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Image Sensing Systems Announces Third Quarter Financial Results

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

Saint Paul, Minn., October 31, 2012 – Image Sensing Systems, Inc. (NASDAQ: ISNS), announced today the results for its first nine months of its fiscal year and third quarter ended September 30, 2012.

Revenue for the nine months ended September 30, 2012 was $18.1 million compared to $21.7 million for the same period of 2011, while revenue for the third quarter of 2012 was $7.2 million compared to $7.4 million for the same period a year ago. Revenue from royalties was $9.2 million in the first nine months of 2012 compared to $9.1 million in 2011 and $3.8 million in the third quarter of 2012 compared to $3.3 million in the same period of 2011. Product sales were $9.0 million for the first nine months of 2012 compared to $12.6 million in 2011 and were $3.4 million in the third quarter of 2012 compared to $4.1 million in the same period in 2011. World-wide CitySync product sales were $3.7 million in the first nine months of 2012 and $1.1 million in the third quarter and RTMS® product sales and royalties were $1.8 million and $621,000, respectively, in the first nine months of 2012 and $799,000 and $258,000, respectively in the third quarter. Econolite distribution of RTMS in North America began in the first quarter of 2012.

Net loss for the first nine months of 2012 was $(3.3) million or $(0.68) per share compared to a net loss of $(9.3) million or $(1.93) per share for the same period in 2011. Net income for our 2012 third quarter was $1.0 million or $0.20 per diluted share compared to net loss of $(8.7) million or $(1.81) per share for the same period in 2011. We recorded non-cash goodwill impairment charges in the second quarter of 2012 and the third quarter of 2011. On a non-GAAP basis, excluding the goodwill impairment charge, restructuring and intangible asset amortization, all net of tax, net income for the first nine months of 2012 was $735,000 or $0.15 per share and net income for the third quarter was $831,000 or $0.17 per share. Gross margins on product sales in the third quarter of 2012 were negatively impacted by a $150,000 lower of cost or market adjustment to inventory procured for a contract that was subsequently cancelled. Our effective income tax rate for 2012 is impacted by a non-deductible portion of the goodwill impairment charge and our tax credit status in multiple jurisdictions.

Kris Tufto, CEO, said, “Certain of our assets continued to underperform their potential, but we saw improved results in numerous areas. In combination with reduced operating expenses, and despite a $0.05 per share charge to separate from our prior CEO, we had our most profitable quarter since 2010 and this is encouraging for sustaining profitable growth. Further, we again increased our cash and investments balances at quarter-end to $10.6 million, up from $9.7 million at June 30 and $7.3 million at the start of the year.

“We are in a transition period and are reexamining our business model, operational tactics and markets. And while we are optimistic that long-term U.S. Federal funding commitments will help buoy our North American outlook, our business faces continued uncertainty. We likely will determine that operational expense in the near term should be increased to solidify our efforts in various engineering and marketing areas. We believe we can achieve reasonable profit levels and revenue growth through better utilization of our assets.

“The rollout of our Autoscope® Duo hybrid product remains a key focus and we have recently made some important enhancements to Duo based on feedback from the field. We are excited to see the demonstration sites achieving detection rates equal to those of in–ground loops. We expect strong pick up for demand after the enhancements are trialed and added to customer specifications, although this is a quarter or two later than our original target,“ continued Mr. Tufto.

Non-GAAP Information

We provide certain non-GAAP financial information as supplemental information to GAAP amounts. This non-GAAP information excludes the impact, net of tax, of amortizing the intangible assets from the 2007 EIS asset acquisition and the 2010 CitySync acquisition 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 may not be computed the same as similarly titled measures used by other companies.

About ISS

Image Sensing Systems, Inc. is a provider of software-based detection solutions for the Intelligent Transportation Systems (ITS) sector and adjacent markets including security, police and parking. We have sold more than 125,000 units of our industry leading Autoscope® machine-vision, RTMS® radar and CitySync automatic number plate recognition (ANPR) products in over 60 countries worldwide. This depth of our experience coupled with the breadth of our product portfolio uniquely positions us to provide powerful hybrid technology solutions and to exploit the convergence of the traffic, security and environmental management markets. We are headquartered in St. Paul, Minnesota.