Mail Stop 0306
May 4, 2005
Via U.S. Mail and Facsimile to (651) 603-7795
Arthur J. Bourgeois
Chief Financial Officer
Image Sensing Systems, Inc.
500 Spruce Tree Centre
1600 University Ave. W.
St. Paul, MN 55104
Re: Image Sensing Systems, Inc.
Form 10-SBK for Fiscal Year-Ended December 31, 2004
File No. 000-26056
Dear Mr. Bourgeois:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do no intend to expand our review to other
portions of your documents. Where indicated, we think you should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-KSB for the Year Ended December 31, 2004
General
1. Please explain whether you are an investment company under
Section
3(a)(1)(C) of the Investment Company Act of 1940 ("Investment
Company
Act"). Please explain how you have made this determination and
provide data indicating the value of your "investment securities"
and
total assets on an unconsolidated basis as of the fiscal year
ended
December 31, 2004.
2. If you are an investment company under Section 3(a)(1)(C),
please
explain how you are in compliance with the Investment Company Act.
For example, please explain fully whether you can rely on Rule 3a-
1
of the Investment Company Act.
Item 7. Financial Statements - Page 15
Consolidated Statements of Shareholders` Equity - Page 18
3. We noted in Fiscal 2004 you recorded a $653,000 increase to
additional paid-in capital as the result of a disqualifying tax
disposition. What do you mean by disqualifying tax disposition?
Does this relate to option grants or cancellations?
Supplementally,
please tell us why the accounting and presentation of this amount
in
your financial statements is correct. Cite the accounting guidance
upon which you relied. In future filings material tax
transactions
should be discussed and explained in the footnotes to your
financial
statements and in your MD&A.
1. Description of Business and Significant Accounting Policies -
Page
19
Investments - Page 19
4. We see that you have significant investments in a "diversified
portfolio of auction rate securities". Accordingly, all
disclosures
required by SFAS 115 should be included. For example, in future
filings, you should detail your investments by major security type
as
required by paragraph 19 and separately present gross realized
gains
and losses that have been included in earnings as required by
paragraph 21 to help investors better understand your investment
strategy.
Item 8A. Controls and Procedures - Page 27
5. We note your statement that your chief executive officer and
your
chief financial officer have concluded that your "controls and
procedures were adequately designed to ensure that information
required to be disclosed by us in reports we file..... is
recorded,
processed, summarized and reported within the time periods
specified
in applicable rules and forms" It does not appear that your
certifying officers have reached a conclusion that your disclosure
controls and procedures are effective. Please revise future
filings
to address your officers` conclusions regarding the effectiveness
of
your disclosure controls and procedures.
* * * * *
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Kevin Kuhar, Staff Accountant, at (202) 824-
5579 or me at (202) 942-1812 if you have questions regarding these
comments on the financial statements and related matters. In this
regard, do not hesitate to contact Angela Crane, Branch Chief, at
(202) 942-1931.
Sincerely,
Jay Webb
Reviewing Accountant
Arthur J. Bourgeois
Image Sensing Systems, Inc.
May 12, 2005
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