UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 Or 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) December 15, 2011

 

Image Sensing Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Minnesota 000-26056 41-1519168
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
     
500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota 55104
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (651) 603-7700

 

__________________________________________________________________________________

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 
 
 

Section 1 – Registrant’s Business and Operations

 

Item 1.01. Entry into a Material Definitive Agreement.

 

(a) On December 15, 2011, Image Sensing Systems, Inc. (the “Company”) entered into Fourth Modification to Manufacturing, Distributing and Technology License Agreement (the “Fourth Amendment”) with Econolite Control Products, Inc. (“Econolite”). The Fourth Amendment amends the Manufacturing, Distributing and Technology License Agreement dated June 11, 1991 by and between the Company and Econolite, as subsequently amended and modified by a Letter Agreement dated June 19, 1997; a Modification to Manufacturing, Distributing and Technology License Agreement dated September 1, 2000; an Extension and Second Modification to Manufacturing, Distributing and Technology License Agreement dated July 13, 2001; a Settlement Agreement, Contract Modification and Mutual Release executed August 3, 2006; the Extension and Third Modification to Manufacturing, Distributing and Technology License Agreement dated July 3, 2008; and an amended Exhibit A dated September 21, 2009 (as so amended and modified, the “Econolite Agreement”). Effective January 2, 2011, the Company, Econolite and Econolite Canada, Inc. (“ECI”) entered into an Exclusive License and Distribution Agreement (the “Canada RTMS Agreement”).

 

Under the Econolite Agreement, the Company granted to Econolite the exclusive right to manufacture and distribute the Company’s Autoscope® products in the United States, Canada, Mexico and the Caribbean. Under the Canada RTMS Agreement, the Company granted to Econolite and ECI the exclusive right to manufacture and distribute the Company’s RTMS products in Canada. The Fourth Amendment amended the Econolite Agreement to grant to Econolite the exclusive right to manufacture and distribute the Company’s RTMS products in the United States and Mexico.

 

The foregoing description of the Fourth Amendment is qualified by reference to the copy of the Fourth Amendment attached to this Current Report on Form 8-K as Exhibit 10.1.

 

Section 2 – Financial Information

 

Item 2.05. Costs Associated With Exit or Disposal Activities.

 

In connection with the Fourth Amendment, the Company expects to implement a series of changes to improve financial performance. The restructuring related charges are to include costs associated with the transition away from inhouse assembly of RTMS products, workforce reductions, facility closure costs and inventory adjustments.

 

The Company initiated the changes in the fourth quarter of 2011, beginning with entering into the Fourth Amendment, and it expects to complete the actions by the end of 2012. The Company expects to incur total pre-tax charges of between $650,000 and $900,000 related to the restructuring. Given the timing of these actions, the Company estimates that between $550,000 and $750,000 of the charges will be recorded in the fourth quarter of 2011, with the remainder of the charges to be recorded in 2012.

 

The amount of the restructuring charges described above are estimates, and the actual charges may vary materially based on various factors, including the timing of product assembly transitions; actual employee terminations; sales, write-downs and other factors affecting inventory value; changes in management’s assumptions; and other factors.

 

A copy of the Company’s press release announcing the Fourth Amendment and the restructuring charge is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

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Section 9 – Financial Statements and Exhibits

 

Item 9.01. Financial Statements and Exhibits.

 

(c)     Exhibits. The following documents are hereby filed or furnished (as indicated) as exhibits to this Current Report on Form 8-K:

 

Exhibit No.

 

10.1    Fourth Modification to Manufacturing, Distributing and Technology License Agreement dated as of December 15, 2011 by and between Econolite and the Company (filed).

 

99.1    Press Release dated December 20, 2011 (furnished).

 

 

SIGNATURES

 

Pursuant to 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 hereunto duly authorized.

 

  Image Sensing Systems, Inc.  
       
       
Date:  December 20, 2011      
  By  /s/ Gregrory R. L. Smith  
    Chief Financial Officer and Treasurer  
    (Principal Financial Officer and  
    Principal Accounting Officer)  

 

 

3

 

Exhibit Index

 

Exhibit No.

 

10.1    Fourth Modification to Manufacturing, Distributing and Technology License Agreement dated as of December 15, 2011 by and between Econolite and the Company (filed).

 

99.1    Press Release dated December 20, 2011 (furnished).

 

 

 

 

 

 

 

 

4

Exhibit 10.1

 

FOURTH MODIFICATION TO MANUFACTURING,
DISTRIBUTING AND TECHNOLOGY LICENSE AGREEMENT

 

THIS FOURTH MODIFICATION TO MANUFACTURING, DISTRIBUTING AND TECHNOLOGY LICENSE AGREEMENT (this “Fourth Modification”) is made and entered into as of December 15, 2011 by and between Image Sensing Systems, Inc., a Minnesota corporation located at 500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota 55104 (hereinafter, “ISS”), and Econolite Control Products, Inc., a California corporation located at 3360 E. La Palma Avenue, Anaheim, California 92806 (hereinafter “Econolite”). ISS and Econolite were the parties to the original Manufacturing, Distributing and Technology License Agreement dated June 11, 1991 (the “Agreement”) which was subsequently modified, in part, in a Letter Agreement dated June 19, 1997 (the “Letter Agreement”), a Modification to Manufacturing, Distributing and Technology License Agreement dated September 1, 2000 (the “First Modification”), Extension and Second Modification to Manufacturing, Distributing and Technology License Agreement dated July 13, 2001 (the “Second Modification”) a Settlement Agreement, Contract Modification and Mutual Release executed August 3, 2006 (the “Settlement”), and the Extension and Third Modification to Manufacturing, Distributing and Technology License Agreement dated July 3, 2008 (the “Third Modification”), an Exhibit A dated September 21, 2009 (“Amended Exhibit A”) and an Exclusive License and Distribution Agreement by and between ISS, Econolite and Econolite Canada, Inc. effective January 2, 2011 (the “Canada RTMS Agreement”).

 

Recitals:

 

A.                   The parties desire to add certain Remote Traffic Microwave Sensors (“RTMS Products”) to the Products and technologies listed in the Agreement.

 

B.                   The parties desire to update and revise the Mutual Confidentiality and Non-Disclosure Agreement form provided in the Agreement.

 

NOW, THEREFORE , for and in consideration of the foregoing premises, and the mutual covenants and agreements contained herein, the parties hereto agree as follows:

 

1.                    Exhibit A to the Agreement, as modified and amended previously, is superseded by Exhibit A (dated as of December 15, 2011) attached hereto and made a part hereof by this reference.

 

2.                    The final paragraph of Section A, Definitions, of Article V of the Agreement is deleted and a new final paragraph of Section A, Definitions, of Article V is substituted as follows:

 

“‘Autoscope Territory,’ for purposes of Autoscope Products shall mean Mexico, the United States of America, Canada, and the Caribbean. ‘RTMS Territory,’ for purposes of RTMS Products hereunder shall mean Mexico and the United States of America. The Canada RTMS Agreement defines the Canadian territory for sales of RTMS products.”

 

3.                    Except as modified herein, each and every other provision of the Agreements, as modified are confirmed and reaffirmed as though restated herein.

 

IN WITNESS WHEREOF , the parties hereto have executed this Fourth Modification effective as of the date first set out above.

 

IMAGE SENSING SYSTEMS, INC.   ECONOLITE CONTROL PRODUCTS, INC.  
           
By: /s/ Kenneth R. Aubrey   By: /s/ David St. Amant  
  Title:  President & CEO     Title:  President and Chief Operating Officer  
Date:  12/15/11   Date:  12/15/11  
               

 

 

 

 

Exhibit 99.1

 

 

500 Spruce Tree Centre

1600 University Avenue West

St. Paul, Minnesota 55104-3825 USA

651.603.7700 Fax: 651.603.7795

www.imagesensing.com

 

NEWS RELEASE

 

Contacts:      Greg Smith, Chief Financial Officer
Image Sensing Systems, Inc. Phone: 651.603.7700

 

 

FOR IMMEDIATE RELEASE

 

Image Sensing Systems Expands Econolite Agreement to Include RTMS® for North America

 

Details Business Model Conversion and Rightsizing Activities

 

Saint Paul, Minn., December 20, 2011-- Image Sensing Systems, Inc. (NASDAQ: ISNS) announced today that it has amended its agreement with its long-time partner, Econolite Control Products, Inc. (Econolite), to expand the exclusive North American manufacturing and distribution agreement to include the RTMS® radar product line effective in 2012 after a short transition period.

 

Ken Aubrey, CEO, said, “This is the final stage in our RTMS (radar) acquisition integration process for North American sales, and, in conjunction with the planned introduction of our hybrid product in the first quarter of 2012, aligns directly with one of our primary strategic goals; namely, a focus on organic sales and income growth. For over twenty years we have reaped the rewards of the Econolite exclusive agreement for Autoscope products; now our RTMS products will enjoy the same benefits.

 

“We see moving North American RTMS manufacturing and sales to Econolite as a logical next step in enhancing the profitability and spurring growth of our domestic radar business. With Econolite’s manufacturing expertise, substantially larger sales force and unyielding commitment to deliver innovative solutions to the ITS market, we believe we can gain significant leverage,” Aubrey added.

 

“Econolite is delighted to add the RTMS product suite to our already highly successful Autoscope agreement with ISS. We are certain that this will broaden and further enhance our constantly growing ITS footprint, and in addition bolster our concerted efforts to provide transportation agencies with reliable detection solutions,” said David St. Amant, COO of Econolite.

 

Sales of RTMS through Econolite will be recognized under a profit sharing method similar to that of Autoscope sales and reported as royalties (but no longer as gross revenues). Sales of RTMS in North America were $6.4 million in 2010 and $4.5 million through the first nine months of 2011. Certain ISS sales and sales support employees will transfer to Econolite as part of the transition. As with Autoscope, ISS will retain all intellectual property rights and be responsible for research and ongoing development of RTMS.

 



 

 

As a result of this business model conversion and in conjunction with previously announced plans for rightsizing, ISS expects to incur pre-tax basis restructuring expenses of approximately $650,000 to $900,000 related mainly to severance costs, reserves for RTMS inventory and other transition costs, of which $550,000 to $750,000 in expense is anticipated to be recorded in the current fiscal quarter. ISS expects to reduce annual costs by over $3.0 million from rightsizing and operating expenses eliminated in the conversion. This will be partially offset by a reduction in gross profit due to changing to a profit sharing basis.

 

“In conjunction with this RTMS business model integration finalization, we are working to bring overall operating expenses on a company-wide basis down to support increased profitability in a continued difficult ITS market. We anticipate this RTMS business model integration final stage completion will be accretive to our operating profit in 2012 and that other rightsizing steps will further enhance our profit outlook,” said Aubrey.

 

About Image Sensing

 

Image Sensing Systems, Inc. is a provider of software-based detection solutions for the Intelligent Transportation Systems (ITS) sector and adjacent markets including security, police and parking. We have sold more than 120,000 units of our industry leading Autoscope® machine-vision, RTMS® radar and CitySync automatic number plate recognition (ANPR) products in over 60 countries worldwide. The depth of our experience coupled with the breadth of our product portfolio uniquely positions us to provide powerful hybrid technology solutions and to exploit the convergence of the traffic, security and environmental management markets. We are headquartered in St. Paul, Minnesota. Visit us on the web at imagesensing.com.

 

 

Safe Harbor Statement: Statements made in this release concerning the Company’s or management’s intentions, expectations, or predictions about future results or events are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to, the following: the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Company’s control; developments in the demand for the Company’s products and services; relationships with the Company’s major customers and suppliers; the mix of and margins on the products we sell; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services, including ANPR products; adverse weather conditions in our markets; the impact of governmental laws and regulations; increased international presence; our success in integrating acquisitions; and competitive factors. Our forward-looking statements speak only as of the time made, and we assume no obligation to publicly update any such statements. Additional information concerning these and other factors that could cause actual results and events to differ materially from the Company’s current expectations are contained in the Company’s reports and other documents filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010 filed in March 2011.