Image Sensing Systems Inc. (ISNS, Financial) filed Quarterly Report for the period ended 2009-09-30.
Image Sensing Systems Inc. develops and markets products using video image processing technology for use in advanced traffic management systems and traffic data collection to reduce congestion and improve roadway planning. Also known as machine vision or artificial vision, video image processing uses video cameras and computers to emulate the function of the human eye and is used in a variety of industrial applications. ISS has also created a system that collects, processes, and analyzes video images. Image Sensing Systems Inc. has a market cap of $51.8 million; its shares were traded at around $13 with a P/E ratio of 11.6 and P/S ratio of 1.9. Image Sensing Systems Inc. had an annual average earning growth of 5.4% over the past 5 years.
General and administrative expense decreased to $796,000, or 11.7% of total revenue, in the three months ended September 30, 2009, from $980,000, or 16.1% of total revenue, in the same period in 2008, and to $2.6 million, or 14.4% of total revenue, in the first nine months of 2009, from $2.9 million, or 15.4% of total revenue, in the same period in 2008. The 2009 decrease in costs resulted mainly from lower incentive pay expense and foreign currency transaction gains which were partially offset by increased professional services expenses. Additionally, in 2008 we expensed $221,000 related to our withdrawn stock offering. We anticipate that for the fourth quarter of 2009, the dollar amount of our general and administrative expense will be slightly higher than those of the 2009 third quarter.
Income tax expense was $426,000, or 21.5% of pretax income, in the third quarter of 2009, compared to $486,000, or 29.5% of pretax income, in the comparable quarter of 2008, and was $1.0 million, or 25.2% of pretax income, in the first nine months of 2009, compared to $1.5 million, or 31.0% of pretax income, in the comparable period of 2008. The 2009 effective rate was positively impacted by the realization of $236,000 in foreign tax credits whose status was uncertain prior to the third quarter of 2009. We anticipate an effective tax rate below 30% for all of 2009.
At September 30, 2009, we had $7.9 million in cash and cash equivalents and $3.9 million in short-term investments, compared to $10.3 million in cash and cash equivalents and $4.0 million in short-term investments at December 31, 2008. Our investments held at December 31, 2008 were auction rate securities that were redeemed at par in January 2009.
Net cash provided by operating activities was $2.9 million in the first nine months of 2009, compared to $3.3 million in 2008. The decrease in 2009 versus 2008 was mainly a result of lower net income. We anticipate that average receivable collection days in 2009 will increase over 2008 but that the increase will not have a material impact on our liquidity. Our planned additions of property and equipment are discretionary, and we do not expect them to significantly exceed historical levels in 2009. In addition to equipment purchases, in 2009 we paid our 2008 earn-out liability of $1.2 million to the sellers of the EIS assets. We also retired our bank debt in full in February 2009, paying a total of $3.75 million during the quarter ended March 31, 2009.
In conjunction with our EIS asset purchase, the sellers have an earn-out arrangement over approximately three years from the December 2007 date of purchase. The earn-out is based on earnings from RTMS sales less related cost of revenue and operating expenses, depreciation and amortization, and it is calculated annually. If the earnings are at target levels, the sellers would receive $2.0 million annually, or $6.0 million in total. Superior performance of the assets could lead to an earn-out in excess of $2 million, as the earn-out is not capped. Earn-out payments generally are due within three months of the end of an earn-out period. The first earn-out period ran from December 6, 2007 to December 31, 2008. Based on the results for RTMS for the first earn-out period, which ended December 31, 2008, the sellers of the EIS assets were entitled to receive a $1.2 million earn-out payment, which was paid in March and April 2009. Based on results through September 30, 2009, it appears likely that the sellers will be entitled to an earn-out for the second earn-out period, which runs from January 1, 2009 to December 31, 2009, although this contingency will not be determinable and payable until December 31, 2009. If we are acquired or sell substantially all of our assets before December 6, 2010, we must pay EIS $6.0 million less earn-out amounts previously paid as an acceleration of potential earn-out payments under the EIS asset purchase agreement.
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Image Sensing Systems Inc. develops and markets products using video image processing technology for use in advanced traffic management systems and traffic data collection to reduce congestion and improve roadway planning. Also known as machine vision or artificial vision, video image processing uses video cameras and computers to emulate the function of the human eye and is used in a variety of industrial applications. ISS has also created a system that collects, processes, and analyzes video images. Image Sensing Systems Inc. has a market cap of $51.8 million; its shares were traded at around $13 with a P/E ratio of 11.6 and P/S ratio of 1.9. Image Sensing Systems Inc. had an annual average earning growth of 5.4% over the past 5 years.
Highlight of Business Operations:
Total revenue increased to $6.8 million in the three-month period ended September 30, 2009 from $6.1 million in the same period in 2008, an increase of 12.2%, and decreased to $17.9 million in the first nine months of 2009 from $18.7 million in the same period in 2008, a decrease of 4.3%. Royalties decreased to $3.4 million in the third quarter of 2009 from $3.7 million in same period in 2008, a 9.4% decrease, and they decreased to $9.1 million in the first nine months of 2009 from $10.0 million in the same period in 2008, also a decrease of 9.4%. We attribute the decrease in royalties to the economic recession in North America and its negative impact on state and federal spending. North American sales, which are sales of RTMS in North America, increased to $1.7 million in the third quarter of 2009 from $920,000 in the same period in 2008, an increase of 82.5%, and to $4.7 million in the first nine months of 2009 from $4.5 million in the same period in 2008, an increase of 5.8%, also reflecting the difficult economic environment in North America which was first evident for RTMS in the 2008 third quarter. International sales, which include both Autoscope and RTMS sales outside of North America, increased to $1.8 million in the third quarter of 2009 from $1.4 million in the third quarter of 2008, an increase of 23.6%, and decreased to $4.1 million in the first nine months of 2009 from $4.2 million in the first nine months of 2008, a decrease of 3.0%. The nine month decrease was due mainly to weakness in the Asian market in the first half of 2009.General and administrative expense decreased to $796,000, or 11.7% of total revenue, in the three months ended September 30, 2009, from $980,000, or 16.1% of total revenue, in the same period in 2008, and to $2.6 million, or 14.4% of total revenue, in the first nine months of 2009, from $2.9 million, or 15.4% of total revenue, in the same period in 2008. The 2009 decrease in costs resulted mainly from lower incentive pay expense and foreign currency transaction gains which were partially offset by increased professional services expenses. Additionally, in 2008 we expensed $221,000 related to our withdrawn stock offering. We anticipate that for the fourth quarter of 2009, the dollar amount of our general and administrative expense will be slightly higher than those of the 2009 third quarter.
Income tax expense was $426,000, or 21.5% of pretax income, in the third quarter of 2009, compared to $486,000, or 29.5% of pretax income, in the comparable quarter of 2008, and was $1.0 million, or 25.2% of pretax income, in the first nine months of 2009, compared to $1.5 million, or 31.0% of pretax income, in the comparable period of 2008. The 2009 effective rate was positively impacted by the realization of $236,000 in foreign tax credits whose status was uncertain prior to the third quarter of 2009. We anticipate an effective tax rate below 30% for all of 2009.
At September 30, 2009, we had $7.9 million in cash and cash equivalents and $3.9 million in short-term investments, compared to $10.3 million in cash and cash equivalents and $4.0 million in short-term investments at December 31, 2008. Our investments held at December 31, 2008 were auction rate securities that were redeemed at par in January 2009.
Net cash provided by operating activities was $2.9 million in the first nine months of 2009, compared to $3.3 million in 2008. The decrease in 2009 versus 2008 was mainly a result of lower net income. We anticipate that average receivable collection days in 2009 will increase over 2008 but that the increase will not have a material impact on our liquidity. Our planned additions of property and equipment are discretionary, and we do not expect them to significantly exceed historical levels in 2009. In addition to equipment purchases, in 2009 we paid our 2008 earn-out liability of $1.2 million to the sellers of the EIS assets. We also retired our bank debt in full in February 2009, paying a total of $3.75 million during the quarter ended March 31, 2009.
In conjunction with our EIS asset purchase, the sellers have an earn-out arrangement over approximately three years from the December 2007 date of purchase. The earn-out is based on earnings from RTMS sales less related cost of revenue and operating expenses, depreciation and amortization, and it is calculated annually. If the earnings are at target levels, the sellers would receive $2.0 million annually, or $6.0 million in total. Superior performance of the assets could lead to an earn-out in excess of $2 million, as the earn-out is not capped. Earn-out payments generally are due within three months of the end of an earn-out period. The first earn-out period ran from December 6, 2007 to December 31, 2008. Based on the results for RTMS for the first earn-out period, which ended December 31, 2008, the sellers of the EIS assets were entitled to receive a $1.2 million earn-out payment, which was paid in March and April 2009. Based on results through September 30, 2009, it appears likely that the sellers will be entitled to an earn-out for the second earn-out period, which runs from January 1, 2009 to December 31, 2009, although this contingency will not be determinable and payable until December 31, 2009. If we are acquired or sell substantially all of our assets before December 6, 2010, we must pay EIS $6.0 million less earn-out amounts previously paid as an acceleration of potential earn-out payments under the EIS asset purchase agreement.
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