SecProbe.io

<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>

                          [Dorsey & Whitney Letterhead]

                                                                AMY L. SCHNEIDER
                                                                       Associate
                                                                  (612) 340-2971
                                                              FAX (612) 340-8738
                                                        schneider.amy@dorsey.com

July 20, 2005

VIA EDGAR SUBMISSION
--------------------

Mr. Jay Webb
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington DC, 20549

         Re: Image Sensing Systems, Inc.
             Form 10-KSB for Fiscal Year Ended December 31, 2004
             (filed March 29, 2005) Form 10-QSB for the Fiscal Quarter Ended
             March 31, 2005 (filed April 29, 2005) File No. 000-26056

Dear Mr. Webb:

         On behalf of Image Sensing Systems, Inc., a Minnesota corporation (the
"Company"), this letter responds to the comments received from you on behalf of
the Division of Corporation Finance of the Securities and Exchange Commission
(the "Commission"), in a letter dated July 5, 2005 (the "Comment Letter"). For
ease of reference in this letter, the Commission's comments contained in the
Comment Letter appear directly above the Company's response.

FORM 10-QSB FOR THE FISCAL QUARTER ENDED MARCH 31, 2005

Part I: Financial Information, page 2
-------------------------------------

Condensed Consolidated Balance Sheets, page 3
---------------------------------------------

         1.       Comment:

         PLEASE REFER TO PRIOR COMMENTS 1 AND 2. WE NOTE THAT YOU CONTINUE TO
HAVE SIGNIFICANT ASSETS IN SECURITIES. PLEASE EXPLAIN WHETHER YOU ARE AN
INVESTMENT COMPANY UNDER SECTION 3(A)(1)(A) OF THE INVESTMENT COMPANY ACT.
PLEASE EXPLAIN HOW YOU HAVE MADE THIS DETERMINATION. SPECIFICALLY, PLEASE
ANALYZE THE COMPANY USING THE FIVE FACTORS SET OUT IN TONAPAH MINING COMPANY OF
NEVADA, 26 SEC 426 (1947). AS PART OF YOUR TONOPAH ANALYSIS, PLEASE CONSIDER
EXPLAINING WHY YOU HAVE A RELATIVELY LARGE PORTION OF YOUR ASSETS IN SECURITIES.
PLEASE ALSO PROVIDE THE AMOUNT OF CASH AND CASH EQUIVALENTS THAT ARE IN
SECURITIES.
<PAGE>

Securities and Exchange Commission
July 20, 2005
Page 2

         RESPONSE:

         Section 3(a)(1)(A) of the Investment Company Act provides that an
investment company includes any issuer which "[i]s or holds itself out as being
engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting, or trading in securities...." Whether a company is
primarily engaged in a business or businesses other than that of investing,
reinvesting, owning, holding or trading in securities requires a factual
determination based on the following principal considerations: (1) the company's
historical development; (2) the company's public representations of policy; (3)
the activities of the company's officers and directors; (4) the nature of the
company's present assets; and (5) the sources of the company's present income.
SEE Tonapah Mining Company of Nevada, 26 SEC 426 (1947). The fourth and fifth
considerations are given the most weight in the analysis.

         As explained below using the TONAPAH factors, the Company is not an
investment company under Section 3(a)(1)(A) of the Investment Company Act
because it is primarily engaged in the business of the commercial application of
video vehicle detection for traffic management and is not primarily engaged in
the business of investing, reinvesting or trading in securities.

         HISTORICAL DEVELOPMENT OF THE COMPANY

         Since its incorporation in December 1984, the Company has consistently
operated as a company primarily engaged in the business of the commercial
application of video vehicle detection for traffic management. The technology
underlying the Autoscope system was initially developed at the University of
Minnesota under the direction of the Company's founder, Dr. Panos Michalopoulos,
a professor at the University. In 1989, the University was awarded a patent for
that technology, and in 1991 the University awarded the Company exclusive
license of the Autoscope technology. Also in 1991, the Company granted a
sub-license to Econolite Control Products, Inc., a leading manufacturer and
seller of traffic control products in North America, to manufacture and
distribute the licensed technology. In 1995, the Company raised $3.9 million in
a public offering of 990,000 shares of common stock, the proceeds of which were
used to advance the technology of the Company's products and to expand the
Company's distribution network to Europe and Asia. In 1999, the Company acquired
60% ownership of Flow Traffic Ltd., a distributor of traffic products in Asia,
located in Hong Kong. In 2002, the Company acquired the remaining 40% ownership
of Flow Traffic. Finally, in 2004, the Company formed a wholly-owned subsidiary,
Image Sensing Systems Europe Ltd. with offices in the United Kingdom and Spain.
In short, all of the Company's activities since its inception have been related
to its video vehicle detection for traffic management business and not for
investing, reinvesting or trading in securities.

<PAGE>
Securities and Exchange Commission
July 20, 2005
Page 3

         REPRESENTATIONS OF POLICY

         In the Company's registration statement on Form SB-2 relating to its
initial public offering in 1995 and in every report or registration statement
filed with the Commission since 1995, the Company has consistently represented
itself as a company engaged in the business of the commercial application of
video vehicle detection for traffic management. For example, the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2004 states
that the Company "develops and markets video image processing products for use
in traffic applications such as intersection control, highway and tunnel traffic
management and traffic data collection." The description of the Company's
business makes no reference to investing, reinvesting or trading in securities.
One look at the Company's website further underscores this point. The Company's
website (www.imagesensing.com) clearly holds the Company out as a company
engaged in the business of the commercial application of video vehicle detection
for traffic management.

         ACTIVITIES OF DIRECTORS AND OFFICERS

         All of the time spent by the Company's management and Board of
Directors on Company matters relate to the commercial application of video
vehicle detection for traffic management and not to investing, reinvesting or
trading in securities. Likewise, with the exception of Mr. Eleftheriou, none of
the Company's directors or officers has experience in the banking, brokerage or
investment business. Rather, the backgrounds of the Company's directors and
officers relate to the traffic management, transportation, accounting or
computer science fields. Mr. Eleftheriou served briefly as an officer of a
privately-held investment company from November 2004 to June 2005, but for 36
years prior to that, Mr. Eleftheriou held various positions in publishing,
engineering, software, product development, sales, marketing and management.
Attached to this letter as Exhibit A are biographies for each of the Company's
current directors and officers.

         NATURE OF ASSETS

         Attached as Exhibit B to this letter is a balance sheet of Image
Sensing Systems, Inc. (on an unconsolidated basis) as of June 30, 2005, which
breaks out the amount and nature of the Company's current assets. As requested,
the attached balance sheet also includes a breakdown of the components of the
cash and cash equivalents line item. As explained previously in our response to
the Commission's comment letter dated May 4, 2005, less than 40% of the
Company's "total assets" for Section 3(a)(1)(C) purposes are in the form of
investment securities. Attached as Exhibit C to this letter are the calculations
used by the Company in concluding that it is not an investment company under
Section 3(a)(1)(C) of the Investment Company Act of 1940 as of June 30, 2005. As
of June 30, 2005, 33.2% of the Company's "total assets" for Section 3(a)(1)(C)
purposes are in the form of investment securities.
<PAGE>

Securities and Exchange Commission
July 20, 2005
Page 4

         Historically, the Company has invested in so called auction rate
securities, primarily student loan bonds, which up until December 31, 2004 were
classified in the Company's balance sheet as a cash equivalent since the
securities came up for bid every 28 or 35 days. As of December 31, 2004, under
the advisement of the Company's auditors, Grant Thornton LLP, these investments
were reclassified as short-term investments. Beginning in fiscal year 2002, the
Company has used excess cash generated by operating activities to acquire
auction rate securities and Federal Home Loan Board bonds in order to accumulate
highly liquid assets in order to maintain a flexible and liquid financial
position. This strategy enables the Company to take advantage of opportunities
to acquire other technologies or businesses that may become available in the
future.

         SOURCES OF INCOME

         The Company's Condensed Consolidated Statements of Operation for the
six-month period ended June 30, 2005 is attached as Exhibit D to this letter. As
set forth in the statement, the Company had revenues totaling $4,651,000 and
income from operations totaling $1,491,000 for the first six months of 2005. On
the other hand, other income, net, which primarily consists of interest income
on investments, totaled only $106,000 during the first six months of 2005.
Clearly, the primary source of the Company's income is from its product sales
and royalties from its video vehicle detection for traffic management business
rather than interest earned on its investments.

         CONCLUSION

         As set forth above, application of the TONAPAH factors supports the
conclusion that the Company is not an investment company under Section
3(a)(1)(A) of the Investment Company Act because it is primarily engaged in the
business of the commercial application of video vehicle detection for traffic
management and is not primarily engaged in the business of investing,
reinvesting or trading in securities.

Notes to Condensed Consolidated Financial Statements, page 6
------------------------------------------------------------

         2.       Comment:

         PLEASE REFER TO PRIOR COMMENT 4. WE NOTE THAT THE DISCLOSURES REQUIRED
BY FAS 115 ARE APPLICABLE TO BOTH QUARTERLY AND ANNUAL FINANCIAL INFORMATION. IN
THIS REGARD, PLEASE TELL US HOW YOU INTEND TO UPDATE YOUR DISCLOSURE IN FUTURE
FILINGS TO COMPLY.

<PAGE>

Securities and Exchange Commission
July 20, 2005
Page 5

         RESPONSE:

     As requested, in future(1) quarterly and annual filings the Company will
include all disclosures required by SFAS 115 relating to its investments,
including detailing its investments by major security type and separately
presenting gross realized gains and losses that have been included in earnings.
Future disclosures will be as follows:

NOTE B - INVESTMENTS

         Investments, at cost, consisted of the following at December 31, 2004
and 2003:

                                                          2004         2003
                                                       ----------   ----------
     Short-term investments - Auction Rate Securities  $5,000,000   $3,350,000

     Callable Federal Home Loan Bonds                   2,300,000           --
                                                       ----------   ----------

     Total                                             $7,300,000   $3,350,000
                                                       ==========   ==========

         As of December 31, 2004 and 2003, investments are classified as
available-for-sale. The cost of investments approximate market value and
therefore no amount is required to be recorded in accumulated other
comprehensive income. The cost of securities sold is based on the specific
identification method.

         Proceeds from maturities and sales of investments totaled $600,000 in
2004. There were no sales or maturities in 2003. There were no realized gains or
losses related to sales or unrealized gains and losses in 2004 and 2003.

----------
(1)  The Company would like to note that its Form 10-QSB for the quarter ended
     March 31, 2005 was filed on April 29, 2005, prior to the Commission's first
     comment letter dated May 4, 2005.

<PAGE>

Securities and Exchange Commission
July 20, 2005
Page 6

Item 3. Controls and Procedures, page 12
----------------------------------------

Evaluation of Disclosure Controls and Procedures, page 12
---------------------------------------------------------

         3.       Comment:

         PLEASE REFER TO PRIOR COMMENT 5. WE NOTE YOUR DISCLOSURE THAT
MANAGEMENT HAS CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES ARE
EFFECTIVE "IN TIMELY ALERTING THEM TO MATERIAL INFORMATION RELATING US (OR OUR
CONSOLIDATED SUBSIDIARIES) REQUIRED TO BE INCLUDED IN THE REPORTS WE FILE OR
SUBMIT UNDER THE EXCHANGE ACT." THE LANGUAGE THAT IS CURRENTLY INCLUDED AFTER
THE WORD "EFFECTIVE" IN YOUR DISCLOSURE APPEARS TO BE SUPERFLUOUS, SINCE THE
MEANING OF "DISCLOSURE CONTROLS AND PROCEDURES" IS ESTABLISHED BY RULE 13A-15(E)
OF THE EXCHANGE ACT. HOWEVER, IF YOU DO NOT WISH TO ELIMINATE THIS LANGUAGE,
PLEASE REVISE FUTURE FILINGS SO THAT THE LANGUAGE THAT APPEARS AFTER THE WORD
"EFFECTIVE" IS SUBSTANTIALLY SIMILAR IN ALL MATERIAL RESPECTS TO THE LANGUAGE
THAT APPEARS IN THE ENTIRE TWO-SENTENCE DEFINITION OF "DISCLOSURE CONTROLS AND
PROCEDURES" SET FORTH IN RULE 13A-15(E).

         RESPONSE:

         As requested, in future filings the Company will revise its "Controls
and Procedures" disclosure to reflect the Commission's comments.

                                    * * * * *

         For your convenience, we are sending to your attention three courtesy
copies of this letter. If you have any questions regarding this letter, please
feel free to contact me at (612) 340-2971.

                                            Sincerely,

                                            /s/ Amy L. Schneider

                                            Amy L. Schneider

cc: Arthur J. Bourgeois, Image Sensing Systems, Inc.
    Kenneth L. Cutler, Dorsey & Whitney LLP

<PAGE>
                                                                       EXHIBIT A

                BIOGRAPHIES OF CURRENT DIRECTORS AND OFFICERS OF
                           IMAGE SENSING SYSTEMS, INC.

         Biographical information for the current directors of Image Sensing
Systems is as follows:

RICHARD P. BRAUN, age 79, 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 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. Mr.
Braun retired from full-time employment in 1994. Mr. Braun is a member of the
Compensation and Stock Option Committee and the Nominating Committee.

MICHAEL G. ELEFTHERIOU, age 60, director since April 2002. From November 2004 to
June 2005, Mr. Eleftheriou served as Executive Vice President at NJK Holding, a
Minneapolis, Minnesota based privately-held investment company. From July 2001
to July 2004 Mr. Eleftheriou served as President and Chief Executive Officer of
Creative Publishing international, a Minneapolis-based publisher, following the
sale of which he served as interim President of Imaging Acceptance Corporation,
thru October 2004. From November 2000 to July 2001, Mr. El