<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 FORM 10-KSB/A-1

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

                   For the fiscal year ended December 31, 2001

[ ]      TRANSITION REPORT UNDER 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.
                 (Name of small business issuer in its charter)

<TABLE>
<S>                                              <C>
               MINNESOTA                                   41-1519168
               ---------                                   ----------
    State or other jurisdiction of               IRS Employer Identification No.
     incorporation of organization

        500 SPRUCE TREE CENTRE
        1600 UNIVERSITY AVE. W.
          ST. PAUL, MN 55104                             (651) 603-7700
     ----------------------------                        --------------
Address of principal executive offices              Issuer's telephone number
</TABLE>

         Securities registered under Section 12(b) of the Exchange act:

                                      NONE
                               Title of each class


         Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK, $.01 PAR VALUE
                               Title of each class

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (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 90
days. [X] Yes     [ ] No

         Check if there is no disclosure of delinquent filers in response to
Items 405 of Regulation S-B in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form-10-KSB. [X]

         The registrant's revenues for the fiscal year ended December 31, 2001
totaled $6,682,000.

         Based on the closing bid price at March 12, 2002, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$6,305,554.

         The number of shares outstanding of the registrant's $.01 par value
common stock, as of March 12, 2002, was 3,152,777 shares.

         Transitional Small Business Issuer Format:   [ ] Yes   [X] No


                                EXPLANATORY NOTE

This Amendment No. 1 to the Form 10-KSB of Image Sensing Systems, Inc. for the
fiscal year ended December 31, 2001 is being filed in order to add the
information required by Part III of the Form 10-KSB, to update the "Recent
Developments" section of Part I, Item 6 of the Form 10-KSB and to file
additional exhibits. Other than these items, none of the information contained
in our Form 10-KSB filed on April 1, 2002, has been amended or restated.


                                       1
<PAGE>
                                     PART I

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         Our critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in Note 1 to the Consolidated Financial
Statements. These policies have been consistently applied in all material
respects and address such matters as revenue recognition, depreciation methods,
asset impairment recognition, deferred tax valuation allowance, business
combination and accounting. While the estimates and judgments associated with
the application of these policies may be affected by different assumptions or
conditions, we believe the estimates and judgments associated with the reported
amounts are appropriate in the circumstances.

         The following table sets forth, for the periods indicated, certain
statements of operational data as a percent of revenue:

<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                     2001           2000
                                                     ----           ----
<S>                                                <C>            <C>
Product sales                                        36.1%          53.2%
Royalties                                            60.0           44.5
Consulting services                                   3.9            2.3
                                                    -----          -----
Total revenue                                       100.0          100.0
Cost of revenue                                      31.1           38.5
                                                    -----          -----
Gross profit                                         68.9           61.5
Selling, marketing and product support               33.4           26.7
General and administrative                           30.0           38.2
Research and development                             14.4            0.0
                                                    -----          -----
Loss from operations                                 (8.9)          (3.4)
Net loss                                             (6.8)           (.8)
</TABLE>

         Product sales for 2001 decreased to $2,410,000 compared to $3,210,000
in 2000. The decrease was due primarily to lower sales in Asia ($1,866,000 in
2001 compared to $2,643,000 in 2000). The difference is attributable to large
orders from Korea and Hong Kong in 2000 with a value of approximately
$1,300,000. Royalty income increased to $4,010,000 in 2001, compared to
$2,684,000 in 2000. The increase in royalty income in 2001 resulted primarily
from the introduction of the AutoScope Solo Pro(TM), which is more cost
effective than the prior version of the Solo product. Revenue from consulting
services increased to $262,000 in 2001 from $142,000 in 2000. The majority of
consulting income came from our contract with Oakland County in Michigan.

         Gross profits were $4,601,000, or 68.9% of revenue, in 2001, compared
to $3,711,000, or 61.5% of revenue, in 2000. The gross profit was 74.4% before
the write-off of Mobile Blocker inventory and write down of old style Solo
inventory. This inventory adjustment total was $368,000. The increase in our
gross profit margin percentage was due primarily to greater royalty revenue from
Econolite as a percent of total revenues. We expect the revenue mix to be
comparable to 2001 levels in 2002.

         Selling, marketing, and product support expenses were $2,229,000, or
33.4% of revenue, in 2001, compared to $1,609,000, or 26.7% of revenue, in 2000.
The increase resulted primarily from increased spending for sales and marketing
personnel and other business development costs related to our international
business, and the development of the business infrastructure for the sales and
marketing of our suite of wireless products, including the Mobile Blocker
product. We expect selling, marketing and product expenses to decrease in 2002
based on the fact that we are returning primary focus to our core business.

         General and administrative expenses were $2,006,000, or 30.0% of
revenue, in 2001, compared to $2,305,000, or 38.2% of revenue, in 2000. The
decrease was due primarily to cost cutting in 2001, eliminating two part-time
positions, cutting back in travel, dues, and quarterly shareholder mailings
along with the absence in 2001 of the incremental expense we incurred in 2000
related to our stock dividend and fees related to the issuance of additional
shares in connection with the dividend.


                                       2
<PAGE>
         The research and development expenses and capitalized software
development costs totaled $961,000 in 2001 compared to $615,000 in 2000. The
increase resulted primarily from the fact that we focused on the development of
enhancements to existing products in 2001, and additionally on the development
work on Flame Detection. We also added two engineers in January 2001, which
increased our research and development cost. In early 2002 we laid off five
engineers and believe our development expense for 2002 will be closer to the
levels in 2000.

         Net loss was $455,000 (Image Sensing Systems loss of $416,000 and loss
from Flow Traffic of $39,000), or 6.8% of revenue, in 2001, compared to a loss
of $50,000 (Image Sensing Systems loss of $242,000 and income from Flow Traffic
of $192,000), or 0.8% of revenue, in 2000. There was an $87,000 domestic tax
benefit in 2000 that mitigated 2000 losses. There was no tax provision in 2001.
The primary difference in the 2001 loss as compared to 2000 is the write off of
$370,000 of inventory, $325,000 of which is attributable to the Mobile Blocker
product. We took the write off in connection with our decision to cease our
efforts to enter the Mobile Blocker and non-traffic related wireless business.

Liquidity and Capital Resources

         At December 31, 2001, we had $1,200,000 in cash and cash equivalents,
compared to $1,780,000 at December 31, 2000. We had working capital of
$2,175,000, and a ratio of current assets to current liabilities of 2.9 to 1 at
December 31, 2001, compared to $2,395,000 and 3.6 to 1, respectively, at the end
of 2000. We believe that our decision to exit unprofitable business, related
staff reductions and reduced business development expenses will have a positive
impact on our liquidity in 2002.

         Net cash provided by operating activities was $374,000 in 2001,
compared to $563,000 in 2000. The decrease in 2001 was due primarily to an
increase in accounts receivable, which was attributable to the increased royalty
income from Econolite. We anticipate 2002 accounts receivable to be similar to
2001 levels, and cash from operating activity to increase, for the same reasons
we expect liquidity to increase in 2002, as described above.

         In 2001 we received cash of approximately $28,000 in connection with
the exercise of stock options and warrants.

         We believe that cash and cash equivalents on hand at December 31, 2001,
along with an available $500,000 revolving line of credit with a bank and
savings from recent restructuring, will satisfy our projected working capital
needs, investing activities, and other cash requirements through 2002. Current
availability on our line of credit is $50,000 with the balance used to secure
the letter of credit issued to our Flow Traffic minority shareholders (see
Recent Developments).

Recent Developments

         On January 7, 2002 we purchased all of the shares then held by the
minority shareholders of our subsidiary Flow Traffic Ltd., making Flow Traffic
our wholly owned subsidiary. The purchase was made in accordance with the Shares
Sale and Purchase Agreement dated November 28, 2001, as amended on December 31,
2001 and April 15, 2002, among Image Sensing Systems and the minority
shareholders of Flow Traffic. The minority shareholders then included Johan
Billow and Grove Place Limited, a consulting company affiliated with Anthony H.
Gould. Subsequently, in February 2002, Anthony Gould and Johan Billow were
elected to our Board of Directors, Anthony Gould was appointed as our interim
President and Chief Executive Officer and Johan Billow was appointed as our Vice
President for International Business. The agreement and amendments are filed as
exhibits to this Form 10-KSB. Prior to this purchase, we owned six shares of
Flow Traffic, and the minority shareholders collectively owned four shares of
Flow Traffic.

         We agreed to pay the following amounts to the minority shareholders as
consideration for their shares:

         -        Cash payments at the time of purchase totaling $250,000.


                                       3
<PAGE>
         -        A cash payment to Grove Place Limited only in the amount of
                  $50,000, payable on April 19, 2002.

         -        Additional payments totaling $450,000, payable at any time
                  between April 1, 2003 and April 30, 2003 upon the request of
                  the minority shareholders, which payments are secured by
                  letters of credit drawn in favor of the minority shareholders
                  and expiring on April 30, 2003.

         -        Non-interest bearing notes, maturing on January 7, 2007, in
                  the aggregate principal amount of $250,000, and convertible
                  into an aggregate of 100,000 shares of our common stock. The
                  holders may demand payment for their notes at any time after
                  April 1, 2003. The notes may be prepaid by us at any time
                  during calendar year 2002 for their aggregate principal amount
                  of $250,000 and without penalty or additional fees, or may be
                  prepaid by us at any time after April 1, 2003, for the
                  aggregate principal amount of $250,000 plus additional
                  payments totaling $50,000. If not converted or paid by January
                  7, 2007, each note will be redeemed by us on that date for its
                  principal amount. Each note also provides that if the note is
                  converted into shares of our common stock, we will register
                  such shares with the Securities and Exchange Commission, if so
                  requested by the holder.

         In addition to the foregoing consideration, if Flow Traffic achieves an
audited net profit before tax of HK$1,418,000 (approximately US$181,795) or
greater for fiscal year 2002, we will make an additional cash payment totaling
$50,000 to Mr. Billow, payable within 10 days after completion of Flow Traffic's
annual audit.

         In the first quarter of 2002 we laid off seven full-time employees. Of
the seven employees, five were in engineering and two were in sales and
marketing. Additionally in the first quarter of 2002, William L. Russell, our
Chairman, President and Chief Executive Officer, left Image Sensing Systems to
pursue other interests. In connection with these resignations and terminations,
we incurred $280,000 in severance expense in the first quarter of 2002.

         Anthony H. Gould, who previously served as Managing Director and an
indirect minority shareholder of our subsidiary Flow Traffic Ltd., acted as
interim President and Chief Executive Officer from February 11, 2002 through
April 15, 2002, when he left Image Sensing Systems to pursue other interests.
James Murdakes, our Chairman of the Board, has served as interim President and
Chief Executive Officer since April 15, 2002 and will continue serving in this
capacity until we designate a new President and Chief Executive Officer.

         Jeffrey F. Martin, our Chief Financial Officer, has announced his
intention to resign effective as of the close of business on April 30, 2002. We
have retained the services of an independent contractor to assist us with
financial matters until we designate a replacement for Mr. Martin.

         In connection with Mr. Gould's departure, we will incur $60,000 in
severance expense in the second quarter of 2002, $60,000 in the third quarter of
2002, and $58,000 in the first quarter of 2003. In connection with Mr. Martin's
departure, in the second quarter of 2002, we will incur severance expense in the
amount of $35,628.57 (less any applicable tax withholding).


                                       4
<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
        SECTION 16(a) OF THE EXCHANGE ACT.

                    DIRECTORS AND OFFICERS OF THE REGISTRANT

Our directors and executive officers provided the following information about
themselves as of April 5, 2002.


MATS JOHAN BILLOW, age 39, director since February 2002. Mr. Billow became Vice
President for International Business of Image Sensing Systems in February 2002.
Prior to that, he served as General Manager for our wholly owned subsidiary Flow
Traffic Ltd., a Hong Kong-based distributor of traffic management products and
systems that provides marketing and technical support for a broad range of
traffic technologies throughout Asia. Mr. Billow founded Flow Traffic in 1998.
Between 1996 and 1998, Mr. Billow was the General Manager of Peek Ltd., the
Asia-Pacific arm of Peek plc, a provider of products and services for improving
traffic and the traveler environment, with responsibility for Peek's traffic
business in East Asia. During this time he managed Peek's Chinese joint venture
business and various traffic projects funded by the World Bank and Asian
Development Bank.

RICHARD P. BRAUN, age 76, director since 1994. Mr. Braun served as Director of
the Center for Transportation Studies at the University of Minnesota from 1987
to 1994. From September 1993 to February 1995, Mr. Braun also served as Chairman
of the State of Minnesota's Metropolitan Airports Commission, and he was
Commissioner of Transportation for the State of Minnesota from 1979 to 1987. He
retired from full-time employment in 1994. Mr. Braun is a member of the
compensation and stock option committee.

C. MICHAEL ELEFTHERIOU, age 57, director since April 2002. Since July 2001, Mr.
Eleftheriou has served as President and Chief Executive Officer of Creative
Publishing International, a Minneapolis-based publisher of how-to books, and a
premier publisher of nature, photography and wildlife books for children and
adults. From 1998 to July 2001, Mr. Eleftheriou was President, Systems
Integration Services at Syntegra U.S.A., a global consulting and systems
integration business. He served as Vice President, Systems Integration Services
at Syntegra U.S.A. from 1997 to 1998.

RICHARD C. MAGNUSON, age 60, director since 1990. Since 1997, Mr. Magnuson has
served as President and Chief Executive Officer of BioMedix, Inc., a medical
device company. From 1995 to 1997 he operated his own management consulting
firm, Operations Management, Inc. Prior to 1995, Mr. Magnuson served as
President and Chief Executive Officer of Image Sensing Systems from 1991 to 1995
and as Vice President and Secretary during 1995. From 1988 to 1990, Mr. Magnuson
worked with Image Sensing Systems as a private consultant. Mr. Magnuson is a
member of the audit committee.

PANOS G. MICHALOPOULOS, age 53, director since 1984. Dr. Michalopoulos was
Chairman of the Board of Image Sensing Systems from our inception in 1984
through 1999, and served as Chief Scientific Advisor from 1995 through 2000.
Since 1977, Dr. Michalopoulos has been a professor in the Department of Civil
Engineering at the University of Minnesota. Dr. Michalopoulos has more than 27
years of research, teaching, and consulting experience in traffic engineering
operations and control. He has taught at several universities, consulted with
many firms in the United States and abroad in the area of traffic control, and
has worked as a traffic engineer.


                                       5
<PAGE>
JAMES MURDAKES, age 69, director since 1994. Mr. Murdakes was elected Chairman
of the Board of Image Sensing Systems in February 2002. He served as President
and Chief Executive Officer of LSC, Inc., a Minneapolis-based systems integrator
for computer network storage servers, from 1993 through 1996, and was Chairman
of the Board of Directors and a management consultant to LSC in 1997. He retired
from full-time employment in 1998. Mr. Murdakes is a member of the audit
committee and the compensation and stock option committee.

JEFFREY F. MARTIN, age 46, has served as Chief Financial Officer and Treasurer
since December 1999. From 1998 through 1999, Mr. Martin was the Chief Financial
Officer, Secretary and a director of Tech Squared Inc., a catalog mail order and
fulfillment company. From 1996 through 1998 he was the Chief Financial Officer
of Utiligent, LLC, an Andersen Consulting Enterprise subsidiary. Mr. Martin has
an MBA in Finance.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than 10% of our
common stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater-than-10% beneficial owners are required by SEC regulations
to furnish us with copies of all Section 16(a) reports they file. Based solely
on a review of the copies of such forms furnished to us during 2001 and written
representations from the executive officers, directors and greater-than-10%
beneficial owners of our common stock, we believe that all of our executive
officers, directors and greater-than-10% shareholders complied with all Section
16(a) filing requirements applicable to them.


                                       6
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table sets forth the cash and non-cash compensation
awarded to or earned in the last three fiscal years by our chief executive
officer and each of our other executive officers and significant employees whose
salary and bonus paid by us in fiscal 2001 exceeded $100,000.

<TABLE>
<CAPTION>
                                                                               LONG-TERM
                                                    ANNUAL COMPENSATION       COMPENSATION
                                                    -------------------       ------------
                                                                               SECURITIES
                                                                               UNDERLYING        ALL OTHER
                                                      SALARY        BONUS      OPTIONS(5)       COMPENSATION
NAME AND PRINCIPAL POSITION                YEAR         ($)          ($)          (#)                ($)
---------------------------                ----         ---          ---          ---                ---
<S>                                        <C>        <C>           <C>        <C>              <C>
William L. Russell(1)                      2001       157,500       13,750            --                  --
President and Chief Executive Officer      2000       152,694           --       135,000                  --
                                           1999       144,585       26,250            --               2,165(6)

Anthony H. Gould(2)                        2001       203,400           --            --                  --
President and Chief Executive Officer      2000       198,900           --            --                  --
                                           1999       194,400           --        12,000                  --

Mats Johan Billow(3)                       2001       170,964        7,067            --               4,241(7)
Vice President for International Business  2000       123,910       45,000            --                  --
                                           1999       105,128       11,538            --                  --

Jeffrey F. Martin(4)                       2001       110,250           --            --                  --
Chief Financial Officer                    2000       106,380           --            --                  --
                                           1999         2,827           --        30,000                  --
</TABLE>

-------------
(1)      Mr. Russell resigned as President and Chief Executive Officer on
         February 11, 2002.

(2)      Mr. Gould served as Managing Director, Image Sensing Systems Asia and
         Managing Director of our subsidiary Flow Traffic Ltd. from December
         1998 and served as interim President and Chief Executive Officer of
         Image Sensing Systems, Inc. from February 12, 2002. He resigned from
         all of these positions on April 15, 2002.

(3)      Mr. Billow became Vice President for International Business on February
         11, 2002. He previously served as General Manager of our subsidiary
         Flow Traffic Ltd.

(4)      Mr. Martin commenced employment with us in December 1999. He has
         announced his intention to resign effective as of the close of business
         on April 30, 2002.

(5)      The options were granted under the Image Sensing Systems, Inc. 1995
         Long-Term Incentive and Stock Option Plan.

(6)      Represents matching contributions paid by Image Sensing Systems
         pursuant to our 401(k) plan.

(7)      Represents a pension plan contribution paid by Flow Traffic Ltd.


                                       7
<PAGE>
                                  STOCK OPTIONS

         In fiscal 2001, no stock options were awarded to the individuals named
in the Summary Compensation Table above. The following table provides
information concerning option exercises during fiscal 2001 by these individuals.

                   AGGREGATED OPTION EXERCISES IN FISCAL 2001
                   AND VALUE OF OPTIONS AT END OF FISCAL 2001

<TABLE>
<CAPTION>
                                                                   NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                                  UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT
                                                                   OPTIONS AT 12/31/01                12/31/01(2)
                                                                   -------------------                -----------
                          SHARES ACQUIRED         VALUE                EXERCISABLE/                  EXERCISABLE/
NAME                      ON EXERCISE (#)      REALIZED(1)            UNEXERCISABLE                  UNEXERCISABLE
----                      ---------------      -----------            -------------                  -------------
<S>                       <C>                  <C>                <C>                           <C>
William L. Russell              1,900             3,401                121,100/120,000                    --
Anthony H. Gould                   --                --                   9,000/12,000                    --
Mats Johan Billow                  --                --                             --                    --
Jeffrey F. Martin                  --                --                  15,000/30,000                    --
</TABLE>

-------------
(1)      Value determined by subtracting the exercise price per share from the
         closing price per share of our common stock on the date of exercise.

(2)      Because the exercise price of the options exceeded the fair market
         value of our common stock on December 31, 2001, none of the options
         held by these individuals were in the money as of December 31, 2001.

                            COMPENSATION OF DIRECTORS

COMPENSATION OF DIRECTORS

         Each of our non-employee directors receives an annual retainer for
serving as a director. In 2001, each non-employee director received a total
annual retainer of $10,000, with $4,000 paid immediately after the annual
shareholders' meeting and $500 paid each month during which the director served
on the Board. Directors who are appointed to the Board at any time after the
annual meeting receive a pro rata amount. The amount of the annual retainer and
its payment schedule will remain unchanged in 2002. Non-employee directors also
are granted a non-qualified stock option to purchase 25,000 shares of our common
stock after completing their first year of service on the Board of Directors.
These grants are made under our 1995 Long-Term Incentive and Stock Option Plan.
Directors who are employees of Image Sensing Systems do not receive any
additional compensation for their service on the Board of Directors.

                             EMPLOYMENT AGREEMENTS


ANTHONY H. GOULD

         From December 1998 and until Mr. Gould's resignation on April 15, 2002,
we were parties to a consulting agreement with Grove Place Limited, a consulting
company of which Mr. Gould is an employee, pursuant to which Mr. Gould agreed to
serve as Managing Director of Image Sensing Systems Asia effective as of
December 1, 1998. The consulting agreement continued to govern our employment
arrangement with Mr. Gould when he served as interim President and Chief
Executive Officer from February 12, 2002 through April 15, 2002. Under the
agreement, Mr. Gould was entitled to a monthly salary of $16,200, subject to
annual review and adjustment. The agreement provided for the grant of an option
to purchase 12,000 shares of our common stock and entitled Mr. Gould to
participate in any annual bonus plan for Image Sensing System's management. In
the event of Mr. Gould's serious illness, accident or other medical incapacity,
Mr. Gould was entitled to up to 180 days base pay in any 12-month period and
such remuneration thereafter as the Board determined in its discretion. The
agreement also could be terminated by Image Sensing Systems immediately in the
event for cause (as described in the agreement) or upon four months' notice in
the event of Mr. Gould's incapacity for a continuous period of 180 days


                                       8
<PAGE>
or periods aggregating 125 working days in the preceding 12 months. The
agreement could be terminated by either party for any reason upon six months'
prior written notice. During the term of the agreement, Mr. Gould was prohibited
from undertaking any other business or profession or becoming an employee or
agent of any other company, firm or person or assist in any other business or
profession. For a period of 12 months following termination of the agreement,
Mr. Gould may not (a) directly or indirectly engage in any business activity
that is competitive with any business of Image Sensing Systems, (b) provide
technical, commercial or professional advice to any business that is competitive
with Image Sensing Systems, or (c) solicit or otherwise interfere with the
relationship between Image Sensing Systems and any entity or individual who has
been a customer, supplier or employee of Image Sensing Systems at any time
during the 12 months prior to Mr. Gould's termination. In addition, the
agreement provided for the nondisclosure of confidential information of Image
Sensing Systems both during the term and following termination of the agreement.

         In connection with his resignation on April 15, 2002, we entered into a
settlement and release agreement with Mr. Gould pursuant to which we mutually
agreed to Mr. Gould's resignation from all positions held with Image Sensing
Systems and the termination of his employment agreement, other than provisions
relating to non-competition, non-solicitation and confidentiality, which will
survive termination of the employment agreement. Under the settlement and
release agreement, we agreed to pay Mr. Gould a severance payment of $178,000,
payable in three installments on or before April 19, 2002, September 1, 2002,
and January 7, 2003.


WILLIAM L. RUSSELL

         During fiscal 2001 and until his resignation on February 11, 2002, Mr.
Russell was party to an employment agreement with Image Sensing Systems,
effective as of June 2000, under which he agreed to serve as President and Chief
Executive Officer for a term of six years, after which time the agreement was
terminable by either party upon 12 months' notice. Under the agreement, Mr.
Russell's base salary was $157,500, subject to annual reevaluation, and Mr.
Russell was eligible for incentive compensation upon achieving performance
objectives established annually by Mr. Russell and the Board of Directors. Mr.
Russell's base salary in fiscal 2001 was $157,500. Under the agreement, if we
terminated Mr. Russell other than for Good Cause (as defined in the agreement)
or if Mr. Russell's employment terminated as a result of our sale, acquisition
or merger, Mr. Russell would be entitled to severance equal to 12 months' salary
(plus benefits if termination is other than for Good Cause). Under his
agreement, Mr. Russell also agreed that for one year following termination of
his employment, he would not directly or indirectly engage in any business
activity that is competitive with any business of Image Sensing Systems or any
business that is engaged in the development or production of products intended
to compete with our products, and that he will not solicit or assist anyone else
in the solicitation of any of our then-current employees or solicit any of our
then-current customers. In addition, the agreement provided for the
nondisclosure of confidential information of Image Sensing Systems both during
the term and following termination of the agreement.

         In connection with his resignation on February 11, 2002, we entered
into a settlement and release agreement with Mr. Russell pursuant to which we
mutually agreed to Mr. Russell's resignation from all positions held with Image
Sensing Systems and the termination of his employment agreement, other than
provisions relating to non-competition, non-solicitation and confidentiality,
which will survive termination of the employment agreement. Under the settlement
and release agreement, we agreed to pay Mr. Russell a lump-sum severance payment
of $167,000.


JEFFREY F. MARTIN

         Mr. Martin entered into an employment agreement in December 1999 to
serve as Chief Financial Officer for an indefinite term. The agreement was
terminable by either party for any reason or no reason upon 90 days' notice,
except that we could terminate the agreement at any time without notice for Good
Cause (as defined in the agreement). The agreement provided that if we terminate
Mr. Martin at any time after Mr. Martin's first year of employment other than
for Good Cause, we will pay Mr. Martin severance equal to three months' salary
and benefits. The agreement also provided that if Mr. Martin is terminated as a
result of our sale, acquisition or merger, he would be entitled to severance
equal to his salary for the term of one year from his termination date or until
Mr. Martin obtained new employment, whichever occurred earlier. Under the terms
of his employment agreement, Mr. Martin was entitled to receive an annual base
salary of $110,250, subject to reevaluation from time to time, and was eligible
for incentive compensation subject to his achievement of performance objectives
established annually by Mr. Martin and the Board of Directors. Additionally,
upon commencement of his employment in December 1999, Mr. Martin received an
option to purchase 25,000 shares of our common stock, vesting in four equal,
annual


                                       9
<PAGE>
increments on the first four anniversaries of the date of the employment
agreement. The agreement also provides that during and for one year following
termination of his employment with us, Mr. Martin will not directly or
indirectly engage in any business activity that is competitive with any business
of Image Sensing Systems and that is engaged in the development or production of
products intended to compete with our products, and he will not solicit or
assist anyone else in the solicitation of any of our then-current employees or
solicit any of our then-current customers.

         Mr. Martin has announced his intention to resign effective as of the
close of business on April 30, 2002. In connection with his resignation, we have
entered into a settlement and release agreement with Mr. Martin pursuant to
which we mutually agreed to Mr. Martin's resignation from all positions held
with Image Sensing Systems and the termination of his employment agreement,
other than provisions relating to non-competition, non-solicitation and
confidentiality, which will survive termination of the employment agreement.
Under the settlement and release agreement, we agreed to pay a lump-sum
severance payment to Mr. Martin in the amount of $35,628.57, less any applicable
tax withholding.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information with respect to
beneficial ownership of our common stock as of April 5, 2002, by: (a) each
person or entity known by us to own beneficially more than five percent of our
common stock; (b) each director of Image Sensing Systems; (c) each of the named
executive officers included in the Summary Compensation Table set forth under
the caption "Executive Compensation" below; and (d) all directors and executive
officers as a group.

         Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes generally voting power and/or
investment power with respect to securities. Shares of common stock issuable
pursuant to stock options that are currently exercisable or exercisable within
60 days of the date of this proxy statement are deemed outstanding for computing
the beneficial ownership percentage of the person holding the options but are
not deemed outstanding for computing the beneficial ownership percentage of any
other person. Except as indicated by footnote, the persons named in the table
above have the sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The address of each director
and named executive officer is the same as that of Image Sensing Systems.

<TABLE>
<CAPTION>
                                                            COMMON STOCK         PERCENT OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER                     BENEFICIALLY OWNED            OUTSTANDING
------------------------------------                     ------------------            -----------
<S>                                                      <C>                     <C>
Betty P. Papapanou                                            737,368(1)                   23.0%
  2483 Albert St N
  Roseville, MN  55113

Brown Brothers Harriman & Co.                                 332,600                      10.5%
  59 Wall Street
  New York, NY  10005

Mats Johan Billow                                              55,000(2)                    1.7%
Richard P. Braun                                              134,134(2)(3)                 4.2%
C. Michael Eleftheriou                                             --                         --
Anthony H. Gould                                               59,000(2)                    1.8%
Richard C. Magnuson                                           101,405(2)(4)                 3.2%
Jeffrey F. Martin                                              15,000(2)                       *
Panos G. Michalopoulos                                      1,450,860(1)(2)(5)             44.3%
James Murdakes                                                 66,526(2)                    2.1%
William L. Russell                                            121,100(2)                    3.7%
All directors and executive officers as a group             2,003,025(2)(6)                55.9%
(9 persons)
</TABLE>

-------------
*        Less than 1%.


                                       10
<PAGE>
(1)      Includes 655,291 shares of common stock and 57,000 shares issuable
         pursuant to options exercisable within 60 days of April 29, 2002 held
         by Ms. Papapanou, as to all of which shares Dr. Michalopoulos has sole
         voting power in accordance with an agreement between Dr. Michalopoulos
         and Ms. Papapanou.

(2)      Includes shares issuable pursuant to options exercisable within 60 days
         after April 29, 2002: for Mr. Billow, 50,000 shares; for Mr. Braun,
         36,000 shares; for Mr. Gould, 59,000 shares; for Mr. Magnuson, 12,000
         shares; for Mr. Martin, 15,000 shares; for Dr. Michalopoulos, 120,000
         shares; for Mr. Murdakes, 20,000 shares; for Mr. Russell, 121,100
         shares; and for all directors and executive officers as a group,
         433,100 shares.

(3)      Includes 78,000 shares held indirectly through a trust of which Mr.
         Braun is a trustee and as to which shares Mr. Braun has shared voting
         and investment power.

(4)      Includes 39,852 shares held by Operating Management, Inc., a
         corporation controlled by Mr. Magnuson.

(5)      Includes 360 shares held by Dr. Michalopoulos' son, as to which Dr.
         Michalopoulos disclaims beneficial ownership.

(6)      Includes shares beneficially owned by Messrs. Gould and Russell, who
         resigned all positions held with us on February 11, 2002 and April 15,
         2002, respectively, and by Mr. Martin, who has announced his intention
         to resign effective as of the close of business on April 30, 2002.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On January 7, 2002 we purchased all of the shares then held by the
minority shareholders of our subsidiary Flow Traffic Ltd., making Flow Traffic
our wholly owned subsidiary. The purchase was made in accordance with the Shares
Sale and Purchase Agreement dated November 28, 2001, as amended on December 31,
2001 and April 15, 2002, among Image Sensing Systems and the minority
shareholders of Flow Traffic. The minority shareholders then included Johan
Billow and Grove Place Limited, a consulting company affiliated with Anthony H.
Gould. Subsequently, in February 2002, Anthony Gould and Johan Billow were
elected to our Board of Directors, Anthony Gould was appointed as our interim
President and Chief Executive Officer and Johan Billow was appointed as our Vice
President for International Business. As discussed elsewhere in this Form
10-KSB, Mr. Gould resigned from all positions held with Image Sensing Systems on
April 15, 2002. The agreement and amendments are filed as exhibits to this Form
10-KSB. Prior to this purchase, we owned six shares of Flow Traffic, and the
minority shareholders collectively owned four shares of Flow Traffic.

         We agreed to pay the following amounts to the minority shareholders as
consideration for their shares:

         -        Cash payments at the time of purchase totaling $250,000.

         -        A cash payment to Grove Place Limited only in the amount of
                  $50,000, payable on April 19, 2002.

         -        Additional payments totaling $450,000, payable at any time
                  between April 1, 2003 and April 30, 2003 upon the request of
                  the minority shareholders, which payments are secured by
                  letters of credit drawn in favor of the minority shareholders
                  and expiring on April 30, 2003.

         -        Non-interest bearing notes, maturing on January 7, 2007, in
                  the aggregate principal amount of $250,000, and convertible
                  into an aggregate of 100,000 shares of our common stock. The
                  holders may demand payment for their notes at any time after
                  April 1, 2003. The notes may be prepaid by us at any time
                  during calendar year 2002 for their aggregate principal amount
                  of $250,000 and without penalty or additional fees, or may be
                  prepaid by us at any time after April 1, 2003, for the
                  aggregate principal amount of $250,000 plus additional
                  payments totaling $50,000. If not converted or paid by January
                  7, 2007, each note will be redeemed by us on that date for its
                  principal amount. Each note also provides that if the note is
                  converted into shares of our common


                                       11
<PAGE>
                  stock, we will register such shares with the Securities and
                  Exchange Commission, if so requested by the holder.

         In addition to the foregoing consideration, if Flow Traffic achieves an
audited net profit before tax of HK$1,418,000 (approximately US$181,795) or
greater for fiscal year 2002, we will make an additional cash payment totaling
$50,000 to Mr. Billow, payable within 10 days after completion of Flow Traffic's
annual audit.

         In fiscal 2001, Flow Traffic paid a cash dividend to each of its
shareholders, pursuant to which Mr. Billow and Mr. Gould each received $25,641.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      List of documents filed as part of the report:

                  1.       Financial statements referenced in Item 7

                  2.       Exhibits:

<TABLE>
<CAPTION>
Exhibit No        Description
----------        -----------
<S>               <C>
10.22*            Settlement and Release Agreement dated April 15, 2002, between
                  ISS, Flow Traffic Limited, Grove Place Limited and Anthony
                  Gould.

10.23             Amendment No. 2, dated as of April 15, 2002, to Shares Sale
                  and Purchase Agreement dated November 28, 2001, among ISS and
                  Berkeley Development Limited, Mats Johan Billow and Grove
                  Place Limited.

10.24*            Settlement and Release Agreement dated April 29, 2002, between
                  ISS and Jeffrey Martin.
</TABLE>

* Management contract or compensatory plan or arrangement.

b) REPORTS ON FORM 8-K FILED DURING FOURTH QUARTER OF 2001:

         None


                                       12
<PAGE>
                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, Image Sensing Systems, Inc. has duly caused this Amendment No. 1 to the
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized:

IMAGE SENSING SYSTEMS, INC.

<TABLE>
<S>                                                                             <C>
/s/ James Murdakes                                                              Date: April 29, 2002
-----------------------------------------------------------------------              ---------------
By:  James Murdakes, Chairman of the Board
</TABLE>

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<S>                                                                             <C>
         /s/ James Murdakes                                                     Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         James Murdakes
         Chairman of the Board,
         President and Chief Executive Officer (Principal Executive Officer)


         /s/ Jeffrey F. Martin                                                  Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         Jeffrey F. Martin
         Chief Financial Officer (Principal Financial & Accounting Officer)


         /s/ Panos G. Michalopoulos*                                            Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         Panos G. Michalopoulos
         Director


         /s/ Richard P. Braun*                                                  Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         Richard P. Braun
         Director


         /s/ C. Michael Eleftheriou*                                            Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         C. Michael Eleftheriou
         Director


         /s/ Richard C. Magnuson*                                               Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         Richard C. Magnuson
         Director


         /s/ Mats Johan Billow*                                                 Date: April 29, 2002
         --------------------------------------------------------------              ---------------
         Mats Johan Billow
         Director
</TABLE>

*By /s/ Jeffrey F. Martin
    -----------------------
     Jeffrey F. Martin
     Attorney-in-Fact


                                       13
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.       Description
-----------       -----------
<S>               <C>
10.22             Settlement and Release Agreement dated April 15, 2002, between
                  ISS, Flow Traffic Limited, Grove Place Limited and Anthony
                  Gould.

10.23             Amendment No. 2, dated as of April 15, 2002, to Shares Sale
                  and Purchase Agreement dated November 28, 2001, among ISS and
                  Berkeley Development Limited, Mats Johan Billow and Grove
                  Place Limited.

10.24             Settlement and Release Agreement dated April 29, 2002, between
                  ISS and Jeffrey Martin.
</TABLE>


                                       14