Form 10-Q
September 30, 2020 Accelerated filer Smaller reporting company December 31, March 31, 2017 2017 Assets Current assets: Cash and cash equivalents $ 16,803 $ 18,201 Trade accounts receivable, net of allowance for doubtful accounts of $408 and $389 at December 31, 2017 and March 31, 2017, respectively 13,645 14,299 Unbilled accounts receivable 7,175 6,456 Inventories 2,972 2,250 Prepaid expenses and other current assets 1,452 2,108 Total current assets 42,047 43,314 Property and equipment, net 2,444 2,064 Deferred income taxes 652 — Intangible assets, net 3,034 1,498 Goodwill 15,150 15,150 Other assets 340 319 Total assets $ 63,667 $ 62,345 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 7,904 $ 7,886 Accrued payroll and related expenses 7,043 6,443 Accrued liabilities 1,880 2,201 Deferred revenue 4,654 4,049 Total current liabilities 21,481 20,579 Deferred rent 677 649 Deferred income taxes — 707 Unrecognized tax benefits 164 186 Total liabilities 22,322 22,121 Commitments and contingencies (Note 6) Stockholders’ equity: Preferred stock, $1.00 par value: Authorized shares - 2,000 Issued and outstanding shares - none — — Common stock, $0.10 par value: Authorized shares - 70,000 at December 31, 2017 and March 31, 2017 Issued and outstanding shares - 33,055 at December 31, 2017 and 32,488 at March 31, 2017 3,306 3,249 Additional paid-in capital 139,143 136,968 Accumulated deficit (101,104 ) (99,993 ) Total stockholders’ equity 41,345 40,224 Total liabilities and stockholders’ equity $ 63,667 $ 62,345 Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Product revenues $ 11,995 $ 10,046 $ 35,620 $ 32,139 Service revenues 14,031 12,645 42,837 38,539 Total revenues $ 26,026 $ 22,691 $ 78,457 $ 70,678 Cost of product revenues 7,299 5,581 20,438 17,731 Cost of service revenues 8,784 8,490 28,203 25,463 Total cost of revenues 16,083 14,071 48,641 43,194 Gross profit 9,943 8,620 29,816 27,484 Operating expenses: Selling, general and administrative 9,098 8,035 26,948 23,698 Research and development 1,946 1,979 5,554 5,287 Amortization of intangible assets 18 80 84 248 Total operating expenses 11,062 10,094 32,586 29,233 Operating loss (1,119 ) (1,474 ) (2,770 ) (1,749 ) Non-operating income (expense): Other expense, net (9 ) (1 ) (14 ) (7 ) Interest income, net 3 4 8 9 Loss from continuing operations before income taxes (1,125 ) (1,471 ) (2,776 ) (1,747 ) Benefit for income taxes 1,373 4 1,407 11 Income (loss) from continuing operations 248 (1,467 ) (1,369 ) (1,736 ) Gain on sale of discontinued operation, net of tax 95 87 258 278 Net income (loss) $ 343 $ (1,380 ) $ (1,111 ) $ (1,458 ) Income (loss) per share from continuing operations - basic and diluted $ 0.01 $ (0.05 ) $ (0.04 ) $ (0.05 ) Gain per share from sale of discontinued operation - basic and diluted $ 0.00 $ 0.01 $ 0.01 $ 0.01 Net income (loss) per share - basic and diluted $ 0.01 $ (0.04 ) $ (0.03 ) $ (0.04 ) Shares used in basic per share calculations 32,877 32,205 32,670 32,125 Shares used in diluted per share calculations 34,258 32,205 32,670 32,125 Nine Months Ended December 31, 2017 2016 Cash flows from operating activities Net loss $ (1,111 ) $ (1,458 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Deferred income taxes (1,381 ) 24 Depreciation of property and equipment 593 544 Stock-based compensation 1,325 718 Amortization of intangible assets 525 512 Gain on sale of discontinued operation, net of tax (258 ) (278 ) Loss on disposal of equipment 15 14 Changes in operating assets and liabilities, net of effects of discontinued operation: Accounts receivable 654 798 Unbilled accounts receivable and deferred revenue, net (114 ) (125 ) Inventories (722 ) 400 Prepaid expenses and other assets 491 (275 ) Accounts payable and accrued expenses 98 1,500 Net cash provided by operating activities 115 2,374 Cash flows from investing activities Purchases of property and equipment (988 ) (497 ) Capitalized software development costs (1,834 ) (572 ) Net proceeds from sale of discontinued operation 402 364 Net cash used in investing activities (2,420 ) (705 ) Cash flows from financing activities Proceeds from stock option exercises 986 238 Tax withholding payments for net share settlements of restricted stock units (79 ) (55 ) Net cash provided by financing activities 907 183 Increase (decrease) in cash and cash equivalents (1,398 ) 1,852 Cash and cash equivalents at beginning of period 18,201 16,029 Cash and cash equivalents at end of period $ 16,803 $ 17,881 Supplemental cash flow information: Cash paid during the period for: Interest $ — $ 14 Income taxes 128 52 Supplemental schedule of non-cash investing and financing activities: Capitalized software development costs included in accounts payable and accrued expenses $ 227 $ — 1987 and has operated in its current form since 2004. Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred for separation costs for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company, and the impairment of certain lease-related assets. See Note 4, Restructuring Activities, for further details on the restructuring activities. information. product. accounting term of the contract one year or less. performance obligations. Our investments are measured at fair value on a recurring basis. and Restricted Cash time sufficient to allow for any anticipated recovery of fair value. impairment. or restructuring charges during the three months ended September 30, 2020. See Note 4, Restructuring Activities, for further details on the restructuring activities. We do not provide any service-type warranties. December 31, March 31, 2017 2017 (In thousands) Materials and supplies $ 1,615 $ 887 Work in process 219 298 Finished goods 1,138 1,065 $ 2,972 $ 2,250 December 31, 2017 March 31, 2017 Gross Accumulated Net Book Gross Accumulated Net Book (In thousands) Technology $ 1,856 $ (1,856 ) $ — $ 1,856 $ (1,828 ) $ 28 Customer contracts / relationships 750 (750 ) — 750 (726 ) 24 Trade names and non-compete agreements 1,110 (1,098 ) 12 1,110 (1,066 ) 44 Capitalized software development costs 4,219 (1,197 ) 3,022 2,158 (756 ) 1,402 Total $ 7,935 $ (4,901 ) $ 3,034 $ 5,874 $ (4,376 ) $ 1,498 Fiscal Year Ending March 31, (In thousands) Remainder of 2018 $ 200 2019 1,136 2020 855 2021 427 2022 333 Thereafter 83 $ 3,034 Nine Months Ended December 31, 2017 2016 (In thousands) Balance at beginning of fiscal year $ 278 $ 193 Additions charged to cost of sales 512 218 Warranty claims (400 ) (138 ) Balance at end of period $ 390 $ 273 Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 (In thousands) Numerator: Income (loss) from continuing operations $ 248 $ (1,467 ) $ (1,369 ) $ (1,736 ) Gain on sale of discontinued operation, net of tax 95 87 258 278 Net income (loss) $ 343 $ (1,380 ) $ (1,111 ) $ (1,458 ) Denominator: Weighted average common shares used in basic computation 32,877 32,205 32,670 32,125 Dilutive stock options 1,274 — — — Dilutive restricted stock units 107 — — — Weighted average common shares used in diluted computation 34,258 32,205 32,670 32,125 share: Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 (In thousands) Stock options 3,607 3,237 3,770 3,305 Restricted stock units 246 136 256 161 2020. Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 (In thousands, except percentages) Benefit (provision) for income taxes $ (2,471 ) $ 530 $ (1,572 ) $ 652 Change in valuation allowance 3,844 (526 ) 2,979 (641 ) Total benefit for income taxes $ 1,373 $ 4 $ 1,407 $ 11 Effective tax rate 122.1 % 0.3 % 50.7 % 0.6 % three- and six-months ended September 30, 2019, respectively. September 30, 2020. Number of Weighted (In thousands) Options outstanding at March 31, 2017 3,776 $ 2.76 Granted 150 6.07 Exercised (494 ) 2.00 Forfeited (31 ) 3.98 Expired — — Options outstanding at December 31, 2017 3,401 $ 3.01 Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 (In thousands) Cost of revenues $ 16 $ 15 $ 47 $ 37 Selling, general and administrative expense 398 198 1,167 631 Research and development expense 33 19 111 50 Total stock-based compensation expense $ 447 $ 232 $ 1,325 $ 718 Roadway Transportation Agriculture Total (In thousands) Three Months Ended December 31, 2017 Product revenues $ 11,008 $ 987 $ — $ 11,995 Service revenues 34 12,584 1,413 14,031 Total revenues $ 11,042 $ 13,571 $ 1,413 $ 26,026 Segment income (loss) 2,048 2,207 (1,815 ) 2,440 Three Months Ended December 31, 2016 Product revenues $ 9,377 $ 669 $ — $ 10,046 Service revenues 20 11,244 1,381 12,645 Total revenues $ 9,397 $ 11,913 $ 1,381 $ 22,691 Segment income (loss) 1,940 1,920 (1,892 ) 1,968 Nine Months Ended December 31, 2017 Product revenues $ 33,438 $ 2,182 $ — $ 35,620 Service revenues 145 39,210 3,482 42,837 Total revenues $ 33,583 $ 41,392 $ 3,482 $ 78,457 Segment income (loss) 7,384 6,472 (5,882 ) 7,974 Nine Months Ended December 31, 2016 Product revenues $ 30,815 $ 1,324 $ — $ 32,139 Service revenues 82 35,314 3,143 38,539 Total revenues $ 30,897 $ 36,638 $ 3,143 $ 70,678 Segment income (loss) 6,897 6,813 (5,582 ) 8,128 Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 (In thousands) Segment income (loss): Total income from reportable segments $ 2,440 $ 1,968 $ 7,974 $ 8,128 Unallocated amounts: Corporate and other expenses (3,541 ) (3,362 ) (10,660 ) (9,629 ) Amortization of intangible assets (18 ) (80 ) (84 ) (248 ) Other expense, net (9 ) (1 ) (14 ) (7 ) Interest income, net 3 4 8 9 Loss from continuing operations before income taxes $ (1,125 ) $ (1,471 ) $ (2,776 ) $ (1,747 ) Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Product revenues 46.1 % 44.3 % 45.4 % 45.5 % Service revenues 53.9 55.7 54.6 54.5 Total revenues 100.0 100.0 100.0 100.0 Cost of product revenues 28.0 24.6 26.1 25.1 Cost of service revenues 33.8 37.4 35.9 36.0 Total cost of revenues 61.8 62.0 62.0 61.1 Gross profit 38.2 % 38.0 % 38.0 % 38.9 % Operating expenses: Selling, general and administrative 35.0 35.4 34.3 33.5 Research and development 7.5 8.7 7.1 7.5 Amortization of intangible assets 0.1 0.4 0.1 0.4 Total operating expenses 42.6 44.5 41.5 41.4 Operating loss (4.4 ) (6.5 ) (3.5 ) (2.5 ) Non-operating income (expense): Other expense, net (0.0 ) (0.0 ) (0.0 ) (0.0 ) Interest income, net 0.0 0.0 0.0 0.0 Loss from continuing operations before income taxes (4.4 ) (6.5 ) (3.5 ) (2.5 ) Benefit for income taxes 5.3 0.0 1.9 0.0 Income (loss) from continuing operations 0.9 (6.5 ) (1.6 ) (2.5 ) Gain on sale of discontinued operation, net of tax 0.3 0.4 0.3 0.4 Net income (loss) 1.2 % (6.1 )% (1.3 )% (2.1 )% Three Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Product revenues $ 11,995 $ 10,046 $ 1,949 19.4 % Service revenues 14,031 12,645 1,386 11.0 % Total revenues $ 26,026 $ 22,691 $ 3,335 14.7 % Nine Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Product revenues $ 35,620 $ 32,139 $ 3,481 10.8 % Service revenues 42,837 38,539 4,298 11.2 % Total revenues $ 78,457 $ 70,678 $ 7,779 11.0 % Three Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Product gross margin $ 4,696 $ 4,465 $ 231 5.2 % Service gross margin 5,247 4,155 1,092 26.3 % Total gross margin $ 9,943 $ 8,620 $ 1,323 15.3 % Product gross profit as a % of product revenues 39.1 % 44.4 % Service gross profit as a % of service revenues 37.4 % 32.9 % Total gross margin as a % of total revenues 38.2 % 38.0 % Nine Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Product gross margin $ 15,182 $ 14,408 $ 774 5.4 % Service gross margin 14,634 13,076 1,558 11.9 % Total gross margin $ 29,816 $ 27,484 $ 2,332 8.5 % Product gross profit as a % of product revenues 42.6 % 44.8 % Service gross profit as a % of service revenues 34.2 % 33.9 % Total gross margin as a % of total revenues 38.0 % 38.9 % Three Months Ended Three Months Ended December 31, 2017 December 31, 2016 $ % of % of Increase % Amount Revenues Amount Revenues (Decrease) Change (In thousands, except percentages) Salary and personnel-related $ 6,361 24.4 % $ 5,322 23.5 % $ 1,039 19.5 % Facilities, insurance and supplies 1,112 4.3 925 4.1 187 20.2 Travel and conferences 626 2.4 537 2.4 89 16.6 Professional and outside services 826 3.2 1,197 5.3 (371 ) (31.0 ) Other 173 0.7 54 0.2 119 220.4 Selling, general and administrative $ 9,098 35.0 % $ 8,035 35.5 % $ 1,063 13.2 % Nine Months Ended Nine Months Ended December 31, 2017 December 31, 2016 $ % of % of Increase % Amount Revenues Amount Revenues (Decrease) Change (In thousands, except percentages) Salary and personnel-related $ 18,703 23.8 % $ 16,531 23.4 % $ 2,172 13.1 % Facilities, insurance and supplies 3,106 4.0 2,375 3.4 731 30.8 Travel and conferences 1,845 2.4 1,795 2.5 50 2.8 Professional and outside services 2,837 3.6 3,002 4.2 (165 ) (5.5 ) Other 457 0.6 (5 ) 0.0 462 (9,240.0 ) Selling, general and administrative $ 26,948 34.4 % $ 23,698 33.5 % $ 3,250 13.7 Three Months Ended Three Months Ended December 31, 2017 December 31, 2016 $ % of % of Increase % Amount Revenues Amount Revenues (Decrease) Change (In thousands, except percentages) Salary and personnel-related $ 1,342 5.2 % $ 1,323 5.8 % $ 19 1.4 % Facilities, development and supplies 467 1.8 517 2.3 (50 ) (9.7 ) Other 137 0.5 139 0.6 (2 ) (1.4 ) Research and development $ 1,946 7.5 % $ 1,979 8.7 % $ (33 ) (1.7 )% Nine Months Ended Nine Months Ended December 31, 2017 December 31, 2016 $ % of % of Increase % Amount Revenues Amount Revenues (Decrease) Change (In thousands, except percentages) Salary and personnel-related $ 3,605 4.6 % $ 3,060 4.3 % $ 545 17.8 % Facilities, development and supplies 1,485 1.9 1,736 2.5 (251 ) (14.5 ) Other 464 0.6 491 0.7 (27 ) (5.5 ) Research and development $ 5,554 7.1 % $ 5,287 7.5 % $ 267 5.1 Three Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Benefit (provision) for income taxes $ (2,471 ) $ 530 $ (3,001 ) Change in valuation allowance 3,844 (526 ) 4,370 Total benefit for income taxes $ 1,373 $ 4 $ 1,369 34,225.0 % Effective tax rate 122.1 % 0.3 % Nine Months Ended December 31, $ % 2017 2016 Increase Change (In thousands, except percentages) Benefit (provision) for income taxes $ (1,572 ) $ 652 $ (2,224 ) Change in valuation allowance 2,979 (641 ) 3,620 Total benefit for income taxes $ 1,407 $ 11 $ 1,396 12,690.9 % Effective tax rate 50.7 % 0.6 % Nine Months Ended December 31, 2017 2016 (In thousands) Net cash provided by (used in): Operating activities $ 115 $ 2,374 Investing activities (2,420 ) (705 ) Financing activities 907 183 Asset Purchase Agreement, dated May 2, 2020, by and among Iteris, Inc. 31.1 Filed herewith 31.2 Filed herewith 32.1 Furnished herewith 32.2 Furnished herewith 101.INS Inline XBRL Instance Document Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith Joe Bergera Chief Executive Officer (Principal Executive Officer) By /s/ Senior Vice President and Chief Financial Officer (Principal Financial Officer)xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 December 31, 2017oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
Delaware95-2588496(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)1700 Carnegie Avenue, Suite 100Santa Ana, California92705(Address of principal executive office)(Zip Code)Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.10 par value ITI The Nasdaq Stock Market LLC o¨and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes xNo o¨ (Check one):Large accelerated filer ☐ o☒ xNon-accelerated filer ☐ Non accelerated fileroo☒ (Do not check if a smaller reporting company)Emerging growth company o☐ o¨o☐No xJanuary 30, 2018,October 14, 2020, there were 33,073,14941,174,331 shares of our common stock outstanding.1DECEMBER 31, 2017SEPTEMBER 30, 2020 AND MARCH 31, 20172020THREETHREE- AND NINE MONTHSSIX-MONTHS ENDED DECEMBER 31, 2017SEPTEMBER 30, 2020 AND 20162019NINESIX MONTHS ENDED DECEMBER 31, 2017SEPTEMBER 30, 2020 AND 2016201941624242525253434343435“Company,” “we,” “us”"Company," "we," "us" and “our”"our" refer to Iteris, Inc. and its wholly-owned subsidiary,subsidiaries, ClearAg, Inc. and Albeck Gerken, Inc., CheckPoint™, ClearAg®ClearGuide™, ClearFleet™, ClearMobility™, ClearRoute™, ClearPath Weather®511®, CVIEW-Plus™, Edge®, EdgeConnect™, EMPower®, EvapoSmart™, IMFocus™inspect™, iPeMS®, Iteris®, Iteris SPM™, Next®, P10™, P100™, P-Series™, PedTrax®, Pegasus™, Reverse 511®, SmartCycle®, SmartCycle Bike Indicator™, SmartSpan®, TransitHelper®SPM™ (logo), UCRLink™, Vantage®, VantageLive!™, VantageNext®Vantage Next®, VantagePegasus®, VantageRadius™VantageRadius®, Vantage Vector®, VantageView™, Velocity®, VersiCam™ and WeatherPlot™VersiCam™ are among, but not all of, the trademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.September 30,
2020March 31,
2020Assets Current assets: Cash and cash equivalents $ 15,623 $ 14,217 Restricted cash 146 146 Short-term investments 22,164 11,556 Trade accounts receivable, net of allowance for doubtful accounts of $916 and $802 at September 30, 2020 and March 31, 2020, respectively 17,810 16,706 Unbilled accounts receivable 10,284 9,848 Inventories 3,193 3,040 Prepaid expenses and other current assets 4,163 2,040 Assets held for sale, current portion 15 1,476 Total current assets 73,398 59,029 Property and equipment, net 1,744 1,835 Right-of-use assets 12,035 12,598 Intangible assets, net 5,758 6,066 Goodwill 20,590 20,590 Other assets 1,449 1,213 Assets held for sale, noncurrent portion 114 626 Total assets $ 115,088 $ 101,957 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 8,810 $ 8,101 Accrued payroll and related expenses 9,006 7,508 Accrued liabilities 4,113 3,665 Deferred revenue 5,003 4,413 Liabilities held for sale, current portion 486 2,828 Total current liabilities 27,418 26,515 Lease liabilities 10,992 11,638 Deferred income taxes 206 190 Unrecognized tax benefits 116 130 Liabilities held for sale, noncurrent portion 310 357 Total liabilities 39,042 38,830 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $1.00 par value: Authorized shares — 2,000 Issued and outstanding shares — NaN 0 0 Common stock, $0.10 par value: Authorized shares - 70,000 at September 30, 2020 and March 31, 2020 Issued and outstanding shares — 41,110 at September 30, 2020 and 40,713 at March 31, 2020 4,111 4,071 Additional paid-in capital 178,327 176,209 Accumulated deficit (106,392) (117,153) Total stockholders' equity 76,046 63,127 Total liabilities and stockholders' equity $ 115,088 $ 101,957 notes.Notes to Unaudited Condensed Consolidated Financial Statements Three Months Ended
September 30,Six Months Ended
September 30, 2020 2019 2020 2019 Product revenues $ 16,265 $ 13,795 $ 30,659 $ 28,312 Service revenues 12,991 12,791 26,597 23,441 Total revenues 29,256 26,586 57,256 51,753 Cost of product revenues 9,332 7,551 17,413 16,046 Cost of service revenues 8,566 8,357 17,617 15,445 Cost of revenues 17,898 15,908 35,030 31,491 Gross profit 11,358 10,678 22,226 20,262 Operating expenses: Selling, general and administrative 9,246 10,678 17,969 19,814 Research and development 1,134 983 2,048 1,903 Amortization of intangible assets 230 230 460 296 Restructuring charges 0 0 619 0 Total operating expenses 10,610 11,891 21,096 22,013 Operating income (loss) 748 (1,213) 1,130 (1,751) Non-operating income (expense): Other (expense) income, net (44) 115 (28) 107 Interest income, net 43 48 97 81 Income (loss) from continuing operations before income taxes 747 (1,050) 1,199 (1,563) Provision for income taxes (28) (1) (62) (25) Net income (loss) from continuing operations 719 (1,051) 1,137 (1,588) Loss from discontinued operations before gain on sale, net of tax (306) (1,136) (1,664) (2,171) Gain on sale of discontinued operations, net of tax 0 0 11,288 0 Net (loss) income from discontinued operations, net of tax (306) (1,136) 9,624 (2,171) Net income (loss) $ 413 $ (2,187) $ 10,761 $ (3,759) Income (loss) per share - basic: Income (loss) per share from continuing operations $ 0.02 $ (0.03) $ 0.03 $ (0.04) Income (loss) per share from discontinued operations $ (0.01) $ (0.03) $ 0.24 $ (0.06) Net income (loss) per share $ 0.01 $ (0.06) $ 0.27 $ (0.10) Income (loss) per share - diluted: Income (loss) per share from continuing operations $ 0.02 $ (0.03) $ 0.03 $ (0.04) Income (loss) per share from discontinued operations $ (0.01) $ (0.03) $ 0.23 $ (0.06) Net income (loss) per share $ 0.01 $ (0.06) $ 0.26 $ (0.10) Shares used in basic per share calculations 40,989 40,493 40,860 37,397 Shares used in diluted per share calculations 41,909 40,493 41,708 37,397 notes.Notes to Unaudited Condensed Consolidated Financial StatementsSix Months Ended
September 30,2020 2019 Cash flows from operating activities Net income (loss) $ 10,761 $ (3,759) Less: Net income (loss) from discontinued operations 9,624 (2,171) Net income (loss) from continuing operations 1,137 (1,588) Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities: Right-of-use asset non-cash expense 563 730 Deferred income taxes 2 (19) Depreciation of property and equipment 367 380 Stock-based compensation 1,331 1,218 Amortization of intangible assets 724 499 Other 47 0 Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition: Trade accounts receivable (1,104) 986 Unbilled accounts receivable and deferred revenue 154 (279) Inventories (153) 374 Prepaid expenses and other assets (859) (919) Trade accounts payable and accrued expenses 2,570 1,861 Operating lease liabilities (561) (680) Net cash provided by operating activities - continuing operations 4,218 2,563 Net cash used in operating activities - discontinued operations (2,027) (2,726) Net cash provided by (used in) operating activities 2,191 (163) Cash flows from investing activities Purchases of property and equipment (288) (246) Purchase of short-term investments (23,655) (21,251) Maturities of investments 13,000 3,175 Capitalized software development costs (416) (522) Cash paid in business acquisition, net of cash acquired 0 (5,581) Net cash used in investing activities - continuing operations (11,359) (24,425) Net cash provided by (used in) investing activities - discontinued operations 9,690 (30) Net cash used in investing activities (1,669) (24,455) Cash flows from financing activities Proceeds from stock option exercises 696 81 Proceeds from ESPP purchases 188 172 Proceeds from issuance of common stock, net of costs 0 26,751 Net cash provided by financing activities - continuing operations 884 27,004 Net cash provided by financing activities - discontinued operations 0 0 Net cash provided by financing activities 884 27,004 Increase in cash, cash equivalents and restricted cash 1,406 2,386 Cash, cash equivalents and restricted cash at beginning of period 14,363 7,071 Cash, cash equivalents and restricted cash at end of period $ 15,769 $ 9,457 Supplemental cash flow information: Cash paid during the year for: Income taxes $ 102 $ 54 Supplemental schedule of non-cash investing and financing activities: Lease liabilities arising from obtaining right-of-use assets $ 310 $ 95 Deferred payment of purchase price $ 1,500 $ 0 Issuance of common stock in connection with acquisition $ 0 $ 4,535 December 31, 2017For Three and Six Months Ended September 30, 2020 Common Stock Additional
Paid-In
CapitalAccumulated
DeficitTotal
Stockholders'
Equity Shares Amount Balance at March 31, 2020 40,713 $ 4,071 $ 176,209 $ (117,153) $ 63,127 Stock option exercises 27 3 71 — 74 Stock-based compensation — — 607 — 607 Issuance of shares pursuant - to vesting of restricted stock units, net of payroll withholding taxes 12 1 (1) — — Net income — — — 10,348 10,348 Balance at June 30, 2020 40,752 $ 4,075 $ 176,886 $ (106,805) $ 74,156 Stock option exercises 239 24 598 — 622 Issuance of shares pursuant - to Employee Stock Purchase Plan 42 4 184 — 188 Stock-based compensation — — 667 — 667 Issuance of shares pursuant - to vesting of restricted stock units, net of payroll withholding taxes 77 8 (8) — — Net income — 413 413 Balance at September 30, 2020 41,110 $ 4,111 $ 178,327 $ (106,392) $ 76,046 For Three and Six Months Ended September 30, 2019 Common Stock Additional
Paid-In
CapitalAccumulated
DeficitTotal
Stockholders'
Equity Shares Amount Balance at March 31, 2019 33,377 $ 3,338 $ 142,260 $ (111,543) $ 34,055 Stock option exercises 10 1 13 — 14 Issuance of shares pursuant to Employee Stock Purchase Plan 48 5 167 — 172 Stock-based compensation — — 602 — 602 Issuance of shares pursuant - to vesting of restricted stock units, net of payroll withholding taxes 2 — — — — Balance at Issuance of common stock in connection with public offering 6,183 618 26,133 — 26,751 Net loss — — — (1,572) (1,572) Balance at June 30, 2019 39,620 3,962 169,175 (113,115) 60,022 Stock option exercises 23 2 65 — 67 Issuance of shares pursuant - to Employee Stock Purchase Plan 0 0 793 — 793 Stock-based compensation 59 6 (6) — — Issuance of shares pursuant - to vesting of restricted stock units, net of payroll withholding taxes 869 87 4,448 — 4,535 Net loss — — — (2,187) (2,187) Balance at September 30, 2019 40,571 $ 4,057 $ 174,475 $ (115,302) $ 63,230 subsidiary,subsidiaries, ClearAg, Inc. and Albeck Gerken, Inc. ("AGI"), in this report as “Iteris,”"Iteris," the “Company,” “we,” “our”"Company," "we," "our," and “us”"us") is a provider of applied informatics for both the trafficsmart mobility infrastructure management solutions. Our solutions enable municipalities, transportation agencies, and global agribusiness markets. Weother transportation infrastructure providers monitor, visualize, and optimize mobility infrastructure to help ensure roads are focused on the developmentsafe, travel is efficient, and application of advanced technologies and software-based informationcommunities thrive. As a pioneer in intelligent transportation systems that make roads safer and travel more efficient, as well as farmlands more sustainable, healthy and productive. By combining("ITS") technology, our unique intellectual property, products decades of experience in traffic management, weather forecasting solutions and information technologies, we offersoftware-as-a-service ("SaaS") offerings represent a broadcomprehensive range of Intelligent Transportation Systems (“ITS”)ITS solutions that we distribute to customers throughout the U.S. and internationally. In the agribusiness markets, we have combined our unique intellectual property with enhanced soil, land surface and agronomy modeling techniques to create a set of ClearAg solutions that provide analytical support to large enterprises in the agriculture market, such as seed and crop protection companies, as well as field-specific advisories to individual producers. We believe our products, solutions and services increase safety and solutions, in conjunction with sound traffic and land management, improve and safely optimize mobilitydecrease congestion within our communities, and ready our roadways for smart cities and minimize thewhile also minimizing environmental impact to the roads we travel and the lands we farm.impact. We continue to make significant investments to leverage our existing technologies and further expand both our software-based informationadvanced detection sensors and performance analytics systems in the transportation infrastructure market and we are always exploring strategic alternatives intended to offer digital analytics solutions tooptimize the agriculture markets.value of our Company. Iteris was incorporated in Delaware in 1987.ClearAg, Inc.2017,30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board of Directors of Iteris, Inc. formed a wholly-owned subsidiary, ClearAg, Inc., a Delaware corporation,approved restructuring activities to provide ClearAg solutions inbetter position the global agribusiness markets.subsidiary,subsidiaries, and have been prepared in accordance with the rules of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting, which permit certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States of AmericaU.S. (“GAAP”) to be condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended March 31, 20172020 (“Fiscal 2017”2020”), filed with the SEC on June 13, 2017.9, 2020. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the threethree- and nine monthsix-month periods ended December 31, 2017September 30, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2018 (“Fiscal 2018”)2021 or any other periods.continuing operations and related cash flows have been reclassified to loss from discontinued operations, respectively, for all periods presentedpresented. The assets and liabilities of the Agriculture and Weather Analytics segment have been reclassified to assets held for sale and liabilities held for sale, respectively, in the unaudited condensed consolidated financial statements exclude our former Vehicle Sensors segment, which has been classifiedbalance sheet as a discontinued operation.of March 31, 2020. See Note 3, “Sale of Vehicle Sensors,”Discontinued Operations, for further discussion related to the discontinued operation presentation.equity instruments,investments, estimates of future cash flows used to assess the recoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate the stock-based compensation.revenues andrevenue related costs of sales are recognizedcontracts with customers begin when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery under the terms of the arrangement has occurred, (iii) the price to thewe acknowledge a purchase order for a specific customer is fixed or determinable, and (iv) collection of the receivable is reasonably assured. These criteria are typically met at the timeorder of product shipment but,to be delivered in certain circumstances, may not be met until receipt or acceptance by the customer. Accordingly, at the datenear term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the significant obligationsproduct, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or uncertainties concerningupon customer receipt of the sale have been resolved.revenuessegment, are derived primarily from long-term engineering and consulting service contracts with governmental agencies. Certain Agriculture and Weather Analytics revenues are also derived from long-termThese contracts with governmental agencies, as well asgenerally include performance obligations in which control is transferred over time. We recognize revenue on fixed fee contracts, with commercial companies. Agriculture and Weather Analytics revenues that are derived from contracts with commercial companies are generally from subscription revenue that we typically invoice our customers at the beginning of the term, in multiyear, annual, semi-annual or quarterly installments, and revenue is recognized ratably over the period of the subscription beginning once all requirements for revenue recognition have been met, including provisioning the service so that it is available to our customers. When appropriate, revenues are recognizedtime, using the percentageproportion of completion method of accounting, whereby revenue is recognized as contract performance progresses and is determined based on the relationship ofactual costs incurred to the total estimated costs. Changes in jobcosts expected to complete the contract performance obligation. The Company determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed fee contract performance obligation. Time & Materials (“T&M”) and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisionsCost Plus Fixed Fee (“CPFF”) contracts are considered to costs and revenues, and are recognizedinvolve variable consideration. However, contractual performance obligations with these fee types qualify for the “Right to Invoice” practical expedient. Under this practical expedient, the Company is allowed to recognize revenue, over time, in the period inamount to which the revisionsCompany has a right to invoice. In addition, the Company is not required to estimate such variable consideration upon inception of the contract and reassess the estimate each reporting period. The Company determined that this method best represents the transfer of services as, upon billing, the Company has a right to consideration from a customer in an amount that directly corresponds with the value to the customer of the Company’s performance completed to date.determined. Profit incentives are includedsubstantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in revenues, when their realization is reasonably assured. Certain of our revenues are recognized as services are performed and amounts are earned, which is measured by time incurred or other contractual milestones or output measures. Revenues accounted for in this manner generally relate to certain fixed fee professional services, cost plus fixed fee, or time and materials contracts. Revenues for ongoing operations and maintenance services contracts are generally accounted for ratably as the services are performed throughoutratable recognition over the term of the contract. PaymentsThe Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.Performance Obligation When Performance
Obligation is Typically
SatisfiedWhen Payment is
Typically DueHow Standalone
Selling Price is
Typically EstimatedProduct Revenues Standard purchase orders for delivery of a tangible product Upon shipment (point in time) Within 30 days of delivery Observable transactions Engineering services where the deliverable is considered a product As work is performed (over time) Within 30 days of services being invoiced Estimated using a cost-plus margin approach Service Revenues Engineering and consulting services As work is performed (over time) Within 30 days of services being invoiced Estimated using a cost-plus margin approach SaaS Over the course of the SaaS service once the system is available for use (over time) At the beginning of the contract period Estimated using a cost-plus margin approach services performedthe satisfaction of performance obligations.deferred and recognized whennot within the related servicesscope of other standards and: (1) are performed.We recognize revenue from the sale of deliverables that are part of a multiple element arrangement in accordance with applicable accounting guidance that establishes a relative selling price hierarchy permitting the use of an estimated selling price to determine the allocation of arrangement considerationdirectly related to a deliverable in a multiple element arrangement where neither vendor specific objective evidence (“VSOE”) nor third party evidence (“TPE”)contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered. As of fair value is available for that deliverable. In the absenceSeptember 30, 2020 and March 31, 2020, there was approximately $2,073,000 and $1,236,000, respectively, of VSOE or TPE of the stand-alone selling price for one or more delivered or undelivered elements in a multiple element arrangement, wecontract fulfillment costs, which are required to estimate the selling prices of those elements. Overall arrangement consideration is allocated to each element (both delivered and undelivered items) that has stand-alone value based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on our estimated selling prices.Unbilled Accounts ReceivableUnbilled accounts receivablepresented in the accompanying unaudited condensed consolidated balance sheets represent unbilled amounts earnedas prepaid and reimbursable under services sales arrangements, including approximately $722,000other current assets. These costs primarily relate to the satisfaction of performance obligations related to the set up of SaaS platforms. These costs andare amortized on a straight-line basis over the estimated earnings in excess of billings on uncompleted contracts as of December 31, 2017, accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-35, Construction-Type and Production-Type Contracts (“ASC 605-35”). At any given period-end, a large portionuseful life of the balance in this account representsSaaS platform.accumulationRemaining Performance Obligationslabor, materialsSeptember 30, 2020 and other costs that have not been billed dueMarch 31, 2020, the aggregate amount of transaction price allocated to timing, whereby the accumulation of each month’s costs and earnings are not administratively billed until the subsequent month. Also included in this account are amounts that will become billable according to contract terms, which usually require the considerationremaining performance obligations was immaterial, primarily as a result of the passage of time, achievement of milestones or completiontermination provisions within our contracts, which make the duration of the project.cash collected from customersrefund liabilities related to billings and billings to customers on contractsconsideration received in advance of work performed, advance payments negotiated as a contract condition, estimated losses on uncompleted contracts, project-related legal liabilities and other project-related reserves, including approximately $1.3 millionthe satisfaction of billings in excess of costs and estimated earnings on uncompleted contracts as of December 31, 2017, accounted for under FASB ASC 605-35. The unearned amounts are expected to be earned within the next twelve months.The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties and adjustments for contract closeout settlements.America and Asia.America. We generally do not require collateral or other security from our domestic customers. We maintain an allowance for doubtful accounts for potential credit losses, which losses have historically been within management’s expectations.threethree- and nine monthssix-months ended December 31, 2017, oneSeptember 30, 2020 and 2019, no individual customer represented greater than 10% of our total revenues. For the threeAs of September 30, 2020 and nine months ended DecemberMarch 31, 2016, one2020, 0 individual customer represented more than 10% of our total revenues. As of December 31, 2017, one individual customer represented moregreater than 10% of our total accounts receivable. As of March 31, 2017, no individual customer represented more than 10% of our total accounts receivable. and Cash EquivalentsPrepaid Expenses Other Current AssetsPrepaid expenses and other current assets were $1.5 million as of December 31, 2017 and $2.1 million as of March 31, 2017,2020, restricted cash was $146,000 and included approximately $160,000$146,000, respectively, related to cash restricted for shares purchased under the Employee Stock Purchase Plan ("ESPP") (see Note 9, Stock-Based Compensation, for further details on the ESPP).approximately $535,000, respectively,restricted cash presented in the accompanying unaudited condensed consolidated statements of cash designatedflows consist of the following (in thousands):September 30,
2020March 31,
2020Cash and cash equivalents $ 15,623 $ 14,217 Restricted cash 146 146 $ 15,769 $ 14,363 collateral on performance bonds,either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320 – Investments – Debt and Equity Securities. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as required under certainavailable-for-sale. Held-to-maturity securities are recorded at amortized cost, which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive loss as a separate component of stockholders’ equity. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available (see Note 5, Fair Value Measurements). As of September 30, 2020 and March 31, 2020, all of our Transportation Systems contracts ininvestments are available-for-sale. Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the Middle East. The performance bonds require uspresent value of cash flows expected to maintain 100% cashbe collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the bonds as collateral in a bank thatsecurity is localless than the security’s amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security’s amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the purchasing agency.amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicable taxes. The performance bond collateralCompany evaluates whether the decline in fair value of its investments is required throughoutother-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the delivery of our servicessecurities held, market and is maintainedeconomic trends in the local bank until the contract is closed by the purchasing agency. We expect the requirementsindustry and information on the remaining performance bonds,issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the related cash collateral restrictions,Company’s intent and ability to be released inretain the fourth quarterinvestment for a reasonable period of Fiscal 2018.work in processwork-in-process and raw materials and are stated at the lower of cost or net realizable value. Cost is determined using the first in, first outfirst-in, first-out method.straight linestraight-line method over the estimated useful life ranging from three to eight years. Leasehold improvements are depreciated over the term of the related lease or the estimated useful life of the improvement, whichever is shorter.evaluate goodwill onperform an annual basis inqualitative assessment of our goodwill during the fourth fiscal quarter, or more frequently, if we believe indicators of impairment exist. We have determined that our reporting units for purposes of testing for goodwill impairment are identical to our reportable segments for financial reporting purposes. We first assess qualitative factors to determine whetherif any events or circumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it iswould more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is less thanbelow its carrying amount. Ifamount, then goodwill is not considered to be impaired and no further testing is required; if otherwise, we conclude that it is more likely than not thatcompare the fair value of aour reporting unit is less thanto its carrying amount, we conduct a goodwill impairment test. The impairment test involves comparing the fair values of the applicable reporting units with their carrying values. We determine the fair values of our reporting units using the income valuation approach, as well as other generally accepted valuation methodologies.In Fiscal 2017, we adopted FASB ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, intended to simplify goodwill impairment testing. This guidance permits us to eliminate the second step of the goodwill impairment test, and eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment.value, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. We monitor the indicators for goodwill impairment testing between annual tests. As of December 31, 2017, we determined that no adjustments to the carrying valueSeptember 30, 2020, there were 0 indicators of goodwill were required.long livedlong-lived assets and purchased intangible assets. As of December 31, 2017, thereDuring the three months ended June 30, 2020, we recorded $313,000 in impairment charges related to right-of-use assets and leasehold improvements directly resulting from the restructuring activities. There was no0 additional impairment to our long-lived and intangible assets.frequentlycontinuously reassess the appropriateness of maintaining a valuation allowance.restrictedperformance stock units. The fair value of our common stock option awards is estimated on the grant date using the Black Scholes Merton option pricingBlack-utilizing this modelthe use of these models meets established requirements, the estimated fair values generated by itthe models may not be indicative of the actual fair values of our common stock option awards as it does not consider certain factors important to those awards to employees, such as continued employment and periodic vesting requirements, as well as limited transferability. The fair value of our restricted stock units is based on the closing market price of our common stock on the grant date. If there are any modifications or cancellations of the underlying unvested stock- basedstock-based awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.Shipping and Handling CostsShipping and handling costs are included as cost of revenues in the period during which the products ship.Sales TaxesSales taxes are presented on a net basis (excluded from revenues) in the consolidated unaudited statements of operations.three yearthree-year warranty from the original invoice date on all products, materials and workmanship. Products sold to various original equipment manufacturer customers sometimes carry longer warranties. Defective products will be either repaired or replaced, usually at our option, upon meeting certain criteria. We accrue a provision for the estimated costs that may be incurred for product warranties relating to a product as a component of cost of sales at the time revenue for that product is recognized. The accrued warranty reserve is included within accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.May 2014,June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. In November 2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2014-09”), which establishes principles for reporting revenue and cash flows arising from an entity’s contracts with customers. This new revenue recognition standard will replace most of the recognition guidance within GAAP. This guidance was deferred by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued by the FASB in August 2015, and is now effective for fiscal years beginning on or after December 15, 2017, with early adoption permitted as of the original effective date. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which further clarifies the implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,2016-13 to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These standards are effective for fiscal years beginning after December 15, 2017, including interim periods within2022 for all entities except SEC reporting companies that are not smaller reporting period. We are currently evaluating the full impact of thecompanies. As a smaller reporting company, ASU 2016-13 will now be effective for our fiscal year 2024 beginning April 1, 2023; however, early adoption on our consolidated financial statements, as well as any changes to our accounting policies. We have preliminarily elected to adopt Topic 606 using the modified retrospective transition method. We will continue to monitor and assess the impact of any changes to the standard and interpretations as they become available. We plan to quantify and disclose the impact to our financial statement information in our Annual Report on Form 10-K for the year ending March 31, 2018.In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). The pronouncement requires an entity to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-022016-13 on our unaudited condensed consolidated financial statements.2016,2018, the FASB issued ASU No. 2016-15, Statement of Cash Flows2018-13, Fair Value Measurement (Topic 230)820): Classification of Certain Cash Receipts and Cash PaymentsDisclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurements (“ASU 2016-15”2018-13”), which clarifies how certain cash receipts and cash payments are presented and classified inmodifies the statement of cash flows. The new standarddisclosure requirements on fair value measurements. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017,2019, and early adoption is permitted. We are currently evaluatingThe Company adopted this update effective April 2020. The adoption of this ASU did not have a material impact on the impact of ASU 2016-15 on our consolidatedCompany’s financial statements.November 2016,August 2018, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)2018-15, Intangibles—Goodwill and Other—Internal Use Software (subtopic 350-40): Restricted Cash (“Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2016-18”2018-15"), requiring restricted cash and cash equivalents to be included with cash and cash equivalents onwhich clarifies the statement of cash flows. The new standardaccounting for implementation costs in cloud computing arrangements. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with2019, and earlyWe are currently evaluatingThe Company adopted this update effective April 2020. The adoption of this ASU did not have a material impact on the impact of ASU 2016-18 on our consolidatedCompany’s financial statements.2016,2019, the FASB issued ASU No. 2016-20, Technical Corrections2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and Improvementsalso clarifies and amends existing guidance to Topic 606, Revenue from Contracts with Customers (“improve consistent application. This ASU 2016-20”), which allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2017,2020, including interim periods within that fiscal year, with early adoption permitted. We are currently evaluatingThe Company early adopted this update effective July 2020. The adoption of this ASU did not have a material impact on the impact of ASU 2016-20 on our consolidatedCompany’s financial statements.September 30,
2020March 31,
2020(In thousands) Materials and supplies $ 1,720 $ 1,380 Work in process 27 162 Finished goods 1,446 1,498 $ 3,193 $ 3,040 September 30,
2020March 31,
2020(In thousands) Equipment $ 6,500 $ 6,222 Leasehold improvements 2,966 2,911 Accumulated depreciation (7,722) (7,298) $ 1,744 $ 1,835
Carrying
Amount
Amortization
Value
Carrying
Amount
Amortization
ValueSeptember 30, 2020 March 31, 2020 Gross
Carrying
AmountAccumulated
AmortizationNet Book
ValueGross
Carrying
AmountAccumulated
AmortizationNet Book
Value(In thousands) Technology $ 1,286 $ (1,286) $ — $ 1,286 $ (1,286) $ — Customer contracts / relationships 3,750 (979) 2,771 3,750 (688) 3,062 Trade names and non-compete agreements 770 (648) 122 770 (613) 157 Capitalized software development costs 4,839 (1,974) 2,865 4,423 (1,576) 2,847 Total $ 10,645 $ (4,887) $ 5,758 $ 10,229 $ (4,163) $ 6,066 December 31, 2017,September 30, 2020, future estimated amortization expense is as follows:Year Ending March 31, (In thousands) 2021 $ 731 2022 1,373 2023 1,149 2024 912 2025 849 Thereafter 744 $ 5,758 wasis recorded as accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table presents activity related to the warranty reserve: Six Months Ended
September 30, 2020 2019 (In thousands) Balance at beginning of fiscal year $ 416 $ 463 Additions charged to cost of sales 152 372 Warranty claims (128) (340) Balance at end of reporting period $ 440 $ 495 (loss) Per Sharereconciliationcomputation of weighted average common shares used in basic and diluted net income (loss) per share computations and weighted average common shares used in diluted per share computations in the unaudited consolidated financial statements: Three Months Ended
September 30,Six Months Ended
September 30, 2020 2019 2020 2019 (In thousands, except per share amounts) (In thousands, except per share amounts) Numerator: Net income (loss) from continuing operations $ 719 $ (1,051) $ 1,137 $ (1,588) Net income (loss) from discontinued operations, net of tax (306) (1,136) 9,624 (2,171) Net income (loss) $ 413 $ (2,187) $ 10,761 $ (3,759) Denominator: Weighted average common shares used in basic computation 40,989 40,493 40,860 37,397 Dilutive stock options 920 — 848 — Weighted average common shares used in diluted computation 41,909 40,493 41,708 37,397 Basic: Net income (loss) per share from continuing operations: $ 0.02 $ (0.03) $ 0.03 $ (0.04) Net income (loss) per share from discontinued operations: $ (0.01) $ (0.03) $ 0.24 $ (0.06) Net income (loss) per basic share $ 0.01 $ (0.06) $ 0.27 $ (0.10) Diluted: Net income (loss) per share from continuing operations: $ 0.02 $ (0.03) $ 0.03 $ (0.04) Net income (loss) per share from discontinued operations: $ (0.01) $ (0.03) $ 0.23 $ (0.06) Net income (loss) per diluted share $ 0.01 $ (0.06) $ 0.26 $ (0.10) loss from continuing operationsnet income (loss) per share as their effect would have been anti-dilutive:Three Months Ended
September 30,Six Months Ended
September 30,2020 2019 2020 2019 (In thousands) (In thousands) Stock options 2,887 5,039 2,889 5,050 Restricted stock units 106 438 158 282 Sale of Vehicle SensorsDiscontinued OperationsJuly 29, 2011, weMay 5, 2020, the Company completed the sale (the “Asset Sale”) of substantially all of our assets used in connection with our prior Vehicle SensorsAgriculture and Weather Analytics segment to Bendix Commercial Vehicle SystemsDTN, LLC (“Bendix”DTN”), an operating company of TBG AG, a memberSwiss-based holding company, pursuant to the Purchase Agreement signed on May 2, 2020, in exchange for a total purchase consideration of Knorr Bremse Group. In connection with$12.0 million in cash, subject to working capital adjustments. Upon closing on May 5, 2020, the Asset Sale, we are entitled to additional consideration in the formCompany received $10.5 million. The deferred payments of the following performancepurchase price of $1.45 million and royalty related earn-outs: Bendix is obligated to pay us an amount$50,000, which were included in cash equal to 85%prepaid expenses and other current assets, and other assets on the unaudited condensed consolidated balance sheets, respectively, will be paid by DTN at the 12-month and 18-month anniversaries of revenue associated with royalties received under our license and distribution agreements with Audiovox Electronics Corporation and Valeo Schalter and Sensoren GmbH through December 31, 2017,the closing date, subject to certain reductions and limitationssatisfaction of the conditions set forth in the assetPurchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. The Purchase Agreement also provides for customary post-closing adjustments to the purchase agreement. Fromprice related to working capital at closing. The parties also entered into certain ancillary agreements at the dateclosing of the Asset Sale through December 31, 2017, we received approximately $2.5 milliontransaction that will provide Iteris with ongoing access to weather and pavement data that it integrates into its transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in connection with the royalty related earn-out provisionsglobal transportation market.totalfuture partnership upon the sale of $17.8 million in cash received from the Asset Sale as of December 31, 2017.In accordance with applicable accounting guidance, wethis business component to DTN. We have determined that the Vehicle SensorsAgriculture and Weather Analytics segment, which constituted one of our operating segments, at the time of the Asset Sale, qualifiedqualifies as a discontinued operation. Foroperation in accordance with the ninecriteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.March 31,
2020(In thousands) Assets Trade accounts receivable, net of allowance for doubtful accounts $ 863 Unbilled accounts receivable 504 Prepaid expenses and other current assets 109 Total assets held for sale, current portion 1,476 Property and equipment, net 107 Right-of-use assets 446 Other classes of assets that are not major 73 Total assets held for sale, noncurrent 626 Total assets held for sale $ 2,102 Liabilities Trade accounts payable $ 254 Accrued liabilities 91 Accrued payroll and related expenses 933 Deferred revenue 1,550 Total liabilities held for sale, current position 2,828 Lease liabilities 357 Total liabilities held for sale $ 3,185 Three Months Ended
September 30,Six Months Ended
September 30,2020 2019 2020 2019 Service revenue $ 0 $ 1,295 $ 695 $ 2,736 Cost of service revenues 0 590 349 1,207 Gross profit 0 705 346 1,529 Operating expenses: Selling, general and administration 230 839 746 1,772 Research and development 0 1,002 407 1,928 Restructuring charges 0 0 837 0 Total operating expenses 230 1,841 1,990 3,700 Operating loss from discontinued operations (230) (1,136) (1,644) (2,171) Other (expense) income, net (29) 0 27 0 Loss from discontinued operation before income tax (259) (1,136) (1,617) (2,171) Income tax (47) 0 (47) 0 Net loss from discontinued operations (306) (1,136) (1,664) (2,171) Gain on disposal of discontinued operations before income tax 0 0 11,315 0 Income tax expense on gain on disposal 0 0 (27) 0 Gain on disposal of discontinued operations after income tax 0 0 11,288 0 Net income (loss) from discontinued operations $ (306) $ (1,136) $ 9,624 $ (2,171) Initial proceeds from sale, net of transaction costs $ 9,440 Closing working capital adjustment 250 Deferred payments of purchase price 1,500 Total consideration, net of transaction costs 11,190 Trade accounts receivable, net of allowance for doubtful accounts 1,060 Unbilled accounts receivable 488 Other classes of assets that are not major 194 Total Agriculture and Weather Analytics segment assets 1,742 Trade accounts payable 349 Deferred revenue 1,518 Total Agriculture and Weather Analytics segment liabilities 1,867 Gain on sale of Agriculture and Weather Analytics segment $ 11,315 December 31, 2017September 30, 2020. The following table presents the restructuring and 2016,severance costs for our reportable segments, as well as corporate expenses, for the six months ended September 30, 2020. (in thousands):Roadway
SensorsTransportation
SystemsAgriculture and
Weather
AnalyticsCorporate Total Severance and benefits $ 110 $ 43 $ 524 $ 428 $ 1,105 Lease impairment and other costs — — 313 38 351 Total restructuring and severance costs $ 110 $ 43 $ 837 $ 466 $ 1,456 recorded a gain on sale of discontinued operation ofhave accrued approximately $258,000$247,000 for severance and $278,000, respectively, net of tax,benefits related to the earn-out provisions ofrestructuring activities in accrued payroll and related expenses on the asset purchase agreement forunaudited condensed consolidated balance sheet. Our restructuring activities during the Asset Sale.4.three- and six-months ended September 30, 2020 were as follows (in thousands):Balance at March 31, 2020 $ 0 Charged to expenses 1,105 Cash payments (661) Balance at June 30, 2020 $ 444 Cash payments (197) Balance at September 30, 2020 $ 247 non-recurringnonrecurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. NoNaN non-financial assets were measured at fair value during the nine months ended Decemberat September 30, 2020 and March 31, 2017 and 2016.5.Income Taxestable sets forthtables present the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy:As of September 30, 2020 (In thousands) Amortized
CostGross
Unrealized
LossGross
Unrealized
GainEstimated Fair
ValueLevel 1: Money market funds $ 4,190 $ — $ — $ 4,190 Subtotal 4,190 — — 4,190 Level 2: Commercial paper 10,197 — 1 10,198 Corporate notes and bonds 2,255 — 2 2,257 US Treasuries 9,710 (1) 0 9,709 Subtotal 22,162 (1) 3 22,164 Total $ 26,352 $ (1) $ 3 $ 26,354 As of March 31, 2020 (In thousands) Amortized
CostGross
Unrealized
LossGross
Unrealized
GainEstimated Fair
ValueLevel 1: Money market funds $ 10,576 $ (1) $ — $ 10,575 Subtotal 10,576 (1) — 10,575 Level 2: Commercial paper 1,495 (1) — 1,494 Corporate notes and bonds 6,044 (22) — 6,022 US Treasuries 3,013 — 20 3,033 US Government agencies 1,007 — — 1,007 Subtotal 11,559 (23) 20 11,556 Total $ 22,135 $ (24) $ 20 $ 22,131 benefitinvestments before recovery of their cost basis. As a result, there is 0 other-than-temporary impairment for income taxes, along with the correspondingthese investments as of September 30, 2020.rates:On anrate used for interim basis, we estimate what our anticipatedperiods is the estimated annual effective tax rate, will be, while also separately considering applicable discrete and other non-recurring items, and record a quarterly income tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, we refine our estimates based on actualcurrent estimate of full year results, except that taxes related to specific events, and financial results duringif any, are recorded in the year. This process can result in significant changes to our expected effective tax rate. When this occurs, we adjust our income tax provision during the quarterinterim period in which our estimates are refined so thatthey occur.year-to-date provision reflectsthree- and six-months ended September 30, 2020 was approximately $28,000 and $62,000, or 3.4% and 4.8%, respectively, of pre-tax income as compared with an expense of approximately $1,000 and $25,000, or 0.1% and 0.6% of pre-tax loss for the expected annual effective tax rate. These changes, along with adjustments to our deferred taxes, among others, may create fluctuations in our overall effective tax rate from quarter to quarter.WeAs we have experienced a cumulative pre-tax loss over the trailing three years. As such,years, we consider it appropriate to continue to maintain a valuation allowance against our deferred tax assets. We will continuously reassessappropriateness of maintaining a valuation allowance.The Tax Cuts and Jobs (“tax legislation”)CARES Act was enacted on December 22, 2017 and lowers U.S. corporatein response to the Pandemic. The CARES Act contains numerous income tax ratesprovisions, such as relaxing limitations on the deductibility of January 1, 2018 to 21%.interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. The rate change is administratively effective forincome tax provisions of the CARES Act had an immaterial impact on our fiscalcurrent taxes, deferred taxes, and uncertain tax positions of the Company in the year using a blended rateended March 31, 2020. The CARESannual period. As a result,deferral of payroll taxes, as well as the blended statutory tax rate for Fiscal 2018 is 30.8%. In our third fiscal quarter, we revised our estimated annual effective tax rate to reflect this change.The estimated impactimmediate refund of the tax legislation was an increase in income tax benefit of $1.4 million during the three and nine month periods ended December 31, 2017, of which $1.1 million was due to the release of valuation allowance that had been maintained againstfederal Alternative Minimum Tax credit carryforwards,credits, which werehad previously been made refundable by the tax legislation. Approximately $240,000 was due to the remeasurementover a period of a deferred tax liability related to indefinite-lived assets at the lower enacted corporate tax rate. The impact of the remeasurement of other net deferred tax assets was $3.6 million, which was offsetfour years by a corresponding change in the related valuation allowance.On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the tax legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the income tax effects discussed above represent our best estimate based on interpretation of the tax legislation as we are still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the tax legislation. In accordance with SAB 118, the income tax effects of the tax legislation discussed above are considered provisional and will be finalized before December 22, 2018.6.2017.and agricultural industries,industry, the Company is, and may in the future from time to time, be involved in litigation relating to claims arising out of its operations in the normal course of business. While the Company cannot accurately predict the outcome of any such litigation, except as described below, the Company is not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would have a material effect on the Company’s unaudited condensed consolidated results of operations, financial position or cash flows.On September 15, 2016, a stockholder class actionderivative action (captioned Ionni v. Bergera, et al., Case No. 16-cv00807-RGA) was filedLease LiabilitiesStates District CourtStates. These leases expire at various times through 2029. Certain lease agreements contain renewal options from 1 to 5 years, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.District of Delaware (the “Court”) against certainlease under the remainder of the Company’s current and former directors and officers (the “Individual Defendants”) andoriginal lease term. Sublease income will be recognized on a straight-line basis over the Company as a nominal defendant (together with the Individual Defendants, the “Defendants”). The complaint asserted claims for breach of fiduciary duty and unjust enrichment. Plaintiff contended that, in 2014 and 2015, the Individual Defendants caused the Company to issue purportedly false and misleading proxy statements in connection with the Company’s annual meeting of stockholders in 2014 and 2015 (collectively, the “Proxy Statements”). In those Proxy Statements, the Company’s stockholders were asked to approve amendments (the “Amendments”) to increase the number of sharesterm of the Company’s common stock reserved for issuance undersublease.Iteris, Inc. 2007 Omnibus Incentive Plan (the “2007 Plan”). Among other things, Plaintiff alleged that the Proxy Statements were materially false and misleading because they affirmatively represented that no person could receive more than 500,000 stock options or SARs under the 2007 Plan in any fiscal year (the “Share Limit”) and failed to disclose that the Compensation Committee had the discretion to approve an annual grant to a 2007 Plan participant in excess of that amount. Plaintiff contended that, the Amendments were not valid and sought rescission of any stock options granted pursuant to the Amendments, including the option to purchase up to 1,350,000 shares of the Company’s common stock that was granted in September 2015 to Mr. Bergera (the “CEO Option”) in connection with his appointment to serve as President and Chief Executive Officer of the Company.The Individual Defendants denied that they breached their fiduciary duties and the Company believed (and still believes) the Amendments were properly approved and that all of the options granted pursuant to the Amendments, including the CEO Option, were valid. Nonetheless, to eliminate the burden, expense and uncertainty of the litigation, on November 8, 2016, the parties entered into a Memorandum of Understanding (“MOU”) setting forth their agreement in principle to resolve the litigation. In consideration for a release of claims and dismissal of this litigation with prejudice, the Company agreed to submit a proposal at its 2016 Annual Meeting of Stockholders seeking stockholder approval for that portion of the CEO Option that exceeds the Share Limit (i.e., the 850,000 options above the Share Limit (the “Excess Shares”)). The Company submitted a proposal of the Excess Shares for approval by the Company stockholders at the 2016 Annual Meeting of Stockholders. On December 15, 2016, the Company’s stockholders approved the Excess Shares.On April 28, 2017, the parties entered into a Stipulation of Settlement and Compromise (the “Stipulation”) that provides for, among other things, a release of claims against Defendants. Under the Stipulation, Defendants agreed not to oppose any award of attorneys’ fees and expenses to Plaintiff up to $215,000. The Court approved the settlement and entered a final judgment dismissing the action with prejudice on September 8, 2017, and the settlement became effective on October 10, 2017. Pursuant to the settlement terms, Defendants paid $215,000 in October 2017. An immaterial accrued liability for the settlement was included in the accompanyingunaudited condensed consolidated balance sheet as follows:Classification September 30, 2020 (In thousands) Assets Operating lease right-of-use-assets - continuing operations Right-of-use assets $ 12,035 Operating lease right-of-use-assets - discontinued operation Asset held for sales - noncurrent 114 Total operating lease right-of-use-assets $ 12,149 Liabilities Operating lease liabilities (short-term) - continuing operations Accrued liabilities $ 1,931 Operating lease liabilities (short-term) - discontinued operation Liabilities held for sales - current 94 $ 2,025 Operating lease liabilities (long-term) - continuing operations Lease liabilities 10,992 Operating lease liabilities (long-term) - discontinued operation Liabilities held for sales - noncurrent 310 11,302 Total lease liabilities $ 13,327 March 31, 2017,lease costs in on our unaudited condensed consolidated statements of operations for the three- and six-months ended September 30, 2020 as compared to approximately $651,000 and $1,249,000 for the three- and six-months ended September 30, 2019, respectively. The Company currently has 0 variable lease costs. The Company recorded $27,000 and $45,000 of sublease income for the three- and six-months ended September 30, 2020, respectively, which was sufficient to cover the settlement payment.Related Party TransactionWe previously subleased office space to Maxxess Systems, Inc. (“Maxxess”), one of our former subsidiaries that we soldincluded in September 2003. The sublease terminated in September 2007, at which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which was subsequently amended and restated on July 23, 2013 and on August 11, 2016. The amended and restated note bears interest at a rate of 6% per annum, compounded annually, with accrued interest payable annuallyloss from discontinued operations on the first business dayunaudited condensed consolidated statement of each calendar year. When authorized byoperations.Company, Maxxess may pay down the balancesix months ended September 30, 2020 (in thousands, except weighted average information):Cash paid for amounts included in the measurement of operating lease liabilities $ 1,383 Right-of-use assets obtained in exchange for new operating lease liabilities $ 310 Weighted average remaining lease term (in years) 6.4 Weighted average discount rate 4.9 % this note by providing consulting services to Iteris. We have previously fully reserved for amounts owed to us by Maxxess and the outstanding principal balance remains fully reserved. AsLease LiabilitiesDecember 31, 2017, approximately $146,000lease liabilities as of the original principal balance was outstanding and payable to Iteris. Maxxess is currently owned by an investor group that includes, among others, one former Iteris director, who has not been a director of Iteris since September 2013, and one existing director of Iteris, who currently owns less than 2% of Maxxess’ capital stock.7.30, 2020 were as follows:Fiscal Year Ending March 31, Operating Leases Sublease Income Net Operating Lease (In thousands) 2021 $ 1,412 $ 55 $ 1,357 2022 2,583 9 2,574 2023 2,454 2,454 2024 2,256 2,256 2025 2,072 2,072 Thereafter 4,896 4,896 Total lease payments 15,673 $ 64 $ 15,609 Less imputed interest (2,346) Present value of future lease payments 13,327 Less current obligations under leases (2,025) Long-term lease obligations $ 11,302 two2 stock incentive plans, the 2007 Omnibus Incentive Plan and the 2016 Omnibus Incentive Plan (the “2016 Plan”). Of these plans, we may only grant future awards from the 2016 Plan. The 2016 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock, time-restricted stock units (“RSUs"), performance-based restricted stock units (“RSUs”("PSUs”), cash incentive awards and other stock-based awards. At December 31, 2017,September 30, 2020, there were approximately 2.31.8 million shares of common stock available for grant or issuance under the 2016 Plan. Total stock options vested and expected to vest were approximately 3.45.4 million as of December 31, 2017.ninesix months ended December 31, 2017September 30, 2020 is as follows:
Shares
Average
Exercise
Price Per
ShareOptions Weighted
Average
Exercise
Price Per
Share(In thousands) Options outstanding at March 31, 2020 5,934 $ 3.99 Exercised (266) 2.55 Forfeited (248) 4.88 Options outstanding at September 30, 2020 5,420 $ 3.99 one1 share of our common stock for each RSU upon vesting, for the ninesix months ended December 31, 2017September 30, 2020 is as follows:Number ofShares(In thousands)RSUs outstanding at March 31, 2017232Granted39Vested(94)Forfeited(2)RSUs outstanding at December 31, 2017175# of Shares Weighted
Average
Price Per
Share(In thousands) RSUs outstanding at March 31, 2020 404 $ 5.16 Vested (123) 5.17 Forfeited (6) 5.52 RSUs outstanding at September 30, 2020 $ 275 $ 5.15 # of Shares Weighted Average Price Per Share (In thousands) PSUs outstanding at March 31, 2020 0 $ 0 Granted 61 5.47 PSUs outstanding at September 30, 2020 $ 61 $ 5.47 At December 31, 2017,Three Months Ended
September 30,Six Months Ended
September 30,2020 2019 2020 2019 (In thousands) (In thousands) Cost of revenues $ 47 $ 33 $ 93 $ 67 Selling, general and administrative expense 595 654 1,146 1,115 Research and development expense 25 18 50 36 Restructuring costs 0 — 42 — (Loss) income from discontinued operations before gain on sale, net of tax 0 88 (57) 177 Total stock-based compensation $ 667 $ 793 $ 1,274 $ 1,395 $2.7$4.0 million, $1.0 million and $643,000$73,000 of unrecognized compensation expense related to unvested stock options, RSUs and RSUs,PSUs, respectively. This expense is currently expected to be recognized over a weighted average period of approximately 2.42.5 years for stock options, and 1.61.5 years for RSUs.RSUs and 0.5 years for PSUs. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock options, RSUs or other stock-based awards.Cash $ 664 Trade accounts receivable 905 Unbilled accounts receivable 347 Right-of-use assets 863 Property and equipment 357 Intangible assets 3,710 Goodwill 5,440 Other assets 161 Total assets acquired 12,447 Accounts payable (378) Accrued payroll and related expenses (426) Lease liabilities (863) Total liabilities assumed (1,667) Total purchase price $ 10,780 Amount Weighted Average
Useful Life(in thousands) (in years) Customer relationships $ 3,500 6 Non-compete agreement 210 3 Total intangible assets assumed $ 3,710 Six Months Ended
September 30, 2019 (In thousands) Pro forma revenue $ 56,705 Pro forma net loss $ (3,924) Pro forma net loss per share: Basic $ (0.10) Diluted $ (0.10) Roadway
SensorsTransportation
SystemsTotal (In thousands) Three Months Ended September 30, 2020 Product revenues $ 14,135 $ 2,130 $ 16,265 Service revenues 155 12,836 12,991 Total revenues 14,290 14,966 29,256 Segment income 3,083 2,295 5,378 Three Months Ended September 30, 2019 Product revenues 12,480 1,315 13,795 Service revenues 75 12,716 12,791 Total revenues 12,555 14,031 26,586 Segment income 2,224 1,942 4,166 Roadway
SensorsTransportation
SystemsTotal (In thousands) Six Months Ended September 30, 2020 Product revenues $ 27,286 $ 3,373 $ 30,659 Service revenues 240 26,357 26,597 Total revenues 27,526 29,730 57,256 Segment income 6,194 4,559 10,753 Six Months Ended September 30, 2019 Product revenues 25,251 3,061 28,312 Service revenues 112 23,329 23,441 Total revenues 25,363 26,390 51,753 Segment income 4,556 3,508 8,064 Three Months Ended
September 30,Six Months Ended
September 30,2020 2019 2020 2019 (In thousands) (In thousands) Segment income: Total income from reportable segments $ 5,378 $ 4,166 $ 10,753 $ 8,064 Unallocated amounts: Corporate expenses (4,400) (5,149) (8,544) (9,519) Amortization of intangible assets (230) (230) (460) (296) Restructuring charges 0 0 (619) 0 Operating income (loss) $ 748 $ (1,213) $ 1,130 $ (1,751) Three Months Ended
September 30,Six Months Ended
September 30,2020 2019 2020 2019 (In Thousands) (In Thousands) Net income (loss) from continuing operations $ 719 $ (1,051) $ 1,137 $ (1,588) Income tax expense 28 1 62 25 Depreciation expense 182 203 367 380 Amortization expense 363 336 724 499 Stock-based compensation 667 704 1,331 1,218 Other adjustments: Restructuring charges — — 619 — Acquisition costs — 440 — 596 Adjusted EBITDA $ 1,959 $ 633 $ 4,240 $ 1,130 Percentage of total revenues 6.7 % 2.4 % 7.4 % 2.2 % Three Months Ended September 30, $
Increase
(decrease)%
Change 2020 2019 (In thousands, except percentages) Product revenues $ 16,265 $ 13,795 $ 2,470 17.9 % Service revenues 12,991 12,791 200 1.6 % Total revenues $ 29,256 $ 26,586 $ 2,670 10.0 % Six Months Ended September 30, $
Increase
(decrease)%
Change 2020 2019 (In thousands, except percentages) Product revenues $ 30,659 $ 28,312 $ 2,347 8.3 % Service revenues 26,597 23,441 3,156 13.5 % Total revenues $ 57,256 $ 51,753 $ 5,503 10.6 % Three Months Ended September 30, $
Increase%
Change2020 2019 (In thousands, except percentages) Product gross profit $ 6,933 $ 6,244 $ 689 11.0 % Service gross profit 4,425 4,434 (9) (0.2) % Total gross profit $ 11,358 $ 10,678 $ 680 6.4 % Product gross margin as a % of product revenues 42.6 % 45.3 % Service gross margin as a % of service revenues 34.1 % 34.7 % Total gross margin as a % of total revenues 38.8 % 40.2 % Six Months Ended September 30, $
Increase%
Change2020 2019 (In thousands, except percentages) Product gross profit $ 13,246 $ 12,266 $ 980 8.0 % Service gross profit 8,980 7,996 984 12.3 % Total gross profit $ 22,226 $ 20,262 $ 1,964 9.7 % Product gross margin as a % of product revenues 43.2 % 43.3 % Service gross margin as a % of service revenues 33.8 % 34.1 % Total gross margin as a % of total revenues 38.8 % 39.2 % threethree- and nine monthssix-months ended December 31, 2017, weSeptember 30, 2020, the Company did not repurchase any shares. As of December 31, 2017, approximately $1.7 million remained available for the repurchase of our common stock under our current stock purchase program. From inception of the program in August 2011 through December 31, 2017,September 30, 2020, we repurchased approximately 3,422,000 shares of our common stock for an aggregate price of approximately $5.6 million, at an average price per share of $1.63. As of December 31, 2017,September 30, 2020, all repurchased shares have been retired and resumedreturned to their status as authorized and unissued shares of our common stock.9.Business Segment InformationWe currently operate in three reportable segments: Roadway Sensors, Transportation Systems, and Agriculture and Weather Analytics.The Roadway Sensors segment provides hardware and software products to multiple segments As of the ITS market that use advanced image processing technology and other techniques to capture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle, and pedestrian detection and transmission of both video images and data using various communication technologies. These products primarily consist of various vehicle detection and information systems and products for traffic intersection control, communication, incident detection, and roadway traffic data collection applications. These include, among other products, our Vantage, VantageNext, VersiCam, Vantage Vector, SmartCycle, PedTrax, SmartSpan, Pegasus, Velocity, and P-series products. In May 2017, we announced the release of VantageLive!, a cloud-based intersection data analytics service that allows users to view intersection activity by collecting and analyzing vehicle, bicycle and pedestrian data through our Vantage platform in order to maximize traffic signal efficiency and improve intersection safety conditions. Our Roadway Sensors segment also includes the sale of certain complementary original equipment manufacturer (“OEM”) products for the traffic intersection market, which include, among other things, intersection controllers and component cabinets.The Transportation Systems segment provides transportation engineering and consulting services related to the planning, design, implementation, operation and management of surface transportation infrastructure systems, and the development of transportation management and traveler information systems for the ITS industry. This segment also includes our performance measurement and information management solution to address transportation mobility and safety challenges, known as “iPeMS”, and related traffic analytic consulting services, as well as our commercial vehicle operations and vehicle safety compliance platforms, known as “CVIEW-Plus,” “CheckPoint,” “UCRLink,” and “Inspect”. Both iPeMS and CVIEW-Plus are considered software-as-a-service solutions. In October 2017, we announced the release of added new features to iPeMS, including: financial and economic impact of congestion and delay; real-time bottleneck detection for linear and branching bottlenecks; animation tools for historical data analysis; support for incident analysis; and implementation of a dynamic dashboard to support required federal performance measurement.The Agriculture and Weather Analytics segment includes ClearPath Weather, our road-maintenance applications, and ClearAg, our digital analytics solutions. Both ClearPath Weather and ClearAg are considered software-as-a-service solutions. ClearPath Weather provides winter road maintenance recommendations for state agencies, municipalities and for commercial companies. Our ClearAg solutions leverage our EMPower platform, which is an adaptive learning engine that provides a comprehensive database of weather, soil and agronomic information combined with proprietary land-surface modeling, essential to making informed agricultural decisions and solving complex agricultural problems. Our ClearAg solutions include our ClearAg applications, ClearAg application program interfaces (“APIs”) and components, WeatherPlot mobile application, and ClearAg Insights applications. In July 2017, we launched our ClearAg irrigation APIs, including the EvapoSmart and IMFocus APIs, to enable users to optimize irrigation scheduling, water conservation and plant uptake while reducing watering costs.The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies (Note 1). Certain corporate general and administrative expenses, including general overhead functions such as information systems, accounting, human resources, marketing, compliance costs and certain administrative expenses, as well as interest and amortization of intangible assets, are not allocated to the segments. The reportable segments are each managed separately because they manufacture and distribute distinct products or provide services with different processes. All reported segment revenues are derived from external customers. Our Chief Executive Officer, who is our chief operating decision maker (“CODM”), reviews financial information at the operating segment level. Our CODM does not review assets by segment in his resource allocation, and therefore, assets by segment are not disclosed below.The following table sets forth selected unaudited consolidated financial information for our reportable segments for the three and nine months ended December 31, 2017 and 2016:
Sensors
Systems
and Weather
AnalyticsThe following table reconciles total segment income to unaudited consolidated income from continuing operations before income taxes:ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis report, including the following discussion and analysis, contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on our current expectations, estimates and projections about our business and our industry, and reflect management’s beliefs and certain assumptions made by us based upon information available to us as of the date of this report. When used in this report and the information incorporated herein by reference, the words “expect(s),” “feel(s),” “believe(s),” “intend(s),” “plans,” “should,” “will,” “may,” “anticipate(s),” “estimate(s),” “could,” “should,” and similar expressions or variations of these words are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our anticipated growth, sales, revenue, expenses, profitability, capital needs, backlog, manufacturing capabilities, the market acceptance of our products and services, competition, the impact of any current or future litigation, the impact of recent accounting pronouncements, the applications for and acceptance of our products and services, and the status of our facilities and product development. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof. We encourage you to carefully review and consider the various disclosures made by us which describe certain factors which could affect our business, including in “Risk Factors” set forth in Part II. Item 1A of this report, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.OverviewWe currently operate in three reportable segments: Roadway Sensors, Transportation Systems, and Agricultural and Weather Analytics.The Roadway Sensors segment provides various vehicle detection and information systems and products for traffic intersection control, incident detection and roadway traffic data collection applications. We currently sell our core Roadway Sensor products both directly and through reseller channels. The Roadway Sensors segment also includes the sale of certain complementary OEM products for the traffic intersection market, which include, among other things, intersection controllers and component cabinets, and typically carry lower margins that our core Roadway Sensors products.The Transportation Systems segment provides transportation engineering and consulting services related to the planning, design, implementation, operation and management of surface transportation infrastructure systems, and the development of transportation management and traveler information systems for the ITS industry. This segment also includes iPeMS, which is our specialized transportation performance measurement and traffic analytics solution, and our related traffic analytic consulting services. Transportation Systems revenues are derived primarily from long-term, contracts with governmental agencies. Our Transportation Systems segment is largely dependent upon state and local governmental funding, and to a lesser extent, on federal governmental funding. Such contracts generally relate to certain fixed fee professional services or are time and material contracts; however, a small portion of this segment’s revenues are derived from cost plus fixed fee contracts.The Agriculture and Weather Analytics segment includes ClearPath Weather, our winter road information solution, and ClearAg, our digital analytics solutions for the agricultural market. Our ClearPath Weather tools provide winter road maintenance recommendations for government agencies and for commercial companies. We typically offer our ClearPath Weather services on a subscription basis. Our ClearAg solutions combine weather and agronomic data with proprietary land-surface modeling and analytics to solve complex agricultural problems. We typically market and sell our ClearAg products as a subscription-based service to seed and crop protection companies, allied providers and agricultural integrators, and to a lesser extent, to growers and retailers. See Note 9 of Notes to Unaudited Consolidated Financial Statements, included in Part I, Item 1 of this report, for further details on our reportable segments.Critical Accounting Policies and Estimates“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our unaudited consolidated financial statements included herein, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition, the collectability of accounts receivable, the valuation of inventories, the recoverability of long-lived assets and goodwill, the realizability of deferred tax assets, accounting for stock-based compensation, the valuation of equity instruments, warranty reserves and other contingencies. We base these estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and assumptions by their nature involve risks and uncertainties, and may prove to be inaccurate. In the event that any of our estimates or assumptions are inaccurate in any material respect, it could have a material adverse effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Recent Accounting PronouncementsRefer to Note 1 of Notes to Unaudited Consolidated Financial Statements, included in Part I, Item 1 of this report for a discussion of applicable recent accounting pronouncements.Results of OperationsThe following table sets forth unaudited statement of operations data as a percentage of total revenues for the periods indicated:Analysis of Quarterly Results of OperationsTotal Revenues. Total revenues are comprised of sales from our Roadway Sensors, Transportation Systems and Agriculture and Weather Analytics segments.The following tables present our total revenues for the three and nine months ended December 31, 2017 and 2016:Product revenues for the three months ended December 31, 2017 increased 19.4% to $12.0 million, compared to $10.0 million in the corresponding period in the prior year, primarily due to an increase in sales of our Roadway Sensors third party OEM products for the traffic intersection market. Service revenues for the three months ended December 31, 2017 increased 11.0% to $14.0 million, compared to $12.6 million in the corresponding period in the prior year, primarily due to higher Transportation Systems traffic engineering service revenues. Total revenues for the three months ended December 31, 2017 increased 14.7% to $26.0 million, compared to $22.7 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 18% increase in Roadway Sensors revenues, an approximate 14% increase in Transportation Systems revenues, and an approximate 2% increase in Agriculture and Weather Analytics revenues.Product revenues for the nine months ended December 31, 2017 increased 10.8% to $35.6 million, compared to $32.1 million in the corresponding period in the prior year, primarily due to an increase in unit sales of our core Roadway Sensors products. Service revenues for the nine months ended December 31, 2017 increased 11.2% to $42.8 million, compared to $38.5 million in the corresponding period in the prior year, primarily due to Transportation Systems traffic engineering service revenue for government agencies. Total revenues for the nine months ended December 31, 2017 increased 11.0% to $78.5 million, compared to $70.7 million in the corresponding period in the prior year. The increase in revenues was primarily due to an approximate 13% increase in Transportation Systems revenues, an approximate 9% increase in Roadway Sensors revenues, and an approximate 11% increase in Agriculture and Weather Analytics revenues.Roadway Sensors revenues for the three months ended December 31, 2017 included approximately $11.0 million in product revenues and approximately $34,000 of service revenues, reflecting an increase in total revenues of approximately $1.6 million or 18%, compared to the corresponding prior year period. Revenues for the nine months ended December 31, 2017 included approximately $33.4 million in product revenues and $145,000 of service revenues, reflecting an increase in total revenues of approximately $2.7 million or 9%, compared to the corresponding prior year period. The increase in Roadway Sensors revenues during the three months ended December 31, 2017 was primarily due to higher unit sales from our distribution of certain OEM products for the traffic intersection market of approximately $945,000 or 134%, toSeptember 30, 2020, approximately $1.7 million coupled with an increase in our core Roadway Sensors video detection products of approximately $698,000 or 8%. The increase in our OEM product sales in the current quarter was due in part to the additional products sold to repair damaged intersection equipment after the catastrophic effect of the hurricanes in certain of our key markets in the second fiscal quarter of 2018, as well as the shipment delays experienced in the second quarter of Fiscal 2018 due to the hurricanes, which shipments were not fulfilled until the current quarter. Going forward, we plan to grow revenues by focusing on our core domestic intersection market, and refine and deliver products that address the needs of this market, primarily our Vantage processors and camera systems and our Vantage Vector video/radar hybrid sensor, as well as our SmartCycle, Velocity, PedTrax and SmartSpan products.Transportation Systems revenuesremains available for the three months ended December 31, 2017 included approximately $12.6 million of service revenues, and approximately $987,000 of sales of third-party products purchased for installation under certain construction-type contracts that we classify as product revenues. Revenues for the nine months ended December 31, 2017 included approximately $39.2 million of service revenues, and approximately $2.2 million of sales of third-party products purchased for installation under certain construction-type contracts that we classify as product revenues. Total revenues for the three months ended December 31, 2017 of approximately $13.6 million, reflected an increase of approximately $1.7 million or 14%, compared to the corresponding period in the prior year. Total revenues for the nine months ended December 31, 2017 of approximately $41.4 million, reflected an increase of approximately $4.8 million or 13%, compared to the corresponding period in the prior year. These increases during the three and nine month periods ended December 31, 2017 were primarily a result of extensions granted on certain large contracts, new contract awards,and the timing of backlog fulfilment on certain other projects. Transportation Systems added approximately $9.0 million of new backlog during the third quarter of Fiscal 2018. Transportation Systems backlog decreased to approximately $46.0 million as of December 31, 2017, compared to approximately $54.1 million as of December 31, 2016. We plan to continue to focus on securing new contracts and to extend and/or continue our existing relationships with key agencies related to projects in its final project phases. While we believe our ability to obtain additional large contracts will contribute to overall revenue growth, the mix of sub-consulting content and third-party equipment will likely affect the related total gross profit from period to period, as total revenues derived from sub-consultants and third-party equipment generally have lower gross margins than revenues generated by our professional services.Agriculture and Weather Analytics revenues for the three months ended December 31, 2017 included no product revenue and approximately $1.4 million of service revenues, largely consisting of subscription revenues, reflecting an increase of approximately $32,000 or 2%, compared to the corresponding period in the prior year. Revenues for the nine months ended December 31, 2017 included no product revenue and approximately $3.5 million of service revenues, reflecting an increase of approximately $341,000 or 11%, compared to the corresponding period in the prior year. The increase was primarily due to increases in both ClearPath Weather and ClearAg solutions under newly signed contracts during Fiscal 2017. Going forward, we plan to continue investing in this segment, particularly in the research and development and sales and marketing of the ClearAg and ClearPath Weather solutions. We also plan to focus on commercial opportunities in the agriculture markets, particularly with seed and crop protection companies, ag retailers, allied providers, and to a lesser extent, to growers, by offering our applications, content, and modeling services that provide analytics and decision support services that leverage our EMPower adaptive forecasting engine, an advanced learning platform.Gross Profit. The following tables present details of our gross profit for the three and nine months ended December 31, 2017 and 2016:Our product gross profit as a percentage of product revenues for the three and nine months ended December 31, 2017 decreased approximately 530 and 221 basis points, respectively, as compared to the corresponding period in the prior year, primarily due to an increase in our Roadway Sensors OEM sales, as well as our Transportation Systems third-party product sales, both of which typically yield lower gross margins than our Roadway Sensors core video detection products. Our service gross profit as a percentage of service revenues for the three and nine months ended December 31, 2017 increased 454 and 23 basis points, respectively, as compared to the corresponding periods in the prior year, primarily due to the timing of certain extension contracts, the contract mix and a decrease in the amount of related sub-consulting content of such contracts. Sub-consulting content generally results in lower gross margins than our workforce. Our total gross profit as a percentage of total revenues for the three months ended December 31, 2017 was relatively consistent with the corresponding period in the prior year. Our total gross profit as a percentage of total revenues decreased approximately 88 basis points for the nine months ended December 31, 2017 as compared to the corresponding period inthe prior year, primarily as a result of the revenue mix between the Roadway Sensors and Transportation Systems segments, as Roadway Sensors revenues generally yield higher total gross margins than our other segments. As such, the increase in our Transportation Systems total revenues from approximately 52% of total revenues for the nine months ended December 31, 2016 to approximately 53% of total revenues for the nine months ended December 31, 2017 was a primary contributor to our decline in total gross margin. Roadway Sensors revenue decreased as a percentage of total revenues from approximately 44% for the nine months ended December 31, 2016 to approximately 43% for the nine months ended December 31, 2017.Roadway Sensors gross profit can fluctuate in any specific quarter or year based on, among other factors, customer and product mix between core products and third party OEM products, competitive pricing requirements, product warranty costs and provisions for excess and obsolete inventories, as well as shifts of engineering resources from development activities to sustaining activities, which we record as cost of goods sold.We recognize a portion of our Transportation Systems and Agriculture and Weather Analytics revenues and related gross profit using percentage of completion contract accounting, and the underlying mix of contract activity affects the related gross profit recognized in any given period. For the Transportation Systems segment, we expect to experience gross profit variability in future periods due to our contract and sub-consulting mix, as well as factors such as our ability to efficiently utilize our internal workforce, which also could cause fluctuations in our margins from period to period.Selling, General and Administrative Expense. The following tables present selling, general and administrative expense for the three and nine months ended December 31, 2017 and 2016:The overall increase in selling, general and administrative expense for the three and nine months ended December 31, 2017, as compared to the corresponding periods in the prior year, was primarily due to higher compensation costs driven by higher revenues and an increase in business development costs aimed at the pursuit of large contracts in the Transportations Systems segment. The overall increase was also attributable to an increase in other selling, general and administrative expenses, primarily due to a reversal of certain bad debt reserves on specific accounts receivable that were subsequently collected during the nine month period ended December 31, 2016, which did not reoccur in the nine month period ended December 31, 2017.Research and Development Expense. The following tables present research and development expense for the three and nine months ended December 31, 2017 and 2016:Research and development expense for the three months ended December 31, 2017 was relatively consistent with the corresponding period in the prior year. The increase in research and development expense for the nine months ended December 31, 2017, compared to the corresponding period in the prior year, was primarily due to the Company’s continued investment in the development of ClearAg and ClearPath Weather solutions, and enhancements to Roadway Sensors products. ClearAg products include historical, real-time and forecast weather content, soil and crop growth information, and other useful crop health information to provide solutions in the agriculture markets. We successfully released a number of grower advisory applications during Fiscal 2017 and Fiscal 2018, including our Harvest Advisor, Nitrogen Advisor, and Irrigation Advisor. Development costs were capitalized into intangible assets in the consolidated balance sheets; however, certain costs did not meet the criteria for capitalization under GAAP and continue to be included in research and development expense. Going forward, we expect to continue to invest in our Agriculture and Weather Analytics segment to enhance the ClearAg and ClearPath Weather solutions. This continued investment may result in higher research and development costs in future periods.Income Taxes. The following table presents our benefit for income taxes for the three and nine months ended December 31, 2017 and 2016:On an interim basis, we estimate what our anticipated annual effective tax rate will be, while also separately considering applicable discrete and other non-recurring items, and record a quarterly income tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, we refine our estimates based on actual events and financial results during the year. This process can result in significant changes to our expected effective tax rate. When this occurs, we adjust our income tax provision during the quarter in which our estimates are refined so that the year-to-date provision reflects the expected annual effective tax rate. These changes, along with adjustments to our deferred taxes, among others, may create fluctuations in our overall effective tax rate from quarter to quarter.In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. We have experienced a cumulative pre-tax loss over the trailing three years. As such, we consider it appropriate to continue to maintain a valuation allowance against our deferred tax assets. We will continuously reassess the appropriateness of maintaining a valuation allowance considering the Company’s projections of future income and cumulative income (loss) in the Company’s trailing three years, among other factors.The Tax Cuts and Jobs Act (“tax legislation”) was enacted on December 22, 2017 and lowers U.S. corporate income tax rates as of January 1, 2018 to 21%. The rate change is administratively effective for our Fiscal 2018 using a blended rate for the annual period. As a result, the blended statutory tax rate for Fiscal 2018 is 30.8%. In the third quarter of Fiscal 2018, we revised our estimated annual effective tax rate to reflect this change.The estimated impact of the tax legislation was an increase in income tax benefit of $1.4 million during the period ended December 31, 2017, of which $1.1 million was due to the release of valuation allowance that had been maintained against Alternative Minimum Tax credit carryforwards, which were made refundable by the tax legislation in December 2017. Approximately $240,000 was due to the remeasurement of a deferred tax liability related to indefinite-lived assets at the lower enacted corporate tax rate. The impact of the remeasurement of other net deferred tax assets was $3.6 million, which was offset by a corresponding change in the related valuation allowance.On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the tax legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the income tax effects discussed above represent our best estimate based on interpretation of the tax legislation as we are still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the tax legislation. In accordance with SAB 118, the income tax effects of the tax legislation discussed above are considered provisional and will be finalized before December 22, 2018.Liquidity and Capital ResourcesCash FlowsWe have historically financed our operations with a combination of cash flows from operations, and the sale of equity securities. We have historically relied, and expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which we believe to be sufficient to fund our operations for at least the next twelve months. However, we may need or choose to raise additional capital to fund potential future acquisitions and our future growth. We may raise such funds by selling equity or debt securities to the public or to selected investors or by borrowing money from financial institutions. If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders may experience significant dilution and any equity securities that may be issued may have rights senior to our existing stockholders. There is no assurance that we will be able to secure additional funding on a timely basis, on terms acceptable to us, or at all.At December 31, 2017, we had $20.6 million in working capital, which included $16.8 million in cash and cash equivalents. This compares to working capital of $22.7 million at March 31, 2017, which included $18.2 million in cash and cash equivalents.The following table summarizes our cash flows for the nine months ended December 31, 2017 and 2016:Operating Activities. Cash provided by our operations for the nine months ended December 31, 2017 was primarily the result of approximately $819,000 in non-cash items for deferred income taxes, depreciation, stock-based compensation, amortization, gain on sales of discontinued operations and loss on disposal of equipment, coupled with an increase of approximately $408,000 from changes in working capital, partially offset by our net loss of approximately $1.1 million.Cash provided by our operations for the nine months ended December 31, 2016 was primarily the result of approximately $2.3 million of working capital provided and offset by our net loss of approximately $1.5 million, adjusted by approximately $1.5 million in non-cash items for deferred income taxes, depreciation, stock-based compensation, amortization, gain on sales of discontinued operations and loss on disposal of equipment.Investing Activities. Net cash used in our investing activities during the nine months ended December 31, 2017 was primarily the result of approximately $988,000 for purchases of property and equipment primarily related to leasehold improvement to our corporate headquarters, and approximately $1.8 million of capitalized software development, primarly related to the development of our new Oracle ERP system, and to a lesser extent, in the Agriculture and Weather Analytics and Roadway Sensors business segments related to ClearAg assets and VantageLive! developments. These investments were partially offset by approximately $402,000 in proceeds from the earn-out provision included in the sale of the Vehicle Sensors segment. Net cash used in our investing activities during the nine months ended December 31, 2016 was primarily the result of approximately $497,000 for purchases of property and equipment and approximately $572,000 of capitalized software development in the Agriculture and Weather Analytics business segment related to ClearAg assets, which was offset by approximately $364,000 in proceeds from the earn-out provision included in the sale of the Vehicle Sensors segment.Financing Activities. Net cash provided by financing activities during the nine months ended December 31, 2017 was the result of approximately $986,000 of cash proceeds from the exercises of stock options, partially offset by approximately $79,000 of tax withholding payments for net share settlements of RSUs. Net cash provided by financing activities during the nine months ended December 31, 2016 was the result of approximately $238,000 of cash proceeds from the exercises of stock options, partially offset by approximately $55,000 of tax withholding payments for net share settlements of RSUs.Off Balance Sheet ArrangementsOther than our operating leases, we do not have any other material off balance sheet arrangements at December 31, 2017.SeasonalityWe have historically experienced seasonality, particularly with respect to our Roadway Sensors segment, which adversely affects such sales in our third and fourth fiscal quarters due to a reduction in intersection construction and repairs during the winter months due to inclement weather conditions, with the third fiscal quarter generally impacted the most by inclement weather. We have also experienced seasonality, particularly with respect to our Transportation Systems segment, which adversely impacts our third fiscal quarter due to the increased number of holidays, causing a reduction in available billable hours during that quarter. In addition, we have experienced some seasonality related to certain ClearPath Weather services, which adversely impacts such sales in our first and second fiscal quarters, mainly because these services are generally not required during Spring and Summer months when weather conditions are comparatively milder.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInterest Rate RiskOur exposure to interest rate risk was limited to our line of credit, which expired on October 1, 2016 and was not renewed.ITEM 4. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management was required to apply its judgment in evaluating the cost-benefit relationship of such controls and procedures.Changes in Internal ControlsDuring the fiscal quarter covered by this report, there has been no significant change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.Inherent Limitations on Internal ControlsA control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations.The information set forth under the heading “Litigation and Other Contingencies” in Note 6 of Notes to Unaudited Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference. For additional discussion of risks associated with any legal proceedings, see “Risk Factors” below.Our business is subject to a number of risks, some of which are discussed below. Other risks are presented elsewhere in this report and in the information incorporated by reference into this report. You should consider the following risks carefully in addition to the other information contained in this report and our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K, before deciding to buy, sell or hold our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks actually occurs, our business, financial condition, or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.Because we depend on government contracts and subcontracts, we face additional risks related to contracting with federal, state and local governments, including budgetary issues and fixed price contracts. A significant portion of our revenues are derived from contracts with governmental agencies, either as a general contractor, subcontractor or supplier. We anticipate that revenue from government contracts will continue to remain a significant portion of our revenues. Government business is, in general, subject to special risks and challenges, including:· delays in funding and uncertainty regarding the allocation of funds to state and local agencies from the U.S. federal government, delays in the expenditures from the federal highway bill and delays or reductions in other state and local funding dedicated for transportation and ITS projects;· other government budgetary constraints, cut-backs, delays or reallocation of government funding, including without limitation, changes in the new administration;· performance bond requirements;· long purchase cycles or approval processes;· competitive bidding and qualification requirements, as well as our ability to replace large contracts once they have been completed;· changes in government policies and political agendas;· maintenance of relationships with key government entities from whom a substantial portion of our revenue is derived;· milestone requirements and liquidated damage and/or contract termination provisions for failure to meet contract milestones; and· international conflicts or other military operations that could cause the temporary or permanent diversion of government funding from transportation or other infrastructure projects.Governmental budgets and plans are subject to change without warning. Certain risks of selling to governmental entities include dependence on appropriations and administrative allocation of funds, changes in governmental procurement legislation and regulations and other policies that may reflect political developments or agendas, significant changes in contract scheduling, intense competition for government business and termination of purchase decisions for the convenience of the governmental entity. Substantial delays in purchase decisions by governmental entities, and the current constraints on government budgets at the federal, state and local level, and the ongoing uncertainty as to the timing and accessibility to government funding could cause our revenues and income to drop substantially or to fluctuate significantly between fiscal periods.In addition, a number of our government contracts are fixed price contracts. As a result, we may not be able to recover any cost overruns we may incur. These fixed price contracts require us to estimate the total project cost based on preliminary projections of the project’s requirements. The financial viability of any given project depends in large part on our ability to estimate these costs accurately and complete the project on a timely basis. In the event our costs on these projects exceed the fixed contractual amount, we will be required to bear the excess costs. Such additional costs would adversely affect our financial condition and results of operations. Moreover, certain of our government contracts are subject to termination or renegotiation at the convenience of the government, which could result in a large decline in our revenues in any given period. Our inability to address any of the foregoing concerns or the loss or renegotiation of any material government contract could seriously harm our business, financial condition and results of operations.We recently expanded our Agriculture and Weather Analytics capabilities to address a new market segment, the agricultural market, which may not broadly accept our technologies and new products. The application of digital analytics to the agricultural market is a relatively new development that has required us to invest, and is expected to continue to require us to invest, in additional research and development, and sales and marketing without any guarantee of a commensurate increase in revenues. The introduction of any new Agriculture and Weather Analytics products and services could have longer than expected sales cycles, which could adversely impact our operating results. We cannot assure you that growers or other companies in this market will perceive the value proposition of our Agriculture and Weather Analytics or that our new ClearAg products for this market will achieve broad market acceptance in the near future or at all. If the agricultural market fails to understand and appreciate the benefit of our Agriculture and Weather Analytics products or chooses not to adopt our technologies, our business, financial condition and results of operations will be adversely affected.We recently entered into the software development market and may be subject to additional challenges and additional costs and delays. We have only been in the business of software development for a few years and may experience development and technical challenges. Our business and results of operations could also be seriously harmed by any significant delays in our software development and updates. Despite testing and quality control, we cannot be certain that errors will not be found in our software after its release. Any faults or errors in our existing products or in any new products may cause delays in product introduction and shipments, require design modifications, or harm customer relationships or our reputation, any of which could adversely affect our business and competitive position. In addition, the software development industry frequently experiences litigation concerning intellectual property disputes, which could be costly and distract our management.If we do not keep pace with rapid technological changes and evolving industry standards, we will not be able to remain competitive, and the demand for our products will likely decline. Our markets are in general characterized by the following factors:· rapid technological advances;· downward price pressures in the marketplace as technologies mature;· changes in customer requirements;· additional qualification requirements related to new products or components;· frequent new product introductions and enhancements;· inventory issues related to transition to new or enhanced models; and· evolving industry standards and changes in the regulatory environment.Our future success will depend upon our ability to anticipate and adapt to changes in technology and industry standards, and to effectively develop, introduce, market and gain broad acceptance of new products and product enhancements incorporating the latest technological advancements.If we are unable to develop and introduce new products and product enhancements successfully and in a cost-effective and timely manner, or are unable to achieve market acceptance of our new products, our operating results would be adversely affected. We believe our revenue growth and future operating results will depend on our ability to complete development of new products and enhancements, introduce these products in a timely, cost-effective manner, achieve broad market acceptance of these products and enhancements, and reduce our production costs. We cannot guarantee the success of these products, and we may not be able to introduce any new products or any enhancements to our existing products on a timely basis, or at all. In addition, the introduction of any new products could adversely affect the sales of certain of our existing products.We believe that we must continue to make substantial investments to support ongoing research and development in order to develop new or enhanced products and software to remain competitive. We need to continue to develop and introduce new products that incorporate the latest technological advancements in outdoor image processing hardware, camera technologies, software and analysis in response to evolving customer requirements. We cannot assure you that we will be able to adequately manage product transition issues. Our business and results of operations could be adversely affected if we do not anticipate or respond adequately to technological developments or changing customer requirements or if we cannot adequately manage inventory issues typically related to new product transitions and introductions. We cannot assure you that any such investments in research and development will lead to any corresponding increase in revenue.Our profitability could be adversely affected if we are not able to maintain adequate utilization of our Transportation Systems workforce. The cost of providing our Transportation Systems engineering and consulting services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce is affected by a number of factors, including:· our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;· our ability to forecast demand for our services and thereby maintain an appropriate headcount in our various regions;· the timing of new contract awards and availability of funding;· our need to devote time and resources to training, business development, professional development and other non-chargeable activities; and· our ability to match the skill sets of our employees to the needs of the marketplace.An inability to properly and fully utilize our Transportation Systems workforce could have an adverse effect on our results of operations.If our security measures are breached and unauthorized access is obtained to our customer’s personal and/or proprietary data in connection with our web-based and mobile application services, we may incur significant liabilities, our services may be perceived as not being secure and customers may curtail or stop using our services, we could incur significant liability to our customers and to individuals or businesses whose information was being stored, our business may suffer and our reputation will be damaged. Because techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers.The markets in which we operate are highly competitive and have many more established competitors than us, which could adversely affect our revenues or the market acceptance of our products. We compete with numerous other companies in our target markets including, but not limited to, large, multi-national corporations and many smaller regional engineering firms.We compete with existing, well-established companies and technologies in our Roadway Sensors segment, both domestically and abroad. Only a small portion of the traffic intersection market has adopted advanced above-ground detection technologies, and our future success will depend in part upon gaining broad market acceptance for such technologies. Certain technological barriers to entry make it difficult for new competitors to enter the market with competing video or other technologies; however, we are aware of new market entrants from time to time. Increased competition could result in loss of market share, price reductions and reduced gross margins, any of which could seriously harm our business, financial condition and results of operations.The Transportation Systems market is highly fragmented and is subject to evolving national and regional quality and safety standards. Our competitors vary in size, number, scope and breadth of the products and services they offer, and include large multi-national engineering firms and smaller local regional firms.The markets in which our Agriculture and Weather Analytics segment operates vary from public sector customers who focus on snow and ice management for state and county roadways, to commercial sector customers who employ our environmental content and agronomic models. Our competitors include divisions of large, international weather companies, as well as a variety of small providers in the road weather market. In the commercial agriculture sector, we compete with a variety of public and private entities that currently market software, agronomic analytics and weather forecast capabilities to global agribusiness.In each of our operating segments, many of our competitors have far greater name recognition and greater financial, technological, marketing and customer service resources than we do. This may allow our competitors to respond more quickly to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources to the development, promotion, sale and support of their products and services than we can. Consolidations of end users, distributors and manufacturers in our target markets exacerbate this problem. As a result of the foregoing factors, we may not be able to compete effectively in our target markets and competitive pressures could adversely affect our business, financial condition and results of operations.We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position. If we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors may be able to access our proprietary technology and our business, financial condition and results of operations will likely be seriously harmed. We currently attempt to protect our technology through a combination of patent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. Despite our efforts, other parties may attempt to disclose, obtain or use our technologies or systems. Our competitors may also be able to independently develop products that are substantially equivalent or superior to our products or design around our patents. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. As a result, we may not be able to protect our proprietary rights adequately in the U.S. or abroad.Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation may also be necessary to defend against claims of infringement or invalidity by others. We have in the past, and may in the future, be subject to litigation regarding our intellectual property rights. An adverse outcome in litigation or any similar proceedings could subject us to significant liabilities to third parties, require us to license disputed rights from others or require us to cease marketing or using certain products or technologies. We may not be able to obtain any licenses on terms acceptable to us, or at all. We also may have to indemnify certain customers or strategic partners if it is determined that we have infringed upon or misappropriated another party’s intellectual property. Our recent expansion into software development activities may subject us to increased possibility of litigation. Any of the foregoing could adversely affect our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, including legal fees and expenses, and the diversion of management’s attention and resources, regardless of whether the claim is valid, could be significant and could seriously harm our business, financial condition and results of operations.Our failure to successfully secure new contracts and renew existing contracts could reduce our revenues and profits. Our business depends on our ability to successfully bid on new contracts and renew existing contracts with private and public sector customers. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financing arrangements and required governmental approvals. For example, a customer may require us to provide a surety bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If negative market conditions continue, or if we fail to secure adequate financing arrangements or the required governmental approval or fail to meet other required conditions, we may not be able to pursue particular projects, which could reduce or eliminate our profitability.We may be subject to traffic related litigation. The traffic industry in general is subject to litigation claims due to the nature of personal injuries that result from traffic accidents. As a provider of traffic engineering services, products and solutions, we are, and could in the future continue to be, from time to time, subject to litigation for traffic related accidents, even if our products or services did not cause the particular accident. While we generally carry insurance against these types of claims, some claims may not be covered by insurance or the damages resulting from such litigation could exceed our insurance coverage limits. In the event that we are required to pay significant damages as a result of one or more lawsuits that are not covered by insurance or exceed our coverage limits, it could materially harm our business, financial condition or cash flows. Even defending against unsuccessful claims could cause us to incur significant expenses and result in a diversion of management’s attention.We may be unable to attract and retain key personnel, including senior management, which could seriously harm our business. Due to the specialized nature of our business, we are highly dependent on the continued service of our executive officers and other key management, engineering and technical personnel. The loss of any of our officers, or any of our other executives or key members of management could adversely affect our business, financial condition, or results of operations. Our success will also depend in large part upon our ability to continue to attract, retain and motivate qualified engineering and other highly skilled technical personnel.The future success of our Transportation Systems segment will depend on our ability to hire additional qualified engineers, planners and technical personnel. The future success of our Agriculture and Weather Analytics segment will depend on our ability to hire additional software developers, qualified engineers and technical personnel. Competition for qualified employees, particularly development engineers and software developers, is intense. We may not be able to continue to attract and retain sufficient numbers of such highly skilled employees. Our inability to attract and retain additional key employees or the loss of one or more of our current key employees could adversely affect our business, financial condition and results of operations.If we experience declining or flat revenues and we fail to manage such declines effectively, we may be unable to execute our business plan and may experience future weaknesses in our operating results. Based on our business objectives, and in order to achieve future growth, we will need to continue to add additional qualified personnel, and invest in additional research and development and sales and marketing activities, which could lead to increases in our expenses and future declines in our operating results. In addition, our past expansion has placed, and future expansion is expected to place, a significant strain on our managerial, administrative, operational, financial and other resources. If we are unable to manage these activities or any revenue declines successfully, our growth, our business, our financial condition and our results of operations could continue to be adversely affected.We may not be able to achieve profitablility on a quarterly or annual basis in the future. For Fiscal 2017 and our first two quarters of Fiscal 2018, we had a net loss, and we cannot assure you that we will be profitable in the future. Our ability to become profitable in future periods could be impacted by governmental budgetary constraints, government and political agendas, economic instability and other items that are not in our control. Furthermore, we rely on operating profits from certain of our business segments to fund investments in sales and marketing and research and development initiatives. We cannot assure you that our financial performance will sustain a sufficient level to completely support those investments. Most of our expenses are fixed in advance. As such, we generally are unable to reduce our expenses significantly in the short-term to compensate for any unexpected delay or decrease in anticipated revenues or increases in planned investments. As a result, we may continue to experience operating losses and net losses in the future, which would make it difficult to fund our operations and achieve our business plan, and could cause the market pricerepurchase of our common stock to decline.Our useunder our current program.estimates in conjunction with the percentage of completion method of accounting for our Transportation Systems revenues could result in a reduction or reversal of previously recorded revenues and profits. A portion of Transportation Systems revenues are measured and recognized using the percentage of completion method of accounting. Our use of this accounting method results in recognition of revenues and profits proportionally over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to revenues and estimated costs are recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits.If our internal controls over financial reporting do not comply with the requirements of the Sarbanes-Oxley Act, our business and stock price could be adversely affected. Section 404 of the Sarbanes-Oxley Act of 2002 currently requires us to evaluate the effectiveness of our internal controls over financial reporting at the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in all annual reports. We are required to obtain our auditors’ attestation pursuant to Section 404(b) of the Sarbanes-Oxley Act. Going forward, we may not be able to complete the work required for such attestation on a timely basis and, even if we timely complete such requirements, our independent registered public accounting firm may still conclude that our internal controls over financial reporting are not effective.A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Iteris have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. If we are not able to maintain effective internal controls over financial reporting, we may lose the confidence of investors and analysts and our stock price could decline.Our quarterly operating results fluctuate as a result of many factors. Therefore, we may fail to meet or exceed the expectations of securities analysts and investors, which could cause our stock price to decline. Our quarterly revenues and operating results have fluctuated and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. Factors that could affect our revenues include, among others, the following:· delays in government contracts and funding from time to time and budgetary constraints at the federal, state and local levels;· our ability to access stimulus funding, funding from the federal highway bill or other government funding;· declines in new home and commercial real estate construction and related road and other infrastructure construction;· changes in our pricing policies and the pricing policies of our suppliers and competitors, pricing concessions on volume sales, as well as increased price competition in general;· the long lead times associated with government contracts;· the size, timing, rescheduling or cancellation of significant customer orders;· our ability to control costs;· our ability to raise additional capital;· the mix of our products and services sold in a quarter, which has varied and is expected to continue to vary from time to time;· seasonality due to winter weather conditions;· seasonality with respect to revenues from our ClearPath Weather and related weather forecasting services due to the decrease in revenues generated for such services during the spring and summer time periods;· our ability to develop, introduce, patent, market and gain market acceptance of new products, applications and product enhancements in a timely manner, or at all;· market acceptance of the products incorporating our technologies and products;· the introduction of new products by competitors;· the availability and cost of components used in the manufacture of our products;· our success in expanding and implementing our sales and marketing programs;· the effects of technological changes in our target markets;· the amount of our backlog at any given time;· the nature of our government contracts;· decrease in revenues derived from key or significant customers;· deferrals of customer orders in anticipation of new products, applications or product enhancements;· risks and uncertainties associated with our international business;· market condition changes such as industry structure consolidations that could slow down our ability to procure new business;· general economic and political conditions;· international conflicts and acts of terrorism; and· other factors beyond our control, including but not limited to, natural disasters.Due to all of the factors listed above as well as other unforeseen factors, our future operating results could be below the expectations of securities analysts or investors. If that happens, the trading price of our common stock could decline. As a result of these quarterly variations, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance.We rely on outside suppliers that could experience supply shortages or may experience production gaps that could materially and adversely impact our sales and financial results. It is possible that we could experience unforeseen quality control issues or part shortages as we adjust production to meet current demand for our products. We have historically used single suppliers for certain significant components in our products, and have had to reengineer products from time to time to address obsolete components, especially in our Roadway Sensors products. Should any such delay or disruption occur, or should a key supplier discontinue operations, our future sales will likely be materially and adversely affected. Additionally, we rely heavily on select contract manufacturers to produce many of our products and do not have any long-term contracts to guarantee supply of such products. Although we believe our contract manufacturers have sufficient capacity to meet our production schedules for the foreseeable future and we believe we could find alternative contract manufacturing sources for many of our products, if necessary, we could experience a production gap if for any reason our contract manufacturers were unable to meet our production requirements and our cost of goods sold could increase, adversely affecting our margins.We may engage in acquisitions of companies or technologies that may require us to undertake significant capital infusions and could result in disruptions of our business and diversion of resources and management attention. We have completed two acquisitions since November 2011 and, in the future, we may acquire additional complementary businesses, products, and technologies. Acquisitions may require significant capital infusions and, in general, acquisitions also involve a number of special risks, including:· potential disruption of our ongoing business and the diversion of our resources and management’s attention;· the failure to retain or integrate key acquired personnel;· the challenge of assimilating diverse business cultures, and the difficulties in integrating the operations, technologies and information system of the acquired companies;· increased costs to improve managerial, operational, financial and administrative systems and to eliminate duplicative services;· the incurrence of unforeseen obligations or liabilities;· potential impairment of relationships with employees or customers as a result of changes in management; and· increased interest expense and amortization of acquired intangible assets, as well as unanticipated accounting charges.Our competitors are also soliciting potential acquisition candidates, which could both increase the price of any acquisition targets and decrease the number of attractive companies available for acquisition. Acquisitions may also materially and adversely affect our operating results due to large write-offs, contingent liabilities, substantial depreciation, deferred compensation charges or intangible asset amortization, or other adverse tax or accounting consequences. We cannot assure you that we will be able to identify or consummate any additional acquisitions, successfully integrate any acquisitions or realize the benefits anticipated from any acquisition.Our international business operations may be threatened by many factors that are outside of our control. While we historically have had limited international sales, revenues and operations experience, we previously had Transportation Systems contracts in the United Arab Emirates (“UAE”), for which approximately $160,000 in performance bonds are yet to be released by the UAE Department of Transportation. We also have been expanding our distribution capabilities for our Roadway Sensors segment internationally, particularly in Canada, Australia, New Zealand, Europe and in South America. We plan to continue to expand our international efforts, but we cannot assure you that we will be successful in such efforts. International operations subject us to various inherent risks including, among others:· political, social and economic instability, as well as international conflicts and acts of terrorism;· bonding requirements for certain international projects;· longer accounts receivable payment cycles;· import and export license requirements and restrictions of the U.S. and each other country in which we operate;· currency fluctuations and restrictions, and our ability to repatriate currency from certain foreign regions;· unexpected changes in regulatory requirements, tariffs and other trade barriers or restrictions;· required compliance with existing and new foreign regulatory requirements and laws, more restrictive labor laws and obligations, including but not limited to the U.S. Foreign Corrupt Practices Act;· difficulties in managing and staffing international operations;· potentially adverse tax consequences; and· reduced protection for intellectual property rights in some countries.Substantially all of our international product sales are denominated in U.S. dollars. As a result, an increase in the relative value of the dollar could make our products more expensive and potentially less price competitive in international markets. We do not currently engage in any transactions as a hedge against risks of loss due to foreign currency fluctuations.Any of the factors mentioned above may adversely affect our future international revenues and, consequently, affect our business, financial condition and operating results. Additionally, as we pursue the expansion of our international business, certain fixed and other overhead costs could outpace our revenues, thus adversely affecting our results of operations. We may likewise face local competitors in certain international markets who are more established, have greater economies of scale and stronger customer relationships. Furthermore, as we increase our international sales, our total revenues may also be affected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and certain other parts of the world.We may need to raise additional capital in the future, which may not be available on terms acceptable to us, or at all. We have historically experienced volatility in our earnings and cash flows from operations from year to year and incurred net loss of approximately $1.1 million for the nine months ended December 31, 2017. On September 1, 2017, we filed a registration statement on a Form S-3, utilizing a “shelf” registration process, and may consider a new equity financing in the future. Should the credit markets further tighten or our business declines, we may need or choose to raise additional capital to fund our operations, to repay indebtedness, pursue acquisitions or expand our operations. Such additional capital may be raised through bank borrowings, or other debt or equity financings. We cannot assure you that any additional capital will be available on a timely basis, on acceptable terms, or at all, and such additional financing may result in further dilution to our stockholders.Our capital requirements will depend on many factors, including, but not limited to:· market acceptance of our products and product enhancements, and the overall level of sales of our products;· our ability to control costs;· the supply of key components for our products;· our ability to increase revenue and net income;· increased research and development expenses and sales and marketing expenses;· our need to respond to technological advancements and our competitors’ introductions of new products or technologies;· capital improvements to new and existing facilities and enhancements to our infrastructure and systems;· potential acquisitions of businesses and product lines;· our relationships with customers and suppliers;· government budgets, political agendas and other funding issues, including potential delays in government contract awards;· our ability to successfully negotiate credit arrangements with our bank and the state of the financial markets in general; and· general economic conditions, including the effects of the economic slowdowns and international conflicts.If our capital requirements are materially different from those currently planned, we may need additional capital sooner than anticipated. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and such securities may have rights, preferences and privileges senior to our common stock. Additional equity or debt financing may not be available on favorable terms, on a timely basis, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to continue our operations as planned, develop or enhance our products, expand our sales and marketing programs, take advantage of future opportunities or respond to competitive pressures.The trading price of our common stock is highly volatile. The trading price of our common stock has been subject to wide fluctuations in the past. From August 1, 2015 through January 30, 2018, our common stock has traded at prices as low as $1.77 per share and as high as $8.17 per share. The market price of our common stock could continue to fluctuate in the future in response to various factors, including, but not limited to:· quarterly variations in operating results;· our ability to control costs, improve cash flow and sustain profitability;· our ability to raise additional capital;· shortages announced by suppliers;· announcements of technological innovations or new products or applications by our competitors, customers or us;· transitions to new products or product enhancements;· acquisitions of businesses, products or technologies;· the impact of any litigation;· changes in investor perceptions;· government funding, political agendas and other budgetary constraints;· changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry in general;· changes in earnings estimates or investment recommendations by securities analysts; and· international conflicts, political unrest and acts of terrorism.The stock market has from time to time experienced volatility, which has often affected and may continue to affect the market prices of equity securities of many technology companies. This volatility has often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. In the past, companies that have experienced volatility in the market price of their securities have been the subject of securities class action litigation. If we were to become the subject of a class action lawsuit, it could result in substantial losses and divert management’s attention and resources from other matters.Certain provisions of our charter documents may discourage a third party from acquiring us and may adversely affect the price of our common stock. Certain provisions of our certificate of incorporation could make it difficult for a third party to acquire us, even though an acquisition might be beneficial to our stockholders. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Under the terms of our certificate of incorporation, our Board of Directors is authorized to issue, without stockholder approval, up to 2,000,000 shares of preferred stock with voting, conversion and other rights and preferences superior to those of our common stock. In August 2009, we adopted a new stockholder rights plan and declared a dividend of preferred stock purchase rights to our stockholders. Generally, the stockholder rights plan provides that if a person or group acquires 15% or more of our common stock, subject to certain exceptions and under certain circumstances, the rights may be exchanged by us for common stock or the holders of the rights, other than the acquiring person or group, could acquire additional shares of our capital stock at a discount off of the then current market price. Such exchanges or exercise of rights could cause substantial dilution to a particular acquirer and discourage the acquirer from pursuing our company. The mere existence of a stockholder rights plan often delays or makes a merger, tender offer or other acquisition of the company more difficult.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSIn August 2011, our Board of Directors approved a stock repurchase program pursuant to which we were authorized to acquire up to $3.0 million of our outstanding common stock from time to time through August 2012. On August 9, 2012, our Board of Directors approved a new stock repurchase program pursuant to which we may acquire up to $3.0 million of our outstanding common stock for an unspecified length of time. Under the new program, we may repurchase shares from time to time in open-market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to an existing or future 10b5-1 trading plan to facilitate repurchases during our closed trading windows. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, our Board of Directors approved a $3.0 million increase to our existing stock repurchase program, pursuant to which we may continue to acquire shares of our outstanding common stock from time to time for an unspecified length of time.For the three and nine months ended December 31, 2017, we did not repurchase any shares. As of December 31, 2017, there was approximately $1.7 million of remaining funds available under the stock repurchase program.On February 5, 2018, pursuant to the authority granted by the Board of Directors, the Compensation Committee (the “Committee”) of Iteris, Inc. (the “Company”) adopted the Iteris, Inc. Executive Severance Plan (the “Plan”). Each individual employed by the Company or its subsidiary, who is an officer subject to Section 16 of the Securities Exchange Act of 1934, as amended, and who is not otherwise covered by an employment agreement that includes severance terms, is eligible to receive severance payments under the Plan upon certain qualifying terminations of employment (the “Eligible Employees”). Eligible Employees for the purposes of the Plan shall be limited to a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974, as amended.The Plan provides Eligible Employees with severance payments in the event that an Eligible Employee’s employment with the Company or its subsidiaries is terminated either (a) by the Company without Cause not in connection with a Change of Control (“Non-CIC Qualifying Termination”) or (b) if in connection with or within 12 months following a Change of Control, by the Eligible Employee for Good Reason (as such terms are defined in the Plan) or by the Company without Cause (a “CIC Qualifying Termination”).Non-CIC Qualifying TerminationUpon a Non-CIC Qualifying Termination, an Eligible Employee will be eligible to receive the following:· A cash payment equal to the Eligible Employee’s annual base salary, payable in substantially equal installment payments over the one-year period following termination, in accordance with the Company’s normal payroll practices; and· Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following termination, or until the Eligible Employee receives substantially similar medical coverage from another employer.CIC Qualifying TerminationUpon a CIC Qualifying Termination, an Eligible Employee will be eligible to receive the following:· A cash payment equal to the Eligible Employee’s annual base salary, payable in a lump sum on the next payroll date after the 61st day following termination; and· Reimbursement for the Eligible Employee’s monthly COBRA premiums for the 12-month period following, or until the Eligible Employee receives substantially similar medical coverage from another employer.The severance payments are subject to the Eligible Employee’s execution of a severance agreement within 60 days following termination that includes a release of claims and certain non-solicitation, confidentiality, and non-disparagement restrictions.The Company may amend or terminate the Plan at any time by providing at least 90 days’ advance written notice to each participant, provided that no such amendment or termination that has the effect of reducing or diminishing the right of any participant will be effective unless one year’s advance written notice is provided to participants, and such amendment or termination will not be effective if a Change of Control occurs during the one-year notice period.The information set forth above is included herewith for the purpose of providing the disclosure required under “Item 5.02(e) — Compensatory Arrangements of Certain Officers” of Form 8-K. The foregoing description of the Plan is only a summary and is qualified in its entirety by reference to the full text of the Plan, which is filed as Exhibit 10.34, to this Quarterly Report on Form 10-Q and incorporated by reference herein.ExhibitNumberDescriptionWhere LocatedExhibit
NumberDescription Where Located 10.34 Executive Severance PlanFiled herewithCertification of the Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith31.2Certification of the Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith32.1Certification of the Chief Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Furnished herewith32.2Certification of the Chief Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Furnished herewith101.INSXBRL Instance DocumentFiled herewith101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled herewith101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewithExhibitNumberDescriptionWhere Located10.34Filed herewith31.1104.1 Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document Filed herewith Dated: February 7, 2018ITERIS, INC.Date: November 4, 2020 (Registrant)(Registrant) ByBy /s/ JOE BERGERA ANDREW C. SCHMIDTAndrew C. Schmidt