| DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Image Sensing Systems, Inc. (referred to
herein as we, the Company, us and our) develops and markets software-based
computer enabled detection products for use in traffic, safety, security, police and parking applications. We sell our products
primarily to distributors and also receive royalties under a license agreement with a manufacturer/distributor for certain of our
products. Our products are used primarily by governmental entities. The Company previously conducted its operations
through three businesses consisting of 1) Intersection, 2) Highway, and 3) LPR. As further described in note 2, on July 9, 2015,
the Company completed the sale of its LPR segment. As a result, effective July 9, 2015, the LPR business qualified for discontinued
operations presentation in the Companys condensed consolidated financial statements. Accordingly, financial results for
the twelve months ended December 31, 2015 have been reported on this basis. Previously reported results for comparable periods
in 2014 and 2013 have also been restated to reflect this reclassification. As a result, all amounts presented in the accompanying
consolidated financial statements and notes reflect the financial results and financial position of the Companys continuing
intersection and highway businesses, other than consolidated amounts reflecting operating results and balances for both the continuing
and discontinued operations. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include
the accounts of Image Sensing Systems, Inc. and its wholly-owned subsidiaries: Image Sensing Systems HK Limited (ISS HK) located
in Hong Kong; Image Sensing Systems (Shenzhen) Limited (ISS WOFE) located in China; Image Sensing Systems Holdings Limited (ISS
Holdings), Image Sensing Systems Europe Limited (ISS Europe), Image Sensing Systems EMEA Limited (ISS UK) located in the United
Kingdom; Image Sensing Systems Europe Limited SP.Z.O.O., (ISS Poland) located in Poland; Image Sensing Systems Spain SLU (ISS Spain)
located in Spain; Image Sensing Systems Germany, GmbH (ISS Germany) located in Germany; and ISS Image Sensing Systems Canada Limited
(ISS Canada) located in Canada. All significant inter-company transactions and balances have been eliminated in consolidation. REVENUE RECOGNITION We recognize revenue on a sales arrangement
when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence
of an arrangement exists; delivery and title transfer have occurred or services have been rendered; the sales price is fixed and
determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled. Certain sales may contain multiple
elements for revenue recognition purposes. We consider each deliverable that provides value to the customer on a standalone
basis as a separable element. Separable elements in these arrangements may include the hardware, software, installation
services, training and support. We initially allocate consideration to each separable element using the relative selling
price method. Selling prices are determined by us based on either vendor-specific objective evidence (VSOE) (the
actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, our best
estimate of the selling price. Factors considered by us in determining estimated selling prices for applicable elements
generally include overall economic conditions, customer demand, costs incurred by us to provide the deliverable, as well as
our historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in
an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which
payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special
acceptance protocols exist, installation services, training may not be considered separable. Under those circumstances,
revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other
significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are
typically recognized when the products are shipped and title has transferred to the customer. Revenue from arrangements for services
such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over
the defined contractual period for service maintenance contracts. Econolite Control Products, Inc. (Econolite)
is our licensee that sells certain of our products in the United States, Mexico, Canada and the Caribbean. The royalty of approximately
50% of the gross profit on licensed products is recognized when the products are shipped or delivered by Econolite to its customers. We record provisions against sales revenue
for estimated returns and allowances in the period when the related revenue is recorded based on historical sales returns and changes
in end user demand. Revenue is recorded net of taxes collected
from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted
to the relevant government authority. SHIPPING AND HANDLING Freight revenue billed to customers is
reported within revenue on the Consolidated Statements of Operations, and expenses incurred for shipping products to customers
are reported within cost of revenue on the Consolidated Statements of Operations. CASH AND CASH EQUIVALENTS We consider all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents, both inside and outside
the United States, are invested in money market funds and bank deposits in local currency denominations. Cash located in foreign
banks was $700,000 and $2.0 million at December 31, 2015 and 2014, respectively. We hold our cash and cash equivalents with financial
institutions and, at times, the amounts of our balances may be in excess of insurance limits. MARKETABLE SECURITIES We classify marketable debt securities
as available-for-sale investments and these securities are stated at their estimated fair value. The value of these securities
is subject to market and credit volatility during the period these investments are held. ACCOUNTS RECEIVABLE We grant credit to customers in the normal
course of business and generally do not require collateral from domestic customers. When deemed appropriate, receivables from customers
outside the United States are supported by letters of credit from financial institutions. Management performs on-going credit evaluations
of customers. The allowance for doubtful accounts is based on managements assessment of the collectability of specific customer
accounts and includes consideration of the credit worthiness and financial condition of those specific customers. We record an
allowance to reduce receivables to the amount that is reasonably believed to be collectible and consider factors such as the financial
condition of the customer and the aging of the receivables. If there is a deterioration of a customers financial condition,
if we become aware of additional information related to the credit worthiness of a customer, or if future actual default rates
on trade receivables in general differ from those currently anticipated, we may have to adjust our allowance for doubtful accounts,
which would affect earnings in the period the adjustments were made. INVENTORIES Inventories are primarily electronic components
and finished goods and are valued at the lower of cost or market determined under the first-in, first-out accounting method. PROPERTY AND EQUIPMENT Property and equipment is stated at cost.
Additions, replacements, and improvements are capitalized at cost, while maintenance and repairs are charged to operations as incurred.
Depreciation is recorded using the straight-line method over the estimated useful lives of the assets and by accelerated methods
for income tax purposes. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or
the contractual term of the lease, with consideration of lease renewal options if renewal appears probable. Depreciation is recorded
over a three- to seven-year period for financial reporting purposes. INCOME TAXES We record a tax provision for the anticipated
tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted
tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected
to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely
than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as
a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient
to fully recover the remaining net realizable value of deferred tax assets. If all or part of the net deferred tax
assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings
in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating
the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent
with managements expectations could have a material impact on our financial condition and operating results. We recognize
penalties and interest expense related to unrecognized tax benefits in income tax expense. INTANGIBLE ASSETS We capitalize certain software development
costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials
and services and other costs associated with the development of new products and services. Software development costs are expensed
as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the
product is available for general release to the public. Based on our product development process, technological feasibility is
generally established once product and detailed program designs have been completed, uncertainties related to high-risk development
issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software
technology are available for production of the product. Once a software product is available for general release to the public,
capitalized development costs associated with that product will begin to be amortized to cost of sales over the products
estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that
is consistent with the anticipated timing of product revenue recognition. Capitalized software development costs
are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses
for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized
software development costs that are determined to be in excess of net realizable value have been expensed in the period in which
such a determination is made. We reached technological feasibility for certain software products and, as a result, capitalized
$1.2 million of software development costs during the year ended December 31, 2015. Intangible assets with finite lives are
amortized on a straight-line basis over the expected period to be benefited by future cash flows and reviewed for impairment. At
both December 31, 2015 and 2014, there were no indefinite-lived intangible assets. IMPAIRMENT OF LONG-LIVED ASSETS We review the carrying value of long-lived
assets or asset groups, such as property and equipment and intangibles subject to amortization, when events or changes in circumstances
such as asset utilization, physical change, legal factors, or other matters indicate that the carrying value may not be recoverable.
When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset or asset group, we recognize an asset impairment charge against operations.
The amount of the impairment loss recorded is the amount by which the carrying value of the impaired asset or asset group exceeds
its fair value. No such impairment losses were recorded during the years ended December 31, 2015, 2014 or 2013. RESEARCH AND DEVELOPMENT Research and development costs associated
with new products are charged to operations in the period incurred. WARRANTIES We generally provide a standard two to
five year warranty on product sales. We record estimated warranty costs at the time of sale and accrue for specific items at the
time that their existence is known and the amounts are determinable. We estimate warranty costs using standard quantitative measures
based on historical warranty claim experience and an evaluation of specific customer warranty issues. In addition, warranty provisions
are also recognized for certain nonrecurring product claims that are individually significant. FOREIGN CURRENCY The financial position and results of operations
of our foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities are translated
using fiscal period-end exchange rates, and statements of operations are translated using average exchange rates applicable to
each period, with the resulting translation adjustments recorded as a separate component of shareholders equity under Accumulated
other comprehensive loss. Gains and losses from foreign currency transactions are recognized in the Consolidated Statements
of Operations. NET LOSS PER SHARE Basic loss per share excludes dilution
and is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding
during the period. Diluted loss per share includes potentially dilutive common shares consisting of stock options, restricted stock
and warrants using the treasury stock method. Under the treasury stock method, shares associated with certain stock options have
been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead
to a net reduction in common shares outstanding. As a result, stock options to acquire 282,750, 354,000 and 348,000 weighted common
shares have been excluded from the diluted weighted shares outstanding calculation for the years ended December 31, 2015, 2014
and 2013, respectively, because the exercise prices were greater than the average market price of the common shares during the
period and were excluded from the calculation of diluted net income per share. USE OF ESTIMATES The preparation of financial statements
in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial
statements, and reported amounts of revenue and expense during the reporting period. Predicting future events is inherently an
imprecise activity and, as such, requires the use of judgment. Ultimate results could differ from those estimates. Changes in these
estimates will be reflected in the financial statements in future periods. STOCK-BASED COMPENSATION We measure the cost of employee services
received in exchange for the award of equity instruments based on the fair value of the award at the date of grant and recognize
the cost over the period during which an employee is required to provide services in exchange for the award. Stock options are
granted at exercise prices equal to the closing market price of our stock on the day before the date of grant. For purposes of determining estimated fair
value of stock-based payment awards, we utilize a Black-Scholes option pricing model, which requires the input of certain assumptions
requiring management judgment. Because our employee stock option awards have characteristics significantly different from those
of traded options, and because changes in the input assumptions can materially affect fair value estimates, existing models may
not provide a reliable single measure of the fair value of employee stock options. Management will continue to assess the assumptions
and methodologies used to calculate estimated fair value of stock-based compensation. Circumstances may change and additional data
may become available over time that could result in changes to these assumptions and methodologies and thereby materially impact
the fair value determination of future grants of stock-based payment awards. If factors change and we employ different assumptions
in future periods, the compensation expense recorded may differ significantly from the stock-based compensation expense recorded
in the current period. RECENT ACCOUNTING PRONOUNCEMENTS In February 2016, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).
ASU 2016-02 provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities.
This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and
early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain
practical expedients. In addition, the transition will require application of the new guidance at the beginning of the earliest
comparative period presented. We are currently determining our implementation approach and assessing the impact of ASU 2016-02
on the consolidated financial statements. In November 2015, the FASB issued ASU No.
2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred
income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement
of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016
(and interim periods within those fiscal years), with early adoption permitted. ASU 2015-17 may be either applied prospectively
to all deferred tax assets and liabilities or retrospectively to all periods presented. We have elected to early adopt ASU 2015-17
prospectively in the fourth quarter of 2015. As a result, we have presented all deferred tax assets and liabilities as noncurrent
on our consolidated balance sheet as of December 31, 2015, but have not reclassified current deferred tax assets and liabilities
on our consolidated balance sheet as of December 31, 2014. There was no impact on our results of operations as a result of the
adoption of ASU 2015-17. In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers. ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies new accounting for costs associated
with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from
contracts with customers. On July 9, 2015, the FASB affirmed its proposal to defer
the effective date of ASU 2014-09 for all entities by one year. As a result, public business entities, certain not-for-profit entities,
and certain employee benefit plans will apply this new revenue standard to annual reporting periods beginning after December 15,
2017. All other entities will apply this new revenue standard to annual reporting periods beginning after December 15, 2018. Additionally,
the FASB affirmed its proposal to permit all entities to apply ASU 2014-09 early, but not before the original effective date for
public business entities, certain not-for-profit entities, and certain employee benefit plans (that is, annual periods beginning
after December 15, 2016). Entities choosing to implement early, will apply ASU 2014-09 standard to all interim reporting periods
within the year of adoption. |
