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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 October 31, 2000
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. 021245
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.) |
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| 6103 Blue Circle Drive, Minnetonka, Minnesota 55343 (Address of principal executive offices) |
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(952) 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 December 1, 2000, there were 4,452,597 shares of Common Stock, no par value per share, outstanding.
Image Systems Corporation was removed from the NASDAQ Stock Exchange on September 7, 2000.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
BALANCE SHEETS
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October 31, 2000 |
April 30, 2000 |
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|---|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
(Audited) |
|||||||
| ASSETS | |||||||||
| CURRENT ASSETS: | |||||||||
| Cash | $ | 276,868 | $ | 416,477 | |||||
| Accounts Receivable, Net | 712,796 | 683,233 | |||||||
| Inventory | 1,545,784 | 1,629,911 | |||||||
| Prepaid Expenses | 21,033 | 25,402 | |||||||
| Income Taxes Receivable | — | 65,657 | |||||||
| Deferred Tax Asset | 70,719 | 177,025 | |||||||
| Total Current Assets | 2,627,200 | 2,997,705 | |||||||
| PROPERTY AND EQUIPMENT: | |||||||||
| Land | 396,043 | 396,043 | |||||||
| Building | 1,310,062 | 1,310,062 | |||||||
| Furniture and Fixtures | 249,024 | 249,024 | |||||||
| Production Equipment | 342,144 | 340,643 | |||||||
| Less Accumulated Depreciation | (574,946 | ) | (529,209 | ) | |||||
| Net Property and Equipment | 1,722,327 | 1,766,563 | |||||||
| LONG TERM ASSET | |||||||||
| Deferred Income Taxes | 92,773 | — | |||||||
| Total Assets | $ | 4,442,300 | $ | 4,764,268 | |||||
| LIABILITIES AND STOCKHOLDERS' INVESTMENT | |||||||||
| CURRENT LIABILITIES: | |||||||||
| Accounts Payable | $ | 396,488 | $ | 376,031 | |||||
| Accrued Liabilities | 352,354 | 365,718 | |||||||
| Current Maturities of Long-Term Debt | 110,310 | 105,496 | |||||||
| Total Current Liabilities | 859,152 | 847,245 | |||||||
| LONG-TERM DEBT | 192,136 | 247,693 | |||||||
| Total Liabilities | 1,051,288 | 1,094,938 | |||||||
| STOCKHOLDERS' INVESTMENT: | |||||||||
| Undesignated Stock, 5,000,000 Shares Authorized; No Shares Issued or Outstanding | — | — | |||||||
| Common Stock, No Par Value, 5,000,000 Shares Authorized, 4,452,597 Issued and Outstanding | 1,104,289 | 1,104,289 | |||||||
| Retained Earnings | 2,286,723 | 2,565,041 | |||||||
| Total Stockholders' Investment | 3,391,012 | 3,669,330 | |||||||
| Total Liabilities and Stockholders' Investment | $ | 4,442,300 | $ | 4,764,268 | |||||
See Accompanying Notes To Financial Statements
2
IMAGE SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the Second Quarter Ended |
For the Six Months Ended |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
October 31, 2000 |
October 31, 1999 |
October 31, 2000 |
October 31, 1999 |
|||||||||||
| NET SALES | $ | 1,392,077 | $ | 1,503,336 | $ | 2,572,359 | $ | 2,867,869 | |||||||
| COST OF PRODUCTS SOLD | 1,106,629 | 1,059,188 | 2,079,743 | 2,001,756 | |||||||||||
| Gross Profit | 285,448 | 444,148 | 492,616 | 866,113 | |||||||||||
| OPERATING EXPENSES | |||||||||||||||
| Product Development | 146,672 | 137,315 | 289,881 | 279,618 | |||||||||||
| Selling | 152,717 | 170,948 | 348,162 | 347,962 | |||||||||||
| Administrative | 99,990 | 119,406 | 219,943 | 235,827 | |||||||||||
| Total Operating Expenses | 399,379 | 427,669 | 857,986 | 863,407 | |||||||||||
| Operating Income (Loss) | (113,931 | ) | 16,479 | (365,370 | ) | 2,706 | |||||||||
| INTEREST INCOME | 5,235 | 3,770 | 10,093 | 6,295 | |||||||||||
| INTEREST EXPENSE | (7,568 | ) | (13,782 | ) | (15,814 | ) | (30,399 | ) | |||||||
| Net Income (Loss) Before Income Taxes | (116,264 | ) | 6,467 | (371,091 | ) | (21,398 | ) | ||||||||
| BENEFIT FROM (PROVISION FOR) INCOME TAXES | 29,073 | (1,681 | ) | 92,773 | 3,937 | ||||||||||
| NET INCOME (LOSS) | $ | (87,191 | ) | $ | 4,786 | $ | (278,318 | ) | $ | (17,461 | ) | ||||
| BASIC NET (LOSS) PER SHARE: | $ | (0.02 | ) | $ | 0.00 | $ | (0.06 | ) | $ | 0.00 | |||||
| DILUTED NET (LOSS) PER SHARE | $ | (0.02 | ) | $ | 0.00 | $ | (0.06 | ) | $ | 0.00 | |||||
| BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | 4,452,597 | 4,452,597 | 4,452,597 | 4,452,597 | |||||||||||
| BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | 4,452,597 | 4,452,597 | 4,452,597 | 4,452,597 | |||||||||||
See Accompanying Notes To Financial Statements
3
IMAGE SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
| |
For the Six Months Ended |
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|---|---|---|---|---|---|---|---|---|---|
| |
October 31, 2000 |
October 31, 1999 |
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| OPERATING ACTIVITIES: | |||||||||
| Net (Loss) | $ | (278,318 | ) | $ | (17,461 | ) | |||
| Adjustments to Reconcile Net (Loss) To Net Cash Provided by (Used for) Operating Activities: | |||||||||
| Depreciation | 45,737 | 58,000 | |||||||
| Change in Operating Items: | |||||||||
| Accounts Receivable | (29,563 | ) | 338,312 | ||||||
| Inventory | 84,127 | 144,194 | |||||||
| Prepaid Expenses | 4,369 | (9,983 | ) | ||||||
| Accounts Payable | 20,457 | (27,334 | ) | ||||||
| Accrued Expenses | (3,620 | ) | (51,875 | ) | |||||
| Income Taxes Receivable | 65,657 | (4,237 | ) | ||||||
| Deferred Tax Asset | 106,306 | — | |||||||
| Deferred Income | (9,744 | ) | — | ||||||
| Deferred Income Taxes | (92,773 | ) | — | ||||||
| Net Cash Provided by (Used for) Operating Activities | (87,365 | ) | 429,616 | ||||||
| INVESTING ACTIVITIES | |||||||||
| Furniture and Equipment Additions | (1,501 | ) | (14,951 | ) | |||||
| Net Cash Used for Investing Activities | (1,501 | ) | (14,951 | ) | |||||
| FINANCING ACTIVITIES: | |||||||||
| Borrowings from Line of Credit | 245,000 | 90,000 | |||||||
| Repayments to Line of Credit | (245,000 | ) | (90,000 | ) | |||||
| Repayments to Bank Real Estate Loan | (50,743 | ) | (135,257 | ) | |||||
| Net Cash Used for Financing Activities | (50,743 | ) | (135,257 | ) | |||||
| Net Increase (Decrease) in Cash | (139,609 | ) | 279,408 | ||||||
| CASH AT BEGINNING OF PERIOD | 416,477 | 232,636 | |||||||
| CASH AT END OF PERIOD | $ | 276,868 | $ | 512,044 | |||||
| SUPPLEMENTAL DISCLOSURES | |||||||||
| Interest Paid | $ | 7,569 | $ | 31,265 | |||||
| Taxes Paid | $ | 0.00 | $ | 0.00 | |||||
See Accompanying Notes To Financial Statements
4
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
(Unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES:
The unaudited interim financial statements furnished herein reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The operating results for the six months ended October 31, 2000 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, 2000.
2. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options using the treasury stock method. The denominator is not affected if there is a loss during the period. The components of the earnings per share denominator are as follows:
| |
For the Second Quarter Ending |
For the Six Months Ending |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| |
October 31, 2000 |
October 31, 1999 |
October 31, 2000 |
October 31, 1999 |
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| Weighted Average Common Shares Outstanding for Basic Earnings Per Share | 4,452,597 | 4,452,597 | 4,452,597 | 4,452,597 | |||||
| Weighted Average Common Shares Issuable Under the Exercise of Options | — | — | — | — | |||||
| Shares Used in Diluted Earnings Per Share | 4,452,597 | 4,452,597 | 4,452,597 | 4,452,597 | |||||
3. INVENTORY
Breakdown of inventory is as follows:
| |
October 31, 2000 |
April 30, 2000 |
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|---|---|---|---|---|---|---|---|
| |
(Unaudited) |
(Audited) |
|||||
| Finished Goods | $ | 162,799 | $ | 155,783 | |||
| Work In Process | 108,165 | 52,551 | |||||
| Components | 1,274,820 | 1,421,577 | |||||
| Total Inventory | $ | 1,545,784 | $ | 1,629,911 | |||
5
4. LINE OF CREDIT
The bank line of credit for $500,000 expired October 29, 2000. The Company obtained a bank revolving line of credit of $1,000,000 effective December 1, 2000 for two years at the prime rate of interest (9.5% on December 1, 2000).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein are forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 that involve a number of risks and uncertainties. Such forward-looking information may be indicated by words such as will, may be, expects or anticipates. In addition to the factors discussed herein, among the other factors that could cause actual results to differ materially are the following: business conditions and growth in the personal computer industry and the general economy; competitive factors such as rival computer and peripheral product sellers and price pressures; availability of vendor products at reasonable prices; inventory risks due to shifts in market demand; and risks presented from time to time in reports filed by the Company with the Securities and Exchange Commission, including but not limited to the annual report on Form 10KSB for the year ended April 30, 2000.
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 October 31, 2000 Versus October 31, 1999
Net sales for the quarter ended October 31, 2000 decreased $111,259 or 7.4% compared to the quarter ended October 31, 1999. Selling more lower priced monitors is the primary reason for the decline. The Company recently displayed its monitors, including three new monitors, at the RSNA trade show in November.
Gross profit decreased from $444,148 for the quarter ended October 31, 1999 to $285,448 for the quarter ended October 31, 2000. The decrease is due to sales of lower margin monitors.
Product research and development expenses increased 6.8% from $137,315 for the quarter ended October 31, 1999 to $146,672 for the quarter ended October 31, 2000. The increase is due to added use of inventory items.
Selling expenses decreased 10.7% or $18,231 for the quarter ended October 31, 2000 compared to the quarter ended October 31, 1999. The primary reason for the decrease is due to a reduction of personnel expenses.
Administrative expenses decreased 16.3% from $119,406 for the quarter ended October 31, 1999 to $99,990 for the quarter ended October 31, 2000. Decreases in personnel expenses and professional fees are the primary reasons for the $19,416 decrease.
Interest income increased from $3,770 for the quarter ended October 31, 1999 to $5,235 for the quarter ended October 31, 2000. The increase of $1,465 is due to interest gained from excess cash deposited into the government trust account.
Interest expense decreased $6,214 for the quarter ended October 31, 2000 compared to the quarter ended October 31, 1999. The decrease is due to the decline in the real estate loan used to finance the building.
6
The benefit for income taxes increased from a provision of $1,681 for the quarter ended October 31, 1999 to a benefit of $29,073 for the quarter ended October 31, 2000. The benefit increase is due to the increased net loss before income taxes.
Six Months Ended October 31, 2000 versus October 31, 1999
Net sales decreased $295,510 or 10.3% for the six months ended October 31, 2000 compared to the six months ended October 31, 1999. The decrease is due to selling more of the lower priced monitors.
Gross profit decreased from $866,113 for the six months ended October 31, 1999 to $492,616 for the six months ended October 31, 2000. The decrease is due to selling lower margin monitors.
For the six months ended October 31, 2000, product research and development expenses increased $10,263 or 3.7% compared to the six months ended October 31, 1999. Additional use of inventory is the reason for the increase.
Selling expenses increased a minimal $200 for the six months ended October 31, 2000 compared to the six months ended October 31, 1999.
Administrative expenses decreased from $235,827 for the six months ended October 31, 1999 to $219,943 for the six months ended October 31, 2000. A reduction of personnel expenses is the reason for the 6.7% decrease.
Interest income increased $3,798 or 60.3% for the six months ended October 31, 2000 compared to the six months ended October 31, 1999. Interest gained from excess cash deposited into the government trust account is the reason for the increase.
Interest expense decreased $14,585 from $30,399 for the six months ended October 31, 1999 to $15,814 for the six months ended October 31, 2000. The 48% decrease is due to the decline in the real estate loan used to finance the building.
The income tax benefit increased $88,836 for the six months ended October 31, 2000 compared to the six months ended October 31, 1999. The increase is due to an increase in the net loss before income taxes.
Liquidity and Capital Resources
Cash provided by operations totaled $429,616 for the six months ended October 31, 1999 compared to $87,365 used for operations for the six months ended October 31, 2000. Additional cash used for the changes in accounts receivable and net loss are the primary reasons for the increase of $516,981 used for operations.
Cash used for investing activities totaled $1,501 for the six months ended October 31, 2000 compared to $14,951 for the six months ended October 31, 1999. $14,951 was used to purchase computer equipment for a year 2000 upgrade.
Cash used for financing activities decreased from $135,257 for the six months ended October 31, 1999 to $50,743 for the six months ended October 31, 2000. The decrease of $84,514 is due primarily to a $100,000 principal payment to the bank real estate loan during July, 1999.
The Company's primary source of liquidity on October 31, 2000 was cash of $276,868 and the option to utilize a second mortgage for $1,000,000 on the real estate loan. The bank line of credit for $500,000 expired October 29, 2000. The Company obtained a bank revolving line of credit of $1,000,000 effective December 1, 2000 for two years. The Company used the revolving line of credit to pay off the real estate loan of $293,000 and then applied the excess cash of $192,000 to the revolving line of credit which leaves an outstanding loan balance of $101,000. The Company believes that cash from operations and the revolving line of credit are adequate to meet the anticipated short term liquidity and capital resource requirements of its business.
7
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.
8
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 |
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By: |
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Dean Scheff Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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Dated December 12, 2000
9
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