SEC Company Response from IMAGE SENSING SYSTEMS INC (AATC) (CIK 0000943034) (AATC) — Jun 9, 2005
IMAGE SENSING SYSTEMS INC (AATC) (CIK 0000943034)
Date: June 9, 2005 · CIK: 0000943034 · Accession: 0000897101-05-001401
AI Filing Summary & Sentiment
File numbers found in text: 000-26056
Referenced dates: May 4, 2005
Letter
June 9, 2005 VIA EDGAR SUBMISSION -------------------- Mr. Jay Webb Securities and Exchange Commission Division of Corporation Finance Judiciary Plaza, Mail Stop 0306 450 Fifth Street NW Washington DC, 20549
Re: Image Sensing Systems, Inc. Form 10-KSB for Fiscal Year Ended December 31, 2004 File No. 000-26056
Dear Mr. Webb:
Under cover of this letter, Dorsey & Whitney LLP, counsel to Image Sensing Systems, Inc. (the "Company"), is transmitting a letter responding to the comments received by the Company from you on behalf of the Division of Corporation Finance of the Securities and Exchange Commission (the "Commission"), in a letter dated May 4, 2005 (the "Comment Letter"). As requested in the Comment Letter, the Company hereby acknowledges the following statements:
o The Company is responsible for the adequacy and accuracy of the disclosure in its filings;
o Staff comments, and changes made to the Company's disclosure in its filings in response to staff comments, do not foreclose the Commission from taking any action with respect to the Company's filings; and
o The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
If you have any questions regarding the above, please contact the undersigned at (651) 603-7721.
Very truly yours,
/s/ Arthur J. Bourgeois
Arthur J. Bourgeois Chief Financial Officer <PAGE>
[Dorsey & Whitney Letterhead]
AMY L. SCHNEIDER Associate (612) 340-2971 FAX (612) 340-8738 schneider.amy@dorsey.com
June 9, 2005
VIA EDGAR SUBMISSION --------------------
Mr. Jay Webb Securities and Exchange Commission Division of Corporation Finance Judiciary Plaza, Mail Stop 0306 450 Fifth Street NW Washington DC, 20549
Re: Image Sensing Systems, Inc. Form 10-KSB for Fiscal Year Ended December 31, 2004 File No. 000-26056
Dear Mr. Webb:
On behalf of Image Sensing Systems, Inc., a Minnesota corporation (the "Company"), this letter responds to the comments received from you on behalf of the Division of Corporation Finance of the Securities and Exchange Commission (the "Commission"), in a letter dated May 4, 2005 (the "Comment Letter"). For ease of reference in this letter, the Commission's comments contained in the Comment Letter appear directly above the Company's response.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004
General -------
1. Comment:
PLEASE EXPLAIN WHETHER YOU ARE AN INVESTMENT COMPANY UNDER SECTION 3(A)(1)(C) OF THE INVESTMENT COMPANY ACT OF 1940 ("INVESTMENT COMPANY ACT"). PLEASE EXPLAIN HOW YOU HAVE MADE THIS DETERMINATION AND PROVIDE DATA INDICATING THE VALUE OF YOUR "INVESTMENT SECURITIES" AND TOTAL ASSETS ON AN UNCONSOLIDATED BASIS AS OF THE FISCAL YEAR ENDED DECEMBER 31, 2004.
RESPONSE:
Subsequent to December 31, 2004, the Company disposed of certain auction rate securities that are not excludable under the Investment Company Act of 1940 "statistical test" for investment company status. The Company does not believe it is an investment company under Section 3(a)(1)(C) of the Investment Company Act of 1940. Attached as Exhibit A to this letter is a pro forma balance sheet of Image Sensing Systems, Inc. (on an unconsolidated basis) as of
<PAGE>
Securities and Exchange Commission June 9, 2005 Page 2
June 8, 2005. Attached as Exhibit B to this letter are the calculations used by the Company in concluding that it is not an investment company under Section 3(a)(1)(C) of the Investment Company Act of 1940. As set forth in Exhibit B, less than 40% of the Company's "total assets" for Section 3(a)(1)(C) purposes are in the form of investment securities.
2. Comment:
IF YOU ARE AN INVESTMENT COMPANY UNDER SECTION 3(A)(1)(C), PLEASE EXPLAIN HOW YOU ARE IN COMPLIANCE WITH THE INVESTMENT COMPANY ACT. FOR EXAMPLE, PLEASE EXPLAIN FULLY WHETHER YOU CAN RELY ON RULE 3A-1 OF THE INVESTMENT COMPANY ACT.
RESPONSE:
Please see the Company's response provided to Comment 1.
Item 7. Financial Statements - Page 15 --------------------------------------
Consolidated Statements of Shareholders' Equity - Page 18 ---------------------------------------------------------
3. Comment:
WE NOTED IN FISCAL 2004 YOU RECORDED A $653,000 INCREASE TO ADDITIONAL PAID-IN CAPITAL AS THE RESULT OF A DISQUALIFYING TAX DISPOSITION. WHAT DO YOU MEAN BY DISQUALIFYING TAX DISPOSITION? DOES THIS RELATE TO OPTION GRANTS OR CANCELLATIONS? SUPPLEMENTALLY, PLEASE TELL US WHY THE ACCOUNTING AND PRESENTATION OF THIS AMOUNT IN YOUR FINANCIAL STATEMENTS IS CORRECT. CITE THE ACCOUNTING GUIDANCE UPON WHICH YOU RELIED. IN FUTURE FILINGS MATERIAL TAX TRANSACTIONS SHOULD BE DISCUSSED AND EXPLAINED IN THE FOOTNOTES TO YOUR FINANCIAL STATEMENTS AND IN YOUR MD&A.
RESPONSE:
The Company realizes an income tax benefit from the exercise or early disposition of certain stock options. This benefit results in a decrease in current income taxes payable and an increase in additional paid-in capital. This benefit has been titled "Tax benefit from disqualifying disposition" in the Consolidated Statements of Shareholders' Equity. The accounting guidance we have relied on is paragraph 17 of APB 25, Accounting for Stock Issued to Employees, which states that "The remainder of the tax reduction should not be included in income but should be added to capital in addition to par or stated value of capital stock in the period of the tax reduction." The classification of this item in the Consolidated Statement of Cash Flows is supported by guidance in EITF 00-15.
As requested, in future filings the Company will discuss and explain in footnotes to its financial statements and in its "Management Discussion and Analysis" material tax transactions.
<PAGE>
Securities and Exchange Commission June 9, 2005 Page 3
In addition, we will title this item "Tax benefit from stock option exercise" in our Consolidated Statements of Shareholders Equity and the Consolidated Statement of Cash Flows.
1. Description of Business and Significant Accounting Policies - Page 19 ------------------------------------------------------------------------
Investments - Page 19 ---------------------
4. Comment:
WE SEE THAT YOU HAVE SIGNIFICANT INVESTMENTS IN A "DIVERSIFIED PORTFOLIO OF AUCTION RATE SECURITIES". ACCORDINGLY, ALL DISCLOSURES REQUIRED BY SFAS 115 SHOULD BE INCLUDED. FOR EXAMPLE, IN FUTURE FILINGS, YOU SHOULD DETAIL YOUR INVESTMENTS BY MAJOR SECURITY TYPE AS REQUIRED BY PARAGRAPH 19 AND SEPARATELY PRESENT GROSS REALIZED GAINS AND LOSSES THAT HAVE BEEN INCLUDED IN EARNINGS AS REQUIRED BY PARAGRAPH 21 TO HELP INVESTORS BETTER UNDERSTAND YOUR INVESTMENT STRATEGY.
RESPONSE:
At December 31, 2004 and 2003, the entire balance of Short Term Investments consisted of auction rate securities that matured in less than 35 days. We have disclosed that the cost of these investments were equal to fair value and no amount was included as a separate component of shareholders' equity.
As requested, in future filings the Company will include all disclosures required by SFAS 115 relating to its auction rate securities, including detailing its investments by major security type and separately presenting gross realized gains and losses that have been included in earnings.
Item 8A. Controls and Procedures - Page 27 ------------------------------------------
5. Comment:
WE NOTE YOUR STATEMENT THAT YOUR CHIEF EXECUTIVE OFFICER AND YOUR CHIEF FINANCIAL OFFICER HAVE CONCLUDED THAT YOUR "CONTROLS AND PROCEDURES WERE ADEQUATELY DESIGNED TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY US IN REPORTS WE FILE... IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS SPECIFIED IN APPLICABLE RULES AND FORMS". IT DOES NOT APPEAR THAT YOUR CERTIFYING OFFICERS HAVE REACHED A CONCLUSION THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE EFFECTIVE. PLEASE REVISE FUTURE FILINGS TO ADDRESS YOUR OFFICERS' CONCLUSIONS REGARDING THE EFFECTIVENESS OF YOUR DISCLOSURE CONTROLS AND PROCEDURES.
RESPONSE:
As requested, in future filings the Company will revise its "Controls and Procedures" disclosure to reflect the Commission's comment. <PAGE>
Securities and Exchange Commission June 9, 2005 Page 4
For your convenience, we are sending to your attention three courtesy copies of this letter. If you have any questions regarding this letter, please feel free to contact me at (612) 340-2971.
Sincerely,
/s/ Amy L. Schneider
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
[Image Sensing Systems, Inc. Letterhead]
June 9, 2005
VIA EDGAR SUBMISSION
--------------------
Mr. Jay Webb
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza, Mail Stop 0306
450 Fifth Street NW
Washington DC, 20549
Re: Image Sensing Systems, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
File No. 000-26056
Dear Mr. Webb:
Under cover of this letter, Dorsey & Whitney LLP, counsel to Image
Sensing Systems, Inc. (the "Company"), is transmitting a letter responding to
the comments received by the Company from you on behalf of the Division of
Corporation Finance of the Securities and Exchange Commission (the
"Commission"), in a letter dated May 4, 2005 (the "Comment Letter"). As
requested in the Comment Letter, the Company hereby acknowledges the following
statements:
o The Company is responsible for the adequacy and accuracy of
the disclosure in its filings;
o Staff comments, and changes made to the Company's disclosure
in its filings in response to staff comments, do not foreclose
the Commission from taking any action with respect to the
Company's filings; and
o The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you have any questions regarding the above, please contact the
undersigned at (651) 603-7721.
Very truly yours,
/s/ Arthur J. Bourgeois
Arthur J. Bourgeois
Chief Financial Officer
<PAGE>
[Dorsey & Whitney Letterhead]
AMY L. SCHNEIDER
Associate
(612) 340-2971
FAX (612) 340-8738
schneider.amy@dorsey.com
June 9, 2005
VIA EDGAR SUBMISSION
--------------------
Mr. Jay Webb
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza, Mail Stop 0306
450 Fifth Street NW
Washington DC, 20549
Re: Image Sensing Systems, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
File No. 000-26056
Dear Mr. Webb:
On behalf of Image Sensing Systems, Inc., a Minnesota corporation (the
"Company"), this letter responds to the comments received from you on behalf of
the Division of Corporation Finance of the Securities and Exchange Commission
(the "Commission"), in a letter dated May 4, 2005 (the "Comment Letter"). For
ease of reference in this letter, the Commission's comments contained in the
Comment Letter appear directly above the Company's response.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004
General
-------
1. Comment:
PLEASE EXPLAIN WHETHER YOU ARE AN INVESTMENT COMPANY UNDER SECTION
3(A)(1)(C) OF THE INVESTMENT COMPANY ACT OF 1940 ("INVESTMENT COMPANY ACT").
PLEASE EXPLAIN HOW YOU HAVE MADE THIS DETERMINATION AND PROVIDE DATA INDICATING
THE VALUE OF YOUR "INVESTMENT SECURITIES" AND TOTAL ASSETS ON AN UNCONSOLIDATED
BASIS AS OF THE FISCAL YEAR ENDED DECEMBER 31, 2004.
RESPONSE:
Subsequent to December 31, 2004, the Company disposed of certain
auction rate securities that are not excludable under the Investment Company Act
of 1940 "statistical test" for investment company status. The Company does not
believe it is an investment company under Section 3(a)(1)(C) of the Investment
Company Act of 1940. Attached as Exhibit A to this letter is a pro forma balance
sheet of Image Sensing Systems, Inc. (on an unconsolidated basis) as of
<PAGE>
Securities and Exchange Commission
June 9, 2005
Page 2
June 8, 2005. Attached as Exhibit B to this letter are the calculations used by
the Company in concluding that it is not an investment company under Section
3(a)(1)(C) of the Investment Company Act of 1940. As set forth in Exhibit B,
less than 40% of the Company's "total assets" for Section 3(a)(1)(C) purposes
are in the form of investment securities.
2. Comment:
IF YOU ARE AN INVESTMENT COMPANY UNDER SECTION 3(A)(1)(C), PLEASE
EXPLAIN HOW YOU ARE IN COMPLIANCE WITH THE INVESTMENT COMPANY ACT. FOR EXAMPLE,
PLEASE EXPLAIN FULLY WHETHER YOU CAN RELY ON RULE 3A-1 OF THE INVESTMENT COMPANY
ACT.
RESPONSE:
Please see the Company's response provided to Comment 1.
Item 7. Financial Statements - Page 15
--------------------------------------
Consolidated Statements of Shareholders' Equity - Page 18
---------------------------------------------------------
3. Comment:
WE NOTED IN FISCAL 2004 YOU RECORDED A $653,000 INCREASE TO ADDITIONAL
PAID-IN CAPITAL AS THE RESULT OF A DISQUALIFYING TAX DISPOSITION. WHAT DO YOU
MEAN BY DISQUALIFYING TAX DISPOSITION? DOES THIS RELATE TO OPTION GRANTS OR
CANCELLATIONS? SUPPLEMENTALLY, PLEASE TELL US WHY THE ACCOUNTING AND
PRESENTATION OF THIS AMOUNT IN YOUR FINANCIAL STATEMENTS IS CORRECT. CITE THE
ACCOUNTING GUIDANCE UPON WHICH YOU RELIED. IN FUTURE FILINGS MATERIAL TAX
TRANSACTIONS SHOULD BE DISCUSSED AND EXPLAINED IN THE FOOTNOTES TO YOUR
FINANCIAL STATEMENTS AND IN YOUR MD&A.
RESPONSE:
The Company realizes an income tax benefit from the exercise or early
disposition of certain stock options. This benefit results in a decrease in
current income taxes payable and an increase in additional paid-in capital. This
benefit has been titled "Tax benefit from disqualifying disposition" in the
Consolidated Statements of Shareholders' Equity. The accounting guidance we have
relied on is paragraph 17 of APB 25, Accounting for Stock Issued to Employees,
which states that "The remainder of the tax reduction should not be included in
income but should be added to capital in addition to par or stated value of
capital stock in the period of the tax reduction." The classification of this
item in the Consolidated Statement of Cash Flows is supported by guidance in
EITF 00-15.
As requested, in future filings the Company will discuss and explain in
footnotes to its financial statements and in its "Management Discussion and
Analysis" material tax transactions.
<PAGE>
Securities and Exchange Commission
June 9, 2005
Page 3
In addition, we will title this item "Tax benefit from stock option exercise" in
our Consolidated Statements of Shareholders Equity and the Consolidated
Statement of Cash Flows.
1. Description of Business and Significant Accounting Policies - Page 19
------------------------------------------------------------------------
Investments - Page 19
---------------------
4. Comment:
WE SEE THAT YOU HAVE SIGNIFICANT INVESTMENTS IN A "DIVERSIFIED
PORTFOLIO OF AUCTION RATE SECURITIES". ACCORDINGLY, ALL DISCLOSURES REQUIRED BY
SFAS 115 SHOULD BE INCLUDED. FOR EXAMPLE, IN FUTURE FILINGS, YOU SHOULD DETAIL
YOUR INVESTMENTS BY MAJOR SECURITY TYPE AS REQUIRED BY PARAGRAPH 19 AND
SEPARATELY PRESENT GROSS REALIZED GAINS AND LOSSES THAT HAVE BEEN INCLUDED IN
EARNINGS AS REQUIRED BY PARAGRAPH 21 TO HELP INVESTORS BETTER UNDERSTAND YOUR
INVESTMENT STRATEGY.
RESPONSE:
At December 31, 2004 and 2003, the entire balance of Short Term
Investments consisted of auction rate securities that matured in less than 35
days. We have disclosed that the cost of these investments were equal to fair
value and no amount was included as a separate component of shareholders'
equity.
As requested, in future filings the Company will include all
disclosures required by SFAS 115 relating to its auction rate securities,
including detailing its investments by major security type and separately
presenting gross realized gains and losses that have been included in earnings.
Item 8A. Controls and Procedures - Page 27
------------------------------------------
5. Comment:
WE NOTE YOUR STATEMENT THAT YOUR CHIEF EXECUTIVE OFFICER AND YOUR CHIEF
FINANCIAL OFFICER HAVE CONCLUDED THAT YOUR "CONTROLS AND PROCEDURES WERE
ADEQUATELY DESIGNED TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY US IN
REPORTS WE FILE... IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE
TIME PERIODS SPECIFIED IN APPLICABLE RULES AND FORMS". IT DOES NOT APPEAR THAT
YOUR CERTIFYING OFFICERS HAVE REACHED A CONCLUSION THAT YOUR DISCLOSURE CONTROLS
AND PROCEDURES ARE EFFECTIVE. PLEASE REVISE FUTURE FILINGS TO ADDRESS YOUR
OFFICERS' CONCLUSIONS REGARDING THE EFFECTIVENESS OF YOUR DISCLOSURE CONTROLS
AND PROCEDURES.
RESPONSE:
As requested, in future filings the Company will revise its "Controls
and Procedures" disclosure to reflect the Commission's comment.
<PAGE>
Securities and Exchange Commission
June 9, 2005
Page 4
For your convenience, we are sending to your attention three courtesy
copies of this letter. If you have any questions regarding this letter, please
feel free to contact me at (612) 340-2971.
Sincerely,
/s/ Amy L. Schneider
Amy L. Schneider
cc: Arthur J. Bourgeois, Image Sensing Systems, Inc.
<PAGE>
EXHIBIT A
IMAGE SENSING SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 8, 2005
Expected
balance as of
6/8/2005
-------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 4,305,157
Short term investments(1) 2,450,000
Investments in callable FHLB bonds 2,300,000
Accounts receivable 2,136,706
Intercompany receivable-FTL 67,265
Intercompany receivable (payable)-Europe (57,471)
Inventories 513,942
Prepaid expenses 59,396
Deferred taxes-current 49,000
------------
Total current assets 11,823,995
PROPERTY AND EQUIPMENT:
Furniture and fixtures 211,888
Equipment 753,415
------------
965,303
Accumulated depreciation 838,429
------------
126,874
OTHER ASSETS
Investment in Flow Traffic, net 1,218,389
Investment in ISS/Europe 326
Investment in T.P.C. -
Capitalized software, net 312,565
------------
1,531,280
------------
TOTAL ASSETS $ 13,482,149
============
----------
(1) Note: The short term investments balance listed is the actual balance
as of June 8, 2005.
A-1
<PAGE>
Expected
balance as of
LIABILITIES & SHAREHOLDERS' EQUITY 6/8/2005
---------------------------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 559,159
Accrued expenses 190,787
Warranty reserve 29,893
Income taxes payable (prepaid) 373,611
Deferred income 55,600
------------
Total current liabilities 1,209,050
DEFERRED INCOME TAXES 144,000
LONG TERM DEBT
SHAREHOLDERS' EQUITY:
Common stock 35,475
Paid in capital 6,591,152
Retained earnings - prior 4,633,655
Net income - current year 868,817
------------
Total shareholders' equity 12,129,099
------------
------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 13,482,149
============
A-2
<PAGE>
EXHIBIT B
INVESTMENT COMPANY ACT OF 1940
"STATISTICAL TEST" FOR INVESTMENT COMPANY STATUS
SECTION 3(a)(1)(C) PRO FORMA BALANCE SHEET (ASSETS ONLY) OF
-----------------------------------------------------------
IMAGE SENSING SYSTEM, INC. (ON AN UNCONSOLIDATED BASIS)
-------------------------------------------------------
<TABLE>
<S> <C> <C>
Value of all assets which are not securities, excluding "cash items"(1):
Accounts receivable $ 2,136,706
Intercompany receivable-FTL 67,265
Intercompany receivable (payable)-Europe (57,471)
Inventories 513,942
Prepaid expenses 59,396
Deferred taxes-current 49,000
Property and equipment 126,874
Capitalized software, net 312,565
------------
3,208,277
============
Value of securities of majority-owned subsidiaries (list each separately):
Investment in Flow Traffic, net $ 1,218,389
Investment in