 compared to the
quarter ended July 31, 1996 due to the increased allowance for
research and development expenses.
Liquidity and Capital Resources
Cash provided by operating activities for the quarter ended July
31, 1997 totaled $397,693 compared to a total of $294,349 for
the quarter ended July 31, 1996. Increased cash provided by
inventory, accrued liabilities, and income taxes payable totaled
$584,684. Cash provided by accounts receivable totaled $60,514
for the quarter ended July 31, 1997 compared to $543,882 for the
quarter ended July 31, 1996 resulting in a net decrease of
$483,368 cash provided. These are the major differences in the
total increase of $103,344 of net cash provided by operating
activities.
Cash used for investing activities totaled $27,110 for the
quarter ended July 31, 1997 compared to $401,488 used for the
quarter ended July 31, 1996. The $401,488 is primarily due to
land purchased for $394,875 for the new building site.
Cash provided by financing activities for the quarter ended July
31, 1997 totaled $62,438 compared to the $445,618 total for the
comparable 1996 quarter. The total of $445,618 is primarily due
to cash from the bank loan of $389,000 and the exercise of stock
warrants of $57,142. The $62,438 is additional borrowing on the
real estate loan.
The Company's primary source of liquidity at July 31, 1997 is
cash of $919,561, an unused bank line of credit of $1,000,000,
and the option to add to the bank term loan to purchase capital
equipment to meet production and research needs. The bank line
of credit was renewed on August 25, 1997 and was increased from
$500,000 to $1,000,000. The capital equipment term loan matures
on June 14, 2001. The Company has not utilized any of the
capital equipment loan. 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 Securities Exchange
Act of 1934, 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 September 11, 1997
