- --------------------------------------------------------------------------------
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 March 31, 1998 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 -- 2,478,200 shares as of April 28, 1998.
- --------------------------------------------------------------------------------
<PAGE>
IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Condensed Financial Statements:
Condensed Balance Sheets
March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations
Three month periods ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows
Three month periods ended March 31, 1998 and 1997 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
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,263,000 $ 2,000,000
Accounts receivable 581,000 1,164,000
Refundable and deferred income taxes 53,000 144,000
Inventories 89,000 67,000
Prepaid expenses 57,000 54,000
------------- -------------
Total current assets 3,043,000 3,429,000
Property and equipment, net 539,000 575,000
Other asset 335,000 75,000
------------- -------------
Total Assets $ 3,917,000 $ 4,079,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 258,000 $ 351,000
Accrued compensation 157,000 184,000
Deferred income 318,000 361,000
------------- -------------
Total current liabilites 733,000 896,000
Deferred income tax liability 45,000 45,000
Shareholders' equity:
Common stock 25,000 25,000
Additional paid-in capital 3,886,000 3,886,000
Retained earnings (deficit) (772,000) (773,000)
------------- -------------
3,139,000 3,138,000
------------- -------------
Total liabilities and shareholders' equity $ 3,917,000 $ 4,079,000
============= =============
</TABLE>
Note: The balance sheet at December 31, 1997 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
March 31
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
REVENUE:
Product sales $ 275,000 $ 352,000
Royalties and commissions 470,000 521,000
Consulting and contract fees 13,000 32,000
-----------------------------
758,000 905,000
COSTS OF REVENUE:
Product sales 153,000 165,000
Royalties and commissions 53,000 66,000
Consulting and contract fees 3,000 31,000
-----------------------------
209,000 262,000
-----------------------------
Gross profit 549,000 643,000
OPERATING EXPENSES:
Selling, general and administrative 577,000 495,000
Research and development -- 171,000
-----------------------------
577,000 666,000
-----------------------------
Loss from operations (28,000) (23,000)
Other income, net 29,000 28,000
-----------------------------
Income before income taxes 1,000 5,000
Income taxes (benefit) -- --
=============================
Net income $ 1,000 $ 5,000
=============================
Net income per common share-basic and diluted $ -- $ --
=============================
Weighted average number of shares and dilutive
potential common shares outstanding 2,478,000 2,475,000
=============================
</TABLE>
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,000 $ 5,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities 533,000 (147,000)
-------------------------------
Net cash provided by (used in) operating activities 534,000 (142,000)
INVESTING ACTIVITIES:
Purchase of property and equipment (12,000) (30,000)
Capitalized software development costs (259,000) --
-------------------------------
Net cash used in investing activities (271,000) (30,000)
FINANCING ACTIVITIES: -- --
-------------------------------
Increase (decrease) in cash and cash equivalents 263,000 (172,000)
Cash and cash equivalents, beginning of period 2,000,000 1,694,000
-------------------------------
Cash and cash equivalents, end of period $ 2,263,000 $ 1,522,000
===============================
</TABLE>
See accompanying notes
<PAGE>
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
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, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the financial statements and footnotes thereto for the
year ended December 31, 1997.
Note B: Net Income Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued FASB Statement
No. 128, "Earnings Per Share". This Statement replaced the previously reported
primary and fully diluted earnings per share (EPS) with basic and diluted EPS.
Unlike pimary EPS, basic EPS excludes any dilutive effects of options, warrants,
and convertible securities. Diluted EPS is very similar to the previously
reported fully diluted EPS. All EPS amounts for all periods have been presented,
and where necessary, restated to conform to the FASB Statement requirements.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three Month Period Ended March 31, 1998)
Revenues for the first quarter of 1998 were $758,000 down 16% from $905,000 for
the same period a year ago. The decrease in first quarter revenues was due
primarily to fewer sales of Autoscope(R) systems by both Image Sensing Systems,
Inc.(ISS) directly overseas and by its North American distributor. In the first
quarter of 1997 both ISS and its North American distributor had relatively large
orders that did not recur in the first quarter of 1998. One large direct sale to
an Asian customer in March 1997 accounted for over $245,000 of product sales. In
January 1997 ISS's North American distributor had a large sale to a Houston,
Texas project which resulted in a royalty to ISS of $133,000.
Gross profits were $549,000 in the first quarter of 1998, or 72% of revenue,
compared to $643,000, or 71% of revenue, for the same period a year ago. The
increased margin in 1998 was due primarily to proportionately more revenue from
royalties, which have significantly higher gross profit margins than product
sales or consulting or contract fees.
Selling, general and administrative expenses were $577,000 for the first quarter
of 1998 compared to $495,000 for the same period a year ago. The increase was
due primarily to use of contract personnel to expedite completion of a new
software release for the Autoscope 2004 system and to added costs related to
preparing for introduction of the new Autoscope Solo product.
No research and development expenses were incurred in the first quarter of 1998
compared to $171,000 incurred for the same period a year ago. The decrease
resulted because all development efforts in the first quarter of 1998 were
incurred in software development for the new Autoscope Solo product. These costs
were capitalized and will
<PAGE>
continue to be capitalized until the Solo product is introduced in mid-year. At
that time, the capitalized costs will be amortized over the expected life of the
new product.
Other income, net was $29,000, virtually unchanged from the first quarter of
1997.
The Company expects to avail itself of both an operating loss and research and
development tax credit carryforward and incur no income tax expense in 1998.
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 provided by operating activities was $534,000 for the first quarter of
1998, compared to $142,000 cash used in operating activities for the same period
in 1997. The improvement in cash flow from operations was primarily due to
increased collections on accounts receivables for the first quarter of 1998
compared to a year ago.
Capital expenditures were $12,000 for the first quarter of 1998, compared to
$30,000 for the same period in 1997. The Company does not expect to make
significant changes to the level of investments in capital expenditures for the
balance of 1998. Capitalized software development costs were $259,000 in the
first quarter. The Company began capitalizing software development costs in the
fourth quarter of 1997 when technological feasibility for the new Autoscope Solo
product was assured. The Company expects to have the product available for
distributor sales mid-year.
<PAGE>
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 exhibit is filed as part of this quarterly report on
Form 10-QSB for the quarterly period ended March 31, 1998:
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: May 4, 1998 /s/ Spiro G. Voglis
--------------------------------------------
Spiro G. Voglis
President and Chief Executive Officer
(principal executive officer)
Dated: May 4, 1998 /s/ Arthur J. Bourgeois
--------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,263,000
<SECURITIES> 0
<RECEIVABLES> 634,000
<ALLOWANCES> 53,000
<INVENTORY> 89,000
<CURRENT-ASSETS> 3,043,000
<PP&E> 1,090,000
<DEPRECIATION> 551,000
<TOTAL-ASSETS> 3,917,000
<CURRENT-LIABILITIES> 733,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 3,111,000
<TOTAL-LIABILITY-AND-EQUITY> 3,917,000
<SALES> 275,000
<TOTAL-REVENUES> 758,000
<CGS> 153,000
<TOTAL-COSTS> 786,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
