UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2000 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
- ------------------------------ ----------------------------------
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: (651) 603-7700
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 - 3,014,637 shares as of May 5, 2000.
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Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
IMAGE SENSING SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
Three-month periods ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Three-month periods ended March 31, 2000 and 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements involve risks and uncertainties that may cause
the Company's actual results to differ materially from the results discussed in
the forward-looking statements. Factors that might cause such differences
include, but are not limited to, lack of market acceptance of the Company's
products; dependence on third parties for manufacturing and marketing
capabilities and continuing ability to pay royalties owed; inability of the
Company to diversify its product offerings; revenue fluctuations caused by the
Company's dependence on sales to governmental entities; failure of the Company
to secure adequate protection for the Company's intellectual property rights;
failure of the Company to respond to evolving industry standards and
technological changes; inability of the Company to properly manage growth in
revenues and/or production requirements; inability of the Company to meet its
future additional capital requirements; and control of the voting stock by
insiders. The forward-looking statements are qualified in their entirety by the
cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary
Statement," to this Quarterly Report.
3
<PAGE>
PART I - FINANCIAL INFORMATION
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ROUNDED TO THOUSANDS)
March 31, December 31,
2000 1999
----------- -----------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,348,000 $ 1,319,000
Accounts receivable 1,127,000 1,428,000
Inventories 165,000 84,000
Prepaid expenses 51,000 57,000
Deferred income taxes 45,000 45,000
----------- -----------
Total current assets 2,736,000 2,933,000
Property and equipment, net 433,000 445,000
Other assets:
Capitalized software development costs, net 1,155,000 1,014,000
Deferred income taxes 475,000 358,000
Other 85,000 86,000
----------- -----------
1,715,000 1,458,000
----------- -----------
Total Assets $ 4,884,000 $ 4,836,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 436,000 $ 429,000
Accrued compensation 110,000 278,000
Deferred income 78,000 53,000
----------- -----------
Total current liabilites 624,000 760,000
Deferred income tax liability 394,000 394,000
Minority interest 80,000 80,000
Shareholders' equity:
Common stock 25,000 25,000
Additional paid-in capital 3,989,000 3,890,000
Retained earnings (deficit) (228,000) (313,000)
----------- -----------
3,786,000 3,602,000
----------- -----------
Total liabilities and shareholders' equity $ 4,884,000 $ 4,836,000
=========== ===========
Note: The balance sheet at December 31, 1999 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
4
<PAGE>
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - ROUNDED TO THOUSANDS)
<TABLE>
<CAPTION>
Three-Month Period Ended
March 31
---------------------------
2000 1999
---------------------------
<S> <C> <C>
REVENUE:
Product sales $ 310,000 $ 334,000
Royalties 760,000 760,000
Consulting services 25,000 62,000
---------------------------
1,095,000 1,156,000
COSTS OF REVENUE:
Product sales 166,000 160,000
Royalties 75,000 82,000
Consulting services 14,000 22,000
---------------------------
255,000 264,000
---------------------------
Gross profit 840,000 892,000
OPERATING EXPENSES:
Selling, general and administrative 901,000 664,000
Research and development -- 189,000
---------------------------
901,000 853,000
---------------------------
Income (loss) from operations (61,000) 39,000
Other income, net 29,000 16,000
---------------------------
Income (loss) before income taxes (32,000) 55,000
Income tax benefits 117,000 --
---------------------------
Net income $ 85,000 $ 55,000
===========================
Net income per common share-basic $ 0.03 $ 0.02
===========================
Net income per common share-diluted $ 0.03 $ 0.02
===========================
Weighted average number of common shares outstanding:
Basic 2,512,200 2,479,000
===========================
Diluted 2,725,200 2,531,000
===========================
</TABLE>
See accompanying notes
5
<PAGE>
IMAGE SENSING SYSTESM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - ROUNDED TO THOUSANDS)
<TABLE>
<CAPTION>
Three-Month Period Ended
March 31
---------------------------
2000 1999
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 85,000 $ 55,000
Adjustments to reconcile net income to
net cash provided by operating activities 67,000 217,000
---------------------------
Net cash provided by operating activities 152,000 272,000
INVESTING ACTIVITIES:
Purchase of property and equipment (50,000) (27,000)
Other -- (10,000)
Capitalized software development costs (172,000) --
---------------------------
Net cash used in investing activities (222,000) (37,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 99,000 --
---------------------------
Increase in cash and cash equivalents 29,000 235,000
Cash and cash equivalents, beginning of period 1,319,000 2,000,000
---------------------------
Cash and cash equivalents, end of period $ 1,348,000 $ 2,235,000
===========================
</TABLE>
See accompanying notes
6
<PAGE>
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
Note A: Basis of Presentation
The accompanying unaudited condensed consolidated 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, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1999.
Note B: Deferred Tax Asset Valuation Allowance
The company recognized an income tax benefit of $117,000 in the three month
period ended March 31, 2000. Management believes it is more likely that not that
the net deferred tax asset will be realized over the next three years.
Note C: Stock Dividend
It was announced March 29, 2000 that its Board of Directors has approved a 20
percent dividend to be paid in the form of additional shares of the Company's
common stock.
Stockholders of record at the close of business on April 17, 2000, will receive
one additional share of common stock for each five shares of common stock held
by them on that date with any fractional share paid in cash. The company's
transfer agent will mail the new stock certificated representing the additional
shares on or about May 1, 2000.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three Month Period Ended March 31, 2000)
Revenues for the first quarter of 2000 were $1,095,000 down 5% from $1,156,000
for the same period a year ago. The decrease in first quarter revenues was due
primarily to minor delays in receiving international orders, as well as delays
in shipments of existing Asian projects by third parties.
Gross profits were $840,000 in the first quarter of 2000, or 77% of revenue,
compared to $892,000, or 77% of revenue, for the same period a year ago. The
margin percent has remained constant due primarily to approximately the same
proportionate revenue mix from royalties, product sales and consulting services.
Selling, general and administrative expenses were $901,000 for the first quarter
of 2000 compared to $664,000 for the same period a year ago. The increase was
primarily due to increased business development, new marketing materials and
conferences. In addition, expenses include Flow Traffic Ltd for the first
quarter compared to two months for the first quarter in 1999.
There were no research and development expenses in the first quarter of 2000
compared to $189,000 for the same period a year ago. This was due to the fact
that all development efforts in the first quarter of 2000 were directed toward
software development for the new Solo Release 3 and new Comserver products with
associated costs capitalized in accordance with Statement of Financial
Accounting Standards No. 86.
Other income, net was $29,000 in the first quarter of 2000 compared to $16,000
for the same period a year ago. The increase is due primarily to monthly rental
income generated from the Cam-Van.
The company recognized an income tax benefit of $117,000 in the first quarter of
2000. Management believes it is more likely than not that the net deferred tax
asset will be realized over the next 3 years.
The Company expects to avail itself of net operating loss and research and
development tax credit carryforwards and incur insignificant income tax expense
in 2000.
Liquidity and Capital Resources:
Cash provided by operating activities was $152,000 for the first quarter of
2000, compared to $272,000 for the same period in 1999. The reduced cash flow
from operations in the first quarter of 2000 was primarily due to business
development and technology spending.
8
<PAGE>
Capital expenditures were $50,000 for the first quarter of 2000, compared to
$27,000 for the same period in 1999. The Company will continue to make
investments in capital expenditures for the balance of 2000. The Company did
incur software development costs of $172,000 that have been capitalized, whereas
no software development costs were capitalized in the first quarter of 1999.
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.
Recent Developments
It was announced March 29, 2000 that its Board of Directors has approved a 20
percent dividend to be paid in the form of additional shares of the Company's
common stock.
Stockholders of record at the close of business on April 17, 2000, will receive
one additional share of common stock for each five shares of common stock held
by them on that date with any fractional share paid in cash. The company's
transfer agent will mail the new stock certificated representing the additional
shares on or about May 1, 2000.
9
<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 March 31,
2000:
27 Financial Data Schedule
99 Cautionary Statement (incorporated by reference to
Exhibit 99 to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1999)
(b) Reports
No reports on Form 8-K were filed during the quarter covered
by this Form 10-QSB
10
<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 __, 2000 /s/ William L. Russell
--------------------------------------------
William L. Russell
Chairman and Chief Executive Officer
(principal executive officer)
Dated: May __, 2000 /s/ Jeffrey F. Martin
--------------------------------------------
Jeffrey F. Martin
Chief Financial Officer
(principal financial and accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,348,000
<SECURITIES> 0
<RECEIVABLES> 1,170,000
<ALLOWANCES> 43,000
<INVENTORY> 165,000
<CURRENT-ASSETS> 2,736,000
<PP&E> 1,422,000
<DEPRECIATION> 989,000
<TOTAL-ASSETS> 4,884,000
<CURRENT-LIABILITIES> 624,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 3,761,000
<TOTAL-LIABILITY-AND-EQUITY> 4,884,000
<SALES> 1,095,000
<TOTAL-REVENUES> 1,095,000
<CGS> 255,000
<TOTAL-COSTS> 255,000
<OTHER-EXPENSES> 901,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (32,000)
<INCOME-TAX> (117,000)
<INCOME-CONTINUING> 85,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,000
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
