Exhibit 10.21

THIRD MODIFICATION AGREEMENT

THIS AGREEMENT is made as of the 14th
day of December, 2010, by and between ASSOCIATED BANK, NATIONAL ASSOCIATION, a national banking association (“Bank”),
and IMAGE SENSING SYSTEMS, INC., a Minnesota corporation (“Borrower”).

RECITALS:

i.Borrower and Bank have heretofore entered into a certain Loan Agreement dated as of the 1st
day of May, 2008, as amended by a Modification Agreement dated as of the 28th day of December, 2009, and a Second Modification
Agreement dated as of the 3rd day of May, 2010 (the “Loan Agreement”), pursuant to which the Bank agreed to provide
to Borrower a Line of Credit of up to $5,000,000.00 and a Loan in the amount of $4,000,000.00. All capitalized terms not otherwise
defined herein shall have the meanings given them in the Loan Agreement.

ii.The Line of Credit matures on May 1, 2011, and the Borrower has requested that the Bank agree
to extend the Line Maturity Date to May 1, 2012.

iii.Bank is willing to agree to the foregoing request of Borrower but only upon the terms and
conditions hereinafter set forth and in reliance on the warranties and representations of Borrower contained herein.

AGREEMENTS:

In consideration of the matters stated
in the foregoing Recitals and the covenants hereinafter set forth, the parties hereto agree as follows:

1.To induce Bank to enter into this Agreement, Borrower warrants and represents to Bank as follows:

A.The Recitals set forth above are each true and correct.

B.The Loan Agreement is, and as modified herein shall be, valid, binding and enforceable.

C.Borrower has no defenses, set-offs, claims or rights of recoupment against its obligations
to pay to Bank the outstanding balance of the Line of Credit.

D.All of the representations and warranties set forth in Section 3 of the Loan Agreement are
true and correct as though made on the date of this Agreement and as though applicable to this Agreement in the same manner as
they were applicable to the Loan Agreement.

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2.The first sentence of section 1.B of the Loan Agreement is hereby amended to provide as follows:

“The interest rate on the outstanding balance
of the Line of Credit shall be an annual rate equal to the greater of (i) 3.5% or (ii) sum of 2.75% plus the one-month LIBOR Rate
(as defined below).”

3.Section 1.C of the Loan Agreement is hereby amended by changing the Line Maturity Date set
forth therein from “May 1, 2011” to “May 1, 2012.”

4.Section 4.A of the Loan Agreement is hereby amended by adding thereto the following additional
subsection:

“5.           As soon as available, and in any event within 60
days after the start of each fiscal year of the Borrower, Borrower shall deliver to Bank a budget and projections for such
fiscal year.”

5.All references to the Loan Agreement in the Master Note, Loan Note and the Security Agreement
executed by the Borrower shall be deemed to mean the Loan Agreement as amended by this Agreement.

6.Except as expressly modified and amended herein, all terms and provisions of the Loan Agreement
shall be and remain in full force and effect.

7.Borrower shall, upon demand by Bank, reimburse Bank for all costs and expenses incurred by
Bank in connection with this Agreement, including, but not limited to, the fees of Bank's attorneys.

8.This Agreement shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and assigns.

9.WAIVER OF JURY TRIAL: BORROWER AND BANK HEREBY JOINTLY AND SEVERALLY WAIVE ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND TO ANY OF THE DOCUMENTS RELATING HERETO, THE
OBLIGATIONS HEREUNDER OR THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED
THERETO. BORROWER AND BANK EACH REPRESENTS TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

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IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed as of the day and year first above written.

| | IMAGE SENSING SYSTEMS, INC. A Minnesota corporation
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| | By:                                                
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| |                                                    
| | ASSOCIATED
    Bank, National Association          
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| | By:                                                
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