Table of Contents
General and administrative expense decreased to $1.2 million or 23.4%
of total revenue in the first quarter of 2012, from $1.5 million or 23.9% of
total revenue in the same period in 2011. General and administrative expenses
decreased in 2012 mainly due to the restructuring activities that were
announced in the fourth quarter of 2011. We anticipate that general and
administrative expense will decrease both in terms of dollar amount and as a
percentage of revenue in 2012 as compared to 2011 as we realize the impact of
restructuring initiatives and the RTMS business model change.
Research and development expense increased to $1.3 million or 24.2% of
total revenue in the first quarter of 2012, up from $1.0 million or 16.7% of
total revenue for the same period in 2011. The increase was mainly related to
the increased expenditures on our hybrid and other product developments. We
anticipate that research and development expense will remain similar or
decrease slightly in terms of dollar amount in 2012 as compared to 2011.
Amortization of intangibles expense was $408,000 in the three months
ended March 31, 2012 compared to $412,000 million in 2011 and reflects the
amortization of intangible assets acquired in acquisitions. Assuming there are
no changes to our intangible assets, we anticipate amortization expense will be
approximately $1.6 million in 2012.
As discussed above, in December 2011, we announced a change to our
North American business model for the RTMS product line and certain
restructuring initiatives. In the period ended March 31, 2012, we recognized
restructuring expense of $76,000 related mainly to employee severance.
Other income was $5,000 in the first quarter of 2012, primarily
consisting of interest income, as compared to income of $4,000 in the first
quarter of 2011.
Income tax benefit of $218,000, or 24.6% of our pretax loss, was
recorded for the three months ended March 31, 2012, compared to an income tax
benefit of $240,000, or 22.9% of pretax income, for the three months ended
March 31, 2011. We expect the effective rate in 2012 to be below 30%.
Liquidity and Capital Resources
At March 31, 2012, we had $5.7 million in cash and cash equivalents and
$2.8 million in short-term investments, compared to $5.2 million in cash and
cash equivalents and $2.1 million in short-term investments at December 31,
2011. Our investment objectives are to preserve principal, maintain liquidity,
and achieve the best available return consistent with our primary objectives of
safety and liquidity.
Net cash provided by operating activities was $1.3 million in the first
three months of 2012, compared to cash used in operating activities of $2.1
million in the same period in 2011. The primary reason for the increase in cash
was the collection of outstanding receivables and conversion of inventory,
offset by payments related to the reduction in accounts payable. We anticipate
that average receivable collection days in 2012 will improve compared to 2011
and will not have a material impact on our liquidity.
Net cash used in investing activities was $1.0 million for the first
quarter of 2012, compared to cash used in investing activities of $2.2 million
in the first quarter of 2011. There was $2.9 million of purchases offset by
sales or maturities of marketable securities in the first quarter of 2012. Our
planned additions of property and equipment are discretionary, and we do not
expect them to exceed historical levels in 2012.
We have a revolving line of credit agreement with Associated Bank,
National Association. The revolving line of credit provides for up to $5.0
million at an annual interest rate equal to the greater of 4.5% or LIBOR plus
2.75%, as reset from time to time by the bank. Advances on the line of credit
cannot exceed a borrowing base determined under a formula, which is a
percentage of the amounts of eligible receivables. The line of credit currently
has no borrowings outstanding and matures on May 1, 2013. We believe that on an
ongoing basis, we will have regular availability to draw a minimum of $3.0
million on our line of credit based on our qualifying assets.
We believe that cash and cash equivalents on hand at March 31, 2012,
along with the availability of funds under our $5.0 million revolving line of
credit and cash provided by operating activities, will satisfy our projected
working capital needs, investing activities, and other cash requirements for
the foreseeable future.
Off-Balance Sheet Arrangements
We do not participate in transactions or have relationships or other
arrangements with an unconsolidated entity, including special purpose and
similar entities or other off-balance sheet arrangements.
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Table of Contents
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended December 31, 2011. The accounting policies used in preparing our
interim 2012 Condensed Consolidated Financial Statements set forth elsewhere in
this Quarterly Report on Form 10-Q are the same as those described in our Annual
Report on Form 10-K.
Cautionary Statement
:
This Quarterly Report on Form 10-Q 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 described in the forward-looking statements.
Factors that might cause such differences include, but are not limited to:
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historical
dependence on a single product for most of our revenue;
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budget
constraints by governmental entities that purchase our products, including
constraints caused by declining tax revenue;
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continuing
ability of our licensee to pay royalties owed;
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the mix of
and margin on the products we sell;
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dependence
on third parties for manufacturing and marketing our products;
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dependence
on single-source suppliers to meet manufacturing needs;
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our
increased international presence;
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failure to
secure adequate protection for our intellectual property rights;
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development
of a competing product by another business using the underlying technology
included in the patent we had licensed from the University of Minnesota,
which expired in 2006;
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our
inability to develop new applications and product enhancements;
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unanticipated
delays, costs and expenses inherent in the development and marketing of new
products, including ANPR products;
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our
inability to respond to low-cost local competitors in Asia and elsewhere;
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our
inability to properly manage a growth in revenue and/or production
requirements;
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the
influence over our voting stock by affiliates;
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our
inability to hire and retain key scientific and technical personnel;
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our
inability to achieve and maintain effective internal controls;
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our
inability to successfully integrate acquisitions;
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political
and economic instability, including recent volatility in the economic
environment of the European Union caused by the ongoing sovereign debt crisis
in Europe;
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Table of Contents
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our
inability to comply with international regulatory restrictions over hazardous
substances and electronic waste; and
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conditions
beyond our control such as war, terrorist attacks, health epidemics and
economic recession.
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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 1A. to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2011.
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I
tem 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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Our foreign sales and results of operations are subject to the impact
of foreign currency fluctuations. From time to time, we enter into currency
hedges to attempt to lower our exposure to translation gains and losses as well
as to limit the impact of foreign currency translation upon the consolidation
of our foreign subsidiaries. A 10% adverse change in foreign currency rates, if
we have not hedged, could have a material effect on our results of operations
or financial position. Our current greatest exposure for a negative material
impact to our operations is a rising Canadian Dollar versus the U.S. Dollar.
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tem 4T.
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Controls and
Procedures
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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) under the Securities Exchange Act of
1934 (the Exchange Act)). Based upon that evaluation, our 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) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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Table of Contents
P
ART II. OTHER INFORMATION
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tem 1.
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Legal
Proceedings
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None.
Some of the risk factors to which we and our business are subject are
described in the section entitled Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2011. The risks and uncertainties
described in our Annual Report are not the only risks we face. Additional risks
and uncertainties not presently known to us or that our management currently
deems immaterial also may impair our business operations. If any of the risks
described were to occur, our business, financial condition, operating results
and cash flows could be materially adversely affected.
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tem 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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None.
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tem 3.
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Defaults
Upon Senior Securities
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None.
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tem 4.
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Mine Safety
Disclosures.
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None.
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tem 5.
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Other
Information
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None.
The following exhibits are filed as part of this quarterly report on
Form 10-Q for the quarterly period ended March 31, 2012:
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Exhibit
Number
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Description
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10.1
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Employment
Agreement between ISS and Daniel W. Skites, dated October 21, 2010, effective
on or about November 16, 2010.
*
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31.1
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Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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31.2
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Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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32.1
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Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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32.2
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Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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101
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The
following financial information from the Quarterly Report on Form 10-Q for
the quarter ended March 31, 2012, formatted in XBRL (Extensible Business
Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the
Condensed Consolidated Statements of Operations, (iii) the Condensed
Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated
Financial Statements.
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*Management contract or compensatory plan or arrangement.
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Table of Contents
S
IGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
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Image
Sensing Systems, Inc.
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Dated: May
8, 2012
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By:
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/s/ Kenneth
R. Aubrey
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Kenneth R.
Aubrey
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President
and Chief Executive Officer
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(principal
executive officer)
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Dated: May
8, 2012
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By:
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/s/ Gregory
R. L. Smith
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Gregory R.
L. Smith
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Chief
Financial Officer
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(principal
financial and accounting officer)
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Table of Contents
E
XHIBIT INDEX
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Exhibit No.
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Description
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10.1
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Employment
Agreement between ISS and Daniel W. Skites, dated October 21, 2010, effective
on or about November 16, 2010.
*
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31.1
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Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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31.2
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Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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32.1
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Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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32.2
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Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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101
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The following
financial information from the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2012, formatted in XBRL (Extensible Business Reporting
Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed
Consolidated Statements of Operations, (iii) the Condensed Consolidated
Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated
Financial Statements.
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*Management contract or compensatory plan or arrangement.
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