<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 March 31, 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.)
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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 May 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
March 31, 1996 and December 31, 1995 3
Condensed Statements of Operations
Three-month periods ended March 31, 1996 and 1995 4
Condensed Statements of Cash Flows
Three-month periods ended March 31, 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 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
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IMAGE SENSING SYSTEMS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31,
1996 1995
---------------- -----------------
<S> <C> <C>
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,898,000 $ 2,564,000
Accounts receivable 712,000 865,000
Refundable & deferred income taxes 225,000 213,000
Inventories 87,000 95,000
Prepaid expenses 30,000 74,000
---------------- -----------------
Total current assets 2,952,000 3,811,000
Property and equipment 641,000 636,000
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Total assets $ 3,593,000 $ 4,447,000
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---------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 340,000 $ 494,000
Accrued expenses 121,000 182,000
Deferred compensation -- 62,000
---------------- -----------------
Total current liabilities 461,000 738,000
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) (799,000) (222,000)
---------------- -----------------
Total shareholders' equity 3,101,000 3,678,000
---------------- -----------------
Total liabilities and shareholders' equity $ 3,593,000 $ 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 accepted accounting
principles for complete financial statements.
See accompanying notes.
3
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Month Period Ended
March 31
----------------------------
1996 1995
----------------------------
REVENUE:
Product sales $ 74,000 $ 97,000
Royalties 420,000 187,000
Consulting and contract fees 136,000 29,000
----------------------------
630,000 313,000
COSTS OF REVENUE:
Product sales 29,000 45,000
Royalties 46,000 38,000
Consulting and contract fees 93,000 43,000
----------------------------
168,000 126,000
----------------------------
Gross profit 462,000 187,000
OPERATING EXPENSES:
Selling, general and administrative 768,000 273,000
Research and development 319,000 84,000
----------------------------
1,087,000 357,000
----------------------------
Loss from operations (625,000) (170,000)
Other income (expense), net 30,000 (2,000)
----------------------------
Loss before income taxes (595,000) (172,000)
Income taxes (benefit) (18,000) (48,000)
----------------------------
Net loss $ (577,000) $ (124,000)
----------------------------
----------------------------
Net loss per common share $ (0.23) $ (0.08)
----------------------------
----------------------------
Weighted average number of common shares
outstanding 2,475,000 1,485,000
----------------------------
----------------------------
See accompanying notes.
4
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IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Month Period Ended
March 31
----------------------------
1996 1995
----------------------------
OPERATING ACTIVITIES:
Net loss $ (577,000) $ (124,000)
Adjustments to reconcile net loss to
net cash used in operating activities (46,000) 81,000
----------------------------
Net cash used in operating activities (623,000) (43,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (43,000) (8,000)
----------------------------
Net cash used in investing activities (43,000) (8,000)
FINANCING ACTIVITIES:
Proceeds from bank borrowings -- 115,000
Prepayment of registration costs -- (24,000)
----------------------------
Net cash provided by financing activities -- 91,000
(Decrease) increase in cash and cash equivalents (666,000) 40,000
Cash and cash equivalents, beginning of period 2,564,000 13,000
----------------------------
Cash and cash equivalents, end of period $ 1,898,000 $ 53,000
----------------------------
----------------------------
See accompanying notes.
5
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IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 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-month period ended March 31, 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-Month Period Ended March 31, 1996)
Revenues for the first quarter of 1996 were $630,000, an increase of 101%
from $313,000 for the same period a year ago. The increase in first quarter
revenues was due primarily to increased royalty income and fees from
contracts.
Gross profits were $462,000 in the first quarter of 1996, or 73% of revenue,
compared to $187,000, or 60% of revenue, for the same period a year ago. The
improvement in margins was due primarily to less royalty costs, as the Hughes
Aircraft royalty agreement expired, and increased contract fees relative to
costs.
Selling, general and administrative expenses were $768,000 for the
three-month period ended March 31, 1996 compared to $273,000 for the same
period a year ago. The increase was 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.
Research and development expenses were $319,000 for the three-month period
ended March 31, 1996 compared to $84,000 for the same period a year ago. The
increase was due primarily from adding technical personnel for new product
development.
Other income, net was $30,000 for the three-month period ended March 31, 1996
compared to net expense of $2,000 for the same period a year ago. The change
from other expense, net to other income, net resulted primarily from
increased interest income from investments made with proceeds remaining from
the initial public offering.
7
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The Company's effective income tax rate was approximately 3% for the
three-month period ended March 31, 1996, which takes into account a
limitation on the amount of loss which can be carried back for refundable
income taxes. The effective tax rate for the comparable period in 1995 was
28%.
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 $623,000 for the three-month period ended March
31, 1996, compared to $43,000 for the same period in 1995. The decrease in
cash flow from operations was primarily due to a net loss for the three-month
period of 1996 of $577,000 compared to a net loss for the three-month period
of 1995 of $124,000, along with net increases in other elements of working
capital.
Capital expenditures were $43,000 for the three-month period ended March 31,
1996, compared to $8,000 for the same period the prior year. The Company
does not expect to make significant investments in technical and office
equipment for the balance of 1996.
Management believes that proceeds from the June 1995 initial public offering,
combined with 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 the balance of 1996.
8
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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
Not applicable
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
9
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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.
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(Registrant)
Dated: May 10, 1996 /s/ Spiro G. Voglis
-------------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: May 10, 1996 /s/ Arthur J. Bourgeois
-------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AT MARCH 31, 1996 AND DECEMBER 31, 1995 AND THE STATEMENTS OF OPERATIONS
AND CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,898,000
<SECURITIES> 0
<RECEIVABLES> 717,000
<ALLOWANCES> 5,000
<INVENTORY> 87,000
<CURRENT-ASSETS> 2,952,000
<PP&E> 853,000
<DEPRECIATION> 212,000
<TOTAL-ASSETS> 3,593,000
<CURRENT-LIABILITIES> 461,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 3,076,000
<TOTAL-LIABILITY-AND-EQUITY> 3,593,000
<SALES> 74,000
<TOTAL-REVENUES> 630,000
<CGS> 29,000
<TOTAL-COSTS> 1,255,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (595,000)
<INCOME-TAX> (18,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (577,000)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
