UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1996 Commission File Number 0-26056
- --------------------------------------- ------------------------------
IMAGE SENSING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1519168
- ------------------------------ ----------------------------------
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
Not applicable
- --------------------------------------------------------------------------------
(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 ___
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 November 1, 1996.
IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Financial Statements (unaudited):
Condensed Balance Sheets
September 30, 1996 and December 31, 1995 3
Condensed Statements of Operations
Three and nine month periods ended
September 30, 1996 and 1995 4
Condensed Statements of Cash Flows
Nine month periods ended September 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
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
IMAGE SENSING SYSTEMS, INC.
CONDENSED BALANCE SHEET
September 30, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,673,000 $ 2,564,000
Accounts receivable 622,000 865,000
Refundable & deferred income taxes 59,000 213,000
Inventories 111,000 95,000
Prepaid expenses 50,000 74,000
----------- -----------
Total current assets 2,515,000 3,811,000
Property and equipment 649,000 636,000
----------- -----------
Total Assets $ 3,164,000 $ 4,447,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and accounts payable $ 223,000 $ 494,000
Accrued expenses 356,000 182,000
Deferred compensation -- 62,000
----------- -----------
Total current liabilites 579,000 738,000
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) (1,346,000) (222,000)
----------- -----------
----------- -----------
2,554,000 3,678,000
----------- -----------
Total liabilities and shareholders' equity $ 3,164,000 $ 4,447,000
=========== ===========
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
<TABLE>
<CAPTION>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Month Period Ended Nine Month Period Ended
September 30 September 30
-------------------------- --------------------------
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 244,000 $ 183,000 $ 449,000 $ 416,000
Royalties and commissions 302,000 636,000 1,239,000 1,459,000
Consulting and contract fees 177,000 27,000 517,000 59,000
-------------------------- --------------------------
723,000 846,000 2,205,000 1,934,000
COSTS OF REVENUE:
Product sales 85,000 65,000 192,000 159,000
Royalties and commissions 37,000 120,000 142,000 275,000
Consulting and contract fees 116,000 38,000 360,000 73,000
-------------------------- --------------------------
238,000 223,000 694,000 507,000
-------------------------- --------------------------
Gross profit 485,000 623,000 1,511,000 1,427,000
OPERATING EXPENSES:
Selling, general and administrative 581,000 575,000 1,997,000 1,283,000
Research and development 172,000 194,000 727,000 376,000
-------------------------- --------------------------
753,000 769,000 2,724,000 1,659,000
-------------------------- --------------------------
Loss from operations (268,000) (146,000) (1,213,000) (232,000)
Other income, net 19,000 46,000 71,000 66,000
-------------------------- --------------------------
Loss before income taxes (249,000) (100,000) (1,142,000) (166,000)
Income taxes (benefit) -- (35,000) (18,000) (53,000)
-------------------------- --------------------------
Net loss $ (249,000) $ (65,000) $(1,124,000) $ (113,000)
========================== ==========================
Net loss per common share $ (0.10) $ (0.03) $ (0.45) $ (0.06)
========================== ==========================
Weighted average number of shares
and common share equivalents outstanding 2,475,000 2,475,000 2,475,000 1,992,000
========================== ==========================
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Month Period Ended
September 30
--------------------------
1996 1995
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(1,124,000) $ (113,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities 366,000 (374,000)
--------------------------
Net cash used in operating activities (758,000) (487,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (133,000) (303,000)
Purchase of short-term investments -- (2,800,000)
--------------------------
Net cash used in investing activities (133,000) (3,103,000)
FINANCING ACTIVITIES:
Sale of 990,000 shares common stock,
net of cost of offering -- 3,868,000
Payment of note payable, bank -- (40,000)
--------------------------
Net cash provided by financing activities -- 3,828,000
--------------------------
Increase (decrease) in cash and cash equivalents (891,000) 238,000
Cash and cash equivalents, beginning of period 2,564,000 13,000
--------------------------
Cash and cash equivalents, end of period $ 1,673,000 $ 251,000
==========================
See accompanying notes
</TABLE>
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
Note A: Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles 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 nine month periods ended September 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.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three and Nine Month Periods Ended September 30, 1996)
Revenues for the third quarter of 1996 were $723,000, down 15% from $846,000 for
the same period a year ago while revenues for the nine month period ended
September 30, 1996 were $2,205,000, up 14% from $1,934,000 a year ago. The
decrease in third quarter revenues was due primarily to decreased royalty income
compared to the prior year. Revenues for the nine month period of 1996 were more
than 1995 primarily due to new contract development grants received in the last
half of 1995 which continued into 1996.
Gross profits were $485,000 in the third quarter of 1996, or 67% of revenue,
compared to $623,000, or 74% of revenue, for the same period a year ago. Gross
profits for the nine month period of 1996 were $1,511,000, or 69% of revenue,
compared to $1,427,000, 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 $581,000 and $1,997,000,
respectively, for the three and nine month periods ended September 30, 1996
compared to $575,000 and $1,283,000 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 $172,000 and $727,000, respectively, for
the three and nine month periods ended September 30, 1996 compared to $194,000
and $376,000 for the same periods a year ago. The increases were due primarily
from adding technical personnel in the second half of 1995 to increase product
development of the Autoscope(TM) System.
Other income, net was $19,000 and $71,000, respectively, for the three and nine
month periods ended September 30, 1996 compared to $46,000 and $66,000,
respectively, for the same periods a year ago. The decrease for the quarter was
primarily due to less interest income as investments made with proceeds of the
May 1995 initial public offering are being used to finance operating needs.
The Company expects its effective income tax benefit rate to be less than 2% for
1996 as most of the tax benefit from the operating loss will be offset by a
valuation reserve. The Company's effective income tax rate was approximately 35%
and 32%, respectively for the three and nine month periods ended September 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 $758,000 for the nine month period ended September
30, 1996, compared to $487,000 for the same period in 1995. The decrease in cash
flow from operations was primarily due to a net loss for the nine month period
of 1996 of $1,124,000 compared to $113,000 for the comparable period of 1995.
Capital expenditures were $133,000 for the nine month period ended September 30,
1996, compared to $303,000 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.
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.
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
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: November 7, 1996 --------------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: November 7, 1996 --------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,673,000
<SECURITIES> 0
<RECEIVABLES> 622,000
<ALLOWANCES> 27,000
<INVENTORY> 111,000
<CURRENT-ASSETS> 2,515,000
<PP&E> 924,000
<DEPRECIATION> 288,000
<TOTAL-ASSETS> 3,164,000
<CURRENT-LIABILITIES> 579,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 2,529,000
<TOTAL-LIABILITY-AND-EQUITY> 3,164,000
<SALES> 449,000
<TOTAL-REVENUES> 2,205,000
<CGS> 192,000
<TOTAL-COSTS> 694,000
<OTHER-EXPENSES> 2,724,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,142,000)
<INCOME-TAX> (18,000)
<INCOME-CONTINUING> (1,124,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,124,000)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
