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, 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
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(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-1620497
- ---------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6103 Blue Circle Drive, Minnetonka, Minnesota 55343
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(Address of Principal Executive Offices)
(952) 935-1171
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(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 25, 2000, there were 4,452,597 shares of Common
Stock, no par value per share, outstanding.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
BALANCE SHEETS
- --------------
January 31, 2000 April 30, 1999
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash $390,223 $232,636
Accounts receivable, net953,886 1,242,963
Inventory 1,882,591 1,921,345
Prepaid expenses 28,008 21,215
Deferred tax asset 177,025 177,025
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Total current assets 3,431,733 3,595,184
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PROPERTY AND EQUIPMENT:
Land 396,043 396,043
Building 1,310,062 1,310,062
Furniture and fixtures 246,011 231,060
Production equipment 332,674 323,724
Less accumulated
depreciation (517,577) (429,577)
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Net property
and equipment 1,767,213 1,831,312
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$5,198,946 $5,426,496
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $475,773 $413,065
Accrued liabilities 425,623 425,591
Current maturities of
long-term debt 95,033 69,605
Income taxes payable 74,006 80,642
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Total current
liabilities 1,070,435 988,903
LONG-TERM DEBT, less
current maturities 381,116 663,131
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Total liabilities 1,451,551 1,652,034
========== ==========
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
respectively 1,104,289 1,104,289
Retained earnings 2,643,106 2,670,173
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Total stockholders'
investment 3,747,395 3,774,462
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$5,198,946 $5,426,496
========== ==========
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
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(Unaudited)
For the Third For the Nine
Quarter Ended Months Ended
1-31-00 1-31-99 1-31-00 1-31-99
------------------------------------------
NET SALES 1,731,371 2,040,112 4,599,240 5,111,097
COST OF PRODUCTS SOLD 1,255,920 1,512,504 3,257,676 3,668,128
------------------------------------------
Gross profit 475,451 527,608 1,341,564 1,442,969
------------------------------------------
OPERATING EXPENSES
Product development 141,101 175,869 420,719 521,530
Selling 210,163 202,359 558,125 514,354
Administrative 129,374 121,977 365,201 360,646
------------------------------------------
Total operating expenses480,638 500,205 1,344,045 1,396,530
==========================================
Operating income (loss) (5,187) 27,403 (2,481) 46,439
INTEREST INCOME 3,951 1,592 10,246 4,406
INTEREST EXPENSE (10,770) (18,092) (41,169) (64,621)
------------------------------------------
Net income (loss)
before income taxes (12,006) 10,093 (33,404) (13,776)
BENEFIT (PROVISION) FOR
INCOME TAXES 2,400 (3,707) 6,337 4,684
------------------------------------------
NET INCOME (LOSS) ($9,606) $7,196 ($27,067) ($9,092)
==========================================
NET INCOME (LOSS) PER SHARE:
Basic $0.00 $0.00 ($0.01) $0.00
Diluted $0.00 $0.00 ($0.01) $0.00
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,452,597 4,452,597 4,452,597 4,452,597
Diluted 4,452,597 4,452,597 4,452,597 4,452,597
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF CASH FLOWS
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(Unaudited)
For the Nine Months Ended
1-31-00 1-31-99
OPERATING ACTIVITIES:
Net (loss) ($27,067) ($9,092)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation 88,000 89,100
Change in operating items:
Accounts receivable 289,077 (472,205)
Inventory 38,754 349,456
Prepaid expenses (6,793) (13,451)
Accounts payable 62,708 94,518
Accrued expenses 32 115,823
Income taxes payable (6,636) --
Income taxes receivable -- 38,945
Deferred tax asset -- 96,371
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Net cash provided by operating
activities 438,075 289,465
INVESTING ACTIVITIES --------- ---------
Furniture and equipment additions (23,901) --
--------- ---------
Net cash used for
investing activities (23,901) --
--------- ---------
FINANCING ACTIVITIES:
Borrowings from line of credit 120,000 1,295,000
Repayments to line of credit (120,000) (1,345,000)
Repayments to bank real estate loan (256,587) (236,909)
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Net cash used for
financing activities (256,587) (286,909)
Net increase in cash 157,587 2,556
CASH AT BEGINNING OF PERIOD 232,636 57,577
========= =========
CASH AT END OF PERIOD $390,223 $60,133
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $43,180 $66,277
========= =========
Taxes paid $0.00 $0.00
========= =========
See Accompanying Notes To Financial Statements
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
January 31, 2000 and January 31, 1999
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(Unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES:
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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 nine months
ended January 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, 1999.
2. EARNINGS PER SHARE
- --------------------------
Basic earnings per share is computed by dividing net income 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 Quarter For the Nine
Ending Months Ending
1-31-00 1-31-99 1-31-00 1-31-99
-----------------------------------------
Weighted average common
shares outstanding for
basic earnings per share4,452,597 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. RECENT PRONOUNCEMENTS
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Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," establishes standards for
reporting and display in the financial statements of total net
income and the components of all other nonowner changes in
equity, referred to as comprehensive income. The Company
adopted SFAS No. 130 on May 1, 1998. There is no difference
between the Company's net income (loss) reported and the
comprehensive net income (loss) for SFAS No. 130 for the
quarters presented.
SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," establishes standards for the way
the public business enterprises report information about
operating segments in annual financial statements and has
been adopted by the Company in fiscal year 1999. The
statement requires business segment financial information
be reported in the financial statements utilizing the
management approach. The management approach is defined
as the manner in which management organizes the segments
within the organization for making operating decisions and
assessing performance. The adoption of SFAS No. 131 does
not impact the financial statements or the disclosures
contained therein.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSUIS 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, 1999.
The Company was formed on September 1, 1988 to design, assemble
and market high resolution monitors for use with computers.
RESULTS OF OPERATIONS
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Three Months Ended January 31, 2000 Versus January 31, 1999
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Net sales for the three months ended January 31, 2000 decreased
$308,741 or 15.1% compared to the three months ended January 31,
1999. Selling more lower-priced monitors and selling a lower
quantity of monitors are the primary reasons for the decrease.
Gross profit decreased $52,157 or 9.9% for the quarter ended
January 31, 2000 compared to the quarter ended January 31, 1999.
The gross profit margin increased from 25.9% to 27.5%. This
increase is a result of selling higher margin monitors.
Product research and development expenses decreased 19.8% from
$175,869 for the quarter ended January 31, 1999 to $141,101 for
the quarter ended January 31, 2000. The decrease is due to a
reduction of the engineering staff.
Selling expenses for the quarter ended January 31, 2000
increased 3.9% or $7,804 compared to the quarter ended January
31, 1999. The increase is due to the addition of a sales person
and increased travel expenses to trade shows.
Administrative expenses increased $7,397 or 6.1% from $121,977
for the quarter ended January 31, 1999, to $129,374 for the
quarter ended January 31, 2000. The increase is due primarily to
a customer bad debt expense.
Interest income increased from $1,592 for the quarter ended
January 31, 1999 to $3,951 for the quarter ended January 31,
2000. Excess cash deposited into the government trust account
is the reason for the increase.
For the quarter ended January 31, 2000 interest expense decreased
$7,322 or 40.5% compared to the quarter ended January 31, 1999.
The reduction of the real estate loan and the decreased use of
the bank line of credit are the reasons for the interest expense
decrease.
Income taxes decreased $6,107 from a provision for income taxes
of $3,707 for the quarter ended January 31, 1999 to a $2,400
benefit for the quarter ended January 31, 2000. The decrease
is due to the decrease in net income before taxes.
Nine Months Ended January 31, 2000 versus January 31, 1999
- ----------------------------------------------------------
Net sales for the nine months ended January 31, 2000 decreased
$511,857 or 10.0% compared to the nine months ended January 31,
1999. The primary reason for the decrease is selling a lower
quantity of monitors. To promote product visibility the Company
has displayed its products at the Radiological Society of North
America trade show held during November, 1999 and at the SPIE
Medical Imaging Conference in February, 2000. The Company
believes sales will improve in future months with improved
product lines and improvingmarket conditions and opportunities
in Asia and Europe.
Gross profit decreased $101,405 or 7.0% for the nine months ended
January 31,2000 compared to the nine months ended January 31,
1999. The gross profitpercentage increased from 28.2% to 29.2%.
The increase is due to selling higher margin monitors.
Product research and development expenses decreased from $521,530
for the nine months ended January 31, 1999 to $420,719 for the
comparable nine months ended January 31, 2000. The decrease of
$100,811 resulted from a reduction in the engineering staff and
a decrease in inventory usage in the research and development
department. The Company research activity continually monitors
supplier quality, reliability and cost effectiveness and
continually strives to improve the Company's product line. They
also verify that the Company's product line qualifies to
government regulations.
Selling expenses increased $43,771 or 8.5% from $514,354 for the
nine months ended January 31, 1999 to $558,125 for the nine
months ended January 31, 2000. The increase is due to the
addition of a person to the sales staff and increased travel
expenses.
Administrative expenses increased $4,555 or 1.3% for the nine
months ended January 31, 2000 compared to the nine months ended
January 31, 1999.
Interest income increased from $4,406 for the nine months ended
January 31, 1999 to $10,246 for the comparable period ended
January 31, 2000. The increase is due to interest gained from
excess cash deposited into the government trust account.
Interest expense for the nine months ended January 31, 1999
decreased from $64,621 to $41,169 for the comparable nine months
ended January 31, 2000. Less usage of the bank line of credit
and the decrease in the real estate loan are the reasons for the
interest expense decrease.
The benefit from income taxes increased from $4,684 for the nine
months ended January 31, 1999 to $6,337 for the comparable nine
months ended January 31, 2000. The increase is due to the
increase in net (loss) before taxes.
Liquidity and Capital Resources
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Cash provided by operating activities totaled $438,075 for the
nine months ended January 31, 2000 compared to $289,465 provided
for the nine months ended January 31, 1999. The increase of
$148,610resulted primarily from cash provided by accounts
receivable offset by decreases of cash provided by inventory
and accrued expenses.
Cash used for investing activities for the nine months ended
January 31, 2000 totaled $23,901 compared to no cash used for
the nine months ended January 31, 1999. The $23,901 was used
to purchase computer equipment to fulfill a Year 2000 upgrade.
Cash used for financing activities decreased from $286,909 for
the nine months ended January 31, 1999 to $256,587 for the
comparable nine months ended January 31, 2000. The decrease
of $30,322 resulted from a net decrease of $50,000 from the
bank line of credit offset by a net increase of $19,678 to the
real estate loan. The increase from the real estate loan is due
to increased principal amounts applied from the real estate loan
payments as the loan decreases.
The Company's primary source of liquidity on January 31, 2000 is
cash of $390,223 and the bank line of credit. The bank line of
credit was renewed for $500,000 on October 29, 1999 for one year.
In addition, the Company has the option to utilize a second
mortgage for $1,000,000 on the real estate loan. The Company
believes that cash, cash from operations, the bank line of credit
and existing bank loans are adequate to meet the anticipated short
term liquidity and capital resource requirements of its business.
Year 2000
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Since entering the Year 2000, the Company has not experienced
any major disruptions to its business nor is it aware of any
significant Year 2000-related disruptions affecting its customers
and suppliers. The Company can provide no assurance that all
supplier and customer Year 2000 compliance plans were
successfully completed in a timely manner, although it is not
currently aware of any problems that would significantly impact
its operations.
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
On January 19, 2000 Image Systems Corporation withdrew its
November22, 1999 Letter of Intent to acquire the Imaging
Systems Divisionof Nortech Systems, Inc. The companies could
not agree on how to address the existing Nortech warranty
liability on previously shipped products.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On January 18, 2000 the Company filed a Form 8-K to announce
the appointment of Bradley Beard to its Board of Directors
to replace Hilding Nelson.
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, there unto
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 March 10, 2000
