10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

or

¨TRANSITIONREPORT 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 Incorporation or Organization	I.R.S. Employer 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 Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (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 90days.YesxNo¨

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 Rule405 of RegulationS-T (§232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit and post such files).YesxNo¨

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

Largeacceleratedfiler¨	Acceleratedfiler¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)	Smallerreportingcompanyx
	Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).Yes¨Nox

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, 2018
Common Stock, $0.01 par value per share	5,256,226 shares

1

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 Income (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	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	22
PART II. OTHER INFORMATION	23
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	23
Item 5. Other Information	23
Item 6. Exhibits	24
SIGNATURES	25
EXHIBIT INDEX	26

2

Image Sensing Systems, Inc.

(in thousands)

	March 31, 2018			December 31,
	(Unaudited)			2017
ASSETS
Current assets:
Cash and cash equivalents	$	3,322		$	3,190
Accounts receivable, net of allowance for doubtful accounts of $23 and $20, respectively		2,756			3,339
Inventories		388			335
Prepaid expenses and other current assets		347			255
Total current assets		6,813			7,119
Property and equipment:
Furniture and fixtures		164			164
Leasehold improvements		26			26
Equipment		1,046			998
		1,236			1,188
Accumulated depreciation		764			702
		472			486
Intangible assets, net		3,440			3,485
Deferred income taxes		37			38
TOTAL ASSETS	$	10,762		$	11,128
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	612		$	563
Warranty		777			858
Accrued compensation		170			288
Other current liabilities		505			778
Total current liabilities		2,064			2,487
TOTAL LIABILITIES		2,064			2,487
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value; 20,000,000 shares authorized, 5,256,226 and 5,210,448
issued and outstanding at March 31, 2018 and December 31, 2017, respectively		52			51
Additional paid-in capital		24,429			24,355
Accumulated other comprehensive loss		(311	)		(310	)
Accumulated deficit		(15,472	)		(15,455	)
Total shareholders' equity		8,698			8,641
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	10,762		$	11,128
See accompanying notes to the condensed consolidated financial statements.

3

Image Sensing Systems, Inc.

(Unaudited)

(in thousands, except per share data)

	Three-Month  Periods Ended March 31,
	2018			2017
Revenue:
Product sales	$	844		$	1,440
Royalties		2,166			1,644
		3,010			3,084
Cost of revenue:
Product sales		355			544
Royalties		92			90
		447			634
Gross profit		2,563			2,450
Operating expenses:
Selling, general and administrative		1,761			1,436
Research and development		819			816
		2,580			2,252
Operating income (loss) from operations		(17	)		198
Other, net		—			3
Income (loss) from operations before income taxes		(17	)		201
Income tax expense		—			4
Net income (loss)	$	(17	)	$	197
Net income (loss) per share:
Basic	$	(0.00	)	$	0.04
Diluted	$	(0.00	)	$	0.04
Weighted average number of common shares outstanding:
Basic		5,181			5,096
Diluted		5,181			5,096
See accompanying notes to the condensed consolidated financial statements.

4

Image Sensing Systems, Inc.

(Unaudited)

(in thousands)

	Three-Month Periods Ended March 31,
	2018			2017
Net income (loss)	$	(17	)	$	197
Other comprehensive income (loss):
Foreign currency translation adjustment		(1	)		7
Comprehensive income (loss)	$	(18	)	$	204
See accompanying notes to the condensed consolidated financial statements.

5

Image Sensing Systems, Inc.

(Unaudited)

(in thousands)

	Three-Month Periods Ended March 31,
	2018			2017
Operating activities:
Net income (loss)	$	(17	)	$	197
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		63			65
Software amortization		111			90
Stock-based compensation		85			65
Loss on disposal of assets		1			—
Changes in operating assets and liabilities:
Accounts receivable, net		583			199
Inventories		(53	)		(83	)
Prepaid expenses and other current assets		(69	)		(10	)
Accounts payable		24			297
Accrued expenses and other current liabilities		(472	)		(126	)
Net cash provided by operating activities		256			694
Investing activities:
Capitalized software development costs		(66	)		(95	)
Purchases of property and equipment		(47	)		(33	)
Net cash used for investing activities		(113	)		(128	)
Financing activities:
Stock for tax withholding		(10	)		—
Net cash used for financing activities		(10	)		—
Effect of exchange rate changes on cash		(1	)		7
Increase in cash and cash equivalents		132			573
Cash and cash equivalents at beginning of period		3,190			1,547
Cash and cash equivalents at end of period	$	3,322		$	2,120
Non-Cash investing and financing activities:
Purchase of property and equipment in accounts payable	$	25		$	11
Capitalization of software development costs in accounts payable		—			79

See accompanying notes to the condensed consolidated financial statements.

6

IMAGE SENSING SYSTEMS, INC.

(Unaudited) 

March 31, 2018

Note A: Basis of Presentation

Image Sensing Systems, Inc. (referred to in this Quarterly Report on Form 10-Q as "we," "us," "our" and the "Company") develops and markets video and radar processing products for use in applications such as intersection control, highway, bridge and tunnel traffic management and traffic data collection. 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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017 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

On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective transition method. The Company's adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.

Under ASU 2014-09, we recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:
●	Identification of a contract, or contracts, with a customer;
●	Identification of performance obligations in the contract;
●	Determination of the transaction price;
●	Allocation of the transaction price to the performance obligations in the contract; and
●	Recognition of revenue when, or as, we satisfy a performance obligation

Revenue disaggregated by revenue source for the three months ended March 31, 2018 and 2017, consists of the following (in thousands). Revenue excludes sales and usage-based taxes where it has been determined that we are acting as a pass-through agent.

	Three Months Ended March 31,
	2018		2017
Product sales	$	844	$	1,440
Royalties		2,166		1,644
Total revenue	$	3,010	$	3,084

7

Product Sales:

Product revenue is generated from the direct sales of our RTMS radar systems worldwide and our Autoscope video systems in Europe and Asia. Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Certain product sales may contain multiple performance obligations for revenue recognition purposes.Multiple performance obligations may include the hardware, software, installation services, training, and support.In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price.We generally determine stand-alone selling prices based on the observable stand-alone prices charged to customers.  For performance obligations without observable stand-alone prices charged to customers, we evaluate the adjusted market assessment approach, the expected cost plus margin approach, and stand-alone sales to estimate the stand-alone selling prices.

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. Our payment terms may vary by the type and location of our customer and the products or services offered.

We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.The term between invoicing and when payment is due is not significant.For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

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.

Royalties:

Econolite Control Products, Inc. (“Econolite”) is our licensee that sells our  Autoscope video system 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.

Practical Expedients and Exemptions:

We generally expense sales commissions when incurred because the amortization periods would have been one year or less.These costs are recorded within sales and marketing expense.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

8

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or net realizable value 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

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials, services, internal labor 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. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product's estimated economic selling life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that is determined to be in excess of net realizable value has been expensed in the period in which such a determination is made. Subsequent to reaching technological feasibility for certain software products in a prior quarter, we capitalized approximately $66,000 and $174,000 of software development costs during the quarters ended March 31, 2018 and 2017, respectively.

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 impairment. At both March 31, 2018 and December 31, 2017, we determined there was no impairment of intangible assets. At both March 31, 2018 and 2017, there were no indefinite-lived intangible assets.

9

Note B: Recent Accounting Pronouncements

Accounting pronouncements recently adopted

In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605).We adopted Topic 606 as of January 1, 2018 using the full retrospective transition method. See Revenue Recognition above for further details.

Accounting pronouncements not yet adopted

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

Note C: 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 financial assets and liabilities.

10

Note D: Inventories

Inventories consisted of approximately $388,000 and $335,000 of finished goods as of March 31, 2018 and December 31, 2017, respectively.

Note E: Intangible Assets

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

	March 31, 2018
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(544	)		2,385	8.0
Software development in process costs		846		—			846	—
Wrong Way development costs		228		(19	)		209	2.0
Total	$	7,903	$	(4,463	)	$	3,440	7.6

	December 31, 2017
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(452	)		2,477	8.0
Software development in process costs		1,008		—			1,008	—
	$	7,837	$	(4,352	)	$	3,485	8.0

Note F: Credit Facilities

In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank which provided for a revolving line of credit for the Company. The credit agreement and related documents with Alliance Bank (collectively, the "Alliance Credit Agreement") provided up to a $5.0 million revolving line of credit bearing interest at a fixed annual rate of 3.95%. Any advances would have been secured by the Company's inventories, accounts receivable, cash, marketable securities, and equipment. We were 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.  We chose not to renew the Alliance Credit Agreement.

11

Note G: 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,
	2018			2017
Beginning balance	$	858		$	1,223
Warranty provisions		30			10
Warranty claims		(11	)		(60	)
Adjustments to preexisting warranties		(102	)		(51	)
Currency		2			2
Ending balance	$	777		$	1,124

Note H: Stock-Based Compensation

We compensate officers, directors, key employees and consultants with stock-based compensation under stock option and incentive plans (the "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 are 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. 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, 2018 and 2017 was $85,000 and $65,000, respectively.At March 31, 2018, 142,887 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 2018 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, 2017		85,750		$	5.78		4.00	$	—
Granted		—		$	—		—	$	—
Exercised		—		$	—		—	$	—
Expired		—		$	—		—	$	—
Forfeited		(13,500	)	$	5.25		—	$	—
Options outstanding at March 31, 2018		72,250		$	5.88		3.50	$	668
Options exercisable at March 31, 2018		67,625		$	6.00		3.32	$	529

12

There were no options exercised during the three-month periods ended March 31, 2018 and March 31, 2017. As of March 31, 2018, there was $1,000 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 0.11 of a year.

Restricted Stock Awards and Stock Awards

Restricted stock awards are granted under the Plan at the discretion of the Compensation Committee of our Board of Directors. We issue restricted stock awards to executive officers and key consultants. These awards may contain certain performance conditions or time-based vesting criteria.  The restricted stock awards granted to executive officers vest if the various performance or time-based metrics are met.  Stock-based compensation is recognized for the number of awards expected to vest at the end of the period and is expensed beginning on the grant date through the end of the vesting period. At the time of vesting of the restricted stock awards, the recipients of common stock may request to receive a net of the number of shares required for employee withholding taxes, which can be withheld up to the relevant jurisdiction's maximum statutory rate. Stock awards to consultants are recognized over the performance period based on the stock price on the date when the consultant's performance is complete.  

We also 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 to employees 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.  

The following table summarizes restricted stock award activity for the first three months of 2018:

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2017	32,000		$	2.95
Granted	58,026			3.32
Vested	(28,636	)		3.57
Forfeited	(10,000	)		2.95
Awards outstanding at March 31, 2018	51,390		$	3.02

As of March 31, 2018, the total stock-based compensation expense related to non-vested awards not yet recognized was $145,000, which is expected to be recognized over a weighted average period of 2.7 years. The weighted average grant date fair value of restricted stock awards granted during the three-month period ended March 31, 2018 was $3.32. We granted restricted stock awards of 58,026 shares during the three-month period ended March 31, 2018. During the three-month periods ended March 31, 2018 and March 31, 2017, we recognized $84,000 and $63,000, respectively, of stock-based compensation expense related to restricted stock awards.

Note I: Income (loss) per Common Share

Net income (loss) per share is computed by dividing net income (loss) by the daily weighted average number of common shares outstanding during the applicable periods. Diluted net income (loss) per share includes the potentially dilutive effect of common shares subject to outstanding stock options and restricted stock awards using the treasury stock method. Under the treasury stock method, shares subject to certain outstanding stock options and restricted stock awards have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options or the vesting of those restricted stock awards would lead to a net reduction in common shares outstanding. As a result, stock options and restricted stock awards to acquire 83,086 and 125,222 weighted common shares have been excluded from the diluted weighted shares outstanding for the three-month periods ended March 31, 2018 and 2017, respectively.

13

A reconciliation of net income (loss) per share is as follows (in thousands except per share data): 

	Three-Month Periods Ended March 31,
	2018			2017
Numerator:
Net income (loss)	$	(17	)	$	197
Denominator:
Weighted average common shares outstanding		5,181			5,096
Dilutive potential common shares		—			—
Shares used in diluted net loss per common share calculations		5,181			5,096
Basic net income (loss) per common share	$	(0.00	)	$	0.04
Diluted net income (loss) per common share	$	(0.00	)	$	0.04

Note J: Segment Information

The Company's 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. Radar products are normally sold in the Highway segment. All segment revenues are derived from external customers.   

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
	2018		2017		2018		2017		2018		2017
Revenue	$	2,417	$	1,904	$	593	$	1,180	$	3,010	$	3,084
Gross profit		2,186		1,735		377		715		2,563		2,450
Amortization of intangible assets		92		90		19		—		111		90
Intangible assets		2,385		2,772		1,055		107		3,440		2,879

14

Note K: Restructuring and Exit Activities

In the third quarter of 2016, in order to streamline our operating and cost structure, we initiated the closure of our wholly-owned subsidiaries, Image Sensing Systems HK Limited (ISS HK) located in Hong Kong; Image Sensing Systems (Shenzhen) Limited (ISS WOFE) located in China; Image Sensing Systems Europe Limited (ISS Europe) located in the United Kingdom; Image Sensing Systems Europe Limited S.P.Z.O.O (ISS Poland) located in Poland; and Image Sensing Systems Germany, GmbH (ISS Germany) located in Germany.  We incurred no costs for entity closures in the periods ended March 31, 2018 and 2017.  

Note L: 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 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.

15

Overview

General. We are a leading provider of above-ground detection products and solutions for the intelligent transportation systems ("ITS") industry. Our family of products, which we market as Autoscope®video or video products (“Autoscope”), and RTMS®radar or radar products ("RTMS"), provides end users with the tools needed to optimize traffic flow and enhance driver safety. Our technology analyzes signals from sophisticated sensors and transmits the information to management systems and controllers or directly to users. Our products provide end users with complete solutions for the intersection and transportation markets.

Our technology is a process in which software, rather than humans, examines outputs from various types of sophisticated sensors to determine what is happening in a field of view. In the ITS industry, this process is a critical component of managing congestion and traffic flow. In many cities, it is not possible to build roads, bridges and highways quickly enough to accommodate the increasing congestion levels. On average, United States commuters spend 42 hours a year stuck in traffic, and congestion costs motorists $160 billion a year. We believe this growing use of vehicles will make our ITS solutions increasingly necessary to complement existing and new roadway infrastructure to manage traffic flow and optimize throughput.

We believe our solutions are technically superior to those of our competitors because they have a higher level of accuracy, limit the occurrence of false detection, are generally easier to install with lower costs of ownership, work effectively in a multitude of light and weather conditions, and provide end users the ability to manage inputs from a variety of sensors for a number of tasks. It is our view that the technical advantages of our products make our solutions well suited for use in ITS markets.

We believe the strength of our distribution channels positions us to increase the penetration of our technology‑driven solutions in the marketplace. We market our Autoscope video products in the United States, Mexico, Canada and the Caribbean through an exclusive agreement with Econolite Control Products, Inc. ("Econolite"), which we believe is the leading distributor of ITS intersection control products in these markets.

We market the RTMS radar systems to a network of distributors in North America, the Caribbean and Latin America. On a limited basis, we sell directly to the end user in these geographic areas. We market our Autoscope video and RTMS radar products outside of the United States, Mexico, Canada and the Caribbean through a combination of distribution and direct sales channels, through our offices in Spain and Romania. Our end users primarily include governmental agencies and municipalities.

The following discussion of period-to-period changes and trends in financial statement 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 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; and 

16

• our ability to develop new products that provide increasingly accurate information and enhance the end users' ability to cost-effectively manage traffic 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 our 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. Software amortization is the sole 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.

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 any restructuring costs.

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 depreciating fixed assets and amortizing intangible assets, 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 maynot be computed the same as similarly titled measures used by other companies.

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

	Three-Month Periods Ended March 31,
	2018			2017
Income (loss) from operations	$	(17	)	$	198
Adjustments to reconcile to non-GAAP income
Depreciation		63			65
Amortization of intangible assets		111			90
Restructuring charges		—			—
Non-GAAP income from continuing operations	$	157		$	353

17

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.We currently operate in 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. The RTMS is our radar product line, and revenue consists of sales to external customers. Radar products are normally sold in the Highway segment.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
	2018		2017		2018		2017		2018		2017
Revenue	$	2,417	$	1,904	$	593	$	1,180	$	3,010	$	3,084
Gross profit		2,186		1,735		377		715		2,563		2,450
Amortization of intangible assets		92		90		19		—		111		90
Intangible assets		2,385		2,772		1,055		107		3,440		2,879

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,
	2018		2017
Product sales	28.0	%	46.7	%
Royalties	72.0		53.3
Total revenue	100.0		100.0
Gross profit - product sales	57.9		62.2
Gross profit - royalties	95.8		94.5
Selling, general and administrative	58.5		46.6
Research and development	27.2		26.5
Income (loss) from operations	(0.6	)	6.5
Income tax expense	—		0.1
Net income (loss)	(0.6	)	6.4

18

Total revenue decreased to $3.0 million in the three-month period ended March 31, 2018, from $3.1 million in the same period in 2017, a decrease of 2.4%. Royalty income increased to $2.2 million in the first quarter of 2018 from $1.6 million in the first quarter of 2017, an increase of 31.8%.  Product sales decreased to $844,000 in the first quarter of 2018 from $1.4 million in the first quarter of 2017, a decrease of 41.4%. The decrease in product sales resulted from lower volumes in all jurisdictions.

Revenue for the Intersection segment increased to $2.4 million in the three-month period ended March 31, 2018, from $1.9 million in the three-month period ended March 31, 2017, an increase of 26.9%.  The increase can be primarily attributed to higher sales volumes by our partner, Econolite.

Revenue for the Highway segment decreased to $593,000 in the three-month period endedMarch 31, 2018, from $1.2 million in the three-month period ended March 31, 2017, a decrease of 49.7%. The decrease in revenue in the Highway segment is attributable to reduced product sales into all jurisdictions.  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 profit.  Additionally, the geographic sales mix of our product sales can influence margins, as products sold in some jurisdictions have lower margins.

Gross profit for product sales decreased to 57.9% in the three months ended March 31, 2018, from 62.2% in the three months ended March 31, 2017. Product sales gross profit decreased $407,000 or 45.4% in the three months ended March 31, 2018, compared to the prior year period. The decrease in gross margin percent in the three months ended March 31, 2018, is primarily dueto a higher percentage of Autoscope video product sold during the quarter, compared to the same period in the prior year.  Additionally, the geographic sales mix of our product sales can influence margins, as product sold in some jurisdictions have higher margins.

Gross profit for royalty sales for the three months ended March 31, 2018, increased to 95.8% from 94.5% in the same period in 2017. Gross profit from royalties increased $520,000 or 33.5% in the three months ended March 31, 2018, compared to the prior year period.  The increase in royalty gross margin percent is due to the higher volume of royalty sales in the first quarter of 2018, compared to the prior year period.

Selling, general and administrative expense was $1.8 million or 58.5% of total revenue in the first quarter of 2018 compared to $1.4 million or 46.6% of total revenue in the first quarter of 2017. The increase in expense is primarily the result of increased sales and marketing costs related to a semi-annual trade show, Intertraffic, that took place in the first quarter of 2018.

Research and development expense increased to $819,000 or 27.2% of total revenue in the three-month period ended March 31, 2018, from $816,000 or 26.5% of total revenue in the three-month period ended March 31, 2017.  We capitalized $66,000 of costs associated with software development projects in the three-month period ended March 31, 2018, compared to capitalized software of $174,000 in the comparable prior year period.

Income tax expense of $4,000or 0.1% of revenue was recorded for the quarter ended March 31, 2017.  There was no income tax expense recorded in the first quarter of 2018.

Consolidated net loss from operations was $17,000 in the three month period ended March 31, 2018 compared to a net income from operations of $198,000 in the comparable prior year period.  There was no consolidated net loss per basic share for the three months ended March 31, 2018, compared to a net income per basic share of $0.04 for the three months ended March 31, 2017.

19

Liquidity and Capital Resources

At March 31, 2018, we had $3.3 million in cash and cash equivalents compared to $3.2 million in cash and cash equivalents at December 31, 2017.

Net cash provided by operating activities was $256,000 in the first three months of 2018 compared to net cash provided by operating activities of $694,000 in the same period in 2017.  The decrease in net cash provided by operating activities in the first three months of 2018 compared to the prior year period can be primarily attributed to a $214,000 decrease in net income as well as the payment timing of outstanding payables and accruals.

Net cash used for investing activities was $113,000 for the first three months of 2018 compared to net cash used for investing activities of $128,000 in the same period in 2017.The decrease of the amount of net cash used for investing activities in the first three months of 2018 compared to the prior year period is the result of capitalized internal software development costs decreasing compared to the prior year period.

In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank which provided for a revolving line of credit for the Company.The credit agreement and related documents with Alliance Bank (collectively, the "Alliance Credit Agreement") provided up to a $5.0 million revolving line of credit bearing interest at a fixed annual rate of 3.95%.Any advances would have been secured by the Company's inventories, accounts receivable, cash, marketable securities, and equipment.We were 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.We chose not to renew the Alliance Credit Agreement.

We believe that cash and cash equivalents on hand at March 31, 2018 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, 2017. The accounting policies used in preparing our interim Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2018 are set forth elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction with those described in our Annual Report on Form 10-K.

20

Cautionary Statement:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section27A 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 and autonomous vehicles;
• 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 any 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, 2017.

21

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.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Interim Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, our Chief Executive Officer and our Interim Chief Financial Officer concluded that, as of March 31, 2018, 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.

22

None.

Some of the risk factors to which we and our business are subject are described in the section entitled "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017. 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.

None.

None.

None.

None.

23

The following exhibits are filed as part of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018:

Exhibit Number	Description
31.1	Certification of 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 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Interim 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, 2018, 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

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 14, 2018	By:	/s/ Chad A. Stelzig
		Chad A. Stelzig
		President and Chief Executive Officer
		(Principal Executive Officer)
Dated: May 14, 2018	By:	/s/ Todd C. Slawson
		Todd C. Slawson
		Interim Chief Financial Officer

25

Exhibit No.	Description
31.1	Certification of 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 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Interim 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, 2018, 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).

26

EX-31.1

Exhibit 31.1

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

I, Chad A. Stelzig, 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, 2018;

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 14, 2018

/s/ Chad A. Stelzig

Name: Chad A. Stelzig

Title: President and Chief Executive Officer

EX-31.2

Exhibit 31.2

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

I, Todd C. Slawson, 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, 2018;

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 14, 2018

/s/ Todd C. Slawson

Name: Todd C. Slawson

Title: Interim Chief Financial Officer

EX-32.1

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, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Chad A. Stelzig,  President and Chief Executive 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/ Chad A. Stelzig

Chad A. Stelzig

President and Chief Executive Officer

May 14, 2018

EX-32.2

Exhibit 32.2

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, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Todd C. Slawson, Interim 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/ Todd C. Slawson

Todd C. Slawson

Interim Chief Financial Officer

May 14, 2018

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Entity Registrant Name	IMAGE SENSING SYSTEMS INC
Entity Central Index Key	0000943034
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,256,226
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 3,322	$ 3,190
Accounts receivable, net of allowance for doubtful accounts of $23 and $20, respectively	2,756	3,339
Inventories	388	335
Prepaid expenses and other current assets	347	255
Total current assets	6,813	7,119
Property and equipment:
Furniture and fixtures	164	164
Leasehold improvements	26	26
Equipment	1,046	998
Property and equipment, Gross	1,236	1,188
Accumulated depreciation	764	702
Property and equipment, Net	472	486
Intangible assets, net	3,440	3,485
Deferred income taxes	37	38
TOTAL ASSETS	10,762	11,128
Current liabilities:
Accounts payable	612	563
Warranty	777	858
Accrued compensation	170	288
Other current liabilities	505	778
Total current liabilities	2,064	2,487
TOTAL LIABILITIES	2,064	2,487
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding	0	0
Common stock, $0.01 par value; 20,000,000 shares authorized, 5,256,226 and 5,210,448 issued and outstanding at March 31, 2018 and December 31, 2017, respectively	52	51
Additional paid-in capital	24,429	24,355
Accumulated other comprehensive loss	(311)	(310)
Accumulated deficit	(15,472)	(15,455)
Total shareholders' equity	8,698	8,641
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 10,762	$ 11,128

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Condensed Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 23	$ 20
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock shares authorized	5,000,000	5,000,000
Preferred stock shares issued	0	0
Preferred stock shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock shares authorized	20,000,000	20,000,000
Common stock shares issued	5,256,226	5,210,448
Common stock shares outstanding	5,256,226	5,210,448

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenue:
Product sales	$ 844	$ 1,440
Royalties	2,166	1,644
Total Revenue	3,010	3,084
Cost of revenue:
Product sales	355	544
Royalties	92	90
Total Cost of revenue	447	634
Gross profit	2,563	2,450
Operating expenses:
Selling, general and administrative	1,761	1,436
Research and development	819	816
Total Operating expenses	2,580	2,252
Operating income (loss) from operations	(17)	198
Other, net	0	3
Income (loss) from operations before income taxes	(17)	201
Income tax expense	0	4
Net income (loss)	$ (17)	$ 197
Net income (loss) per share:
Basic (in dollars per share)	$ 0.00	$ 0.04
Diluted (in dollars per share)	$ 0.00	$ 0.04
Weighted average number of common shares outstanding:
Basic (in shares)	5,181	5,096
Diluted (in shares)	5,181	5,096

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Condensed Consolidated Statements of Comprehensive Income [Abstract]
Net income (loss)	$ (17)	$ 197
Other comprehensive income (loss):
Foreign currency translation adjustment	(1)	7
Comprehensive income (loss)	$ (18)	$ 204

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating activities:
Net income (loss)	$ (17)	$ 197
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	63	65
Software amortization	111	90
Stock-based compensation	85	65
Loss on disposal of assets	1	0
Changes in operating assets and liabilities:
Accounts receivable, net	583	199
Inventories	(53)	(83)
Prepaid expenses and other current assets	(69)	(10)
Accounts payable	24	297
Accrued expenses and other current liabilities	(472)	(126)
Net cash provided by operating activities	256	694
Investing activities:
Capitalized software development costs	(66)	(95)
Purchases of property and equipment	(47)	(33)
Net cash used for investing activities	(113)	(128)
Financing activities:
Stock for tax withholding	(10)	0
Net cash used for financing activities	(10)	0
Effect of exchange rate changes on cash	(1)	7
Increase in cash and cash equivalents	132	573
Cash and cash equivalents at beginning of period	3,190	1,547
Cash and cash equivalents at end of period	3,322	2,120
Non-Cash investing and financing activities:
Purchase of property and equipment in accounts payable	25	11
Capitalization of software development costs in accounts payable	$ 0	$ 79

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2018

Basis of Presentation [Abstract]

Basis of Presentation

Note A: Basis of Presentation

Image Sensing Systems, Inc. (referred to in this Quarterly Report on Form 10-Q as "we," "us," "our" and the "Company") develops and markets video and radar processing products for use in applications such as intersection control, highway, bridge and tunnel traffic management and traffic data collection. 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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017 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

On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective transition method. The Company's adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.

Under ASU 2014-09, we recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:
●	Identification of a contract, or contracts, with a customer;
●	Identification of performance obligations in the contract;
●	Determination of the transaction price;
●	Allocation of the transaction price to the performance obligations in the contract; and
●	Recognition of revenue when, or as, we satisfy a performance obligation

Revenue disaggregated by revenue source for the three months ended March 31, 2018 and 2017, consists of the following (in thousands). Revenue excludes sales and usage-based taxes where it has been determined that we are acting as a pass-through agent.

	Three Months Ended March 31,
	2018		2017
Product sales	$	844	$	1,440
Royalties		2,166		1,644
Total revenue	$	3,010	$	3,084

Product Sales:

Product revenue is generated from the direct sales of our RTMS radar systems worldwide and our Autoscope video systems in Europe and Asia. Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Certain product sales may contain multiple performance obligations for revenue recognition purposes.Multiple performance obligations may include the hardware, software, installation services, training, and support.In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price.We generally determine stand-alone selling prices based on the observable stand-alone prices charged to customers.  For performance obligations without observable stand-alone prices charged to customers, we evaluate the adjusted market assessment approach, the expected cost plus margin approach, and stand-alone sales to estimate the stand-alone selling prices.

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. Our payment terms may vary by the type and location of our customer and the products or services offered.

We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.The term between invoicing and when payment is due is not significant.For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

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.

Royalties:

Econolite Control Products, Inc. (“Econolite”) is our licensee that sells our  Autoscope video system 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.

Practical Expedients and Exemptions:

We generally expense sales commissions when incurred because the amortization periods would have been one year or less.These costs are recorded within sales and marketing expense.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or net realizable value 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

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials, services, internal labor 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. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product's estimated economic selling life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that is determined to be in excess of net realizable value has been expensed in the period in which such a determination is made. Subsequent to reaching technological feasibility for certain software products in a prior quarter, we capitalized approximately $66,000 and $174,000 of software development costs during the quarters ended March 31, 2018 and 2017, respectively.

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 impairment. At both March 31, 2018 and December 31, 2017, we determined there was no impairment of intangible assets. At both March 31, 2018 and 2017, there were no indefinite-lived intangible assets.

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note B: Recent Accounting Pronouncements

Accounting pronouncements recently adopted

In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605).We adopted Topic 606 as of January 1, 2018 using the full retrospective transition method. See Revenue Recognition above for further details.

Accounting pronouncements not yet adopted

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

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements

Note C: 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 financial assets and liabilities.

XML

Inventories

3 Months Ended

Mar. 31, 2018

Inventory [Abstract]

Inventories

Note D: Inventories

Inventories consisted of approximately $388,000 and $335,000 of finished goods as of March 31, 2018 and December 31, 2017, respectively.

XML

Intangible Assets

3 Months Ended

Mar. 31, 2018

Intangible Assets [Abstract]

Intangible Assets

Note E: Intangible Assets

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

	March 31, 2018
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(544	)		2,385	8.0
Software development in process costs		846		—			846	—
Wrong Way development costs		228		(19	)		209	2.0
Total	$	7,903	$	(4,463	)	$	3,440	7.6

	December 31, 2017
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(452	)		2,477	8.0
Software development in process costs		1,008		—			1,008	—
	$	7,837	$	(4,352	)	$	3,485	8.0

XML

Credit Facilities

3 Months Ended

Mar. 31, 2018

Credit Facilities [Abstract]

Credit Facilities

Note F: Credit Facilities

In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank which provided for a revolving line of credit for the Company. The credit agreement and related documents with Alliance Bank (collectively, the "Alliance Credit Agreement") provided up to a $5.0 million revolving line of credit bearing interest at a fixed annual rate of 3.95%. Any advances would have been secured by the Company's inventories, accounts receivable, cash, marketable securities, and equipment. We were 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.  We chose not to renew the Alliance Credit Agreement.

XML

Warranties

3 Months Ended

Mar. 31, 2018

Warranties [Abstract]

Warranties

Note G: 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,
	2018			2017
Beginning balance	$	858		$	1,223
Warranty provisions		30			10
Warranty claims		(11	)		(60	)
Adjustments to preexisting warranties		(102	)		(51	)
Currency		2			2
Ending balance	$	777		$	1,124

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2018

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note H: Stock-Based Compensation

We compensate officers, directors, key employees and consultants with stock-based compensation under stock option and incentive plans (the "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 are 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. 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, 2018 and 2017 was $85,000 and $65,000, respectively.At March 31, 2018, 142,887 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 2018 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, 2017		85,750		$	5.78		4.00	$	—
Granted		—		$	—		—	$	—
Exercised		—		$	—		—	$	—
Expired		—		$	—		—	$	—
Forfeited		(13,500	)	$	5.25		—	$	—
Options outstanding at March 31, 2018		72,250		$	5.88		3.50	$	668
Options exercisable at March 31, 2018		67,625		$	6.00		3.32	$	529

There were no options exercised during the three-month periods ended March 31, 2018 and March 31, 2017. As of March 31, 2018, there was $1,000 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 0.11 of a year.

Restricted Stock Awards and Stock Awards

Restricted stock awards are granted under the Plan at the discretion of the Compensation Committee of our Board of Directors. We issue restricted stock awards to executive officers and key consultants. These awards may contain certain performance conditions or time-based vesting criteria.  The restricted stock awards granted to executive officers vest if the various performance or time-based metrics are met.  Stock-based compensation is recognized for the number of awards expected to vest at the end of the period and is expensed beginning on the grant date through the end of the vesting period. At the time of vesting of the restricted stock awards, the recipients of common stock may request to receive a net of the number of shares required for employee withholding taxes, which can be withheld up to the relevant jurisdiction's maximum statutory rate. Stock awards to consultants are recognized over the performance period based on the stock price on the date when the consultant's performance is complete.  

We also 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 to employees 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.  

The following table summarizes restricted stock award activity for the first three months of 2018:

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2017	32,000		$	2.95
Granted	58,026			3.32
Vested	(28,636	)		3.57
Forfeited	(10,000	)		2.95
Awards outstanding at March 31, 2018	51,390		$	3.02

As of March 31, 2018, the total stock-based compensation expense related to non-vested awards not yet recognized was $145,000, which is expected to be recognized over a weighted average period of 2.7 years. The weighted average grant date fair value of restricted stock awards granted during the three-month period ended March 31, 2018 was $3.32. We granted restricted stock awards of 58,026 shares during the three-month period ended March 31, 2018. During the three-month periods ended March 31, 2018 and March 31, 2017, we recognized $84,000 and $63,000, respectively, of stock-based compensation expense related to restricted stock awards.

XML

Income (loss) per Common Share

3 Months Ended

Mar. 31, 2018

Income per Common Share [Abstract]

Income per Common Share

Note I: Income (loss) per Common Share

Net income (loss) per share is computed by dividing net income (loss) by the daily weighted average number of common shares outstanding during the applicable periods. Diluted net income (loss) per share includes the potentially dilutive effect of common shares subject to outstanding stock options and restricted stock awards using the treasury stock method. Under the treasury stock method, shares subject to certain outstanding stock options and restricted stock awards have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options or the vesting of those restricted stock awards would lead to a net reduction in common shares outstanding. As a result, stock options and restricted stock awards to acquire 83,086 and 125,222 weighted common shares have been excluded from the diluted weighted shares outstanding for the three-month periods ended March 31, 2018 and 2017, respectively.

A reconciliation of net income (loss) per share is as follows (in thousands except per share data): 

	Three-Month Periods Ended March 31,
	2018			2017
Numerator:
Net income (loss)	$	(17	)	$	197
Denominator:
Weighted average common shares outstanding		5,181			5,096
Dilutive potential common shares		—			—
Shares used in diluted net loss per common share calculations		5,181			5,096
Basic net income (loss) per common share	$	(0.00	)	$	0.04
Diluted net income (loss) per common share	$	(0.00	)	$	0.04

XML

Segment Information

3 Months Ended

Mar. 31, 2018

Segment Information [Abstract]

Segment Information

Note J: Segment Information

The Company's 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. Radar products are normally sold in the Highway segment. All segment revenues are derived from external customers.   

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
	2018		2017		2018		2017		2018		2017
Revenue	$	2,417	$	1,904	$	593	$	1,180	$	3,010	$	3,084
Gross profit		2,186		1,735		377		715		2,563		2,450
Amortization of intangible assets		92		90		19		—		111		90
Intangible assets		2,385		2,772		1,055		107		3,440		2,879

XML

Restructuring and Exit Activities

3 Months Ended

Mar. 31, 2018

Restructuring and Exit Activities [Abstract]

Restructuring and Exit Activities

Note K: Restructuring and Exit Activities

In the third quarter of 2016, in order to streamline our operating and cost structure, we initiated the closure of our wholly-owned subsidiaries, Image Sensing Systems HK Limited (ISS HK) located in Hong Kong; Image Sensing Systems (Shenzhen) Limited (ISS WOFE) located in China; Image Sensing Systems Europe Limited (ISS Europe) located in the United Kingdom; Image Sensing Systems Europe Limited S.P.Z.O.O (ISS Poland) located in Poland; and Image Sensing Systems Germany, GmbH (ISS Germany) located in Germany.  We incurred no costs for entity closures in the periods ended March 31, 2018 and 2017.  

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note L: 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 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.

XML

Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2018

Basis of Presentation [Abstract]

Revenue Recognition

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective transition method. The Company's adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.

Under ASU 2014-09, we recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:
●	Identification of a contract, or contracts, with a customer;
●	Identification of performance obligations in the contract;
●	Determination of the transaction price;
●	Allocation of the transaction price to the performance obligations in the contract; and
●	Recognition of revenue when, or as, we satisfy a performance obligation

Revenue disaggregated by revenue source for the three months ended March 31, 2018 and 2017, consists of the following (in thousands). Revenue excludes sales and usage-based taxes where it has been determined that we are acting as a pass-through agent.

	Three Months Ended March 31,
	2018		2017
Product sales	$	844	$	1,440
Royalties		2,166		1,644
Total revenue	$	3,010	$	3,084

Product Sales:

Product revenue is generated from the direct sales of our RTMS radar systems worldwide and our Autoscope video systems in Europe and Asia. Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Certain product sales may contain multiple performance obligations for revenue recognition purposes.Multiple performance obligations may include the hardware, software, installation services, training, and support.In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price.We generally determine stand-alone selling prices based on the observable stand-alone prices charged to customers.  For performance obligations without observable stand-alone prices charged to customers, we evaluate the adjusted market assessment approach, the expected cost plus margin approach, and stand-alone sales to estimate the stand-alone selling prices.

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. Our payment terms may vary by the type and location of our customer and the products or services offered.

We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.The term between invoicing and when payment is due is not significant.For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

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.

Royalties:

Econolite Control Products, Inc. (“Econolite”) is our licensee that sells our  Autoscope video system 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.

Practical Expedients and Exemptions:

We generally expense sales commissions when incurred because the amortization periods would have been one year or less.These costs are recorded within sales and marketing expense.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Inventories

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or net realizable value 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

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials, services, internal labor 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. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product's estimated economic selling life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that is determined to be in excess of net realizable value has been expensed in the period in which such a determination is made. Subsequent to reaching technological feasibility for certain software products in a prior quarter, we capitalized approximately $66,000 and $174,000 of software development costs during the quarters ended March 31, 2018 and 2017, respectively.

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 impairment. At both March 31, 2018 and December 31, 2017, we determined there was no impairment of intangible assets. At both March 31, 2018 and 2017, there were no indefinite-lived intangible assets.

XML

Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2018

Basis of Presentation [Abstract]

Schedule of revenue disaggregated by revenue source

Revenue disaggregated by revenue source for the three months ended March 31, 2018 and 2017, consists of the following (in thousands). Revenue excludes sales and usage-based taxes where it has been determined that we are acting as a pass-through agent.

	Three Months Ended March 31,
	2018		2017
Product sales	$	844	$	1,440
Royalties		2,166		1,644
Total revenue	$	3,010	$	3,084

XML

Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2018

Intangible Assets [Abstract]

Schedule of intangible assets

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

	March 31, 2018
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(544	)		2,385	8.0
Software development in process costs		846		—			846	—
Wrong Way development costs		228		(19	)		209	2.0
Total	$	7,903	$	(4,463	)	$	3,440	7.6

	December 31, 2017
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,929		(452	)		2,477	8.0
Software development in process costs		1,008		—			1,008	—
	$	7,837	$	(4,352	)	$	3,485	8.0

XML

Warranties (Tables)

3 Months Ended

Mar. 31, 2018

Warranties [Abstract]

Warranty liability and related activity

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

	Three-Month Periods Ended March 31,
	2018			2017
Beginning balance	$	858		$	1,223
Warranty provisions		30			10
Warranty claims		(11	)		(60	)
Adjustments to preexisting warranties		(102	)		(51	)
Currency		2			2
Ending balance	$	777		$	1,124

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2018

Stock-Based Compensation [Abstract]

Schedule of stock option activity

A summary of the option activity for the first three months of 2018 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, 2017		85,750		$	5.78		4.00	$	—
Granted		—		$	—		—	$	—
Exercised		—		$	—		—	$	—
Expired		—		$	—		—	$	—
Forfeited		(13,500	)	$	5.25		—	$	—
Options outstanding at March 31, 2018		72,250		$	5.88		3.50	$	668
Options exercisable at March 31, 2018		67,625		$	6.00		3.32	$	529

Table summarizes restricted stock award activity

The following table summarizes restricted stock award activity for the first three months of 2018:

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2017	32,000		$	2.95
Granted	58,026			3.32
Vested	(28,636	)		3.57
Forfeited	(10,000	)		2.95
Awards outstanding at March 31, 2018	51,390		$	3.02

XML

Income (loss) per Common Share (Tables)

3 Months Ended

Mar. 31, 2018

Income per Common Share [Abstract]

Schedule of reconciliation of net income per share

A reconciliation of net income (loss) per share is as follows (in thousands except per share data): 

	Three-Month Periods Ended March 31,
	2018			2017
Numerator:
Net income (loss)	$	(17	)	$	197
Denominator:
Weighted average common shares outstanding		5,181			5,096
Dilutive potential common shares		—			—
Shares used in diluted net loss per common share calculations		5,181			5,096
Basic net income (loss) per common share	$	(0.00	)	$	0.04
Diluted net income (loss) per common share	$	(0.00	)	$	0.04

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2018

Segment Information [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
	2018		2017		2018		2017		2018		2017
Revenue	$	2,417	$	1,904	$	593	$	1,180	$	3,010	$	3,084
Gross profit		2,186		1,735		377		715		2,563		2,450
Amortization of intangible assets		92		90		19		—		111		90
Intangible assets		2,385		2,772		1,055		107		3,440		2,879

XML

Basis of Presentation (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Basis of Presentation [Abstract]
Amortization period for expense sales commissions incurred, maximum	1 year
Period for the value of unsatisfied performance obligations which are not disclosed	1 year
Software development costs capitalized	$ 66,000	$ 174,000
Impairment of intangible assets	0		$ 0
Indefinite‑lived intangible assets	$ 0	$ 0

XML

Basis of Presentation (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Basis of Presentation [Abstract]
Product sales	$ 844	$ 1,440
Royalties	2,166	1,644
Total Revenue	$ 3,010	$ 3,084

XML

Inventories (Details Narrative) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Inventory [Abstract]
Finished goods	$ 388,000	$ 335,000

XML

Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 7,903	$ 7,837
Accumulated Amortization	(4,463)	(4,352)
Net Carrying Value	$ 3,440	$ 3,485
Weighted Average Useful Life	7 years 7 months 6 days	8 years
Developed technology [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 3,900	$ 3,900
Accumulated Amortization	(3,900)	(3,900)
Net Carrying Value	0	0
Vision development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	2,929	2,929
Accumulated Amortization	(544)	(452)
Net Carrying Value	$ 2,385	$ 2,477
Weighted Average Useful Life	8 years	8 years
Software development in process costs [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 846	$ 1,008
Accumulated Amortization	0	0
Net Carrying Value	846	$ 1,008
Wrong Way development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	228
Accumulated Amortization	(19)
Net Carrying Value	$ 209
Weighted Average Useful Life	2 years

XML

Credit Facilities (Details Narrative) - Alliance Credit Agreement [Member] - USD ($) $ in Millions		3 Months Ended
	May 12, 2014	Mar. 31, 2018
Line of Credit Facility [Line Items]
Maximum borrowing line of credit capacity	$ 5.0
Interest rate	3.95%
Description of collateral		Inventories, accounts receivable, cash, marketable securities, and equipment
Expiration		May 12, 2017

XML

Warranties (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Product Warranty Liability [Line Items]
Beginning balance	$ 858	$ 1,223
Warranty provisions	30	10
Warranty claims	(11)	(60)
Adjustments to preexisting warranties	(102)	(51)
Currency	2	2
Ending balance	$ 777	$ 1,124
Minimum [Member]
Product Warranty Liability [Line Items]
Product Warranty Period	2 years
Maximum [Member]
Product Warranty Liability [Line Items]
Product Warranty Period	5 years

XML

Stock-Based Compensation (Details Narrative) - USD ($)

3 Months Ended

Mar. 31, 2018

Mar. 31, 2017

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock-based compensation expense

$ 85,000

$ 65,000

Shares available for grant

142,887

Stock awards, weighted average grant date fair value

$ 3.32

Stock awards granted

58,026

Minimum [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option awards, vesting term

3 years

Stock option awards, contractual term

9 years

Percentage of vesting shares

90.00%

Maximum [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock option awards, vesting term

5 years

Stock option awards, contractual term

10 years

Percentage of vesting shares

100.00%

Employee Stock Option [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Unrecognized compensation cost related to non-vested stock awards

$ 1,000

Period for recognition of unrecognized compensation cost related to non-vested stock awards

1 month 10 days

Restricted Stock Awards [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock-based compensation expense

$ 84,000

$ 63,000

Unrecognized compensation cost related to non-vested stock awards

$ 145,000

Period for recognition of unrecognized compensation cost related to non-vested stock awards

2 years 8 months 12 days

Stock awards, weighted average grant date fair value

$ 3.32

Vesting rights description of stock awards granted

The restricted stock awards granted to executive officers vest if the various performance or time-based metrics are met.

Stock awards granted

58,026

XML

Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Number of Shares
Outstanding - beginning of period	85,750
Granted	0
Exercised	0
Expired	0
Forfeited	(13,500)
Outstanding - end of period	72,250	85,750
Exercisable - end of period	67,625
Weighted Average Exercise Price
Outstanding - beginning of period	$ 5.78
Granted	0
Exercised	0
Expired	0
Forfeited	5.25
Outstanding - end of period	5.88	$ 5.78
Exercisable - end of period	$ 6.00
Weighted Average Remaining Contractual Term
Options outstanding	3 years 6 months	4 years
Options exercisable	3 years 3 months 25 days
Aggregate Intrinsic Value
Outstanding - beginning of period	$ 0
Granted	0
Exercised	0
Expired	0
Forfeited	0
Outstanding - end of period	668	$ 0
Options exercisable	$ 529

XML

Stock-Based Compensation (Details 2)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Restricted Stock Awards Activity [Abstract]
Awards outstanding at beginning of year | shares	32,000
Granted | shares	58,026
Vested | shares	(28,636)
Forfeited | shares	(10,000)
Awards outstanding at end of year | shares	51,390
Weighted Average grant date fair value
Outstanding at beginning of year | $ / shares	$ 2.95
Granted | $ / shares	3.32
Vested | $ / shares	3.57
Forfeited | $ / shares	2.95
Outstanding at end of year | $ / shares	$ 3.02

XML

Income (loss) per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income per Common Share [Abstract]
Diluted net income per common share	$ 0.00	$ 0.04
Basic net income per common share	$ 0.00	$ 0.04
Numerator:
Net income (loss)	$ (17)	$ 197
Denominator:
Weighted average common shares outstanding	5,181	5,096
Dilutive potential common shares	0	0
Shares used in diluted net loss per common share calculations	5,181	5,096
Shares excluded from diluted weighted shares outstanding	83,086	125,222

XML

Segment Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of Reportable Segments	2
Revenue	$ 3,010	$ 3,084
Gross profit	2,563	2,450
Amortization of intangible assets	111	90
Intangible assets	3,440	2,879
Intersection [Member]
Segment Reporting Information [Line Items]
Revenue	2,417	1,904
Gross profit	2,186	1,735
Amortization of intangible assets	92	90
Intangible assets	2,385	2,772
Highway [Member]
Segment Reporting Information [Line Items]
Revenue	593	1,180
Gross profit	377	715
Amortization of intangible assets	19	0
Intangible assets	$ 1,055	$ 107