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 September 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
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, 3,664,054
shares as of October 24, 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
September 30, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Income for the
three- and nine-month periods ended September 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows for the
three- and nine-month periods ended September 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 6. Exhibits 14
Signatures 15
Exhibit Index 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31,
2005 2004
--------------- -----------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 5,902,000 $ 1,262,000
Short-term investments 1,750,000 5,000,000
Accounts receivable 3,627,000 2,176,000
Inventories 450,000 404,000
Investment in FHLB bond 2,300,000 2,300,000
Prepaid expenses 132,000 275,000
Deferred income taxes 49,000 49,000
--------------- ----------------
Total current assets 14,210,000 11,466,000
Property and equipment, net 244,000 127,000
Other assets:
Capitalized software development costs, net 226,000 420,000
Goodwill 1,050,000 1,050,000
--------------- ----------------
1,276,000 1,470,000
--------------- ----------------
Total assets $ 15,730,000 $ 13,063,000
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 382,000 $ 402,000
Accrued compensation 407,000 708,000
Income taxes payable 379,000 30,000
--------------- ----------------
Total current liabilites 1,168,000 1,140,000
Deferred income taxes 144,000 144,000
Shareholders' equity:
Common stock 37,000 35,000
Additional paid-in capital 7,027,000 6,541,000
Retained earnings 7,354,000 5,203,000
--------------- ----------------
14,418,000 11,779,000
--------------- ----------------
Total liabilities and shareholders' equity $ 15,730,000 $ 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 Nine-Month Periods Ended
September 30 September 30
------------------------------ ------------------------------
2005 2004 2005 2004
--------------- -------------- -------------- -------------
REVENUE:
Royalty income $ 2,669,000 $ 2,511,000 $ 6,468,000 $ 5,698,000
International sales 794,000 566,000 1,646,000 2,880,000
--------------- -------------- -------------- --------------
3,463,000 3,077,000 8,114,000 8,578,000
COSTS OF REVENUE:
Cost of product sold 322,000 219,000 653,000 1,415,000
Royalty fee 118,000 102,000 288,000 243,000
--------------- -------------- -------------- --------------
440,000 321,000 941,000 1,658,000
--------------- -------------- -------------- -------------
Gross profit 3,023,000 2,756,000 7,173,000 6,920,000
OPERATING EXPENSES:
Selling, marketing and product support 480,000 565,000 1,805,000 1,784,000
General and administrative 365,000 369,000 1,071,000 947,000
Research and development 523,000 331,000 1,151,000 796,000
--------------- -------------- -------------- --------------
1,368,000 1,265,000 4,027,000 3,527,000
--------------- -------------- -------------- --------------
Income from operations 1,655,000 1,491,000 3,146,000 3,393,000
Other income, net 66,000 21,000 172,000 45,000
--------------- -------------- -------------- --------------
Income before income taxes 1,721,000 1,512,000 3,318,000 3,438,000
Income taxes 576,000 535,000 1,166,000 1,162,000
--------------- -------------- -------------- --------------
Net income $ 1,145,000 $ 977,000 $ 2,152,000 $ 2,276,000
=============== ============== ============== ==============
Net income per common share:
Basic $ 0.32 $ 0.28 $ 0.60 $ 0.67
=============== ============== ============== ==============
Diluted $ 0.30 $ 0.26 $ 0.56 $ 0.60
=============== ============== ============== ==============
Weighted average number of common shares
outstanding:
Basic 3,625,000 3,442,000 3,576,000 3,378,000
============================== ============== ==============
Diluted 3,851,000 3,818,000 3,865,000 3,798,000
============================== ============== ==============
See accompanying notes
4
IMAGE SENSING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine-Month Periods Ended
September 30
---------------------- --- ----------------------
2005 2004
---------------------- ----------------------
OPERATING ACTIVITIES:
Net income $ 2,152,000 $ 2,276,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 275,000 247,000
Change in operating assets and liabilities (1,276,000) (634,000)
---------------------- ----------------------
Net cash provided by operating activities 1,151,000 1,889,000
INVESTING ACTIVITIES:
Purchase of property and equipment (199,000) (61,000)
Sale (purchase) of short-term investments 3,250,000 -
Purchase of callable FHLB bond - (2,300,000)
---------------------- ----------------------
Net cash provided by (used in) investing activities 3,051,000 (2,361,000)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 438,000 472,000
Net cash provided by financing activities 438,000 472,000
---------------------- ----------------------
Increase in cash and cash equivalents 4,640,000 -
Cash and cash equivalents, beginning of period 1,262,000 5,384,000
---------------------- ----------------------
Cash and cash equivalents, end of period $ 5,902,000 $ 5,384,000
====================== ======================
See accompanying notes
5
IMAGE SENSING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 nine-month period ended September 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 in our Annual Report on Form 10-KSB for the year ended December 31,
2004.
Note B: Investments
- --------------------
Investments, at cost, consisted of the following at September 30, 2005 and
December 31, 2004:
September 30, December 31,
2005 2004
------------- -------------
Short-term investments - Auction Rate
Securities $1,750,000 $5,000,000
Callable Federal Home Loan Bonds 2,300,000 2,300,000
---------- ----------
Total $4,050,000 $7,300,000
========== ==========
As of September 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 $3,250,000 for the
nine-month period ended September 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 nine-month periods ended September 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 nine-month periods ended September 30, 2005 and
2004:
6
Three-Month Periods Nine-Month Periods
Ended September 30, Ended September 30
------------------- ------------------
2005 2004 2005 2004
---- ---- ---- ----
Numerator:
Net income $1,145,000 $977,000 $2,152,000 $2,276,000
========== ======== ========== ==========
Denominator:
Shares used in basic income per share
calculation 3,625,000 3,442,000 3,576,000 3,378,000
Effect of diluted securities:
Employee and director stock
options 226,000 376,000 289,000 420,000
------- ------- ------- -------
Shares used in diluted earnings per share
calculations 3,851,000 3,818,000 3,865,000 3,798,000
========= ========= ========= =========
Basic earnings per share $.32 $.28 $.60 $.67
==== ==== ==== ====
Diluted earnings per share $.30 $.26 $.56 $.60
==== ==== ==== ====
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" (in thousands, except per share amounts):
Three-Month Periods Nine-Month Periods
Ended September 30, Ended September 30,
------------------- -------------------
2005 2004 2005 2004
---- ---- ---- ----
Net income, as reported $1,145 $977 $2,152 $2,276
Deduct: Total stock-based employee compensation
expense determined under the fair value method for all
awards, net of related tax effects 51 55 160 165
------ ------ ------ ------
Pro-forma net income $1,094 $922 $1,992 $2,111
====== ====== ====== ======
Net income per share:
Basic - as reported $.32 $.28 $.60 $.67
==== ==== ==== ====
Basic - pro forma $.30 $.27 $.56 $.62
==== ==== ==== ====
Diluted - as reported $.30 $.26 $.56 $.60
==== ==== ==== ====
Diluted - pro forma $.28 $.24 $.52 $.56
==== ==== ==== ====
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 for all periods presented: zero dividend yield; expected
volatility of 127; risk-free interest rate of 4.27% and expected life of 10
years.
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."
This statement is effective in the first annual period that begins after
December 15, 2005. 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. The Company will adopt this statement effective January 1,
2006. The effects of adoption on the financial statements have not been
determined, but are not expected to differ materially from the pro-forma effects
disclosed above.
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 nine-month periods ended
- ----------------------
September 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 Nine-Month
Periods Ended Periods Ended
September 30 September 30
------------------------- -----------------------
2005 2004 2005 2004
--------- ---------- --------- --------
Royalty income 71.1 % 81.6 % 79.7 % 66.4 %
International sales 22.9 18.4 20.3 33.6
Total revenue 100.0 100.0 100.0 100.0
GROSS PROFIT - ROYALTY INCOME 95.6 95.9 95.5 95.7
GROSS PROFIT -INTERNATIONAL SALES 59.4 61.3 60.3 50.9
Operating expenses 39.5 41.1 49.6 41.1
Income from operations 47.8 48.4 38.8 39.6
Income taxes 16.6 17.4 14.4 13.5
Net income 33.1 31.8 26.6 26.6
Revenues for the third quarter of 2005 were $3,463,000, an increase of 12.5%
from $3,077,000 for the same period a year ago. Royalty income for the third
quarter of 2005 was $2,669,000, an increase of 6.3% from $2,511,000 for the
comparable period in 2004, indicating continued acceptance of our products in
the North American market. International sales revenues for the third quarter of
2005 were $794,000, an increase of 40.3% from $566,000 for the comparable period
in 2004 primarily due to increased sales volume in both Europe and Asia.
Revenues for the nine-month period ended September 30, 2005, were $8,114,000, a
decrease of 5.4% from $8,578,000 a year ago. Royalty income for the nine-month
period ended September 30, 2005 was $6,468,000, an increase of 13.5% from
$5,698,000 for the comparable period in 2004 reflecting Econolite's continued
success in the North American market. International sales for the nine-month
period ended September 30, 2005 were $1,646,000, a decrease of 42.8% from
$2,880,000 for the comparable period in 2004 due primarily to reduced sales of
Autoscope and loop detector products in the Asian market. The decrease in
revenues for the nine-month period 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 it experienced in the second quarter of 2004.
In addition, transition to a new loop detector product for sale in the Asian
market was delayed due to technical issues that have since been corrected.
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
9
effectively in the future. 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 which appear to have adversely affected
sales of the product. We have added functionality to the loop detector software
and have successfully tested the new version. We are cautiously optimistic that
sales of the loop product will occur in the latter part of the fourth quarter.
Gross profits on royalty income for the three- and nine-month periods ended
September 30, 2005 were $3,023,000 and $7,173,000, respectively, compared to
$2,756,000 and $6,920,000, respectively, for the same periods of 2004. The
increase in the third quarter of 2005 reflects the increases in both royalty
income and international sales over the comparable period in 2004, while the
increase in the nine-month period of 2005 was due to increased royalty income
which more than offset a decrease in gross profit from reduced international
sales. Gross profit margins on royalty income has remained relatively unchanged,
while margins on international sales were 59.4% and 60.3% for the three- and
nine-month periods of 2005, respectively, compared to 61.3% and 50.9% for the
comparable periods in 2004. The decrease in gross profit margins in the third
quarter was due primarily to the mix of products sold, with relatively higher
sales of a lower margin product in 2005 compared to 2004. The increase in
margins for the nine-month period of 2005 over 2004 was due primarily to the
one-time sale in the first quarter of 2004 of low-margin cameras. 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 $1,368,000 and $4,027,000, respectively, for the three-
and nine-month periods ended September 30, 2005, or 39.5% and 49.6% of revenue,
compared to $1,265,000 and $3,527,000, or 41.1% of revenue for the same periods
in 2004. Selling, marketing and product support expenses decreased for the third
quarter of 2005 due primarily to more engineering time allocated to research and
development and away from product support while increasing for the nine-month
period of 2005 due to higher payroll and travel costs related to added sales and
support staff in Europe and the United States. General and administrative
expenses decreased marginally in the third quarter of 2005 and increased during
the nine-month period of 2005 due primarily to added performance bonuses,
insurance expense and legal and audit fees incurred in the first-half of the
year. Research and development expenses increased for the three- and nine-month
periods ended September 30, 2005 due to additional 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 engineering staff in the United
States.
Income from operations in the third quarter of 2005 was $1,655,000, or 47.8% of
revenue, compared to $1,491,000, or 48.4% of revenue, in the comparable quarter
in 2004. Income from operations for the nine-month period ended September 30,
2005 was $3,146,000, or 38.8% of revenue, compared to $3,393,000, or 39.6% of
revenue, in the comparable period in 2004. The increase in income from
operations for the third quarter of 2005 was due primarily from increased
revenue in the quarter while the decrease in the nine-month period was due to
decreases in international sales by Flow Traffic Ltd. in the first half of 2005
and increases in all three categories of operating expense.
10
Income taxes were $576,000, or 33.5% of pretax income, in the third quarter of
2005, compared to $535,000, or 35.4% of pretax income, in the comparable quarter
of 2004, while income taxes were $1,166,000, or 35.1% of pretax income, in the
nine-month period ended September 30, 2005, compared to $1,162,000, or 33.8% of
pretax income in the comparable period of 2004. The increase in income taxes in
the third quarter of 2005 was due primarily to having more taxable income than
the comparable quarter of 2004 while the increase for the nine-month period of
2005 compared to 2004 was primarily due to the inability to offset losses in
Asia against prior year taxable income. We expect income taxes to remain at
approximately 33-35% of pretax income for the remainder of the year.
Net income was $1,145,000, or 33.1% of revenue, in the third quarter of 2005,
compared to $977,000, or 31.8% of revenue, in the comparable quarter of 2004.
Net income was $2,152,000, or 26.5% of revenue, in the nine-month period ended
September 30, 2005, compared to $2,276,000, or 26.5% 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 September 30, 2005, we had $5,902,000 in cash and cash equivalents, compared
to $1,262,000 at December 31, 2004. Included in cash equivalents at September
30, 2005 was $4,855,000 in a tax-exempt money market fund. The increase of
$4,640,000 in cash and cash equivalents at September 30, 2005 compared to
December 31, 2004 was due primarily to the sale of short-term investments during
the second and third quarters of 2005 and from cash provided by operating
activities in the first nine months of 2005. Net cash provided by operating
activities was $1,151,000 in the nine-month period ended September 30, 2005,
compared to $1,889,000 in the comparable period of 2004. The decrease was due
primarily to accounts receivable increasing more in the first nine-months of
2005 compared to 2004.
We had working capital of $13,042,000, and a ratio of current assets to current
liabilities of 12.2 to 1 at September 30, 2005, compared to $10,326,000 and 10.1
to 1, respectively, at the end of 2004.
We are accumulating cash in order to obtain the liquidity needed to take
advantage of acquisition opportunities that may become available and to allow
continued investment in product development and expansion of our market reach in
Asian and European. We continue to meet with other businesses in the United
States and Europe that manufacture, sell or distribute 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.
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 7.25% at September 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.
11
We believe that cash and cash equivalents and short-term investments at
September 30, 2005, our $1,000,000 revolving line of credit and cash provided by
operating activities will satisfy our 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;
12
o our inability to achieve and maintain effective internal controls;
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 of our 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 6. Exhibits
The following exhibits are filed as part of this quarterly report on Form 10-QSB
for the quarterly period ended September 30, 2005.
Exhibit
Number 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 Certification of Chief Executive Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
14
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: November 9, 2005 /s/ James Murdakes
--------------------------------------------
James Murdakes
Chairman and Chief Executive Officer
(principal executive officer)
Dated: November 9, 2005 /s/ Arthur J. Bourgeois
--------------------------------------------
Arthur J. Bourgeois
Chief Financial Officer
(principal financial and accounting officer)
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 November 9, 2005.
32.2 Chief Financial Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, dated November 9, 2005.
15