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 June 30, 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
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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 - 3,138,737 shares as of July 30, 2000.
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IMAGE SENSING SYSTEMS, INC.
INDEX
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PART I. FINANCIAL INFORMATION Page No.
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Item 1. Condensed Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 4
Condensed Statements of Operations
Three- and six-month periods ended June 30, 2000 and 1999 5
Condensed Statements of Cash Flows
Six-month periods ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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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.
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IMAGE SENSING SYSTEMS, INC.
Condensed Balance Sheet
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June 30 December 31,
2000 1999
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ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,593,000 $ 1,319,000
Accounts receivable 1,529,000 1,428,000
Inventories 208,000 84,000
Prepaid expenses 114,000 57,000
Deferred income taxes 45,000 45,000
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Total current assets 3,489,000 2,933,000
Property and equipment, net 400,000 445,000
Other assets:
Capitalized software development costs, net 1,244,000 1,014,000
Deferred income taxes 475,000 358,000
Other 112,000 86,000
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1,831,000 1,458,000
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Total assets $ 5,720,000 $ 4,836,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 605,000 $ 429,000
Accrued compensation 162,000 278,000
Deferred income 116,000 53,000
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Total current liabilites 883,000 760,000
Deferred income tax liability 394,000 394,000
Minority interest 80,000 80,000
Shareholders' equity:
Common stock 26,000 25,000
Additional paid-in capital 4,553,000 3,890,000
Retained earnings (deficit) (216,000) (313,000)
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4,363,000 3,602,000
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Total liabilities and shareholders' equity $ 5,720,000 $ 4,836,000
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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
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IMAGE SENSING SYSTEMS, INC.
Income Statement
(unaudited)
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Three-Month Period Ended Six-Month Period Ended
June 30 June 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUE:
Product sales $ 840,000 $ 442,000 $ 1,150,000 $ 776,000
Royalties 652,000 628,000 1,412,000 1,388,000
Consulting services 41,000 61,000 66,000 123,000
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1,533,000 1,131,000 2,628,000 2,287,000
COSTS OF REVENUE:
Product sales 442,000 217,000 608,000 377,000
Royalties 67,000 70,000 142,000 152,000
Consulting services 25,000 26,000 39,000 48,000
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534,000 313,000 789,000 577,000
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Gross profit 999,000 818,000 1,839,000 1,710,000
OPERATING EXPENSES:
Selling, general and administrative 1,020,000 702,000 1,921,000 1,366,000
Research and development -- 180,000 -- 369,000
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1,020,000 882,000 1,921,000 1,735,000
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Income (loss) from operations (21,000) (64,000) (82,000) (25,000)
Other income, net 32,000 24,000 61,000 40,000
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Income (loss) before income taxes 11,000 (40,000) (21,000) 15,000
Income taxes -- -- 117,000 --
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Net income (loss) $ 11,000 $ (40,000) $ 96,000 $ 15,000
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Net income (loss) per common share - basic
and diluted $ 0.00 $ (0.02) $ 0.03 $ 0.01
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Weighted average number of common
shares outstanding:
Basic 3,137,000 2,479,000 3,137,000 2,479,000
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Diluted 3,563,000 2,493,000 3,510,000 2,483,000
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IMAGE SENSING SYSTEMS, INC.
Cash Flow
(unaudited)
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Six-Month Period Ended
June 30,
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 96,000 $ 15,000
Adjustments to reconcile net income to
net cash provided by operating activities (75,000) 274,000
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Net cash provided by operating activities 21,000 289,000
INVESTING ACTIVITIES:
Purchase of property and equipment (78,000) (45,000)
Other (28,000) (10,000)
Capitalized software development costs (306,000) --
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Net cash used in investing activities (412,000) (55,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock option 665,000 4,000
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Net cash provided by financing activities 665,000 4,000
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Increase (decrease) in cash and cash equivalents 274,000 234,000
Cash and cash equivalents, beginning of period 1,319,000 1,326,000
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Cash and cash equivalents, end of period $1,593,000 $1,560,000
==============================
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See accompanying notes
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IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
Note A: Basis of Presentation
The accompanying unaudited condensed consolidated 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 six-month periods ended June 30, 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:
William L. Russell, Chairman and Chief Executive Officer, signed a new six-year
employment contract on June 12, 2000. This contract is filed as an exhibit with
this 10QSB.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three- and Six-Month Periods Ended June 30, 2000)
Revenues for the second quarter of 2000 were $1,533,000, an increase of 36% from
$1,131,000 for the same period a year ago, while revenues for the first half of
1999 were $2,628,000, an increase of 15% from $2,287,000 a year ago. The
increase in revenues from product sales and royalties for these periods was due
primarily to more sales of Autoscope(R) systems by both Econolite Control
Products, Inc. (Econolite), the Company's North American distributors and Flow
Traffic Limited, Asian subsidiary. Unit sales by the Company and Econolite
increased 60% for the second quarter and 49% for the first half of 2000,
compared to the same periods a year ago. Revenue from direct sales and royalties
for the second quarter of 2000 increased 90% and 4%, respectively, compared to
the second quarter of 1999. Revenue from direct sales and royalties for the
first half of 2000 increased 49% and 2%, respectively, compared to the first
half of 1999.
Gross profit was $999,000 in the second quarter of 2000, or 65% of revenue,
compared to $818,000, or 72% of revenue, for the same period a year ago. Gross
profit for the first half of 1999 was $1,839,000, or 70% of revenue, compared to
$1,710,000, or 75% of revenue, for the same period a year ago. The lower margin
in the second quarter and first half was due primarily to deriving
proportionately more revenue from direct sales than from royalties, the former
having a lower gross profit margin.
Selling, general and administrative expenses were $1,020,000 and $1,921,000,
respectively, for the three- and six-month periods ended June 30, 2000, compared
to $702,000 and $1,366,000, respectively, for the same periods a year ago. The
increases were due primarily to added efforts in business development, the
amortization of software development costs, which began in October 1998, and
costs related to our stock dividend paid May 1, 2000.
Research and development expenses were none for the three- and six-month periods
ended June 30, 2000, compared to $180,000 and $369,000 for the same periods a
year ago. The decrease is do to the fact all development efforts in the first
half of 2000 were directed toward software development for the new Autoscope
Solo Release 3, a new comserver and the next-generation Autoscope Solo - II,
with associated costs capitalized in accordance with Statement of Financial
Accounting Standards No. 86.
Loss from operations was $21,000 and $82,000, respectively, for the three- and
six-month periods ended June 30, 2000, compared to loss from operations of
$64,000 and $25,000 the same periods a year ago. The increase in earnings from
operations for the second quarter of 2000 is due primarily to capitalizing
research and development costs
8
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incured in 2000 compared to 1999. Earnings from operations for the first half of
2000 have decreased primarily due to increases in business development
expenditures and the amortization of software development costs.
Other income, net, was $32,000 and $61,000, respectively, for the three- and
six-month periods ended June 30, 2000, compared to $24,000 and $40,000,
respectively, for the same periods a year ago. The increase is due primarily to
increased rental income generated from the Cam-Van.
The Company expects to avail itself of operating loss and research and
development tax credit carryforwards and incur no income tax expense in 2000.
Liquidity and Capital Resources
Cash provided by operating activities was $21,000 for the six-month period ended
June 30, 2000, compared to $289,000 for the same period in 1999. The reduced
cash flow from operations in the first half of 2000 was primarily due to
increases in both accounts receivable and inventory for the first half of 2000
compared to 1999, related to international orders and sales.
Capital expenditures were $78,000 for the first half of 2000, compared to
$45,000 for the same period in 1999. The Company does not expect to make
significant changes to the level of investments in capital expenditures for the
balance of 2000. The Company did incur software development costs of $306,000
that have been capitalized, whereas no such costs were incurred in the first
half of 1999.
Management believes that the Company's 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
Image Sensing Systems, Inc. (ISS) has entered into a Memorandum of Understanding
(MOU) with Wireless Technology, Inc. (WTI), a Nevada Corporation doing business
at 2064 Eastman Ave., Suite 113, Ventura, California 93003, o n July 20, 2000.
The respective companies have agreed to use the terms of the MOU to enter into a
definitive agreement wherein ISS will provide marketing and sales expertise for
the distribution of WTI products and technology internationally and domestically
and WTI will design and manufacture other technology as mutually agreed.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
On June 19, 2000, the Company issued 108,000 shares of its
common stock, $.01 par value per share, pursuant to the
exercise of warrants held by four private investors in the
Company. The aggregate exercise price of the warrants paid by
the investors was $513,000. The warrant shares were issued
pursuant to Regulation D under the Securities Act of 1933, as
amended.
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 10, 2000, in
Minneapolis, Minnesota. The Company solicited proxies and
filed its definitive proxy statement with the Commission
pursuant to Regulation 14A. The only matters voted upon at the
meeting were (1) the election of directors.
(1) Election of Directors:
Director For Withhold Authority
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Panos G. Michalopoulos 2,163,232 1,050
William L. Russell 2,163,232 1,050
Richard C. Magnuson 2,163,232 1,050
Richard P. Braun 2,163,032 1,250
James Murdakes 2,163,032 1,250
C. (Dino) Xykis 2,157,432 6,850
Item 5. Other Information
Not applicable
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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 June 30,
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.
10.21 Executive employment Agreement between the Company
and William L. Russell, dated June 12, 2000.
(b) Reports
No reports on Form 8-K were filed during the quarter covered
by this Form 10-QSB
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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.
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(Registrant)
Dated: August 14, 2000 /s/ William L. Russell
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William L. Russell
Chairman and Chief Executive Officer
(principal executive officer)
Dated: August 14, 2000 /s/ Jeffrey F. Martin
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Jeffrey F. Martin
Chief Financial Officer
(principal financial and accounting officer)
