SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
__________________

FORM 10-Q
__________________

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM _______________ TO _________________

Commission file number 0-21918

FLIR SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

OREGON 93-0708501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

16505 S.W. 72ND AVENUE, PORTLAND, OREGON 97224
(Address of principal executive offices) (Zip Code)

(503) 684-3731
(Registrant's telephone number, including area code)
__________________

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
---- ----

At March 31, 1998, there were 9,875,165 shares of the Registrant's common stock,
$0.01, par value, outstanding.

FLIR SYSTEMS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statement of Operations -- Three Months
Ended March 31, 1998 and 1997........................... 3

Consolidated Balance Sheet -- March 31, 1998 and
December 31, 1997....................................... 4

Consolidated Statement of Cash Flows -- Three Months
Ended March 31, 1998 and 1997........................... 5

Notes to the Consolidated Financial Statements.......... 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9

PART II. OTHER INFORMATION

Item 2. Changes in Securities................................... 12

Item 5. Other Information....................................... 12

Item 6. Exhibits and Current Reports on Form 8-K................ 12

Signatures.............................................. 12

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

Three Months Ended
March 31,
--------------------------------------
1998 1997
---------------- -----------------

Revenues:

Government............................................... $ 9,914 $ 8,403
Commercial............................................... 17,785 7,418
---------------- -----------------
27,699 15,821

Cost of goods sold........................................... 12,500 7,529
Research and development..................................... 5,284 2,776
Selling and other operating costs............................ 8,818 5,087
---------------- -----------------
26,602 15,392

Earnings from operations............................. 1,097 429

Interest income.............................................. 286 6
Interest expense and other................................... (972) (312)
---------------- -----------------

Earnings before income taxes......................... 411 123

Provision for income taxes................................... 121 32
---------------- -----------------

Net earnings................................................. $ 290 $ 91
================ =================

Net earnings per share:
Basic..................................................... $ 0.03 $ 0.02
================ =================
Diluted................................................... $ 0.03 $ 0.02
================ =================

The accompanying notes are an integral part of these financial statements

FLIR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)

ASSETS
March 31, December 31,
1998 1997
-------------------- --------------------

(unaudited)
Current assets:
Cash and cash equivalents............................... $ 5,425 $ 5,884
Accounts receivable, net................................ 47,567 55,463
Inventories............................................. 38,542 34,724
Prepaid expenses........................................ 4,129 3,516
-------------------- --------------------
Total current assets................................ 95,663 99,587
Property and equipment, net................................. 19,712 18,423
Software development costs, net............................. 1,131 1,043
Deferred income taxes, net.................................. 16,880 16,873
Intangible assets, net...................................... 13,760 14,013
Other assets................................................ 3,833 3,918
-------------------- --------------------
$150,979 $153,857
==================== ====================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Notes payable........................................... $ 32,157 $ 26,558
Accounts payable........................................ 14,653 15,493
Accounts payable to related parties..................... 5,031 6,228
Accrued payroll and other liabilities................... 12,112 19,105
Accrued income taxes.................................... 842 363
Current portion of long-term debt....................... 4,976 5,273
-------------------- --------------------
Total current liabilities........................... 69,771 73,020
Long-term debt.............................................. 1,537 1,679
Pension liability........................................... 3,955 3,969

Commitments and contingencies............................... -- --

Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued at March 31, 1998, and
December 31, 1997..................................... -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 9,875,165 and 9,756,458 shares issued at
March 31, 1998, and December 31, 1997, respectively... 99 98
Additional paid-in capital.............................. 99,129 97,684
Accumulated deficit..................................... (22,041) (22,331)
Cumulative foreign translation adjustment............... (1,471) (262)
-------------------- --------------------
Total shareholders' equity.......................... 75,716 75,189
-------------------- --------------------
$150,979 $153,857
==================== ====================

The accompanying notes are an integral part of these financial statements

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)

Three Months Ended March 31,
-----------------------------------------------------
1998 1997
--------------------- ----------------------

Cash provided (used) by operations:

Net earnings................................................. $ 290 $ 91
Income charges not affecting cash:
Depreciation............................................. 1,291 559
Amortization............................................. 514 139
Disposals and write-offs of property and equipment....... 24 35
Deferred income taxes.................................... (7) --
Changes in certain working capital components:
Decrease (increase) in accounts receivable............... 7,896 (4,637)
Increase in inventories.................................. (3,818) (469)
(Increase) decrease in prepaid expenses.................. (613) 95
Decrease (increase) other assets......................... 32 (7)
(Decrease) increase in accounts payable.................. (840) 361
(Decrease) increase in accounts payable to related (1,197) 464
parties.................................................
Decrease in accrued payroll and other liabilities........ (6,993) (743)
Increase in accrued income taxes......................... 479 28
--------------------- ----------------------
Cash used by operating activities............................ (2,942) (4,084)
--------------------- ----------------------
Cash used by investing activities:
Additions to property and equipment....................... (2,708) (1,386)
Software development costs................................ (192) (181)
--------------------- ----------------------
Cash used by investing activities......................... (2,900) (1,567)
--------------------- ----------------------
Cash provided by financing activities:
Net increase in notes payable............................. 5,599 4,990
Repayment of long-term debt including current portion..... (439) (323)
Reduction of pension liability............................ (14) --
Proceeds from exercise of stock options................... 475 480
Common stock issued pursuant to stock option plans........ 971 --
--------------------- ----------------------
Cash provided by financing activities..................... 6,592 5,147
--------------------- ----------------------
Effect of exchange rate changes on cash....................... (1,209) (5)
--------------------- ----------------------
Net decrease in cash and cash equivalents..................... (459) (509)
Cash and cash equivalents, beginning of period................ 5,884 775
--------------------- ----------------------
Cash and cash equivalents, end of period...................... $ 5,425 $ 266
===================== ======================

The accompanying notes are an integral part of these financial statements

FLIR SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 -- BASIS OF PRESENTATION:

The accompanying consolidated financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, these statements have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the consolidated financial position and
results of operations for the interim periods. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and the notes thereto for the year ended December 31, 1997.

The accompanying financial statements include the accounts of FLIR Systems, Inc.
and its subsidiaries. All intercompany accounts and transactions have been
eliminated. The results of the interim period are not necessarily indicative
of the results for the entire year.

Certain reclassifications have been made to prior years' data to conform with
the current year's presentation. These reclassifications had no impact on
previously reported results of operations or shareholders' equity.

NOTE 2 -- REVENUE RECOGNITION:

Revenue is recognized when products are shipped or when services are performed,
except for certain long-term contracts which are recorded on the percentage-of-
completion method. The percentage-of-completion method is used for research
and development contracts and for production contracts which require significant
amounts of initial engineering and development costs. The percentage-of-
completion is determined by relating the actual costs incurred to date to total
estimated costs to complete the respective contract.

NOTE 3 -- NET EARNINGS PER SHARE:

Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the periods, computed
using the treasury stock method for stock options. In 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share."

The following table sets forth the reconciliation of the denominator utilized in
the computation of basic and diluted earnings per share (in thousands):

Three Months Ended March 31,
----------------------------------
1998 1997
--------------- ---------------

Weighted average number of common shares
outstanding.................................... 9,799 5,424
Assumed exercise of stock options net of
shares assumed reacquired under the treasury
stock method................................... 423 324
--------------- ---------------
Diluted shares outstanding........................ 10,222 5,748
=============== ===============

NOTE 4 -- INVENTORIES:

Inventories consist of the following (in thousands):

March 31, December 31,
1998 1997
------------------- -------------------

Raw material and subassemblies..................... $27,427 $26,631
Work-in-progress................................... 10,688 9,995
Finished goods..................................... 3,198 894
------------------- -------------------
41,313 37,520
Less-progress payments received from
customers............................. (2,771) (2,796)
------------------- -------------------
$38,542 $34,724
=================== ===================

NOTE 5 -- COMPREHENSIVE INCOME:

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
The Company has adopted the standard as of January 1, 1998. Total comprehensive
income consists of the following:

Three Months Ended March 31,
---------------------------------------------------
1998 1997
--------------------- ----------------------

Net income......................................... $ 290 $ 91
Cumulative foreign translation adjustment.......... (1,209) (5)
--------------------- ---------------------
Total comprehensive (loss) income.................. $ (919) $ 86
===================== ======================

Cumulative foreign translation adjustment represents the Company's only other
comprehensive income item. Cumulative foreign translation adjustment represents
unrealized gains/losses in the translation of the financial statements of the
Company's subsidiaries in accordance with SFAS No. 52, "Foreign Currency
Translation." The Company has no intention of liquidating the assets of the
foreign subsidiaries in the foreseeable future.

NOTE 6 -- CHANGES IN SHAREHOLDERS' EQUITY:

Changes in Shareholders' Equity consist of the following (in thousands):

Cumulative
Additional Retained Foreign
Preferred Common Paid-in Earnings Translation
Stock Stock Capital (Deficit) Adjustment Total
----------------- --------- -------------- -------------- ---------------- ----------

Balance, December 31, 1997.............. $ -- $ 98 $97,684 $(22,331) $ (262) $75,189
Common stock options exercised.......... -- 1 474 -- -- 475
Common stock issued pursuant to stock
option plans........................... -- -- 971 -- -- 971
Net earnings for the three month period. -- -- -- 290 -- 290
Foreign translation adjustment.......... -- -- -- -- (1,209) (1,209)

--------- ------ ------- -------- ------- -------
Balance, March 31, 1998................. $ -- $ 99 $99,129 $(22,041) $(1,471) $75,716
========= ===== ======= ======== ======= =======

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS:

Revenue. The Company's revenue for the three months ended March 31,
1998 increased 75.1%, from $15.8 million in the first quarter of 1997 to $27.7
million in the first quarter of 1998. Commercial revenue continued to show
significant growth increasing 139.8% from $7.4 million in the first quarter of
1997 to $17.8 million in the first quarter of 1998. The inclusion of revenue
from AGEMA, particularly the newly introduced AGEMA 570(TM), the Company's first
uncooled technology product, contributed to the growth in revenue. The growth in
revenue was also atributable to sales of the Company's airborne observation
systems for the commercial broadcast market. Revenue from the sale of systems to
the government market increased 18.0%, from $8.4 million in the first quarter of
1997 to $9.9 million in the first quarter of 1998. This growth was primarily due
to the inclusion of revenue from the sales of the AGEMA 1000(TM), a ground based
surveillance infrared imager, and continued strong sales of SAFIRE(TM) thermal
imaging system.

As a result of the acquisition of AGEMA in December of 1997, sales of the
Company's commercial products accounted for the majority of the Company's total
revenue. As a percentage of total revenue for the quarter ended March 31, 1998,
revenue from the sale of imaging systems to the government market constituted
35.8% and revenue from the sale of commercial imaging systems constituted 64.2%,
compared to 53.1% for the government market and 46.9% for the commercial market
for the first quarter of 1997.

Revenue from sales outside the United States increased slightly as a percentage
of total revenue from approximately 34.2% to approximately 34.5% for the
quarters ended March 31, 1997 and 1998, respectively. This increase was
principally due to increased deliveries of commercial products in Europe as a
result of the AGEMA acquisition.

Gross profit. As a percentage of revenue, gross profit increased
slightly from 52.4% in the first quarter of 1997 to 54.9% in the first quarter
of 1998. The increase in gross profit as a percentage of revenue was
principally attributable to the higher proportion of total revenue derived from
the sale of commercial products which, as a result of the favorable cost
structure of the AGEMA commercial products, now generally exceed those margins
experienced from the sale of imaging systems to the government market.

Research and development. Research and development expense as a
percentage of revenue increased from 17.5% to 19.1% for the three months ended
March 31, 1997 and 1998, respectively. In absolute dollar terms, research and
development expense increased from $2.8 million in the first quarter of 1997 to
$5.3 million in the first quarter of 1998, primarily due to inclusion of
research and development expenses of AGEMA, increased engineering efforts
related to the introduction of the U6000(TM) as well as on-going new product
development and existing product enhancements. The overall level of research and
development expense reflects the continued emphasis on product development and
new product introductions.

Selling and other operating costs. Selling and other operating costs
as a percentage of revenue decreased slightly from 32.2% in the first quarter of
1997 to 31.8% in the first quarter of 1998. In absolute dollar terms selling and
other operating costs increased from $5.1 million to $8.8 million for the
quarters ended March 31, 1997 and 1998, respectively. The increase in absolute
dollar terms was due to the inclusion of AGEMA's operations, costs associated
with increased revenue during the quarter (primarily commissions), costs related
to increased personnel, and the inclusion of amortization of patents and the
excess of the purchase price over net assets acquired related to the acquisition
of AGEMA. Such amortization amounted to $288,000 for the quarter ended March 31,
1998.

Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations, translation
gains and losses and miscellaneous bank charges. The increase from $312,000 in
the first quarter of 1997 to $972,000 for the quarter ended March 31, 1998 was
primarily due to the increased short-term debt as a result of increased working
capital needs discussed below.

Income taxes. The provision for income taxes for the quarter ended
March 31, 1998 resulted in an effective tax rate of 29.4% compared to 26.0% for
the quarter ended March 31, 1997. The increase in the effective tax rate was
primarily due to limitations on the timing and recognition of the Company's net
operating loss carryforwards and tax credits. The effective tax rate remained
substantially below statutory rates due to recognition and utilization of net
operating loss carryforwards, various tax credits, and benefits from the
favorable tax treatment of international revenue.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had short-term borrowings net of cash on hand of
$26.7 million compared with $20.7 million at December 31, 1997. The increase in
short-term borrowings during the three months ended March 31, 1998, was
principally caused by increased inventories and the payment of accrued payroll
and other liabilities primarily incentive bonuses and commissions to non-
employees.

Accounts receivable decreased from $55.5 million at December 31, 1997 to $47.6
million at March 31, 1998. The decrease in receivables was primarily due to the
increased percentage of total receivables that represent sales to commercial
customers which typically have a shorter collection cycle than sales
to government customers.

Inventories increased from $34.7 million at December 31, 1997 to $38.5 million
at March 31, 1998. The increase in inventories was primarily attributable to
the higher volume production requirements for the AGEMA 570 and AGEMA 1000
products.

The Company's investing activities have consisted primarily of the expenditures
for fixed assets, which totaled $2.7 million and to $1.4 million for the
quarters ended March 31, 1998 and 1997, respectively. The Company has budgets
approximately $3.0 million related to the replacement of the Company's
Enterprise Resource Planning (ERP) system to ensure year 2000 compliance.

The Company has available a $30.0 million line of credit which bears interest at
IBOR plus 1.75% (7.4% at March 31, 1998) secured by all the Company's assets.
Additionally, the Company, through one of its subsidiaries, has a 40,000,000
Swedish Krone (approximately $5.0 million) line of credit at 4.7% at March 31,
1998. At March 31, 1998, the Company had $32.2 million outstanding on these
lines. The Company also has a note payable to the bank which aggregated $4.3
million at March 31, 1998 and is payable in monthly installments of $123,000 at
an interest rate of 7.4% at March 31, 1998. Both the $30,000,000 line of credit
and the note payable are due on June 1, 1998. The Company is currently in
discussions with the bank to extend and renew the line of credit and note
payable.

The use of cash by operating activities in the first quarter is consistent with
prior years and is primarily due to the increases in inventories and a decrease
in accrued liabilities discussed above. The Company believes that its existing
cash and available credit facilities and financing available from other sources,
together with the scheduled payments on existing receivable balances, and
continuing efforts to expedite the collection of accounts receivable and
management of inventory levels will be sufficient to meet its cash requirements
for the foreseeable future.

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the
Securities Litigation Reform Act of 1995 that are based on current expectations,
estimates and projections about the Company's business, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "sees," "estimates" and variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements due to numerous
factors, including, but not limited to, those discussed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as those discussed from time to time in the Company's Securities and
Exchange Commission fillings and reports. In addition, such statements could
be affected by general industry and market conditions and growth rates, and
general domestic and international economic conditions.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

During the quarter, the Company sold securities without registration under the
Securities Act of 1933, as amended (the "Securities Act") upon the exercise of
certain stock options granted under the Company's 1984 Stock Incentive Plan. An
aggregate of 17,800 shares of Common Stock were issued at exercise prices
ranging from $1.625 to $5.225. These transactions were effected in reliance
upon the exemption from registration under the Securities Act provided by Rule
701 promulgated by the Securities and Exchange Commission pursuant to authority
granted under Section 3 (b) of the Securities Act.

ITEM 5. OTHER INFORMATION

In May 1998, the Company increased the number of shares of common stock reserved
for future issuance pursuant to its incentive stock plans to 4,269,400. Under
the plans, restricted stock, incentive stock options or non-qualified stock
options may be granted to employees, consultants or non-employee directors of
the Company with an exercise price of not less than the fair value of the stock
on the date of grant. Options granted pursuant to the plans expire ten years
from date of grant and the plan terminates in 2003.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

27.1 Financial Data Schedule For 1998
27.2 Financial Data Schedule For 1997
27.3 Financial Data Schedule For 1996

(b) No reports on Form 8-K were filed during the three months ended March 31,
1998.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

FLIR SYSTEMS, INC.

Date May 15, 1998 /s/ J. Mark Samper
--------------------------- ----------------------
J. Mark Samper
Vice President of Finance and
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)