UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2022

¨☐ TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-26056

~~Image Sensing Systems, Inc.~~Autoscope Technologies Corporation

(Exact Name of Registrant as Specified in its Charter)

Minnesota		~~41-1519168~~86-3685595
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.


~~500 Spruce Tree Centre~~1115 Hennepin Avenue
~~1600 University Avenue West~~Minneapolis, MN		55403
~~St. Paul, MN~~		~~55104~~
Address of Principal Executive Offices		Zip Code

~~(651) 603-7700~~(612) 438-2363

Registrant’s Telephone Number, Including Area Code

~~Not Applicable~~

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	AATC	The Nasdaq Capital Market
Preferred Stock Purchase Rights	AATC	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically ~~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). Yesx ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an ~~accelerated~~accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨	Accelerated filer ¨
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~ x	Smaller reporting companyx ☒
	Emerging growth company ¨ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at ~~October 31, 2017~~November 16, 2022
Common Stock, $0.01 par value per share		~~5,189,518~~5,407,707 shares

~~IMAGE SENSING SYSTEMS, INC.~~AUTOSCOPE TECHNOLOGIES CORPORATION

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION	34
Item 1. Financial Statements ~~(unaudited)~~(Unaudited)	34
Condensed Consolidated Balance Sheets	34
Condensed Consolidated Statements of Operations	45
Condensed Consolidated Statements of Comprehensive Income (Loss)	56
Condensed Consolidated Statements of Cash Flows	67
Condensed Consolidated Statements of Shareholders' Equity	8
Notes to Condensed Consolidated Financial Statements	710
Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	1523
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2131
Item 4. Controls and Procedures	2131
PART II. OTHER INFORMATION	2232
Item 1. Legal Proceedings	2232
Item 1A. Risk Factors	2232
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2232
Item 3. Defaults Upon Senior Securities	2232
Item 4. Mine Safety Disclosures	2232
Item 5. Other Information	2232
Item 6. Exhibits	2333
SIGNATURES	2434

~~EXHIBIT INDEX~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Autoscope Technologies Corporation

~~Item~~ 1. ~~Financial Statements~~

~~Image Sensing Systems, Inc.~~

Condensed Consolidated Balance Sheets

(in ~~thousands)~~thousands, except share information)

	September 30,
	2017			December 31,			September 30, 2022			December 31,
	(Unaudited)			2016			(Unaudited)			2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,756		$	1,547		$	3,411		$	8,229
Accounts receivable, net of allowance for doubtful accounts of $83 and $90, respectively		3,091			3,011
Accounts receivable, net of allowance for doubtful accounts of $11 and $18, respectively								3,712			2,369
Inventories		426			141			2,468			1,429
Investments in available-for-sale debt securities								422			—
Investments in equity securities								245			—
Prepaid expenses and other current assets		396			281			374			355
Total current assets		6,669			4,980			10,632			12,382

Property and equipment:
Furniture and fixtures		493			486			135			136
Leasehold improvements		430			426			6			6
Equipment		3,849			3,561			988			994
Real property								2,059			2,059
		4,772			4,473			3,188			3,195
Accumulated depreciation		4,349			4,102			1,033			958
		423			371			2,155			2,237

Operating lease assets, net								5			58
Intangible assets, net		3,396			2,795			2,798			2,866
Deferred income taxes		63			58			4,699			4,824
Long-term investments in available-for-sale debt securities								1,526			—
TOTAL ASSETS	$	10,551		$	8,204		$	21,815		$	22,367

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	827		$	256		$	1,088		$	236
Deferred revenue								115			107
Warranty		987			1,223			109			128
Accrued compensation		214			193			40			132
Operating lease obligations								6			59
Current maturities of long-term debt								58			56
Other current liabilities		648			323			109			181
Total current liabilities		2,676			1,995			1,525			899

Commitments and contingencies
Long-term debt								1,631			1,674
TOTAL LIABILITIES		2,676			1,995			3,156			2,573

Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value; 20,000,000 shares authorized, 5,189,518 and 5,094,473
issued and outstanding at September 30, 2017 and December 31, 2016, respectively		51			50
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding								—			—
Common stock, $0.01 par value; 20,000,000 shares authorized, 5,407,707 and 5,378,857							Common stock, $0.01 par value; 20,000,000 shares authorized, 5,407,707 and 5,378,857
issued and outstanding at September 30, 2022 and December 31, 2021, respectively								54			54
Additional paid-in capital		24,283			24,055			25,513			25,167
Accumulated other comprehensive loss		(316	)		(363	)		(564	)		(288	)
Accumulated deficit		(16,143	)		(17,533	)		(6,344	)		(5,139	)
Total shareholders' equity		7,875			6,209			18,659			19,794
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	10,551		$	8,204		$	21,815		$	22,367

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

~~Image Sensing Systems, Inc.~~Autoscope Technologies Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

~~(Unaudited)~~

(in thousands, except per share data)

	Three-Month Periods Ended September 30,					Nine-Month Periods Ended September 30,					Three-Month Periods Ended September 30,					Nine-Month Periods Ended September 30,
	2017		2016			2017		2016			2022			2021		2022			2021
Revenue:
Product sales	$	1,120	$	1,249		$	4,189	$	5,184		$	548		$	805	$	2,914		$	3,273
Royalties		2,504		2,133			5,994		6,113			2,607			2,467		5,812			6,766
		3,624		3,382			10,183		11,297			3,155			3,272		8,726			10,039
Cost of revenue:
Product sales		512		814			1,764		2,696			453			480		1,683			1,823
Software amortization		90		—			270		—
Royalties												105			105		315			295
		602		814			2,034		2,696			558			585		1,998			2,118
Gross profit		3,022		2,568			8,149		8,601			2,597			2,687		6,728			7,921

Operating expenses:
Selling, general and administrative		1,430		1,436			4,522		5,041			1,220			1,334		4,229			4,216
Research and development		722		636			2,266		2,033			581			644		1,535			1,681
Restructuring		—		—			—		126
		2,152		2,072			6,788		7,200			1,801			1,978		5,764			5,897
Operating income from operations		870		496			1,361		1,401
Other, net		—		(27	)		33		(27	)
Income from operations												796			709		964			2,024
Other income												10			—		29			925
Investment income (loss)												8			—		(17	)		—
Interest expense												(18	)		—		(53	)		—
Income from operations before income taxes		870		469			1,394		1,374			796			709		923			2,949
Income tax expense		—		—			4		4			152			96		187			453
Net income	$	870	$	469		$	1,390	$	1,370		$	644		$	613	$	736		$	2,496
Net income per share:
Basic	$	0.17	$	0.09		$	0.27	$	0.27		$	0.12		$	0.11	$	0.14		$	0.47
Diluted	$	0.17	$	0.09		$	0.27	$	0.27		$	0.12		$	0.11	$	0.14		$	0.47

Weighted average number of common shares outstanding:
Basic		5,138		5,059			5,117		5,043			5,391			5,349		5,378			5,338
Diluted		5,151		5,068			5,121		5,045			5,395			5,361		5,387			5,351

See accompanying notes to the condensed consolidated financial statements.	See accompanying notes to the condensed consolidated financial statements.										See accompanying notes to the condensed consolidated financial statements.

~~Image Sensing Systems, Inc.~~Autoscope Technologies Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

~~(Unaudited)~~

(in thousands)

	Three-Month Periods Ended September 30,					Nine-Month Periods Ended September 30,					Three-Month Periods Ended September 30,						Nine-Month Periods Ended September 30,
	2017		2016			2017		2016			2022			2021			2022			2021
Net income	$	870	$	469		$	1,390	$	1,370		$	644		$	613		$	736		$	2,496
Other comprehensive income:
Unrealized loss on available for sale debt securities, net of tax												(17	)		—			(17	)		—
Foreign currency translation adjustment		16		(19	)		47		(66	)		(4	)		(65	)		(197	)		(100	)
Comprehensive income	$	886	$	450		$	1,437	$	1,304		$	623		$	548		$	522		$	2,396

See accompanying notes to the condensed consolidated financial statements.	See accompanying notes to the condensed consolidated financial statements.										See accompanying notes to the condensed consolidated financial statements.

~~Image Sensing Systems, Inc.~~Autoscope Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

~~(Unaudited)~~(in thousands)

	Nine-Month Periods Ended September 30,
	2022			2021
Operating activities:
Net income	$	736		$	2,496

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation		119			112
Software amortization		602			579
Amortization of debt issuance costs		2			—
Stock-based compensation		329			164
Deferred income tax expense		147			486
Forgiveness income from PPP Loan (Note N)		—			(931	)
Loss on disposal of assets		5			1
Realized loss on AFS investments		20			—
Realized loss on equity investments		53			—
Unrealized loss on equity investments		5			—
Noncash investment income		(5	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		(1,343	)		(236	)
Inventories		(1,039	)		(715	)
Prepaid expenses and other current assets		(19	)		(87	)
Accounts payable		852			(380	)
Accrued expenses and other current liabilities		(175	)		—
Net cash provided by for operating activities		289			1,489

Investing activities:
Capitalized software development costs		(534	)		(178	)
Purchases of property and equipment		(61	)		(8	)
Purchases of equity securities		(795	)		—
Sale of equity securities		492			—
Purchases of debt securities		(3,521	)		—
Sale of debt securities		1,456			—
Net cash used for investing activities		(2,963	)		(186	)

Financing activities:
Stock for tax withholding		(15	)		(35	)
Dividends paid		(1,941	)		(1,288	)
Proceeds from exercised options		32			8
Proceeds from PPP loan		—			—
Principal payments on long-term debt		(43	)		—
Net cash used for financing activities		(1,967	)		(1,315	)

Effect of exchange rate changes on cash		(177	)		(91	)
Change in cash and cash equivalents		(4,818	)		(103	)

Cash and cash equivalents at beginning of period		8,229			8,605
Cash and cash equivalents at end of period	$	3,411		$	8,502

Non-Cash investing and financing activities:
Cash paid for interest	$	53		$	—

See accompanying notes to the condensed consolidated financial statements.

Condensed Consolidated Statements of Shareholders' Equity

(in ~~thousands)~~thousands, except share data)

Nine-Month Periods Ended
September 30,

2017

2016
Operating activities:

Net income
$
1,390

$
1,370

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Depreciation

191

223

Software amortization

270

—

Stock-based compensation

229

160

Loss on disposal of assets

2

13

Changes in operating assets and liabilities:

Accounts receivable, net

(80
)

(63
)
Inventories

(285
)

487

Prepaid expenses and other current assets

(120
)

29

Accounts payable

448

(1,134
)
Accrued expenses and other current liabilities

110

(658
)
Net cash provided by operating activities

2,155

427

Investing activities:

Capitalized software development costs

(833
)

(1,632
)
Purchases of property and equipment

(148
)

(113
)
Net cash used for continuing investing activities

(981
)

(1,745
)
Net cash provided by discontinued investing activities

—

420

Net cash used for investing activities

(981
)

(1,325
)

Effect of exchange rate changes on cash

35

(73
)
Increase (decrease) in cash and cash equivalents

1,209

(971
)

Cash and cash equivalents at beginning of period

1,547

2,648

Cash and cash equivalents at end of period
$
2,756

$
1,677

Non-Cash investing and financing activities:

Purchase of property and equipment in accounts payable
$
85

$
—

Capitalization of software development costs in accounts payable

38

—

	Three-Month Period Ended September 30, 2021
	Shares Issued	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total

Balance, June 30, 2021 (unaudited)	5,367,186	$	54	$	25,048	$	(185	)	$	(4,263	)	$	20,654

Stock-based compensation	5,032		—		57		—			—			57
Dividends declared	—		—		—		—			(644	)		(644	)
Comprehensive income:
Foreign currency translation adjustment	—		—		—		(65	)		—			(65	)
Net income	—		—		—		—			613			613
Balance, September 30, 2021 (unaudited)	5,372,218	$	54	$	25,105	$	(250	)	$	(4,294	)	$	20,615

	Three-Month Period Ended September 30, 2022
	Shares Issued	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total

Balance, June 30, 2022 (unaudited)	5,398,887	$	54	$	25,452	$	(543	)	$	(6,338	)	$	18,625

Stock-based compensation	8,820		—		61		—			—			61
Dividends declared	—		—		—		—			(650	)		(650	)
Comprehensive income:
Unrealized loss on available for sale debt securities, net of tax	—		—		—		(17	)		—			(17	)
Foreign currency translation adjustment	—		—		—		(4	)		—			(4)
Net income	—		—		—		—			644			644
Balance, September 30, 2022 (unaudited)	5,407,707	$	54	$	25,513	$	(564	)	$	(6,344	)	$	18,659
See accompanying notes to the condensed consolidated financial statements

~~See accompanying notes to the condensed consolidated financial statements.~~

~~IMAGE SENSING SYSTEMS, INC.~~

	Nine-Month Period Ended September 30, 2021
	Shares Issued		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total

Balance, December 31, 2020	5,352,626		$	54	$	24,968		$	(150	)	$	(5,502	)	$	19,370

Stock-based compensation	24,594			—		164			—			—			164
Stock options exercised	2,000			—		8			—			—			8
Stock for tax withholding	(7,002	)		—		(35	)		—			—			(35	)
Dividends declared	—			—		—			—			(1,288	)		(1,288	)
Comprehensive income:
Foreign currency translation adjustment	—			—		—			(100	)		—			(100	)
Net income	—			—		—			—			2,496			2,496
Balance, September 30, 2021 (unaudited)	5,372,218		$	54	$	25,105		$	(250	)	$	(4,294	)	$	20,615

	Nine-Month Period Ended September 30, 2022
	Shares Issued		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total

Balance, December 31, 2021	5,378,857		$	54	$	25,167		$	(288	)	$	(5,139	)	$	19,794

Stock-based compensation	24,120			—		329			—			—			329
Stock options exercised	7,000			—		32			—			—			32
Stock for tax withholding	(2,270	)		—		(15	)		—			—			(15	)
Dividends declared	—			—		—			—			(1,941	)		(1,941	)
Transfers of investments from held-to-maturity to available-for-sale classification	—			—		—			(62	)		—			(62	)
Comprehensive income:
Unrealized loss on available for sale debt securities, net of tax	—			—		—			(17	)		—			(17	)
Foreign currency translation adjustment	—			—		—			(197	)		—			(197	)
Net income	—			—		—			—			736			736
Balance, September 30, 2022 (unaudited)	5,407,707		$	54	$	25,513		$	(564	)	$	(6,344	)	$	18,659
See accompanying notes to the condensed consolidated financial statements

AUTOSCOPE TECHNOLOGIES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(Unaudited)~~

September 30, ~~2017~~
2022

Note A: Basis of Presentation

On July 21, 2021, a holding company reorganization was completed (the "Reorganization") in which Image Sensing Systems, Inc. ~~(referred~~("ISNS") became a wholly-owned subsidiary of the new parent company named "Autoscope Technologies Corporation" ("Autoscope"), which became the successor issuer to ISNS. As a result of the Reorganization, Autoscope replaced ISNS as the public company trading on the Nasdaq Stock Market under the ticker symbol "AATC," and outstanding shares of ISNS's common stock automatically converted into shares of common stock of Autoscope. As used in this Quarterly Report on Form 10-Q, ~~as "we," "us," "our" and~~ the "Company"), "we", "us" and "our" or its management or business at any time before the effective date of the Reorganization refer to those of ISNS as the predecessor company and its wholly-owned subsidiaries and thereafter to Autoscope and its wholly-owned subsidiaries, except as otherwise specified or to the extent the context otherwise indicates. The Reorganization is intended to be a tax-free transaction for U.S. federal income tax purposes for the Company's shareholders. Autoscope was incorporated on April 23, 2021 under the laws of the State of Minnesota, and ISNS was incorporated in Minnesota on December 20, 1984. The Company develops and markets video and radar processing products for use in applications such as intersection control, highway, bridge and tunnel traffic management and traffic data collection. We sell our products primarily to distributors and also receive royalties under a license agreement with a manufacturer/distributor for certain of our products. Our products are used primarily by governmental entities.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q, which require the Company to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. It is the opinion of management that the unaudited condensed consolidated financial statements include all adjustments consisting of normal recurring accruals considered necessary for a fair presentation. All significant intercompany balances and transactions have been eliminated.

Operating results for the three and nine ~~month~~-month periods ended September 30, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017~~.2022. The accompanying condensed consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2021 as filed with the SEC.

Cash Dividend

On February 2, 2022, the Board of Directors of the Company approved a cash dividend of $0.12 per share to shareholders of record at the close of business on February 21, 2022, which was paid to shareholders on February 28, 2022.

On May 10, 2022, the Board of Directors of the Company approved a cash dividend of $0.12 per share to shareholders of record at the close of business on May 23, 2022, which was paid to shareholders on May 30, 2022.

On August 9, 2022, the Board of Directors of the Company approved a cash dividend of $0.12 per share to shareholders of record at the close of business on August 25, 2022, which was paid to shareholders on August 31, 2022.

On November 8, 2022, the Board of Directors of the Company approved a cash dividend of $0.12 per share to shareholders of record at the close of business on November 28, 2022, which is payable to shareholders on December 5, 2022.

Summary of Significant Accounting Policies

The Company believes that of its significant accounting policies, the following are particularly important to the portrayal of the Company's results of operations and financial position and may require the application of a higher level of judgment by the Company's management and, as a result, are subject to an inherent degree of uncertainty.

Revenue Recognition

We recognize revenue ~~on a sales arrangement~~ when itcontrol of the promised goods or services is ~~realized~~transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or ~~realizable~~services.

We determine revenue recognition through the following steps:
●	Identification of a contract, or contracts, with a customer;
●	Identification of performance obligations in the contract or contracts;
●	Determination of the transaction price;
●	Allocation of the transaction price to the performance obligations in the contract; and
●	Recognition of revenue when, or as, we satisfy a performance obligation.

Revenue disaggregated by revenue source for the three and ~~earned, which occurs when all~~nine months ended September 30, 2022 and 2021 consists of the following ~~criteria have~~(in thousands); revenue excludes sales and usage-based taxes when or if it has been ~~met: persuasive evidence~~determined that we are acting as a pass-through agent:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Product sales	$	548	$	805	$	2,914	$	3,273
Royalties		2,607		2,467		5,812		6,766
Total revenue	$	3,155	$	3,272	$	8,726	$	10,039

Product Sales:

Product revenue is generated primarily from the direct sales of ~~an arrangement exists; delivery~~our RTMS radar systems worldwide and ~~title transfer have occurred~~our Autoscope video systems in Europe and Asia. Revenue is recognized when control of the promised goods or services ~~have been rendered;~~is transferred to our customers in an amount that reflects the ~~sales price is fixed and determinable; collectability is reasonably assured; and all significant obligations~~amount we expect to ~~the customer have been fulfilled.~~receive in exchange for those goods or services.

Certain product sales may contain multiple ~~elements~~performance obligations for revenue recognition purposes. ~~We consider each deliverable that provides value to the customer on a standalone basis as a separable element. Separable elements in these arrangements~~Multiple performance obligations may include ~~the~~ hardware, software, installation services, training, support, and ~~support. We initially allocate consideration~~extended warranties.In arrangements where we have multiple performance obligations, the transaction price is allocated to each ~~separable element~~performance obligation using the relative stand-alone selling ~~price method. Selling~~price.We generally determine stand-alone selling prices ~~are determined by us~~ based on ~~either vendor-specific objective evidence ("VSOE") (the actual~~the observable stand-alone prices charged to customers. For performance obligations without observable stand-alone prices charged to customers, we evaluate the adjusted market assessment approach, the expected cost-plus margin approach, and stand-alone sales to estimate the stand-alone selling prices of similar products and services sold on a standalone basis) or, in the absence of VSOE, our best estimate of the selling price. Factors considered by us in determining estimated selling prices for applicable elements generally include overall economic conditions, customer demand, costs incurred by us to provide the deliverable, as well as our historical pricing practices. Under these arrangements, revenue associated with each delivered element is recognized in an amount equal to the lesser of the consideration initially allocated to the delivered element or the amount for which payment is not deemed contingent upon future delivery of other elements in the arrangement. Under arrangements where special acceptance protocols exist, installation services and training may not be considered separable. Under those circumstances, revenue for the entire arrangement is recognized upon the completion of installation, training and fulfillment of any other significant obligations specific to the terms of the arrangement. Arrangements that do not contain any separable elements are typically recognized when the products are shipped and title has transferred to the customer.prices.

Revenue ~~from arrangements~~ for services such as maintenance, repair, ~~consulting~~ and technical support ~~are~~is recognized either as the service is performed or ratably over the defined contractual period for service maintenance contracts.

~~Econolite Control Products, Inc. (Econolite) is~~ From time to time, our ~~licensee that sells certain~~payment terms may vary by the type and location of our ~~products in the United States, Mexico, Canada~~customer and the ~~Caribbean.~~ products or services offered. Revenue for extended warranties are deferred until the coverage period and then recognized ratably over the extended warranty term.

We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable.The ~~royalty of approximately~~ 50~~% of the gross profit on licensed~~term between invoicing and when payment is due is less than one year.For certain products ~~is recognized when~~or services and customer types, we require payment before the products or services are ~~shipped or~~ delivered ~~by Econolite~~ to ~~its customers.~~the customer.

We record provisions against sales revenue for estimated returns and allowances in the period when the related revenue is recorded based on historical sales returns and changes in end user demand.

~~Revenue~~Royalties:

Econolite Control Products, Inc. (“Econolite”) is our licensee that sells our Autoscope video system products in the United States, Mexico, Canada and the Caribbean. The royalty of approximately 50% of the gross profit on licensed products is recognized when the products are shipped or delivered by Econolite to its customers.

Practical Expedients and Exemptions:

We generally expense sales commissions when incurred because the amortization periods would have been one year or less.These costs are recorded ~~net~~within sales and marketing expense.

We do not disclose the value of ~~taxes collected from customers that are remitted~~unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to ~~governmental authorities, with~~which we have the ~~collected taxes recorded as current liabilities until remitted~~right to ~~the relevant government authority.~~invoice for services performed.

Inventories

Inventories are primarily electronic components and finished goods and are valued at the lower of cost or ~~market on~~net realizable value determined under the first-in, first-out accounting method.

Income Taxes

We record a tax provision for the anticipated tax consequences of ~~the~~our reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining net realizable value of our deferred tax assets. ~~In the event that~~If all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. We recognize penalties and interest expense related to unrecognized tax benefits in income tax expense.

Intangible Assets

We capitalize certain software development costs related to software to be sold, leased, or otherwise marketed. Capitalized software development costs include purchased materials, services, internal labor and other costs associated with the development of new products and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of sales over the product's estimated economic selling life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.

Capitalized software development costs are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that isare determined to be in excess of net realizable value ~~has~~have been expensed in the period in which such a determination is made. Subsequent to reaching technological feasibility for certain software products, we did not capitalize any software development cost in ~~a prior quarter,~~the quarters ended September 30, 2022 and 2021, and we capitalized ~~approximately $305,000~~$534,000 and $~~507,000~~$178,000 of software development costs during the ~~quarters~~nine-month periods ended September 30, ~~2017~~2022 and ~~2016~~,2021, respectively.

Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows and reviewed for impairment. At both September 30, ~~2017~~2022 and ~~December 31, 2016~~,2021, we determined there was no impairment of intangible assets. At both September 30, ~~2017~~2022 and ~~2016~~,2021, there were no indefinite-lived intangible assets.

Investments in Debt Securities

We classify investments in debt securities on the acquisition date and at each balance sheet date. At March 31, 2022, all of our investments in debt securities were classified as held-to-maturity. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold until maturity. Securities classified as held-to-maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security using the straight-line method.

During the quarter ended June 30, 2022, we changed the classification of $3.4 million in fair value of our held-to-maturity debt securities to available-for-sale debt securities due to our sales of some of the held-to-maturity securities and that sale being inconsistent with our former intent to hold the securities to maturity. The difference between the reclassified securities' amortized cost and fair value at the date of transfer of $62,000 was recognized as an unrealized loss recorded as a component of accumulated other comprehensive income during the second quarter of 2022. As of September 30, 2022, all investments in debt securities were classified as available-for-sale.

Investments in Equity Securities

We carry all investments in equity securities at fair value and record the subsequent changes in values in the Consolidated Statement of Operations as a component of investment income or loss.

812

Note B: Recent Accounting Pronouncements

Accounting pronouncements net yet adopted

In ~~March~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2016~~-092016-13, ~~“Compensation-Stock Compensation~~"Financial Instruments - Credit Losses (Topic ~~718~~326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13")." The amendments adopted in ASU ~~2016~~-09 ~~provides~~2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU Nos 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the SEC and all other entities who do not file with the SEC are required to apply the guidance ~~on how an entity should account for stock compensation.~~ ~~It is effective~~ for fiscal years, and interim periods within those years, beginning after December 15, ~~2016, and early adoption is permitted.~~ ~~The Company adopted ASU~~ ~~2016~~-09 ~~effective January 1, 2017, and the adoption did not have a material impact on the consolidated financial statements and related disclosures.~~

~~In February 2016, the FASB issued ASU No.~~ ~~2016~~-02~~, "Leases (Topic~~ ~~842)." ASU~~ ~~2016~~-02 ~~provides guidance on how an entity should account for leases and recognize associated lease assets and liabilities.~~ ~~ASU~~ ~~2016~~-02 ~~is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted.~~ ~~ASU~~ ~~2016~~-02 ~~must be adopted using a modified retrospective transition, and it provides for certain practical expedients.In addition, the transition will require application of ASU~~ ~~2016~~-02 ~~at the beginning of the earliest comparative period presented.We are currently determining our implementation approach and assessing the impact of ASU~~ ~~2016~~-02 ~~on the consolidated financial statements.~~

~~In May 2014, the FASB issued ASU~~ ~~2014~~-09~~, "Revenue from Contracts with Customers." ASU~~ ~~2014~~-09 provides guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU ~~2014~~-09 ~~specifies accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers.~~

~~On July 9, 2015, the FASB affirmed its proposal to defer the effective date of ASU~~ ~~2014~~-09 ~~for all entities by~~ ~~one~~ ~~year.~~ As a result, public business entities, certain not-for-profit entities, and certain employee benefit plans will apply this revenue standard to annual reporting periods beginning after December 15, 2017.~~All other entities will apply ASU~~ ~~2014~~-09 ~~to annual reporting periods beginning after December 15, 2018.~~ ~~Additionally, the FASB affirmed its proposal to permit all entities to apply ASU~~ ~~2014~~-09 early, but not before the original effective date for public business entities, certain not-for-profit entities, and certain employee benefit plans (that is, annual periods beginning after December 15, 2016). ~~Entities choosing to implement early will apply ASU~~ ~~2014~~-09 ~~to all interim reporting periods within the year of adoption.~~2022. The Company is currently ~~determining~~evaluating the potential impact of ASU 2016‑13 on its ~~implementation approach and assessing~~consolidated financial statements.

The adoption of ASU 2016-13 could result in an increase in the allowance for bad debt on the Company's account receivables as a result of changing from an "incurred loss" model, which encompasses allowances for current known losses, to an "expected loss" model, which encompasses allowances for losses expected to be incurred on the Company's receivables. While we are currently evaluating the potential impact of adopting ASU 2016-13, we expect the impact of ~~ASU~~ ~~2014~~-09 ~~on the consolidated financial statements.~~ adoption to be immaterial.

Note C: Fair Value Measurements

The guidance for fair value measurements establishes the authoritative definition of fair value, sets out a framework for measuring fair value and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:

	Level 1:	observable inputs such as quoted prices in active markets;
	Level 2:	inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
	Level 3:	unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

~~Level~~ 1 ~~- observable inputs such as quoted prices in active markets;~~

~~Level~~ 2 ~~- inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and~~

~~Level~~ 3 ~~- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.~~

~~Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis~~

Our intangible assets and other long-lived assets are nonfinancial assets that were acquired either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were initially, and have historically been, measured and recognized at amounts equal to the fair value determined as of the date of acquisition.

Financial Instruments not Measured at Fair Value

Certain of our financial instruments are not measured at fair value and are recorded at carrying amounts approximating fair value, based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and other current financial assets and liabilities.

913

Note D: Investments in available-for-sale debt securities

Investments in available-for-sale debt securities as of September 30, 2022 are summarized by type below (in thousands).

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value⁽¹⁾
U.S. government	$	199	$	—	$	(3	)	$	196
Corporate and other taxable bonds		1,214		—		(28	)		1,186
Other		635		—		(69	)		566
	$	2,048	$	—	$	(100	)	$	1,948

The amortized cost and estimated fair value of available-for-sale debt securities at September 30, 2022 are summarized below by contractual maturity dates (in thousands).

	Due in one year or less		Due after one year through five years		Mortgage-backed securities		Total
Amortized cost	$	428	$	1,620	$	—	$	2,048
Fair value⁽¹⁾	$	422	$	1,526	$	—	$	1,948

The following table shows the gross unrealized holding losses and fair value of our available-for-sale securities with unrealized holding losses, summarized by type of securities and length of time that individual securities had been in a continuous loss position deemed to be temporary as of September 30, 2022 (in thousands).

	Less than 12 months					12 months or more				Total
	Fair value⁽¹⁾		Gross unrealized losses			Fair value⁽¹⁾		Gross unrealized losses		Fair value⁽¹⁾		Gross unrealized losses
U.S. government	$	196	$	(3	)	$	—	$	—	$	196	$	(3	)
Corporate and other taxable bonds		1,186		(28	)		—		—		1,186		(28	)
Other		566		(69	)		—		—		566		(69	)
	$	1,948	$	(100	)	$	—	$	—	$	1,948	$	(100	)

We did not consider any of our available-for-sale securities to be impaired as of September 30, 2022. When evaluating for impairment we assess indicators that include but are not limited to, financial performance, changes in underlying credit ratings, market conditions and offers to purchase or sell.

(1)	The fair value of the Company's available-for-sale debt securities are determined based upon inputs, other than the quoted prices in active markets, that are observable either directly or indirectly and are classified as level 2 fair value measurements.

Note D:E: Investments in equity securities

Investments in equity securities as of September 30, 2022 are summarized based on the primary industry of the investee in the table below (in thousands).

	Cost Basis		Net Unrealized Gains (Losses)			Fair Value⁽²⁾
Banks and finance	$	250	$	(5	)	$	245
	$	250	$	(5	)	$	245

(2)	The fair value of the Company's equity investments are determined based on readily available market data and are classified as level 1 fair value measurements.

Note F: Inventories

Inventories consisted of ~~approximately $426,000~~ ~~and $141,000~~ ~~of finished goods as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~the following (in thousands):

	September 30, 2022		December 31, 2021
Finished goods	$	2,018	$	1,205
Components		450		224
Total	$	2,468	$	1,429

Note E:G: Intangible Assets

Intangible assets consisted of the following (dollars in thousands):

	September 30, 2017								September 30, 2022
								Weighted								Weighted
	Gross					Net		Average	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Wrong Way development costs									$	228	$	(228	)	$	—	—
Vision development costs		2,885		(360	)		2,525	8.0		3,107		(2,267	)		840	8.0
Software development costs		871		—			871	—
Echo development costs										1,852		(706	)		1,146	7.0
IntellitraffiQ development costs										468		(468	)		—	—
IntelliSight development costs										841		(29	)		812	8.0
Total	$	7,656	$	(4,260	)	$	3,396	8.0	$	6,496	$	(3,698	)	$	2,798

December 31, 2016

Weighted

Gross

Net

Average

Carrying

Accumulated

Carrying

Useful Life

Amount

Amortization

Value

(in Years)

Developed technology
$
3,900

$
(3,900
)

$
—

—

Vision development costs

2,885

(90
)

2,795

8.0

$
6,785

$
(3,990
)

$
2,795

8.0

Note G:H: Warranties

We generally provide a two to ~~five~~three yearwarranty on product sales. Reserves to honor warranty claims are estimated and recorded at the time of sale based on historical claim information and are analyzed and adjusted periodically based on actual claim trends.

Warranty liability and related activity consisted of the following (in thousands):

	Nine-Month Periods Ended September 30,
	2022			2021

Beginning balance	$	128		$	141
Warranty provisions		18			30
Warranty claims		(29	)		(35	)
Adjustments to preexisting warranties		1			(5	)
Currency		(9	)		(4	)
Ending balance	$	109		$	127

Nine-Month Periods Ended
September 30,

2017

2016

Beginning balance
$
1,223

$
760

Warranty provisions

38

185

Warranty claims

(111
)

(288
)
Adjustments to preexisting warranties

(167
)

27

Currency

4

—

Ending balance
$
987

$
684

Note H:I: Stock-Based Compensation

We compensate officers, directors, key employees and consultants with stock-based compensation under ~~stock option~~the Image Sensing Systems, Inc. 2014 Stock Option and ~~incentive plans~~Incentive Plan (the ~~"Plans"~~"2014 Plan"), which was approved by our shareholders and is administered under the supervision of our Board of Directors. The 2014 Plan and awards granted under the 2014 Plan were assumed by Autoscope in the Reorganization. Stock option awards are granted at exercise prices equal to the closing price of our stock on the day before the date of grant. Generally, options vest ~~proportionally~~ratably over periods ofthree to five years from the dates of the grant, beginning one year from the date of grant, and have a contractual term of nine to ~~ten~~10 years.

Performance stock options are time based; however, the final number of awards earned and the related compensation expense are adjusted up or down to the extent the performance target is met. The actual number of shares that will ultimately vest ranges from 90~~% to~~ ~~100~~% of the targeted amount if the minimum performance target is achieved. We evaluate the likelihood of meeting the performance target at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each performance target.

Compensation expense, net of estimated forfeitures, is recognized ratably over the vesting period. Stock-based compensation expense included in general and administrative expense for the three-month periods ended September 30, ~~2017~~2022 and ~~2016~~2021 was $~~76,000~~$61,000 and $~~100,000~~,57,000, respectively.Stock-based compensation expense included in general and administrative expense for the nine-month periods ended September 30, ~~2017~~2022 and ~~2016~~2021 was $~~229,000~~$329,000 and $~~160,000~~, $164,000, respectively. At September 30, ~~2017~~, ~~211,843~~2022, 603,654 shares were available for grant under the ~~Company's stock option and incent~~i~~ve plan.~~2014 Plan.

Stock Options

A summary of the stock option activity for the first nine months of ~~2017~~2022 is as follows:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value		Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2016		132,500		$	6.15		4.50	$	—
Options outstanding at December 31, 2021											12,000		$	4.90		1.13	$	19,860
Granted		—		$	—		—	$	—		120,000		$	6.87		—	$	—
Exercised		—		$	—		—	$	—		(7,000	)	$	4.55		—	$	—
Expired		(12,000	)	$	9.43		—	$	—		—		$	—		—	$	—
Forfeited		(22,000	)	$	5.72		—	$	—		(2,000	)	$	7.10		—	$	—

Options outstanding at September 30, 2017		98,500		$	5.85		3.95	$	—
Options exercisable at September 30, 2017		90,625		$	5.99		3.71	$	—
Options outstanding at September 30, 2022											123,000		$	6.81		9.15	$	990
Options exercisable at September 30, 2022											63,000		$	6.74		8.97	$	990

~~There~~Stock options to purchase 7,000 shares were exercised, no stock options ~~exercised~~expired, and options to purchase 2,000 shares were forfeited during the ~~three~~nine-month period ended September 30, 2022, and ~~nine~~ ~~month~~options to purchase 2,000 shares were exercised and 1,000 shares were forfeited during the nine-month period ended September 30, 2021. During each of the nine-month periods ended September 30, ~~2017~~2022 and 2021, we recognized $163,000 and no stock-based compensation expense related to stock options, respectively. As of September 30, ~~2016. As of~~ ~~September 30, 2017~~,2022, there was $~~9,000~~$115,000 of ~~total~~ unrecognized compensation cost related to non-vested stock options.

The fair value of stock options granted under stock-based compensation programs has been estimated as of the date of each grant using the multiple option form of the Black-Scholes valuation model, based on the grant price and assumptions regarding the expected life, stock price volatility, dividends, and risk-free interest rates. Each vesting period of an option is valued separately, with this value being recognized over the vesting period. The weighted average per share grant date fair value of options to purchase 120,000 shares granted for the nine months ended September 30, 2022 was $2.32. The weighted average assumptions used to determine the fair value of stock options granted during 2022 is as follows:

	2022
Expected life (in years)	3.59
Risk-free interest rate	1.44	%
Expected volatility	70.29	%
Dividend yield	6.95	%

The expected life represents the period ~~over which~~that the ~~compensation cost is~~stock option awards are expected to be ~~recognized~~outstanding and was determined based on historical and anticipated future exercise and expiration patterns. The risk-free interest rate used is ~~0.61~~based on the yield of constant maturity U.S. Treasury bonds on the grant date with a ~~year.~~remaining term equal to the expected life of the grant. We estimate stock volatility based on a historical daily price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.

Restricted Stock Awards and Stock Awards

Restricted stock awards are granted under the 2014 Plan at the discretion of the Compensation Committee of our Board of Directors. We issue restricted stock awards to executive officers and key consultants. These awards may contain certain performance conditions or time-based vesting criteria. ~~Executive officers vest in the~~The restricted stock awards granted to executive officers vest if the various performance or time-based metrics are met. Stock-based compensation is recognized for the number of awards expected to vest at the end of the period and is expensed beginning on the grant date through the end of the vesting period. At the time of vesting of the restricted stock awards, the recipients of common stock may request to receive a net of the number of shares required for employee withholding taxes, which can be withheld up to the relevant jurisdiction's maximum statutory rate. ~~Stock~~Compensation expense related to any stock awards issued to ~~consultants are recognized over~~employees is determined on the ~~performance period~~grant date based on the publicly-quoted fair market value of our common stock ~~price~~and is charged to earnings on the ~~date when the consultant's performance is complete.~~ grant date.

We also issue stock awards as a portion of the annual retainer for each director on a quarterly basis. The stock awards are fully vested at the time of issuance. ~~Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on the grant date.~~

~~A summary of the~~The following table summarizes restricted ~~stock awards and~~ stock award activity for the first nine months of ~~2017~~ ~~is as follows:~~2022:

Number of
Shares

Weighted
Average
Grant Date
Fair Value
Awards outstanding December 31, 2016

—

$
—

Granted

95,045

3.08

Vested

(63,045
)

3.15

Expired

—

—

Forfeited

—

—

Awards outstanding at September 30, 2017

32,000

$
2.95

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2021	18,597		$	5.72
Granted	24,120			5.60
Vested	(33,449	)		5.58
Forfeited	—			—
Awards outstanding at September 30, 2022	9,268		$	5.90

As of September 30, ~~2017~~,2022, the total stock-based compensation expense related to non-vested awards not yet recognized was $~~62,000~~,$29,000, which is expected to be recognized over a weighted average period of ~~2.45~~1.49 years. ~~The weighted average grant date fair value of restricted stock units granted during~~During the nine-month ~~period~~ periods ended September 30, ~~2017~~ ~~was $3.08. We granted restricted stock awards of~~ ~~95,045~~ ~~shares during the~~ ~~nine-month~~ ~~period ended~~ 2022 and September 30, ~~2017. During the~~ ~~nine-month~~ ~~periods ended~~ ~~September 30, 2017~~ ~~and~~ ~~September 30, 2016~~,2021, we recognized $~~213,000~~$166,000 and $~~142,000~~,$164,000, respectively, of stock-based compensation expense related to restricted stock awards.

Note I:J: Income per Common Share

Net income per share is computed by dividing net income (loss) by the daily weighted average number of common shares outstanding during the applicable periods. Diluted net income (loss) per share includes the potentially dilutive effect of common shares subject to outstanding stock options and restricted stock awards using the treasury stock method. Under the treasury stock method, shares subject to certain outstanding stock options and restricted stock awards have been excluded from the calculation of the diluted weighted average shares outstanding ~~calculation~~ because the exercise of those options or the vesting of those restricted stock awards would lead to a net reduction in common shares outstanding. As a result, stock options and restricted stock awards to acquire ~~100,196~~2,000 and ~~206,467~~2,000 weighted common shares have been excluded from the diluted weighted shares outstanding for the three-month periods ended September 30, ~~2017~~2022 and ~~2016~~,2021, respectively, and ~~132,247~~2,000 and ~~239,399~~2,000 weighted common shares have been excluded from the diluted weighted shares outstanding for the nine-month periods ended September 30, ~~2017~~2022 and ~~2016~~,2021, respectively.

A reconciliation of net income per share is as follows (in thousands, except per share data):

	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,				Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021

Numerator:
Net income	$	870	$	469	$	1,390	$	1,370	$	644	$	613	$	736	$	2,496
Denominator:
Weighted average common shares outstanding		5,138		5,059		5,117		5,043		5,391		5,349		5,378		5,338
Dilutive potential common shares		13		9		4		2		4		12		9		13
Shares used in diluted net loss per common share calculations		5,151		5,068		5,121		5,045
Shares used in diluted net income per common share calculations										5,395		5,361		5,387		5,351
Basic net income per common share	$	0.17	$	0.09	$	0.27	$	0.27	$	0.12	$	0.11	$	0.14	$	0.47
Diluted net income per common share	$	0.17	$	0.09	$	0.27	$	0.27	$	0.12	$	0.11	$	0.14	$	0.47

Note J:K: Segment Information

The Company's Chief Executive Officer and management regularly review financial information for the Company's discrete operating segments. Based on similarities in the economic characteristics, nature of products and services, production processes, type or class of customer served, method of distribution and regulatory environments, the operating segments have been aggregated for financial statement purposes and categorized into two reportable segments: Intersection and Highway.

Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. RTMS is our radar product line, and revenue consists of international and North American product sales. Radar products are normally sold in the Highway segment. All segment revenues are derived from external customers.

Operating expenses and total assets are not allocated to the segments for internal reporting purposes. Due to the changes in how we manage our business, we may reevaluate our segment definitions in the future.

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

Three Months Ended September 30,

Intersection

Highway

Total

2017

2016

2017

2016

2017

2016

Revenue

$
2,852

$
2,452

$
772

$
930

$
3,624

$
3,382
Gross profit

2,577

2,291

445

277

3,022

2,568
Amortization of intangible assets

90

—

—

—

90

—
Intangible assets

2,569

2,842

827

—

3,396

2,842

	Three Months Ended September 30,
	Intersection				Highway				Total
	2022		2021		2022		2021		2022		2021

Revenue	$	2,660	$	2,677	$	495	$	595	$	3,155	$	3,272
Gross profit		2,487		2,456		110		231		2,597		2,687
Amortization of intangible assets		105		105		93		95		198		200
Intangible assets		1,652		1,260		1,146		1,499		2,798		2,759

Nine Months Ended September 30,

Intersection

Highway

Total

2017

2016

2017

2016

2017

2016

Revenue

$
6,970

$
7,053

$
3,213

$
4,244

$
10,183

$
11,297
Gross profit

6,266

6,543

1,883

2,058

8,149

8,601
Amortization of intangible assets

270

—

—

—

270

—
Intangible assets

2,569

2,842

827

—

3,396

2,842

	Nine Months Ended September 30,
	Intersection				Highway				Total
	2022		2021		2022		2021		2022		2021

Revenue	$	6,098	$	7,206	$	2,628	$	2,833	$	8,726	$	10,039
Gross profit		5,564		6,617		1,164		1,304		6,728		7,921
Amortization of intangible assets		345		293		258		286		602		579
Intangible assets		1,652		1,260		1,146		1,499		2,798		2,759

1319

Note K:L: Restructuring and Exit Activities

In the third quarter of 2016, in order to streamline our operating and cost structure, we initiated the closure of our wholly-owned subsidiaries, Image Sensing Systems HK Limited (ISS HK) in Hong Kong and Image Sensing Systems (Shenzhen) Limited (ISS WOFE) in China. During 2020, we initiated the closure of Image Sensing Systems EMEA Limited (ISS UK) and Image Sensing Systems Holdings Limited (ISS Holdings). At September 30, 2021, Image Sensing Systems (Shenzhen) Limited was fully closed. We incurred $10,000 and $23,000 for these entities' closure costs in the nine-month periods ended September 30, 2022 and September 30, 2021, respectively.

In the second quarter of 2021, the Company began the process of forming a subsidiary in Chennai, India. Autoscope Technologies India Private Limited ("Autoscope India") was legally formed on October 14, 2021. Autoscope India's operations will solely focus on research and development.

Note M: Long-term Debt

Paycheck Protection Program Loan

Under the Paycheck Protection Program ("PPP"), the United States Small Business Administration ("SBA") approved the Company's application to receive a loan in the amount of $923,700 (the "PPP Loan"). The PPP was established under the congressionally approved Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the SBA. The PPP Loan to the Company was made through BMO Harris Bank N.A. (the "Lender"). On April 21, 2020, the Company's Board of Directors approved the PPP Loan, and the Company signed the promissory note (the "PPP Note") evidencing the PPP Loan, which was dated as of April 17, 2020. The Lender distributed the $923,700 of proceeds of the PPP Loan to the Company on April 22, 2020.

The term of the PPP Loan was 24 months after the date of the PPP Note (the "Maturity Date"). The annual interest rate on the PPP Loan was 1.00%. No payments of principal or interest were due during the nine months beginning on the date of the PPP Note (the "Deferred Period"). The Company's obligations under the PPP Note were not secured by a security interest in the Company's assets. The PPP Note required the Lender's consent if the Company wanted to reorganize, merge, consolidate, or otherwise change its ownership or structure. The PPP Note contained customary events of default by the Company relating to, among other things, payment defaults and the breach of representations and warranties or other provisions of the PPP Note. Upon a default by the Company under the PPP Note, the Lender could have accelerated the Company's obligations under the PPP Note and pursued its rights against the Company under applicable law, including by filing suit and obtaining a judgment against the Company.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans made under the PPP after 24 weeks if the recipients use the PPP loan proceeds for eligible purposes, including payroll costs, mortgage interest, rent or utility costs and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. On February 2, 2021, the Company was notified by the Lender that the Lender had received payment in full of the PPP Loan from the United States government, and the Company's PPP Loan had been forgiven. The Company recognized the amount of the PPP Loan principal and accrued interest forgiven totaling approximately $931,000 as other non-operating income in the first quarter of ~~2016~~,2021.

Real Property Bank Loan

On December 10, 2021, ISNS entered into a Business Loan Agreement (the "Loan Agreement") with Coulee Bank (the "Bank") and issued a promissory note to the Bank (the "Note") in the original principal amount of $1,742,500 (the "Loan") to finance the purchase of the Company's Minnesota headquarters located at 1115 Hennepin Avenue, Minneapolis, Minnesota (the "Real Property").

The Note has a term of five years and bears interest at the fixed annual rate of 3.95% unless ISNS defaults under the terms of the Note, in which case a higher interest rate will go into effect calculated as provided in the Note. The Note is payable in 59 consecutive monthly payments of principal and interest of $10,566, with the first payment due on January 10, 2022 and one final payment consisting of the balance of the entire remaining principal amount together with all accrued and unpaid interest, estimated at $1,438,256, due and payable on December 10, 2026. There is no prepayment penalty unless ISNS finances the Loan with another lender, in which case ISNS would be obligated to pay a prepayment penalty to the Bank equal to 1% of the unpaid principal.

Upon the occurrence of an event of default under the Loan Agreement, all indebtedness of ISNS to the Bank immediately will become due and payable, all without notice of any kind to ISNS, except that in the case of an event of default of the type described in the "Insolvency" subsection of the Loan Agreement, such acceleration will be automatic and not optional. In addition, upon a default, the Bank will have all the rights and remedies provided in the or available at law, in equity, or otherwise.

Under the Mortgage granted by ISNS to the Bank (the "Mortgage") dated as of December 10, 2021, ISNS mortgaged and conveyed to the Bank, with power of sale, all of ISNS's right, title, and interest in and to the Real Property, together with all existing or subsequently erected or affixed buildings and all improvements and fixtures; and all easements, rights of way, and appurtenances. The events of default under the Mortgage are similar to those under the Loan Agreement and the Note and are in addition to those under the Loan Agreement and the Note.

As provided in the Assignment of Rents between ISNS and the Bank (the "Assignment") dated as of December 10, 2021, ISNS granted to the Bank a continuing security interest in, and conveyed to the Bank, all of ISNS's right, title, and interest in and to the rents from the Real Property. The Assignment provides that unless and until the Bank exercises its right to collect the rents as provided in the Assignment and so long as there is no default under the Assignment, ISNS may remain in possession and control of and operate and manage the Real Property and collect the rents. The events of default under the Assignment are similar to those under the Loan Agreement, the Note, and the Mortgage and are in addition to those under the Loan Agreement, the Note, and the Mortgage. Other than the lease for the billboards on the Real Property, which TJ&Z assigned to ISNS, there are currently no tenants in the Real Property and no leases or other similar agreements with prospective tenants contemplated.

In connection with the Loan, the Company ~~implemented restructuring plans in Canada. Because~~incurred and capitalized approximately $13,000 of ~~these actions, restructuring charges~~debt issuance costs which will be amortized as additional interest expense over the life of ~~approximately $126,000~~ ~~were recorded in~~ the ~~first nine months~~Loan and are presented as a reduction to the long-term debt balance.

Long-term Debt Maturities

Maturities of ~~2016~~ ~~related to employee terminations.~~

~~The following table shows the restructuring activity~~long-term debt, excluding deferred debt issuance costs, for the ~~nine~~ ~~months ended~~ ~~September 30, 2016~~ ~~(in~~next five fiscal years are as follows (dollars in thousands):

	Long-term Debt Maturities
2022	$	15
2023		60
2024		63
2025		65
2026		1,496
Total Long-term Debt Maturities	$	1,699

Facility Costs

Termination

and Contract

Benefits

Termination

Total

Balance at January 1, 2016

$
—

$
—

$
—

Charges

126

—

126

Payments/settlements

—

—

—

Balance at March 31, 2016

$
126

$
—

$
126

Payments/settlements

(93
)

—

(93
)
Balance at June 30, 2016

$
33

$
—

$
33

Payments/settlements

(33
)

—

(33
)
Balance at September 30, 2016

—

—

—

~~No restructuring charges were recorded in the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017~~.

Note L:N: Commitments and Contingencies

Litigation

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with GAAP, we record a liability in our Consolidated Financial Statements with respect to any of these matters when it is both probable ~~that~~that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to any currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our results of operations, financial position or cash flows. We expense legal costs as incurred.

~~On May 5, 2016, Econolite,~~

Note O: Risks and Uncertainties

In December 2019, the outbreak of a then novel strain of coronavirus, called COVID-19, originated in Wuhan, China, and has since spread worldwide, including to the U.S. To date, the COVID-19 pandemic has caused widespread disruptions to the U.S. and global economy and has contributed to significant volatility, negative pressure in financial markets, and disruptions in supply chains. The global impact of the outbreak is continually evolving and, as additional cases and variants of the virus are identified, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel, and mandatory closures of businesses. Certain states and cities, including where we or the third parties with whom we engage operate, have also reacted by instituting quarantines, restrictions on travel, “stay at home” rules, restrictions on types of business that may continue to operate, and restrictions on the types of construction projects that may be undertaken.

Although the COVID-19 restrictions imposed have been eased in many cases, the extent to which the COVID-19 pandemic impacts our ~~exclusive North American manufacturer~~business, financial condition and ~~distributor, served a complaint~~results of operations will depend on ~~us for a lawsuit filed by Econolite~~future developments, which are highly uncertain and cannot be predicted with any confidence, including the scope, severity and duration of the pandemic; the actions taken to contain the pandemic or mitigate its impact, including the adoption, effectiveness, and availability of COVID-19 vaccines; the effect of any relaxation of current restrictions in the ~~Superior Court~~community and regions in which we, our customers and end users do business; the direct and indirect economic effects of the ~~State~~pandemic and containment measures; and the emergence and severity of ~~California for the County~~additional COVID-19 variants. The rapid development and fluidity of ~~Orange. The complaint asserted claims against us under the Manufacturing, Distributing and Technology License Agreement,~~this situation precludes any prediction as ~~amended, with Econolite (the "Econolite Agreement") for breach of contract and breach of implied covenant of good faith and fair dealing and sought specific performance related~~ to the ~~transition~~full adverse impact of ~~North American RTMS sales~~the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic has affected, and ~~marketing activities from Econolite~~may continue to usadversely affect, our business, financial condition and results of operations, and it has had, and probably will continue to have, the effect of exacerbating many of the risks described in ~~July 2014. In the complaint, Econolite requested damages from us in an amount to be proven at trial and sought certain other remedies. On May 27, 2016, we removed the case~~this Quarterly Report on Form 10-Q including, but not limited to, the Federal District Court, District of Central California. On November 15, 2016, Econolite and the Company entered into an Arbitration Agreement. On November 16, 2016, Econolite voluntarily dismissed all of its claims against the Company in the U.S. District Court but filed a demand for arbitration with JAMS (which is an alternative dispute resolution provider), asserting the same claims against the Company that it had asserted in the lawsuit. Arbitration commenced on November 16, 2016, and it remains ongoing. We believe that Econolite's claims are without merit, and we plan to vigorously defend against them. However, we cannot predict the outcome of this matter at this time or whether it will have a material adverse impact on our business prospects, financial condition, operating results or cash flow.following:

•		We currently rely on third parties to, among other things, manufacture, supply and market our products and supply other goods and services to run our business. If any such third party is adversely impacted by restrictions resulting from the COVID-19 pandemic, including staffing shortages, production slowdowns, the closure of facilities, and disruptions in delivery systems, our supply chain may be disrupted, which could limit our ability to manufacture our products and conduct research and development.
•		We have established a hybrid work-from-home policy for all employees, other than those who are performing or supporting business-critical operations or other essential activities. Our increased reliance on personnel working from home has not negatively impacted productivity or disrupted, delayed or otherwise adversely impacted our business.
•		The trading prices for our common stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through any sales of our common stock, or such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the COVID-19 pandemic or other developments and events could materially and adversely affect our business and the value of our common stock.

1422

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

~~Overview~~Reorganization. On July 21, 2021, a holding company reorganization was completed (the “Reorganization”) in which Image Sensing Systems, Inc. ("ISNS") became a wholly-owned subsidiary of the new parent company named “Autoscope Technologies Corporation” ("Autoscope"), which became the successor issuer to ISNS. As a result of the Reorganization, Autoscope replaced ISNS as the public company trading on the Nasdaq Stock Market under the ticker symbol “AATC,” and outstanding shares of ISNS’s common stock automatically converted into shares of common stock of Autoscope.As used in this Quarterly Report Form 10-Q, the "Company", "we", "us" and "our" or its management or business at any time before the effective date of the Reorganization refer to those of ISNS as the predecessor company and its wholly-owned subsidiaries and thereafter to Autoscope and its wholly-owned subsidiaries, except as otherwise specified or to the extent the context otherwise indicates. The Reorganization is intended to be a tax-free transaction for U.S. federal income tax purposes for the Company’s shareholders.Autoscope was incorporated on April 23, 2021 under the laws of the State of Minnesota, and ISNS was incorporated in Minnesota on December 20, 1984.

General. We are a leading provider of above-ground detection products and solutions for the intelligent transportation systems ~~("ITS"~~(“ITS”) industry. Our family of products, which we market as ~~Autoscope®~~Autoscope® video or video products (“Autoscope”), ~~and RTMS®~~RTMS® radar or radar products ~~("RTMS"~~(“RTMS”), and IntellitraffiQ® or iQ products, provides end users with the tools needed to optimize traffic flow and enhance driver safety. Our technology analyzes signals from sophisticated sensors and transmits the information to management systems and controllers or directly to users. Our products provide end users with complete solutions for the intersection and transportation markets.

Our technology is a process in which software, rather than humans, examines outputs from various types of sophisticated sensors to determine what is happening in a field of view. In the ITS industry, this process is a critical component of managing congestion and traffic flow. In many cities, it is not possible to build roads, bridges and highways quickly enough to accommodate the increasing congestion levels. OnDuring 2020, congestion levels decreased significantly as a result of COVID-19 related government lockdowns, although automobile travel has rebounded in many areas, causing congestion levels to begin returning to previous levels (per INRIX 2020 Global Traffic scorecard). In 2021, on average, United States commuters ~~spend~~ 42lost 36 hours a year ~~stuck~~ in ~~traffic, and~~ congestion, ~~costs motorists $160~~ ~~billion a year.~~which cost an average of $564 per driver in wasted time (per INRIX 2021 Global Traffic scorecard). We believe this growing use of vehicles will make our ITS solutions increasingly necessary to complement existing and new roadway infrastructure to manage traffic flow and optimize throughput.

We believe our solutions are technically superior to those of our competitors because they have a higher level of accuracy, limit the occurrence of false detection, are generally easier to install with lower costs of ownership, work effectively in a multitude of light and weather conditions, and provide end users the ability to manage inputs from a variety of sensors for a number of tasks. It is our view that the technical advantages of our products make our solutions well suited for use in ITS markets.

We believe the strength of our distribution channels positions us to increase the penetration of our technology‑driven solutions in the marketplace. We market our Autoscope video products in the United States, Mexico, Canada and the Caribbean through an exclusive ~~agreement~~agreements with Econolite Control Products, Inc. ~~("Econolite"~~(“Econolite”), which we believe is the leading distributor of ITS intersection control products in these markets.

We market the RTMS radar systems to a network of distributors ~~in North America, the Caribbean and Latin America.~~globally. On a limited basis, we may sell directly to the end ~~user in these geographic areas.~~user. We market our Autoscope video ~~and RTMS radar~~ products outside of the United States, Mexico, Canada and the Caribbean through a combination of distribution and direct sales channels through our ~~offices~~office in ~~Spain and Romania.~~Spain. Our end users primarily include governmental agencies and municipalities.

The following discussion of period-to-period changes and trends in financial statement results under "Management's Discussion and Analysis of Financial Condition and Results of Operations" aligns with the financial statement presentation discussed above.

Trends and Challenges in Our Business

We believe the expected growth in our business can be attributed primarily to the following global trends:

worsening traffic caused by increased numbers of vehicles in metropolitan areas without corresponding expansions of road infrastructure and the need to automate safety, security and access applications for automobiles and trucks, which has increased demand for our products;
advances in information technology, which have made our products easier to market, implement and ~~implement;~~integrate;
the continued funding allocations for centralized traffic management services and automated enforcement schemes, which have increased the ability of our primary end users to implement our products; and
general increases in the cost effectiveness of electronics, which make our products more affordable for end users.

We believe our continued growth primarily depends upon:

continued adoption and governmental funding of ITS and other automated applications for traffic control, safety and enforcement in developed countries;
a propensity by traffic engineers to implement lower cost technology-based solutions rather than civil engineering solutions such as widening roadways;
countries in the developing world adopting above-ground detection technology, such as video or radar, instead of in-pavement loop technology to manage traffic; and

our ability to develop new products that provide increasingly accurate information and enhance the end users' ability to cost-effectively manage traffic and environmental issues.

Because the majority of our end users are governmental entities, we are faced with challenges related to potential delays in ~~purchase~~purchasing decisions by those entities and changes in budgetary constraints. These contingencies could result in significant fluctuations in our revenue ~~between~~among periods. The ongoing economic environment in Europe and the United States, isthe COVID-19 pandemic declared in March 2020 and the outbreak of new COVID-19 variants are further adding to the unpredictability of ~~purchase~~purchasing decisions, creating more delays than usual and decreasing governmental budgets, and ~~it is~~they are likely to continue to affect our revenue.

Key Financial Terms and Metrics

Revenue. We derive revenue from two sources: (1) royalties received from Econolite for sales of the Autoscope video systems in the United States, Mexico, Canada and the Caribbean and (2) revenue received from the direct sales of our RTMS radar systems worldwide and our Autoscope video systems in Europe and Asia. Autoscope video royalties are calculated using a profit sharing model ~~where~~in which the gross profits on sales of product made through Econolite are shared equally with Econolite. This royalty arrangement has the benefit of decreasing our cost of revenues and our selling, marketing and product support expenses because these costs and expenses are borne primarily by Econolite. Although this royalty model has a positive impact on our gross margin, it also negatively impacts our total revenue, which would be higher if all the sales made by Econolite were made directly by us. The royalty arrangement is exclusive under athe long-term ~~agreement.~~Manufacturing, Distributing and Technology Agreement dated as of June 11, 1991, as amended (the “Econolite Agreement”), between the Company and Econolite.

Cost of Revenue. Software amortization is the sole cost of revenue related to royalties, as virtually all manufacturing, warranty and related costs are incurred by Econolite. Cost of revenue related to product sales consists primarily of the amount charged by our third party contractors to manufacture hardware ~~platforms, which is~~products, whose costs are influenced mainly by the cost of electronic components. The cost of revenue also includes logistics costs, estimated expenses for product warranties, ~~restructuring costs~~ and inventory ~~reserves.~~obsolescence. The key metric that we follow is achieving certain gross margin percentages on product sales by ~~geographic region and to a lesser extent by product line.~~

operating segment.

Operating Expenses. Our operating expenses fall into three categories: (1) selling, marketing and product support; (2) general and administrative; and (3) research and development. Selling, marketing and product support expenses consist of various costs related to sales and support of our products, including salaries, benefits and commissions paid to our personnel; commissions paid to third parties; travel, trade show and advertising costs; ~~second-tier~~ technical support for Econolite; and general product support, where applicable. General and administrative expenses consist of certain corporate and administrative functions that support the development and sales of our products and provide an infrastructure to support future growth. These expenses include management, supervisory and staff salaries and benefits; legal and auditing fees; travel; rent; and costs associated with being a public company, such as board of director fees, listing fees and annual reporting expenses. Research and development expenses consist mainly of salaries and benefits for our engineers and third party costs for consulting and prototyping. We measure all operating expenses against our annually approved budget, which is developed with achieving a certain operating margin as a key focus. ~~Also included~~We also include any restructuring costs in operating ~~expenses are any restructuring costs.~~expenses.

Non-GAAP Operating ~~Measure.~~ Measures. We provide certain non-GAAP financial information as supplemental information to financial measures calculated and presented in accordance with GAAP (Generally Accepted Accounting Principles in the United States). This non-GAAP information excludes the impact of depreciating fixed assets and amortizing intangible assets, and ~~depreciation, and~~it may exclude other non-recurring items. Management believes that this presentation facilitates the comparison of our current operating results to historical operating results. Management uses this non-GAAP information to evaluate short-term and long-term operating trends in our core operations. Non-GAAP information is not prepared in accordance with GAAP and should not be considered a substitute for or an alternative to GAAP financial measures and may not be computed the same as similarly titled measures used by other companies.

Reconciliations of GAAP income from operations to non-GAAP income from operations are as follows (in thousands):

	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,				Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021

Income from operations	$	870	$	496	$	1,361	$	1,401	$	796	$	709	$	964	$	2,024
Adjustments to reconcile to non-GAAP income
Amortization of intangible assets										198		200		602		579
Depreciation		64		74		191		223		34		32		109		112
Amortization of intangible assets		90		—		270		—
Restructuring charges		—		—		—		126
Non-GAAP income from continuing operations	$	1,024	$	570	$	1,822	$	1,750
Non-GAAP income from operations									$	1,028	$	941	$	1,675	$	2,715

Seasonality. Our quarterly revenues and operating results have varied significantly in the past due to the seasonality of our business. Our first quarter generally is the weakest due to weather conditions that make roadway construction more difficult in parts of North America, Europe and northern Asia. We expect such seasonality to continue for the foreseeable future. Additionally, our international revenues regularly contain individually significant sales. This can result in significant variations of revenue between periods. Accordingly, we believe that quarter-to-quarter comparisons of our financial results should not be relied upon as an indication of our future performance. No assurance can be given that we will be able to achieve or maintain profitability on a quarterly or annual basis in the future.

Segments. We currently operate in two reportable segments: Intersection and Highway. Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. ~~The~~ RTMS isand IntellitraffiQ are our radar product ~~line,~~lines, and revenue consists of sales to external customers. Radar products are normally sold in the Highway ~~segment.~~segment.As a result of business model changes and modifications in how we manage our business, we may reevaluate our segment definitions in the future.

The following tables set forth selected unaudited financial information for each of our reportable segments (in thousands):

Three Months Ended September 30,

Intersection

Highway

Total

2017

2016

2017

2016

2017

2016

Revenue

$
2,852

$
2,452

$
772

$
930

$
3,624

$
3,382
Gross profit

2,577

2,291

445

277

3,022

2,568
Amortization of intangible assets

90

—

—

—

90

—
Intangible assets

2,569

2,842

827

—

3,396

2,842

	Three Months Ended September 30,
	Intersection				Highway				Total
	2022		2021		2022		2021		2022		2021

Revenue	$	2,660	$	2,677	$	495	$	595	$	3,155	$	3,272
Gross profit		2,487		2,456		110		231		2,597		2,687
Amortization of intangible assets		105		105		93		95		198		200
Intangible assets		1,652		1,260		1,146		1,499		2,798		2,759

	Nine Months Ended September 30,
	Intersection				Highway				Total
	2022		2021		2022		2021		2022		2021

Revenue	$	6,098	$	7,206	$	2,628	$	2,833	$	8,726	$	10,039
Gross profit		5,564		6,617		1,164		1,304		6,728		7,921
Amortization of intangible assets		345		293		258		286		602		579
Intangible assets		1,652		1,260		1,146		1,499		2,798		2,759

Nine Months Ended September 30,

Intersection

Highway

Total

2017

2016

2017

2016

2017

2016

Revenue

$
6,970

$
7,053

$
3,213

$
4,244

$
10,183

$
11,297
Gross profit

6,266

6,543

1,883

2,058

8,149

8,601
Amortization of intangible assets

270

—

—

—

270

—
Intangible assets

2,569

2,842

827

—

3,396

2,842

Results of Operations

The following ~~table sets~~tables set forth, for the periods indicated, certain statements of operations data as a percent of total revenue and gross profit on product sales and royalties as a percentage of product sales and royalties, respectively.

	Three-Month Periods Ended September 30,				Three-Month Periods Ended September 30,
	2017		2016		2022		2021
Product sales	30.9	%	36.9	%	17.4	%	24.6	%
Royalties	69.1		63.1		82.6		75.4
Total revenue	100.0		100.0		100.0		100.0
Gross profit - product sales	54.3		34.8		17.3		40.4
Gross profit - royalties	96.4		100.0		96.0		95.7
Selling, general and administrative	39.5		42.5		38.7		40.8
Research and development	19.9		18.8		18.4		19.7
Income from operations	24.0		13.9		25.2		21.7
Other income, net					0.0		0.0
Income tax expense	—		—		4.8		2.9
Net income	24.0		13.9		20.4		18.7

	Nine-Month Periods Ended September 30,
	2022		2021
Product sales	33.4	%	32.6	%
Royalties	66.6		67.4
Total revenue	100.0		100.0
Gross profit - product sales	42.2		44.3
Gross profit - royalties	94.6		95.6
Selling, general and administrative	48.5		42.0
Research and development	17.6		16.7
Income from operations	11.0		20.2
Other income, net	0.0		9.2
Income tax expense	2.1		4.5
Net income	8.4		24.9

1727

Nine-Month Periods Ended
September 30,

2017

2016

Product sales
          41.1
%

          45.9
%

Royalties
  58.9

          54.1

Total revenue
        100.0

        100.0

Gross profit - product sales
          57.9

          48.0

Gross profit - royalties
        95.5

        100.0

Selling, general and administrative
          44.4

          44.6

Research and development
          22.3

          18.0

Restructuring
            —

            1.1

Income from operations
          13.7

            12.2

Income tax expense
            —

—

Net income
          13.7

         12.1

Total revenue ~~increased~~for Autoscope Technologies Corporation ("AATC," the "Company," "us," "we," or "our"), which includes the results of Image Sensing Systems, Inc., a wholly-owned subsidiary of AATC ("ISS"), decreased to $~~3.6~~$3.2 million in the three-month period ended September 30, ~~2017~~,2022 from $~~3.4~~$3.3 million in the same period in ~~2016~~, ~~an increase~~2021, a decrease of ~~7.2%~~3.6%, and decreased to $~~10.2~~$8.7 million in the first nine months of ~~2017~~2022 from $~~11.3~~ ~~million in the first~~ ~~nine~~ ~~months of~~ ~~2016~~, ~~a decrease~~ of ~~9.9%. Royalty income~~ ~~increased~~ ~~to $2.5~~ ~~million in the~~ ~~third quarter~~ of ~~2017~~ ~~from $2.1~~ ~~million in the~~ ~~third quarter~~ of ~~2016~~, ~~an increase~~ of ~~17.4%, and~~ ~~decreased~~ ~~to $6.0~~ ~~million in the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~from $6.1~~ ~~million in the first~~ ~~nine~~ ~~months of~~ ~~2016~~, ~~a decrease~~ of ~~1.9%~~.

~~Product sales~~ ~~decreased~~ ~~to $1.1~~ ~~million in the~~ ~~third quarter~~ of ~~2017~~ ~~from $1.2~~ ~~million in the~~ ~~third quarter~~ of ~~2016~~, ~~a decrease~~ of ~~10.3%, and~~ ~~decreased~~ ~~to $4.2~~ ~~million in the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~from $5.2~~$10.0 million in the same period in ~~2016~~, 2021, a decrease of ~~19.2%~~13.1%.

Royalty revenue increased to $2.6 million in the third quarter of 2022 from $2.5 million in the third quarter of 2021, an increase of 5.7%, and decreased to $5.8 million in the first nine months of 2022 from $6.8 million in the first nine months of 2021, a decrease of 14.1%. The increase in third quarter royalty revenue is primarily due to higher Autoscope Vision product sales resulting in higher royalties, partially offset by higher component costs purchased during the second quarter of 2022. The Company purchased certain components to avoid manufacturing disruptions. The decrease in royalty revenue in the first nine months of 2022 compared to the first nine months of 2021 is primarily due to component supply chain issues.

Product sales decreased to $0.5 million in the third quarter of 2022 from $0.8 million in the third quarter of 2021, a decrease of 31.9%, and decreased to $2.9 million in the first nine months of 2022 from $3.3 million in the first nine months of 2021, a decrease of 11.0%. The decrease in third quarter and year-to-date 2022 product sales ~~was~~compared to product sales in the third quarter and first nine months of 2021 is primarily ~~driven by a slower recovery~~the result of ~~the European market~~labor shortages causing installation delays and ~~of funding of transportation initiatives.~~impacting project timing.

Revenue for the Intersection segment ~~increased~~ ~~to $2.9~~ ~~million in the~~ ~~three-month~~ ~~period ended~~ ~~September 30, 2017, from $2.5~~ ~~million in the~~ ~~three-month~~ ~~period ended~~ ~~September 30, 2016~~, ~~an increase~~ of ~~16.3%. The increase can be primarily attributed to a significant royalty sale into Miami-Dade County in~~for the third quarter ~~2017.~~of 2022 remained flat at $2.7 million compared to the same period in 2021. Revenue for the Intersection segment decreased to $~~7.0~~$6.1 million in the first nine months of ~~2017~~2022 from $~~7.1~~$7.2 million in the first nine months of ~~2016~~, 2021, a decrease of~~1.2%~~ 15.4%.

Revenue for the Highway segment decreased to $~~772,000~~$0.5 million in the ~~three-month~~ ~~period~~third quarter of 2022 from $0.6 million in the third quarter of 2021, a decrease of 16.8%. Revenue for the Highway segment decreased to $2.6 million in the first nine months of 2022 from $2.8 million in the first nine months of 2021, a decrease of 7.2%.

Gross margin percent for royalty sales for the three months ended September 30, ~~2017~~,2022 increased to 96.0% from $~~930,000~~95.7% in the ~~three-month~~same period in 2021. Gross profit from royalties increased by $0.1 million, or 5.8%, in the three months ended September 30, ~~2016~~, ~~a decrease~~ of ~~17.0%~~.2022 compared to the prior year period. Gross margin percent for royalty sales for the nine months ended September 30, 2022 decreased to 94.6% from 95.6% in the same period in 2021. The decrease in royalty gross margin percent is primarily attributable to the sourcing of higher cost components in the first quarter of 2022 to avoid manufacturing disruptions during the third quarter of 2022.

Gross margin percent for product sales decreased to 17.3% in the three months ended September 30, 2022 from 40.4% in the three months ended September 30, 2021. The dollar amount of product sales gross profit decreased $0.2 million, or 71.0%, in the three months ended September 30, 2022 compared to the prior year period. Gross margin percent for product sales decreased to 42.2% in the first nine months of 2022 from 44.3% in the first nine months of 2021. The decrease in product gross margin percent was primarily the result of an increase in electronic component costs during 2022 attributable to supply chain shortages.

Selling, general and administrative expense was $1.2 million, or 38.7% of total revenue, in the third quarter of 2022 compared to $1.3 million, or 40.8% of total revenue, in the third quarter of 2021. Selling, general and administrative expenses remained flat at $4.2 million for the first nine months of 2022 and 2021, which was 48.5% of total revenue, in the first nine months of 2022 compared to 42.0% of total revenue, in the first nine months of 2021. The decrease in third quarter 2022 selling general and administrative expense compared to the third quarter of 2021 is primarily due to lower salaries and benefits attributable to lower headcount and lower rent expense.The increase in selling, general and administrative expense for the first nine months of 2022 compared to the prior year period is primarily due to the increased stock-based compensation expense and increased costs associated with resumed travel, which is partially offset by lower salaries and benefits attributable to lower headcount in the first nine months of 2022.

Research and development expense remained flat at $0.6 million in the third quarter of 2022 and 2021, or 18.4% of total revenue, in the three-month period ended September 30, ~~2017, is primarily attributable~~2022, and 19.7% of total revenue, in the three-month period ended September 30, 2021. Research and development expense decreased to ~~lower volume sales into North America~~$1.5 million, or 17.6% of total revenue, in the nine-month period ended September 30, 2022 from $1.7 million, or 16.7% of total revenue, in the nine-month period ended September 30, 2021. The decrease in third quarter 2022 research and development expenses compared to the ~~prior year period.~~ ~~Revenue~~third quarter of 2021 is primarily due to higher capitalized software development costs.

The year-over-year decrease in research and development expense for the ~~Highway segment~~ ~~decreased~~first nine months of 2022 compared to $~~3.2~~ ~~million~~the same period in 2021 is primarily due to higher capitalized software development costs in the nine-month period ended September 30, 2022 of $0.5 million compared to capitalized software costs of $0.2 million for the same period in 2021.

The Company recognized other income of $0.9 million from the forgiveness of the Paycheck Protection Program loan and accrued interest during the first nine months of ~~2017~~ ~~from $4.2~~ ~~million in the first~~ ~~nine~~ ~~months of~~ ~~2016~~, ~~a decrease~~ of ~~24.3%~~. ~~The decrease in revenue in the Highway segment~~2021. There were no comparable items in the first nine months of ~~2017 compared to the prior year period is due to an individually significant radar project into the Middle East that~~2022.

There was ~~recognized~~$0.2 million and less than $0.1 million of income tax expense recorded in the ~~prior year period with no comparable sale in the~~ ~~nine months endedSeptember 30, 2017, and lower volume sales into North America compared to the prior year period.~~

~~Gross profit for product sales~~ ~~increased~~ to ~~54.3%~~ ~~in the~~ three months ended September 30, ~~2017, from~~ ~~34.8%~~ ~~in the~~ ~~three months ended September 30, 2016. Product sales gross profit increased $173,000 or~~ ~~39.8% in the~~ ~~three~~ ~~months~~ ~~ended~~ ~~September 30, 2017, compared to the prior year period. Gross profit for product sales~~ ~~increased~~ to ~~57.9% in the first~~ ~~nine~~ ~~months~~2022 and 2021, respectively, and $0.3 million and $0.5 million of ~~2017~~ ~~from~~ ~~48.0%~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2016. Product sales gross profit decreased $63,000 or 2.5%~~income tax expense recorded in the nine months ended September 30, ~~2017, compared to the prior year period. The increase in gross margin percent~~2022 and 2021, respectively.

Consolidated net income was $0.6 million, or $0.12 per basic share and diluted share, in the ~~nine~~ ~~months ended~~ ~~September 30, 2017, is primarily due to a reduction in warranty reserve related to the expired warranty coverage for a discontinued legacy product.~~ ~~Additionally, the geographic sales mix of our product sales can influence margins, as product sold in some jurisdictions have higher margins.~~ ~~We anticipate that gross profit for our product sales will be similar in~~ ~~2017~~ ~~as compared to~~ ~~2016~~.

~~Gross profit for royalty sales for the three months ended~~ ~~September 30, 2017, decreased to~~ ~~96.4%~~ ~~from~~ ~~100.0%~~ ~~in the same~~three-month period ~~in 2016. Gross profit from royalties increased $281,000 or~~ ~~13.2% in the three months ended~~ ~~September 30, 2017, compared to the prior year period. Gross profit from royalty sales decreased to~~ ~~95.5% in the first nine months 2017 from~~ ~~100.0~~% in the first nine months 2016. Gross profit from royalties decreased $389,000 or 6.4% compared to the prior year period. The decrease in royalty gross margin percent is due to the amortization of software capitalization costs related to the Autoscope Vision product released for sale in October 2016. We expect that royalty gross profit percentage will decrease in ~~2017~~ ~~compared to~~ ~~2016~~ ~~due to this amortization.~~

~~Selling, general and administrative expense was $1.4~~ ~~million or~~ ~~39.5%~~ ~~of total revenue in the~~ ~~third quarter~~ of ~~2017~~ ~~compared to $1.4~~ ~~million or~~ ~~42.5%~~ ~~of total revenue in the~~ ~~third quarter~~ of ~~2016, and it decreased to $4.5~~ ~~million or~~ ~~44.4%~~ ~~of total revenue in the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~from $5.0~~ ~~million or~~ ~~44.6%~~ ~~of total revenue in the first~~ ~~nine~~ ~~months of~~ ~~2016. The reduction in expense is the result of cost saving measures enacted in~~ ~~2016~~.~~Overall, we anticipate that in~~ ~~2017~~ ~~as compared to~~ ~~2016, selling, general and administrative expense will decrease in dollar amount.~~

~~Research and development expense~~ ~~increased~~ ~~to $722,000~~ or ~~19.9%~~ ~~of total revenue in the~~ ~~three-month~~ ~~period ended~~ ~~September 30, 2017, from $636,000~~ or ~~18.8%~~ ~~of total revenue in the~~ ~~three-month~~ ~~period ended~~ ~~September 30, 2016, and it~~ ~~increased~~ ~~to $2.3~~ ~~million or~~ ~~22.3%~~ ~~of total revenue in the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~from $2.0~~ ~~million or~~ ~~18.0% of total revenue in the first~~ ~~nine~~ ~~months of~~ ~~2016. The increase in research and development expenses is primarily due to lower software capitalization in 2017 compared to the prior year period.~~ ~~We capitalized $305,000 and $871,000~~ ~~of costs associated with software development projects in the three-and nine-month periods~~ ended September 30, ~~2017,~~2022 compared to ~~capitalized software~~net income of ~~$507,000~~$0.6 million, or $0.11 per basic and ~~$1.6 million~~diluted share, in the comparable prior year ~~periods.We anticipate that research~~period. Consolidated net income was $0.7 million, or $0.14 per basic and ~~development costs will increase in dollar amount in~~ ~~2017~~ ~~compared to~~ ~~2016~~.

~~In the first quarter of~~ ~~2016, the Company implemented restructuring plans in Canada. Because of these actions, restructuring charges of approximately $126,000~~ ~~were recorded related to employee terminations~~diluted share, in the ~~first nine months of 2016.~~ ~~There were no restructuring charges recorded in the~~ ~~nine months~~nine-month period ended September 30, ~~2017~~.

~~Consolidated net income from operations was $870,000~~ ~~and $1.4~~ ~~million in the~~ ~~three and nine-month periods ended~~ ~~September 30, 2017, respectively,~~2022 compared to a net income of $~~469,000~~$2.5 million, or $0.47 per basic and $~~1.4~~ ~~million~~diluted share, in the comparable prior year ~~periods.~~ ~~Consolidated net income per basic and diluted share was $0.17~~ ~~and $0.27~~ ~~for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017, respectively, compared to a net income of $0.09~~ ~~and $0.27~~ ~~for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2016, respectively.~~period.

Liquidity and Capital Resources

At September 30, ~~2017~~,2022, we had $~~2.8~~$3.4 million in cash and cash equivalents compared to $~~1.5~~$8.2 million in cash and cash equivalents at December 31, ~~2016~~.2021.

Net cash provided by operating activities was $~~2.2~~$0.3 million in the first nine months of ~~2017~~2022 compared to net cash provided by operating activities of $~~427,000~~$1.5 million in the same period in ~~2016~~.2021. The ~~primary reason for the increase~~decrease in ~~net~~ cash provided by operating activities was a result of a decrease in net income and operating assets and liabilities. To avoid any unforeseen supply chain delays, the Company purchased an increased amount of inventory components in the first nine months of ~~2017~~2022 compared to the prior year. Additionally, the Company agreed to advance funds to fill component gaps in Econolite's production of our Autoscope Vision cameras to avoid any future production delays.

Net cash used for investing activities was $3.0 million for the first nine months of 2022 compared to $0.2 million in the same period in 2021. The increase in the amount of net cash used for investing activities in the first nine months of 2022 compared to the prior year period was primarily due to the ~~timing~~purchase of $4.3 million of debt and equity securities and higher capitalized internal software development costs compared to the ~~payment~~prior year period offset by sales of ~~outstanding payables~~debt and ~~accruals. We anticipate that average receivable collection days in~~ ~~2017~~ ~~will be similar to~~ ~~2016~~ ~~and that they will not have a material impact on our liquidity.~~equity securities of $1.9 million.

Net cash used for ~~continuing investing~~financing activities was $~~981,000~~ ~~for~~$2.0 million in the first nine months of ~~2017~~2022 compared to net cash used for ~~continuing investing~~financing activities of $~~1.7~~1.3 million in the same period in ~~2016~~.2021. The ~~decrease~~increase of the amount of net cash used for ~~continuing investing~~financing activities was due to quarterly cash dividends of $0.12 per share paid to shareholders in each of the first three quarters of 2022, whereas we paid no dividends in the first ~~nine~~ ~~months~~quarter of ~~2017~~ ~~compared to the prior year period is the result of capitalized internal software development costs decreasing compared to the prior year period.~~At ~~September 30, 2017, approximately $38,000~~ ~~of capitalized software costs were in accounts payable.Our planned additions of property and equipment are discretionary, and we do not expect them to exceed historical levels in~~ ~~2016~~.2021.

~~In May 2014, the Company entered into a credit agreement and related documents with Alliance Bank which provided for a revolving line of credit for the Company.~~ ~~The credit agreement and related documents with Alliance Bank (collectively, the "Alliance Credit Agreement") provided up to a $5.0~~ ~~million revolving line of credit bearing interest at a fixed annual rate of~~ ~~3.95~~%. Any advances would have been secured by the Company's inventories, accounts receivable, cash, marketable securities, and equipment. We were subject to certain covenants under the Alliance Credit Agreement. In April 2016, we entered into an agreement with Alliance Bank amending the Alliance Credit Agreement to extend the maturity date from April 1, 2016 to May 12, 2017. We chose not to renew the Alliance Credit Agreement.

We believe that cash and cash equivalents on hand at September 30, ~~2017~~,2022 and cash provided by operating activities will satisfy our projected working capital needs, investing activities, and other cash requirements for ~~the foreseeable future.~~at least one year from September 30, 2022.

Off-Balance Sheet Arrangements

We do not participate in transactions or have relationships or other arrangements with an unconsolidated entity, including special purpose and similar entities, or other off-balance sheet arrangements.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2021. The accounting policies used in preparing our interim Condensed Consolidated Financial Statements as of and for the three and nine months ended September 30, ~~2017~~2022 are set forth elsewhere in this Quarterly Report on Form 10-Q and ~~are the same as~~should be read in conjunction with those described in our Annual Report on Form 10-K.

1929

Cautionary Statement:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events and can be identified by the use of forward-looking words such as "expects," "believes," "may," "will," "should," "intends," "plans," "estimates," or "anticipates" or other comparable terminology. Forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the results described in the forward-looking statements. Factors that might cause such differences include, but are not limited to:

our historical dependence on a single product for most of our revenue;
budget constraints by governmental entities that purchase our products, including constraints caused by declining tax revenue;
the continuing ability of Econolite to sell our products and pay royalties ~~owed;~~owed to us;

the mix of and margin on the products we sell;
our dependence on third parties for manufacturing and marketing our products;
our dependence on single-source suppliers to meet manufacturing needs;
our failure to secure adequate protection for our intellectual property rights;
our inability to develop new applications and product enhancements;
the potential disruptive effect on the markets we serve of new and emerging technologies and applications, including vehicle-to-vehicle communications and autonomous vehicles;
unanticipated delays, costs and expenses inherent in the development and marketing of new products;
our inability to respond to low-cost local competitors;
our inability to properly manage any growth in revenue and/or production requirements;
the influence over our voting stock by affiliates;
our inability to hire and retain key scientific and technical personnel;
the effects of legal matters in which we may become involved;
our inability to achieve and maintain effective internal controls;
our inability to successfully integrate any acquisitions;
tariffs and other trade barriers;
political and economic instability, including continuing volatility in the economic and political environment of the European ~~Union;~~Union and the war in Ukraine;
our inability to comply with international regulatory restrictions over hazardous substances and electronic waste;
disruptions in our supply chains; and
conditions beyond our control such as war, terrorist attacks, health epidemics (including the COVID-19 pandemic caused by the coronavirus) and economic recession.

We caution that the forward-looking statements made in this report or in other announcements made by us are further qualified by the risk factors set forth in Item 1A. toof our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~.2021.

2030

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Approximately 20% of our revenue has historically been derived from shipments to customers outside the United States, and a large portion of this revenue is denominated in currencies other than the U.S. dollar. Our international subsidiaries have functional currencies other than our U.S. dollar reporting currency and, occasionally, transact business in currencies other than their functional currencies. These non-functional currency transactions expose us to market risk on assets, liabilities and cash flows recognized on these transactions.

~~Our~~The strengthening of the U.S. dollar relative to foreign ~~sales and results of operations are subject to~~currencies decreases the ~~impact~~value of foreign ~~currency fluctuations. From time to time, we enter~~currency-denominated revenue and earnings when translated into ~~currency hedges to attempt to lower our exposure to translation gains and losses as well as to limit~~U.S. dollars. Conversely, a weakening of the ~~impact~~U.S. dollar increases the value of foreign ~~currency translation upon the consolidation of our foreign subsidiaries.~~currency-denominated revenue and earnings. A 10%10% adverse change in foreign currency rates ~~if we have not properly hedged,~~ could have a material effect on our results of operations or financial position.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, ~~2017~~,2022, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter covered by this Quarterly Report on Form 10-Q, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2131

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

On May 5, 2016, Econolite, our exclusive North American manufacturer and distributor, served a complaint on us for a lawsuit filed by Econolite in the Superior Court of the State of California for the County of Orange. The complaint asserted claims against us under the Manufacturing, Distributing and Technology License Agreement, as amended, with Econolite (the "Econolite Agreement") for breach of contract and breach of implied covenant of good faith and fair dealing and sought specific performance related to the transition of North American RTMS sales and marketing activities from Econolite to us in July 2014. In the complaint, Econolite requested damages from us in an amount to be proven at trial and sought certain other remedies. On May 27, 2016, we removed the case to the Federal District Court, District of Central California. On November 15, 2016, Econolite and the Company entered into an Arbitration Agreement. On November 16, 2016, Econolite voluntarily dismissed all of its claims against the Company in the U.S. District Court but filed a demand for arbitration with JAMS (which is an alternative dispute resolution provider), asserting the same claims against the Company that it had asserted in the lawsuit. Arbitration commenced on November 16, 2016, and it remains ongoing. We believe that Econolite's claims are without merit, and we plan to vigorously defend against them. However, we cannot predict the outcome of this matter at this time or whether it will have a material adverse impact on our business prospects, financial condition, operating results or cash flow.

Item 1A. Risk Factors

~~Some~~Our results of ~~the risk factors to which we~~operations and ~~our business~~financial condition are subject ~~are~~to numerous risks and uncertainties described ~~in the section entitled "Item 1A. Risk Factors"~~ in our Annual Report on Form 10-K for ~~the~~our fiscal year ended December 31 ~~2016. The risks and uncertainties described~~2021, filed on March 22, 2022. You should carefully consider these risk factors in ~~our Annual Report are not~~conjunction with the ~~only risks we face. Additional risks and uncertainties not presently known to us or that our management currently deems immaterial also may impair our business operations. If~~other information contained in this Quarterly Report. Should any of ~~the~~these risks ~~described were to occur,~~materialize, our business, financial condition ~~operating results~~ and ~~cash flows~~future prospects could be ~~materially adversely affected.~~negatively impacted. As of November 10, 2022, there had been no material changes to the disclosures made in the above-referenced Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~None.~~

Item 3. Defaults Upon Senior Securities

None.

~~None.~~

Item 4. Mine Safety Disclosures

None.

~~None.~~

Item 5. Other Information

None.

~~None.~~

2232

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2017~~:2022:

Exhibit Index

Exhibit Number		Description
~~Exhibit~~ ~~Number~~3.1		~~Description~~Restated Articles of Incorporation of Autoscope Technologies Corporation, incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed on August 12, 2021 (File No. 0-26056) (the "Second Quarter 2021 Form 10-Q").
3.2		Bylaws of Autoscope Technologies Corporation, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated July 21, 2021 (File No. 0-26056).
3.3		Certificate of Designation of Series A Junior Participating Preferred Stock of Autoscope Technologies Corporation, included in Exhibit 3.1 to the Second Quarter 2021 Form 10-Q (File No. 0-26056).
4.1		First Amendment to Rights Agreement dated as of March 1, 2022 by and between Autoscope Technologies Corporation and Continental Stock Transfer & Trust Company, as rights agent, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated March 4, 2022 filed on March 10, 2022 (File NO. 0-26056).
10.1		Employment Agreement dated February 1, 2022 among Autoscope Technologies Corporation, Image Sensing Systems, Inc. and Francis (Frank) G. Hallowell, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 1, 2022 (File No. 0-26056).*
10.2		Form of Stock Option Agreement for Autoscope Technologies Corporation, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 1, 2022 (File No. 0-26056).*
10.3		Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement April 17, 2014 filed by Image Sensing Systems, Inc. (File No. 0-26056).*
10.4		Autoscope Technologies Corporation 2022 Stock Option and Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 10, 2022 (File No. 0-26056).*
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
~~31.2~~		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
~~32.1~~		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2
~~32.2~~		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101
~~101~~		The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017,~~2021, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements (filed herewith).

*Management contract or compensatory plan or agreement.

2333

SIGNATURES

~~SIGNATURES~~

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	~~Image Sensing Systems, Inc.~~Autoscope Technologies Corporation

Dated: November ~~13, 2017~~16, 2022	By:	/s/ ~~Chad A. Stelzig~~Andrew T. Berger
		~~Chad A. Stelzig~~Andrew T. Berger
		~~President and~~Executive Chairman
		(Principal Executive Officer)


Dated: November 16, 2022	By:	/s/ Frank G. Hallowell
		Frank G. Hallowell
		Interim Chief Executive Officer and Chief Financial Officer
			~~(Principal Executive Officer)~~


~~Dated:~~ ~~November 13, 2017~~	~~By:~~	~~/s/ Richard A. Ehrich~~
		~~Richard A. Ehrich~~
		~~Chief~~(Principal Financial Officer
		~~(Principal Financial Officer~~
		and Principal Accounting Officer)

~~EXHIBIT INDEX~~

		34
~~Exhibit No.~~		~~Description~~


~~31.1~~		~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).~~

~~31.2~~		~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).~~

~~32.1~~		~~Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).~~

~~32.2~~		~~Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).~~

~~101~~		~~The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September~~ ~~30, 2017~~, formatted in XBRL (Extensible Business Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements (filed herewith).

	December 31, 2016
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Developed technology	$	3,900	$	(3,900	)	$	—	—
Vision development costs		2,885		(90	)		2,795	8.0
	$	6,785	$	(3,990	)	$	2,795	8.0

	December 31, 2021
								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Useful Life
	Amount		Amortization			Value		(in Years)
Wrong Way development costs	$	228	$	(228	)	$	—	—
Vision development costs		3,107		(1,953	)		1,154	8.0
Echo development costs		1,852		(506	)		1,346	7.0
IntellitraffiQ development costs		468		(409	)		59	4.0
IntelliSight development costs		307		—			307	—
Total	$	5,962	$	(3,096	)	$	2,866

	Number of Shares			Weighted Average Grant Date Fair Value
Awards outstanding December 31, 2016	—		$	—
Granted	95,045			3.08
Vested	(63,045	)		3.15
Expired	—			—
Forfeited	—			—
Awards outstanding at September 30, 2017	32,000		$	2.95

	Three Months Ended September 30,
	Intersection				Highway				Total
	2017		2016		2017		2016		2017		2016

Revenue	$	2,852	$	2,452	$	772	$	930	$	3,624	$	3,382
Gross profit		2,577		2,291		445		277		3,022		2,568
Amortization of intangible assets		90		—		—		—		90		—
Intangible assets		2,569		2,842		827		—		3,396		2,842

				Facility Costs
	Termination			and Contract
	Benefits			Termination		Total

Balance at January 1, 2016	$	—		$	—	$	—
Charges		126			—		126
Payments/settlements		—			—		—
Balance at March 31, 2016	$	126		$	—	$	126

Payments/settlements		(93	)		—		(93	)
Balance at June 30, 2016	$	33		$	—	$	33
Payments/settlements		(33	)		—		(33	)
Balance at September 30, 2016		—			—		—