THIS REPORT WAS PREVIOUSLY FILE ON OR BEFORE SEPTEMBER 15, 1999
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, 1999
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 Charte
Minnesota 41-1620497
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) 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, 1999, there were 4,452,597 shares of Common
Stock, no par value per share, outstanding.
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 1999 and July 31, 1998
(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 three months
ended July 31, 1999 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 denomnator are
as follows:
For the Quarter Ending
July 31, July 31,
1999 1998
Weighted average common shares
outstanding for basic earnings per share4,452,597 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
3. RECENT PRONOUNCEMENTS
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 reported and the comprehensive
net income 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.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
BALANCE SHEETS
July 31, April 30,
1999 1999
ASSETS (unaudited) (Audited)
CURRENT ASSETS:
Cash $202,628 $232,636
Accounts receivable, net 1,069,291 1,242,963
Inventory 1,748,939 1,921,345
Prepaid expenses 24,872 21,215
Deferred tax asset 177,025 177,025
Total current assets 3,222,755 3,595,184
PROPERTY AND EQUIPMENT:
Land 396,043 396,043
Building 1,310,062 1,310,062
Furniture and fixtures 231,060 231,060
Production equipment 323,724 323,724
Less accumulated depreciation (458,377) (429,577)
Net property and equipment 1,802,512 1,831,312
$5,025,267 $5,426,496
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable 186,529 413,065
Income taxes payable 75,068 80,642
Accrued liabilities 395,418 425,591
Current maturities of long-term debt 84,241 69,605
Total current liabilities 741,256 988,903
LONG-TERM DEBT, less current maturities 531,796 663,131
Total liabilities 1,273,052 1,652,034
STOCKHOLDERS' INVESTMENT:
Undesignated stock, 5,000,000 shares
authorized; no shares issued
and outstanding 0 0
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 2,647,926 2,670,173
Total stockholders' investment 3,752,215 3,774,462
$5,025,267 $5,426,496
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
July 31, July 31,
1999 1998
NET SALES $1,364,533 $1,464,022
COST OF PRODUCTS SOLD 942,568 1,002,371
Gross profit 421,965 461,651
OPERATING EXPENSES
Product development 142,303 162,326
Selling 177,014 160,341
Administrative 116,421 118,963
Total operating expenses 435,738 441,630
Operating income (loss) (13,773) 20,021
INTEREST INCOME 2,525 23
INTEREST EXPENSE (16,617) (25,180)
Net (loss) before income taxes (27,865) (5,136)
BENEFIT FOR INCOME TAXES 5,618 1,798
NET (LOSS) ($22,247) ($3,338)
NET INCOME PER COMMON SHARE:
Basic $0.00 $0.00
Diluted $0.00 $0.00
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 4,452,597 4,452,597
Diluted 4,452,597 4,452,597
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORORATION
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended
July 31, July 31,
1999 1998
CASH FLOWS FROM
OPERATING ACTIVITES:
Net income ($22,247) ($3,338)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 28,800 29,700
Changes in current operating items:
Accounts receivable 173,672 150,023
Inventory 172,406 247,710
Prepaid expenses (3,657) (11,638)
Accounts payable (226,536) (113,185)
Accured liabilities (30,173) 53,205
Income taxes payable (5,574) 0
Income taxes receivable 0 (1,798)
Net cash provided by operating
acitivites 86,691 350,679
CASH FLOWS FROM INVESTING ACTIVITES:
Building 0 0
Furniture and equipment additions 0 0
Net cash used for investing activities 0 0
CASH FLOWS FROM FINANCING ACTIVITES:
Borrowings from bank line of credit 50,000 745,000
Repayents to bank line of credit (50,000) (1,055,000)
Repayments og bank real estate loan (116,699) (10,893)
Net cash provided by (used for)
financing activites (116,699) (320,893)
Net increase (decrease) in cash (30,008) 29,786
CASH AT BEGINNING OF PERIOD 232,636 57,577
CASH AT END OF PERIOD $202,628 $87,363
SUPPLEMENTAL DISCLOSURES:
Interest paid $16,564 $22,836
Taxes paid $0 $0
See Accompanying Notes to Financial Statements
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 uncertainities. 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
Three Months Ended July 31, 1999 Versus July 31, 1998
Net sales decreased $99,489 or 6.8% for the three months ended
July 31, 1999 compared to the three months ended July 31, 1998.
Selling a lower quantity of monitors is the reason for the
decrease. To increase product visibility the Company displayed
its products at the SCAR (Symposium for Computer Applications in
Radiology) and the GovTechNet tradeshows during May and June of
1999.
For the three months ended July 31, 1999 gross profit decreased
8.6% or $39,686 compared to the quarter anded July 31, 1998.
The decline in monitors sold, which resulted in a lower cost of
materials, is the primary reason for the decrease. The gross
profit percentage decreased from 31.5% to 30.9%. The fixed cost
of overhead expenses applied to a net sales decline is the
reason for the gross profit percentage decrease.
Product research and develpment expenses for the quarter ended
July 31, 1999 decreased $20,023 or 12.3% compared to the quarter
ended July 31, 1998. The decrease is due to a reduction of the
engineering staff. The research process included evaluation of
reliability, grounding loops, focus, astigimatism, incoming
CRTs, new video boards, new product design, circuitry and arc
protection.
Selling expenses for the three months ended July 31, 1999
increased 10.4% or $16,673 compared to the three months ended
July 31, 1998. The increase is due to additional personnel and
tradeshow expenses.
For the quarter ended July 31, 1999 administrative expenses
decreased a minimal 2.1% or $2,542 compared to the quarter ended
July 31, 1998.
Interest income increased from $23 for the quarter ended July
31, 1998 to $2,525 for the quarter ended July 31, 1999. Excess
cash available for the government trust account resulted in the
interest income increase.
Interest expense decreased 34.0% or $8,563 for the three months
ended July 31, 1999 compared to the three months ended July 31,
1998. The reasons for the interest expense decrease are the
reduced use of the bank line of credit and the decrease in the
bank real estate loan.
The benefit provision for the income tax refund for the quarter
ended July 31, 1999 increased $3,820 compared to the quarter
ended July 31, 1998. The refund increase is due to the increase
in net loss before taxes.
Liquidity and Capital Resources
Cash provided by operating activities decreased from $350,679
for the three months ended July 31, 1998 to $86,692 cash
provided for the three months ended July 31, 1999. The decrease
primarily resulted from less cash provided by inventory and
additional cash used for accounts payable and accrued
liabilities.
No activity occurred in cash flows from investing activities for
the quarters ended July 31, 1999 and July 31, 1998.
Cash used for financing activities decreased from $320,893 for
the quarter ended July 31, 1998 to $116,699 cash used for the
quarter ended July 31, 1999. A decrease of $310,000 used for
the bank line of credit offset by $105,806 increase in cash used
to reduce the bank real estate loan resulted in the net decrease
of $204,194.
The Company's primary source of liquidity at July 31, 1999 is
cash of $202,628, the bank line of credit (see below), and the
second mortgage available on the real estate loan (see below).
The bank line of credit was renewed for $500,000 on August 25,
1999 for one year. In addition the Company has the option to
utilize a second martgage for $1,000,000 on the real estate
loan. The capital equipment term loan, which had not been
utilized, has been cancelled. The Company believes that cash,
cash from operations, the bank line of credit and exisitng bank
loans are adequate to meet the anticipated short term liquidity
and capital resource requirements of its business.
Year 2000
The Company has analyzed its Management Information Systems and
its Industrial Equipment Systems. To be Y2K compliant the
Company estimates a maximum pay out of $20,000 to replace
outdated computers and software. All the replacements are
expected to be completed by mid October. Aproximately 70% of
strategic suppliers have been evaluated and no critical Y2K
problems have been identified. The Company expects to complete
the strategic supplier evaluation by the end of October.
Contingencies include identification of second sources and the
selective addition of inventory of critical parts.
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
Form 8-K filed on July 20, 1999 for change in accountants.
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 1, 1999
