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 June 30, 1997 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 August 1, 1997.
<PAGE>
IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Financial Statements:
Condensed Balance Sheets
June 30, 1997 and December 31, 1996 3
Condensed Statements of Operations
Three and six month periods ended June 30, 1997 and 1996 4
Condensed Statements of Cash Flows
Six-month periods ended June 30, 1997 and 1996 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
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SENSING SYSTEMS, INC.
CONDENSED BALANCE SHEET
June 30 December 31,
1997 1996
----------- -----------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,546,000 $ 1,694,000
Accounts receivable 1,119,000 772,000
Refundable and deferred income taxes 45,000 63,000
Inventories 81,000 70,000
Prepaid expenses 65,000 45,000
----------- -----------
Total current assets 2,856,000 2,644,000
Property and equipment, net 576,000 614,000
----------- -----------
Total Assets $ 3,432,000 $ 3,258,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 254,000 $ 296,000
Accrued expenses 173,000 159,000
Deferred contract service fee 67,000 127,000
----------- -----------
Total current liabilities 494,000 582,000
Deferred income tax liability 36,000 36,000
Shareholders' equity:
Common stock 25,000 25,000
Additional paid-in capital 3,875,000 3,875,000
Retained earnings (deficit) (998,000) (1,260,000)
----------- -----------
2,902,000 2,640,000
----------- -----------
Total liabilities and shareholders' equity $ 3,432,000 $ 3,258,000
=========== ===========
Note: The balance sheet at December 31, 1996 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
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30 June 30
------------------------- -------------------------
1997 1996 1997 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 296,000 $ 131,000 648,000 205,000
Royalties and commissions 784,000 517,000 1,305,000 937,000
Consulting and contract fees 51,000 204,000 83,000 340,000
----------- ----------- ----------- -----------
1,131,000 852,000 2,036,000 1,482,000
COSTS OF REVENUE:
Product sales 68,000 78,000 233,000 107,000
Royalties and commissions 88,000 59,000 154,000 105,000
Consulting and contract fees 27,000 151,000 58,000 244,000
----------- ----------- ----------- -----------
183,000 288,000 445,000 456,000
----------- ----------- ----------- -----------
Gross profit 948,000 564,000 1,591,000 1,026,000
OPERATING EXPENSES:
Selling, general and administrative 552,000 648,000 1,047,000 1,416,000
Research and development 160,000 236,000 331,000 555,000
----------- ----------- ----------- -----------
712,000 884,000 1,378,000 1,971,000
----------- ----------- ----------- -----------
Income (loss) from operations 236,000 (320,000) 213,000 (945,000)
Other income, net 21,000 22,000 49,000 52,000
----------- ----------- ----------- -----------
Income (loss) before income taxes 257,000 (298,000) 262,000 (893,000)
Income taxes (benefit) -- -- -- (18,000)
----------- ----------- ----------- -----------
Net income (loss) $ 257,000 $ (298,000) $ 262,000 $ (875,000)
=========== =========== =========== ===========
Net income (loss) per common share $ 0.10 $ (0.12) $ 0.10 $ (0.35)
=========== =========== =========== ===========
Weighted average number of shares
and common share equivalents outstanding 2,475,000 2,475,000 2,475,000 2,475,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Month Period Ended
June 30
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 262,000 $ (875,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities (362,000) (224,000)
----------- -----------
Net cash used in operating activities (100,000) (1,099,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (48,000) (65,000)
----------- -----------
Net cash used in investing activities (48,000) (65,000)
FINANCING ACTIVITIES: -- --
----------- -----------
Increase (decrease) in cash and cash equivalents (148,000) (1,164,000)
Cash and cash equivalents, beginning of period 1,694,000 2,564,000
----------- -----------
Cash and cash equivalents, end of period $ 1,546,000 $ 1,400,000
=========== ===========
</TABLE>
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
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, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997. For
further information, refer to the financial statements and footnotes thereto for
the year ended December 31, 1996.
Note B: Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 128, "Earnings Per Share". This Statement replaces the
presentation of primary earnings per share (EPS) with basic EPS and also
requires dual presentation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year ending
December 31, 1997. For the three and six month periods ended June 30, 1997,
there is no difference between basic earnings per share under Statement No. 128
and net income per share as reported.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three and Six Month Periods Ended June 30, 1997)
Revenues for the second quarter of 1997 were $1,131,000 up 33% from $852,000 for
the same period a year ago while revenues for the first half of 1997 were
$2,036,000, up 37% from $1,482,000 a year ago. The increase in revenues for the
quarter and six month period was due primarily to added royalty income resulting
from increased sales of Autoscope(R) systems by our North American distributor
and added direct product sales to international customers. Sales revenue
increases for the second quarter and six month period were offset in part by
decreased contract fees as the Company completed a large contract in the fourth
quarter of 1996.
Gross profits were $948,000 in the second quarter of 1997, or 84% of revenue,
compared to $564,000, or 66% of revenue, for the same period a year ago. Gross
profits for the first half of 1997 were $1,591,000, or 78% of revenue, compared
to $1,026,000, or 69% of revenue, for the same period a year ago. The
improvement in margins in 1997 are due primarily to proportionately more revenue
from royalties and direct sales, which have higher gross profit margins than
contract fee income.
Selling, general and administrative expenses were $552,000 and $1,047,000,
respectively, for the three and six month periods ended June 30, 1997 compared
to $648,000 and $1,416,000 for the same periods a year ago. The decreases were
due primarily from reduced personnel costs in technical, sales and marketing and
general and administrative departments as fewer personnel are now employed in
each of these areas.
<PAGE>
Research and development expenses were $160,000 and $331,000, respectively, for
the three and six month periods ended June 30, 1997 compared to $236,000 and
$555,000 for the same periods a year ago. The decreases were due primarily from
less costs for contracted outside product development services and parts.
Other income, net was $21,000 and $49,000, respectively, for the three and six
month periods ended June 30, 1997 compared to $22,000 and $52,000, respectively,
for the same periods a year ago. The small decrease resulted primarily from
slightly less interest income from cash equivalents.
The Company expects to avail itself of an operating loss carryforward and incur
no income tax expense in 1997.
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 $100,000 for the six-month period ended June 30,
1997, compared to $1,099,000 for the same period in 1996. The decrease in
negative cash flow from operations was primarily due to the turn-around in
operating results as the Company had net income of $262,000 for the first half
of 1997 compared to a net loss of $875,000 for the first half of 1996.
<PAGE>
Capital expenditures were $48,000 for the six-month period ended June 30, 1997,
compared to $65,000 for the same period in the prior year. The Company does not
expect to make significant changes to the level of investments in capital
expenditures for the balance of 1997.
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.
Factors Affecting Future Performance:
Periodically in reports filed with the Securities and Exchange Commission, in
press releases, and in other communications to shareholders and the investing
public, the Company may make statements regarding the Company's future financial
performance. Such forward looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected, including the ability and willingness of governmental agencies
responsible for roadway planning to invest in Autoscope machine vision
technology for advanced traffic management, the impact of new products
introduced by competitors, and higher than expected expenses to complete the
development of new products and to establish a worldwide marketing presence.
<PAGE>
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 12, 1997, 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 2,247,687 24,200
Spiro G. Voglis 2,247,687 24,200
Richard C. Magnuson 2,248,687 23,200
Richard P. Braun 2,248,687 23,200
James Murdakes 2,248,687 23,200
C. (Dino) Xykis 2,248,687 23,200
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
<PAGE>
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 11, 1997 /s/ Spiro G. Voglis
-------------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: August 11, 1997 /s/ Arthur J. Bourgeois
-------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,546,000
<SECURITIES> 0
<RECEIVABLES> 1,219,000
<ALLOWANCES> 55,000
<INVENTORY> 81,000
<CURRENT-ASSETS> 2,856,000
<PP&E> 989,000
<DEPRECIATION> 413,000
<TOTAL-ASSETS> 3,432,000
<CURRENT-LIABILITIES> 494,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 2,877,000
<TOTAL-LIABILITY-AND-EQUITY> 3,432,000
<SALES> 648,000
<TOTAL-REVENUES> 2,036,000
<CGS> 233,000
<TOTAL-COSTS> 1,823,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 262,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 262,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
