Form 10-Q
June 30, 2021 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. media, mobile technology, automotive and public sectors. Under the TCI Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the “Business”). The transaction closed on December 7, 2020. information. 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. there are now three reporting units and a single operating and reportable segment. leasehold improvements directly resulting from the restructuring activities. There were 0 additional impairment or restructuring charges during the three months ended June 30, 2021. 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 Summary of Significant Accounting Policies. 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 month period ended June 30, 2020. June 30, 2021. 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 and assumed certain specified liabilities of the Business. will be included in the annual review for impairment. The 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 ) GAAP results and using Adjusted EBITDA only as supplemental information. See our unaudited condensed consolidated financial statements contained in this Form 10-Q. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related financial ratios are useful to an investor in evaluating our results of operations because these measures: 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 % 2020: June 30, 2020. 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 % 2020: 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 % three month period ended June 30, 2020. through acquisitions that support our current strategies. 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 as well as $3.1 million in short-term investments. short-term investments. options. June 30, 2021. hours. Regulations S-K. 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 xJanuaryJuly 30, 2018,2021, there were 33,073,14942,281,621 shares of our common stock outstanding.1DECEMBER 31, 2017JUNE 30, 2021 AND MARCH 31, 20172021NINE MONTHS ENDED DECEMBER 31, 2017 AND 20162020NINETHREE MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2021 AND 2016202041624242525253434343435“Company,” “we,” “us”"Company," "we," "us" and “our”"our" refer to Iteris, Inc. and its wholly-owned subsidiary,subsidiaries, including ClearAg, Inc. CheckPoint™, ClearAg®and Albeck Gerken, Inc., ClearPath Weather®ClearGuide®, CVIEW-Plus™, Edge®, EdgeConnect™, EMPower®, EvapoSmart™, IMFocus™, iPeMS®ClearMobility™, Iteris®, Next®, P10™, P100™, PedTrax®, Pegasus™, SmartCycle®, SmartSpan®, TransitHelper®, Vantage®, VantageLive!™, VantageNext®, VantagePegasus®, VantageRadius™, Vantage Vector®, VantageView™, Velocity®, VersiCam™ and WeatherPlot™VantageLive!® 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.June 30,
2021March 31,
2021Assets Current assets: Cash and cash equivalents $ 31,111 $ 25,205 Restricted cash 263 263 Short-term investments 0 3,100 Trade accounts receivable, net of allowance for doubtful accounts of $1,171 and $1,019 at June 30, 2021 and March 31, 2021, respectively 22,826 19,020 Unbilled accounts receivable 10,390 11,541 Inventories 5,181 5,066 Prepaid expenses and other current assets 4,048 5,445 Total current assets 73,819 69,640 Property and equipment, net 1,751 1,923 Right-of-use assets 11,346 11,353 Intangible assets, net 14,570 14,297 Goodwill 28,340 28,340 Other assets 1,370 1,238 Assets held for sale 60 78 Total assets $ 131,256 $ 126,869 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 9,386 $ 8,935 Accrued payroll and related expenses 13,692 11,734 Accrued liabilities 4,129 4,921 Deferred revenue 7,156 7,349 Liabilities held for sale, current portion 2 94 Total current liabilities 34,365 33,033 Lease liabilities 10,532 10,146 Deferred income taxes 637 808 Unrecognized tax benefits 120 119 Other long-term liabilities 3,590 3,523 Liabilities held for sale, noncurrent portion 253 261 Total liabilities 49,497 47,890 Commitments and contingencies (Note 7) 0 0 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 June 30, 2021 and March 31, 2021 Issued and outstanding shares — 42,160 at June 30, 2021 and 41,687 at March 31, 2021 4,217 4,170 Additional paid-in capital 183,950 181,828 Accumulated deficit (106,408) (107,019) Total stockholders' equity 81,759 78,979 Total liabilities and stockholders' equity $ 131,256 $ 126,869 notes.Notes to Unaudited Condensed Consolidated Financial StatementsThree Months Ended
June 30,2021 2020 Product revenues $ 18,026 $ 14,394 Service revenues 16,059 13,606 Total revenues 34,085 28,000 Cost of product revenues 9,557 8,081 Cost of service revenues 10,435 9,051 Cost of revenues 19,992 17,132 Gross profit 14,093 10,868 Operating expenses: General and administrative 6,390 5,368 Sales and marketing 4,587 3,355 Research and development 1,765 914 Amortization of intangible assets 668 230 Restructuring charges 0 619 Total operating expenses 13,410 10,486 Operating income 683 382 Non-operating income: Other income, net 18 16 Interest income, net 3 54 Income from continuing operations before income taxes 704 452 Provision for income taxes (75) (34) Net income from continuing operations 629 418 Loss from discontinued operations before gain on sale, net of tax (18) (1,358) Gain on sale of discontinued operations, net of tax 0 11,288 Net income (loss) from discontinued operations, net of tax (18) 9,930 Net income $ 611 $ 10,348 Income per share - basic: Income per share from continuing operations $ 0.02 $ 0.01 Income per share from discontinued operations $ 0.00 $ 0.24 Net income per share $ 0.02 $ 0.25 Income per share - diluted: Income per share from continuing operations $ 0.01 $ 0.01 Income per share from discontinued operations $ 0.00 $ 0.24 Net income per share $ 0.01 $ 0.25 Shares used in basic per share calculations 41,875 40,732 Shares used in diluted per share calculations 43,380 41,507 notes.Notes to Unaudited Condensed Consolidated Financial StatementsThree Months Ended
June 30,2021 2020 Cash flows from operating activities Net income $ 611 $ 10,348 Less: Net income (loss) from discontinued operations (18) 9,930 Net income from continuing operations 629 418 Adjustments to reconcile net income from continuing operations to net cash provided by (used in) operating activities: Right-of-use asset non-cash expense 7 361 Deferred income taxes (170) 11 Depreciation of property and equipment 232 185 Stock-based compensation 794 664 Amortization of intangible assets 803 361 Other 0 13 Loss on disposal of equipment 7 0 Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition: Trade accounts receivable (3,806) (4,157) Unbilled accounts receivable and deferred revenue 1,025 1,258 Inventories (115) 271 Prepaid expenses and other assets (185) (771) Trade accounts payable and accrued expenses 2,055 3,505 Operating lease liabilities (52) (349) Net cash provided by operating activities - continuing operations 1,224 1,770 Net cash used in operating activities - discontinued operations (100) (2,072) Net cash provided by (used in) operating activities 1,124 (302) Cash flows from investing activities Purchases of property and equipment (67) (252) Purchase of short-term investments 0 (19,456) Maturities of investments 3,100 6,700 Capitalized software development costs (1,076) (206) Net cash provided by (used in) investing activities - continuing operations 1,957 (13,214) Net cash provided by investing activities - discontinued operations 1,450 9,440 Net cash provided by (used in) investing activities 3,407 (3,774) Cash flows from financing activities Proceeds from stock option exercises 1,375 74 Net cash provided by financing activities - continuing operations 1,375 74 Net cash provided by financing activities - discontinued operations 0 0 Net cash provided by financing activities 1,375 74 Increase (decrease) in cash, cash equivalents and restricted cash 5,906 (4,002) Cash, cash equivalents and restricted cash at beginning of period 25,468 14,363 Cash, cash equivalents and restricted cash at end of period $ 31,374 $ 10,361 Supplemental cash flow information: Cash paid during the year for: Income taxes $ 1 $ 25 Supplemental schedule of non-cash investing and financing activities: Deferred purchase price receivable $ 50 $ 1,500 Closing working capital receivable $ 0 $ 250 Common Stock Additional
Paid-In
CapitalAccumulated
DeficitTotal
Stockholders'
EquityShares Amount Balance at March 31, 2021 41,687 $ 4,170 $ 181,828 $ (107,019) $ 78,979 Stock option exercises 473 47 1,328 — 1,375 Stock-based compensation — — 794 — 794 Net income — — — 611 611 Balance at June 30, 2021 42,160 $ 4,217 $ 183,950 $ (106,408) $ 81,759 Common Stock Additional
Paid-In
CapitalAccumulated
DeficitTotal
Stockholders'
EquityShares 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) — 0 Net loss — — — 10,348 10,348 Balance at June 30, 2020 40,752 $ 4,075 $ 176,886 $ (106,805) $ 74,156 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 to monitor, visualize, and optimize mobility infrastructure to help ensure roads are focusedsafe, travel is efficient, and communities thrive. Additionally, we provide mobility data to automobile OEMs, media companies, insurance companies, and other commercial entities, whose products and services have a high dependency on the development and applicationperformance and/or condition of advanced technologies and software-based informationmobility infrastructure. 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 business, the Board of Directors of Iteris, Inc. formed a wholly-owned subsidiary, ClearAg,(the "Board") approved restructuring activities to better position the 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.Delaware corporation,privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to provide ClearAg solutionscustomers throughout North America in 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 and Form 10-K/A for the fiscal year ended March 31, 20172021 (“Fiscal 2017”2021”), filed with the SEC on June 13, 2017.1, 2021 and June 7, 2021, respectively. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine month periods ended December 31, 2017June 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2018 (“Fiscal 2018”)2022 or any other periods.continuing operations and related cash flows have been reclassified to net income (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 June 30, 2021. 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.Transportation Systemsproduct. 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 absenceJune 30, 2021 and March 31, 2021, there was approximately $2.8 million and $3.2 million, 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, materialsJune 30, 2021 and other costs that have not been billed dueMarch 31, 2021, 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.nine months ended December 31, 2017, one2020, 0 individual customer represented greater than 10% of our total revenues. For the threeAs of June 30, 2021 and nine months ended DecemberMarch 31, 2016, one2021, 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 ExpensesOther Current AssetsPrepaid expensesMarch 31, 2021, restricted cash was $0.3 million consisting of cash restricted for shares purchased under the Employee Stock Purchase Plan ("ESPP") (See Note 9, Stock-Based Compensation, for further details on the ESPP).June 30,
2021March 31,
2021Cash and cash equivalents $ 31,111 $ 25,205 Restricted cash 263 263 $ 31,374 $ 25,468 current assets were $1.5 millionsecurities not included in the held-to-maturity or trading category are classified as available-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 December 31, 2017 and $2.1 millionstockholders’ 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 March 31, 2017, and included approximately $160,000 and approximately $535,000, respectively,2021, all of our investments were available-for-sale. Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the present value of cash designatedflows expected to be collected are less than the security’s amortized cost basis (the difference being defined as collateral on performance bonds, as required under certain of our Transportation Systems contracts in the Middle East. The performance bonds require us to maintain 100% cash“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. AsIn prior years the company had two operating and reportable segments, Roadway Sensors ("RWS") and Transportation Systems ("SYS"), which also represented the reporting units for purposes of December 31, 2017, wegoodwill impairment testing. In conjunction with the change in segments described in Note 12, Business Segments, the company also reassessed the reporting unit conclusion and determined that no adjustments to the carrying value of goodwill were required.long livedlong-lived assets and purchased intangible assets. As of December 31, 2017, there was noDuring the three months ended June 30, 2020, we recorded $0.3 million in impairment charges related to our long-livedright-of-use assets 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-Scholes-Merton option-pricing formula. The fair value of our performance stock unit awards is estimated on the grant date using a Monte Carlo simulation model. While 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 costthree 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 the 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. Wecompanies. As a smaller reporting company, ASU 2016-13 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 impact of ASU 2016-02 on our consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard isnow be effective for our fiscal years, and interim periods within those years,year 2024 beginning after December 15, 2017, andApril 1, 2023, although, early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-152016-13 on our unaudited condensed consolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), requiring restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact of ASU 2016-18 on our consolidated financial statements.In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“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, with early adoption permitted. We are currently evaluating the impact of ASU 2016-20 on our consolidated financial statements.June 30,
2021March 31,
2021(In thousands) Materials and supplies $ 3,396 $ 2,714 Work in process 248 435 Finished goods 1,537 1,917 $ 5,181 $ 5,066 June 30,
2021March 31,
2021(In thousands) Equipment $ 6,856 $ 6,806 Leasehold improvements 3,046 3,046 Accumulated depreciation (8,151) (7,929) $ 1,751 $ 1,923 There are no indefinite lived intangible assets on our unaudited consolidated balance sheets.
Carrying
Amount
Amortization
Value
Carrying
Amount
Amortization
ValueJune 30, 2021 March 31, 2021 Gross
Carrying
AmountAccumulated
AmortizationNet Book
ValueGross
Carrying
AmountAccumulated
AmortizationNet Book
Value(In thousands) Technology $ 4,986 $ (1,826) $ 3,160 $ 4,986 $ (1,594) $ 3,392 Customer contracts / relationships 9,550 (1,900) 7,650 9,550 (1,547) 8,003 Trade names and non-compete agreements 782 (700) 82 782 (683) 99 Capitalized software development costs 6,253 (2,575) 3,678 5,177 (2,374) 2,803 Total $ 21,571 $ (7,001) $ 14,570 $ 20,495 $ (6,198) $ 14,297 December 31, 2017,June 30, 2021, future estimated amortization expense is as follows:Year Ending March 31, (In thousands) 2022 $ 2,410 2023 3,254 2024 3,138 2025 2,683 2026 1,360 Thereafter 1,713 $ 14,558 wasis recorded as accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table presents activity related to the warranty reserve:Comprehensive IncomeComprehensive income is equal to net income for all periods presented in the accompanying unaudited consolidated statements of operations.Three Months Ended
June 30,2021 2020 (In thousands) Balance at beginning of fiscal year $ 569 $ 416 Additions charged to cost of sales 125 65 Warranty claims (34) (100) Balance at end of reporting period $ 660 $ 381 (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
June 30,2021 2020 (In thousands, except per share amounts) Numerator: Net income from continuing operations $ 629 $ 418 Net income (loss) from discontinued operations, net of tax (18) 9,930 Net income $ 611 $ 10,348 Denominator: Weighted average common shares used in basic computation 41,875 40,732 Dilutive stock options 1,505 775 Weighted average common shares used in diluted computation 43,380 41,507 Basic: Net income per share from continuing operations: $ 0.02 $ 0.01 Net income per share from discontinued operations: $ 0.00 $ 0.24 Net income per basic share $ 0.02 $ 0.25 Diluted: Net income per share from continuing operations: $ 0.01 $ 0.01 Net income per share from discontinued operations: $ 0.00 $ 0.24 Net income per diluted share $ 0.01 $ 0.25 loss from continuing operationsnet income (loss) per share as their effect would have been anti-dilutive:Three Months Ended
June 30,2021 2020 (In thousands) Stock options 25 2,890 Restricted stock units 0 210 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 Sensors segmentAgriculture and Weather Analytics business to Bendix Commercial Vehicle Systems LLC (“Bendix”),DTN, an operating company of TBG AG, a memberSwiss-based holding company, pursuant to the DTN 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, the Asset Sale, we are entitled to additional considerationCompany received $10.5 million in the formcash, and $1.5 million of the following performancepayment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closingroyalty related earn-outs: Bendix is obligated to pay us an amount in cash equal to 85%$0.05 million will be paid by DTN at the 18-month anniversary 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 assetDTN Purchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. The DTN 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 Sensors segment,Agriculture and Weather Analytics business, which constituted one of our operating segments at the timeprior to first quarter of the Asset Sale, qualifiedfiscal 2021, qualifies as a discontinued operation. operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.March 31, 2021 Assets Right-of-use assets 78 Total assets held for sale, noncurrent 78 Total assets held for sale $ 78 Liabilities Current Lease Liabilities 94 Total liabilities held for sale, current position 94 Long Term Lease liabilities 261 Total liabilities held for sale $ 355 Three Months Ended
June 30,2021 2020 Service revenue $ 0 $ 695 Cost of service revenues 0 349 Gross profit 0 346 Operating expenses: Selling, general and administration 50 515 Research and development 0 407 Restructuring charges 0 837 Total operating expenses 50 1,759 Operating loss from discontinued operations (50) (1,413) Other income, net 32 55 Loss from discontinued operation before income tax (18) (1,358) Income tax (benefit) expense 0 0 Net Loss from discontinued operations (18) (1,358) Gain on disposal of discontinued operations before income tax 0 11,315 Income tax benefit on gain on disposal 0 (27) Gain on disposal of discontinued operations after income tax 0 11,288 Net income (loss) from discontinued operations $ (18) $ 9,930 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 business assets 1,742 Trade accounts payable 349 Deferred revenue 1,518 Total Agriculture and Weather Analytics business liabilities 1,867 Gain on sale of Agriculture and Weather Analytics business $ 11,315 ninethree months ended December 31, 2017June 30, 2021 the Company did not incur any restructuring or severance costs.2016,severance costs, for the three months ended June 30, 2020 (in thousands):Total Severance and benefits $ 1,105 Lease impairment and other costs 351 Total restructuring and severance costs $ 1,456 recorded a gain on sale of discontinued operation of approximately $258,000did not accrue any amounts 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 month period ended June 30, 2021 were as follows (in thousands):Balance at March 31, 2021 $ 100 Cash payments $ (79) Balance at June 30, 2021 $ 21 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 at June 30, 2021 and March 31, 2021. As a result of the reorganization during the ninethree months ended December 31, 2017June 30, 2021, the Company has engaged a third party valuation firm to reallocate goodwill to the three new reporting units discussed in Note 1, Description of Business 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 June 30, 2021 (In thousands) Amortized
CostGross
Unrealized
LossGross
Unrealized
GainEstimated Fair
ValueAssets: Level 1: Money market funds $ 11,212 $ 0 $ 0 $ 11,212 163 0 4 167 Subtotal 11,375 0 4 11,379 Level 2: Commercial paper 4,150 0 0 4,150 Subtotal 4,150 0 0 4,150 Total $ 15,525 $ 0 $ 4 $ 15,529 Liabilities: Level 1: $ 171 $ 0 $ 6 $ 177 Subtotal 171 0 6 177 Level 3: 600 0 0 600 Subtotal 600 0 0 600 Total $ 771 $ 0 $ 6 $ 777 As of March 31, 2021 (In thousands) Amortized
CostGross
Unrealized
LossGross
Unrealized
GainEstimated Fair
ValueAssets: Level 1: Money market funds $ 4,676 $ 0 $ 0 $ 4,676 89 0 11 100 Subtotal 4,765 0 11 4,776 Level 2: Commercial paper 4,999 0 0 4,999 Corporate notes and bonds 1,085 0 0 1,085 US Treasuries 4,600 0 0 4,600 Subtotal 10,684 0 0 10,684 Total $ 15,449 $ 0 $ 11 $ 15,460 Liabilities: Level 1: $ 100 $ 0 $ 11 $ 111 Subtotal 100 0 11 111 Level 3: 600 0 0 600 Subtotal 600 0 0 600 Total $ 700 $ 0 $ 11 $ 711 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 June 30, 2021.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 month period ended June 30, 2021 was approximately $0.08 million, or 10.6% of pre-tax income as compared with an expense of approximately $0.03 million, or 6.0% of pre-tax income 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 reassess the appropriateness ofintend to continue maintaining a full valuation allowance.The Tax Cutsallowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and Jobs (“anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, and potentially in the next few quarters, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax legislation”)assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.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, 2021. The CARES Act also allows for the annual 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 considerof 2017. The Company is utilizing the impactprovision 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 accountingCARES Act allowing for the change in tax law. In accordance with SAB 118, the income tax effects discussed above represent our best estimate based on interpretationdeferral of the tax legislationpayroll taxes 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.June 30, 2021.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 under the 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”)).sublease. 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 opposedid 0t record 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 liabilityimpairment for the settlement was included inthree months ended June 30, 2021.accompanyingunaudited condensed consolidated balance sheet as follows:Classification June 30, 2021 (In thousands) Assets Operating lease right-of-use-assets - continuing operations Right-of-use assets $ 11,346 Operating lease right-of-use-assets - discontinued operation Asset held for sales - noncurrent 60 Total operating lease right-of-use-assets $ 11,406 Liabilities Operating lease liabilities (short-term) - continuing operations Accrued liabilities $ 1,651 Operating lease liabilities (short-term) - discontinued operation Liabilities held for sales - current 60 $ 1,711 Operating lease liabilities (long-term) - continuing operations Lease liabilities 10,532 Operating lease liabilities (long-term) - discontinued operation Liabilities held for sales - noncurrent 253 10,785 Total lease liabilities $ 12,496 March 31, 2017,lease costs in on our unaudited condensed consolidated statements of operations for each of the three month periods ended June 30, 2021 and 2020. The Company currently has 0 variable lease costs. The Company recorded $0.01 million and $0.02 million of sublease income for the three month periods ended June 30, 2021 and 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 balancethree months ended June 30, 2021 (in thousands, except weighted average information):Cash paid for amounts included in the measurement of operating lease liabilities $ 694,000 Weighted average remaining lease term (in years) 6.02 Weighted average discount rate 5.0 % 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 directorJune 30, 2021 were as follows:Fiscal Year Ending March 31, Operating Leases (In thousands) 2022 $ 1,931 2023 1,965 2024 2,512 2025 2,242 2026 1,998 Thereafter 3,963 Total lease payments 14,611 Less imputed interest (2,115) Present value of future lease payments 12,496 Less current obligations under leases (1,711) Long-term lease obligations $ 10,785 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,June 30, 2021, there were approximately 2.3 million776,492 shares of common stock available for grant or issuance under the 2016 Plan. Total stock options vested and expected to vest were approximately 3.45.1 million as of December 31, 2017.ninethree months ended December 31, 2017June 30, 2021 is as follows:
Shares
Average
Exercise
Price Per
ShareOptions Weighted
Average
Exercise
Price Per
Share(In thousands) Options outstanding at March 31, 2021 5,623 $ 4.10 Granted 25 7.05 Exercised (473) 2.91 Forfeited (59) 4.87 Options outstanding at June 30, 2021 5,116 4.22 one1 share of our common stock for each RSU upon vesting, for the ninethree months ended December 31, 2017June 30, 2021 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, 2021 448 $ 4.08 Granted 0 0 Vested 0 0 Forfeited 0 0 RSUs outstanding at June 30, 2021 448 4.08 # of Shares Weighted Average Price Per Share (In thousands) PSUs outstanding at March 31, 2021 68 $ 5.47 Granted 64 7.26 PSUs outstanding at June 30, 2021 132 6.34 At December 31, 2017,Three Months Ended
June 30,2021 2020 (In thousands) Cost of revenues $ 57 $ 46 General and administrative expense 616 533 Sales and marketing 70 19 Research and development expense 51 24 Restructuring costs 0 42 Income (loss) from discontinued operations before gain on sale, net of tax 0 (57) Total stock-based compensation $ 794 $ 607 $2.7$4.0 million, $1.3 million and $643,000$0.6 million 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 2.42.6 years for stock options, and 1.61.1 years for RSUs.RSUs and 2.6 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.ourthe Board of Directors approved a new stock repurchase program pursuant to which we may acquire up to $3$3.0 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. 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, ourthe Board of Directors approved a $3.0 million increase to the Company’s existing stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time. For the three month periods ended June 30, 2021 and nine months ended December 31, 2017,2020, we did not0t 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 2012 stock repurchase program in August 2011 through December 31, 2017,June 30, 2021, we repurchased approximately 3,422,0002,458,000 shares of our common stock for an aggregate price of approximately $5.6$4.3 million, at an average price per share of $1.63.$1.73. As of December 31, 2017,June 30, 2021, all repurchased shares have been retired and resumed their status as authorized and unissued shares of our common stock.9. As of June 30, 2021, approximately $1.7 million remains available for the repurchase of our common stock under our current program.Segment InformationFair Value (in thousands) Cash $ 15,000 Security hold back 1,000 Acquisition-related liabilities 1,131 Contingent consideration 600 Total $ 17,731 currently operateestimated the fair values of net assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The Company believes the goodwill related to the acquisition was a result of the ability of the Company to leverage its technology in three reportable segments:the broader market, as well as offering cross-selling market exposure opportunities. Goodwill from the acquisition of TCI is included in the Company's consolidated balances and will be included in the annual review forTrade accounts receivable $ 2,087 Unbilled accounts receivable 596 Inventories 941 Right-of-use assets 193 Property and equipment 233 Intangible assets 9,500 Goodwill 7,750 Other assets 242 Total assets acquired 21,542 Accounts payable 1,026 Deferred revenue 2,460 Lease liabilities 193 Other liabilities 132 Total liabilities assumed 3,811 Total purchase price $ 17,731 Agricultureupon the reorganization described in Note 12, Business Segments, the goodwill has been reallocated to the Company's three new reporting units and Weather Analytics.Roadway Sensors segment provides hardwaregoodwill is fully deductible for tax purposes. The significant intangible assets identified in the purchase price allocation include customer relationship and software productsdeveloped technology, which are amortized over their respective useful lives on a straight line basis which approximates the underlying cash flows. To value the customer relationships, the Company utilized the income approach, specifically a discounted cash-flow method known as the excess earnings method. The Company used the replacement cost method with consideration of opportunity costs to multiple segmentsestimate the fair value of the ITStechnology. The fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. We believe the assumptions are representative of those a market thatparticipant would use advanced image processing technologyin estimating fair value.other techniques to capture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle, and pedestrian detection and transmissionuseful lives 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. the identifiable intangible assets acquired:Amount Weighted Average
Useful Life(in thousands) (in years) Customer relationships $ 5,800 7 Technology 3,700 4 Total intangible assets assumed $ 9,500 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 includesFY21, Company completed the sale of certain complementary original equipment manufacturer (“OEM”) products forsubstantially all of 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 toassets used in connection with 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 ClearPathto DTN in exchange for a total purchase consideration of $12.0 million. On April 30, 2020, inour road-maintenanceAnalytics segment, the Board approved restructuring activities to better position the Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred in FY21 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.ClearAg, our digital analytics solutions. Both ClearPath Weathercontent to customers throughout North America in the media, mobile technology, automotive and ClearAg are considered software-as-a-service solutions. ClearPath Weather provides winter road maintenance recommendations for state agencies, municipalitiespublic sectors. Under the TCI Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and for commercial companies. Our ClearAgcontent. The transaction closed on December 7, 2020.leverage our EMPower platform,to the marketplace. As a result of the reorganization, the Company's Chief Operating Decision Maker ("CODM"), 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 isreviews the Company's results on a consolidated basis and our chief operating decision maker (“CODM”), reviews financial information at the operating segment level. Our CODM does not review assets byresults will be presented on a consolidated basis under a single reporting 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 fororder to provide 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:“plans,“plan(s),” “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.development, the impact of the acquisition of Albeck Gerken, Inc., the impact of the sale of our Agriculture and Weather Analytics business, and the impact of the acquisition of substantially all of the assets of TrafficCast International, Inc. 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.currently operate in three reportable segments: Roadway Sensors, Transportation Systems,are a provider of smart mobility infrastructure management solutions. Municipalities, government agencies, 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,providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. Additionally, we provide mobility data to automobile OEMs, media companies, insurance companies, and other commercial entities, whose products and services have a high dependency on the developmentperformance and/or condition of transportation managementmobility infrastructure.traveler information systems forunprecedented impact on 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 uponU.S. economy as federal, state and local governmental funding,governments react to this public health crisis with travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by the Pandemic include, but are not limited to, a lessersupply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. While there has been no material impact to our business, nor any facility closures, we did experience some supply chain and work delays in prior quarters due to the Pandemic. Should such delays become protracted or worsen or should longer term budgets or priorities of our clients be impacted, the Pandemic could materially impact our business, results of operations and financial condition. The extent of the impact of the Pandemic on federal governmental funding.our business and financial results, and the volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the budgets and financial circumstances of our customers, all of which are highly uncertain and cannot be reasonably estimated as of the date of this report.contracts generally relateactions included, reducing our discretionary spending, reducing capital expenditures, implementing restructuring activities with the goal of reducing payroll costs, including employee furloughs, pay freezes and pay cuts.fixed fee professional services or are timeincome tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral 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,the alternative minimum tax acceleration. For more information, refer to Note 6, Income Taxes, to 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 Condensed Consolidated Financial Statements, includedincluding in Part I, Item 1 of this report,report.further detailsthe Company although, in the near term, the pace of new opportunities emerging may be restrained and the start dates of awarded projects may be delayed. We believe that our expectations are valid and that our plans for the future continue to be based on reasonable assumptions.reportable segments.Three Months Ended
June 30,2021 2020 (In Thousands) Net income from continuing operations $ 629 $ 418 Income tax expense 75 34 Depreciation expense 232 185 Amortization expense 803 361 Stock-based compensation 794 664 Other adjustments: Restructuring charges — 619 Adjusted EBITDA $ 2,533 $ 2,281 Percentage of total revenues 7.4 % 8.2 % the realizabilityand fair value of deferred tax assets, accounting forour stock option awards used to calculate stock-based compensation, the valuation of equity instruments, warranty reserves and other contingencies.compensation. 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.NotesBusiness and Summary of Significant Accounting Policies, to our Unaudited Condensed 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:offrom Continuing OperationsTotal Revenues. Total revenues are comprised of sales from our Roadway Sensors, Transportation Systems and Agriculture and Weather Analytics segments.tables presenttable presents our total revenues for the three month periods ended June 30, 2021 and nine months ended December 31, 2017 and 2016:Three Months Ended June 30, $
Increase
(decrease)%
Change2021 2020 (In thousands, except percentages) Product revenues $ 18,026 $ 14,394 $ 3,632 25.2 % Service revenues 16,059 13,606 2,453 18.0 % Total revenues $ 34,085 $ 28,000 $ 6,085 21.7 % December 31, 2017June 30, 2021 increased 19.4%25.2% to $12.0$18 million, as compared to $10.0$14.4 million in the corresponding period in the prior year, primarily due to an increase in salescontinued strong demand for our hardware solutions, further augmented by the addition of our Roadway Sensors third party OEM products for the $1.4 million of TrafficCast product sales.intersection market.study, design, engineering, and management services, but also includes service revenues generated from advanced sensor technologies product installation services and cloud-based application installation and support services. Service revenues for the three months ended December 31, 2017June 30, 2021 increased 11.0%18% to $14.0$16.1 million, compared to $12.6$13.6 million in the corresponding period in the prior year,year. This increase was primarily due to higher Transportation Systems traffic engineering service revenues. the addition of $2.1 million of TrafficCast SaaS revenue. Total annual recurring revenue, which we define as all software and managed services revenue was 24% of total revenue as of June 30, 2021 and 19% of total revenue as of June 30, 2020.December 31, 2017June 30, 2021 increased 14.7%21.7% to $26.0$34.1 million, compared to $22.7$28.0 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 18%25% 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 an18% increase in total revenues of approximately $1.6 million or 18%, comparedservices revenues.the corresponding prior year period. Revenues for the nine months ended December 31, 2017be firm that are to be earned under our existing agreements and are not 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%, to 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 focusingdeferred revenue on our core domestic intersection market, and refine and deliver products that address the needsunaudited condensed consolidated balance sheets. Backlog includes new bookings but does not include announced orders for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders, but there can be nothis 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 revenues 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 thatclassify 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.will recognize revenue from bookings or backlog timely or ever. 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 $46.0was $79.9 million as of December 31, 2017,June 30, 2021 compared to approximately $54.1$67.9 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..and nine months ended December 31, 2017June 30, 2021 and 2016:Three Months Ended June 30, $
Increase%
Change2021 2020 (In thousands, except percentages) Product gross profit $ 8,469 $ 6,313 $ 2,156 34.2 % Service gross profit 5,624 4,555 1,069 23.5 % Total gross profit $ 14,093 $ 10,868 $ 3,225 29.7 % Product gross margin as a % of product revenues 47.0 % 43.9 % Service gross margin as a % of service revenues 35.0 % 33.5 % Total gross margin as a % of total revenues 41.3 % 38.8 % 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 revenuesmargin 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 decreasedJune 30, 2021 increased approximately 88310 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 researchproduct gross margin was mainly due to favorable product mix and manufacturing volume. Our core product sales yield higher margins compared our third party products sales which typically yield lower gross margins.ninethree months ended December 31, 2017,June 30, 2021 increased approximately 100% to $1.8 million, compared to $0.9 million for the corresponding period in the prior year,three months ended June 30, 2020. The overall increase was primarily due to the Company’saddition of TrafficCast and continued investment in research and development activities largely focused on improving our existing software related offerings.ClearAgfurther enhancements and ClearPath Weather solutions, and enhancements to Roadway Sensors products. ClearAgfunctionality of our Iteris ClearMobility Platform as well as our Vantage 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. Developmentfamily.continue to beare 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 softwarehigherincreases in research and development costs, as well as additional capitalized software in future periods.Income Taxes. The following table presents our benefit for income taxesand nine months ended December 31, 2017June 30, 2021 and 2016:On an2020, respectively. The increase was primarily due to amortization related to intangible assets acquired as part of the AGI and TrafficCast acquisitions.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 month period ended June 30, 2021 was approximately $0.08 million, or 10.6% of pre-tax income as compared with an expense of approximately $0.03 million, or 6.0% of pre-tax income 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 reassess the appropriateness ofintend to continue maintaining a full valuation allowance consideringon our deferred tax assets until there is sufficient evidence to support the Company’s projectionsreversal of all or some portion of these allowances. However, given our current earnings and anticipated future incomeearnings, we believe that there is a reasonable possibility that within the next 12 months, and cumulative income (loss)potentially in the Company’s trailing three years, among other factors.The Tax Cutsnext few quarters, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and Jobsa decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. (“tax legislation”) 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 Fiscal 2018 using a blended ratecurrent taxes, deferred taxes, and uncertain tax positions of the Company in the year ended March 31, 2021. The CARES Act also allows for the annual period. As a result,deferral of payroll taxes, as well as the blended statutory tax rate for Fiscal 2018 is 30.8%. In the third quarterimmediate refund 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 againstfederal Alternative Minimum Tax credit carryforwards,credits, which werehad previously been made refundable by the tax legislation in December 2017. 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 taxpayersof 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of June 30, 2021.consideroperate our business and to meet our cash requirements. As of June 30, 2021, we had cash and cash equivalents totaling approximately $31.1 million. We do not have a revolving credit facility. Our cash position will also be impacted by any capital expenditures or acquisitions we complete in the future.tax legislation as “provisional” when it does not havePandemic on our business is currently uncertain, 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. Treasurysituation is expected to issue further guidance onbe temporary. In 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 provisionallonger term, we remain committed to increasing total shareholder returns through our investments in opportunities and will be finalized before December 22, 2018.Liquidityinitiatives to grow our business organically and Capital Resourceshave historically relied, and expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which weDecember 31, 2017,June 30, 2021, we had $20.6$39.5 million in working capital, excluding current assets and liabilities held for sale, which included $16.8$31.4 million in cash, cash equivalents, and cash equivalents.restricted cash. This compares to working capital of $22.7$36.7 million at March 31, 2017,2021, excluding current assets and liabilities held for sale, which included $18.2$25.5 million in cash, cash equivalents, and restricted cash equivalents.The following table summarizes our cash flows for the nine months ended December 31, 2017 and 2016: Cash Net cash provided by operating activities of our continuing operations for the ninethree months ended December 31, 2017June 30, 2021 of approximately $1.2 million was primarily the result of approximately $819,000$1.7 million in non-cash items, primarily for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization gain on salescoupled with our net income from continuing operations of approximately $0.6 million. This was offset by approximately $1.1 million from changes in working capital. Net cash used in operating activities from discontinued operations and loss on disposalwas approximately $0.1 million.equipment,our continuing operations for the three months ended June 30, 2020 was primarily the result of our net income of approximately $0.4 million, coupled with an increase of approximately $408,000$0.2 million from changes in working capital, partially offset by our net loss of approximately $1.1$1.6 million in noncash items for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization. Net cash used in operating activities from discontinued operations was approximately $2.1 million.Cashforduring the ninethree months ended December 31, 2016June 30, 2021 was primarily the result of approximately $2.3$3.1 million in proceeds from the maturity of short-term investments offset by approximately $0.1 million of working capitalproperty and equipment purchases, and approximately $1.1 million of capitalized software development costs, of which $0.9 million pertained to further development of our Commercial Vehicle Operations ("CVO") software platform. Net cash provided and offset by our net loss ofinvesting activities from discontinued operations was 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.million.our investing activities of our continuing operations during the ninethree months ended December 31, 2017June 30, 2020 was primarily the result of approximately $988,000 for$19.5 million in purchases of short-term investments and approximately $0.3 million of property and equipment primarily related to leasehold improvement to our corporate headquarters, andpurchases, approximately $1.8$0.2 million of capitalized software development primarlycosts, related to the development of our new Oracle ERP system,VantageLive! and to a lesser extent, in the Agriculture and Weather Analytics and Roadway Sensors business segments related to ClearAg assets and VantageLive! developments.ClearGuide. These investments were partially offset by approximately $402,000$9.4 million in net 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 byand approximately $364,000$6.7 million in proceeds from the earn-out provision included in the sale and maturity of the Vehicle Sensors segment.ninethree months ended December 31, 2017June 30, 2021 was the result of approximately $986,000$1.4 million 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. options.ninethree months ended December 31, 2016June 30, 2020 was the result of approximately $238,000$0.1 million 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.Other than our operating leases, we do other material off balance sheet arrangements at December 31, 2017.particularly with respect to our Roadway Sensors segment, which adversely affects suchproduct 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 impactedaffected the most by inclement weather. We have also experienced seasonality, particularly with respect to our Transportation Systems segment, which adversely impacts ourservice revenues, especially in the 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.Our exposureinterest rate risk was limited to our lineprovide the information required by Item 305 of credit, which expired on October 1, 2016 and was not renewed.Asreport, 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). Quarterly Report on Form 10-Q. 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. 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.in Note 6 of Notes to our Unaudited Condensed 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 price of our common stock to decline.Our use of 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.In August 2011, our Board$3.0$3 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-marketthe open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to an existing or futurea 10b5-1 trading plan to facilitate repurchases during our closed trading windows.windows, to the extent such a 10b5-1 plan is in place. 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 ourthe Company’s existing stock repurchase program, pursuant to which wethe Company may continue to acquire shares of ourits outstanding common stock from time to time for an unspecified length of time.and nine monthsmonth periods ended December 31, 2017, weJune 30, 2021, the Company did not repurchase any shares. From inception of the 2012 program in August 2012 through June 30, 2021, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of December 31, 2017, there wasJune 30, 2021, all repurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock. As of June 30, 2021, approximately $1.7 million remains available for the repurchase of remaining funds availableour common stock under the stock repurchaseour current 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 10.34Iteris, Inc. Executive Severance PlanFiled herewith31.1 31.1Certification 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: August 5, 2021 (Registrant)(Registrant) ByBy /s/ JOE BERGERA ANDREW C. SCHMIDTAndrew C. Schmidt