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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 September 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
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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
----- -----
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 -- 2,477,500 shares as of November 3, 1997.
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<PAGE>
IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Condensed Financial Statements (unaudited):
Condensed Balance Sheets
September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations
Three and nine month periods ended
September 30, 1997 and 1996 4
Condensed Statements of Cash Flows
Nine month periods ended September 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 I. FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SENSING SYSTEMS, INC.
Condensed Balance Sheet
September 30 December 31,
1997 1996
------------ ------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,904,000 $ 1,694,000
Accounts receivable 1,603,000 772,000
Refundable and deferred income taxes 45,000 63,000
Inventories 192,000 70,000
Prepaid expenses 53,000 45,000
----------- -----------
Total current assets 3,797,000 2,644,000
Property and equipment, net 569,000 614,000
----------- -----------
Total Assets $ 4,366,000 $ 3,258,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 503,000 $ 296,000
Accrued expenses 208,000 159,000
Deferred revenue 488,000 127,000
----------- -----------
Total current liabilities 1,199,000 582,000
Deferred income tax liability 36,000 36,000
Shareholders' equity:
Common stock 25,000 25,000
Additional paid-in capital 3,884,000 3,875,000
Retained earnings (deficit) (778,000) (1,260,000)
----------- -----------
3,131,000 2,640,000
----------- -----------
Total liabilities and shareholders' equity $ 4,366,000 $ 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 Nine Month Period Ended
September 30 September 30
------------------------ ------------------------
1997 1996 1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 307,000 $ 244,000 $ 955,000 $ 449,000
Royalties and commissions 864,000 302,000 2,169,000 1,239,000
Consulting and contract fees 7,000 177,000 90,000 517,000
------------------------ ------------------------
1,178,000 723,000 3,214,000 2,205,000
COSTS OF REVENUE:
Product sales 227,000 85,000 460,000 192,000
Royalties and commissions 75,000 37,000 229,000 142,000
Consulting and contract fees 7,000 116,000 65,000 360,000
------------------------ ------------------------
309,000 238,000 754,000 694,000
------------------------ ------------------------
Gross profit 869,000 485,000 2,460,000 1,511,000
OPERATING EXPENSES:
Selling, general and administrative 515,000 581,000 1,562,000 1,997,000
Research and development 157,000 172,000 488,000 727,000
------------------------ ------------------------
672,000 753,000 2,050,000 2,724,000
------------------------ ------------------------
Income (loss) from operations 197,000 (268,000) 410,000 (1,213,000)
Other income, net 23,000 19,000 72,000 71,000
------------------------ ------------------------
Income (loss) before income taxes 220,000 (249,000) 482,000 (1,142,000)
Income taxes (benefit) - - - (18,000)
------------------------ ------------------------
Net income (loss) $ 220,000 $ (249,000) $ 482,000 $(1,124,000)
======================== ========================
Net income (loss) per common share $ 0.09 $ (0.10) $ 0.19 $ (0.45)
======================== ========================
Weighted average number of shares
and common share equivalents outstanding 2,496,000 2,475,000 2,493,000 2,475,000
======================== ========================
</TABLE>
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Month Period Ended
September 30
------------------------
1997 1996
-------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 482,000 $(1,124,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities (192,000) 366,000
-------------------------
Net cash provided by (used in) operating activities 290,000 (758,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (90,000) (133,000)
-------------------------
Net cash used in investing activities (90,000) (133,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock option 10,000
-------------------------
Net cash provided by financing activities 10,000
-------------------------
Increase (decrease) in cash and cash equivalents 210,000 (891,000)
Cash and cash equivalents, beginning of period 1,694,000 2,564,000
-------------------------
Cash and cash equivalents, end of period $1,904,000 $ 1,673,000
=========================
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
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, 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
Net income (loss) per share for the three and nine month periods ended September
30, 1997 and 1996 are computed using the weighted average number of common
shares outstanding during the periods, including common stock equivalents if
dilutive.
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 nine month periods ended September 30,
1997, the difference between basic earnings per share under Statement No. 128
and net income per share as reported is less than one cent per share.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three and Nine Month Periods Ended September 30, 1997)
Revenues for the third quarter of 1997 were $1,178,000, up 63% from $723,000 for
the same period a year ago while revenues for the nine month period ended
September 30, 1997 were $3,214,000, up 46% from $2,205,000 a year ago. The
increase in revenues for the quarter and nine month period was due primarily to
added royalty and commission income resulting from increased sales of
Autoscope(R) systems by Econolite Control Products, Inc., our North American
Distributor, and added direct product sales. Shipment of 34 Autoscope systems to
Houston, Texas and an upgrade of 168 Autoscope systems in Oakland County,
Michigan accounted for a significant portion of the increase in the third
quarter.
Gross profits were $869,000 in the third quarter of 1997, or 74% of revenue,
compared to $485,000, or 67% of revenue, for the same period a year ago. Gross
profits for the nine month period of 1997 were $2,460,000, or 77% of revenue,
compared to $1,511,000, or 69% of revenue, for the same period a year ago. The
increased gross profits in 1997 were due primarily to increased revenue while
the increased margins in 1997 were due primarily to proportionately more revenue
from royalties and commissions, which have higher gross profit margins than
contract fee income.
Selling, general and administrative expenses were $515,000 and $1,562,000,
respectively, for the three and nine month periods ended September 30, 1997
compared to $581,000 and $1,997,000 for the same periods a year ago. The
decreases in 1997 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 $157,000 and $488,000, respectively, for
the three and nine month periods ended September 30, 1997 compared to $172,000
and $727,000 for the same periods a year ago. The decreases were due primarily
to less costs for contracted outside product development services and parts.
Other income, net was $23,000 and $72,000, respectively, for the three and nine
month periods ended September 30, 1997 compared to $19,000 and $71,000,
respectively, for the same periods a year ago. The small increase was due
primarily to holding more interest bearing cash equivalents in the third quarter
of 1997 compared to the same period a year ago.
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.
Operating activities provided $290,000 in cash for the nine month period ended
September 30, 1997, compared to a use of cash of $758,000 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 $482,000
for the nine month period ended September 30, 1997 compared to a net loss of
$1,124,000 for the same period in 1996.
<PAGE>
Capital expenditures were $90,000 for the nine month period ended September 30,
1997, compared to $133,000 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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this quarterly
report on Form 10-QSB for the quarterly period ended
September, 30, 1997:
11 Computation of Earnings Per Share
27 Financial Data Schedule
(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: November 7, 1997 /s/ Spiro G. Voglis
--------------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: November 7, 1997 /s/ Arthur J. Bourgeois
--------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT 11
IMAGE SENSING SYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30 September 30
------------------------ --------------------------
1997 1996 1997 1996
------------------------ --------------------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Weighted average share outstanding 2,475,625 2,475,000 2,475,211 2,475,000
Net effect of dilutive stock options -
based on the treasury stock method 20,417 17,852
------------------------ --------------------------
2,496,042 2,475,000 2,493,063 2,475,000
======================== ==========================
Net income (loss) $ 220,000 $ (249,000) $ 482,000 $(1,124,000)
======================== ==========================
Primary net income (loss) per share $ 0.09 $ (0.10) $ 0.19 $ (0.45)
======================== ==========================
FULLY DILUTED NET INCOME (LOSS) PER SHARE:
Weighted average share outstanding 2,475,625 2,475,000 2,475,211 2,475,000
Net effect of dilutive stock options -
based on the treasury stock method 37,900 34,347
------------------------ --------------------------
2,513,525 2,475,000 2,509,558 2,475,000
======================== ==========================
Net income (loss) $ 220,000 $ (249,000) $ 482,000 $(1,124,000)
======================== ==========================
Fully diluted net income (loss) per share $ 0.09 $ (0.10) $ 0.19 $ (0.45)
======================== ==========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS OF IMAGE SENSING SYSTEMS, INC. FOR THE THREE
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-01-1997
<CASH> $1,904,000
<SECURITIES> 0
<RECEIVABLES> 1,633,000
<ALLOWANCES> 30,000
<INVENTORY> 192,000
<CURRENT-ASSETS> 3,797,000
<PP&E> 1,031,000
<DEPRECIATION> 462,000
<TOTAL-ASSETS> 4,366,000
<CURRENT-LIABILITIES> 1,199,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 3,106,000
<TOTAL-LIABILITY-AND-EQUITY> 4,366,000
<SALES> 955,000
<TOTAL-REVENUES> 3,214,000
<CGS> 460,000
<TOTAL-COSTS> 2,804,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 482,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 482,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 482,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
