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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000350868,ITI,"ITERIS, INC.",10-K,2003-06-30,2003-03-31,2003-06-30T21:17:29.000Z,0001047469-03-022912,a2113700z10-k.htm,10-K,829644,0,0,https://www.sec.gov/Archives/edgar/data/350868/000104746903022912/a2113700z10-k.htm,https://www.sec.gov/Archives/edgar/data/350868/000104746903022912/,2002,2002,1

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+ITEM 1. BUSINESS. 
+Overview 
+Odetics, Inc. provides products, systems and services that control and manage the use of public roadways and secure access and safety of public and private
+facilities. Our company was founded in 1969 to supply digital recorders for use in the United States space program. We broadened our information automation product line to include
+time-lapse videocassette recorders for commercial security and surveillance applications through our Gyyr division, which was subsequently incorporated to form our Gyyr Incorporated
+subsidiary. We formed our Zyfer, Inc. subsidiary to develop and manufacture timing and synchronization products for telecommunication networks. Timing and synchronization products are devices
+that contain both hardware and software to synchronize the data streams in telecommunications networks and are used to increase the reliability and operability of such networks. 
+In
+the early 1980s, we established our Odetics Broadcast division, which we later incorporated as Broadcast, Inc. Broadcast developed and supplied software-based systems that
+integrated, controlled and automated the management of multiple classes of equipment used in the operation of a broadcast studio and satellite uplink facility in the television, cable and satellite
+industries. 
+Leveraging
+our expertise in video image processing, we entered into the intelligent transportation systems ("ITS") business with the introduction of a video-based vehicle detection
+system in 1993. In June 1997, we acquired certain assets comprising the Transportation Systems business from Rockwell International, creating our ITS division, which expanded our offerings to
+include advanced traffic management systems and advanced traveler information systems. We incorporated our ITS division as Odetics ITS, Inc. and broadened our systems offerings by acquiring
+Meyer, Mohaddes Associates, Inc. in
+1998. In January 2000, we reincorporated Odetics ITS in Delaware and changed its name to Iteris, Inc. As of June 30, 2003, Odetics owned 74.5% of the outstanding common stock of
+Iteris and 59.1% of the common stock assuming full conversion of the outstanding Series A preferred stock of Iteris. We currently operate Meyer, Mohaddes Associates, Inc. as a
+wholly-owned subsidiary of Iteris. 
+Beginning
+in late 2001, we began divesting certain of our business units in order to reduce our operating expenses and to focus on what we believe to be our core businesses,
+Iteris, Inc. and MAXxess Systems, Inc. In September 2001, we sold the assets of our Gyyr Closed Circuit Television ("CCTV") Products line, which included video recorders and
+equipment that facilitated video switching and multiplexing. Upon completion of this sale, we changed the name of our Gyyr subsidiary to MAXxess Systems, Inc., which currently designs and
+manufactures security management systems that feature a broad array of detection, monitoring and management capabilities for both governmental and commercial customers. 
+In
+March 2003, we decided to cease the development and sale of any new Broadcast products and to sell Zyfer. As a result, we reduced our Broadcast organization to only support
+existing customer contracts for service and support through their expiration dates. In May 2003, we sold substantially all of the assets of Zyfer. 
+After
+giving effect to our divestitures and narrowed focus mentioned above, we currently operate in only two business segments: ITS and Security Products. Our ITS segment consists of
+Iteris, our 59.11% owned subsidiary, and our Security Products segment consists of MAXxess, Inc., our wholly-owned subsidiary. 
+1 
+Iteris, Inc. 
+Iteris, Inc. designs, develops, markets and implements sensors and systems for surface transportation. Using its proprietary software and ITS industry
+expertise, Iteris provides video sensor systems and transportation management and traveler information systems for the ITS industry. The ITS industry is comprised of companies applying a variety of
+technologies to enable the safe and efficient movement of people and goods. Iteris uses its outdoor image recognition software expertise to develop proprietary algorithms for video sensor systems that
+improve vehicle safety and the flow of traffic. Using its knowledge of the ITS industry, Iteris designs and implements transportation management systems that help public agencies reduce traffic
+congestion and provide greater access to traveler information. 
+Iteris'
+proprietary image recognition systems include AutoVue™ and Vantage™. AutoVue is a small windshield mounted sensor that uses proprietary software
+to detect and warn drivers of unintended lane departures. Iteris has approximately 3,000 production AutoVue units that are in use on truck platforms in the European market and are offered as an option
+on certain Actros trucks, which are part of the Daimler group. Iteris believes that AutoVue is a broad sensor platform that, through additional software development, may be expanded to incorporate
+additional safety and convenience features. Vantage is a video vehicle sensing system that detects the presence of vehicles at signalized intersections enabling a more efficient allocation of green
+signal time. 
+Iteris'
+transportation management systems includes the design, development and implementation of its software-based systems that integrate sensors, video surveillance, computers and
+advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews and distribute real-time
+information about traffic conditions. Our services include planning and other engineering for the implementation of transportation related communications systems, analysis and study related to goods
+movement and commercial vehicle operations, and parking systems designs. 
+Sales, Marketing and Principal Customers. Iteris markets and sells its transportation management systems and services
+directly to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts with federal, state, and municipal
+customers provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We use selected members of our engineering team divided on a
+regional basis to serve in sales and business development functions. We do not engage in international ITS sales. Sales of Iteris' systems contracts generally involve long lead times and require
+extensive specification development, evaluation and price negotiations. No single customer of Iteris accounted for more than 10% of our total net sales and contract revenues. 
+Iteris
+sells its Vantage vehicle detection systems primarily through indirect sales channels comprised of independent dealers in the United States and Canada who sell integrated systems
+and related products to the traffic intersection market. The independent dealers for Iteris are primarily responsible for sales, installation and support of Vantage systems. These dealers maintain an
+inventory of demonstration traffic products including the Vantage vehicle detection systems and sell directly to government agencies and installation contractors. These dealers often have
+long-term arrangements with the government agencies in their territory for the supply of various products for the construction and renovation of traffic intersections. Iteris holds
+technical training classes for its dealers and maintains a full-time staff of customer support technicians to provide technical assistance when needed. 
+The
+marketing strategy for AutoVue is to establish it as the leading platform for in vehicle video sensing for trucks and passenger cars. AutoVue is sold directly by Iteris to vehicle
+manufacturers and major automotive suppliers. Iteris also markets to the manufacturers of automobiles through a strategic relationship with Valeo. 
+2 
+Manufacturing and Materials. Iteris uses local manufacturers based near our Anaheim facility to build subassemblies that are
+used in its Vantage products. These subassemblies are delivered to our Anaheim facility where they go through a final assembly and test prior to the shipment to our customers. Iteris' manufacturing
+activities are conducted in approximately 6,000 square feet of space at our Anaheim facility. Most subassemblies used in our products are manufactured by subcontractors who are local to our Anaheim,
+California facilities. Certain of our cameras used in our products have historically been provided by a Japanese supplier who is sole sourced; however, we are currently qualifying other sources of
+supply. Production volume is based upon quarterly forecasts that Iteris readjusts on a monthly basis to control inventory. Iteris subcontracts the manufacture of its AutoVue systems to one
+manufacturer, and our internal processes are limited primarily to testing and final verification. Iteris currently does not manufacture any of the hardware used in the transportation management and
+traveler information systems that it designs and implements. The production facility for Iteris is currently ISO 9001 certified. 
+Customer Support and Services. We provide warranty service for each of our products, as well as follow-up service
+and support, for which we typically charge separately. We view customer support services as a critical competitive factor as well as a revenue source. 
+MAXxess Systems, Inc. 
+MAXxess Systems, Inc. designs, develops and manufactures security management systems that include detection, monitoring and management capabilities for
+both governmental and commercial customers. MAXxess offers software, hardware and other technologies for creating and using electronic access control products such as identification and access badges
+that are based on smart cards and other electronic devices. These products are principally used to control and manage physical access to facilities. We also provide software-based systems and hardware
+used for detection and response of management to dangerous chemicals and gases in and around facilities. 
+During
+fiscal 2003, we introduced our Environmental Security Systems, which integrate our legacy AXxess 202 product family with new detection technologies for toxic chemicals and gases.
+During fiscal 2003, MAXxess further extended its Environmental Security Systems offering by introducing its Safe Cities™ System, which is a software-based management system for use by
+municipal customers that integrates disparate information and detection infrastructure within a city in order to provide rapid response for emergency management against threats of terrorism and
+weapons of mass destruction. MAXxess believes that its Environmental Security Systems provide enhanced levels of monitoring, control and detection that will be required across a broad cross section of
+municipal infrastructure and in various public facilities including buildings, airports, ports and other potential targets of terrorism. 
+Sales, Marketing and Principal Customers. MAXxess generally markets and sells its products globally through a network of
+system integrators, in addition to selling direct to municipal customers. In the United States, MAXxess has three regional sales managers who oversee three geographical regions and manage the systems
+integrators. MAXxess operates a full service branch office in Bracknell Berkshire U.K., which serves the sales needs of the European, Middle East and Asian regions. The Bracknell
+office also provides local product availability and technical support for the region. MAXxess has also partnered with Draeger Safety of Lubeck, Germany, to market its chemical detectors principally to
+governmental customers. These chemical detectors are primarily focused on the Immune Building Program, which is sponsored by Defense Advanced Research Projects Agency ("DARPA"). No single customer of
+MAXxess represented more than 10% of our total net sales and contract revenues for fiscal 2003. 
+Manufacturing and Materials. Similar to Iteris, MAXxess uses local manufacturers based near our Anaheim manufacturing
+facility to build subassemblies that are used in our final products. These subassemblies and other components are delivered to our Anaheim manufacturing facility where they 
+3 
+go
+through a final assembly and test prior to shipment to its customers. MAXxess builds inventory according to our sales forecasts. MAXxess maintains a dedicated manufacturing area of approximately
+2,500 square feet located within our Anaheim facilities. MAXxess maintains infrastructure to support production and inventory control, purchasing, quality assurance and manufacturing engineering.
+Although we consolidate our materials sourcing and subcontract manufacturing to minimize production costs. We believe that each of our sources are capable of being substituted for minimal cost and
+production delay. There are currently no sole sourced raw materials used in our products. 
+Customer Support and Services. We provide warranty service and support for each of our products and follow-up
+service and support, for which we charge separately. Service revenue accounts for less than 5% of total net sales and contract revenues. Customer support is a critical competitive factor. We provide
+warranty and customer service internationally from our Bracknell Berkshire offices. 
+Backlog 
+Our backlog of unfulfilled firm orders was approximately $24.0 million as of March 31, 2003 and was approximately $42.7 million as of
+March 31, 2002. Approximately 67% of our backlog at March 31, 2002 was recognized as revenues in the fiscal year ended March 31, 2003, and approximately 87% of our backlog at
+March 31, 2003 is expected to be recognized as revenues in the fiscal year ended March 31, 2004. Pursuant to the customary terms of our agreements with government contractors and other
+customers, customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders depend upon the scheduling and forecasting practices of our
+individual customers, which also can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of our
+future revenues. 
+Product Development 
+MAXxess and Iteris each direct and staff its own product development activities. Most of our development activities are conducted at our principal facilities in
+Anaheim, California. Our company-sponsored research and development costs and expenses were approximately $7.5 million in fiscal 2001, $4.4 million in fiscal 2002 and $4.2 million
+in fiscal 2003. Although spending for product development declined sharply in fiscal 2002 compared to fiscal 2001, principally due to the discontinuation of development activities related to
+personalized traveler information products in Iteris and the sale of Gyyr's CCTV Products line, we expect to continue to pursue significant product development programs and incur significant research
+and development expenditures in each of our business units. 
+Competition 
+Our business units generally face significant competition in each of their respective markets. Increased competition may result in price reductions, reduced gross
+margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. 
+MAXxess
+principally competes with Casi-Rusco, Cardkey, Lenel and Northern Computers in the sale of access control systems. The market for electronic access control products
+is highly fragmented, We estimate that there are approximately 100 competitors comprising approximately $800 million in annual sales. MAXxess is substantially smaller in terms of annual revenue
+than its leading competitors. In the area of chemical and gas detection, MAXxess primarily competes with Smiths Detection. MAXxess is a smaller company in terms of annual revenue than Smiths
+Detection, but MAXxess does not believe there is any direct competitor for its Safe Cities system. MAXxess generally competes on the basis of its distributed processing system architecture, which is
+an open system that readily integrates other security subsystems and new detection capabilities, and a superior operator interface. 
+4 
+We
+believe that AutoVue is the only commercially-available lane departure warning system used in the U.S. and in Europe, potential competitors of AutoVue include Delphi Automotive
+Systems Corporation domestically, NEC Corporation and Hitachi Ltd. in Japan and Robert Bosch Gmbh in Europe, which we suspect are currently developing video sensor technologies for the vehicle
+industry that could be used for lane departure warning systems. In the market for our Vantage vehicle detection systems, Iteris competes with manufacturers of other "above ground" video camera
+detection systems such as Econolite Control Products, Inc., Trafficon, N.V. Peek Traffic Systems, and other non-intrusive detection devices including microwave, infrared, ultrasonic
+and magnetic detectors, as well as manufacturers and installers of in-pavement inductive loop products. Our competitors for Vantage products do not disclose specific sales numbers, either
+because
+they are private companies or because they are part of larger companies. Based on our interface with them in the market, we believe that we are leading our competitors in annual sales volume for video
+detection products. 
+The
+transportation management and traveler information systems market is highly fragmented and is subject to evolving national and regional quality and safety standards. Iteris'
+competitors vary in number, scope and breadth of the products and services they offer. Iteris' competitors in advanced transportation management and traveler information systems include large
+multi-national corporations such as Transcore, Lockheed Martin Corporation, PB Farradyne Inc., Kimley-Horn and Associates, Inc. and National Engineering
+Technology, Inc. Iteris' competitors in transportation engineering, planning and design include major firms such as Parsons Brinkerhoff, Inc. and Parsons Transportation
+Group Inc., as well as many smaller regional engineering firms. We believe that the transportation management and traveler information systems business of Iteris is one of the leading
+competitors in the ITS market. 
+In
+general, the markets for the products and services offered by our businesses are highly competitive and are characterized by rapidly changing technology and evolving standards. Many
+of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, technical, manufacturing,
+distribution and marketing resources than us. As a result, they may be able to adapt more quickly to new or emerging standards or technologies or to devote greater resources to the promotion and sale
+of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively
+in our target markets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broad range of computing systems,
+product quality and performance, reliability, functionality, price, and service and technical support. Our failure to provide services and develop and market products that compete successfully with
+those of other suppliers and consultants in our target markets would have a material adverse effect on our business, financial condition and results of operations. 
+Intellectual Property and Proprietary Rights 
+Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain
+appropriate proprietary rights protection for any potentially significant new technology acquired or developed each of our business units. Iteris currently holds six U.S. patents, which expire
+commencing in 2012, and has eighteen U.S. patent applications pending, mostly relating to our outdoor image processing techniques used in our AutoVue and Vantage systems. Two of our patents relate
+specifically to our AutoVue technology and provide a basis for enhanced functionality for rain sensing and improved performance. We believe that our other patents, while important for our technology
+platform, are less critical to near term product strategy. We cannot assure you that any new patents will be granted pursuant to any outstanding or subsequent applications. 
+5 
+We
+own a patent and have three patents pending for StealthKey technology, which technology is not currently part of our product family. Our intention is to pursue product development for
+a high-speed security processor designed around the StealthKey patent. 
+In
+addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information
+through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. Iteris does not have any material licenses or
+trademarks other than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software
+and other proprietary know-how have value, changing technology makes our future success dependent principally upon our employees' technical competence and creative skills for continuing
+innovation. 
+Litigation
+has been necessary in the past and may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others,
+or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties,
+require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition
+and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management's resources,
+regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees as associates. As of June 12, 2003, Odetics and its subsidiaries employed an aggregate of 253 associates, including 70 associates
+in general management, administration and finance; 17 associates in sales and marketing; 119 associates in product development; 35 associates in operations, manufacturing and quality; and 12
+associates in customer service. None of our associates are represented by a labor union, and we have never experienced a work stoppage. 
+Government Regulation 
+Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the
+environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. We
+continue to expend funds in connection with our compliance with applicable environmental regulations. These expenditures have not, however, been significant in the past, and we do not expect any
+significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business and is not expected to have a material impact in the near future.
+Subsequent to the downsizing and reorganization of our foreign operations, our only international operations are for MAXxess Ltd, a U.K., based subsidiary of our MAXxess Inc. subsidiary
+in the United States.

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 
+The information under the caption "Certain Transactions," appearing in our proxy statement, is incorporated herein by reference. 
+31

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+0000350868,ITI,"ITERIS, INC.",10-K,2004-06-29,2004-03-31,2004-06-29T21:30:06.000Z,0001104659-04-018476,a04-7432_110k.htm,10-K,1901144,0,0,https://www.sec.gov/Archives/edgar/data/350868/000110465904018476/a04-7432_110k.htm,https://www.sec.gov/Archives/edgar/data/350868/000110465904018476/,2003,2003,1

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+ITEM 1. BUSINESS 
+Overview 
+Iteris Holdings, Inc. is
+the majority stockholder of Iteris, Inc., a leading provider of outdoor machine
+vision systems and sensors that optimize the flow of traffic and enhance driver
+safety. Using our proprietary software and Intelligent Transportation Systems
+(“ITS”) industry expertise, we provide video sensor systems and transportation
+management and traveler information systems for the ITS industry. The ITS
+industry is comprised of companies applying a variety of technologies to enable
+the safe and efficient movement of people and goods. We use our outdoor image
+recognition software expertise to develop proprietary algorithms for video
+sensor systems that improve vehicle safety and the flow of traffic. Using our
+knowledge of the ITS industry, we design and implement transportation
+management systems that help public agencies reduce traffic congestion and
+provide greater access to traveler information. 
+Our proprietary image
+recognition systems include AutoVue TM and Vantage TM . AutoVue is a small windshield mounted sensor
+that uses proprietary software to detect and warn drivers of unintended lane
+departures. Iteris has approximately 6,000 production AutoVue units that are in
+use on truck platforms in the European market and are offered as an option on
+certain Actros trucks, which are part of the Daimler group. We believe that
+AutoVue is a broad sensor platform that, through additional software
+development, may be expanded to incorporate additional safety and convenience
+features. Vantage is a video vehicle sensing system that detects the presence
+of vehicles at signalized intersections enabling a more efficient allocation of
+green signal time. 
+Our transportation
+management systems include the design, development and implementation of our
+software-based systems that integrate sensors, video surveillance, computers
+and advanced communications equipment to enable public agencies to monitor,
+control and direct traffic flow, assist in the quick dispatch of emergency
+crews and distribute real-time information about traffic conditions. Our
+services include planning and other engineering for the implementation of
+transportation related communications systems, analysis and study related to
+goods movement and commercial vehicle operations, and parking systems designs. 
+Sales, Marketing and Principal Customers 
+We sell our Vantage
+vehicle detection systems primarily through indirect sales channels comprised
+of independent dealers in the United States and Canada who sell integrated
+systems and related products to the traffic intersection market. Our
+independent dealers are primarily responsible for sales, installation and
+support of Vantage systems. These dealers maintain an inventory of
+demonstration traffic products including the Vantage vehicle detection systems
+and sell directly to government agencies and installation contractors. These
+dealers often have 
+1 
+long-term
+arrangements with the government agencies in their territory for the supply of
+various products for the construction and renovation of traffic intersections.
+We hold technical training classes for dealers and maintain a full-time staff
+of customer support technicians to provide technical assistance when needed. 
+Our marketing strategy
+for AutoVue is to establish it as the leading platform for in vehicle video
+sensing for trucks and passenger cars. We sell AutoVue directly to vehicle
+manufacturers and major automotive suppliers. We also market to the
+manufacturers of automobiles through a strategic relationship with Valeo Group,
+an independent automotive supplier. 
+We market and sell our
+transportation management systems and services directly to government agencies
+pursuant to negotiated contracts that involve competitive bidding and specific
+qualification requirements. Most of our contracts with federal, state and
+municipal customers provide for cancellation or renegotiation at the option of
+the customer upon reasonable notice and fees paid for modification. We use
+selected members of our engineering team divided on a regional basis to serve
+in sales and business development functions. We do not engage in international
+ITS sales. Sales of our systems contracts generally involve long lead times and
+require extensive specification development, evaluation and price negotiations.
+No single customer of Iteris, Inc. accounted for more than 10% of our total net
+sales and contract revenues. 
+Manufacturing and Materials 
+We use local
+manufacturers based near our Anaheim, California facility to build
+subassemblies that are used in our Vantage products. These subassemblies are
+delivered to our Anaheim facility where they go through final assembly and
+testing prior to shipment to our customers. Our manufacturing activities are
+conducted in approximately 6,000 square feet of space at our Anaheim
+facility. Certain of our cameras used
+in our products have historically been provided by a Japanese supplier who is
+sole sourced; however, we are currently qualifying other sources of supply.
+Production volume at our subcontractors is based upon quarterly forecasts that
+we adjust on a monthly basis to control inventory. For sales to the truck
+market, we subcontract the manufacture of our AutoVue systems to one
+manufacturer, and our internal processes are limited primarily to testing and
+final verification. For sales to the
+passenger car market, we anticipate that all manufacturing will be done by the
+Valeo Group. We currently do not
+manufacture any of the hardware used in the transportation management and
+traveler information systems that we design and implement. Our production
+facility is currently ISO 9001 certified. 
+Customer
+Support and Services 
+We provide warranty
+service and support for each of our products and follow-up service and support,
+for which we charge separately. Service revenue accounted for less than 1.0% of
+total net sales and contract revenues for the year ended March 31, 2004
+(“fiscal 2004”). We believe customer
+support is a key competitive factor. 
+Backlog 
+Our backlog of
+unfulfilled firm orders was approximately $21.6 million as of March 31,
+2004 and was approximately $24.8 million as of March 31, 2003.
+Approximately 63.0% of our backlog at March 31, 2003 was recognized as
+revenues in the fiscal year ended March 31, 2004, and approximately 60.0%
+of our backlog at March 31, 2004 is expected to be recognized as revenues
+in the fiscal year ended March 31, 2005. 
+Pursuant to the customary terms of our agreements with government
+contractors and other customers, customers can generally cancel or
+reschedule orders with little or no penalties. Lead times for the release
+of purchase orders depend upon the scheduling and forecasting practices of our
+individual customers, which also can affect the timing of the conversion of our
+backlog into revenues. For these reasons, among others, our backlog at a
+particular date may not be indicative of our future revenues. 
+Product
+Development 
+Most of our development
+activities are conducted at our principal facilities in Anaheim, California.
+Our company-sponsored research and development costs and expenses were
+approximately $3.4 million for the year ended March 31, 2002 ("Fiscal
+2002"), $3.9 million in for the year ended March 31, 2003 ("Fiscal
+2003") and $3.9 million in fiscal 2004. 
+We expect to continue to pursue significant product development programs
+and incur significant research and development expenditures. 
+2 
+Competition 
+We generally face
+significant competition in each of our target markets. Increased competition
+may result in price reductions, reduced gross margins and loss of market share,
+any of which could have a material adverse effect on our business, financial
+condition and results of operations. We believe that AutoVue is the only
+commercially-available lane departure warning system used in the U.S. and in
+Europe. Potential competitors of
+AutoVue include Delphi Automotive Systems Corporation domestically, NEC
+Corporation and Hitachi Ltd. in Japan and Robert Bosch Gmbh in Europe, which
+could be currently developing video sensor technologies for the vehicle
+industry that could be used for lane departure warning systems. In the market
+for our Vantage vehicle detection systems, we compete with manufacturers of
+other “above ground” video camera detection systems such as Econolite Control
+Products, Inc., Trafficon, N.V., Peek Traffic Systems, and other non-intrusive
+detection devices including microwave, infrared, ultrasonic and magnetic
+detectors, as well as manufacturers and installers of in-pavement inductive
+loop products. Our competitors for Vantage products do not disclose specific
+sales numbers, either because they are private companies or because they are
+part of larger companies. Based on our interface with them in the market, we
+believe that we are leading our competitors in annual sales volume for video
+detection products. 
+The transportation
+management and traveler information systems market is highly fragmented and is
+subject to evolving national and regional quality and safety standards. Our
+competitors vary in number, scope and breadth of the products and services they
+offer. Our competitors in advanced transportation management and traveler
+information systems include large multi-national corporations such as
+Transcore, Lockheed Martin Corporation, PB Farradyne Inc., Kimley-Horn and
+Associates, Inc. and National Engineering Technology, Inc. Iteris, Inc.’s
+competitors in transportation engineering, planning and design include major
+firms such as Parsons Brinkerhoff, Inc. and Parsons Transportation Group Inc.,
+as well as many smaller regional engineering firms. 
+In general, the markets
+for the products and services offered by our businesses are highly competitive
+and are characterized by rapidly changing technology and evolving standards.
+Many of our current and prospective competitors have longer operating
+histories, greater name recognition, access to larger customer bases and significantly
+greater financial, technical, manufacturing, distribution and marketing
+resources than us. As a result, they may be able to adapt more quickly to new
+or emerging standards or technologies or to devote greater resources to the
+promotion and sale of their products. It is also possible that new competitors
+or alliances among competitors could emerge and rapidly acquire significant
+market share. We believe that our ability to compete effectively in our target
+markets will depend on a number of factors, including the success and timing of
+our new product development, the compatibility of our products with a broad
+range of computing systems, product quality and performance, reliability,
+functionality, price, and service and technical support. Our failure to provide
+services and develop and market products that compete successfully with those
+of other suppliers and consultants in our target markets would have a material
+adverse effect on our business, financial condition and results of operations. 
+Intellectual
+Property and Proprietary Rights 
+Our ability to compete
+effectively depends in part on our ability to develop and maintain the
+proprietary aspects of our technology. Our policy is to obtain appropriate
+proprietary rights protection for any potentially significant new technology
+acquired or developed by us. We
+currently hold six U.S. patents, which expire commencing in 2012, and have
+eighteen U.S. patent applications pending, mostly relating to our outdoor image
+processing techniques used in our AutoVue and Vantage systems. Two of our
+patents relate specifically to our AutoVue technology and provide a basis for
+enhanced functionality for rain sensing and improved performance. We believe
+that our other patents, while important for our technology platforms are less
+critical to near term product strategy. We cannot assure you that any new
+patents will be granted pursuant to any outstanding or subsequent applications. 
+In addition to patent
+laws, we rely on copyright and trade secret laws to protect our proprietary
+rights. We attempt to protect our trade secrets and other proprietary
+information through agreements with customers and suppliers, proprietary
+information agreements with our employees and consultants, and other similar
+measures. We do not have any material licenses or trademarks other than those
+relating to product names. We cannot be certain that we will be successful in
+protecting our proprietary rights. While we believe our patents, patent
+applications, software and other proprietary know-how have value, changing
+technology makes our future success dependent principally upon our employees’
+technical competence and creative skills for continuing innovation. 
+Litigation has been
+necessary in the past and may be necessary in the future to enforce our proprietary
+rights, to determine the validity and scope of the proprietary rights of
+others, or to defend us against claims of infringement or invalidity by others.
+An adverse outcome in such litigation or similar proceedings could subject us
+to significant liabilities to third parties, require disputed rights to be
+licensed from others or require us to cease marketing or using certain
+products, any of which could have a material adverse effect on our business,
+financial condition and results of operations. In addition, the cost of
+addressing any intellectual property litigation claim, both in legal fees and
+expenses, as well as from the diversion of management’s resources, regardless
+of whether the claim is valid, could be significant and could have a material
+adverse effect on our business, financial condition and results of operations. 
+3 
+Employees 
+We refer to our employees
+as associates. As of June 3, 2004, we employed an aggregate of 204
+associates, including 50 associates in general management, administration and
+finance; 20 associates in sales and marketing; 104 associates in product
+development; 21 associates in operations, manufacturing and quality; and nine
+associates in customer service. None of our associates are represented by a
+labor union, and we have never experienced a work stoppage. 
+Government
+Regulation 
+Our manufacturing
+operations are subject to various federal, state and local laws and
+regulations, including those restricting the discharge of materials into the
+environment. We are not involved in any pending or, to our knowledge,
+threatened governmental proceedings, which would require curtailment of our
+operations because of such laws and regulations. We continue to expend funds in
+connection with our compliance with applicable environmental regulations. These
+expenditures have not, however, been significant in the past, and we do not
+expect any significant expenditure in the near future. Currently, compliance
+with foreign laws has not had a material impact on our business and is not
+expected to have a material impact in the near future. 
+Legal
+Proceedings 
+We are not currently a
+party to any material legal proceedings.

raw/filings/0000350868/2003/0001104659-04-018476/item13.txt

@@ -0,0 +1,3 @@
+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS

raw/filings/0000350868/2003/0001104659-04-018476/item9a.txt

@@ -0,0 +1,3 @@
+ITEM 9A. 
+CONTROLS AND PROCEDURES 
+PART III

raw/filings/0000350868/2004/0001104659-05-032468/filing_metadata.csv

@@ -0,0 +1,2 @@
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+0000350868,ITI,"ITERIS, INC.",10-K,2005-07-14,2005-03-31,2005-07-14T21:14:05.000Z,0001104659-05-032468,a05-11244_110k.htm,10-K,3261572,0,0,https://www.sec.gov/Archives/edgar/data/350868/000110465905032468/a05-11244_110k.htm,https://www.sec.gov/Archives/edgar/data/350868/000110465905032468/,2004,2004,1

raw/filings/0000350868/2004/0001104659-05-032468/item1.txt

@@ -0,0 +1,260 @@
+ITEM 1. BUSINESS 
+Overview 
+Iteris, Inc.,
+formerly known as Iteris Holdings, Inc., is a leading provider of outdoor
+machine vision systems and sensors that optimize the flow of traffic and
+enhance driver safety. Using proprietary software and Intelligent
+Transportation Systems (“ITS”) industry expertise, we provide video sensor
+systems, transportation management and traveler information systems and other
+engineering consulting services to the ITS industry. The ITS industry is
+comprised of companies applying a variety of technologies to enable the safe
+and efficient movement of people and goods. We use our outdoor image
+recognition software expertise to develop proprietary algorithms for video
+sensor systems that improve vehicle safety and the flow of traffic. Using our
+knowledge of the ITS industry, we design and implement transportation
+management systems that help public agencies reduce traffic congestion and
+provide greater access to traveler information. 
+On October 22, 2004, we completed a merger with our majority-owned
+subsidiary, Iteris, Inc. (the “Iteris Subsidiary”), and officially changed our
+corporate name from Iteris Holdings, Inc. to Iteris, Inc. We were originally
+incorporated in Delaware in 1987 as Odetics, Inc. and in September 2003 changed
+our name to Iteris Holdings, Inc. to reflect our focus on the ITS industry and our
+capital structure at that time. 
+Our proprietary image
+recognition systems include AutoVue and Vantage. AutoVue is a small windshield mounted sensor
+that uses proprietary software to detect and warn drivers of unintended lane
+departures. We have sold approximately 13,000 production AutoVue Lane Departure
+Warning (“LDW”) systems for use on truck platforms in the European and North
+American markets, and our AutoVue LDW system is currently offered as an option
+on certain Mercedes, MAN, Freightliner and International trucks. We believe
+that our AutoVue LDW technology is a broad sensor platform that, through
+additional software development, may be expanded to incorporate additional
+safety and convenience features. Vantage is a video-based vehicle sensing
+system that detects vehicles on roadways, enabling more efficient traffic
+management. Applications include traffic
+signal operations, incident detection and data collection. 
+Our transportation
+management systems include the design, development and implementation of our
+software-based systems that integrate sensors, video surveillance, computers
+and advanced communications equipment to enable public agencies to monitor,
+control and direct traffic flow, assist in the quick dispatch of emergency
+crews and distribute real-time information about traffic conditions. We also
+offer related services that include planning and other engineering for the
+implementation of transportation related communications systems, analysis and
+studies related to goods movement and commercial vehicle operations, and
+parking systems designs. 
+We currently operate in three
+reportable segments: Roadway Sensors, Automotive Sensors and Systems. The Roadway
+Sensors segment includes our Vantage vehicle detection systems. The Automotive Sensors segment includes our AutoVue
+LDW systems for vehicle safety. The Systems segment includes transportation
+engineering and consulting services, and the development of transportation
+management and traveler information systems for the ITS industry. 
+3 
+Sales, Marketing and Principal Customers 
+We sell our Vantage vehicle detection systems
+primarily through indirect sales channels comprised of independent dealers in
+the United States and Canada who sell integrated systems and related products
+to the traffic management market. Our independent dealers are primarily
+responsible for sales, installation and support of Vantage systems. These
+dealers maintain an inventory of demonstration traffic products from various
+manufacturers including our Vantage vehicle detection systems and sell directly
+to government agencies and installation contractors. These dealers often have
+long-term arrangements with the government agencies in their territory for the
+supply of various products for the construction and renovation of traffic
+intersections. We hold technical training classes for dealers and end users and
+maintain a full-time staff of customer support technicians to provide technical
+assistance when needed. 
+Our marketing strategy
+for AutoVue is to establish it as the leading platform for in-vehicle video
+sensing for heavy trucks and passenger cars. We sell AutoVue directly to heavy
+truck manufacturers and to U.S. truck fleets. We also market to the
+manufacturers of passenger automobiles through a strategic relationship with
+Valeo Schalter and Sensuren GmbH (“Valeo”), an independent automotive supplier. 
+We market and sell our
+transportation management systems and traveler information services directly to
+government agencies pursuant to negotiated contracts that involve competitive
+bidding and specific qualification requirements. Most of our contracts with
+federal, state and municipal customers provide for cancellation or
+renegotiation at the option of the customer upon reasonable notice and fees
+paid for modification. We use selected members of our engineering team divided
+on a regional basis to serve in sales and business development functions. We do
+not engage in sales of transportation management systems and traveler
+information services outside of the U.S. Sales of our transportation management
+systems contracts generally involve long lead times and require extensive
+specification development, evaluation and price negotiations. 
+Our largest customer
+accounted for 12.8% of total net sales and contract revenues in the fiscal year
+ended March 31, 2005 (“Fiscal 2005”). 
+Manufacturing and Materials 
+We use contract
+manufacturers to build subassemblies that are used in our Vantage products. Additionally,
+we procure certain components from qualified suppliers, both globally and
+locally, and use multi-sourcing strategies when technically and economically
+feasible to mitigate supply risk. These
+subassemblies and components are delivered to our Anaheim facility where they
+go through final assembly and testing prior to shipment to our customers. Our
+manufacturing activities are conducted in approximately 8,000 square feet of
+space at our Anaheim facility. 
+Production volume at our subcontractors is based upon quarterly
+forecasts that we adjust on a monthly basis to control inventory. For sales of
+Autovue LDW systems to the truck market, we subcontract the manufacture of our
+AutoVue LDW systems to one manufacturer, and our internal processes are limited
+primarily to testing and final verification. 
+We are currently in the process of qualifying an additional
+subcontractor for the manufacture of LDW systems to mitigate production risk
+and handle increased demand. For Autovue
+LDW sales to the passenger car market, we anticipate that all manufacturing
+will be done by Valeo; however, we plan to continue to provide engineering
+support to Valeo. We currently do not
+manufacture any of the hardware used in the transportation management and
+traveler information systems that we design and implement. Our production
+facility is currently ISO 9001 certified. 
+Customer
+Support and Services 
+We provide warranty
+service and support for our Vantage and AutoVue products as well as follow-up
+service and support for which we charge separately. Service revenue accounted
+for less than 1.0% of total net sales and contract revenues for Fiscal 2005. We believe customer support is a key
+competitive factor. 
+Backlog 
+Our backlog of
+unfulfilled firm orders was approximately $18.9 million as of March 31,
+2005, which was comprised of $1.7 million related to Roadway Sensors, $3.4
+million related to Automotive Sensors and $13.8 million related to Systems. All backlog for Roadway Sensors and
+Automotive Sensors is expected to be recognized as revenue in the fiscal year
+ending March 31, 2006 (“Fiscal 2006”) while approximately 60.0% of Systems
+backlog is expected to be recognized as revenue in Fiscal 2006. At March 31, 2004, we had backlog of approximately
+$21.6 million, which was comprised of $4.7 million related to Roadway Sensors,
+$3.9 million related to Automotive Sensors and $13.0 million related to
+Systems. At March 31, 
+4 
+2004, backlog for
+Roadway Sensors and Automotive Sensors was recognized as revenue in Fiscal 2005
+while 63.8% of Systems March 31, 2004, backlog was recognized as revenue in
+Fiscal 2005. Pursuant to the customary
+terms of our agreements with government contractors and other customers,
+customers can generally cancel or reschedule orders with little or no
+penalties. Lead times for the release of purchase orders often depend upon the
+scheduling and forecasting practices of our individual customers, which also
+can affect the timing of the conversion of our backlog into revenues. For these
+reasons, among others, our backlog at a particular date may not be indicative
+of our future revenues. 
+Product
+Development 
+Most of our development
+activities are conducted at our principal facilities in Anaheim, California.
+Our company-sponsored research and development costs and expenses were
+approximately $4.2 million for Fiscal 2005, $3.9 million for the fiscal year
+ended March 31, 2004 (“Fiscal 2004”), and $3.9 million for the fiscal year
+ended March 31, 2003 (“Fiscal 2003”). We
+expect to continue to pursue significant product development programs and incur
+significant research and development expenditures. 
+Competition 
+We generally face
+significant competition in each of our target markets. Increased competition
+may result in price reductions, reduced gross margins and loss of market share,
+any of which could have a material adverse effect on our business, financial
+condition and results of operations. We believe that AutoVue is the only
+commercially-available lane departure warning system used in the U.S. and in
+Europe in the heavy truck market. Potential
+competitors of AutoVue include Delphi Automotive Systems Corporation
+domestically, NEC Corporation and Hitachi Ltd. in Japan and Robert Bosch GmbH
+in Europe, as well as Siemens, Continental Tavis and Visteon, which could be
+currently developing video sensor technologies for the vehicle industry that
+could be used for lane departure warning systems. In the market for our Vantage
+vehicle detection systems, we compete with manufacturers of other “above ground”
+video camera detection systems such as Econolite Control Products, Inc.,
+Traficon, N.V., Quixote, and other non-intrusive detection devices including
+microwave, infrared, ultrasonic and magnetic detectors, as well as
+manufacturers and installers of in-pavement inductive loop products. 
+The transportation
+management and traveler information systems market is highly fragmented and is
+subject to evolving national and regional quality and safety standards. Our
+competitors vary in number, scope and breadth of the products and services they
+offer. Our competitors in advanced transportation management and traveler
+information systems include large multi-national corporations such as
+Transcore, Lockheed Martin Corporation, PB Farradyne, Inc., Kimley-Horn and
+Associates, Inc. and National Engineering Technology, Inc. Our competitors in
+transportation engineering, planning and design include major firms such as
+Parsons Brinkerhoff, Inc. and Parsons Transportation Group, Inc., as well as
+many smaller regional engineering firms. 
+In general, the markets
+for the products and services offered by our businesses are highly competitive
+and are characterized by rapidly changing technology and evolving standards.
+Many of our current and prospective competitors have longer operating
+histories, greater name recognition, access to larger customer bases and
+significantly greater financial, technical, manufacturing, distribution and
+marketing resources than us. As a result, they may be able to adapt more
+quickly to new or emerging standards or technologies or to devote greater
+resources to the promotion and sale of their products. It is also possible that
+new competitors or alliances among competitors could emerge and rapidly acquire
+significant market share. We believe that our ability to compete effectively in
+our target markets will depend on a number of factors, including the success
+and timing of our new product development, the compatibility of our products
+with a broad range of computing systems, product quality and performance,
+reliability, functionality, price, and service and technical support. Our
+failure to provide services and develop and market products that compete
+successfully with those of other suppliers and consultants in our target
+markets would have a material adverse effect on our business, financial condition
+and results of operations. 
+Intellectual
+Property and Proprietary Rights 
+Our ability to compete
+effectively depends in part on our ability to develop and maintain the
+proprietary aspects of our technology. Our policy is to obtain appropriate
+proprietary rights protection for any potentially significant new technology
+acquired or developed by us. We
+currently hold ten U.S. patents, which expire commencing in 2012, and have three U.S. patent applications pending, mostly relating to our
+outdoor image processing techniques used in our AutoVue systems. Two of our
+patents relate specifically to our AutoVue technology and provide a basis for
+enhanced functionality for rain sensing and improved performance. We believe
+that our other patents, while important for our technology platforms, are less
+critical to our near term product strategy. We cannot assure you that any new
+patents will be granted pursuant to any outstanding or subsequent applications. 
+In addition to patent
+laws, we rely on copyright and trade secret laws to protect our proprietary
+rights. We attempt to protect our trade secrets and other proprietary
+information through agreements with customers and suppliers, proprietary 
+5 
+information
+agreements with our employees and consultants, and other similar measures. We
+do not have any material licenses or trademarks other than those relating to
+product names. We cannot be certain that we will be successful in protecting
+our proprietary rights. While we believe our patents, patent applications,
+software and other proprietary know-how have value, changing technology makes
+our future success dependent principally upon our employees’ technical
+competence and creative skills for continuing innovation. 
+Litigation has been
+necessary in the past and may be necessary in the future to enforce our
+proprietary rights, to determine the validity and scope of the proprietary
+rights of others, or to defend us against claims of infringement or invalidity
+by others. An adverse outcome in such litigation or similar proceedings could
+subject us to significant liabilities to third parties, require disputed rights
+to be licensed from others or require us to cease marketing or using certain
+products, any of which could have a material adverse effect on our business,
+financial condition and results of operations. In addition, the cost of
+addressing any intellectual property litigation claim, both in legal fees and
+expenses, as well as from the diversion of management’s resources, regardless
+of whether the claim is valid, could be significant and could have a material
+adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees
+as associates. As of June 8, 2005, we employed an aggregate of 215
+associates, including 48 associates in general management, administration and
+finance; 20 associates in sales and marketing; 113 associates in engineering
+and product development; 26 associates in operations, manufacturing and
+quality; and 8 associates in customer service. None of our associates are
+represented by a labor union, and we have never experienced a work stoppage. 
+Government
+Regulation 
+Our manufacturing
+operations are subject to various federal, state and local laws and regulations,
+including those restricting the discharge of materials into the environment. We
+are not involved in any pending or, to our knowledge, threatened governmental
+proceedings, which would require curtailment of our operations because of such
+laws and regulations. We continue to expend funds in connection with our
+compliance with applicable environmental regulations. These expenditures have
+not, however, been significant in the past, and we do not expect any
+significant expenditure in the near future. Currently, compliance with foreign
+laws has not had a material impact on our business and is not expected to have
+a material impact in the near future.

raw/filings/0000350868/2005/0001104659-06-044634/filing_metadata.csv

@@ -0,0 +1,2 @@
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+0000350868,ITI,"ITERIS, INC.",10-K,2006-06-29,2006-03-31,2006-06-29T21:19:34.000Z,0001104659-06-044634,a06-9767_110k.htm,ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D),2106773,0,0,https://www.sec.gov/Archives/edgar/data/350868/000110465906044634/a06-9767_110k.htm,https://www.sec.gov/Archives/edgar/data/350868/000110465906044634/,2005,2005,1

raw/filings/0000350868/2005/0001104659-06-044634/item1.txt

@@ -0,0 +1,266 @@
+ITEM 1. BUSINESS 
+Overview 
+Iteris, Inc.,
+formerly known as Iteris Holdings, Inc., is a leading provider of outdoor
+machine vision systems and sensors that optimize the flow of traffic and
+enhance driver safety. Using proprietary software and Intelligent
+Transportation Systems (“ITS”) industry expertise, we provide video sensor systems,
+transportation management and traveler information systems and other
+engineering and consulting services to the ITS industry. The ITS industry is
+comprised of companies applying a variety of technologies to enable the safe
+and efficient movement of people and goods. We use our outdoor image
+recognition software expertise to develop proprietary algorithms for video
+sensor systems that improve vehicle safety and the flow of traffic. Using our
+knowledge of the ITS industry, we design and implement transportation
+management systems that help public agencies reduce traffic congestion and
+provide greater access to traveler information. 
+We
+were originally incorporated in Delaware in 1987 as Odetics, Inc. and in September 2003
+changed our name to Iteris Holdings, Inc. to reflect our focus on the ITS
+industry and our capital structure at that time. On October 22, 2004, we
+completed a merger with our majority-owned subsidiary, Iteris, Inc. (the “Iteris
+Subsidiary”), and officially changed our corporate name from Iteris Holdings, Inc.
+to Iteris, Inc. 
+Our proprietary image recognition systems include Vantage and AutoVue. Vantage
+is a video vehicle detection system that detects the presence of vehicles on
+roadways. Vantage systems are used at signalized intersections to enable a more
+efficient allocation of green signal time and are also used for incident
+detection and highway traffic data collection applications. AutoVue Lane
+Departure Warning (“LDW”) systems consist of a small windshield mounted sensor
+that uses proprietary software to detect and warn drivers of unintended lane
+departures. To date, we and our strategic partner have sold over 50,000
+production AutoVue LDW systems for use on car and truck platforms in the North
+American and European markets. We believe that our AutoVue LDW technology is a
+broad sensor platform that, through additional software development, may be
+expanded to incorporate additional safety and convenience features. 
+Our transportation
+management systems business includes transportation engineering and consulting
+services focused on the planning, design, development and implementation of
+software-based systems that integrate sensors, video surveillance, computers
+and advanced communications equipment to enable public agencies to monitor, control
+and direct traffic flow, assist in the quick dispatch of emergency crews and
+distribute real-time information about traffic conditions. Our services include
+planning and other engineering for the implementation of transportation
+infrastructure and related communications systems, analysis and study related
+to goods movement and commercial vehicle operations, and parking systems
+designs. 
+We currently
+operate in three reportable segments: Roadway Sensors, Automotive Sensors and
+Transportation Systems. The Roadway Sensors segment includes our Vantage
+vehicle detection systems for traffic intersection control, incident
+detection and certain highway traffic data collection applications. The
+Automotive Sensors segment is comprised of all activities related to our
+AutoVue LDW systems for vehicle safety. The Transportation Systems segment
+includes transportation engineering and consulting services and the development
+of transportation management and traveler 
+3 
+information systems for
+the ITS industry. See Note 13 to the accompanying consolidated financial
+statements for further discussion of our operating segments. 
+Sales, Marketing and Principal Customers 
+We sell our Vantage
+vehicle detection systems primarily through indirect sales channels comprised
+of independent dealers in the United States and Canada who sell integrated
+systems and related products to the traffic management market. Our independent
+dealers are primarily responsible for sales, installation and support of
+Vantage systems. These dealers maintain an inventory of demonstration traffic
+products from various manufacturers including our Vantage vehicle detection
+systems and sell directly to government agencies and installation contractors.
+These dealers often have long-term arrangements with the government agencies in
+their territory for the supply of various products for the construction and
+renovation of traffic intersections. We hold technical training classes for
+dealers and end users and maintain a full-time staff of customer support
+technicians to provide technical assistance when needed. 
+Our marketing
+strategy for AutoVue is to establish it as the leading platform for in-vehicle
+video sensing for heavy trucks and passenger cars. We sell AutoVue LDW systems
+directly to heavy truck manufacturers and to U.S. truck fleets, and our AutoVue
+LDW system is currently offered as an option on certain Mercedes, MAN,
+Freightliner and International trucks. We market the licensing of our LDW
+technology to manufacturers of passenger automobiles through a strategic
+relationship with Valeo Schalter and Sensuren GmbH (“Valeo”), an independent
+automotive supplier. In connection with this marketing effort, we provide
+specific contract engineering services, technical marketing and sales support
+to Valeo which to date has enabled the launch of our LDW technology on three
+Infiniti platforms, the FX, M and Q, where our LDW system is offered as part of
+the technology option package. We plan to continue to provide technical
+marketing and sales support to Valeo in our efforts to win new OEM customers
+for the passenger car market as well as contract engineering services related
+to the possible launch of new Infiniti platforms that include our AutoVue LDW
+system. 
+We market and sell
+our transportation management systems and traveler information services
+directly to government agencies pursuant to negotiated contracts that involve
+competitive bidding and specific qualification requirements. Most of our
+contracts with federal, state and municipal customers provide for cancellation
+or renegotiation at the option of the customer upon reasonable notice and fees
+paid for modification. We use selected members of our engineering team divided
+on a regional basis to serve in sales and business development functions. We do
+not engage in sales of transportation management systems and traveler
+information services outside of the U.S. Sales of our transportation management
+systems contracts generally involve long lead times and require extensive
+specification development, evaluation and price negotiations. 
+Our largest customer
+accounted for 11.5% of total net sales and contract revenues in the fiscal year
+ended March 31, 2006 (“Fiscal 2006”). 
+Manufacturing and Materials 
+We use contract
+manufacturers to build subassemblies that are used in our Vantage products.
+Additionally, we procure certain components from qualified suppliers, both
+globally and locally, and use multi-sourcing strategies when technically and
+economically feasible to mitigate supply risk. These subassemblies and
+components are delivered to our Anaheim facility where they go through final
+assembly and testing prior to shipment to our customers. Our manufacturing
+activities are conducted in approximately 8,000 square feet of space at our
+Anaheim facility. Production volume at our subcontractors is based upon
+quarterly forecasts that we adjust on a monthly basis to control inventory. For
+sales of AutoVue LDW systems to the truck market, we subcontract the
+manufacture of our AutoVue LDW systems to two manufacturers, and our internal
+processes are limited primarily to testing and final verification. For AutoVue
+LDW sales to the passenger car market, we anticipate that all manufacturing
+will be done by Valeo; however, we plan to continue to provide engineering
+support to Valeo. We currently do not manufacture any of the hardware used in
+the transportation management and traveler information systems that we design
+and implement. Our production facility is currently ISO 9001 certified. 
+Customer Support and Services 
+We provide
+warranty service and support for our Vantage and AutoVue products as well as
+follow-up service and support for which we charge separately. Service revenue
+accounted for less than 1.0% of total net sales and contract revenues for
+Fiscal 2006. We believe customer support is a key competitive factor. 
+Backlog 
+Our backlog of
+unfulfilled firm orders was approximately $20.3 million as of March 31,
+2006, which was comprised of $1.5 million related to Roadway Sensors, $3.0
+million related to Automotive Sensors and $15.8 million related to
+Transportation Systems. The backlog for Roadway Sensors and Automotive Sensors
+is expected to be recognized as revenue in the fiscal year ending March 31,
+2007 (“Fiscal 2007”) while approximately 84.0% of Transportation Systems
+backlog is expected to be recognized as revenue in Fiscal 2007. At March 31,
+2005, we had backlog of approximately $18.9 million, which was comprised of
+$1.7 million related to Roadway Sensors, $3.4 million related to Automotive
+Sensors and $13.8 
+4 
+million
+related to Transportation Systems. All March 31, 2005 backlog for Roadway
+Sensors and Automotive Sensors was recognized as revenue in Fiscal 2006 while
+71.0% of Transportation Systems March 31, 2005 backlog was recognized as
+revenue in Fiscal 2006. Pursuant to the customary terms of our agreements with
+government contractors and other customers, customers can generally cancel or
+reschedule orders with little or no penalties. Lead times for the release
+of purchase orders often depend upon the scheduling and forecasting practices
+of our individual customers, which also can affect the timing of the conversion
+of our backlog into revenues. For these reasons, among others, our backlog at a
+particular date may not be indicative of our future revenues. 
+Product Development 
+Most of our development activities are conducted at our principal
+facilities in Anaheim, California. Our company-sponsored research and
+development costs and expenses were approximately $5.1 million for Fiscal 2006,
+$4.2 million for the fiscal year ended March 31, 2005 (“Fiscal 2005”), and
+$3.9 million for the fiscal year ended March 31, 2004 (“Fiscal 2004”). We
+expect to continue to pursue significant product development programs and incur
+significant research and development expenditures. 
+Competition 
+We generally face significant competition in each of our target
+markets. Increased competition may result in price reductions, reduced gross
+margins and loss of market share, any of which could have a material adverse
+effect on our business, financial condition and results of operations. We
+believe that AutoVue is the only established commercially-available lane
+departure warning system used in the U.S. and in Europe in the heavy truck
+market. Potential competitors of AutoVue include Delphi Automotive Systems
+Corporation domestically, NEC Corporation and Hitachi Ltd. in Japan and Robert
+Bosch GmbH in Europe, as well as Siemens, Continental Tavis, Visteon and
+Cognex, which could be currently developing video sensor technologies for the
+vehicle industry that could be used for lane departure warning systems. In the
+market for our Vantage vehicle detection systems, we compete with manufacturers
+of other “above ground” video camera detection systems such as Econolite
+Control Products, Inc., Traficon, N.V., Quixote, and other non-intrusive
+detection devices including microwave, infrared, ultrasonic and magnetic
+detectors, as well as manufacturers and installers of in-pavement inductive
+loop products. 
+The transportation management and traveler information systems market
+is highly fragmented and is subject to evolving national and regional quality
+and safety standards. Our competitors vary in number, scope and breadth of the
+products and services they offer. Our competitors in advanced transportation
+management and traveler information systems include national corporations such
+as Transcore, Siemens, PB Farradyne, Inc., Kimley-Horn and Associates, Inc.
+and National Engineering Technology, Inc. Our competitors in
+transportation engineering, planning and design include major firms such as
+Parsons Brinkerhoff, Inc., URS, HNTB and Parsons Transportation Group, Inc.,
+as well as many smaller regional engineering firms. 
+In general, the markets for the products and services offered by our
+businesses are highly competitive and are characterized by rapidly changing
+technology and evolving standards. Many of our current and prospective
+competitors have longer operating histories, greater name recognition, access
+to larger customer bases and significantly greater financial, technical,
+manufacturing, distribution and marketing resources than us. As a result, they
+may be able to adapt more quickly to new or emerging standards or technologies
+or to devote greater resources to the promotion and sale of their products. It
+is also possible that new competitors or alliances among competitors could
+emerge and rapidly acquire significant market share. We believe that our
+ability to compete effectively in our target markets will depend on a number of
+factors, including the success and timing of our new product development, the
+compatibility of our products with a broad range of computing systems, product
+quality and performance, reliability, functionality, price, and service and
+technical support. Our failure to provide services and develop and market
+products that compete successfully with those of other suppliers and
+consultants in our target markets would have a material adverse effect on our
+business, financial condition and results of operations. 
+Intellectual Property and Proprietary
+Rights 
+Our ability to compete effectively depends in part on our ability to
+develop and maintain the proprietary aspects of our technology. Our policy is
+to obtain appropriate proprietary rights protection for any potentially
+significant new technology acquired or developed by us. We currently hold ten
+U.S. patents, which expire commencing in 2008, and have two U.S.
+patent applications pending relating to our outdoor image processing techniques
+used in our AutoVue systems. Nine of our patents relate specifically to our
+AutoVue technology and provide a basis for enhanced functionality for rain
+sensing and improved performance. We believe that our other patents, while
+important for our technology platforms, are less critical to our near term
+product strategy. We cannot assure you that any new patents will be granted
+pursuant to any outstanding or subsequent applications. 
+5 
+In addition to patent laws, we rely on copyright and trade secret laws
+to protect our proprietary rights. We attempt to protect our trade secrets and
+other proprietary information through agreements with customers and suppliers,
+proprietary information agreements with our employees and consultants, and
+other similar measures. We do not have any material licenses or trademarks
+other than those relating to product names. We cannot be certain that we will
+be successful in protecting our proprietary rights. While we believe our
+patents, patent applications, software and other proprietary know-how have
+value, changing technology makes our future success dependent principally upon
+our employees’ technical competence and creative skills for continuing
+innovation. 
+Litigation may be necessary in the future to enforce our proprietary
+rights, to determine the validity and scope of the proprietary rights of
+others, or to defend us against claims of infringement or invalidity by others.
+An adverse outcome in such litigation or similar proceedings could subject us
+to significant liabilities to third parties, require disputed rights to be
+licensed from others or require us to cease marketing or using certain
+products, any of which could have a material adverse effect on our business,
+financial condition and results of operations. In addition, the cost of
+addressing any intellectual property litigation claim, both in legal fees and
+expenses, as well as from the diversion of management’s resources, regardless
+of whether the claim is valid, could be significant and could have a material
+adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees as associates. As of June 6, 2006, we
+employed an aggregate of 219 associates, including 45 associates in general
+management, administration and finance; 23 associates in sales and marketing; 117
+associates in engineering and product development; 24 associates in operations,
+manufacturing and quality; and 10 associates in customer service. None of our
+associates are represented by a labor union, and we have never experienced a
+work stoppage. 
+Government Regulation 
+Our manufacturing operations are subject to various federal, state and
+local laws and regulations, including those restricting the discharge of
+materials into the environment. We are not involved in any pending or, to our
+knowledge, threatened governmental proceedings, which would require curtailment
+of our operations because of such laws and regulations. We continue to expend
+funds in connection with our compliance with applicable environmental
+regulations. These expenditures have not, however, been significant in the
+past, and we do not expect any significant expenditure in the near future.
+Currently, compliance with foreign laws has not had a material impact on our
+business and is not expected to have a material impact in the near future. 
+6

raw/filings/0000350868/2005/0001104659-06-044634/item13.txt

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+ITEM 13. 
+CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

raw/filings/0000350868/2005/0001104659-06-044634/item9a.txt

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+ITEM 9A. CONTROLS AND
+PROCEDURES 
+Evaluation of Disclosure Controls and
+Procedures 
+As of the end of the
+period covered by this report, we carried out an evaluation, under the
+supervision and with the participation of our management, including our Chief
+Executive Officer and our Chief Financial Officer, of the effectiveness of the
+design and operation of our disclosure controls and procedures, as such term is
+defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that
+evaluation, the Chief Executive Officer and Chief Financial Officer concluded
+that our disclosure controls and procedures are effective to ensure that
+information required to be disclosed by us in the reports that we file or
+submit under the Exchange Act is recorded, processed, summarized and reported
+within the time periods specified in the Securities and Exchange Commission’s
+rules and forms and are effective in ensuring that information required to be
+disclosed by us in the reports that we file or submit under the Exchange Act is
+accumulated and communicated to our management, including our Chief Executive
+Officer and Chief Financial Officer, as appropriate, to allow timely decisions
+regarding required disclosure. In designing and evaluating the disclosure
+controls and procedures, our management recognized that any controls and
+procedures, no matter how well designed and operated, can provide only
+reasonable assurance of achieving the desired control objectives. Our
+management necessarily applied its judgment in evaluating the cost-benefit
+relationship of such controls and procedures. 
+Changes in Internal Controls 
+During the most recent
+completed fiscal quarter covered by this report, there has been no change in
+our internal controls over financial reporting (as defined in Rules 13a-15(f) and
+15d-15(f) under the Securities Exchange Act of 1934) that has
+materially affected, or is reasonably likely to materially affect, our internal
+controls over financial reporting.

raw/filings/0000350868/2007/0001104659-08-039576/filing_metadata.csv

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+0000350868,ITI,"ITERIS, INC.",10-K,2008-06-12,2008-03-31,2008-06-12T20:23:02.000Z,0001104659-08-039576,a08-12231_110k.htm,10-K,2116871,0,0,https://www.sec.gov/Archives/edgar/data/350868/000110465908039576/a08-12231_110k.htm,https://www.sec.gov/Archives/edgar/data/350868/000110465908039576/,2007,2007,1

raw/filings/0000350868/2007/0001104659-08-039576/item1.txt

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+ITEM 1. BUSINESS 
+Overview 
+Iteris, Inc. is a
+leader in the traffic management market that focuses on the development and
+application of advanced technologies that reduce traffic congestion, minimize
+the environmental impact of traffic congestion and improve the safety of
+surface transportation systems. By combining outdoor image processing, traffic
+engineering and information technology, we offer a broad range of Intelligent
+Transportation Systems and driver safety solutions to customers worldwide. 
+Our proprietary image
+recognition systems include Vantage and AutoVue. Vantage is a video vehicle detection
+system that detects the presence of vehicles on roadways. Vantage systems are
+used at signalized intersections to enable a more efficient allocation of green
+signal time and are also used for incident detection and highway traffic data
+collection applications. AutoVue Lane Departure Warning (“LDW”) systems consist
+of a small windshield mounted sensor that uses proprietary software to detect
+and warn drivers of unintended lane departures. To date, we and our strategic
+partner have sold approximately 90,000 production AutoVue LDW systems for use
+on car and truck platforms in the North American and European markets. We
+believe that our AutoVue LDW technology is a broad sensor platform that,
+through additional software development, may be expanded to incorporate
+additional safety and convenience features. 
+Our transportation
+management systems business includes transportation engineering and consulting
+services focused on the planning, design, development and implementation of
+software-based systems that integrate sensors, video surveillance, computers
+and advanced communications equipment to enable public agencies to monitor,
+control and direct traffic flow, assist in the quick dispatch of emergency
+crews and distribute real-time information about traffic conditions. Our
+services include planning, design and implementation of surface transportation
+infrastructure systems. We perform
+analysis and study goods movement, commercial vehicle operations, travel demand
+forecasting and systems engineering, and identify mitigation measures to reduce
+traffic congestion. These services and
+systems are primarily sold to local, state and national transportation agencies
+in the United States. Our transportation
+management systems business is largely dependent upon governmental funding and
+budgetary issues. The Federal Highway
+Bill that was passed in August 2005 provided for a significant increase in
+transportation funding over the following six years. We believe the recent expansion of our
+transportation management systems business was due in part to the passage of
+the Federal Highway Bill, combined with the expansion of transportation funds
+at state and local agencies throughout the country. The 2005 Federal Highway Bill
+is set to expire during 2009. 
+We currently operate in three reportable segments:
+Roadway Sensors, Vehicle Sensors and Transportation Systems. The Roadway
+Sensors segment includes our Vantage vehicle detection systems for traffic
+intersection control, incident detection and certain highway traffic data
+collection applications. The Vehicle
+Sensors segment is comprised of all activities related to our AutoVue LDW
+systems for vehicle safety. The Transportation Systems segment includes
+transportation engineering and consulting services and the development of
+transportation management and traveler information systems for the ITS
+industry. See Note 12 to the
+accompanying consolidated financial statements for further discussion of our
+operating segments. 
+3 
+We were originally
+incorporated in Delaware in 1987. In October 2004,
+we completed a merger with our majority-owned subsidiary, Iteris, Inc.
+(the “Iteris Subsidiary”), and officially changed our corporate name to Iteris, Inc. 
+Sales, Marketing and Principal Customers 
+We sell our Vantage
+vehicle detection systems through indirect sales channels comprised of
+independent dealers in the United States and Canada who sell integrated systems
+and related products to the traffic management market, as well as directly to
+the traffic management market using a combination of our own sales personnel
+and an outside sales organization. Our independent dealers are primarily
+responsible for sales, installation and support of Vantage systems. These
+dealers maintain an inventory of demonstration traffic products from various
+manufacturers including our Vantage vehicle detection systems and sell directly
+to government agencies and installation contractors. These dealers often have
+long-term arrangements with the government agencies in their territory for the
+supply of various products for the construction and renovation of traffic
+intersections. We hold technical training classes for dealers and end users and
+maintain a full-time staff of customer support technicians to provide technical
+assistance when needed. 
+Our marketing strategy
+for AutoVue is to establish it as the leading platform for in-vehicle video
+sensing for heavy trucks and passenger cars. 
+We sell AutoVue LDW systems directly to heavy truck manufacturers and to
+U.S. truck fleets, and our AutoVue LDW system is currently offered as an option
+on certain heavy trucks, including Mercedes-Benz, MAN, Iveco, DAF, Scania,
+Freightliner and FUSO, as well as Neoplan and MAN luxury bus and coach lines.
+We market the licensing of our LDW technology to manufacturers of passenger
+automobiles through an exclusive strategic relationship with Valeo Schalter and
+Sensuren GmbH (“Valeo”), an independent automotive supplier. In connection with
+this marketing effort, we provide specific contract engineering services,
+technical marketing and sales support to Valeo, which to date has enabled the
+launch of our LDW technology on three Infiniti car platforms. We plan to
+continue to provide technical marketing and sales support to Valeo in our efforts
+to win new original equipment manufacturer (“OEM”) customers for the passenger
+car market as well as contract engineering services related to the possible
+launch of new platforms that include our AutoVue LDW system. 
+We market and sell our
+transportation management systems and traveler information services directly to
+government agencies pursuant to negotiated contracts that involve competitive
+bidding and specific qualification requirements. Most of our contracts with
+federal, state and municipal customers provide for cancellation or
+renegotiation at the option of the customer upon reasonable notice and fees
+paid for modification. We use selected members of our engineering team divided
+on a regional basis to serve in sales and business development functions. We do
+not engage in sales of transportation management systems and traveler
+information services outside of the U.S. Sales of our transportation management
+systems contracts generally involve long lead times and require extensive
+specification development, evaluation and price negotiations. 
+A large portion of our
+revenues are derived from sales to federal, state and local government
+agencies. Our largest customer accounted
+for 7.3% of total net sales and contract revenues in the fiscal year ended March 31,
+2008 (“Fiscal 2008”). 
+Manufacturing
+and Materials 
+We use contract
+manufacturers to build subassemblies that are used in our Vantage products.
+Additionally, we procure certain components from qualified suppliers, both
+globally and locally, and use multi-sourcing strategies when technically and
+economically feasible to mitigate supply risk. These subassemblies and
+components are delivered to our Santa Ana facility where they go through final
+assembly and testing prior to shipment to our customers. Our manufacturing
+activities are conducted in approximately 9,000 square feet of space at our
+Santa Ana facility. Production volume at our subcontractors is based upon
+quarterly forecasts that we adjust on a monthly basis to control inventory
+levels. For sales of AutoVue LDW systems to the truck market, we subcontract
+the manufacture of our AutoVue LDW systems to one primary manufacturer, and our
+internal processes are limited primarily to testing and final verification. For
+AutoVue LDW sales to the passenger car market, all manufacturing will be
+performed by Valeo; however, we plan to continue to provide engineering support
+to Valeo. We currently do not manufacture any of the hardware used in the
+transportation management and traveler information systems that we design and
+implement. Our production facility is currently ISO 9001 certified. 
+4 
+Customer
+Support and Services 
+We provide warranty service and support for our
+Vantage and AutoVue products, as well as follow-up service and support for
+which we charge separately. Service revenue accounted for less than 1.0% of
+total net sales and contract revenues for Fiscal 2008. We believe customer
+support is a key competitive factor. 
+Backlog 
+Our backlog of unfulfilled
+firm orders was approximately $26.8 million as of March 31, 2008, which
+was comprised of $900,000 related to Roadway Sensors, $1.3 million related to
+Vehicle Sensors and $24.6 million related to Transportation Systems.
+Substantially all of the backlog for Roadway Sensors and Vehicle Sensors is
+expected to be recognized as revenue in the fiscal year ending March 31,
+2009 (“Fiscal 2009”), while approximately 60% of Transportation Systems backlog
+is expected to be recognized as revenue in Fiscal 2009. At March 31, 2007,
+we had backlog of approximately $25.7 million, which was comprised of $3.5
+million related to Roadway Sensors, $2.1 million related to Vehicle Sensors and
+$20.1 million related to Transportation Systems. All backlog as of March 31,
+2007 for Roadway Sensors and Vehicle Sensors was recognized as revenue in
+Fiscal 2008 while 45% of March 31, 2007 backlog for Transportation Systems
+was recognized as revenue in Fiscal 2008. Pursuant to the customary terms of
+our agreements with government contractors and other customers, customers can
+generally cancel or reschedule orders with little or no penalties. Lead
+times for the release of purchase orders often depend upon the scheduling and
+forecasting practices of our individual customers, which also can affect the
+timing of the conversion of our backlog into revenues. For these reasons, among
+others, our backlog at a particular date may not be indicative of our future
+revenues, in particular for Roadway Sensors and Vehicle Sensors. 
+Product
+Development 
+Most of our development
+activities are conducted at our principal facilities in Santa Ana, California.
+Our company-sponsored research and development costs and expenses were
+approximately $3.6 million for Fiscal 2008, $4.0 million for the fiscal year
+ended March 31, 2007 (“Fiscal 2007”), and $5.2 million for the fiscal year
+ended March 31, 2006 (“Fiscal 2006”). We expect to continue to pursue
+significant product development programs and incur significant research and
+development expenditures. 
+Competition 
+We generally face
+significant competition in each of our target markets. Increased competition
+may result in price reductions, reduced gross margins and loss of market share,
+any of which could have a material adverse effect on our business, financial
+condition and results of operations. While AutoVue has historically been the
+only established commercially-available lane departure warning system used in
+the U.S. and in Europe in the heavy truck market, we have recently experienced
+increased competition from new competitors in this market. Potential
+competitors of AutoVue include Delphi Automotive Systems Corporation, NEC
+Corporation and Hitachi Ltd. in Japan and Robert Bosch GmbH in Europe, as well
+as Siemens, Continental Tavis, Visteon and Cognex, which are currently
+developing video sensor technologies for the vehicle industry that could be
+used for lane departure warning systems. In the market for our Vantage vehicle
+detection systems, we compete with manufacturers of other above ground video
+camera detection systems such as Econolite Control Products, Inc.,
+Traficon, N.V., Quixote, and other non-intrusive detection devices including
+microwave, infrared, ultrasonic and magnetic detectors, as well as
+manufacturers and installers of in-pavement inductive loop products. 
+The transportation
+management and traveler information systems market is highly fragmented and is
+subject to evolving national and regional quality and safety standards. Our
+competitors vary in number, scope and breadth of the products and services they
+offer. Our competitors in advanced transportation management and traveler
+information systems include national corporations such as Transcore, Siemens,
+Telvent Farradyne, Kimley-Horn and Associates, Inc. and Delcan. Our
+competitors in transportation engineering, planning and design include major
+firms such as Parsons Brinkerhoff, Inc., URS, HNTB and Parsons
+Transportation Group, Inc., as well as many smaller regional engineering
+firms. 
+5 
+In general, the markets
+for the products and services we offer are highly competitive and are
+characterized by rapidly changing technology and evolving standards. Many of
+our current and prospective competitors have longer operating histories,
+greater name recognition, access to larger customer bases and significantly
+greater financial, technical, manufacturing, distribution and marketing
+resources than us. As a result, they may be able to adapt more quickly to new
+or emerging standards or technologies or to devote greater resources to the
+promotion and sale of their products. It is also possible that new competitors
+or alliances among competitors could emerge and rapidly acquire significant
+market share. We believe that our ability to compete effectively in our target markets
+will depend on a number of factors, including the success and timing of our new
+product development, the compatibility of our products with a broad range of
+computing systems, product quality and performance, reliability, functionality,
+price, and service and technical support. Our failure to provide services and
+develop and market products that compete successfully with those of other
+suppliers and consultants in our target markets would have a material adverse
+effect on our business, financial condition and results of operations. 
+Intellectual
+Property and Proprietary Rights 
+Our ability to compete
+effectively depends in part on our ability to develop and maintain the
+proprietary aspects of our technology. Our policy is to obtain appropriate
+proprietary rights protection for any potentially significant new technology
+acquired or developed by us. We currently hold ten U.S. patents, which expire
+commencing in 2012, and have six U.S. patent
+applications pending relating to our outdoor image processing techniques used
+in our AutoVue systems. Nine of our patents relate specifically to our AutoVue
+technology and provide a basis for enhanced functionality for rain sensing and
+improved performance. We believe that our other patents, while important for
+our technology platforms, are less critical to our near term product strategy.
+We cannot assure you that any new patents will be granted pursuant to any
+outstanding or subsequent applications. 
+In addition to patent
+laws, we rely on copyright and trade secret laws to protect our proprietary
+rights. We attempt to protect our trade secrets and other proprietary
+information through agreements with customers and suppliers, proprietary
+information agreements with our employees and consultants, and other similar
+measures. We do not have any material licenses or trademarks other than those
+relating to product names. We cannot be certain that we will be successful in
+protecting our proprietary rights. While we believe our patents, patent
+applications, software and other proprietary know-how have value, changing
+technology makes our future success dependent principally upon our employees’
+technical competence and creative skills for continuing innovation. 
+Litigation may be
+necessary in the future to enforce our proprietary rights, to determine the
+validity and scope of the proprietary rights of others, or to defend us against
+claims of infringement or invalidity by others. An adverse outcome in such
+litigation or similar proceedings could subject us to significant liabilities
+to third parties, require disputed rights to be licensed from others or require
+us to cease marketing or using certain products, any of which could have a
+material adverse effect on our business, financial condition and results of
+operations. In addition, the cost of addressing any intellectual property
+litigation claim, both in legal fees and expenses, as well as from the
+diversion of management’s resources, regardless of whether the claim is valid,
+could be significant and could have a material adverse effect on our business,
+financial condition and results of operations. 
+Employees 
+We refer to our employees
+as associates. As of June 9, 2008, we employed an aggregate of 268
+associates, including 54 associates in general management, administration and finance;
+34 associates in sales and marketing; 144 associates in engineering and product
+development; 23 associates in operations, manufacturing and quality; and 13
+associates in customer service. None of our associates are represented by a
+labor union, and we have never experienced a work stoppage. 
+Government
+Regulation 
+Our manufacturing
+operations are subject to various federal, state and local laws and
+regulations, including those restricting the discharge of materials into the
+environment. We are not involved in any pending or, to our knowledge,
+threatened governmental proceedings, which would require curtailment of our
+operations because of such laws and regulations. We continue to expend funds in
+connection with our compliance with applicable environmental regulations. These
+expenditures have not, however, been significant in the past, and we do not
+expect any significant expenditure in the near future. Currently, compliance
+with foreign laws has not had a material impact on our business and is not expected
+to have a material impact in the near future. 
+6

raw/filings/0000350868/2007/0001104659-08-039576/item13.txt

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
+TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information under the
+captions “Corporate Governance – Director Independence” and “Certain
+Transactions,” appearing in our proxy statement for the 2008 Annual Meeting of
+Stockholders, is incorporated herein by reference. 
+31

raw/filings/0000350868/2007/0001104659-08-039576/item9a.txt

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+ITEM 9A(T). CONTROLS AND PROCEDURES 
+(a) Evaluation of disclosure controls and
+procedures. In accordance with Rule 13a-15(b) of
+the Securities Exchange Act of 1934, as of the end of the period covered by
+this Annual Report on Form 10-K, the Company’s management evaluated, with
+the participation of the Company’s President and Chief Executive Officer and
+the Chief Financial Officer, the effectiveness of the design and operation of
+the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under
+the Exchange Act). Based upon their evaluation of these disclosure controls and
+procedures, the President and Chief Executive Officer and the Chief Financial
+Officer have concluded that the disclosure controls and procedures were
+effective as of the date of such evaluation in ensuring that information
+required to be disclosed in the Company’s Exchange Act reports is (1) recorded,
+processed, summarized and reported in a timely manner, and (2) accumulated
+and communicated to management, including the Company’s President and Chief
+Executive Officer and the Chief Financial Officer, as appropriate, to allow
+timely decisions regarding required disclosure. 
+(b) 
+Changes in internal control. There was no change in the Company’s
+internal control over financial reporting that occurred during the period
+covered by this Annual Report on Form 10-K that has materially affected,
+or is reasonably likely to materially affect, the Company’s internal control
+over financial reporting. 
+Management’s Report on Internal
+Control Over Financial Reporting 
+Management of the Company
+is responsible for establishing and maintaining adequate internal control over
+financial reporting. Our internal control system was designed to provide
+reasonable assurance to management and the board of directors regarding the
+effectiveness of our internal control processes over the preparation and fair
+presentation of published financial statements. 
+All internal
+control systems, no matter how well designed, have inherent limitations.
+Therefore, even those systems determined effective can provide only reasonable
+assurance with respect to financial statement preparation and presentation. 
+30 
+We have assessed
+the effectiveness of our internal controls over financial reporting as of March 31,
+2008. In making this assessment, we used the criteria set forth by the
+Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
+Internal Control—Integrated Framework. Based on our assessment, we believe
+that, as of March 31, 2008, our internal control over financial reporting
+is effective based on those criteria. 
+This annual report
+does not include an attestation report of the Company’s independent registered
+public accounting firm regarding internal control over financial reporting.
+Management’s report was not subject to attestation by the Company’s independent
+registered public accounting firm pursuant to the rules of the Securities
+and Exchange Commission that permit the Company to provide only management’s
+report in this annual report.

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raw/filings/0000350868/2010/0001104659-11-032666/item1.txt

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+ITEM 1. BUSINESS 
+Overview 
+We are a leader in the traffic management market focused on the development and application of advanced technologies that reduce traffic congestion and improve the safety of surface transportation systems infrastructure. Additionally, we believe that our products and services, in conjunction with sound traffic management, minimize the environmental impact of traffic congestion. By combining outdoor image processing, traffic engineering and information technology, we offer a broad range of Intelligent Transportation Systems (“ITS”) and driver safety solutions to customers worldwide. 
+We were originally incorporated in Delaware in 1987. Our principal executive offices are located at 1700 Carnegie Avenue, Santa Ana, California 92705, and our telephone number at that location is (949) 270-9400. Our Internet website address is www.iteris.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, together with amendments to these reports, are available on the “Investors” section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website. 
+Products and Services 
+We currently operate in four reportable segments: Roadway Sensors, Vehicle Sensors, Transportation Systems and Environmental Technology. The Roadway Sensors segment includes, among other products, our Vantage, Versicam and Pico vehicle detection systems for traffic intersection control, incident detection and certain highway traffic data collection applications. The Vehicle Sensors segment includes our lane departure warning (“LDW”) products, including our AutoVue LDW system, and is comprised of all activities related to in-vehicle safety. The Transportation Systems segment includes transportation engineering and consulting services, and the development of transportation management and traveler information systems for the ITS industry. The Environmental Technology segment was created in connection with our acquisition of Meridian Environmental Technology, Inc. (“MET”) in January 2011, and specializes in 511 advanced traveler information systems by offering a unique range of customer-specific environmental and operational forecasting products and services, as well as Maintenance Decision Support System (“MDSS”) management tools that allow users to create solutions to meet roadway maintenance decision needs. See Note 11 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report, for further details on our reportable segments. 
+Roadway Sensors. Our Roadway Sensors segment product line uses advanced image processing technology to capture and analyze video images through sophisticated algorithms, enabling vehicle detection and transmission of both video images and data using a wide range of communication technologies. Our Vantage video detection systems detect vehicle presence, count, speed, occupancy and other traffic data used in traffic management systems. Our Vantage systems give traffic managers the ability to mitigate roadway congestion by modifying traffic signal timing or detecting incidents quickly. Our VantageView software supplements our Vantage video detection systems by providing an integrated platform to manage and “see” video detection assets remotely over a network connection. Vantage video detection systems have been deployed by hundreds of agencies and are currently sold through a network of independent dealers in the United States (“U.S.”), Asia, Latin America, Europe and the Middle East. 
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+VersiCam, our integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections that require only a few detection points. Pico is a compact video detection system that delivers superior vehicle detection in a small and economical framework, and was developed primarily to address international video detection needs. We anticipate that future growth domestically and internationally, particularly in developing countries, will be dependent in part on the continued adoption of above-ground video detection technologies, instead of in-pavement loop technology, to manage traffic. 
+Our Roadway Sensors product line also includes the Abacus family of products, which has been designed with a blend of artificial intelligence and video detection algorithms that allow either fixed or pan-tilt-zoom cameras to be used for data collection and incident detection. Our Abacus products take advantage of the large number of existing installed closed-circuit television video feeds monitoring roadways, tunnels and bridges and at signalized intersections. This flexibility of using a broad range of cameras with an appropriate perspective allows for accurate data collection without the set-up and calibration required with other systems. 
+We have historically experienced seasonality, particularly with respect to our Roadway Sensors net sales in the third and fourth fiscal quarters due to a reduction in road construction and repairs during the winter months due to inclement weather conditions. 
+Vehicle Sensors. Our Vehicle Sensors segment addresses the leading causes of roadway fatalities: lane change, roadway departure and rear-end collision accidents. Early estimates by the NHTSA of U.S. motor vehicle traffic fatalities in 2010 were approximately 33,000. 
+We developed the world’s first production LDW system and offer a proven system that is available as an original equipment manufacturer (“OEM”) and aftermarket option on heavy trucks worldwide and as an option in certain passenger cars. Our LDW products utilize video detection technology to detect when a vehicle begins to drift toward an unintended lane change. When this occurs, the system automatically emits a distinctive rumble strip or other audible warning sound, alerting the driver to make a correction. Through March 31, 2011, we have sold slightly more than 91,000 LDW systems into the heavy truck market in Europe, North America and Asia. Our LDW systems are standard on certain FUSO heavy truck models, and are currently qualified as an option on certain heavy trucks, including Mercedes-Benz, MAN, Iveco, DAF, Scania and Freightliner, as well as EvoBus, Neoplan and VanHool luxury bus and coach lines. In North America, our LDW systems are sold both as factory-installed OEM options, as well as directly to truck fleets as a retrofit installation. 
+In 2009, the European Union (“EU”) introduced a mandate, which is expected to be finalized and approved sometime in 2011, that sets better standards to improve road safety in Europe. The new mandated rules for safety technology are expected to include systems such as electronic stability control, advanced emergency braking and LDW systems to be compulsory on heavy-duty trucks and buses to further reduce accident risks. LDW systems are expected to be mandatory in Europe on all new heavy truck models beginning in 2013. Additionally, by 2015, every new truck produced will be required to have LDW systems. We believe that in order for the EU mandate for active safety systems to have a positive impact on our sales, we need to establish long-term supplier agreements with our European OEM heavy truck customers. To date we have agreements to supply certain of our European heavy truck customers through 2014, and are currently working on agreements with certain other heavy truck OEMs and our existing customer base to extend contracts further in the future in order to meet the anticipated increase in demand. However, we cannot assure you that our efforts will be successful or that the expected increase in demand will occur. We believe that the expected EU mandate for LDW and other active safety systems, and an increasing general awareness of the potential benefits of LDW, helps validate the long-term market opportunity for LDW systems in commercial vehicles. Additionally, in North America we plan to develop partnerships with other manufacturers and suppliers of safety devices for heavy trucks to jointly sell our LDW systems and provide our SafetyDirect software tool to North American trucking fleets. 
+For the passenger car market, we have exclusively licensed our LDW technology to our strategic partner, Valeo Schalter and Sensoren GmbH (“Valeo”), resulting in sales to date through March 31, 2011 of approximately 108,000 LDW systems for passenger cars. We and our partner have recently experienced a greater degree of competition in the passenger car market as several passenger car OEMs have introduced vehicle platforms with competing LDW systems. However, Valeo continues to pursue opportunities in the passenger car market. 
+In addition to our LDW systems, our Vehicle Sensors portfolio includes radar-based Forward Collision Warning (“FCW”) and Blind Spot Warning (“BSW”) systems for the North American truck market. We offer the FCW and BSW features through the resale of Delphi’s radar based systems, for which we are the exclusive North American dealer. Our portfolio also includes our internally-developed SafetyDirect software system, which can provide a single point of access to monitor and synchronize driver performance data on braking, stability control, following distances, and lane departure warnings for individual drivers as well as entire fleets. SafetyDirect uses information transmitted from the vehicle by the fleet’s onboard mobile communications system to provide fleet operators with a comprehensive view of the entire fleet, as well as the ability to drill down to detailed information on individual drivers and events. These products, together with our LDW products, combine to create a broad suite of active safety driver assistance features designed to help reduce the number of motor vehicle crashes and the severity of crash-related injuries. 
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+Additionally, in collaboration with Audiovox Electronics Corporation, during the fiscal year ended March 31, 2011 (“Fiscal 2011”), we developed and introduced an Advanced Driver Assistance System for the consumer automobile aftermarket. The new system provides consumers an opportunity to benefit from life-saving features that were previously only available on new premium cars or commercial Class 8 trucks, and incorporates our LDW and FCW systems developed for the OEM market. We anticipate the system to be available in the marketplace by the end of our fiscal year ending March 31, 2012. 
+Transportation Systems. Our Transportation Systems segment includes transportation engineering and consulting services focused on the planning, design, development and implementation of software-based systems that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews and distribute real-time information about traffic conditions. Our services include transportation and ITS planning, design and implementation of surface transportation infrastructure systems. We perform analysis and study goods movement, commercial vehicle operations, travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. These services and systems have historically been primarily sold to local, state and national transportation agencies in the U.S.; however, during the last two years, we have been awarded several contracts in the United Arab Emirates, and plan to continue to pursue additional international opportunities in the Middle East and other regions. Our Transportation Systems segment is largely dependent upon governmental funding, and is affected by federal, state and local budgetary issues. 
+Environmental Technology. In January 2011, we acquired MET, a privately-held company based in Grand Forks, North Dakota. MET specializes in 511 advanced traveler information systems by offering a unique range of customer-specific environmental and operational forecasting products and services. MET utilizes certain internally developed systems and tools as the model for the 511 National Guidelines, and currently delivers a combination of customized route-specific surface weather, travel times and road condition reports statewide across various states in the U.S. MET also provides MDSS management tools that allow users to create solutions to meet roadway maintenance decision needs. MDSS provides detailed and accurate information at the route level that enables the efficient maintenance of roads and highways while optimizing resource use and reducing costs. 
+Sales, Marketing and Principal Customers 
+We sell our Roadway Sensors products through indirect sales channels comprised of a strong network of independent dealers in the U.S. and certain foreign locations, who sell integrated systems and related products to the traffic management market, as well as directly to the traffic management market using a combination of our own sales personnel and an outside sales organization. Our independent dealers are well-trained in, and primarily responsible for, sales, installation, set-up and support of our products, and maintain an inventory of demonstration traffic products from various manufacturers, including our vehicle detection systems, and sell directly to government agencies and installation contractors. These dealers often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, and are generally well-known suppliers of high-quality ITS products to the traffic management market. We periodically hold technical training classes for our dealers and end users and maintain a full-time expert staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we have the ability to modify or make changes to our dealer network to best suit the needs of the market and our customer base. In the states where we sell directly, we use our own expert staff to sell, oversee installations and set-up issues and support our products. 
+Our marketing strategy for our Vehicle Sensors segment is to establish our LDW products as the leading platform for in-vehicle video sensing for heavy trucks and passenger cars. We sell LDW systems directly to heavy truck manufacturers and to U.S. truck fleets. We market the licensing of our LDW technology to manufacturers of passenger automobiles through an exclusive strategic relationship with Valeo. In connection with this marketing effort, we provide specific contract engineering services, technical marketing and sales support to Valeo, which to date has enabled the launch of our LDW technology on four Infiniti car platforms. We plan to continue to provide technical marketing and sales support to Valeo in our efforts to win new OEM customers for the passenger car market, as well as contract engineering services related to the possible launch of new platforms that include our LDW system. 
+With respect to the Vehicle Sensors segment, during Fiscal 2011, we also entered into a strategic alliance with MeritorWabco for integration, marketing and sales of our SafetyDirect system. This alliance provides us access to the North American sales force of MeritorWabco and Meritor, and provides the market with a leading comprehensive safety system for heavy trucks available today. 
+We market and sell our Transportation Systems and Environmental Technology services directly to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and municipal customers and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use selected members of our engineering, science and information technology teams on a regional basis to serve in sales and business development functions. Our contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations. 
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+A large portion of our revenues are derived from sales to federal, state and local government agencies. We currently have a diverse customer base with no individual customer representing greater than 10% of our total net sales and contract revenues in Fiscal 2011, or in the fiscal years ended March 31, 2010 (“Fiscal 2010”) and March 31, 2009 (“Fiscal 2009”). Also refer to Note 11 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report. 
+Manufacturing and Materials 
+We use contract manufacturers to build subassemblies that are used in our sensors products. Additionally, we procure certain components from qualified suppliers, both globally and locally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. These subassemblies and components are delivered to our Santa Ana, California facility where they go through final assembly and testing prior to shipment to our customers. Certain of our key suppliers include CTS Electronics Manufacturing Solutions, Inc., Total Electronics LLC, Sony Electronics, Inc. and LG Electronics, Inc. Our manufacturing activities are conducted in approximately 9,000 square feet of space at our Santa Ana facility. Production volume at our subcontractors is based upon quarterly forecasts that we generally adjust on a monthly basis to control inventory levels. For LDW products sales to the passenger car market, all manufacturing has been and is expected to be performed by Valeo; however, we plan to continue to provide engineering support to Valeo. We typically do not manufacture any of the hardware used in the transportation management and traveler information systems that we design and implement. Our production facility is currently ISO 9001 certified. 
+Customer Support and Services 
+We provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenue was not a material portion of our total net sales and contract revenues for each of Fiscal 2011, 2010 and 2009. We believe customer support is a key competitive factor. 
+Backlog 
+Our total backlog of unfulfilled firm orders was approximately $32.8 million as of March 31, 2011, which was comprised of $2.7 million related to Roadway Sensors, $1.0 million related to Vehicle Sensors, $25.5 million related to Transportation Systems and $3.6 million related to Environmental Technology. Substantially all of the backlog for Roadway Sensors and Vehicle Sensors is expected to be recognized as revenue in the fiscal year ending March 31, 2012. We have historically recognized in the subsequent fiscal year between 50% to 70% of our Transportation Systems backlog at the fiscal year end, and currently expect that trend to continue for the near future. 
+At March 31, 2010, we had backlog of approximately $30.6 million, which was comprised of $1.6 million related to Roadway Sensors, $600,000 related to Vehicle Sensors and $28.4 million related to Transportation Systems. 
+The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly in view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. 
+Pursuant to the customary terms of our agreements with government contractors and other customers, customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often depend upon the scheduling and forecasting practices of our individual customers, which also can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of our future revenues, in particular for our Roadway Sensors and Vehicle Sensors segments. 
+Product Development 
+Most of our product development activities are conducted at our principal facilities in Santa Ana. Our research and development costs and expenses were approximately $3.8 million for Fiscal 2011, $3.7 million for Fiscal 2010 and $4.0 million for Fiscal 2009. We expect to continue to pursue various product development programs and incur research and development expenditures in future periods. 
+We believe our engineering and product development capabilities are a competitive strength. We strive to continue to develop new products to meet the needs of the ever-changing ITS market as well as enhance and refine our existing product lines. Within the last 12 to 24 months we have introduced our VersiCam and VersiCam wireless products, Pico, our new RZ-4 Advanced camera, and our RZ-4 Advanced Wide Dynamic Range camera, which significantly improves video detection performance in certain 
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+harsh lighting conditions. We have also introduced our Abacus and VantageView software products. We believe that developing new offerings across our segments and enhancing, refining and marketing our existing products is a key component of strong organic growth and profitability. 
+Competition 
+We generally face significant competition in each of our target markets. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. 
+In the market for our Roadway Sensors vehicle detection products, we compete with manufacturers and distributors of other above ground video camera detection systems such as Peek Traffic Corporation, Wavetronix LLC, Econolite Control Products, Inc., Traficon, N.V., Image Sensing Systems, Inc. and other non-intrusive detection devices, including microwave, infrared, ultrasonic and magnetic detectors, as well as manufacturers and installers of in-pavement inductive loop products, which have historically, and currently continue to be, the predominant detection system in this market. 
+In the market for our Vehicle Sensors systems, we believe that, as a result of the expected 2013 European mandate for LDW and other active safety systems and an increase in overall awareness of the potential benefits of LDW, we anticipate we will experience an even higher degree of competition from a variety of tier-one OEM suppliers and other potential market entrants worldwide. Additionally, we and our strategic partner (Valeo) have recently experienced a greater degree of competition in the passenger car market as several passenger car OEMs have introduced vehicle platforms with competing LDW systems. We consider competitors in this market to include Delphi Automotive Systems Corporation, DENSO and Hitachi Ltd. in Japan, Robert Bosch GmbH in Europe, Continental, TRW, MobilEye and Takata, all of which currently have developed or are developing video sensor technologies for the vehicle industry that could be used for lane departure warning systems. 
+The markets in which our Transportation Systems and Environmental Technology segments operate are highly fragmented and are subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors in advanced Transportation Systems include national corporations such as Transcore, Siemens, Telvent Farradyne, Kimley-Horn and Associates, Inc., Delcan, Atkins and Open Roads. Our competitors in transportation engineering, planning and design include major firms such as Parsons Brinkerhoff, Inc., URS, HNTB and Parsons Transportation Group, Inc., as well as many smaller regional engineering firms. Additionally, key competitors pertaining to the road weather portion or our Environmental Technology segment include Telvent DTN, Mixon-Hill and Cambridge Systematics. 
+In general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolving standards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, technical, manufacturing, distribution and marketing resources than us. As a result, they may be able to adapt more quickly to new or emerging standards or technologies or to devote greater resources to the promotion and sale of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our target markets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broad range of computing systems, product quality and performance, reliability, functionality, price and service and technical support. Our failure to provide services and develop and market products that compete successfully with those of other suppliers and consultants in our target markets would have a material adverse effect on our business, financial condition and results of operations. 
+Intellectual Property and Proprietary Rights 
+Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently hold eleven U.S. patents, two foreign patents, one pending U.S. patent and three pending foreign patents. Eight U.S. patents, two foreign patents, one pending U.S. patent, and one pending foreign patent relate specifically to our Vehicle Sensors technology and provide a basis for enhanced functionality and improved performance. Three U.S. patents and two pending foreign patents relate specifically to our Roadway Sensors technology. One of these U.S. patents and the two pending foreign patents are for an Electronic Traffic Monitor related to our Abacus product in the Roadway Sensors segment. We cannot assure you that any new patents will be granted pursuant to these or subsequent applications. 
+In addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. We do not have any material licenses or trademarks other 
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+than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value, changing technology makes our future success dependent principally upon our employees’ technical competence and creative skills for continuing innovation. 
+Litigation may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others, or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management’s resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees as associates. As of May 2, 2011, we employed an aggregate of 276 associates, including 55 associates in general management, administration and finance; 30 associates in sales and marketing; 162 associates in engineering and product development; 18 associates in operations, manufacturing and quality; and 11 associates in customer service. None of our associates are represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our associates are good. 
+Government Regulation 
+Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. We continue to expend funds in connection with our compliance with applicable environmental regulations. These expenditures have not, however, been significant in the past, and we do not expect any significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business and is not expected to have a material impact in the near future.

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information under the captions “Corporate Governance — Director Independence” and “Certain Transactions,” appearing in our proxy statement for the 2011 Annual Meeting of Stockholders, is incorporated herein by reference. 
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+ITEM 9A. CONTROLS AND PROCEDURES 
+(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report on Form 10-K, management evaluated, with the participation of the our President and Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the date of such evaluation in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s President and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+(b) Changes in internal control. There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 
+Inherent Limitations on Internal Control 
+A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations. 
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+Management’s Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to management and the board of directors regarding the effectiveness of our internal control processes over the preparation and fair presentation of published financial statements. 
+We have assessed the effectiveness of our internal controls over financial reporting as of March 31, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment, we believe that, as of March 31, 2011, our internal control over financial reporting is effective based on those criteria. 
+This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC applicable to smaller reporting companies.

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+ITEM 1. BUSINESS 
+Overview 
+We are a leading provider of intelligent information solutions to the traffic management market. We are focused on the development and application of advanced technologies and software-based information systems that reduce traffic congestion, provide measurement, management and predictive traffic analytics and improve the safety of surface transportation systems infrastructure. We believe that our products, services and solutions, in conjunction with sound traffic management, minimize the environmental impact of traffic congestion. By combining our image processing, traffic engineering, information technology, and other products and services, we offer a broad range of Intelligent Transportation Systems (“ITS”) solutions to customers worldwide. 
+We were originally incorporated in Delaware in 1987. Our principal executive offices are located at 1700 Carnegie Avenue, Santa Ana, California 92705, and our telephone number at that location is (949) 270-9400. Our Internet website address is www.iteris.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, together with amendments to these reports, are available on the “Investors” section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website. 
+Sale of Vehicle Sensors 
+On July 29, 2011, we completed the sale of substantially all of the assets used in connection with our Vehicle Sensors segment to Bendix Commercial Vehicle Systems LLC (“Bendix”), a member of Knorr-Bremse Group, pursuant to an Asset Purchase Agreement signed on July 25, 2011 (the “Asset Sale”). Upon closing, Bendix paid us $14 million in cash, subject to a $2 million holdback and adjustments based upon the working capital of the Vehicle Sensors segment at closing, and Bendix assumed certain specified obligations and liabilities of the Vehicle Sensors segment. We are entitled to additional consideration in the form of certain performance and royalty-related earn-outs. As a result of the Asset Sale, we no longer operate in the Vehicle Sensors segment and we determined that the Vehicle Sensors segment, which previously constituted one of our operating segments, qualifies as a discontinued operation. Refer to Note 3 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report for additional discussion on this transaction. The applicable financial results of the Vehicle Sensors segment through the closing of the Asset Sale have been reported as a discontinued operation for all periods presented. 
+Products and Services 
+As a result of the sale of Vehicle Sensors in July 2011, and a reevaluation and reorganization of our operating segments in the first quarter of the fiscal year ended March 31, 2012, we currently operate in two reportable segments: Roadway Sensors and Transportation Systems. The Roadway Sensors segment includes, among other products, our Vantage, Versicam, Pico, Vantage Vector and Abacus vehicle detection systems for traffic intersection control, incident detection and certain highway traffic data collection applications. The Transportation Systems segment includes transportation engineering and consulting services, and the development of transportation management and traveler information systems for the ITS industry. See Note 13 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report, for further details on our reportable segments. 
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+Roadway Sensors 
+Our Roadway Sensors segment product line uses advanced image processing technology to capture and analyze video images through sophisticated algorithms, enabling vehicle detection and transmission of both video images and data using various communication technologies. 
+· Our Vantage video detection systems detect vehicle presence at intersections, as well as vehicle count, speed and other traffic data used in traffic management systems. Our Vantage systems give traffic managers the ability to mitigate roadway congestion by modifying traffic signal timing or detecting incidents quickly. Our VantageView software supplements our Vantage video detection systems by providing an integrated platform to manage and “see” video detection assets remotely over a network connection. 
+· Our Vantage Vector product is an all-in-one vehicle detection sensor with a wide range of capabilities: stop bar detection, advanced-zone detection, and sensing that enables advanced safety and adaptive control applications. It includes all the proven benefits of Iteris video detection, including high accuracy, high availability remote viewing of video images, no trenching or pavement cutting for installation, bicycle detection capability and high precision for dilemma zone detection by integrating the video field-of-view with radar sensing. Enhanced information includes the number of vehicles, speed, and distance in user configurable zones that can be used for special applications. 
+· VersiCam, our integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections that require only a few detection points. 
+· Pico, our compact video detection system, was developed primarily to address international video detection needs, and was designed for easy installation and configuration. 
+· Our Abacus products take advantage of the large number of existing installed closed-circuit television video feeds designed to monitor roadways, signalized intersections, tunnels and bridges to allow for data collection and incident detection without the set-up and calibration generally required with other systems. 
+We believe that future growth domestically and internationally, particularly in developing countries, will be dependent in part on the continued adoption of above-ground video detection technologies, instead of traditional in-pavement loop technology, to manage traffic. 
+We have historically experienced seasonality, particularly with respect to our Roadway Sensors net sales in our third and fourth fiscal quarters due to a reduction in road construction and repairs during the winter months due to inclement weather conditions. 
+Transportation Systems 
+Our Transportation Systems segment includes transportation engineering and consulting services focused on the planning, design, development and implementation of software-based systems that integrate sensors, video surveillance, computers, and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews and distribute real-time information about traffic conditions. Our services include planning, design and implementation of surface transportation infrastructure systems. We perform analysis and study goods movement, study commercial vehicle operations, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. This segment also includes the activities of Meridian Environmental Technology, Inc. (“MET”), which we acquired in January 2011, and which specializes in 511 advanced traveler information systems as well as Maintenance Decision Support System (“MDSS”) management tools that allow users to create solutions to meet roadway maintenance decision needs. The operations of Berkeley Transportation Systems, Inc. (“BTS”), which we acquired in November 2011, are also included in this segment. BTS specializes in transportation performance measurement and its Performance Measurement System leverages its real-time data collection, diagnostic, fusion and warehousing platform to aggregate and compute performance measures. 
+Our Transportation Systems segment is largely dependent upon governmental funding and is affected by state and local budgetary issues. We believe the overall expansion of our Transportation Systems segment in the future will at least in part be dependent on the passage of a new Federal Highway Bill. Congress is currently working on such a bill. The previous Federal Highway Bill expired in October 2009 but the funding levels under the expired bill have continued through a series of short-term extensions, the most recent of which extends funding through the end of June 2012. Continued delays in the enactment of such a new Federal Highway Bill, and until such time as a bill becomes law, will prolong the uncertainty regarding the allotment of transportation funds in federal, state and local budgets. We believe that prolonged uncertainty has adversely impacted, and may continue to adversely impact, our net sales and contract revenues and our overall financial performance in future periods. 
+With the addition of MET in January 2011, we have experienced seasonality particularly related to certain MDSS services in our first and second fiscal quarters mainly because MDSS services are generally not required in the summer months. 
+3 
+Table of Contents 
+During the fiscal year ended March 31, 2012 (“Fiscal 2012”), we began the development of IterisPeMS. IterisPeMS is an advanced, real-time data collection, diagnostic, fusion and warehousing software platform used to aggregate and compute performance measures across multiple transportation modes, including travel time, travel time variability, delay and lost throughput. This information can then be analyzed by traffic professionals to measure how a transportation network is performing and identity potential areas of improvement. IterisPeMS is also capable of providing users with easy-to-use visualization and animation features for both historical and predictive traffic conditions. Costs incurred during Fiscal 2012, which include research and development expense as well as sales and marketing expenditures were not allocated to either of the Roadway Sensors or Transportation Systems segments as this project was deemed to be a corporate level development. 
+Sales, Marketing and Principal Customers 
+We sell our Roadway Sensors products through indirect sales channels comprised of a network of independent dealers in the U.S. and certain foreign locations, who sell integrated systems and related products to the traffic management market, as well as directly to the traffic management market using a combination of our own sales personnel and an outside sales organization. Our independent dealers are trained in, and primarily responsible for, sales, installation, set-up and support of our products, and maintain an inventory of demonstration traffic products from various manufacturers and sell directly to government agencies and installation contractors. These dealers often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, and are generally well-known suppliers of high-quality ITS products to the traffic management market. We periodically hold technical training classes for our dealers and end users and maintain a full-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we have the ability to modify or make changes to our dealer network to accommodate the needs of the market and our customer base. In the states where we sell directly, we use our own staff to sell, oversee installations and set-up issues and support our products. 
+We market and sell our Transportation Systems services directly to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and municipal customers and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use selected members of our engineering, science and information technology teams on a regional basis to serve in sales and business development functions. Our contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations. 
+A large portion of our revenues are derived from sales to federal, state and local government agencies. We currently have a diverse customer base, and no individual customer represented greater than 10% of our total net sales and contract revenues in Fiscal 2012 and in the fiscal years ended March 31, 2011 (“Fiscal 2011”) and March 31, 2010 (“Fiscal 2010”). Also refer to Note 13 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report. 
+Manufacturing and Materials 
+We use contract manufacturers to build subassemblies that are used in our roadway sensors products. Additionally, we procure certain components from qualified suppliers, both globally and locally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. These subassemblies and components are delivered to our Santa Ana, California facility where they go through final assembly and testing prior to shipment to our customers. Our key suppliers include CTS Electronics Manufacturing Solutions, Inc., Total Electronics LLC, Sony Electronics, Inc. and LG Electronics, Inc. Our manufacturing activities are conducted in approximately 9,000 square feet of space at our Santa Ana facility. Production volume at our subcontractors is based upon quarterly forecasts that we generally adjust on a monthly basis to control inventory levels. We typically do not manufacture any of the hardware used in the transportation management and traveler information systems that we design and implement. Our production facility is currently ISO 9001 certified. 
+Customer Support and Services 
+We provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenue was not a material portion of our total net sales and contract revenues for each of Fiscal 2012, Fiscal 2011 and Fiscal 2010. We believe customer support is a key competitive factor. 
+Backlog 
+Our total backlog of unfulfilled firm orders was approximately $35.0 million as of March 31, 2012, which was comprised of $3.2 million related to Roadway Sensors and $31.8 million related to Transportation Systems. Substantially the entire backlog for Roadway Sensors is expected to be recognized as revenue in the fiscal year ending March 31, 2013. We have historically recognized between 50% to 70% of our Transportation Systems backlog as of the end of a fiscal year in the subsequent fiscal year, and currently expect that trend to continue for the near future. 
+4 
+Table of Contents 
+At March 31, 2011, we had backlog of approximately $28.2 million, which was comprised of $2.7 million related to Roadway Sensors and $25.5 million related to Transportation Systems. 
+The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly in view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. 
+Pursuant to the customary terms of our agreements with government contractors and other customers, customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often depend upon the scheduling and forecasting practices of our individual customers, which also can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of our future revenues, in particular for our Roadway Sensors segment. 
+Product Development 
+Most of our product development activities are conducted at our principal facilities in Santa Ana, California. Our research and development costs and expenses were approximately $3.2 million for Fiscal 2012, $2.4 million for Fiscal 2011 and $2.6 million for Fiscal 2010. We expect to continue to pursue various product development programs and incur research and development expenditures in future periods. 
+We believe our engineering and product development capabilities are a competitive strength. We strive to continue to develop new products to meet the needs of the ever-changing ITS market as well as enhance and refine our existing product lines. Within the last four fiscal years, our Roadway Sensors segment has introduced our VersiCam and VersiCam wireless products, Pico, RZ-4 Advanced camera and our RZ-4 Advanced Wide Dynamic Range camera, which significantly improve video detection performance in certain harsh lighting conditions, and within the last fiscal year, Vantage Vector. We have also upgraded our Abacus and VantageView software products within the last fiscal year. Additionally, during Fiscal 2012, we began development of our IterisPeMS Performance Measurement System. We plan to continue this development effort in our fiscal year ending March 31, 2013. We believe that developing new offerings across our segments and enhancing, refining and marketing our existing products is a key component of strong organic growth and profitability. 
+Competition 
+We generally face significant competition in each of our target markets. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. 
+In the market for our Roadway Sensors vehicle detection products, we compete with manufacturers and distributors of other above ground video camera detection systems and other non-intrusive detection devices, including microwave, infrared, ultrasonic and magnetic detectors, as well as manufacturers and installers of in-pavement inductive loop products, which have historically, and currently continue to be, the predominant detection system in this market. 
+The markets in which our Transportation Systems segment operates is highly fragmented and subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors in advanced Transportation Systems include national corporations. Our competitors in transportation engineering, planning and design include major regional firms, as well as many smaller local engineering firms. 
+In general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolving standards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, technical, manufacturing, distribution and marketing resources than us. As a result, they may be able to adapt more quickly to new or emerging standards or technologies or to devote greater resources to the promotion and sale of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our target markets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broad range of computing systems, product quality and performance, reliability, functionality, price and service and technical support. Our failure to provide services and develop and market products that compete successfully with those of other suppliers and consultants in our target markets would have a material adverse effect on our business, financial condition and results of operations. 
+5 
+Table of Contents 
+Intellectual Property and Proprietary Rights 
+Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently hold five U.S. patents, three pending foreign patents and two provisional patents. One U.S. patent, which expires in May 2019, is for general technology related to CMOS sensors. Four U.S. patents, which expire between 2013 and 2029, two pending foreign patents and two provisional patents relate specifically to our Roadway Sensors technology. One of these U.S. patents and the two pending foreign patents are for an Electronic Traffic Monitor related to our Abacus product in the Roadway Sensors segment. We cannot be certain that any new patents will be granted pursuant to these or subsequent applications. As a result of the Asset Sale, certain patents were transferred to Bendix. We believe these patents were specific to that segment and the transfer of ownership does not impair our proprietary rights related to our current product and service offerings. 
+In addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. We do not have any material licenses or trademarks other than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value; changing technology makes our future success dependent principally upon our employees’ technical competence and creative skills for continuing innovation. 
+Litigation may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others, or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management’s resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees as associates. As of March 31, 2012, we employed an aggregate of 264 full-time associates, including 57 associates in general management, administration and finance; 19 associates in sales and marketing; 160 associates in engineering and product development; 15 associates in operations, manufacturing and quality; and 13 associates in customer service. None of our associates are represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our associates are good. 
+Government Regulation 
+Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. We continue to expend funds in connection with our compliance with applicable environmental regulations. These expenditures have not, however, been significant in the past, and we do not expect any significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business and is not expected to have a material impact in the near future.

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+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 
+The information under the captions “Corporate Governance — Director Independence” and “Certain Transactions,” appearing in our proxy statement for the 2012 Annual Meeting of Stockholders, is incorporated herein by reference.

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+ITEM 9A. CONTROLS AND PROCEDURES 
+(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report on Form 10-K, management evaluated, with the participation of the our President and Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the date of such evaluation in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s President and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 
+(b) Changes in internal control. There was no change in our internal control over financial reporting that occurred during the fourth quarter of Fiscal 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 
+Inherent Limitations on Internal Control 
+A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations. 
+29 
+Table of Contents 
+Management’s Report on Internal Control Over Financial Reporting 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to management and our Board of Directors regarding the effectiveness of our internal control processes over the preparation and fair presentation of published financial statements. 
+We have assessed the effectiveness of our internal controls over financial reporting as of March 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment, we believe that, as of March 31, 2012, our internal control over financial reporting is effective based on those criteria. 
+This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC applicable to smaller reporting companies.

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+0000350868,ITI,"ITERIS, INC.",10-K,2013-06-07,2013-03-31,2013-06-07T20:02:36.000Z,0001104659-13-047720,a13-10816_110k.htm,10-K,12618631,1,0,https://www.sec.gov/Archives/edgar/data/350868/000110465913047720/a13-10816_110k.htm,https://www.sec.gov/Archives/edgar/data/350868/000110465913047720/,2012,2012,1

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+ITEM 1. BUSINESS 
+Overview 
+We are a leading provider of intelligent information solutions to the traffic management market. We are focused on the development and application of advanced technologies and software-based information systems that reduce traffic congestion, provide measurement, management and predictive traffic analytics and improve the safety of surface transportation systems infrastructure. We also believe our products, services and solutions, in conjunction with sound traffic management, minimize the environmental impact of traffic congestion. We combine our unique intellectual property, products, decades of experience in traffic management and information technologies to offer a broad range of Intelligent Transportation Systems (“ITS”) solutions to customers worldwide. 
+We were originally incorporated in Delaware in 1987. Our principal executive offices are located at 1700 Carnegie Avenue, Santa Ana, California 92705, and our telephone number at that location is (949) 270-9400. Our Internet website address is www.iteris.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, together with amendments to these reports, are available on the “Investors” section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The inclusion of our website address in this report does not include or incorporate by reference into this report any information on, or accessible through, our website. 
+Products and Services 
+We currently operate in three reportable segments: Roadway Sensors, Transportation Systems and iPerform. The Roadway Sensors segment includes, among other products, our Vantage, VersiCam, Pico, Vantage Vector, SmartCycle, SmartScan and Abacus vehicle detection systems for traffic intersection control, incident detection and certain highway traffic data collection applications. The Transportation Systems segment includes transportation engineering and consulting services, and the development of transportation management and traveler information systems for the ITS industry. This segment also includes 511 advanced traveler information systems and offers our weather related Maintenance Decision Support System management tools that allow users to create solutions to meet roadway maintenance decision needs. The iPerform segment includes our transportation performance measurement and information management solutions. The iPerform performance measurement solutions leverage its real-time data collection, diagnostic, fusion and warehousing platform to aggregate and compute performance measurements. See Note 13 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report, for further details on our reportable segments. 
+Roadway Sensors 
+Our Roadway Sensors segment product line uses advanced image processing technology to capture and analyze video images through sophisticated algorithms, enabling vehicle detection and transmission of both video images and data using various communication technologies. 
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+Table of Contents 
+· Our Vantage video detection systems detect vehicle presence at intersections, as well as vehicle count, speed and other traffic data used in traffic management systems. Vantage video detection systems typically include up to four of our RZ-4 Advanced cameras or our RZ-4 Advanced Wide Dynamic Range cameras and an EdgeConnect processor. Our Vantage systems give traffic managers the ability to mitigate roadway congestion by modifying traffic signal timing or detecting incidents quickly. Our VantageView software supplements our Vantage video detection systems by providing an integrated platform to manage and “see” video detection assets remotely over a network connection. 
+· Our Vantage Vector product is an all-in-one vehicle detection sensor with a wide range of capabilities including: stop bar detection, advanced-zone detection, and sensing that enables advanced safety and adaptive control applications. It includes all the proven benefits of Iteris video detection, including high accuracy, high availability remote viewing of video images, no trenching or pavement cutting for installation, bicycle detection capability and high precision for dilemma zone detection by integrating the video field-of-view with radar sensing. Enhanced information includes the number of vehicles, speed, and distance in user configurable zones that can be used for special applications. 
+· Our SmartSpan product uses proprietary Dynamic Zone Stabilization algorithms and provides accurate and cost effective advance detection and stop-bar detection of vehicles at intersections equipped with span wire mounted signal lights. SmartSpan can be mounted on the same span wires holding the traffic signal without sacrificing detection accuracy. 
+· Our Vantage systems equipped with SmartCycle can effectively differentiate between bicycles and other vehicles with a single video detection camera, enabling more efficient signalized intersections and maximized traffic throughput. Agencies using bicycle timing can now benefit from bicycle-specific virtual detection zones that can be placed anywhere within the approaching traffic lanes, eliminating the need for separate bicycle-only detection systems. 
+· VersiCam, our integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections that require only a few detection points. 
+· Pico, our compact video detection system, was developed primarily to address international video detection needs, and was designed for easy installation and configuration. 
+· Our Abacus products take advantage of the large number of existing installed closed-circuit television video feeds designed to monitor roadways, signalized intersections, tunnels and bridges to allow for data collection and incident detection without the set-up and calibration generally required with other systems. 
+We believe that future growth domestically and internationally, particularly in developing countries, will be dependent in part on the continued adoption of above-ground video detection technologies, instead of traditional in-pavement loop technology, to manage traffic. 
+We have historically experienced seasonality, particularly with respect to our Roadway Sensors revenues in our third and fourth fiscal quarters due to reductions in road construction and repairs during the winter months related to inclement weather conditions. 
+Transportation Systems 
+Our Transportation Systems segment includes transportation engineering and consulting services focused on the planning, design, development and implementation of software-based systems that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews and distribute real-time information about traffic conditions. Our services include planning, design and implementation of surface transportation infrastructure systems. We perform analysis and study goods movement, study commercial vehicle operations, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. This segment also includes the activities of Meridian Environmental Technology, Inc. (“MET”), acquired by us in January 2011, which specializes in 511 advanced traveler information systems as well as Maintenance Decision Support System (“MDSS”) management tools that allow users to create solutions to meet roadway maintenance decision needs. 
+Our Transportation Systems segment is largely dependent upon governmental funding and is affected by state and local budgetary issues. We expect the recently enacted federal highway bill, which provides for an estimated $105 billion in federal funding for highway, transit, safety, and related transportation programs through the end of September 2014, should make funds more available for transportation infrastructure, traffic management and performance measurement projects. This bill could encourages government agencies to include ITS technologies in these types of projects to a greater degree than in previous 
+3 
+Table of Contents 
+legislation. In addition, various other funding mechanisms exist to support transportation infrastructure and related projects. These include bonds, dedicated sales and gas tax measures and other alternative funding sources. We believe the overall expansion of our Transportation Systems segment in the future will at least in part be dependent on the federal governments’ use of funds under the federal highway bill. Delays in the release of funding may prolong uncertainty regarding the allotment of transportation funds in federal, state and local budgets. We believe that prolonged uncertainty has adversely impacted, and may continue to adversely impact, our Transportation Systems revenues and our overall financial performance in future periods. 
+With the addition of MET in January 2011, we have experienced seasonality particularly related to certain MDSS services in our first and second fiscal quarters mainly because MDSS services are generally not required in the summer months when weather conditions are typically less severe. 
+iPerform 
+Our iPerform segment, formed during the first quarter of our fiscal year ended March 31, 2013 (“Fiscal 2013”), includes our performance measurement and information management solutions, including all of the operations of Berkeley Transportation Systems, Inc. (“BTS”), acquired by us in November 2011, which specializes in transportation performance measurement. The BTS performance measurement system leverages its real-time data collection, diagnostic, fusion and warehousing platform to aggregate and compute performance measurements. During the fiscal year ended March 31, 2012 (“Fiscal 2012”), we began the development of IterisPeMS, which is a state-of-the-art information management software suite that utilizes a wide range of data resources and analytical techniques to determine current and future traffic patterns, permitting the effective performance analysis and management of traffic infrastructure resources. This information can then be analyzed by traffic professionals to measure how a transportation network is performing and to identify potential areas of improvement. IterisPeMS is also capable of providing users with traffic predictive analytics and easy-to-use visualization and animation features based on historical traffic conditions. 
+iPerform is a market leader in performance management solutions for federal, state, local and municipal organizations. We intend to use its strong brand and deep experience in the traffic management market, as well as its market-specific intellectual property, to expand our leadership in data aggregation and analytics. By increasing investments in both technical and market development, we plan to focus on expanding the scope of its public sector solutions into the commercial marketplace. 
+Going forward, iPerform’s solutions are expected to include incident management applications, arterial solutions, predictive traffic, and weather-based data and analytics for both public and commercial markets, including media, automotive, and consumer applications. We plan to fund these investments through internally generated cash flow from our Roadway Sensors and Transportation Systems operating segments, as well as revenues from our iPerform segment and our available cash if necessary. 
+Sales, Marketing and Principal Customers 
+We sell our Roadway Sensors products through direct and indirect sales channels. In the territories where we sell direct, we use a combination of our own sales personnel and an outside sales organization to sell, oversee installations and set-up issues and support our products. Our indirect sales channels are comprised of a network of independent dealers in the U.S. and certain foreign locations, who sell integrated systems and related products to the traffic management market. Our independent dealers are trained in, and primarily responsible for, sales, installation, set-up and support of our products, and maintain an inventory of demonstration traffic products from various manufacturers and sell directly to government agencies and installation contractors. These dealers often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, and are generally well-known suppliers of high-quality ITS products to the traffic management market. We periodically hold technical training classes for our dealers and end users and maintain a full-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we have the ability to modify or make changes to our dealer network to accommodate the needs of the market and our customer base. 
+We market and sell our Transportation Systems services and solutions and iPerform solutions directly to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and municipal customers and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use selected members of our engineering, science and information technology teams on a regional basis to serve in sales and business development functions. Our contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations. Additionally, we plan to focus on expanding the scope of our iPerform public sector solutions to sell into the commercial marketplace. 
+A large portion of our revenues are derived from sales to federal, state and local government agencies. We currently have, and historically have had, a diverse customer base. For Fiscal 2013, one individual customer represented approximately 13% of our total revenues and no other individual customer represented greater than 10% of our total revenues. For Fiscal 2012 and our fiscal year 
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+Table of Contents 
+ended March 31, 2011 (“Fiscal 2011”), no individual customer represented greater than 10% of our total revenues. Also refer to Note 13 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report. 
+Manufacturing and Materials 
+We use contract manufacturers to build subassemblies that are used in our Roadway Sensors products. Additionally, we procure certain components from qualified suppliers, both locally and globally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. These subassemblies and components are typically delivered to our Santa Ana, California facility where they go through final assembly and testing prior to shipment to our customers. Our key suppliers include CTS Electronics Manufacturing Solutions, Inc., Sony Electronics, Inc. and LG Electronics, Inc. Our manufacturing activities are conducted in approximately 9,000 square feet of space at our Santa Ana facility. Production volume at our subcontractors is based upon quarterly forecasts that we generally adjust on a monthly basis to control inventory levels. We typically do not manufacture any of the hardware used in the transportation management and traveler information systems that we design and implement. Our production facility is currently ISO 9001 certified. 
+Customer Support and Services 
+We provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenue was not a material portion of our total revenues for each of Fiscal 2013, Fiscal 2012 and Fiscal 2011. We believe customer support is a key competitive factor. 
+Backlog 
+Our total backlog of unfulfilled firm orders was approximately $38.6 million as of March 31, 2013, which was comprised of $3.1 million related to Roadway Sensors, $32.2 million related to Transportation Systems and $3.3 million related to iPerform. Substantially the entire backlog for Roadway Sensors is expected to be recognized as revenue in the fiscal year ending March 31, 2014 (“Fiscal 2014”). In the past three fiscal years, we have recognized approximately 50% to 70% of our Transportation Systems backlog as of the end of a fiscal year in the subsequent fiscal year, and currently expect that trend to continue for the near future for both Transportation Systems and iPerform. 
+At March 31, 2012, we had backlog of approximately $35.0 million, which was comprised of $3.2 million related to Roadway Sensors and $31.8 million related to Transportation Systems. 
+The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly in view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. 
+Pursuant to the customary terms of our agreements with government contractors and other customers, customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often depend upon the scheduling and forecasting practices of our individual customers, which also can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of our future revenues, in particular for our Roadway Sensors segment. 
+Product Development 
+Most of our product development activities are conducted at our principal facilities in Santa Ana, California. Our research and development costs and expenses were approximately $3.1 million for Fiscal 2013, $3.2 million for Fiscal 2012 and $2.4 million for Fiscal 2011. We expect to continue to pursue various product development programs and incur research and development expenditures in future periods. 
+We believe our engineering and product development capabilities are a competitive strength. We strive to continue to develop new products to meet the needs of the ever-changing ITS market as well as enhance and refine our existing product lines. Since 2008 our Roadway Sensors segment has introduced our VersiCam and VersiCam wireless products, Pico, RZ-4 advanced camera and our RZ-4 advanced wide dynamic range camera, which significantly improve video detection performance in certain harsh lighting conditions. During Fiscal 2012, we introduced our Vantage Vector product and also upgraded our Abacus and VantageView software products. Additionally, during Fiscal 2012, we began development of our software based IterisPeMS performance measurement system, which continued through Fiscal 2013 and will continue during Fiscal 2014. We believe that developing new offerings across our segments and enhancing, refining and marketing our existing products is a key component of strong organic growth and profitability. 
+5 
+Table of Contents 
+Competition 
+We generally face significant competition in each of our target markets. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. 
+In the market for our Roadway Sensors vehicle detection products, we compete with manufacturers and distributors of other above ground video camera detection systems and other non-intrusive detection devices, including microwave, infrared, ultrasonic and magnetic detectors, as well as manufacturers and installers of in-pavement inductive loop products, which have historically, and currently continue to be, the predominant detection system in this market. 
+The markets in which our Transportation Systems segment operates is highly fragmented and subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors in advanced Transportation Systems include national corporations that generally offer expertise in traveler information, integration and transportation management. Our competitors in transportation engineering, planning and design include major regional firms, as well as many smaller local engineering firms. 
+The markets in which our iPeform segment operates vary from public sector customers who focus on performance measurement systems to help measure and manage the effectiveness of their transportation systems to commercial sector customers who ingest and disseminate traffic and weather related data, information and analytics through various consumer outlets. Our competitors vary in number, scope and breadth of the products and services they offer. In the public sector we compete with some of the same transportation engineering, planning and design firms that also compete with our Transportation Systems segment. In the commercial sector, we compete with a variety of entities that currently provide traffic and/or weather related data to that market. 
+In general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolving standards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, technical, manufacturing, distribution and marketing resources than us. As a result, they may be able to adapt more quickly to new or emerging standards or technologies or to devote greater resources to the promotion and sale of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our target markets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broad range of computing systems, product quality and performance, reliability, functionality, price and service and technical support. Our failure to provide services and develop and market products that compete successfully with those of other suppliers and consultants in our target markets would have a material adverse effect on our business, financial condition and results of operations. 
+Intellectual Property and Proprietary Rights 
+Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently hold three U.S. patents, four foreign patent applications, six patent applications in the United States (“U.S.”), and eight provisional patent filings. One U.S. patent, which expires in May 2019, is for general technology related to CMOS sensors. Two U.S. patents, which expire between 2014 and 2029, three foreign patent applications, three U.S. patent applications, and one provisional patent filing relate specifically to our Roadway Sensors technology. One pending foreign patent, three U.S. patent applications, and seven provisional patent filings relate specifically to our iPerform technology. We cannot be certain that any new patents will be granted pursuant to these or subsequent patent applications or provisional patent filings. 
+In addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. We do not have any material licenses or trademarks other than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value; changing technology makes our future success dependent principally upon our ability to successfully achieve continuing innovation. 
+Litigation may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others, or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal 
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+fees and expenses, as well as from the diversion of management’s resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations. 
+Employees 
+We refer to our employees as associates. As of March 31, 2013, we employed an aggregate of 258 associates, including 55 associates in general management, administration and finance; 24 associates in sales and marketing; 150 associates in engineering and product development; 14 associates in operations, manufacturing and quality assurance; and 15 associates in customer service. None of our associates are represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our associates are good. 
+Sale of Vehicle Sensors 
+On July 29, 2011, we completed the sale of substantially all of the assets used in connection with our Vehicle Sensors segment to Bendix Commercial Vehicle Systems LLC (“Bendix”), a member of Knorr-Bremse Group, pursuant to an Asset Purchase Agreement signed on July 25, 2011 (the “Asset Sale”). Upon closing, Bendix paid us $14 million in cash, subject to a $2 million holdback and adjustments based upon the working capital of the Vehicle Sensors segment at closing, and Bendix assumed certain specified obligations and liabilities of the Vehicle Sensors segment. In October 2012, we received approximately $1.7 million in connection with the holdback provision. Furthermore, we are entitled to additional consideration in the form of certain performance and royalty-related earn-outs. As a result of the Asset Sale, we no longer operate in the Vehicle Sensors segment and we determined that the Vehicle Sensors segment, which previously constituted one of our operating segments, qualifies as a discontinued operation. Refer to Note 3 of Notes to Consolidated Financial Statements, included in Part IV, Item 15 of this report for additional discussion regarding the Asset Sale. The applicable financial results of the Vehicle Sensors segment through the closing of the Asset Sale have been reported as a discontinued operation for all periods presented. 
+Government Regulation 
+Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. We continue to expend funds in connection with our compliance with applicable environmental regulations. These expenditures have not, however, been significant in the past, and we do not expect any significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business and is not expected to have a material impact in the near future. 
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