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): October 23, 2007

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))

Section 2 – Financial Information

Item 2.02Results of Operations and Financial Condition.

(a)       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 October 23, 2007, Image Sensing Systems, Inc. (the “Company”), issued a press release to report the Company’s results of operations and financial condition as of and for the completed fiscal quarter and nine months ended September 30, 2007. The press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

Section 9 – Financial Statements and Exhibits

Item 9.01Financial Statements and Exhibits.

(d)       Exhibits. 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 October 23, 2007, 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/ Kenneth R. Aubrey
	Kenneth R. Aubrey President and Chief Executive Officer

Dated: October 23, 2007

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release, dated October 23, 2007, 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

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

FOR IMMEDIATE RELEASE

Image Sensing Systems Announces Third Quarter Financial Results

Saint Paul, Minn., October 23, 2007-- Image Sensing Systems, Inc. (ISS) (NASDAQ: ISNS) announced today that its net income for the quarter ended September 30, 2007 was $1.3 million ($0.34 per diluted share) compared to net income of $731,000 ($0.19 per diluted share) for the same period in 2006. Net income for the first nine months of 2007 was $2.6 million ($0.66 per diluted share) compared to $1.9 million ($0.50 per diluted share) for the same period in 2006.

Revenue for the third quarter was $4.2 million compared to $3.0 million for the same period in 2006, while revenue for the first nine months of 2007 was $9.9 million compared to $9.0 million for the same period a year ago. Revenue from royalty income increased 17% to $3.0 million in the quarter from $2.6 million in the third quarter of 2006 and to $7.6 million in the first nine months from $7.3 million in the first nine months of 2006. International sales increased 187% to $1.1 million in the quarter from $398,000 for the same quarter in 2006 and increased to $2.2 million in the first nine months from $1.7 million in the same period of 2006. The revenue increases reflect growing acceptance, in both domestic and international markets, of the company’s Autoscope® Terra product line announced this past April. Operating expenses for the quarter were $2.0 million, a 19% increase from $1.7 million in the same period of 2006, while operating expenses for the first nine months increased 11% to $5.8 million from $5.2 million in the first nine months of 2006.

Ken Aubrey, CEO, commented, “Our nine month and quarterly results for both revenue and net income were company record bests. We believe we may be recovering some of the delayed activity related to Terra that impacted the first half of the year. Terra products in the field appear to be performing well and we are pleased with the acceptance world-wide of the Terra based Solo and Rackvision lines. We still have work left in converting our entire product line to the Terra technology and are on schedule to do this by mid-2008.”

Headquartered in St. Paul, Minnesota, Image Sensing Systems, Inc. combines expertise in image processing, hardware and software engineering and communications to develop Autoscope® video detection systems for advanced traffic management and control applications. With equipment supplied for over 50,000 cameras in more than 55 countries, we are a global leader in video detection for management and safety systems for highways, bridges, tunnels and intersections. Autoscope products provide transportation managers the means to reduce roadway congestion, improve safety and security, gain cost efficiencies and assist in roadway planning.

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-K for the year ended December 31, 2006.

Image Sensing Systems, Inc.

Unaudited Consolidated Statement of Income

(in thousands, except per share information)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006
Revenue
Royalty income	$	3,041	$	2,598		$	7,636	$	7,282
International sales		1,143		398			2,232		1,709
		4,184		2,996			9,868		8,991
Cost of revenue
Royalty fee		—		1			—		220
Cost of sales		536		208			951		753
		536		209			951		973
Gross profit		3,648		2,787			8,917		8,018
Operating expenses
Selling, marketing and product support		749		681			2,310		2,095
General and administrative		710		416			1,832		1,549
Research and development		553		590			1,681		1,582
		2,012		1,687			5,823		5,226
Income from operations		1,636		1,100			3,094		2,792
Other income (expense)		149		(42	)		429		(20	)
Income before income taxes		1,785		1,058			3,523		2,772
Income taxes		488		327			968		827
Net income	$	1,297	$	731		$	2,555	$	1,945
Net income per common share
Basic	$	0.35	$	0.20		$	0.68	$	0.52
Diluted	$	0.34	$	0.19		$	0.66	$	0.50
Weighted average shares outstanding
Basic		3,780		3,733			3,777		3,718
Diluted		3,866		3,887			3,876		3,887

Image Sensing Systems, Inc.

Unaudited Condensed Consolidated Balance Sheet

(in thousands)

	September 30, 2007		December 31, 2006
Assets
Current assets
Cash and cash equivalents	$	14,340	$	11,626
Investments		2,000		4,100
Receivables		4,288		2,957
Inventories		1,245		670
Prepaid expenses and deferred taxes		413		299
		22,286		19,652
Property and equipment, net		396		522
Goodwill		1,050		1,050
	$	23,732	$	21,224
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	1,365	$	1,652
Income taxes payable		247		231
		1,612		1,883
Deferred income taxes		28		8
Shareholders’ equity		22,092		19,333
	$	23,732	$	21,224

Image Sensing Systems, Inc.

Unaudited Condensed Consolidated Statement of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2007			2006
Operating activities
Net income	$	2,555		$	1,945
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization		197			277
Stock option expense		132			166
Changes in operating assets and liabilities		(2,234	)		1,454
Net cash provided by operating activities		650			3,842
Investing activities
Purchase of property and equipment		(71	)		(325	)
Maturities (purchases) of investments, net		2,100			(1,800	)
Net cash provided by (used in) investing activities		2,029			(2,125	)
Financing activity – proceeds from exercise of stock options		35			93
Increase in cash and cash equivalents		2,714			1,810
Cash and cash equivalents, beginning of period		11,626			9,006
Cash and cash equivalents, end of period	$	14,340		$	10,816

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