U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One) | |
ý | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2001 | |
OR | |
o | 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 | 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) | |
(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 ý No o
As of September 1, 2001, 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
July 31, 2001 | April 30, 2001 | |||||||||
ASSETS | (Unaudited) | (Audited) | ||||||||
CURRENT ASSETS: | ||||||||||
Cash | $ | 5,332 | $ | 63,423 | ||||||
Accounts Receivable, Net | 667,587 | 799,177 | ||||||||
Inventory | 1,563,297 | 1,410,095 | ||||||||
Prepaid Expenses | 29,965 | 47,794 | ||||||||
Total Current Assets | 2,266,181 | 2,320,489 | ||||||||
PROPERTY AND EQUIPMENT: | ||||||||||
Land | 396,043 | 396,043 | ||||||||
Building | 1,310,062 | 1,310,062 | ||||||||
Furniture and Fixtures | 247,522 | 247,522 | ||||||||
Production Equipment | 344,036 | 342,032 | ||||||||
Less Accumulated Depreciation | (640,561 | ) | (619,932 | ) | ||||||
Net Property and Equipment | 1,657,102 | 1,675,727 | ||||||||
OTHER ASSETS | ||||||||||
Deferred Income Taxes | 200,000 | 200,000 | ||||||||
Total Assets | $ | 4,123,283 | $ | 4,196,216 | ||||||
LIABILITIES AND STOCKHOLDERS’ INVESTMENT CURRENT LIABILITIES: | ||||||||||
Note Payable – Bank | $ | 423,382 | $ | 318,382 | ||||||
Accounts Payable | 297,575 | 394,531 | ||||||||
Accrued Liabilities | 331,101 | 346,084 | ||||||||
Total Current Liabilities | 1,052,058 | 1,058,997 | ||||||||
LONG-TERM DEBT | - | - | ||||||||
Total Liabilities | 1,052,058 | 1,058,997 | ||||||||
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 | 1,966,936 | 2,032,930 | ||||||||
Total Stockholders’ Investment | 3,071,225 | 3,137,219 | ||||||||
Total Liabilities and Stockholders’ Investment | $ | 4,123,283 | $ | 4,196,216 | ||||||
See Accompanying Notes To Financial Statements
IMAGE SYSTEMS CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
For the First Quarter Ended | |||||||||
July 31, 2001 | July 31, 2000 | ||||||||
NET SALES | $ | 1,015,826 | 1,180,282 | ||||||
COST OF PRODUCTS SOLD | 731,849 | 973,114 | |||||||
Gross Profit | 283,977 | 207,168 | |||||||
OPERATING EXPENSES | |||||||||
Product Development | 123,538 | 143,209 | |||||||
Selling | 121,947 | 195,445 | |||||||
Administrative | 97,925 | 119,953 | |||||||
Total Operating Expenses | 343,410 | 458,607 | |||||||
Operating (Loss) | (59,433 | ) | (251,439 | ) | |||||
INTEREST INCOME | 10 | 4,858 | |||||||
INTEREST EXPENSE | (5,571 | ) | (8,246 | ) | |||||
Net (Loss) Before Income Taxes | (64,994 | ) | (254,827 | ) | |||||
BENEFIT FROM (PROVISION FOR) INCOME TAXES | (1,000 | ) | 63,700 | ||||||
NET (LOSS) | (65,994 | ) | (191,127 | ) | |||||
NET (LOSS) PER SHARE: | |||||||||
Basic | $ | (0.01 | ) | $ | (0.04 | ) | |||
Diluted | $ | (0.01 | ) | $ | (0.04 | ) | |||
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 CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended | ||||||||
July 31, 2001 | July 31, 2000 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net (Loss) | $ | (65,994 | ) | $ | (191,127 | ) | ||
Adjustments to Reconcile Net (Loss) To Net Cash Provided by Operating Activities: | 20,629 | 22,868 | ||||||
Depreciation | ||||||||
Change in Operating Items: | ||||||||
Accounts Receivable | 131,590 | 222,664 | ||||||
Inventory | (153,202 | ) | (81,004 | ) | ||||
Prepaid Expenses | 17,829 | (7,925 | ) | |||||
Accounts Payable | (96,956 | ) | (3,260 | ) | ||||
Accrued Liabilities | (22,263 | ) | 23,468 | |||||
Deferred Income Taxes | (63,700 | ) | ||||||
Deferred Income | 7,280 | (4,872 | ) | |||||
Net Cash Used for Operating Activities | (161,087 | ) | (82,888 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Furniture and Equipment Additions | (2,004 | ) | (1,501 | ) | ||||
Net Cash Used for Investing Activities | (2,004 | ) | (1,501 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Borrowings from Line of Credit | 790,000 | 205,000 | ||||||
Repayments to Line of Credit | (685,000 | ) | (205,000 | ) | ||||
Repayments to Bank Real Estate Loan | -- | (25,261 | ) | |||||
Net Cash Provided by (Used for) Financing Activities | 105,000 | (25,261 | ) | |||||
Net Decrease in Cash | (58,091 | ) | (109,650 | ) | ||||
CASH AT BEGINNING OF PERIOD | 63,423 | 416,477 | ||||||
CASH AT END OF PERIOD | $ | 5,332 | $ | 306,827 | ||||
SUPPLEMENTAL DISCLOSURES | ||||||||
Interest Paid | $ | 4,757 | $ | 8,136 | ||||
Taxes Paid | $ | 1,000 | $ | 0 | ||||
See Accompanying Notes To Financial Statements
Item 1. FINANCIAL STATEMENTS
IMAGE SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2001 and July 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 three months ended July 31, 2001 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, 2001.
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 First Quarter Ending | ||||
July 31, 2001 | July 31, 2000 | |||
Weighted Average Common Shares Outstanding for Basic Earnings Per Share | 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 | ||
3. INVENTORY
Breakdown of inventory is as follows:
July 31, 2001 | April 30, 2001 | |||||
(Unaudited) | (Audited) | |||||
Finished Goods | 118,292 | $ | 106,862 | |||
Work in Process | 109,641 | 53,974 | ||||
Components | 1,335,364 | 1,249,259 | ||||
Total Inventory | 1,563,297 | $ | 1,410,095 | |||
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, 2001.
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, 2001 Versus July 31, 2000
Net sales for the three months ended July 31, 2001 decreased $164,456 or 13.9% compared to the three months ended July 31, 2000. The primary reason for the decrease is selling a lesser quantity of monitors.
Gross profit increased from $207,168 for the three months ended July 31, 2000 to $283,977 for the three months ended July 31, 2001. The increase is due to sales of higher margin monitors.
For the three months ended July 31, 2001 development and research expenses decreased $19,671 or 13.7% compared to the three months ended July 31, 2000. The primary reasons for the decrease are decreased personnel expenses and decreased use of inventory items.
Selling expenses decreased from $195,445 for the three months ended July 31, 2000 to $121,947 for the three months ended July 31, 2001. The decrease of $73,498 or 37.6% is due to a reduction of sales personnel and a decrease in tradeshow and travel expenses.
Administrative expenses decreased from $119,953 for the three months ended July 31, 2000 to $97,925 for the three months ended July 31, 2001. A reduction of personnel is the primary reason for the $22,028 or 18.4% decrease.
Interest income decreased from $4,858 for the three months ended July 31, 2000 to $10 for the three months ended July 31, 2001. Excess cash was depleted during December 2000 and the result is no interest has been earned since December 2000.
Interest expense decreased $2,675 or 32.4% for the three months ended July 31, 2001 compared to the three months ended July 31, 2000. The decrease in the real estate bank loan is the primary reason for the decrease.
The benefit from income taxes decreased from $63,700 for the three months ended July 31, 2000 to a $1000 provision for state income taxes for the three months ended July 31, 2001. No additional benefits from income taxes will accrue until the Company determines that the recoverability of additional tax benefits is more likely than not.
Liquidity and Capital Resources
Cash used by operations totaled $161,087 for the three months ended July 31, 2001 compared to $82,888 used by operations for the three months ended July 31, 2000. The decrease of $78,199 is due primarily to the decreased cash flow from accounts receivable, inventory, and accounts payable.
Cash used for investing activities totaled $2,004 for the three months ended July 31, 2001 compared to $1,501 used for the three months ended July 31, 2000.
Cash used for financing activities totaled $25,261 for the three months ended July 31, 2000 compared to $105,000 provided by financing activities for the three months ended July 31, 2001. Additional funds provided by the line of credit was used to finance accounts receivable, inventory and accounts payable.
The Company’s primary source of liquidity on July 31, 2001 is the bank line of credit of $1,000,000. The bank line of credit for $500,000 expired on 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 $285,086. The revolving line of credit balance on July 31, 2001 is $423,382. The Company believes that cash available from the revolving line of credit is 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
Form 8-K filed on September 4, 2001 for change in Board positions and membership.
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 | ||
Dean Scheff, Board Chairman and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) | ||
Dated September 4, 2001 | ||