Friday was a mixed bag for investors in traffic-monitoring specialist and Motley Fool Hidden Gems "Tiny Gem" Image Sensing Systems (NASDAQ:ISNS). There was bad news in abundance -- almost everywhere you looked, in fact -- but there was also a silver lining for long-term, serious investors in this company.

Bad news first
Where to start? You know how sometimes you get a case of the hiccups that just won't go away? You try drinking water, breathing into a paper bag, getting a friend to shout "Boo!" in hopes of scaring the hiccups away, and nothing works? Yeah, Image Sensing's Q2 2005 earnings report is a lot like that. The "hiccup" we saw in the company's supply chain back in February, when the company was transitioning between outsourced suppliers of its non-Autoscope products in Asia, has refused to go away.

As the company put it: "Transition to a new loop detection product for sale in the Asian market has been delayed due to technical issues and has greatly reduced sales of this product." Indeed. Whereas Image Sensing sold $540,000 worth of the products in the first half of 2004, 1H 2005 has seen sales crater to just $14,000. Overall, revenues for 1H 2005 were down 15%, and profits fell 22%.

On the other hand, the troubles appear to be localized to just the Asian business. CEO Jim Murdakes made a point of noting double-digit revenue increases in the company's European and North American businesses, and although the company also experienced rapid growth in operating expenses, those appear closely tied to developing the sales and technical staffs needed to service its growing business in the West.

Ask and you shall receive
We also have to give credit where credit is due. Back in February, I took Image Sensing to task for its woefully inadequate provision of information to investors in reporting on its fiscal 2004 performance. The company provided just three paragraphs of text, a partial income statement, and no balance sheet or cash flow statement. Less than half a year later, the company has responded by increasing the space devoted to explaining its business results and has provided all three financial statements.

When you consider that 2004 was a pretty good year for Image Sensing, but that the first half of 2005 has been a lot less successful, the company's willingness to improve its disclosure when the news doesn't read at all well seems all the more commendable.

All that remains now is for the company to get its Chinese and Korean operations back on track.

Fool contributor Rich Smith has no position in Image Sensing Systems. Check out a free trial for the Motley Fool Hidden Gems newsletter for more Tiny Gems and other small-cap values.