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
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For the period ended September 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 - 3,142,737 shares as of October 27, 2000.
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
September 30, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations
Three- and nine-month periods ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Nine-month periods ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II. OTHER INFORMATION
Item 4. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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, 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 revenue 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
PART I - FINANCIAL INFORMATION
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
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ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,934,000 $ 1,319,000
Accounts receivable 1,113,000 1,428,000
Inventories 224,000 84,000
Prepaid expenses 87,000 57,000
Deferred income taxes 45,000 45,000
-------------- --------------
Total current assets 3,403,000 2,933,000
Property and equipment, net 398,000 445,000
Other assets:
Capitalized software development costs, net 1,377,000 1,014,000
Deferred income taxes 475,000 358,000
Other 111,000 86,000
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1,963,000 1,458,000
-------------- --------------
Total assets $ 5,764,000 $ 4,836,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 390,000 $ 429,000
Accrued compensation 474,000 278,000
Deferred income 131,000 53,000
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Total current liabilites 995,000 760,000
Deferred income tax liability 394,000 394,000
Minority interest 92,000 80,000
Shareholders' equity:
Common stock 26,000 25,000
Additional paid-in capital 4,577,000 3,890,000
Retained earnings (deficit) (320,000) (313,000)
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4,283,000 3,602,000
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Total liabilities and shareholders' equity $ 5,764,000 $ 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
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Month Period Ended Nine-Month Period Ended
September 30 September 30
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2000 1999 2000 1999
------------------------------ ------------------------------
REVENUE:
Product sales $ 901,000 $ 268,000 $ 2,051,000 $ 1,044,000
Royalties 539,000 608,000 1,951,000 1,996,000
Consulting services 55,000 19,000 121,000 142,000
------------------------------ ------------------------------
1,495,000 895,000 4,123,000 3,182,000
COSTS OF REVENUE:
Product sales 530,000 161,000 1,138,000 538,000
Royalties 57,000 63,000 199,000 215,000
Consulting services 61,000 10,000 100,000 58,000
------------------------------ ------------------------------
648,000 234,000 1,437,000 811,000
------------------------------ ------------------------------
Gross profit 847,000 661,000 2,686,000 2,371,000
OPERATING EXPENSES:
Selling, general and administrative 973,000 751,000 2,894,000 2,117,000
Research and development -- 53,000 -- 422,000
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973,000 804,000 2,894,000 2,539,000
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Income (loss) from operations (126,000) (143,000) (208,000) (168,000)
Other income, net 35,000 17,000 96,000 57,000
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Income (loss) before income taxes (91,000) (126,000) (112,000) (111,000)
Income (taxes )/Benefit -- -- 117,000 --
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Income/(loss) before Minority Interest $ (91,000) $ (126,000) $ 5,000 $ (111,000)
Minority Interest (12,000) -- $ (12,000) $ --
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Net Income/(Loss) $ (103,000) $ (126,000) $ (7,000) $ (111,000)
============================== ==============================
Net income (loss) per common share-basic
and diluted $ (0.03) $ (0.05) $ 0.00 $ (0.04)
============================== ==============================
Common Stock and Common stock
equivalents outstanding 3,143,000 2,479,200 3,143,000 2,479,200
See accompanying notes
5
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine-Month Period Ended
September 30
------------------------------
2000 1999
------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (7,000) $ (111,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities 571,000 365,000
------------------------------
Net cash provided by operating activities 564,000 254,000
INVESTING ACTIVITIES:
Purchase of property and equipment (175,000) (78,000)
Other (28,000) (10,000)
Capitalized software development costs (434,000) (121,000)
------------------------------
Net cash used in investing activities (637,000) (209,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock option 688,000 --
------------------------------
Net cash provided by financing activities 688,000 --
------------------------------
Increase (decrease) in cash and cash equivalents 615,000 45,000
Cash and cash equivalents, beginning of period 1,319,000 1,326,000
------------------------------
Cash and cash equivalents, end of period $ 1,934,000 $ 1,371,000
==============================
See accompanying notes
6
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 nine-month periods ended September 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.
7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Three- and Nine-month Periods Ended September 30, 2000)
Revenue for the third quarter of 2000 was $1,495,000, an increase of 67% from
$895,000 for the same period a year ago, while revenue for the nine-month period
ended September 30, 2000 was $4,123,000, an increase of 30% from $3,182,000 a
year ago. The increase in revenue from product sales for these periods was due
primarily to more sales of Autoscope(R) systems by the Company's Asian
subsidiary, Flow Traffic Limited. Unit sales increased 64% for the third quarter
and have increased 53% for the nine-month period ended September 30, 2000,
compared to the same periods a year ago. Revenue from direct sales and from
royalties for the third quarter of 2000 increased 236% and decreased 11%,
respectively, compared to the third quarter of 1999. Revenue from direct sales
and from royalties for the nine-month period ended September 30, 2000 increased
97% and decreased 2%, respectively, compared to a year ago.
Gross profit was $847,000 in the third quarter of 2000, or 57% of revenue,
compared to $661,000, or 74% of revenue, for the same period a year ago. Gross
profit for the nine-month period ended September 30, 2000 was $2,686,000, or 65%
of revenue, compared to $2,371,000, or 75% of revenue, for the same period a
year ago. Margins decreased primarily due to a greater portion of revenues
coming from product sales versus royalties, the former having a lower gross
profit margin.
Selling, general and administrative expenses were $973,000 and $2,894,000,
respectively, for the three- and nine-month periods ended September 30, 2000,
compared to $751,000 and $2,117,000, respectively, for the same periods a year
ago. The increases were due primarily to added efforts in business development,
amortization of software development costs which began in October 1999, expenses
related to our stock dividend paid May 1, 2000, and expenses related to the
registration of shares issued opon the exercise of warrants.
Research and development expenses were none, for the three- and nine-month
periods ended September 30, 2000, compared to $53,000 and $422,000, respectively
for the same periods a year ago. The decrease is due to the fact that
development efforts in the first three quarters of 2000 were directed toward
software development for the new Autoscope Solo Release 3, a new comserver and
the next-generation Autoscope Solo product with associated costs capitalized in
accordance with Statement of Financial Accounting Standards No. 86.
Loss from operations was $126,000 and $208,000, respectively, for the three- and
nine-month periods ended September 30, 2000, compared to $143,000 and $168,000
for the same periods a year ago. The decrease in operating losses for the third
quarter was due primarily
8
to the 67% increase in revenues, which was offset somewhat by increased selling,
general and administration expenses. The increase in operating loss for the
nine-month period is primarily due to the increased selling, general and
administrative expenses discussed above.
Other income, net, was $35,000 and $96,000, respectively, for the three- and
nine-month periods ended September 30, 2000, compared to $17,000 and $57,000,
respectively, for the same periods a year ago. The increase resulted primarily
from rental income related to the Cam-Van.
Liquidity and Capital Resources:
Cash provided by operating activities was $564,000 for the nine-month period
ended September 30, 2000, compared to $254,000 for the same period in 1999. The
increase cash flow from operations in the nine-month period ended September 30,
2000 was primarily due to collection on accounts receivable from Flow Traffic
Limited.
Capital expenditures were $175,000 for the nine-month period ended September 30,
2000, which is an increase compared to the same period in 1999. The increase is
primarily due to purchasing demonstration equipment from Wireless Technology,
setting up an office in Thailand and tooling and fixtures related to the
production of the new Solo product release. The Company does not expect to make
significant changes to the level of investments in capital expenditures for the
balance of 2000. The Company is incurring software development costs that have
been capitalized. As as of September 30, 2000 $434,000 has been capitalized,
versus $121,000 of such costs that were incurred in the nine-month period ended
September 30 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.
9
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 September 30, 2000:
27 Financial Data Schedule
99 Cautionary Statement (Incorporated by reference to Exhibit 99 to
the Company's Quarterly report from 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/A
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its bethree quarters by
the undersigned thereunto duly authorized.
Image Sensing Systems, Inc.
--------------------------------------------
(Registrant)
Dated: November 15, 2000 /s/ William L. Russell
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William L. Russell
Chairman and Chief Executive Officer
(principal executive officer)
Dated: November 15, 2000 /s/ Jeffrey F. Martin
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Jeffrey F. Martin
Chief Financial Officer
(principal financial and accounting officer)
11