0000897101-16-002365.txt : 20160512 0000897101-16-002365.hdr.sgml : 20160512 20160512171111 ACCESSION NUMBER: 0000897101-16-002365 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160512 DATE AS OF CHANGE: 20160512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMAGE SENSING SYSTEMS INC CENTRAL INDEX KEY: 0000943034 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 411519168 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35959 FILM NUMBER: 161644900 BUSINESS ADDRESS: STREET 1: 500 SPRUCE TREE CENTRE STREET 2: 1600 UNIVERSITY AVE CITY: ST PAUL STATE: MN ZIP: 55104-3825 BUSINESS PHONE: 6516037700 MAIL ADDRESS: STREET 1: 500 SPRUCE TREE CENTRE STREET 2: 1600 UNIVERSITY AVE W. CITY: ST PAUL STATE: MN ZIP: 55104 10-Q 1 iss161699_10q.htm FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM 10-Q

 

   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended March 31, 2016
   
  OR
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ________________ to ________________

 

Commission file number: 0-26056

 

 

 

Image Sensing Systems, Inc.

(Exact name of registrant as specified in its charter)

   
Minnesota 41-1519168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
500 Spruce Tree Centre  
1600 University Avenue West  
St. Paul, MN 55104
(Address of principal executive offices) (Zip Code)

 

(651) 603-7700

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

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 ☒         No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒         No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

   
Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer ☐ Smaller reporting company ☒
(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐         No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at April 30, 2016
Common Stock, $0.01 par value per share   5,039,039 shares

 

 
 
 

 

IMAGE SENSING SYSTEMS, INC.

 

TABLE OF CONTENTS

       
PART I. FINANCIAL INFORMATION   3
     
Item 1. Financial Statements (unaudited)   3
       
Condensed Consolidated Balance Sheets   3
     
Condensed Consolidated Statements of Operations   4
     
Condensed Consolidated Statements of Comprehensive Loss   5
     
Condensed Consolidated Statements of Cash Flows   6
     
Notes to Condensed Consolidated Financial Statements   7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   15
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   21
       
Item 4. Controls and Procedures   21
       
PART II. OTHER INFORMATION   22
     
Item 1. Legal Proceedings   22
       
Item 1A. Risk Factors   22
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   22
       
Item 3. Defaults Upon Senior Securities   22
       
Item 4. Mine Safety Disclosures   22
       
Item 5. Other Information   22
       
Item 6. Exhibits   22
       
SIGNATURES   23
     
EXHIBIT INDEX   24

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Image Sensing Systems, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

         
   March 31,
2016
   December 31,
2015
 
ASSETS          
Current assets:          
Cash and cash equivalents  $1,403   $2,648 
Accounts receivable, net of allowance for doubtful accounts of $56 and $138, respectively   2,520    3,063 
Inventories   375    648 
Prepaid expenses and other current assets   481    445 
Discontinued operations assets   420    420 
Total current assets   5,199    7,224 
           
Property and equipment:          
Furniture and fixtures   491    491 
Leasehold improvements   429    426 
Equipment   3,464    3,397 
    4,384    4,314 
Accumulated depreciation   3,911    3,796 
    473    518 
           
Intangible assets, net   1,811    1,210 
Deferred income taxes   19    19 
TOTAL ASSETS  $7,502   $8,971 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:         
Accounts payable  $814   $1,519 
Warranty   760    760 
Accrued compensation   311    722 
Other current liabilities   324    573 
Accrued restructuring   126     
Total current liabilities   2,335    3,574 
           
Shareholders’ equity          
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued or outstanding        
Common stock, $.01 par value; 20,000,000 shares authorized, 5,039,039 and 5,028,000 issued and outstanding at March 31, 2016 and December 31, 2015, respectively.   50    49 
Additional paid-in capital   23,886    23,826 
Accumulated other comprehensive loss   (257)   (258)
Accumulated deficit   (18,512)   (18,220)
Total shareholders’ equity   5,167    5,397 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $7,502   $8,971 

 

See accompanying notes to the condensed consolidated financial statements.

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Image Sensing Systems, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Revenue:          
Product sales  $1,614   $1,216 
Royalties   1,624    2,011 
    3,238    3,227 
Cost of revenue:          
Product sales   918    587 
    918    587 
Gross profit   2,320    2,640 
           
Operating expenses:          
Selling, general and administrative   1,689    1,744 
Research and development   794    906 
Amortization of intangible assets       122 
Restructuring   126    119 
    2,609    2,891 
Operating loss from continuing operations   (289)   (251)
Other, net   (1)   (1)
Loss from continuing operations before income taxes   (290)   (252)
Income tax expense   2    16 
Net loss from continuing operations   (292)   (268)
Net loss from discontinued operations, net of tax       (899)
Net loss  $(292)  $(1,167)
Net loss per share:          
Basic          
  Continuing operations  $(0.06)  $(0.05)
  Discontinued operations  $   $(0.18)
    Net basic loss per share  $(0.06)  $(0.23)
           
Diluted          
  Continuing operations  $(0.06)  $(0.05)
  Discontinued operations  $   $(0.18)
    Net diluted loss per share  $(0.06)  $(0.23)
           
Weighted average number of common shares outstanding:          
Basic   5,030    4,999 
Diluted   5,030    4,999 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Image Sensing Systems, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

         
   Three-Month Periods Ended
March 31,
 
   2016   2015 
Net loss  $(292)  $(1,167)
Other comprehensive income (loss):          
Foreign currency translation adjustment   1    (177)
Comprehensive loss  $(291)  $(1,344)

See accompanying notes to the condensed consolidated financial statements.

 

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Image Sensing Systems, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Operating activities:          
Net loss from continued operations  $(292)  $(268)
Net loss from discontinued operations, net of tax       (899)
Net loss   (292)   (1,167)
           
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:          
Depreciation   75    74 
Amortization       122 
Stock-based compensation   59    75 
Changes in operating assets and liabilities:          
Accounts receivable, net   544    (604)
Inventories   272    (51)
Prepaid expenses and other current assets   (36)   183 
Accounts payable   (705)   (105)
Accrued expenses and other current liabilities   (534)   (430)
Net cash used for continuing operating activities   (617)   (1,903)
Net cash provided by discontinuing operating activities       291 
Net cash used for operating activities   (617)   (1,612)
           
Investing activities:          
Capitalized software development costs   (601)    
Purchases of property and equipment   (24)   (37)
Net cash used for continuing investing activities   (625)   (37)
Net cash provided by discontinued investing activities       9 
Net cash used from investing activities   (625)   (28)
           
Effect of exchange rate changes on cash   (3)   (132)
Decrease in cash and cash equivalents   (1,245)   (1,772)
           
Cash and cash equivalents at beginning of period   2,648    2,656 
Cash and cash equivalents at end of period  $1,403   $884 

See accompanying notes to the condensed consolidated financial statements.

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IMAGE SENSING SYSTEMS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2016

 

Note A: Basis of Presentation

 

Image Sensing Systems, Inc. (referred to herein as “we,” the “Company,” “us” and “our”) develops and markets software-based computer enabled detection products for use in traffic, security, police and parking applications. We sell our products primarily to distributors and also receive royalties under a license agreement with a manufacturer/distributor for certain of our products. Our products are used primarily by governmental entities.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q, which require the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is the opinion of management that the unaudited condensed consolidated financial statements include all adjustments consisting of normal recurring accruals considered necessary for a fair presentation. All significant intercompany balances and transactions have been eliminated.

 

Operating results for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the SEC.

 

Summary of Significant Accounting Policies

The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Company’s results of operations and financial position and may require the application of a higher level of judgment by the Company’s management and, as a result, are subject to an inherent degree of uncertainty.

 

Revenue Recognition 

We recognize revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer have occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

 

Certain sales may contain multiple elements for revenue recognition purposes. We consider each deliverable that provides value to the customer on a standalone basis as a separable element. Separable elements in these arrangements may include the hardware, software, installation services, training and support. We initially allocate consideration to each separable element using the relative selling price method. Selling prices are determined by us based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, our best estimate of the selling price. Factors considered by us in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by us to provide the deliverable, as well as our historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training may not be considered separable. Under those circumstances, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

 

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts.

 

Econolite Control Products, Inc. (Econolite) is our licensee that sells certain of our products in the United States, Mexico, Canada and the Caribbean. The royalty of approximately 50% of the gross profit on licensed products is recognized when the products are shipped or delivered by Econolite to its customers.

 

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We record provisions against sales revenue for estimated returns and allowances in the period when the related revenue is recorded based on historical sales returns and changes in end user demand.

 

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

 

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or market on the first-in, first-out accounting method.

 

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. We recognize penalties and interest expense related to unrecognized tax benefits in income tax expense.

 

Intangible Assets

Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows and reviewed for quarterly impairment. At both March 31, 2016 and December 31, 2015, we determined there was no impairment of intangible assets. At both March 31, 2016 and December 31, 2015, there were no indefinite-lived intangible assets.

 

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized software costs, the Company compares expected product performance, utilizing forecasted revenue amounts, to the total costs incurred to date and estimates of additional costs to be incurred. If revised forecasted product revenue is less than, and/or revised forecasted costs are greater than, the previously forecasted amounts, the net realizable value may be lower than previously estimated, which could result in the recognition of an impairment charge in the period in which such a determination is made.

 

Note B: Divestiture of Automatic License Plate Recognition Business

 

On July 9, 2015, the Company entered into a share and asset sales purchase agreement (the share and asset purchase agreement, “SAPA”) with TagMaster AB (the “Buyer”). Under the terms of the SAPA, the Company and Image Sensing Systems EMEA Limited, a wholly-owned subsidiary of the Company (“ISS EMEA”), sold to the Buyer the entire issued share capital of Image Sensing Systems UK Limited, a wholly-owned subsidiary of ISS EMEA, as well as certain other assets owned by the Company primarily used or primarily held for use in connection with its license plate recognition (LPR) business. The Buyer also agreed to assume on the closing date certain agreements and liabilities relating to the LPR business and the acquired assets. Additionally, the Company and the Buyer also entered into a transitional services agreement.

 

Effective July 9, 2015, the LPR business qualified for discontinued operations presentation in the Company’s condensed consolidated financial statements. In accordance with Accounting Standards Codification (“ASC”) 205-20, the results of the discontinued LPR business have been presented as discontinued operations effective with the reporting of financial results for the third quarter of 2015. As such, financial results for the three months ended March 31, 2016 have been reported on this basis. Previously reported results for the three months ended March 31, 2015 have also been restated to reflect this reclassification.

 

The purchase price for the LPR business was $4.2 million, subject to certain customary closing adjustments based on the difference between estimated net asset value and final net asset value, of which $3.8 million has been paid to the Company. The remaining $420,000 was placed in an escrow account and will be available until July 9, 2016 to satisfy any indemnification obligations the Company may have under the SAPA. The $420,000 in escrow is classified as “discontinued operations assets” on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

 

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The operational results of the LPR business are presented in the “Net loss from discontinued operations” line item on the Condensed Consolidated Statements of Operations. In accordance with ASC 205-20, no general corporate charges were allocated to the discontinued business. The assets and liabilities of the discontinued business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities from discontinued operations.

 

Other than consolidated amounts reflecting operating results and balances for both the continuing and discontinuing operations, all remaining amounts presented in the accompanying condensed consolidated financial statements and notes reflect the financial results and financial position of the Company’s continuing Autoscope® Video (“Autoscope”) and RTMS® (“RTMS”) businesses.

 

Revenue, operating income and net loss from discontinued operations were as follows (in thousands):

         
   Three-Month Periods Ended
March 31,
 
   2016   2015 
Net revenue  $   $680 
Operating loss from continuing operations       (899)
Net loss on discontinued operations, net of tax  $   $(899)

 

Note C: Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation-Stock Compensation (Topic 718).” ASU 2016-09 provides new guidance on how an entity should account for stock compensation. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The new standard must be adopted using a modified retrospective and a prospective transition. In addition, the transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently determining our implementation approach and assessing the impact of ASU 2016-02 on the consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. In addition, the transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently determining our implementation approach and assessing the impact of ASU 2016-02 on the consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers.

 

On July 9, 2015, the FASB affirmed its proposal to defer the effective date of ASU 2014-09 for all entities by one year. As a result, public business entities, certain not-for-profit entities, and certain employee benefit plans will apply this new revenue standard to annual reporting periods beginning after December 15, 2017. All other entities will apply this new revenue standard to annual reporting periods beginning after December 15, 2018. Additionally, the FASB affirmed its proposal to permit all entities to apply ASU 2014-09 early, but not before the original effective date for public business entities, certain not-for-profit entities, and certain employee benefit plans (that is, annual periods beginning after December 15, 2016). Entities choosing to implement early will apply ASU 2014-09 to all interim reporting periods within the year of adoption.

 

The Company is currently determining its implementation approach and assessing the impact of ASU 2014-09 on the consolidated financial statements.

 

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Note D: Fair Value Measurements

 

The guidance for fair value measurements establishes the authoritative definition of fair value, sets out a framework for measuring fair value and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:

 

·Level 1 – observable inputs such as quoted prices in active markets;

·Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

·Level 3 – unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

 

Our intangible assets and other long-lived assets are nonfinancial assets that were acquired either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were initially, and have historically been, measured and recognized at amounts equal to the fair value determined as of the date of acquisition.

 

Financial Instruments not Measured at Fair Value

 

Certain of our financial instruments are not measured at fair value and are recorded at carrying amounts approximating fair value, based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and other current assets and liabilities.

 

Note E: Inventories

 

Inventories consisted of the $375,000 and $648,000 of finished goods as of March 31, 2016 and December 31, 2015, respectively.

 

Note F: Intangible Assets

 

Intangible assets consisted of the following (dollars in thousands):

 

   March 31, 2016 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900    (3,900)  $     
Software development costs   1,811        1,811     
Total  $5,711   $(3,900)  $1,811     

                 
   December 31, 2015 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900   $(3,900)  $     
Software development costs   1,210        1,210     
   $5,110   $(3,900)  $1,210     

 

Note G: Credit Facilities

 

In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank providing for a revolving line of credit for the Company. The credit agreement and related documents with Alliance Bank (collectively, the “Alliance Credit Agreement”) provide up to a $5.0 million revolving line of credit. Amounts due under the Alliance Credit Agreement bear interest at a fixed annual rate of 3.95%. Any advances are secured by the Company’s inventories, accounts receivable, cash, marketable securities, and equipment. We are subject to certain covenants under the Alliance Credit Agreement. In April 2016, we entered into an agreement with Alliance Bank amending the Alliance Credit Agreement to extend the maturity date from April 1, 2016 to May 12, 2017. At March 31, 2016, we had no borrowings under the Alliance Credit Agreement, and we were in compliance with all financial covenants.

 

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Note H: Warranties

 

We generally provide a two to five year warranty on product sales. Reserves to honor warranty claims are estimated and recorded at the time of sale based on historical claim information and are analyzed and adjusted periodically based on claim trends.

 

Warranty liability and related activity consisted of the following (in thousands):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Beginning balance  $760   $824 
Warranty provisions   71    44 
Warranty claims   (95)   (86)
Adjustments to preexisting warranties   24    (25)
Ending balance  $760   $757 

 

Note I: Stock-Based Compensation

 

We compensate officers, directors and key employees with stock-based compensation under stock option and incentive plans approved by our shareholders and administered under the supervision of our Board of Directors. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest proportionally over periods of three to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of nine to ten years.

 

Performance stock options are time based; however, the final number of awards earned and the related compensation expense is adjusted up or down to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90% to 100% of the targeted amount if the minimum performance target is achieved. For performance stock awards granted in 2015, the performance target was operating income. We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

 

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the three-month periods ended March 31, 2016 and 2015 was $60,000 and $75,000, respectively. At March 31, 2016, a total of 267,126 shares were available for grant under the Company’s stock option and incentive plan.

 

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Stock Options

 

A summary of the option activity for the first three months of 2016 is as follows:

                  
    Number of
Shares
   Weighted
Average
Exercise
Price per
Share
   Weighted
Average
Remaining Contractual
Term (in years)
   Aggregate
Intrinsic
Value
 
Options outstanding at December 31, 2015    307,750   $5.96    6.3   $46 
Granted       $       $ 
Exercised        $       $ 
Expired       $       $ 
Forfeited    (4,250)  $7.78       $ 
                      
Options outstanding at March 31, 2016    303,500   $5.93    6.1   $3 
Options exercisable at March 31, 2016    198,625   $6.43    5.2   $2 

 

There were no options exercised during the three-month periods ended March 31, 2016 and March 31, 2015. As of March 31, 2016, there was $180,000 of total unrecognized compensation cost related to non-vested stock options. The weighted average period over which the compensation cost is expected to be recognized is 1.8 years.

 

Restricted Stock Awards

 

We issue restricted stock awards to executive officers. Executive officers vest in the restricted stock awards if the Company’s common stock meets certain performance metrics for a specific number of consecutive trading days during the performance period. The shares of common stock subject to the restriction, will vest as to 50% of such shares on the first anniversary date of the performance goal achievement and 50% of such shares on the second anniversary date of the performance goal achievement. The awards will not otherwise vest if the executive officers’ employment with the Company is terminated for any reason during the performance period or terminated for any reason after the attainment of the performance goal but before the restricted stock awards vest. Performance restricted stock awards are valued based on the market value of the shares at the date of grant with the compensation expense recognized over the vesting periods.

 

During the quarter ended March 31, 2016, there were restricted stock awards issued for 99,638 shares with a weighted-average grant date fair value of $2.76.

 

Stock Awards

 

We issue stock awards as a portion of the annual retainer for each director on a quarterly basis. The stock awards are fully vested at the time of issuance. Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on the grant date. During the quarter ended March 31, 2016, there were stock awards issued for 11,039 shares with a weighted-average grant date fair value of $2.65.

 

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Note J: Loss per Common Share

 

Net loss per share is computed by dividing net loss by the daily weighted average number of common shares outstanding during the applicable periods. Diluted net loss per share includes the potentially dilutive effect of common shares subject to outstanding stock options using the treasury stock method. Under the treasury stock method, shares subject to certain outstanding stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding. As a result, stock options to acquire 278,500 and 556,989 weighted common shares have been excluded from the diluted weighted shares outstanding for the three-month periods ended March 31, 2016 and 2015, respectively. The potentially dilutive effect of common shares subject to certain outstanding stock options is determined based on net loss. A reconciliation of these amounts is as follows (dollar amounts in thousands except per share data):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Numerator:          
Net loss from continuing operations  $(292)  $(268)
Net loss from discontinued operations  $   $(899)
Net loss  $(292)  $(1,167)
Denominator:          
Weighted average common shares outstanding   5,030    4,999 
Dilutive potential common shares        
Shares used in diluted net loss per common share calculations   5,030    4,999 
Basic net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)   (0.23)
           
Diluted net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)  $(0.23)

  

Note K: Segment Information 

 

The Company’s Interim Chief Executive Officer and management regularly review financial information for the Company’s discrete operating segments. Based on similarities in the economic characteristics, nature of products and services, production processes, type or class of customer served, method of distribution and regulatory environments, the operating segments have been aggregated for financial statement purposes and categorized into two reportable segments: Intersection and Highway.

 

Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. RTMS is our radar product line, and revenue consists of international and North American product sales as well as a portion of royalties (all of which are received from Econolite). Radar products are normally sold in the Highway segment. Until July 9, 2015, Autoscope license plate recognition was our LPR product line and was the Company’s third operating segment. All segment revenues are derived from external customers.

 

As described in Note B to these Notes to the Condensed Consolidated Financial Statements, effective on July 9, 2015, we sold our LPR business. Therefore, effective on that date, the LPR business qualified for discontinued operations presentation in the Company’s condensed consolidated financial statements, and the results of the discontinued LPR business have been presented as discontinued operations effective with the reporting of financial results for the three months ended September 30, 2015. Financial results for the three months ended March 31, 2016 have been reported on this basis, and previously reported results for the three months ended March 31, 2015 have also been restated to reflect this classification. Therefore, the following tables do not include financial results for the Company’s LPR business segment.

 

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Operating expenses and total assets are not allocated to the segments for internal reporting purposes. Due to the changes in how we manage our business, we may reevaluate our segment definitions in the future. 

 

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

 

   Three Months Ended March 31, 
   Intersection   Highway   Total 
   2016   2015   2016   2015   2016   2015 
                               
Revenue  $1,904   $2,161   $1,334   $1,066   $3,238   $3,227 
Gross profit   1,718    2,060    602    580    2,320    2,640 
Amortization of intangible assets               122        122 
Intangible assets   1,811            332    1,811    332 

 

Note L: Restructuring

 

In the first quarter of 2016, the Company implemented restructuring plans in Canada. Because of these actions, restructuring charges of approximately $126,000 were recorded in the first three months of 2016 related to employee terminations.

 

The following table shows the restructuring activity for the three months ended March 31, 2016 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2016   $   $   $ 
Charges    126        126 
Payments/settlements             
Balance at March 31, 2016   $126   $   $126 

 

In the fourth quarter of 2014, the Company implemented restructuring plans to close our offices in Asia. Because of these actions, restructuring charges of approximately $119,000 were recorded in the first quarter of 2015 related to employee terminations.

 

The following table shows the restructuring activity for the three months ended March 31, 2015 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2015   $190   $26   $216 
Charges    119        119 
Payments/settlements    (295)   (8)   (303)
Balance at March 31, 2015   $14   $18   $32 

 

 

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Note M: Commitments and Contingencies

 

Litigation

 

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with GAAP, we record a liability in our Condensed Consolidated Financial Statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to any currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our results of operations, financial position or cash flows. We expense legal costs as incurred.

 

In addition, on May 5, 2016, Econolite, our exclusive North American manufacturer and distributor, served a complaint on us for a lawsuit filed by Econolite in the Superior Court of the State of California for the County of Orange. The complaint asserts claims against us under the Manufacturing, Distributing and Technology License Agreement, as amended, with Econolite (the “Econolite Agreement”) for breach of contract and breach of implied covenant of good faith and fair dealing and seeks specific performance related to the transition of North American RTMS sales and marketing activities from Econolite to us in July 2014. In the complaint, Econolite requests damages from us in an amount to be proven at trial and seeks certain other remedies. We believe this suit is without merit, and we plan to vigorously defend against it. However, we cannot predict the outcome of this matter at this time or whether it will have a material adverse impact on our business prospects, financial condition, operating results or cash flow.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

General. We provide software based computer enabled detection (“CED”) products and solutions that use advanced signal processing software algorithms to detect and monitor objects in a designated field of view. Our technology analyzes signals from a sophisticated sensor and passes the information along to management systems, controllers or directly to users. Our core products, the Autoscope Video Vehicle Detection System and the RTMS Detection System, operate using our proprietary application software in conjunction with video cameras or radar and commonly available electronic components. Our systems are used by traffic managers primarily to improve the flow of vehicle traffic and to enhance safety at intersections, main thoroughfares, freeways and tunnels.

 

Autoscope video systems are sold to distributors and end users of traffic management products in the United States, Mexico, Canada and the Caribbean by Econolite Control Products, Inc. (“Econolite”), our exclusive licensee in these regions. Until July 9, 2015, we sold license plate recognition (“LPR”) systems to distributors and end users in the United States, Canada and Mexico. We sell all of our systems to distributors and end users in Europe and Asia through our subsidiaries. The majority of our sales are to end users that are funded by government agencies responsible for traffic management or traffic law enforcement.

 

Sale of LPR Business. On July 9, 2015, we closed on the sale of our LPR business to Tagmaster A.B. (“Tagmaster”) for the purchase price of $4.2 million in cash under the Share and Asset Sale and Purchase Agreement dated July 9, 2015 (the “SAPA”) by and among Image Sensing Systems, Inc.; Image Sensing Systems EMEA Limited, our wholly-owned subsidiary (“ISS EMEA”); and TagMaster.

 

As a result, effective July 9, 2015, the LPR business qualified for presentation as discontinued operations under Accounting Standards Codification (“ASC”) 205-20 effective with the reporting of the Company’s financial results for the third quarter of 2015. As such, the results of the discontinued LPR business and associated financial impacts from the sale of this business have been presented as discontinued operations for the three months ended March 31, 2016. Previously reported results for comparable periods in 2015 have been restated to reflect this reclassification and are presented in the “Net loss from discontinued operations, net of tax” line item on the Condensed Consolidated Statements of Operations. In accordance with ASC 205-20, no general corporate charges were allocated to the discontinued business. The assets and liabilities of the discontinued business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities from discontinued operations. Other than consolidated amounts reflecting operating results and balances for both the continuing and discontinued operations, all remaining amounts presented in the accompanying condensed consolidated financial statements reflect the financial results and financial position of the Company’s continuing two reportable segments, the Autoscope Video Vehicle Detection and RTMS Detection System businesses.

  

For additional information on the SAPA, please see the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on July 10, 2015 and July 15, 2015 and Note B “Divestiture of Automatic License Plate Recognition Business” of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

 

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The following discussion of period-to-period changes and trends in financial statements results under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” aligns with the financial statement presentation discussed above.

 

Trends and Challenges in Our Business

 

We believe the expected growth in our business can be attributed primarily to the following global trends:

 

worsening traffic caused by increased numbers of vehicles in metropolitan areas without corresponding expansions of road infrastructure and the need to automate safety, security and access applications for automobiles and trucks, which has increased demand for our products;
advances in information technology, which have made our products easier to market and implement;
the continued funding allocations for centralized traffic management services and automated enforcement schemes, which have increased the ability of our primary end users to implement our products; and
general increases in the cost-effectiveness of electronics, which make our products more affordable for end users.

We believe our continued growth primarily depends upon:

 

continued adoption and governmental funding of intelligent transportation systems (“ITS”) and other automated applications for traffic control, safety and enforcement in developed countries;
a propensity by traffic engineers to implement lower cost technology-based solutions rather than civil engineering solutions such as widening roadways;
countries in the developing world adopting above-ground detection technology, such as video or radar, instead of in-pavement loop technology to manage traffic;
Econolite sales growth in the North America region;
the use of CED to provide solutions to security/surveillance and environmental issues associated with increasing automobile use in metropolitan areas; and
our ability to develop new products, such as hybrid CED devices incorporating, for example, radar and video technologies, that provide increasingly accurate information and enhance the end users’ ability to cost-effectively manage traffic, security/surveillance and environmental issues.

Because the majority of our end users are governmental entities, we are faced with challenges related to potential delays in purchase decisions by those entities and changes in budgetary constraints. These contingencies could result in significant fluctuations in our revenue between periods. The ongoing economic environment in Europe and the United States is further adding to the unpredictability of purchase decisions, creating more delays than usual and decreasing governmental budgets, and it is likely to continue to affect our revenue.

 

Key Financial Terms and Metrics

 

Revenue. We derive revenue from two sources: (1) royalties received from Econolite for sales of the Autoscope video systems in the United States, Mexico, Canada and the Caribbean and (2) revenue received from the direct sales of our RTMS radar systems and Autoscope video systems in Europe and Asia. Autoscope video royalties are calculated using a profit sharing model where the gross profits on sales of product made through Econolite are shared equally with Econolite. This royalty arrangement has the benefit of decreasing our cost of revenues and our selling, marketing and product support expenses because these costs and expenses are borne primarily by Econolite. Although this royalty model has a positive impact on our gross margin, it also negatively impacts our total revenue, which would be higher if all the sales made by Econolite were made directly by us. The royalty arrangement is exclusive under a long-term agreement.

 

Cost of Revenue. There is no cost of revenue related to royalties, as virtually all manufacturing, warranty and related costs are incurred by Econolite. Cost of revenue related to product sales consists primarily of the amount charged by our third party contractors to manufacture hardware platforms, which is influenced mainly by the cost of electronic components. The cost of revenue also includes logistics costs, estimated expenses for product warranties, restructuring costs and inventory reserves. The key metric that we follow is achieving certain gross margin percentages on product sales by geographic region and to a lesser extent by product line.

 

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Operating Expenses. Our operating expenses fall into three categories: (1) selling, marketing and product support; (2) general and administrative; and (3) research and development. Selling, marketing and product support expenses consist of various costs related to sales and support of our products, including salaries, benefits and commissions paid to our personnel; commissions paid to third parties; travel, trade show and advertising costs; second-tier technical support for Econolite; and general product support, where applicable. General and administrative expenses consist of certain corporate and administrative functions that support the development and sales of our products and provide an infrastructure to support future growth. These expenses include management, supervisory and staff salaries and benefits, legal and auditing fees, travel, rent and costs associated with being a public company, such as board of director fees, listing fees and annual reporting expenses. Research and development expenses consist mainly of salaries and benefits for our engineers and third party costs for consulting and prototyping. We measure all operating expenses against our annually approved budget, which is developed with achieving a certain operating margin as a key focus. Also included in operating expenses are restructuring costs and non-cash expense for intangible asset amortization.

 

Non-GAAP Operating Measure. We provide certain non-GAAP financial information as supplemental information to financial measures calculated and presented in accordance with GAAP (Generally Accepted Accounting Principles in the United States). This non-GAAP information excludes the impact of amortizing intangible assets and depreciation, and may exclude other non-recurring items. Management believes that this presentation facilitates the comparison of our current operating results to historical operating results. Management uses this non-GAAP information to evaluate short-term and long-term operating trends in our core operations. Non-GAAP information is not prepared in accordance with GAAP and should not be considered a substitute for or an alternative to GAAP financial measures and may not be computed the same as similarly titled measures used by other companies.

 

Reconciliations of GAAP net income (loss) from continuing operations to non-GAAP net income (loss) from continuing operations are as follows (in thousands):

         
   Three-Month Periods Ended
March 31,
 
   2016   2015 
         
Loss from continuing operations  $(289)  $(251)
Adjustments to reconcile to non-GAAP net loss          
Amortization of intangible assets       122 
Depreciation   75    74 
Restructuring charges   126    119 
Non-GAAP net income (loss) from continuing operations  $(88)  $64 

 

Seasonality. Our quarterly revenues and operating results have varied significantly in the past due to the seasonality of our business. Our first quarter generally is the weakest due to weather conditions that make roadway construction more difficult in parts of North America, Europe and northern Asia. We expect such seasonality to continue for the foreseeable future. Additionally, our international revenues regularly contain individually significant sales. This can result in significant variations of revenue between periods. Accordingly, we believe that quarter-to-quarter comparisons of our financial results should not be relied upon as an indication of our future performance. No assurance can be given that we will be able to achieve or maintain profitability on a quarterly or annual basis in the future.

 

Segments. Until July 9, 2015, we operated in three reportable segments: Intersection, Highway and LPR. Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. The RTMS is our radar product line, and revenue consists of sales to external customers. Radar products are normally sold in the Highway segment. Until July 9, 2015, Autoscope license plate recognition was our LPR product line. All segment revenues are derived from external customers. As described elsewhere in this Quarterly Report on Form 10-Q, effective on July 9, 2015, we sold our LPR business. Accordingly, effective July 9, 2015, the Company has two reportable segments, the Intersection segment (Autoscope Video Vehicle Detection) and Highway segment (RTMS Detection System businesses).

 

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As a result of business model changes and modifications in how we manage our business, we may reevaluate our segment definitions in the future.

 

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

                         
   Three Months Ended March 31, 
   Intersection   Highway   Total 
   2016   2015   2016   2015   2016   2015 
                         
Revenue  $1,904   $2,161   $1,334   $1,066   $3,238   $3,227 
Gross profit   1,718    2,060    602    580    2,320    2,640 
Amortization of intangible assets               122        122 
Intangible assets   1,811            332    1,811    332 

 

Results of Operations

 

The following table sets forth, for the periods indicated, certain statements of operations data as a percent of total revenue and gross profit on product sales and royalties as a percentage of product sales and royalties, respectively.

             
   Three-Month Periods Ended
March 31,
   Quarter
Over
Quarter
 
   2016   2015   Change 
Product sales   49.8%   37.7%   32.7%
Royalties   50.2    62.3    (19.2)
Total revenue   100.0    100.0    0.3 
Gross profit - product sales   43.1    51.7    10.7 
Gross profit - royalties   100.0    100.0    (19.2)
Selling, general and administrative   52.2    54.0    (3.2)
Research and development   24.5    28.1    (12.4)
Restructuring   3.9    3.7    5.9 
Income from continuing operations   (9.0)   (7.8)   15.1 
Income tax expense   0.1    0.5    (87.5)
Net loss from continuing operations   (9.0)   (8.3)   9.0 
Net loss from discontinued operations       (27.9)   (100.0)
Net loss   (9.0)   (36.2)   (75.0)

 

Total revenue was $3.2 million in each of the three-month periods ended March 31, 2016 and 2015. Royalty income decreased to $1.6 million in the first quarter of 2016 from $2.0 million in the first quarter of 2015, a decrease of 19.2%. The decrease in royalties was the result of a decrease in Autoscope video system sales under the Manufacturing, Distributing and Technology License Agreement, as amended, with Econolite (the “Econolite Agreement”).

 

Product sales increased to $1.6 million in the first quarter of 2016 from $1.2 million in the first quarter of 2015, an increase of 32.7%. The increase in product sales was primarily driven by growing acceptance of the Company’s Sx-300 RTMS product by the market and expanded customer relationships into regions that were previously underserved by the Company, such as the Middle East.

 

Revenue for the Intersection segment decreased to $1.9 million in the three-month period ended March 31, 2016 from $2.1 million in the three-month period ended March 31, 2015, a decrease of 11.9%. The decrease in revenue for the Intersection segment was mainly due to lower sales volume under the Econolite agreement partially offset by increased product sales in Europe.

 

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Revenue for the Highway segment increased to $1.3 million in the three-month period ended March 31, 2016 from $1.1 million in the three-month period ended March 31, 2015, an increase of 25.1%. The increase in revenue for the Highway segment was the result of accelerated adoption of the Company’s Sx-300 RTMS product that was launched in late 2014.

 

Gross profit for product sales decreased to 43.1% in the three months ended March 31, 2016 from 51.7% in the three months ended March 31, 2015. Product sales gross profit for the Intersection product lines has historically been lower than gross profit for the Highway product lines and therefore the mix of the product lines sold in any given period can result in varying gross profits. Additionally, the geographic sales mix of our product sales can influence margins, as product sold in some jurisdictions have lower margins. We anticipate that gross profit for our product sales will be similar in 2016 as compared to 2015, while we expect royalty gross profit will be 100% in 2016.

 

Selling, general and administrative expense was $1.7 million in each of the three-month periods ended March 31, 2016 and 2015 or 52.2% and 54.0% of total revenue, respectively. Overall, we anticipate that annual general and administrative expenses will be similar in 2016 as compared to 2015.

 

Research and development expense decreased to $794,000 or 24.5% of total revenue in the three-month period ended March 31, 2016 from $906,000 or 28.1% of total revenue in the three-month period ended March 31, 2015. The decrease is primarily due to $601,000 of software development costs related to the development of new video detection technologies that were capitalized in the first quarter of 2016. In 2016, we will continue to develop our video detection technology. With capitalized software development costs included, we anticipate that research and development expense will increase in dollar amount in 2016 compared to 2015.

 

There was no amortization of intangibles in the first quarter of 2016 compared to $122,000 in the first quarter of 2015 because the intangible assets became fully amortized during the year ended December 31, 2015.

 

In the first quarter of 2016, the Company implemented restructuring plans in Canada. Because of these actions, restructuring charges of approximately $126,000 were recorded related to employee terminations. In the fourth quarter of 2014, the Company implemented restructuring plans to close our offices in Asia. Because of these actions, restructuring charges of approximately $119,000 were recorded in the first quarter of 2015.

 

We recorded income tax expense of $2,000, or 0.69% of pretax loss from continuing operations, for the three months ended March 31, 2016, and income tax expense of $16,000, or 6.3% of pretax loss for the three months ended March 31, 2015. Certain tax jurisdictions have net operating loss carry forwards.

 

The resulting net loss from continuing operations was $292,000 in the first quarter of 2016, compared to $268,000 in the first quarter of 2015. Net loss from continuing operations per basic and diluted share amounts were $0.06 and $0.05 for the three months ended March 31, 2016 and 2015, respectively.

 

There was no net income (loss) from discontinued operations in the first quarter of 2016, compared to a net loss of $899,000 in the first quarter of 2015.

 

Consolidated net loss from both continuing and discontinued operations was $292,000 in the first quarter of 2016, compared to $1.2 million in the first quarter of 2015. Consolidated net loss per basic and diluted share amounts were net losses of $0.06 and $0.23 for the three months ended March 31, 2016 and 2015, respectively.

 

Liquidity and Capital Resources

 

At March 31, 2016, we had $1.4 million in cash and cash equivalents compared to $2.6 million in cash and cash equivalents at December 31, 2015.

 

Net cash used in continuing operating activities was $617,000 in the first three months of 2016 compared to cash used in operating activities of $1.9 million in the same period in 2015. The primary reason for the decrease in cash was the loss for the first three months of 2016, as well as the timing of the payment of outstanding payables, partially offset by the conversion of inventory and collection of receivables. We anticipate that average receivable collection days in 2016 will improve from 2015 but that the improvement will not have a material impact on our liquidity.

 

Net cash used in investing activities from continuing operations was $625,000 for the first three months of 2016 compared to cash used by investing activities from continuing operations of $37,000 in the same period in 2015. The investing of cash in the first three months of 2016 compared to the prior period is the result of the capitalized software development costs. Our planned additions of property and equipment are discretionary, and we do not expect them to exceed historical levels in 2016.

 

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In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank providing for a revolving line of credit for the Company. The credit agreement and related documents with Alliance Bank (collectively, the “Alliance Credit Agreement”) provide up to a $5.0 million revolving line of credit. Amounts due under the Alliance Credit Agreement bear interest at a fixed annual rate of 3.95%. Any advances are secured by the Company’s inventories, accounts receivable, cash, marketable securities, and equipment. We are subject to certain covenants under the Alliance Credit Agreement. In April 2016, we entered into an agreement with Alliance Bank amending the Alliance Credit Agreement to extend the maturity date from April 1, 2016 to May 12, 2017. At March 31, 2016, we had no borrowings under the Alliance Credit Agreement, and we were in compliance with all financial covenants.

 

We believe that cash and cash equivalents on hand at March 31, 2016, along with the availability of funds under our 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.

 

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, 2015. The accounting policies used in preparing our interim Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2016 are set forth elsewhere in this Quarterly Report on Form 10-Q and 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:

 

our historical dependence on a single product for most of our revenue;

 

budget constraints by governmental entities that purchase our products, including constraints caused by declining tax revenue;

 

the continuing ability of Econolite to pay royalties owed;

 

the mix of and margin on the products we sell;

 

our dependence on third parties for manufacturing and marketing our products;

 

our dependence on single-source suppliers to meet manufacturing needs;

 

our failure to secure adequate protection for our intellectual property rights;

 

our inability to develop new applications and product enhancements;

 

the potential disruptive effect on the markets we serve of new and emerging technologies and applications, including vehicle to vehicle communications;

 

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unanticipated delays, costs and expenses inherent in the development and marketing of new products;

 

our inability to respond to low-cost local competitors;

 

our inability to properly manage any growth in revenue and/or production requirements;

 

the influence over our voting stock by affiliates;

 

our inability to hire and retain key scientific and technical personnel;

 

the effects of legal matters in which we may become involved;

 

our inability to achieve and maintain effective internal controls;

 

our inability to successfully integrate acquisitions;

 

political and economic instability, including continuing volatility in the economic environment of the European Union;

 

our inability to comply with international regulatory restrictions over hazardous substances and electronic waste; and

 

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 1A. to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

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 properly hedged, could have a material effect on our results of operations or financial position.

 

Item 4.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Interim 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 Interim Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

During the fiscal quarter covered by this Quarterly Report on Form 10-Q, 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.

 

  21 

 

Table of Contents

 

PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

 

On May 5, 2016, Econolite, our exclusive North American manufacturer and distributor, served a complaint on us for a lawsuit filed by Econolite in the Superior Court of the State of California for the County of Orange. The complaint asserts claims against us under the Econolite Agreement for breach of contract and breach of implied covenant of good faith and seeks specific performance related to the transition of North American RTMS sales and marketing activities from Econolite to us in July 2014. In the complaint, Econolite requests damages from us in an amount to be proven at trial and certain other remedies. We believe this suit is without merit, and we plan to vigorously defend against it. However, we cannot predict the outcome of this matter at this time or whether it will have a material adverse impact on our business prospects, financial condition, operating results or cash flow.

 

Item 1A.Risk Factors

 

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, 2015. 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.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

None.

 

Item 5.Other Information

 

None.

 

Item 6.Exhibits

 

The following exhibits are filed as part of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016: 

     
Exhibit
Number
 

Description 

     
31.1   Certification of Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
32.1   Certification of Interim Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
101   The following financial information from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, 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 (filed herewith).

 

 

 

  22 

 

Table of Contents

 

SIGNATURES

 

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.

     
  Image Sensing Systems, Inc.
     
Dated: May 12, 2016 By:

/s/ Dale E. Parker

    Dale E. Parker
    Interim President, Interim Chief Executive Officer and
    Chief Financial Officer
    (Interim Principal Executive Officer, Principal Financial Officer
    and Principal Accounting Officer)

 

23
 

Table of Contents

 

EXHIBIT INDEX

     
Exhibit No.  

Description

     
31.1   Certification of Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
31.2   Certification of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
101   The following financial information from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, 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 (filed herewith).

 

 

 

24
EX-31.1 2 iss161699_ex31-1.htm CERTIFICATION OF CEO PURSUANT TO SECTION 302

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Dale E. Parker, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Image Sensing Systems, Inc. for its fiscal quarter ended March 31, 2016;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2016 

     
   /s/ Dale E. Parker   
   Name: Dale E. Parker   
   Title: Interim President and Interim Chief Executive Officer

 

 
EX-31.2 3 iss161699_ex31-2.htm CERTIFICATION OF CFO PURSUANT TO SECTION 302

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Dale E. Parker, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Image Sensing Systems, Inc. for its fiscal quarter ended March 31, 2016;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2016 

     
   /s/ Dale E. Parker   
   Name: Dale E. Parker   
   Title: Chief Financial Officer

 

 
EX-32.1 4 iss161699_ex32-1.htm CERTIFICATION OF CEO/CF0 PURSUANT TO SECTION 906

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Image Sensing Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission (the “Report”), I, Dale E. Parker, Interim President, Interim Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

   /s/ Dale E. Parker
   Dale E. Parker
   Interim President, Interim Chief Executive Officer and Chief Financial Officer
   May 12, 2016

 

 
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Document And Entity Information [Abstract]    
Entity Registrant Name IMAGE SENSING SYSTEMS INC  
Entity Central Index Key 0000943034  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Well-known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Filer Category Smaller Reporting Company  
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Entity Common Stock, Par Value Per Share $ 0.01  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
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Mar. 31, 2016
Dec. 31, 2015
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Inventories 375 648
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Discontinued operations assets 420 420
Total current assets 5,199 7,224
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Leasehold improvements 429 426
Equipment 3,464 3,397
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Accrued compensation 311 722
Other current liabilities 324 573
Accrued restructuring 126  
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Dec. 31, 2015
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Mar. 31, 2015
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Royalties 1,624 2,011
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Research and development 794 906
Amortization of intangible assets   122
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Income tax expense 2 16
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Net loss from discontinued operations, net of tax   (899)
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Basic    
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Mar. 31, 2015
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Amortization   122
Stock-based compensation 59 75
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Accounts receivable, net 544 (604)
Inventories 272 (51)
Prepaid expenses and other current assets (36) 183
Accounts payable (705) (105)
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Net cash used for continuing operating activities (617) (1,903)
Net cash provided by discontinuing operating activities   291
Net cash used for operating activities (617) (1,612)
Investing activities:    
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Purchases of property and equipment (24) (37)
Net cash used for continuing investing activities (625) (37)
Net cash provided by discontinued investing activities   9
Net cash used from investing activities (625) (28)
Financing activities:    
Effect of exchange rate changes on cash (3) (132)
Decrease in cash and cash equivalents (1,245) (1,772)
Cash and cash equivalents at beginning of period 2,648 2,656
Cash and cash equivalents at end of period $ 1,403 $ 884
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Basis of Presentation
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Note A: Basis of Presentation

 

Image Sensing Systems, Inc. (referred to herein as “we,” the “Company,” “us” and “our”) develops and markets software-based computer enabled detection products for use in traffic, security, police and parking applications. We sell our products primarily to distributors and also receive royalties under a license agreement with a manufacturer/distributor for certain of our products. Our products are used primarily by governmental entities.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q, which require the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is the opinion of management that the unaudited condensed consolidated financial statements include all adjustments consisting of normal recurring accruals considered necessary for a fair presentation. All significant intercompany balances and transactions have been eliminated.

 

Operating results for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the SEC.

 

Summary of Significant Accounting Policies

The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Company’s results of operations and financial position and may require the application of a higher level of judgment by the Company’s management and, as a result, are subject to an inherent degree of uncertainty.

 

Revenue Recognition 

We recognize revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer have occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

 

Certain sales may contain multiple elements for revenue recognition purposes. We consider each deliverable that provides value to the customer on a standalone basis as a separable element. Separable elements in these arrangements may include the hardware, software, installation services, training and support. We initially allocate consideration to each separable element using the relative selling price method. Selling prices are determined by us based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, our best estimate of the selling price. Factors considered by us in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by us to provide the deliverable, as well as our historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training may not be considered separable. Under those circumstances, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

 

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts.

 

Econolite Control Products, Inc. (Econolite) is our licensee that sells certain of our products in the United States, Mexico, Canada and the Caribbean. The royalty of approximately 50% of the gross profit on licensed products is recognized when the products are shipped or delivered by Econolite to its customers.

 

We record provisions against sales revenue for estimated returns and allowances in the period when the related revenue is recorded based on historical sales returns and changes in end user demand.

 

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

 

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or market on the first-in, first-out accounting method.

 

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. We recognize penalties and interest expense related to unrecognized tax benefits in income tax expense.

 

Intangible Assets

Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows and reviewed for quarterly impairment. At both March 31, 2016 and December 31, 2015, we determined there was no impairment of intangible assets. At both March 31, 2016 and December 31, 2015, there were no indefinite-lived intangible assets.

 

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized software costs, the Company compares expected product performance, utilizing forecasted revenue amounts, to the total costs incurred to date and estimates of additional costs to be incurred. If revised forecasted product revenue is less than, and/or revised forecasted costs are greater than, the previously forecasted amounts, the net realizable value may be lower than previously estimated, which could result in the recognition of an impairment charge in the period in which such a determination is made.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
Divestiture of Automatic License Plate Recognition Business
3 Months Ended
Mar. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Divestiture of Automatic License Plate Recognition Business

Note B: Divestiture of Automatic License Plate Recognition Business

 

On July 9, 2015, the Company entered into a share and asset sales purchase agreement (the share and asset purchase agreement, “SAPA”) with TagMaster AB (the “Buyer”). Under the terms of the SAPA, the Company and Image Sensing Systems EMEA Limited, a wholly-owned subsidiary of the Company (“ISS EMEA”), sold to the Buyer the entire issued share capital of Image Sensing Systems UK Limited, a wholly-owned subsidiary of ISS EMEA, as well as certain other assets owned by the Company primarily used or primarily held for use in connection with its license plate recognition (LPR) business. The Buyer also agreed to assume on the closing date certain agreements and liabilities relating to the LPR business and the acquired assets. Additionally, the Company and the Buyer also entered into a transitional services agreement.

 

Effective July 9, 2015, the LPR business qualified for discontinued operations presentation in the Company’s condensed consolidated financial statements. In accordance with Accounting Standards Codification (“ASC”) 205-20, the results of the discontinued LPR business have been presented as discontinued operations effective with the reporting of financial results for the third quarter of 2015. As such, financial results for the three months ended March 31, 2016 have been reported on this basis. Previously reported results for the three months ended March 31, 2015 have also been restated to reflect this reclassification.

 

The purchase price for the LPR business was $4.2 million, subject to certain customary closing adjustments based on the difference between estimated net asset value and final net asset value, of which $3.8 million has been paid to the Company. The remaining $420,000 was placed in an escrow account and will be available until July 9, 2016 to satisfy any indemnification obligations the Company may have under the SAPA. The $420,000 in escrow is classified as “discontinued operations assets” on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

 

The operational results of the LPR business are presented in the “Net loss from discontinued operations” line item on the Condensed Consolidated Statements of Operations. In accordance with ASC 205-20, no general corporate charges were allocated to the discontinued business. The assets and liabilities of the discontinued business are presented on the Condensed Consolidated Balance Sheets as assets and liabilities from discontinued operations.

 

Other than consolidated amounts reflecting operating results and balances for both the continuing and discontinuing operations, all remaining amounts presented in the accompanying condensed consolidated financial statements and notes reflect the financial results and financial position of the Company’s continuing Autoscope® Video (“Autoscope”) and RTMS® (“RTMS”) businesses.

 

Revenue, operating income and net loss from discontinued operations were as follows (in thousands):

         
   Three-Month Periods Ended
March 31,
 
   2016   2015 
Net revenue  $   $680 
Operating loss from continuing operations       (899)
Net loss on discontinued operations, net of tax  $   $(899)

 

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
Recent Accounting Pronouncements
3 Months Ended
Mar. 31, 2016
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
Recent Accounting Pronouncements

Note C: Recent Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation-Stock Compensation (Topic 718).” ASU 2016-09 provides new guidance on how an entity should account for stock compensation. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The new standard must be adopted using a modified retrospective and a prospective transition. In addition, the transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently determining our implementation approach and assessing the impact of ASU 2016-02 on the consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 provides new guidance on how an entity should account for leases and recognize associated lease assets and liabilities. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. In addition, the transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently determining our implementation approach and assessing the impact of ASU 2016-02 on the consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers.

 

On July 9, 2015, the FASB affirmed its proposal to defer the effective date of ASU 2014-09 for all entities by one year. As a result, public business entities, certain not-for-profit entities, and certain employee benefit plans will apply this new revenue standard to annual reporting periods beginning after December 15, 2017. All other entities will apply this new revenue standard to annual reporting periods beginning after December 15, 2018. Additionally, the FASB affirmed its proposal to permit all entities to apply ASU 2014-09 early, but not before the original effective date for public business entities, certain not-for-profit entities, and certain employee benefit plans (that is, annual periods beginning after December 15, 2016). Entities choosing to implement early will apply ASU 2014-09 to all interim reporting periods within the year of adoption.

 

The Company is currently determining its implementation approach and assessing the impact of ASU 2014-09 on the consolidated financial statements.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note D: Fair Value Measurements

 

The guidance for fair value measurements establishes the authoritative definition of fair value, sets out a framework for measuring fair value and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:

 

·Level 1 – observable inputs such as quoted prices in active markets;

·Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

·Level 3 – unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

 

Our intangible assets and other long-lived assets are nonfinancial assets that were acquired either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were initially, and have historically been, measured and recognized at amounts equal to the fair value determined as of the date of acquisition.

 

Financial Instruments not Measured at Fair Value

 

Certain of our financial instruments are not measured at fair value and are recorded at carrying amounts approximating fair value, based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and other current assets and liabilities.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories
3 Months Ended
Mar. 31, 2016
Inventory Disclosure [Abstract]  
Inventories

Note E: Inventories

 

Inventories consisted of the $375,000 and $648,000 of finished goods as of March 31, 2016 and December 31, 2015, respectively.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note F: Intangible Assets

 

Intangible assets consisted of the following (dollars in thousands):

 

   March 31, 2016 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900    (3,900)  $     
Software development costs   1,811        1,811     
Total  $5,711   $(3,900)  $1,811     

                 
   December 31, 2015 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900   $(3,900)  $     
Software development costs   1,210        1,210     
   $5,110   $(3,900)  $1,210     
XML 23 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Credit Facilities
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Credit Facilities

Note G: Credit Facilities

 

In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank providing for a revolving line of credit for the Company. The credit agreement and related documents with Alliance Bank (collectively, the “Alliance Credit Agreement”) provide up to a $5.0 million revolving line of credit. Amounts due under the Alliance Credit Agreement bear interest at a fixed annual rate of 3.95%. Any advances are secured by the Company’s inventories, accounts receivable, cash, marketable securities, and equipment. We are subject to certain covenants under the Alliance Credit Agreement. In April 2016, we entered into an agreement with Alliance Bank amending the Alliance Credit Agreement to extend the maturity date from April 1, 2016 to May 12, 2017. At March 31, 2016, we had no borrowings under the Alliance Credit Agreement, and we were in compliance with all financial covenants.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Warranties
3 Months Ended
Mar. 31, 2016
Product Warranties Disclosures [Abstract]  
Warranties

Note H: Warranties

 

We generally provide a two to five year warranty on product sales. Reserves to honor warranty claims are estimated and recorded at the time of sale based on historical claim information and are analyzed and adjusted periodically based on claim trends.

 

Warranty liability and related activity consisted of the following (in thousands):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Beginning balance  $760   $824 
Warranty provisions   71    44 
Warranty claims   (95)   (86)
Adjustments to preexisting warranties   24    (25)
Ending balance  $760   $757 
XML 25 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

Note I: Stock-Based Compensation

 

We compensate officers, directors and key employees with stock-based compensation under stock option and incentive plans approved by our shareholders and administered under the supervision of our Board of Directors. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest proportionally over periods of three to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of nine to ten years.

 

Performance stock options are time based; however, the final number of awards earned and the related compensation expense is adjusted up or down to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90% to 100% of the targeted amount if the minimum performance target is achieved. For performance stock awards granted in 2015, the performance target was operating income. We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

 

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the three-month periods ended March 31, 2016 and 2015 was $60,000 and $75,000, respectively. At March 31, 2016, a total of 267,126 shares were available for grant under the Company’s stock option and incentive plan.

 

Stock Options

 

A summary of the option activity for the first three months of 2016 is as follows:

                  
    Number of
Shares
   Weighted
Average
Exercise
Price per
Share
   Weighted
Average
Remaining Contractual
Term (in years)
   Aggregate
Intrinsic
Value
 
Options outstanding at December 31, 2015    307,750   $5.96    6.3   $46 
Granted       $       $ 
Exercised        $       $ 
Expired       $       $ 
Forfeited    (4,250)  $7.78       $ 
                      
Options outstanding at March 31, 2016    303,500   $5.93    6.1   $3 
Options exercisable at March 31, 2016    198,625   $6.43    5.2   $2 

 

There were no options exercised during the three-month periods ended March 31, 2016 and March 31, 2015. As of March 31, 2016, there was $180,000 of total unrecognized compensation cost related to non-vested stock options. The weighted average period over which the compensation cost is expected to be recognized is 1.8 years.

 

Restricted Stock Awards

 

We issue restricted stock awards to executive officers. Executive officers vest in the restricted stock awards if the Company’s common stock meets certain performance metrics for a specific number of consecutive trading days during the performance period. The shares of common stock subject to the restriction, will vest as to 50% of such shares on the first anniversary date of the performance goal achievement and 50% of such shares on the second anniversary date of the performance goal achievement. The awards will not otherwise vest if the executive officers’ employment with the Company is terminated for any reason during the performance period or terminated for any reason after the attainment of the performance goal but before the restricted stock awards vest. Performance restricted stock awards are valued based on the market value of the shares at the date of grant with the compensation expense recognized over the vesting periods.

 

During the quarter ended March 31, 2016, there were restricted stock awards issued for 99,638 shares with a weighted-average grant date fair value of $2.76.

 

Stock Awards

 

We issue stock awards as a portion of the annual retainer for each director on a quarterly basis. The stock awards are fully vested at the time of issuance. Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on the grant date. During the quarter ended March 31, 2016, there were stock awards issued for 11,039 shares with a weighted-average grant date fair value of $2.65.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
Loss per Common Share
3 Months Ended
Mar. 31, 2016
Net loss per share:  
Loss per Common Share

Note J: Loss per Common Share

 

Net loss per share is computed by dividing net loss by the daily weighted average number of common shares outstanding during the applicable periods. Diluted net loss per share includes the potentially dilutive effect of common shares subject to outstanding stock options using the treasury stock method. Under the treasury stock method, shares subject to certain outstanding stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding. As a result, stock options to acquire 278,500 and 556,989 weighted common shares have been excluded from the diluted weighted shares outstanding for the three-month periods ended March 31, 2016 and 2015, respectively. The potentially dilutive effect of common shares subject to certain outstanding stock options is determined based on net loss. A reconciliation of these amounts is as follows (dollar amounts in thousands except per share data):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Numerator:          
Net loss from continuing operations  $(292)  $(268)
Net loss from discontinued operations  $   $(899)
Net loss  $(292)  $(1,167)
Denominator:          
Weighted average common shares outstanding   5,030    4,999 
Dilutive potential common shares        
Shares used in diluted net loss per common share calculations   5,030    4,999 
Basic net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)   (0.23)
           
Diluted net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)  $(0.23)

  

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Segment Information

Note K: Segment Information 

 

The Company’s Interim Chief Executive Officer and management regularly review financial information for the Company’s discrete operating segments. Based on similarities in the economic characteristics, nature of products and services, production processes, type or class of customer served, method of distribution and regulatory environments, the operating segments have been aggregated for financial statement purposes and categorized into two reportable segments: Intersection and Highway.

 

Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. RTMS is our radar product line, and revenue consists of international and North American product sales as well as a portion of royalties (all of which are received from Econolite). Radar products are normally sold in the Highway segment. Until July 9, 2015, Autoscope license plate recognition was our LPR product line and was the Company’s third operating segment. All segment revenues are derived from external customers.

 

As described in Note B to these Notes to the Condensed Consolidated Financial Statements, effective on July 9, 2015, we sold our LPR business. Therefore, effective on that date, the LPR business qualified for discontinued operations presentation in the Company’s condensed consolidated financial statements, and the results of the discontinued LPR business have been presented as discontinued operations effective with the reporting of financial results for the three months ended September 30, 2015. Financial results for the three months ended March 31, 2016 have been reported on this basis, and previously reported results for the three months ended March 31, 2015 have also been restated to reflect this classification. Therefore, the following tables do not include financial results for the Company’s LPR business segment.

 

Operating expenses and total assets are not allocated to the segments for internal reporting purposes. Due to the changes in how we manage our business, we may reevaluate our segment definitions in the future. 

 

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

 

   Three Months Ended March 31, 
   Intersection   Highway   Total 
   2016   2015   2016   2015   2016   2015 
                               
Revenue  $1,904   $2,161   $1,334   $1,066   $3,238   $3,227 
Gross profit   1,718    2,060    602    580    2,320    2,640 
Amortization of intangible assets               122        122 
Intangible assets   1,811            332    1,811    332 
XML 28 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
Restructuring
3 Months Ended
Mar. 31, 2016
Restructuring Charges [Abstract]  
Restructuring

Note L: Restructuring

 

In the first quarter of 2016, the Company implemented restructuring plans in Canada. Because of these actions, restructuring charges of approximately $126,000 were recorded in the first three months of 2016 related to employee terminations.

 

The following table shows the restructuring activity for the three months ended March 31, 2016 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2016   $   $   $ 
Charges    126        126 
Payments/settlements             
Balance at March 31, 2016   $126   $   $126 

 

In the fourth quarter of 2014, the Company implemented restructuring plans to close our offices in Asia. Because of these actions, restructuring charges of approximately $119,000 were recorded in the first quarter of 2015 related to employee terminations.

 

The following table shows the restructuring activity for the three months ended March 31, 2015 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2015   $190   $26   $216 
Charges    119        119 
Payments/settlements    (295)   (8)   (303)
Balance at March 31, 2015   $14   $18   $32 
XML 29 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note M: Commitments and Contingencies

 

Litigation

 

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with GAAP, we record a liability in our Condensed Consolidated Financial Statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to any currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our results of operations, financial position or cash flows. We expense legal costs as incurred.

 

In addition, on May 5, 2016, Econolite, our exclusive North American manufacturer and distributor, served a complaint on us for a lawsuit filed by Econolite in the Superior Court of the State of California for the County of Orange. The complaint asserts claims against us under the Manufacturing, Distributing and Technology License Agreement, as amended, with Econolite (the “Econolite Agreement”) for breach of contract and breach of implied covenant of good faith and fair dealing and seeks specific performance related to the transition of North American RTMS sales and marketing activities from Econolite to us in July 2014. In the complaint, Econolite requests damages from us in an amount to be proven at trial and seeks certain other remedies. We believe this suit is without merit, and we plan to vigorously defend against it. However, we cannot predict the outcome of this matter at this time or whether it will have a material adverse impact on our business prospects, financial condition, operating results or cash flow.

XML 30 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Revenue Recognition

Revenue Recognition 

We recognize revenue on a sales arrangement when it is realized or realizable and earned, which occurs when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery and title transfer have occurred or services have been rendered; the sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations to the customer have been fulfilled.

 

Certain sales may contain multiple elements for revenue recognition purposes. We consider each deliverable that provides value to the customer on a standalone basis as a separable element. Separable elements in these arrangements may include the hardware, software, installation services, training and support. We initially allocate consideration to each separable element using the relative selling price method. Selling prices are determined by us based on either vendor-specific objective evidence (“VSOE”) (the actual selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, our best estimate of the selling price. Factors considered by us in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by us to provide the deliverable, as well as our historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training may not be considered separable. Under those circumstances, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.

 

Revenue from arrangements for services such as maintenance, repair, consulting and technical support are recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts.

 

Econolite Control Products, Inc. (Econolite) is our licensee that sells certain of our products in the United States, Mexico, Canada and the Caribbean. The royalty of approximately 50% of the gross profit on licensed products is recognized when the products are shipped or delivered by Econolite to its customers.

 

We record provisions against sales revenue for estimated returns and allowances in the period when the related revenue is recorded based on historical sales returns and changes in end user demand.

 

Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Inventories

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or market on the first-in, first-out accounting method.

Income Taxes

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. We recognize penalties and interest expense related to unrecognized tax benefits in income tax expense.

Intangible Assets

Intangible Assets

Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows and reviewed for quarterly impairment. At both March 31, 2016 and December 31, 2015, we determined there was no impairment of intangible assets. At both March 31, 2016 and December 31, 2015, there were no indefinite-lived intangible assets.

 

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials and services and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized software costs, the Company compares expected product performance, utilizing forecasted revenue amounts, to the total costs incurred to date and estimates of additional costs to be incurred. If revised forecasted product revenue is less than, and/or revised forecasted costs are greater than, the previously forecasted amounts, the net realizable value may be lower than previously estimated, which could result in the recognition of an impairment charge in the period in which such a determination is made.

XML 31 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
Divestiture of Automatic License Plate Recognition Business (Tables)
3 Months Ended
Mar. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Schedule of revenue, operating income and net loss from discontinued operations

Revenue, operating income and net loss from discontinued operations were as follows (in thousands):

         
   Three-Month Periods Ended
March 31,
 
   2016   2015 
Net revenue  $   $680 
Operating loss from continuing operations       (899)
Net loss on discontinued operations, net of tax  $   $(899)
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of intangible assets

Intangible assets consisted of the following (dollars in thousands):

 

   March 31, 2016 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900    (3,900)  $     
Software development costs   1,811        1,811     
Total  $5,711   $(3,900)  $1,811     

                 
   December 31, 2015 
               Weighted 
   Gross       Net   Average 
    Carrying    Accumulated    Carrying    Useful Life 
     Amount      Amortization      Value     (in Years) 
Developed technology  $3,900   $(3,900)  $     
Software development costs   1,210        1,210     
   $5,110   $(3,900)  $1,210     
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
Warranties (Tables)
3 Months Ended
Mar. 31, 2016
Product Warranties Disclosures [Abstract]  
Schedule of warranty liability and related activity

Warranty liability and related activity consisted of the following (in thousands):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Beginning balance  $760   $824 
Warranty provisions   71    44 
Warranty claims   (95)   (86)
Adjustments to preexisting warranties   24    (25)
Ending balance  $760   $757 
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of stock option activity

A summary of the option activity for the first three months of 2016 is as follows:

                  
    Number of
Shares
   Weighted
Average
Exercise
Price per
Share
   Weighted
Average
Remaining Contractual
Term (in years)
   Aggregate
Intrinsic
Value
 
Options outstanding at December 31, 2015    307,750   $5.96    6.3   $46 
Granted       $       $ 
Exercised        $       $ 
Expired       $       $ 
Forfeited    (4,250)  $7.78       $ 
                      
Options outstanding at March 31, 2016    303,500   $5.93    6.1   $3 
Options exercisable at March 31, 2016    198,625   $6.43    5.2   $2 

 

XML 35 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
Loss per Common Share (Tables)
3 Months Ended
Mar. 31, 2016
Net loss per share:  
Schedule of reconciliation of earnings per share

A reconciliation of these amounts is as follows (dollar amounts in thousands except per share data):

 

   Three-Month Periods Ended
March 31,
 
   2016   2015 
Numerator:          
Net loss from continuing operations  $(292)  $(268)
Net loss from discontinued operations  $   $(899)
Net loss  $(292)  $(1,167)
Denominator:          
Weighted average common shares outstanding   5,030    4,999 
Dilutive potential common shares        
Shares used in diluted net loss per common share calculations   5,030    4,999 
Basic net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)   (0.23)
           
Diluted net loss per common share          
Continuing operations  $(0.06)  $(0.05)
Discontinued operations  $   $(0.18)
Net basic earnings per share  $(0.06)  $(0.23)
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information (Tables)
3 Months Ended
Mar. 31, 2016
Segment Reporting [Abstract]  
Schedule of financial information by reportable segment

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

 

   Three Months Ended March 31, 
   Intersection   Highway   Total 
   2016   2015   2016   2015   2016   2015 
                               
Revenue  $1,904   $2,161   $1,334   $1,066   $3,238   $3,227 
Gross profit   1,718    2,060    602    580    2,320    2,640 
Amortization of intangible assets               122        122 
Intangible assets   1,811            332    1,811    332 
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
Restructuring (Tables)
3 Months Ended
Mar. 31, 2016
Restructuring Charges [Abstract]  
Schedule of restructuring activity

The following table shows the restructuring activity for the three months ended March 31, 2016 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2016   $   $   $ 
Charges    126        126 
Payments/settlements             
Balance at March 31, 2016   $126   $   $126 

 

The following table shows the restructuring activity for the three months ended March 31, 2015 (in thousands):

 

        Facility Costs     
    Termination   and Contract     
    Benefits   Termination   Total 
                 
Balance at January 1, 2015   $190   $26   $216 
Charges    119        119 
Payments/settlements    (295)   (8)   (303)
Balance at March 31, 2015   $14   $18   $32 
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
Basis of Presentation (Details Narrative)
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Royalty percentage of gross profit on licensed products 50.00%
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
Divestiture of Automatic License Plate Recognition Business (Details Narrative) - USD ($)
$ in Thousands
Jul. 09, 2015
Mar. 31, 2016
Dec. 31, 2015
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]      
Discontinued operations assets   $ 420 $ 420
License Plate Recognition (TagMaster AB) [Member]      
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]      
Cash consideration from sale of business $ 4,200    
Net proceeds from sale of business $ 3,800    
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
Divestiture of Automatic License Plate Recognition Business (Details) - License Plate Recognition (TagMaster AB) [Member]
$ in Thousands
3 Months Ended
Mar. 31, 2015
USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]  
Net revenue $ 680
Operating loss from continuing operations (899)
Net loss on discontinued operations, net of tax $ (899)
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories (Details Narrative) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Inventory Disclosure [Abstract]    
Finished goods $ 375 $ 648
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 5,711 $ 5,110
Accumulated Amortization (3,900) (3,900)
Net Carrying Value 1,811 1,210
Developed Technology [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 3,900 3,900
Accumulated Amortization (3,900) (3,900)
Computer Software Intangible Asset [Member]    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 1,811 1,210
Net Carrying Value $ 1,811 $ 1,210
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.4.0.3
Credit Facilities (Details Narrative) - Alliance Credit Agreement [Member] - USD ($)
$ in Thousands
3 Months Ended
May. 12, 2014
Mar. 31, 2016
Maxiumum borrowing line of credit capacity $ 5,000  
Interest rate 3.95%  
Description of collateral  
Inventories, accounts receivable, cash, marketable securities, and equipment
Expiration Apr. 01, 2016 May 12, 2017
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.4.0.3
Warranties (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Product Warranties Disclosures [Abstract]    
Beginning balance $ 760 $ 824
Warranty provisions 71 44
Warranty claims (95) (86)
Adjustments to preexisting warranties 24 (25)
Ending balance $ 760 $ 757
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Stock-based compensation expense $ 59 $ 75
Shares available for grant 267,126  
Unrecognized compensation cost related to non-vested stock options $ 180  
Period for recognition of unrecognized compensation cost related to non-vested stock options 1 year 9 months 18 days  
Restricted Stock Awards [Member]    
Vesting rights description of stock awards granted will vest as to 50% of such shares on the first anniversary date of the performance goal achievement and 50% of such shares on the second anniversary date of the performance goal achievement  
Stock awards granted 99,638  
Stock awards, weighted average grant date fair value $ 2.76  
Stock Awards [Member]    
Stock awards granted 11,039  
Stock awards, weighted average grant date fair value $ 2.65  
Minimum [Member]    
Stock option awards, vesting term 3 years  
Stock option awards, contractual term 9 years  
Percentage of vesting shares 90.00%  
Maximum [Member]    
Stock option awards, vesting term 5 years  
Stock option awards, contractual term 10 years  
Percentage of vesting shares 100.00%  
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Number of Shares    
Outstanding - beginning of period 307,750  
Forfeited (4,250)  
Outstanding - end of period 303,500 307,750
Exercisable - end of period 198,625  
Weighted Average Exercise Price    
Outstanding - beginning of period $ 5.96  
Forfeited 7.78  
Outstanding - end of period 5.93 $ 5.96
Exercisable - end of period $ 6.43  
Weighted Average Remaining Contractual Term    
Outstanding 6 years 1 month 6 days 6 years 3 months 18 days
Options exercisable 5 years 2 months 12 days  
Aggregate Intrinsic Value    
Outstanding - beginning of period $ 46  
Outstanding - end of period 3 $ 46
Exercisable - end of period $ 2  
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.4.0.3
Loss per Common Share (Details Narrative) - shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net loss per share:    
Shares excluded from diluted weighted shares outstanding 278,500 556,989
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.4.0.3
Loss per Common Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Numerator:    
Net loss from continuing operations $ (292) $ (268)
Net loss from discontinued operations   (899)
Net loss $ (292) $ (1,167)
Denominator:    
Weighted average common shares outstanding 5,030,000 4,999,000
Shares used in diluted net loss per common share calculations 5,030,000 4,999,000
Basic net loss per common share    
Continuing operations $ (0.06) $ (0.05)
Discontinued operations   (0.18)
Net basic earnings per share (0.06) (0.23)
Diluted net loss per common share    
Continuing operations (0.06) (0.05)
Discontinued operations   (0.18)
Net basic earnings per share $ (0.06) $ (0.23)
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.4.0.3
Segment Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting Information [Line Items]    
Revenue $ 3,238 $ 3,227
Gross profit 2,320 2,640
Amortization of intangible assets   122
Intangible assets 1,811 332
Intersection [Member]    
Segment Reporting Information [Line Items]    
Revenue 1,904 2,161
Gross profit 1,718 2,060
Intangible assets 1,811  
Highway [Member]    
Segment Reporting Information [Line Items]    
Revenue 1,334 1,066
Gross profit $ 602 580
Amortization of intangible assets   122
Intangible assets   $ 332
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.4.0.3
Restructuring (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Restructuring Charges [Abstract]    
Restructuring charges related to facility closures $ 126 $ 119
XML 51 R41.htm IDEA: XBRL DOCUMENT v3.4.0.3
Restructuring (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Restructuring Reserve [Roll Forward]    
Balance at beginning of period   $ 216
Charges $ 126 119
Payments/Settlements   (303)
Balance at end of period 126 32
Termination Benefits [Member]    
Restructuring Reserve [Roll Forward]    
Balance at beginning of period   190
Charges 126 119
Payments/Settlements   (295)
Balance at end of period $ 126 14
Facility Costs And Contract Termination [Member]    
Restructuring Reserve [Roll Forward]    
Balance at beginning of period   26
Payments/Settlements   (8)
Balance at end of period   $ 18
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