<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1996 Commission File Number 0-26056
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IMAGE SENSING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1519168
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State of other jurisdiction of I.R.S. Employer Identification No.
incorporation organization
500 SPRUCE TREE CENTRE
1600 UNIVERSITY AVE. W.
ST. PAUL, MN 55104-3825
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 603-7700
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Not applicable
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(Former name, former address, and former fiscal year,
if changed since last report.)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value -- 2,475,000 shares as of August 1, 1996.
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IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Condensed Financial Statements:
Condensed Balance Sheets
June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations
Three and six month periods ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows
Six-month periods ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SENSING SYSTEMS, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- --------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,400,000 $ 2,564,000
Accounts receivable 1,136,000 865,000
Refundable & deferred income tax 209,000 213,000
Inventories 85,000 95,000
Prepaid expenses 65,000 74,000
----------------- --------------
Total current assets 2,895,000 3,811,000
Property and equipment 622,000 636,000
----------------- --------------
Total Assets $ 3,517,000 $ 4,447,000
----------------- --------------
----------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and accounts payable $ 357,000 $ 494,000
Accrued expenses 326,000 182,000
Deferred compensation - 62,000
----------------- --------------
Total current liabilites 683,000 738,000
Deferred income tax liability 31,000 31,000
Shareholders' equity:
Common stock 25,000 25,000
Additional paid-in capital 3,875,000 3,875,000
Retained earnings (deficit) (1,097,000) (222,000)
----------------- --------------
2,803,000 3,678,000
----------------- --------------
Total liabilities and shareholders' equity $ 3,517,000 $ 4,447,000
----------------- --------------
----------------- --------------
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accounting principles for
complete financial statements.
See accompanying notes
3
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IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30 June 30
------------------------ --------------------------
1996 1995 1996 1995
------------------------ --------------------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 131,000 $ 136,000 $ 205,000 $ 233,000
Royalties and commissions 517,000 636,000 937,000 823,000
Consulting and contract fees 204,000 3,000 340,000 32,000
------------------------ --------------------------
852,000 775,000 1,482,000 1,088,000
COSTS OF REVENUE:
Product sales 78,000 49,000 107,000 94,000
Royalties and commissions 59,000 117,000 105,000 155,000
Consulting and contract fees 151,000 (8,000) 244,000 35,000
------------------------ --------------------------
288,000 158,000 456,000 284,000
------------------------ --------------------------
Gross profit 564,000 617,000 1,026,000 804,000
OPERATING EXPENSES:
Selling, general and administrative 648,000 435,000 1,416,000 708,000
Research and development 236,000 98,000 555,000 182,000
------------------------ --------------------------
884,000 533,000 1,971,000 890,000
------------------------ --------------------------
Income (loss) from operations (320,000) 84,000 (945,000) (86,000)
Other income, net 22,000 22,000 52,000 20,000
------------------------ --------------------------
Income (loss) before income taxes (298,000) 106,000 (893,000) (66,000)
Income taxes (benefit) - 30,000 (18,000) (18,000)
------------------------ --------------------------
Net income (loss) $ (298,000) $ 76,000 $ (875,000) $ (48,000)
------------------------ --------------------------
------------------------ --------------------------
Net income (loss) per common share $ (0.12) $ 0.04 $ (0.35) $ (0.03)
------------------------ --------------------------
------------------------ --------------------------
Weighted average number of shares
and common share equivalents outstanding 2,475,000 2,020,000 2,475,000 1,747,000
------------------------ --------------------------
------------------------ --------------------------
</TABLE>
See accompanying notes
4
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IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Month Period Ended
June 30
------------------------------------
1996 1995
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (875,000) $ (48,000)
Adjustments to reconcile net loss to
net cash used in operating activities (224,000) (214,000)
------------------------------------
Net cash used in operating activities (1,099,000) (262,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (65,000) (127,000)
Purchase of short-term investments - (1,100,000)
------------------------------------
Net cash used in investing activities (65,000) (1,227,000)
FINANCING ACTIVITIES:
Sale of 990,000 shares common stock,
net of cost of offering - 3,858,000
Payment of note payable, bank - (40,000)
------------------------------------
Net cash provided by financing activities - 3,818,000
------------------------------------
Increase (decrease) in cash and cash equivalents (1,164,000) 2,329,000
Cash and cash equivalents, beginning of period 2,564,000 13,000
------------------------------------
Cash and cash equivalents, end of period $ 1,400,000 $ 2,342,000
------------------------------------
------------------------------------
</TABLE>
See accompanying notes
5
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IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1995.
6
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three and Six Month Periods Ended June 30, 1996)
Revenues for the second quarter of 1996 were $852,000, up 10% from $775,000
for the same period a year ago while revenues for the first half of 1996 were
$1,482,000, up 36% from $1,088,000 a year ago. The increase in second
quarter revenues was due primarily to new contract development grants
received in the last half of 1995 which continued into 1996, offset in part
by reduced royalty and commission income. Revenues for the first half of
1996 were more than 1995 primarily due to increased development grants and
royalty and commission income.
Gross profits were $564,000 in the second quarter of 1996, or 66% of revenue,
compared to $617,000, or 80% of revenue, for the same period a year ago.
Gross profits for the first half of 1996 were $1,026,000, or 69% of revenue,
compared to $804,000, or 74% of revenue, for the same period a year ago. The
reduced margins in 1996 are due primarily to proportionately more revenue
from contract development grants, which have lower gross profit margins than
royalties and commissions or direct sales.
Selling, general and administrative expenses were $648,000 and $1,416,000,
respectively, for the three and six month periods ended June 30, 1996
compared to $435,000 and $708,000 for the same periods a year ago. The
increases were due primarily from adding sales and marketing personnel to
help expand the business, technical personnel to provide additional customer
support, and administrative personnel to support the growth of the business.
Personnel were added primarily in the second half of 1995.
Research and development expenses were $236,000 and $555,000, respectively,
for the three and six month periods ended June 30, 1996 compared to $98,000
and $182,000 for the same periods a year ago. The increases were due
primarily from adding technical
7
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personnel in the second half of 1995 to increase product development of the
AutoscopeTM System.
Other income, net was $22,000 and $52,000, respectively, for the three and
six month periods ended June 30, 1996 compared to $22,000 and $20,000,
respectively, for the same periods a year ago. The increases resulted
primarily from increased interest income from investments made with proceeds
remaining from the initial public offering.
The Company expects its effective income tax benefit rate to be less than 2%
for 1996. The Company's effective income tax rate was approximately 28% for
the three and six month periods ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES:
The Company completed an initial public offering in June 1995 with the sale
of 990,000 shares of common stock, receiving net proceeds of approximately
$3.9 million. The proceeds are being used for the expansion of the business
and the unused portion is currently held in interest-bearing cash equivalents.
Cash used in operations was $1,099,000 for the six-month period ended June
30, 1996, compared to $262,000 for the same period in 1995. The decrease in
cash flow from operations was primarily due to a net loss for the first half
of 1996 of $875,000 compared to $48,000 for the first half of 1995, along
with increased investments in inventory, accounts receivable, and prepaid
expenses related to expansion of the business.
Capital expenditures were $65,000 for the six-month period ended June 30,
1996, compared to $127,000 for the same period in the prior year. The
Company expects to continue to make reduced investments in technical and
office equipment for the balance of 1996.
8
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Management believes that its cash and investment position, anticipated cash
flows from operations, and funds available through its bank line of credit
will be sufficient to meet working capital requirements for current
operations and planned new product introductions for the foreseeable future.
9
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PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on May 15, 1996, in Minneapolis,
Minnesota. The Company solicited proxies and filed its definitive
proxy statement with the Commission pursuant to Regulation 14A. The
only matter voted upon at the meeting was the election of directors
as follows:
DIRECTOR FOR WITHHOLD AUTHORITY
-------- --- ------------------
Panos G. Michalopoulos 2,219,374 32,045
Spiro G. Voglis 2,246,474 4,945
Richard C. Magnuson 2,246,474 4,945
Richard P. Braun 2,246,474 4,945
James Murdakes 2,246,474 4,945
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS
No reports on Form 8-K were filed during the quarter covered by this
Form 10-QSB
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Image Sensing Systems, Inc.
--------------------------------------
(Registrant)
Dated: August 8, 1996 /s/ SPIRO G. VOGLIS
--------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: August 8, 1996 /s/ ARTHUR J. BOURGEOIS
-----------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AT JUNE 30, 1996 AND DECEMBER 31, 1995 AND STATEMENTS OF OPERATIONS
AND CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,400,000
<SECURITIES> 0
<RECEIVABLES> 1,331,000
<ALLOWANCES> 43,000
<INVENTORY> 84,000
<CURRENT-ASSETS> 2,895,000
<PP&E> 868,000
<DEPRECIATION> 246,000
<TOTAL-ASSETS> 3,517,000
<CURRENT-LIABILITIES> 683,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 2,778,000
<TOTAL-LIABILITY-AND-EQUITY> 3,517,000
<SALES> 205,000
<TOTAL-REVENUES> 1,482,000
<CGS> 107,000
<TOTAL-COSTS> 2,427,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (893,000)
<INCOME-TAX> (18,000)
<INCOME-CONTINUING> (875,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875,000)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
