8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

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

Date of Report (Date of earliest event reported): April 27, 2006

IMAGE SENSING SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Minnesota
(State or Other Jurisdiction of Incorporation)

0-26056	41-1519168
(Commission File Number)	(IRS Employer Identification No.)

500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota 55104
(Address of Principal Executive Offices, Including Zip Code)

(651) 603-7700
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

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

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

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

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

Item 2.02  Results of Operations and Financial Condition.

             The following information is being “furnished” in accordance with Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except as expressly set forth by specific reference in such filing:

On April 27, 2006, Image Sensing Systems, Inc. (the “Company”), issued a press release to report the Company’s results of operations and financial condition for the completed fiscal quarter ended March 31, 2006. The press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

Item 9.01  Financial Statements and Exhibits.

             (c)       The following exhibit is being “furnished” in accordance with Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such filing:

99.1      Press Release, dated April 27, 2006, of Image Sensing Systems, Inc.

SIGNATURES

             Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

IMAGE SENSING SYSTEMS, INC.
By:	/s/ James Murdakes
	James Murdakes Chief Executive Officer

Dated: April 27, 2006.

EXHIBIT INDEX

Exhibit No. Description

99.1 Press Release, dated April 27, 2006, of Image Sensing Systems, Inc.

EX-99.1

Exhibit 99.1

500 Spruce Tree Centre
1600 University Avenue West
St. Paul, Minnesota 55104-3825 USA
651.603.7700 Fax: 651.603.7795
www.imagesensing.com

NEWS RELEASE

Contacts: Art Bourgeois, Chief Financial Officer
Image Sensing Systems, Inc. Phone: 651.603.7700

Image Sensing Systems Announces First Quarter Financial Results

Saint Paul, Minn.,- April 27, 2006-Image Sensing Systems, Inc. (ISS) (NASDAQ: ISNS), announced today financial results for its first quarter ended March 31, 2006, marking the sixteenth consecutive quarter of profitability for the company.

Net income for the quarter increased 26.7% to $503,000 ($.13 per fully diluted share) compared to $397,000 ($0.10 per fully diluted share) for the comparable period in 2005. Revenues for the first quarter were $2,589,000, a 21.7% increase from $2,127,000 for the comparable period a year ago. Revenue from royalty income increased 28.2% to $2,176,000 from $1,697,000 in the first quarter of 2005 and reflects the continued success that ISS’s North American distributor, Econolite Control Products, Inc. (ECPI), has had in selling Autoscope products in the United States and Canada. International sales for the first quarter of 2006 were $413,000 compared to $430,000 in the first quarter of 2005. Operating expenses increased 31.4% as the company added engineering resources for new product development and incurred added general and administrative expenses.

Jim Murdakes, Chairman and CEO said, “We continue to be pleased with our North American partner, ECPI, for its continued solid performance in the North American market. International sales were flat as we were unable to complete shipment of a large order for Korea in the quarter, which would have increased our sales substantially. The shipment was completed in April and will be reflected next quarter. First quarter sales in the European market are typically slow and this was true again for 2006.”

Headquartered in St. Paul, Minnesota, Image Sensing Systems, Inc. combines expertise in image processing, hardware and software engineering, and communications to develop video vehicle detection systems for traffic management and control applications. The Autoscope vehicle detection system is the world leader in video detection for advanced traffic management systems for highways, tunnel incident detection, intersection control, and traffic data collection. The Autoscope system provides traffic managers the means to reduce roadway congestion, improve roadway planning, and improve cost efficiencies.

Safe Harbor Statement: Statements made in this release concerning the Company’s or management’s intentions, expectations, or predictions about future results or events are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to, the following: the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Company’s control; developments in the demand for the Company’s products and services; relationships with the Company’s major customers and suppliers; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services; the impact of governmental laws and regulations; and competitive factors. Our forward-looking statements speak only as of the time made, and we assume no obligation to publicly update any such statements. Additional information concerning these and other factors that could cause actual results and events to differ materially from the Company’s current expectations are contained in the Company’s Form 10-KSB for the year ended December 31, 2005.

Image Sensing Systems, Inc.
Condensed Statement of Income
(in thousands, except per share information)

	Three-Month Periods Ended March 31
	2006		2005
Revenue
Royalty income	$	2,176	$	1,697
International sales		413		430
		2,589		2,127
Cost of revenue
Royalty fee		103		80
Cost of sales		177		183
		280		263
Gross profit		2,309		1,864
Operating expenses
Selling, marketing and product support		622		665
General and administrative		562		320
Research and development		482		283
		1,666		1,268
Income from operations		643		596
Other income		97		44
Income before income taxes		740		640
Income taxes		237		243
Net income	$	503	$	397
Net income per common share
Basic	$	0.14	$	0.11
Diluted	$	0.13	$	0.10
Weighted average shares outstanding
Basic		3,705		3,544
Diluted		3,898		3,886

Image Sensing Systems, Inc.
Condensed Balance Sheet
(in thousands)

	March 31, 2006		December 31, 2005
Assets
Current assets
Cash and cash equivalents	$	8,987	$	9,006
Investments		4,100		2,300
Receivables		2,366		3,514
Inventories		344		312
Prepaid expenses and deferred taxes		201		118
		15,998		15,250
Property and equipment, net		405		329
Goodwill and capitalized software development costs, net		1,147		1,212
		17,550		16,791
Liabilities and Shareowners’ Equity
Current liabilities
Accounts payable and accrued expenses		875		923
Income taxes payable		330		94
		1,205		1,017
Deferred income taxes		52		52
Shareholders’ equity		16,293		15,722
	$	17,550	$	16,791

Image Sensing Systems, Inc.
Condensed Statement of Cash Flows
(in thousands)

	Three-Month Periods Ended March 31
	2006	2005
Operating activities
Net income	$503	$397
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization	83	91
Changes in operating assets and liabilities	1,263	308
Net cash provided by operating activities	1,849	796
Investing activities
Purchase of property and equipment	(94)	(45)
Sale of short-term investments	(1,800)	(450)
Net cash used in investing activities	(1,894)	(495)
Financing activity – proceeds from exercise of stock options	26	39
Increase (decrease) in cash and cash equivalents	(19)	340
Cash and cash equivalents, beginning of period	9,006	1,262
Cash and cash equivalents, end of period	$8,987	$1,602

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