UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number: 0-26056
IMAGE SENSING SYSTEMS, INC.
---------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1519168
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 SPRUCE TREE CENTRE
1600 UNIVERSITY AVE. W.
ST. PAUL, MN 55104-3825
--------------------------------------------
(Address of principal executive offices)
(651) 603-7700
--------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: Common Stock, $.01 par value, 3,601,545
shares as of July 11, 2005.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
IMAGE SENSING SYSTEMS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Income for the
three- and six-month periods ended June 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows for the
three- and six-month periods ended June 30, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits 14
Signatures 16
Exhibit Index 17
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2005 2004
----------- ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 4,382,000 $ 1,262,000
Short-term investments 2,450,000 5,000,000
Accounts receivable 2,691,000 2,176,000
Inventories 575,000 404,000
Investment in FHLB bond 2,300,000 2,300,000
Prepaid expenses 146,000 275,000
Deferred income taxes 49,000 49,000
----------- -----------
Total current assets 12,593,000 11,466,000
Property and equipment, net 166,000 127,000
Other assets:
Capitalized software development costs, net 291,000 420,000
Goodwill 1,050,000 1,050,000
----------- -----------
1,341,000 1,470,000
----------- -----------
Total assets $14,100,000 $13,063,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 406,000 $ 402,000
Accrued compensation 353,000 708,000
Income taxes payable 306,000 30,000
----------- -----------
Total current liabilites 1,065,000 1,140,000
Deferred income taxes 144,000 144,000
Shareholders' equity:
Common stock 36,000 35,000
Additional paid-in capital 6,645,000 6,541,000
Retained earnings 6,210,000 5,203,000
----------- -----------
12,891,000 11,779,000
----------- -----------
Total liabilities and shareholders' equity $14,100,000 $13,063,000
=========== ===========
Note: The balance sheet at December 31, 2004 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
See accompanying notes
3
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three-Month Periods Ended Six-Month Periods Ended
June 30 June 30
------------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
REVENUE:
Royalty income 2,102,000 1,944,000 3,799,000 3,187,000
International sales 422,000 1,484,000 852,000 2,314,000
---------- ---------- ---------- ----------
2,524,000 3,428,000 4,651,000 5,501,000
COSTS OF REVENUE:
Cost of product sold 148,000 781,000 331,000 1,196,000
Royalty fee 90,000 83,000 170,000 141,000
---------- ---------- ---------- ----------
238,000 864,000 501,000 1,337,000
---------- ---------- ---------- ----------
Gross profit 2,286,000 2,564,000 4,150,000 4,164,000
OPERATING EXPENSES:
Selling, marketing and product support 660,000 597,000 1,325,000 1,219,000
General and administrative 386,000 258,000 706,000 578,000
Research and development 345,000 271,000 628,000 465,000
---------- ---------- ---------- ----------
1,391,000 1,126,000 2,659,000 2,262,000
---------- ---------- ---------- ----------
Income from operations 895,000 1,438,000 1,491,000 1,902,000
Other income, net 62,000 11,000 106,000 24,000
---------- ---------- ---------- ----------
Income before income taxes 957,000 1,449,000 1,597,000 1,926,000
Income taxes 347,000 470,000 590,000 627,000
---------- ---------- ---------- ----------
Net income $ 610,000 $ 979,000 $1,007,000 $1,299,000
========== ========== ========== ==========
Net income per common share:
Basic $ 0.17 $ 0.29 $ 0.28 $ 0.39
========== ========== ========== ==========
Diluted $ 0.16 $ 0.26 $ 0.26 $ 0.34
========== ========== ========== ==========
Weighted average number of common shares outstanding:
Basic 3,569,000 3,402,000 3,556,000 3,347,000
========== ========== ========== ==========
Diluted 3,868,000 3,817,000 3,876,000 3,789,000
========== ========== ========== ==========
See accompanying notes
4
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six-Month Periods Ended
June 30
--------------------------
2005 2004
----------- -----------
OPERATING ACTIVITIES:
Net income $ 1,007,000 $ 1,299,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 182,000 166,000
Change in operating assets and liabilities (598,000) (237,000)
----------- -----------
Net cash provided by operating activities 591,000 1,228,000
INVESTING ACTIVITIES:
Purchase of property and equipment (93,000) (56,000)
Sale of short-term investments 2,550,000 --
Purchase of callable FHLB bond -- (1,204,000)
----------- -----------
Net cash provided by (used in) investing activities 2,457,000 (1,260,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 72,000 415,000
----------- -----------
Net cash provided by financing activities 72,000 415,000
----------- -----------
Increase in cash and cash equivalents 3,120,000 383,000
Cash and cash equivalents, beginning of period 1,262,000 5,384,000
----------- -----------
Cash and cash equivalents, end of period $ 4,382,000 $ 5,767,000
=========== ===========
See accompanying notes
5
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2005
Note A: Basis of Presentation
- -----------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America 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 accounting principles generally accepted
in the United States of America 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 six-month period ended June 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 2004.
Note B: Investments
- -------------------
Investments, at cost, consisted of the following at June 30, 2005 and December
31, 2004:
June 30, 2005 December 31, 2004
------------- -----------------
Short-term investments - Auction
Rate Securities $5,000,000 $3,350,000
Callable Federal Home Loan Bonds 2,300,000 --
---------- ----------
Total $7,300,000 $3,350,000
========== ==========
As of June 30, 2005 and December 31, 2004, investments are classified as
available-for-sale. The cost of investments approximate market value and
therefore no amount is recorded in accumulated other comprehensive income. The
cost of securities sold is based on the specific identification method.
Proceeds from maturities and sales of investments totaled $2,550,000 for the
six-month period ended June 30, 2005. There were no sales or maturities in 2004.
There were no realized gains or losses related to sales or unrealized gains and
losses during the six-month periods ended June 30, 2005 and 2004.
Note C: Earnings Per Share
- --------------------------
The following table sets forth the computations of basic and diluted earnings
per share for the three- and six-month periods ended June 30, 2005 and 2004:
6
Three-Month Periods Six-Month Periods
Ended June 30, Ended June 30
2005 2004 2005 2004
---------- ---------- ---------- ----------
Numerator:
Net income $ 610,000 $ 979,000 $1,007,000 $1,299,000
========== ========== ========== ==========
Denominator:
Shares used in basic income per share
calculation 3,569,000 3,402,000 3,556,000 3,347,000
Effect of diluted securities:
Employee and director stock
options 299,000 415,000 320,000 442,000
---------- ---------- ---------- ----------
Shares used in diluted earnings per
share calculations 3,868,000 3,817,000 3,876,000 3,789,000
========== ========== ========== ==========
Basic earnings per share $ .17 $ .29 $ .28 $ .39
========== ========== ========== ==========
Diluted earnings per share $ .16 $ .26 $ .26 $ .34
========== ========== ========== ==========
Note D: Stock Options
- ---------------------
Stock options issued to employees are accounted for under the intrinsic value
method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." No stock-based employee compensation cost is reflected in net
income, as all options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and net income per share if we had applied
the fair value method of accounting for stock options under the provisions of
Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting for
Stock-Based Compensation":
Three-Month Periods Six-Month Periods
Ended June 30, Ended June 30,
------------------- ------------------
2005 2004 2005 2004
------ ------ ------- -------
Net income, as reported $ 610 $ 979 $ 1,007 $ 1,299
Deduct: Total stock-based employee compensation
expense determined under the fair value method for
all awards, net of related tax effects 54 55 109 110
------ ------ ------- -------
Pro-forma net income $ 556 $ 924 $ 898 $ 1,189
====== ====== ======= =======
Net income per share:
Basic - as reported $ .17 $ .29 $ .28 $ .39
====== ====== ======= =======
Basic - pro forma $ .16 $ .27 $ .25 $ .36
====== ====== ======= =======
Diluted - as reported $ .16 $ .26 $ .26 $ .34
====== ====== ======= =======
Diluted - pro forma $ .14 $ .24 $ .23 $ .31
====== ====== ======= =======
7
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used: zero dividend yield; expected volatility of 127%; risk-free
interest rate of 4.27% and expected life of 10 years for all years presented.
In December 2004, the FASB issued Statement of Financial Accounting Standards
Statement No. 123 (revised 2004), "Share-Based Payment." This Statement is a
revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
is effective in the first annual period that begins after December 15, 2005 and
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This statement
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services and requires that the
compensation cost relating to share-based payment transactions be measured on
the fair value of the equity or liability instruments issued. Management is
currently assessing if the adoption of this statement will have a material
impact on our financial statements.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview:
- ---------
We have developed proprietary machine vision technology that converts real world
information into digital electronic signals for processing by computer and have
applied it to traffic management problems. Our technology uses standard video
and computer equipment, combined with proprietary technology, including complex
detection algorithms, computer software, special purpose hardware, and a
Microsoft Windows(R)-based graphical user interface that enables standard video
cameras to work with the Autoscope(R) Wide Area Video Vehicle Detection System.
Autoscope systems are sold to distributors and end users of traffic management
products in North America and Latin America by Econolite Control Products, Inc.
(Econolite), our licensed distributor in those locations. We also sell Autoscope
systems to distributors and end users in Europe and Asia through our European
and Hong Kong subsidiaries, respectively. The Autoscope system is used by
traffic managers primarily to improve the flow of vehicle traffic and to enhance
safety at intersections, main thoroughfares, freeways and tunnels. Flow Traffic
Ltd., our Asian subsidiary, also sells loop detection products in Asia.
The majority of our revenue is derived from royalties received from Econolite,
with a second primary source of revenue produced from direct international sales
in Europe and Asia. End users of the Autoscope system throughout the world are
generally funded by government agencies responsible for traffic management
and/or traffic law enforcement.
Our success is primarily dependent upon (1) continued governmental funding of
"Intelligent Transportation Systems", such as machine vision for traffic
control; (2) our ability, through Econolite and our sales representatives in
Europe and Asia, to successfully market the Autoscope System to individual
traffic managers and (3) our ability to develop new machine vision products
8
and applications that enhance the traffic manager's ability to cost-effectively
improve traffic flow and safety.
Results of Operations: (Comparison of three-and six-month periods ended June 30,
- ----------------------
2005 and 2004)
The following table sets forth for the periods indicated (1) certain statements
of income data as a percent of total revenue and (2) gross profit on royalty
income and international sales as a percentage of royalty income and
international sales, respectively, shown in italics:
Three-Month Six-Month
Periods Ended Periods Ended
June 30 June 30
------------------------- -----------------------
2005 2004 2005 2004
--------- ---------- --------- ---------
Royalty income 83.3 % 56.7 % 81.7 % 57.9 %
International sales 16.7 43.3 18.3 42.1
Total revenue 100.0 100.0 100.0 100.0
GROSS PROFIT - ROYALTY INCOME 95.7 95.7 95.5 95.6
GROSS PROFIT -INTERNATIONAL SALES 64.9 47.4 61.2 48.3
Operating expenses 55.1 32.8 57.2 41.1
Income from operations 35.5 41.9 32.1 34.6
Income taxes 13.7 13.7 12.7 11.4
Net income 24.2 28.6 21.7 23.6
Revenues for the second quarter of 2005 were $2,524,000, a decrease of 26.4%
from $3,428,000 for the same period a year ago. Royalty income for the second
quarter of 2005 was $2,102,000, an increase of 8.1% from $1,944,000 for the
comparable period in 2004 indicating continued acceptance of our products in the
North American market. The decrease in revenues for the second quarter was due
entirely to a decrease in sales by our Hong Kong subsidiary, Flow Traffic Ltd.
Flow Traffic was unable to repeat a large Autoscope sale in Korea that they
experienced in the second quarter of 2004 and had sales of only $10,000 of loop
detection products in the quarter compared to $183,000 in the second quarter of
2004. Competition in the Asian market for machine vision products in the traffic
management industry is increasing and has adversely affected our ability to sell
Autoscope products there. We believe that by improving the functionality of our
Autoscope products we will be able to compete more effectively in the second
half of 2005. In addition, the transition to a new loop detector product for the
Asian market has been delayed as the first software release for the product
lacked certain features that appear to adversely affect sales of the product. We
are currently adding functionality to the loop detector software and expect to
test the new version in the third quarter of 2005 and begin sales of the loop
product in the latter part of the third quarter. Sales of product by our
European subsidiary, Image Sensing Systems Europe Ltd., for the second quarter
increased 40.7% over the comparable period in 2004 indicating continued success
in this market.
Revenues for the six-month period ended June 30, 2005, were $4,651,000, a
decrease of 15.5% from $5,501,000 a year ago. Royalty income for the six-month
period ended June 30, 2005 was $3,799,000, an increase of 19.2% from $3,187,000
for the comparable period in 2004 reflecting
9
Econolite's continued success in the North American market. International sales
for the six-month period ended June 30, 2005 was $852,000, a decrease of 63.2%
from $2,314,000 for the comparable period in 2005 and was due primarily to
reduced sales of Autoscope and loop detector products in the Asian market as
explained above and the inability to repeat a large order sold in the first
quarter of 2004 to a customer in Greece in preparation for the 2004 Olympics in
Athens.
Gross profit on royalty income for the three and six month periods ended June
30, 2005 were $2,012,000 and $3,629,000, respectively, compared to $1,861,000
and $3,046,000, respectively, for the same periods of 2004. Gross profit margins
for royalty income were 95.7% for the second quarters of 2005 and 2004 and
decreased slightly to 95.5% in the first half of 2005 from 95.6% in the
comparable period in 2004. Gross profits on international sales for the three-
and six-month periods ended June 30, 2005 were $274,000 and $521,000,
respectively, compared to $703,000 and $1,118,000 for the same periods in 2004.
The decrease in both the second quarter and first half of 2005 compared to 2004
was primarily due to decreased sales in the Asian market as explained above.
Gross profit margins on international sales were 64.9% and 61.2% for the
three-and six month periods of 2005 compared to 47.4% and 48.3% for the
comparable periods in 2004. The increases are due primarily to fewer sales of
lower margin camera and loop detection products in 2005 compared to 2004. Gross
profit margins on our primary Autoscope products continue to hold steady and
have increased in Europe in areas where we sell direct to the end user rather
than to a distributor.
Operating expenses were $1,391,000 and $2,659,000, respectively, for the three-
and six-month periods ended June 30, 2005, or 55.1% and 57.2% of revenue,
compared to $1,126,000 and $2,262,000 and 32.8% and 41.1% for the same periods
in 2004. Selling, marketing and product support increased for both the second
quarter and first half of 2005 due primarily to payroll and travel costs related
to added sales and support staff in Europe and the United States; general and
administrative expenses increased during the three- and six-month periods due
primarily to added performance bonuses, insurance expense and legal and audit
fees; and research and development expenses increased for the three- and
six-month periods due to added engineering staff allocating time to new product
development and more use of outside consultants as part of product development.
We expect that our operating expenses will continue to increase during the
remainder of 2005, compared to 2004, to cover additional sales and product
support hires in Europe and technical staff in the United States.
Income from operations in the second quarter of 2005 was $895,000, or 35.5% of
revenue, compared to $1,438,000, or 41.9% of revenue, in the comparable quarter
in 2004. Income from operations for the first half of 2005 was $1,491,000, or
32.1% of revenue, compared to $1,902,000, or 34.6% of revenue, in the comparable
quarter in 2004. The decreases in income from operations for both the second
quarter and first half of 2005 compared to the same periods in 2004 resulted
primarily from decreases in international sales by Flow Traffic Ltd. and
increases in all three categories of operating expense.
Income taxes were $347,000, or 36.3% of pretax income, in the second quarter of
2005, compared to $470,000, or 32.4% of pretax income, in the comparable quarter
of 2004, while income taxes were $590,000, or 36.9% of pretax income, in the
first half of 2005, compared to $627,000, or 32.6% of pretax income in the
comparable period of 2004. The decrease in income
10
taxes was due primarily to having less taxable income in 2005 and the increase
in income taxes as a percent of income before taxes was primarily due to the
inability to offset losses in Asia against prior year taxable income. We expect
income taxes to remain at approximately 36% of pretax income for the remainder
of the year.
Net income was $610,000, or 24.2% of revenue, in the second quarter of 2005,
compared to $979,000, or 28.6% of revenue, in the comparable quarter of 2004.
Net income was $1,007,000, or 21.7% of revenue, in the first half of 2005,
compared to $1,299,000, or 23.6% of revenue in the comparable period in 2004.
The change in net income and net income as a percent of revenue is due to the
factors discussed above.
Liquidity and Capital Resources:
- --------------------------------
At June 30, 2005, we had $4,382,000 in cash and cash equivalents, compared to
$1,262,000 at December 31, 2004. Included in cash equivalents at June 30, 2005
was $3,586,000 in a tax-exempt money market fund. We had working capital of
$11,528,000, and a ratio of current assets to current liabilities of 11.8 to 1
at June 30, 2005, compared to $10,326,000 and 10.1 to 1, respectively, at the
end of 2004. The increase in cash and cash equivalents at June 30, 2005 compared
to December 31, 2004 was due primarily to the sale of short-term investments
during the second quarter of 2005.
We are accumulating cash in order to obtain the liquidity needed to take
advantage of acquisition opportunities that may become available and to continue
to invest in product development. Although we are not currently targeting a
particular company to acquire, we are meeting with other businesses in the
United States and Europe that manufacture and sell other traffic management
products that fit with our long-term strategy of growing world-wide in the
intelligent transportation market. We also are investigating manufacturing
alternatives outside of the United States with the objectives of lowering our
cost of manufacturing and becoming compliant with the new hazardous content and
disposal regulations which become effective in European Union countries as of
July 1, 2006.
Net cash provided by operating activities was $591,000 in the first half of
2005, compared to $1,228,000 in the first half of 2004. One primary reason for
the change was that we had an increase in accounts receivable of $515,000 in the
first half of 2005 compared to an increase of $212,000 in the first half of
2004, which was the result of more royalty and sales revenue late in the second
quarter of 2005. A second primary reason for the change was an increase of
$171,000 in inventories in the first half of 2005 compared to a decrease of
$73,000 in 2004 due to the addition of loop detectors and other new Autoscope
products to our inventories in the first half of 2005.
We have a credit agreement with Wells Fargo Bank, N. A. that provides up to
$1,000,000 in short-term borrowings at .5% over the prime rate (effective rate
of 6.75% at June 30, 2005). Loans under this agreement would be secured by
receivables, inventories, equipment and general intangibles. We had no
outstanding borrowings under the credit agreement in 2005 or 2004.
We believe that cash and cash equivalents and short-term investments at June 30,
2005, our $1,000,000 revolving line of credit and cash provided by operating
activities will satisfy our
11
projected working capital needs, investing activities and other cash
requirements in the foreseeable future.
Off-Balance Sheet Arrangements:
- -------------------------------
We have no off-balance sheet arrangements.
Cautionary Statement:
- ---------------------
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 of 1934, as amended. Forward-looking
statements represent our expectations or beliefs concerning future events and
can be identified by the use of forward-looking words such as "expects,"
"believes," "may," "will," "should," "intends," "plans," "estimates," or
"anticipates" or other comparable terminology. Forward-looking statements are
subject to risks and uncertainties that may cause our 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:
o dependence on a single product for most of our revenue;
o budget constraints by governmental entities that purchase our
products;
o continuing ability of our licensee to pay royalties owed;
o dependence on third parties for manufacturing and marketing
our products;
o dependence on single-source suppliers to meet manufacturing
needs;
o failure to secure adequate protection for our intellectual
property rights;
o our inability to develop new applications and product
enhancements;
o our inability to properly manage a growth in revenue and/or
production requirements;
o control of our voting stock by insiders;
o our inability to retain key scientific and technical
personnel;
o volatility of our stock price;
o our inability to achieve and maintain effective internal
controls;
12
o our inability to comply with international regulatory
restrictions over hazardous substances and electronic waste;
and
o conditions beyond our control such as war, terrorist attacks,
health epidemics and economic recession.
We caution that the forward-looking statements made in this report or in other
announcements made by us are further qualified by the risk factors set forth in
Item 1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures were
effective.
Changes in Internal Control Over Financial Reporting
- ----------------------------------------------------
During the fiscal quarter covered by this report, there has been no change in
our internal control over financial reporting (as defined in Rule 13a-15(f) or
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on May 18, 2005, in St. Paul,
Minnesota. We solicited proxies and filed our definitive proxy statement with
the Securities and Exchange Commission pursuant to Regulation 14A under the
Exchange Act. Matters voted on at the meeting were as follows:
1. Election of directors:
Director For Withhold Authority
-------- --- ------------------
Richard P. Braun 3,335,218 33,381
Michael G. Eleftheriou 3,367,490 1,109
Richard Magnuson 3,064,677 303,922
Panos G. Michalopoulos 3,065,549 303,050
James Murdakes 3,065,549 303,050
2. Approval of 2005 Stock Option Incentive Plan:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
894,934 442,367 13,221 2,018,077
3. Approval of Grant Thornton LLP as our Independent Registered
Public Accounting firm for fiscal year 2005:
For Against Abstain
--- ------- -------
3,364,963 359 3,277
Item 6. Exhibits
The following exhibits are filed as part of this quarterly report on Form 10-QSB
for the quarterly period ended June 30, 2005.
Exhibit
Number Description
------ -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
14
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Chief Executive Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Image Sensing Systems, Inc.
By:
Dated: August 11, 2005 /s/ James Murdakes
-----------------------------------
James Murdakes
Chairman and Chief Executive Officer
(principal executive officer)
Dated: August 11, 2005 /s/ Arthur J. Bourgeois
-----------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and
accounting officer)
16
EXHIBIT INDEX TO FORM 10-QSB
Exhibit No. Description
- ----------- -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Chief Executive Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 11, 2005.
32.2 Chief Financial Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
August 11, 2005.
17