Iteris
Annual Report 2018

Plain-text annual report

Use these links to rapidly review the document TABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATATable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission file number 001-08762ITERIS, INC.(Exact Name of Registrant as Specified in Its Charter)Delaware(State or Other Jurisdiction ofIncorporation or Organization) 95-2588496(I.R.S. EmployerIdentification No.)1700 Carnegie Ave., Santa Ana,California(Address of Principal Executive Offices) 92705(Zip Code)Registrant's Telephone Number, Including Area Code: (949) 270-9400 Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on whichregisteredCommon Stock, $0.10 par value The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act. None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities Act"). Yes o No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "largeaccelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. o(Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2018ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toLarge accelerated filer o Accelerated filer ý Non accelerated filer o(Do not check if asmaller reporting company) Smaller reporting company oEmerging growth company o Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No ý The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant as of September 30, 2017 was approximately $147,100,000. For the purposes of this calculation, sharesowned by officers, directors and 10% stockholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not necessarily a conclusive determination for otherpurposes. As of May 29, 2018, there were 33,203,740 shares of our common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCE Part III of this report incorporates by reference certain information from the registrant's definitive proxy statement for the 2018 Annual Meeting of Stockholders, which will be filed with the Securities andExchange Commission. Table of Contents ITERIS, INC.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED MARCH 31, 2018TABLE OF CONTENTS Unless otherwise indicated in this report, the "Company," "we," "us" and "our" refer to Iteris, Inc. and its wholly-owned subsidiary, ClearAg, Inc.CheckPoint™, ClearAg®, ClearPath Weather®, CVIEW-Plus™, Edge®, EdgeConnect™, EMPower®, EvapoSmart™, IMFocus™, inspect™, iPeMS®,Iteris®, Next®, P10™, P100™, PedTrax®, Pegasus™, SmartCycle®, SmartSpan®, TransitHelper®, UCRLink™, Vantage®, VantageLive!™, VantageNext®,VantagePegasus®, VantageRadius™, Vantage Vector®, VantageView™, Velocity®, VersiCam™ and WeatherPlot™ are among, but not all of, thetrademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.2PART I ITEM 1. BUSINESS 3ITEM 1A. RISK FACTORS 11ITEM 1B. UNRESOLVED STAFF COMMENTS 23ITEM 2. PROPERTIES 23ITEM 3. LEGAL PROCEEDINGS 23ITEM 4. MINE SAFETY DISCLOSURES 23PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES 24ITEM 6. SELECTED FINANCIAL DATA 26ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS 27ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 40ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE 77ITEM 9A. CONTROLS AND PROCEDURES 77ITEM 9B. OTHER INFORMATION 78PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 78ITEM 11. EXECUTIVE COMPENSATION 78ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS 78ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 78ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 78PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 79Table of ContentsCautionary Statement This report, including the following discussion and analysis, contains forward-looking statements (within the meaning of the Private SecuritiesLitigation Reform Act of 1995) that are based on our current expectations, estimates and projections about our business and our industry, and reflectmanagement's beliefs and certain assumptions made by us based upon information available to us as of the date of this report. When used in this report andthe information incorporated herein by reference, the words "expect(s)," "feel(s)," "believe(s)," "intend(s)," "plan(s)," "should," "will," "may," "anticipate(s),""estimate(s)," "could," "should," and similar expressions or variations of these words are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our anticipated growth, sales, revenue, expenses, profitability, capital needs,backlog, manufacturing capabilities, the market acceptance of our products, competition, the impact of any current or future litigation, the impact of recentaccounting pronouncements, the applications for and acceptance of our products and services, and the status of our facilities and product development.These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differmaterially from those projected. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof. Weencourage you to carefully review and consider the various disclosures made by us which describe certain factors which could affect our business,including in "Risk Factors" set forth in Part I, Item 1A of this report, before deciding to invest in our company or to maintain or increase your investment.We undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances afterthe date hereof or to reflect the occurrence of unanticipated events. PART I ITEM 1. BUSINESS Overview Iteris, Inc. (referred to collectively with its wholly-owned subsidiary, ClearAg, Inc., in this report as "Iteris," the "Company," "we," "our," and "us") is aprovider of essential applied informatics that enable smart transportation and digital agriculture. Municipalities, government agencies, crop sciencecompanies, farmers and agronomists use our solutions to make roads safer and travel more efficient, as well as farmlands more sustainable, healthy andproductive. As a pioneer in intelligent transportation systems ("ITS") technology for more than two decades, our intellectual property, products, software-as-a-serviceofferings and weather forecasting systems offer a comprehensive range of ITS solutions to our customers throughout the U.S. and internationally. In the agribusiness markets, we have combined our intellectual property with enhanced atmospheric, land surface and agronomic modeling techniques tooffer smart content solutions that provide analytical support to large enterprises in the agriculture industry, such as seed and crop protection companies,integrated food companies, and agricultural equipment manufacturers and service providers. We believe our products, solutions and services improve and safely optimize mobility within our communities, while minimizing environmental impacton the roads we travel and the lands we farm. We continue to make significant investments to leverage our existing technologies and further expand both our advanced detection sensors andperformance analytics systems in the transportation infrastructure market, while supporting the entire value chain in the agriculture market with our smartcontent and digital farming platform. Iteris was incorporated in Delaware in 1987. Our principal executive offices are located at 1700 Carnegie Avenue, Santa Ana, California 92705, and ourtelephone number at that location is3Table of Contents(949) 270-9400. Our website address is www.iteris.com. The inclusion of our website address in this report does not include or incorporate by reference intothis report any information on, or accessible through, our website. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports onForm 8-K, together with amendments to these reports, are available on the "Investor Relations" section of our website, free of charge, as soon as reasonablypracticable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC").Recent DevelopmentsClearAg, Inc. In April 2017, Iteris, Inc. formed a wholly-owned subsidiary, ClearAg, Inc., a Delaware corporation, to provide ClearAg solutions in the agribusinessmarkets.Products and Services We currently operate in three reportable segments: Roadway Sensors, Transportation Systems, and Agriculture and Weather Analytics. The Roadway Sensors segment provides various advanced detection sensors and systems for traffic intersection management, communication systemsand roadway traffic data collection applications. The Transportation Systems segment provides engineering and consulting services, performancemeasurement, regulatory compliance, and traffic analytics solutions, as well as the development of traveler information systems for the ITS industry. TheAgriculture and Weather Analytics segment includes ClearPath Weather, our road maintenance applications, and ClearAg, our digital agriculture platform. See Note 13 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report, for further details on our reportable segments.Roadway Sensors Our Roadway Sensors segment product line uses advanced image and signal processing technology and other techniques to capture and analyze sensordata through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of both video images and data usingvarious communication technologies. Our Roadway Sensors products include, among others, Vantage, VantageLive!, VantageNext, VantageRadius,VantagePegasus, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products.•Our Vantage detection systems detect vehicle presence at intersections, as well as vehicle count, speed and other traffic data used in trafficmanagement systems. Vantage detection systems typically include up to four of our advanced cameras or radar devices. Our Vantage systemsgive traffic managers the tools to mitigate roadway congestion by visualizing and analyzing traffic patterns allowing them to modify trafficsignal timing to improve traffic flow. Our various software components complement our Vantage detection systems by providing integratedplatforms to manage and view detection assets remotely over a network connection, as well as mobile application for viewing anywhere. •Our Vantage Vector video/radar hybrid product is an all-in-one detection sensor with a wide range of capabilities, including stop bar andadvanced zone detection, which enable advanced safety and adaptive control applications. Vantage Vector includes all of the benefits of Iterisvideo detection, including high accuracy, high-availability remote viewing of video images, bicycle and pedestrian detection capability, anddilemma-zone detection.4Table of Contents•VantageLive! is a cloud-based platform that allows users to collect, process and analyze advanced intersection data, as well as to view andunderstand intersection activity. •All of our Vantage systems are available with SmartCycle capability, which can effectively differentiate between bicycles and other vehicleswith a single video detection camera, enabling more efficient signalized intersections, improved traffic throughput and increased bicyclistsafety. Agencies using bicycle timing can now benefit from bicycle-specific virtual detection zones that can be placed anywhere within theapproaching traffic lanes, eliminating the need for separate bicycle-only detection systems. •The SmartCycle Bike Indicator, which leverages the SmartCycle bicycle detection algorithm, is a device that mounts onto traffic signals andilluminates when cyclists waiting at an intersection have been detected, allowing cyclists to avoid interacting with vehicle traffic to pushpole-mounted buttons. •Our Vantage systems are also available with the PedTrax capability, which provides bi-directional counting and speed tracking of pedestrianswithin the crosswalk to help improve signal timing efficiency, as well as providing an additional data stream to existing vehicle and bicyclecounts. •VersiCam, our integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections thatrequire only a few detection points. We believe that future growth domestically and internationally, will be dependent in part on the continued adoption of above-ground video detectiontechnologies, instead of traditional in-pavement loop technology, to manage traffic. We also sell certain complementary original equipment manufacturer ("OEM") products for the traffic intersection market, which include, among otherthings, traffic signal controllers and traffic signal equipment cabinets.Transportation Systems Our Transportation Systems segment includes engineering and consulting services focused on the planning, design, development and implementation ofsoftware and hardware-based ITS systems that integrate sensors, video surveillance, computers and advanced communications equipment to enable publicagencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews, and distribute real-time information about trafficconditions. Our services include planning, design, implementation, operation and management of surface transportation infrastructure systems. We performanalysis and study goods movement, commercial vehicle operations, provide travel demand forecasting and systems engineering, and identify mitigationmeasures to reduce traffic congestion. The Transportations Systems segment also includes our performance measurement and management solution, iPeMS—a state-of-the-art informationmanagement software suite that provides prescriptive data insights to help determine current and future traffic patterns, permitting the effective performanceanalysis and management of traffic infrastructure resources. iPeMS utilizes a wide range of data resources and analytical techniques to determine current andfuture traffic patterns, permitting the effective performance analysis and management of traffic infrastructure resources. This information can then be analyzedby traffic professionals to measure how a transportation network is performing and to identify potential areas of improvement. iPeMS is also capable ofproviding users with predictive traffic analytics, and easy-to-use visualization and animation features based on historical traffic conditions. This segment also includes our commercial vehicle operations and vehicle safety compliance platforms, known as "CVIEW-Plus," "CheckPoint,""UCRLink" and "inspect."5Table of Contents Our Transportation Systems segment is largely dependent upon state and local governmental funding, and to a lesser extent federal governmentalfunding. As such, our Transportation Systems business has been adversely affected by governmental budgetary issues. In addition, various other fundingmechanisms exist to support transportation infrastructure and related projects, including, but not limited to, bonds, dedicated sales and gas tax measures, andother alternative funding sources. We believe the overall expansion of our Transportation Systems segment in the future will continue to be dependent atleast in part on the federal and local government's use of funds. Delays in the allocation of funds may prolong uncertainty regarding the allotment oftransportation funds in federal, state and local budgets.Agriculture and Weather Analytics Our Agriculture and Weather Analytics segment, which we formed during the first quarter of our fiscal year ended March 31, 2013, consists of ourClearPath Weather and Clear Ag solutions. Our ClearPath Weather is a web-based system that has a suite of tools that enable users to assess historical weather conditions and analyze short-term andlong-range weather forecasts, to customize route/site weather and pavement forecast tools, which provide winter road maintenance recommendations for stateagencies, municipalities and enable commercial companies to create solutions for the management of roadway maintenance. Our Weather Analytics business is a market leader in performance management solutions for federal and state organizations. We intend to use our strongbrand and deep experience in the traffic management market, as well as our market-specific intellectual property, to expand our leadership in dataaggregation and analytics in this market. Beginning in late 2013, we undertook the development of "ClearAg solutions" for the digital agricultural market. These new products utilize and expandthe intellectual property, technology base and product suites of our ClearPath Weather solutions. For our ClearAg solutions, we developed additionalscientific and agronomic models and forecasts, expanded our computing infrastructure for additional big data acquisition and processing, and designeddistributed delivery vehicles and products. Our ClearAg solutions combine weather and agronomic data with proprietary land-surface modeling and analytics to solve complex agriculturalproblems, which results in the increased efficiency and sustainability of farmlands. The ClearAg Platform delivers product validation, irrigation and harvestsolutions giving growers, researchers and other agribusinesses access to a comprehensive database of historical, real-time and forecasted weather, soil andplant health information, as well as other information on crop growth. Companies use the ClearAg Platform to simulate field conditions and determine hownew products may perform on a crop given certain weather and soil conditions. Growers leverage the ClearAg Platform to determine the best times to plant,spray, fertilize, irrigate, and harvest crops. We currently offer our ClearAg solutions on an enterprise basis combining our modeling solutions with ClearAg application programming interfaces("APIs"). These APIs facilitate the integration of ClearAg's analytics and insights with the offerings of large enterprise customers in the agriculture market. Wecommenced commercial sales of the ClearAg solutions and related APIs in the first quarter of our fiscal year ended March 31, 2015 ("Fiscal 2015"). We alsodeveloped the ClearAg WeatherPlot and ClearAg Insights applications, which provide analytics on forecasted historical weather, water and soil temperaturesto help agronomists and crop consultants identify and make recommendations for treatments at ideal environmental conditions to maximize crop quality andyield. We expect market acceptance of our ClearAg solutions to continue to increase in upcoming quarters. We plan to continue to fund the investments in ourClearAg solutions, through cash flow generated from our Roadway Sensors and Transportation Systems operations, revenues from our6Table of ContentsAgriculture and Weather Analytics segment, and our available cash on hand, as needed. We may also elect to raise additional equity for these investments.Sales and Marketing We currently sell our Roadway Sensors products through both direct and indirect sales channels. In the territories where we sell direct, we use acombination of our own sales personnel and outside sales organizations to sell, oversee installations and set-up issues, and support our products. Our indirectsales channel is comprised of a network of independent distributors in the U.S. and select international locations, which sell integrated systems and relatedproducts to the traffic management market. In the fourth quarter of our fiscal year ended March 31, 2018 ("Fiscal 2018"), we entered into a distributionagreement to expand our northern European sales coverage in the U.K. and Ireland. Our independent distributors are trained in, and primarily responsible for,sales, installation, set-up and support of our products, maintain an inventory of demonstration traffic products from various manufacturers, and sell directly togovernment agencies and installation contractors. These distributors often have long-term arrangements with local government agencies in their respectiveterritories for the supply of various products for the construction and renovation of traffic intersections, and are generally well-known suppliers of varioushigh-quality ITS products to the traffic management market. We periodically hold technical training classes for our distributors and end users, and maintain afull-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we have the ability tomodify or make changes to our distributor network to accommodate the needs of the market and our customer base. We market and sell our Transportation Systems services and solutions, and our ClearPath Weather services primarily to government agencies pursuant tonegotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and localmunicipal customers, and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid formodification. We generally use selected members of our engineering, science and information technology teams on a regional basis to serve in sales andbusiness development functions. Our Transportation Systems contracts generally involve long lead times and require extensive specification development,evaluation and price negotiations. We currently market and sell our ClearAg solutions as a subscription-based service to seed and crop protection companies, allied providers andagriculture integrators, as well as to growers and retailers. Due to the recent consolidation of certain large companies in the agriculture market, sales to suchcompanies typically involve long lead times. We generally sell directly to customers interested in the ClearAg API products, but typically sell throughselling partners for our ClearAg applications. Mobile versions of WeatherPlot are currently available in the Apple app store and on Google Play. We have historically had a diverse customer base. For Fiscal 2018, one individual customer represented greater than 10% of our total revenues. For thefiscal year ended March 31, 2017 ("Fiscal 2017"), one individual customer represented greater than 10% of our total revenues.Manufacturing and Materials We use contract manufacturers to build subassemblies that are used in our Roadway Sensors products. Additionally, we procure certain components forour Roadway Sensors products from qualified suppliers, both in the U.S. and internationally, and generally use multi-sourcing strategies when technicallyand economically feasible to mitigate supply risk. These subassemblies and components are typically delivered to our Santa Ana, California facility, wherethey go through final assembly and testing prior to shipment to our customers. Our key suppliers include Veris Manufacturing, MoboTrex, Inc. and SonyElectronics, Inc. Our manufacturing activities are conducted in approximately 9,000 square feet of space at our Santa Ana, California facility. Productionvolume at7Table of Contentsour subcontractors is based upon quarterly forecasts that we generally adjust on a monthly basis to control inventory levels. We typically do not manufactureany of the hardware used in the transportation management and traveler information systems that we design and implement. Our production facility iscurrently 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 revenuewas not a material portion of our total revenues for Fiscal 2018, Fiscal 2017 and the fiscal year ended March 31, 2016 ("Fiscal 2016"). We believe customersupport is a key competitive factor for our company. Our ClearAg solutions are primarily sold as annual subscription services with recurring monthly revenue. As an element of these services, we providefull-time support and customer service for such ClearAg solutions.Backlog Our total backlog of unfulfilled firm orders was approximately $47.5 million as of March 31, 2018, which included $37.7 million related toTransportation Systems. We typically recognize approximately 70% of our Transportation Systems backlog as of the end of a fiscal year in the subsequentfiscal year, and currently expect that trend to continue for the near future for both Transportation Systems and Agriculture and Weather Analytics.Substantially the entire backlog for Roadway Sensors as of March 31, 2018 is expected to be recognized as revenue in the fiscal year ending March 31, 2019.At March 31, 2017, we had backlog of approximately $64.5 million, which included $54.4 million related to Transportation Systems. The decline in backlogin the current fiscal year was largely due to the completion of a large Transportation Systems contract in the current fiscal year. The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularlyin view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. In addition, pursuant to thecustomary terms of our agreements with government contractors and other customers, our customers can generally cancel or reschedule orders with little or nopenalties. Lead times for the release of purchase orders often depend upon the scheduling and forecasting practices of our individual customers, which alsocan 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 indicativeof our future revenues, in particular for our Roadway Sensors segment.Product Development Our product development activities are mostly conducted at our Agriculture and Weather Analytics facilities in Grand Forks, North Dakota and Oakland,California, as well as at our principal facility in Santa Ana, California. Our research and development costs and expenses were approximately $7.9 million forFiscal 2018 and $6.9 million for both Fiscal 2017 and Fiscal 2016. We expect to continue to pursue various product development programs and incurresearch and development expenditures, primarily in our Agriculture and Weather Analytics and Roadway Sensors segments, in future periods. We believe our engineering and product development capabilities are a competitive strength. We strive to continuously develop new products,technologies, features and functionalities to meet the needs of our ever-changing markets, as well as to enhance, improve upon, and refine our existingproduct lines. We plan to focus our development efforts in the near future in our Agriculture and Weather Analytics segment on our ClearAg solutions and todeveloping further enhancements and functionality in our Vantage products family. We believe that developing new and enhanced product8Table of Contentsofferings across our segments and enhancing, refining and marketing our existing products are key components for 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 andloss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. The markets in which our Agriculture and Weather Analytics segment operates vary from the commercial sector customers for ClearAg solutions topublic sector customers for ClearPath Weather solutions. Our competitors vary in number, scope and breadth of the products and services they offer. In thepublic sector, we compete with some of the same transportation engineering, planning and design firms that also compete with our Transportation Systemssegment. In the commercial sector, we compete with a variety of entities that currently provide weather-related data to that market, such as IBM/The WeatherCompany, MeteoGroup and agronomic analytics companies such as FBN and Farmer's Edge. In the market for our Roadway Sensors detection products, we compete with manufacturers and distributors of other above-ground video cameradetection systems such as Econolite, and manufacturers and distributors of other non-intrusive detection devices, including microwave, infrared, radar,ultrasonic and magnetic detectors, as well as manufacturers and installers of in-pavement inductive loop products, which have historically been, andcurrently continue to be, the predominant vehicle detection system in this market. Additionally, products such as Velocity and VantagePegasus competeagainst various competitors in the travel-time and data communications markets, respectively. The markets in which our Transportation Systems segment operate are 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 advancedtransportation systems include large, national corporations that generally offer expertise in traveler information, integration and transportation management.Our competitors in transportation engineering, planning and design include major regional ITS engineering firms, as well as many smaller local engineeringfirms. In general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolvingstandards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases, andsignificantly greater financial, technical, manufacturing, distribution and marketing resources than us. As a result, they may be able to adapt more quickly tonew or emerging standards or technologies, or to devote greater resources to the promotion and sale of their products. It is also possible that new competitorsor alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our targetmarkets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broadrange of computing systems, product quality and performance, reliability, functionality, price and service, and technical support. Our failure to provideservices and develop and market products that compete successfully with those of other suppliers and consultants in our target markets would have a materialadverse 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 toobtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently have a total of9Table of Contents40 issued U.S. patents, including: (i) 10 relating to our Roadway Sensors technologies, one of which was issued in Fiscal 2018, (ii) 23 relating to ourAgriculture and Weather Analytics technologies, six of which were issued in Fiscal 2018, and (iii) seven relating specifically to our Transportation Systemstechnologies, one of which was issued in Fiscal 2018. We have a total of 22 pending patent applications in the U.S. and 15 pending foreign patentapplications. The expiration dates of our patents range from 2026 to 2037. We intend to pursue additional patent protection to the extent we believe it wouldbe beneficial and cost-effective. 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 otherproprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and othersimilar measures. We do not have any material licenses or trademarks other than those relating to product names. We cannot be certain that we will besuccessful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value,rapidly evolving technology makes our future success dependent largely 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 todefend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significantliabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which couldhave a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual propertylitigation 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 besignificant and could have a material adverse effect on our business, financial condition and results of operations.Employees As of March 31, 2018, we employed 414 full-time employees and 33 part-time employees, for a total of 447 employees. None of our employees arerepresented by a labor union, and we have never experienced a work stoppage. We believe our relations with our employees are good.Government Regulation Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materialsinto the environment. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment ofour operations because of such laws and regulations. We continue to expend funds in connection with our compliance with applicable environmentalregulations. 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; however, as we expand internationally, foreign laws and regulationscould have a material impact on our business in the future.10Table of Contents ITEM 1A. RISK FACTORS Our business is subject to a number of risks, some of which are discussed below. Other risks are presented elsewhere in this report and in theinformation incorporated by reference into this report. You should consider the following risks carefully in addition to the other information contained inthis report and our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K, before deciding to buy, sell or hold our commonstock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to usor that we currently deem immaterial may also affect our business operations. If any of these risks actually occurs, our business, financial condition, orresults of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of yourinvestment. Because we depend on government contracts and subcontracts, we face additional risks related to contracting with federal, state and localgovernments, including budgetary issues and fixed price contracts. A significant portion of our revenues are derived from contracts with governmentalagencies, either as a general contractor, subcontractor or supplier. We anticipate that revenue from government contracts will continue to remain a significantportion of our revenues. Government business is, in general, subject to special risks and challenges, including:•delays in funding and uncertainty regarding the allocation of funds to state and local agencies from the U.S. federal government, delays in theexpenditures from the federal highway bill and delays or reductions in other state and local funding dedicated for transportation and ITSprojects; •other government budgetary constraints, cut-backs, delays or reallocation of government funding, including without limitation, changes in thenew administration; •performance bond requirements; •long purchase cycles or approval processes; •competitive bidding and qualification requirements, as well as our ability to replace large contracts once they have been completed; •changes in government policies and political agendas; •maintenance of relationships with key government entities from whom a substantial portion of our revenue is derived; •milestone requirements and liquidated damage and/or contract termination provisions for failure to meet contract milestones; •adverse weather conditions may cause delays, such as, evacuations and flooding due to hurricanes can result in our inability to perform workin affected areas; and •international conflicts or other military operations that could cause the temporary or permanent diversion of government funding fromtransportation or other infrastructure projects. Governmental budgets and plans are subject to change without warning. Certain risks of selling to governmental entities include dependence onappropriations and administrative allocation of funds, changes in governmental procurement legislation and regulations and other policies that may reflectpolitical developments or agendas, significant changes in contract scheduling, intense competition for government business and termination of purchasedecisions for the convenience of the governmental entity. Substantial delays in purchase decisions by governmental entities, and the current constraints ongovernment budgets at the federal, state and local level, and the ongoing uncertainty as to the timing and accessibility to government funding could causeour revenues and income to drop substantially or to fluctuate significantly between fiscal periods.11Table of Contents In addition, a number of our government contracts are fixed price contracts. As a result, we may not be able to recover any cost overruns we may incur.These fixed price contracts require us to estimate the total project cost based on preliminary projections of the project's requirements. The financial viabilityof any given project depends in large part on our ability to estimate these costs accurately and complete the project on a timely basis. In the event our costson these projects exceed the fixed contractual amount, we will be required to bear the excess costs. Such additional costs would adversely affect our financialcondition and results of operations. Moreover, certain of our government contracts are subject to termination or renegotiation at the convenience of thegovernment, which could result in a large decline in our revenues in any given period. Our inability to address any of the foregoing concerns or the loss orrenegotiation of any material government contract could seriously harm our business, financial condition and results of operations. We recently expanded our Agriculture and Weather Analytics capabilities to address a new market segment, the agricultural market, which may notbroadly accept our technologies and new products. The application of digital analytics to the agricultural market is a relatively new development that hasrequired us to invest, and is expected to continue to require us to invest, in additional research and development, and sales and marketing without anyguarantee of a commensurate increase in revenues. The introduction of any new Agriculture and Weather Analytics products and services could have longerthan expected sales cycles, which could adversely impact our operating results. We cannot assure you that growers or other companies in this market willperceive the value proposition of our Agriculture and Weather Analytics or that our new ClearAg products for this market will achieve broad marketacceptance in the near future or at all. If the agricultural market fails to understand and appreciate the benefit of our Agriculture and Weather Analyticsproducts or chooses not to adopt our technologies, our business, financial condition and results of operations will be adversely affected. We may not be able to achieve profitability on a quarterly or annual basis in the future. For Fiscal 2018 and Fiscal 2017, we had net losses of$3.5 million and $4.8 million, respectively, and we cannot assure you that we will be profitable in the future. Our ability to become profitable in futureperiods could be impacted by governmental budgetary constraints, government and political agendas, economic instability and other items that are not inour control. Furthermore, we rely on operating profits from certain of our business segments to fund investments in sales and marketing and research anddevelopment initiatives. We cannot assure you that our financial performance will sustain a sufficient level to completely support those investments. Most ofour expenses are fixed in advance. As such, we generally are unable to reduce our expenses significantly in the short-term to compensate for any unexpecteddelay or decrease in anticipated revenues or increases in planned investments. As a result, we may continue to experience operating losses and net losses inthe future, which would make it difficult to fund our operations and achieve our business plan, and could cause the market price of our common stock todecline. Our profitability could be adversely affected if we are not able to maintain adequate utilization of our Transportation Systems workforce. The cost ofproviding our Transportation Systems engineering and consulting services, including the extent to which we utilize our workforce, affects our profitability.The rate at which we utilize our workforce is affected by a number of factors, including:•our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; •our ability to forecast demand for our services and thereby maintain an appropriate headcount in our various regions; •the timing of new contract awards or the completion of large contract; •availability of funding or other budget issues;12Table of Contents•our need to devote time and resources to training, business development, professional development and other non-chargeable activities; and •our ability to match the skill sets of our employees to the needs of the marketplace.An inability to properly and fully utilize our Transportation Systems workforce could have an adverse effect on our results of operations. We recently entered into the software development market and may be subject to additional challenges and additional costs and delays. We haveonly been in the business of software development for a few years and may experience development and technical challenges. Our business and results ofoperations could also be seriously harmed by any significant delays in our software development and updates. Despite testing and quality control, we cannotbe certain that errors will not be found in our software after its release. Any faults or errors in our existing products or in any new products may cause delays inproduct introduction and shipments, require design modifications, or harm customer relationships or our reputation, any of which could adversely affect ourbusiness and competitive position. In addition, the software development industry frequently experiences litigation concerning intellectual propertydisputes, which could be costly and distract our management. If we do not keep pace with rapid technological changes and evolving industry standards, we will not be able to remain competitive, and the demandfor our products will likely decline. Our markets are in general characterized by the following factors:•rapid technological advances; •downward price pressures in the marketplace as technologies mature; •changes in customer requirements; •additional qualification requirements related to new products or components; •frequent new product introductions and enhancements; •inventory issues related to transition to new or enhanced models; and •evolving industry standards and changes in the regulatory environment. Our future success will depend upon our ability to anticipate and adapt to changes in technology and industry standards, and to effectively develop,introduce, market and gain broad acceptance of new products and product enhancements incorporating the latest technological advancements. If we are unable to develop and introduce new products and product enhancements successfully and in a cost-effective and timely manner, or areunable to achieve market acceptance of our new products, our operating results would be adversely affected. We believe our revenue growth and futureoperating results will depend on our ability to complete development of new products and enhancements, introduce these products in a timely, cost-effectivemanner, achieve broad market acceptance of these products and enhancements, and reduce our production costs. During the past two fiscal years, we haveintroduced both new and enhanced products across all segments. We cannot guarantee the success of these products, and we may not be able to introduce anynew products or any enhancements to our existing products on a timely basis, or at all. In addition, the introduction of any new products could adverselyaffect the sales of certain of our existing products. We believe that we must continue to make substantial investments to support ongoing research and development in order to develop new or enhancedproducts and software to remain competitive. We need to continue to develop and introduce new products that incorporate the latest technologicaladvancements in outdoor image processing hardware, camera technologies, software and analysis in response to evolving customer requirements. We cannotassure you that we will be able to adequately13Table of Contentsmanage product transition issues. Our business and results of operations could be adversely affected if we do not anticipate or respond adequately totechnological developments or changing customer requirements or if we cannot adequately manage inventory issues typically related to new producttransitions and introductions. We cannot assure you that any such investments in research and development will lead to any corresponding increase inrevenue. If our security measures are breached and unauthorized access is obtained to our customer's personal and/or proprietary data in connection with ourweb-based and mobile application services, we may incur significant liabilities, our services may be perceived as not being secure and customers maycurtail or stop using our services, we could incur significant liability to our customers and to individuals or businesses whose information was beingstored, our business may suffer and our reputation will be damaged. Because techniques used to obtain unauthorized access to, or to sabotage, systemschange frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implementadequate preventive measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measurescould be harmed and we could lose sales and customers. The markets in which we operate are highly competitive and have many more established competitors than us, which could adversely affect ourrevenues or the market acceptance of our products. We compete with numerous other companies in our target markets including, but not limited to, large,multi-national corporations and many smaller regional engineering firms. We compete with existing, well-established companies and technologies in our Roadway Sensors segment, both domestically and abroad. Only a portionof the traffic intersection market has adopted advanced above-ground detection technologies, and our future success will depend in part upon gainingbroader market acceptance for such technologies. Certain technological barriers to entry make it difficult for new competitors to enter the market withcompeting video or other technologies; however, we are aware of new market entrants from time to time. Increased competition could result in loss of marketshare, price reductions and reduced gross margins, any of which could seriously harm our business, financial condition and results of operations. The Transportation Systems market is highly fragmented and is subject to evolving national and regional quality and safety standards. Our competitorsvary in size, number, scope and breadth of the products and services they offer, and include large multi-national engineering firms and smaller local regionalfirms. The markets in which our Agriculture and Weather Analytics segment operates vary from public sector customers who focus on snow and icemanagement for state and county roadways, to commercial sector customers who employ our environmental content and agronomic models. Our competitorsinclude divisions of large, international weather companies, as well as a variety of small providers in the road weather market. In the commercial agriculturesector, we compete with a variety of public and private entities that currently market software, agronomic analytics and weather forecast capabilities to theagribusiness. In each of our operating segments, many of our competitors have far greater name recognition and greater financial, technological, marketing andcustomer service resources than we do. This may allow our competitors to respond more quickly to new or emerging technologies and changes in customerrequirements. It may also allow them to devote greater resources to the development, promotion, sale and support of their products and services than we can.Consolidations of end users, distributors and manufacturers in our target markets exacerbate this problem. As a result of the foregoing factors, we may not beable to compete effectively in our target markets and competitive pressures could adversely affect our business, financial condition and results of operations.14Table of Contents We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position. If we are not able toadequately protect or enforce the proprietary aspects of our technology, competitors may be able to access our proprietary technology and our business,financial condition and results of operations will likely be seriously harmed. We currently attempt to protect our technology through a combination ofpatent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. Despite our efforts, other partiesmay attempt to disclose, obtain or use our technologies or systems. Our competitors may also be able to independently develop products that aresubstantially equivalent or superior to our products or design around our patents. In addition, the laws of some foreign countries do not protect ourproprietary rights as fully as do the laws of the U.S. As a result, we may not be able to protect our proprietary rights adequately in the U.S. or abroad. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights ofothers. Litigation may also be necessary to defend against claims of infringement or invalidity by others. We have in the past, and may in the future, besubject to litigation regarding our intellectual property rights. An adverse outcome in litigation or any similar proceedings could subject us to significantliabilities to third parties, require us to license disputed rights from others or require us to cease marketing or using certain products or technologies. We maynot be able to obtain any licenses on terms acceptable to us, or at all. We also may have to indemnify certain customers or strategic partners if it is determinedthat we have infringed upon or misappropriated another party's intellectual property. Our recent expansion into software development activities may subjectus to increased possibility of litigation. Any of the foregoing could adversely affect our business, financial condition and results of operations. In addition,the cost of addressing any intellectual property litigation claim, including legal fees and expenses, and the diversion of management's attention andresources, regardless of whether the claim is valid, could be significant and could seriously harm our business, financial condition and results of operations. Our failure to successfully secure new contracts and renew existing contracts could reduce our revenues and profitability. Our business depends onour ability to successfully bid on new contracts and renew existing contracts with private and public sector customers. Contract proposals and negotiationsare complex and frequently involve a lengthy bidding and selection process, which are affected by a number of factors, such as market conditions, financingarrangements and required governmental approvals. For example, a customer may require us to provide a surety bond or letter of credit to protect the clientshould we fail to perform under the terms of the contract. If negative market conditions continue, or if we fail to secure adequate financing arrangements orthe required governmental approval or fail to meet other required conditions, we may not be able to pursue particular projects, which could reduce oreliminate our profitability. We may continue to be subject to traffic related litigation. The traffic industry in general is subject to litigation claims due to the nature of personalinjuries that result from traffic accidents. As a provider of traffic engineering services, products and solutions, we are, and could from time to time in the futurecontinue to be, subject to litigation for traffic related accidents, even if our products or services did not cause the particular accident. While we generallycarry insurance against these types of claims, some claims may not be covered by insurance or the damages resulting from such litigation could exceed ourinsurance coverage limits. In the event that we are required to pay significant damages as a result of one or more lawsuits that are not covered by insurance orexceed our coverage limits, it could materially harm our business, financial condition or cash flows. Even defending against unsuccessful claims could causeus to incur significant expenses and result in a diversion of management's attention. We may be unable to attract and retain key personnel, including senior management, which could seriously harm our business. Due to thespecialized nature of our business, we are highly dependent on the continued service of our executive officers and other key management, engineering andtechnical15Table of Contentspersonnel. We believe that our success will depend on the continued employment of a highly qualified and experienced senior management team and ourability to retain existing business and generate new business. The loss of any of our officers, or any of our other executives or key members of managementcould adversely affect our business, financial condition, or results of operations (e.g., loss of customers or loss of new business opportunities). Our successwill also depend in large part upon our ability to continue to attract, retain and motivate qualified engineering and other highly skilled technical personnel.Particularly in highly specialized areas, it has become more difficult to retain employees and meet all of our needs for employees in a timely manner, whichmay adversely affect our growth in the current fiscal year and in future years. Although we intend to continue to devote significant resources to recruit, trainand retain qualified skilled personnel, we may not be able to attract and retain these employees and therefore could impair our ability to perform ourcontractual obligations efficiently and timely meet our customers' needs and win new business, which could adversely affect our future results. The futuresuccess of our Transportation Systems segment will depend on our ability to hire additional qualified engineers, planners and technical personnel. The futuresuccess of our Agriculture and Weather Analytics segment will depend on our ability to hire additional software developers, qualified engineers andtechnical personnel. Competition for qualified employees, particularly development engineers and software developers, is intense. We may not be able tocontinue to attract and retain sufficient numbers of such highly skilled employees. Our inability to attract and retain additional key employees or the loss ofone or more of our current key employees could adversely affect our business, financial condition and results of operations. Our management information systems and databases could be disrupted by system security failures, cyber threats or by the failure of, or lack of accessto, our Enterprise Resource Planning system. These disruptions could negatively impact our sales, increase our expenses and/or harm ourreputation. Internal users and computer programmers may be able to penetrate, aka "hack", our network security and create system disruptions, causeshutdowns and/or misappropriate our confidential information or that of our employees and third parties. Therefore, we could incur significant expensesaddressing problems created by security breaches to our network. We must, and do, take precautions to secure customer information and preventunauthorized access to our databases and systems containing confidential information. Any data loss or information security lapses resulting in thecompromise of personal information or the improper use or disclosure of confidential, sensitive or classified information could result in claims, remediationcosts, regulatory sanctions against us, loss of current and future contracts and serious harm to our reputation. We operate our Enterprise Resource Planningsystem on a software-as-a-service platform, and we use this system for reporting, planning, sales, audit, customer relationship management, inventory control,loss prevention, purchase order management and business intelligence. Accordingly, we depend on this system, and the third-party provide of this service, fora number of aspects of our operations. If this service provider or this system fails, or if we are unable to continue to have access to this system oncommercially reasonable terms, or at all, operations would be severely disrupted until an equivalent system could be identified, licensed or developed, andintegrated into our operations. This disruption would have a material adverse effect on our business. If we experience declining or flat revenues and we fail to manage such declines effectively, we may be unable to execute our business plan and mayexperience future weaknesses in our operating results. Based on our business objectives, and in order to achieve future growth, we will need to continue toadd additional qualified personnel, and invest in additional research and development and sales and marketing activities, which could lead to increases inour expenses and future declines in our operating results. In addition, our past expansion has placed, and future expansion is expected to place, a significantstrain on our managerial, administrative, operational, financial and other resources. If we are unable to manage these activities or any revenue declinessuccessfully, our growth, our business, our financial condition and our results of operations could continue to be adversely affected.16Table of Contents Our use of estimates in conjunction with the percentage of completion method of accounting for our Transportation Systems revenues could result in areduction or reversal of previously recorded revenues and profits. A portion of Transportation Systems revenues are measured and recognized using thepercentage of completion method of accounting. Our use of this accounting method results in recognition of revenues and profits proportionally over the lifeof a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions torevenues and estimated costs are recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in any period and theireffects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering,program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actualcosts to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits. Uncertainties in the interpretation and application of the new revenue recognition standard ASC 606 could materially affect our revenuerecognition. As discussed in Note 1 to the Consolidated Financial Statements (Description of Business and Summary of Significant Accounting Policies—Recent Accounting Pronouncements), effective March 1, 2018, we adopted the Financial Accounting Standards Board ("FASB") issued AccountingStandards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606"). We believe that ASC 606 and related revenue recognition policieswill not result in a material change to our consolidated financial statements, and will not cause any significant changes to the amount and timing of ourrecognition of future revenue and cost. However, uncertainties in future guidance of the interpretation and application of ASC 606 could materially affect ourrevenue and cost recognition. Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective taxrate. The 2017 Tax Cuts and Jobs Act (the "Tax Act") was enacted on December 22, 2017, and significantly affected U.S. tax law by changing how the U.S.imposes income tax on multinational corporations. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance thatmay significantly impact how we will apply the law and impact our results of operations in the period issued. The Tax Act requires complex computationsnot previously provided in U.S. tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with theTax Act and the accounting for such provisions require accumulation of information not previously required or regularly produced. As a result, we haveprovided a provision on the effect of the Tax Act in our financial statements. As additional regulatory guidance is issued by the applicable taxing authorities,and the accounting treatment is clarified, we plan to perform additional analysis on the application of the law, and may need to refine our estimates incalculating the impact of such further guidance. As such, our final analysis may be different from our current provisional amounts, which could materiallyaffect our tax obligations and effective tax rate. Declines in the value of securities held in our investment portfolio can affect us negatively. As of March 31, 2018, the value of securities available forsale and held to maturity within our investment portfolio was $9.0 million, which is generally determined based upon market values available from third-party sources, may fluctuate as a result of market volatility and economic or financial market conditions. Declines in the value of securities held in ourinvestment portfolio negatively impact our levels of capital and liquidity. Further, to the extent that we experience unrealized losses in our portfolio ofinvestment securities from declines in securities values that management determines to be other than temporary, the book value of those securities will beadjusted to their estimated recovery value and we will recognize a charge to earnings in the quarter during which we make that determination. Although wehave policies and procedures in place to assess and mitigate potential impacts of market risks, including hedging-related strategies, those policies andprocedures are inherently limited because they cannot anticipate the existence or future development of currently17Table of Contentsunanticipated or unknown risks. Accordingly, we could suffer adverse effects as a result of our failure to anticipate and manage these risks properly. If our internal controls over financial reporting do not comply with the requirements of the Sarbanes-Oxley Act, our business and stock price could beadversely affected. Section 404 of the Sarbanes-Oxley Act of 2002 currently requires us to evaluate the effectiveness of our internal controls over financialreporting at the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in allannual reports. We are required to obtain our auditors' attestation pursuant to Section 404(b) of the Sarbanes-Oxley Act. Going forward, we may not be able tocomplete the work required for such attestation on a timely basis and, even if we timely complete such requirements, our independent registered publicaccounting firm may still conclude that our internal controls over financial reporting are not effective. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectiveswill be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be consideredrelative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all controlissues and instances of fraud, if any, within Iteris have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certainassumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potentialfuture conditions. Over time, our controls may become inadequate because of changes in conditions or deterioration in the degree of compliance withpolicies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not bedetected. If we are not able to maintain effective internal controls over financial reporting, we may lose the confidence of investors and analysts and our stockprice could decline. Our quarterly operating results fluctuate as a result of many factors. Therefore, we may fail to meet or exceed the expectations of securities analystsand investors, which could cause our stock price to decline. Our quarterly revenues and operating results have fluctuated and are likely to continue to varyfrom quarter to quarter due to a number of factors, many of which are not within our control. Factors that could affect our revenues include, among others, thefollowing:•delays in government contracts and funding from time to time and budgetary constraints at the federal, state and local levels; •our ability to access stimulus funding, funding from the federal highway bill or other government funding; •declines in new home and commercial real estate construction and related road and other infrastructure construction; •changes in our pricing policies and the pricing policies of our suppliers and competitors, pricing concessions on volume sales, as well asincreased price competition in general; •the long lead times associated with government contracts; •the size, timing, rescheduling or cancellation of significant customer orders; •our ability to control costs; •our ability to raise additional capital;18Table of Contents•the mix of our products and services sold in a quarter, which has varied and is expected to continue to vary from time to time; •seasonality due to winter weather conditions; •seasonality with respect to revenues from our ClearPath Weather and related weather forecasting services due to the decrease in revenuesgenerated for such services during the spring and summer time periods; •our ability to develop, introduce, patent, market and gain market acceptance of new products, applications and product enhancements in atimely manner, or at all; •market acceptance of the products incorporating our technologies and products; •the introduction of new products by competitors; •the availability and cost of components used in the manufacture of our products; •our success in expanding and implementing our sales and marketing programs; •the effects of technological changes in our target markets; •the amount of our backlog at any given time; •the nature of our government contracts; •decrease in revenues derived from key or significant customers; •deferrals of customer orders in anticipation of new products, applications or product enhancements; •risks and uncertainties associated with our international business; •market condition changes such as industry structure consolidations that could slow down our ability to procure new business; •general economic and political conditions; •international conflicts and acts of terrorism; and •other factors beyond our control, including but not limited to, natural disasters. Due to all of the factors listed above as well as other unforeseen factors, our future operating results could be below the expectations of securities analystsor investors. If that happens, the trading price of our common stock could decline. As a result of these quarterly variations, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance. We rely on outside suppliers that could experience supply shortages or may experience production gaps that could materially and adversely impactour sales and financial results. It is possible that we could experience unforeseen quality control issues or part shortages as we adjust production to meetcurrent demand for our products. We have historically used single suppliers for certain significant components in our products, and have had to reengineerproducts from time to time to address obsolete components, especially in our Roadway Sensors products. Should any such delay or disruption occur, orshould a key supplier discontinue operations, our future sales will likely be materially and adversely affected. Additionally, we rely heavily on selectcontract manufacturers to produce many of our products and do not have any long-term contracts to guarantee supply of such products. Although we believeour contract manufacturers have sufficient capacity to meet our production schedules for the foreseeable future and we believe we could find alternativecontract manufacturing sources for many of our products, if necessary, we could experience a production gap if for any reason our contract19Table of Contentsmanufacturers were unable to meet our production requirements and our cost of goods sold could increase, adversely affecting our margins. We may engage in acquisitions of companies or technologies that may require us to undertake significant capital infusions and could result indisruptions of our business and diversion of resources and management attention. We have completed two acquisitions since November 2011 and, in thefuture, we may acquire additional complementary businesses, products, and technologies. Acquisitions may require significant capital infusions and, ingeneral, acquisitions also involve a number of special risks, including:•potential disruption of our ongoing business and the diversion of our resources and management's attention; •the failure to retain or integrate key acquired personnel; •the challenge of assimilating diverse business cultures, and the difficulties in integrating the operations, technologies and information systemof the acquired companies; •increased costs to improve managerial, operational, financial and administrative systems and to eliminate duplicative services; •the incurrence of unforeseen obligations or liabilities; •potential impairment of relationships with employees or customers as a result of changes in management; and •increased interest expense and amortization of acquired intangible assets, as well as unanticipated accounting charges. Our competitors are also soliciting potential acquisition candidates, which could both increase the price of any acquisition targets and decrease thenumber of attractive companies available for acquisition. Acquisitions may also materially and adversely affect our operating results due to large write-offs,contingent liabilities, substantial depreciation, deferred compensation charges or intangible asset amortization, or other adverse tax or accountingconsequences. We cannot assure you that we will be able to identify or consummate any additional acquisitions, successfully integrate any acquisitions orrealize the benefits anticipated from any acquisition. Our international business operations may be threatened by many factors that are outside of our control. While we historically have had limitedinternational sales, revenues and operational experience, we previously had Transportation Systems contracts in the United Arab Emirates ("UAE"), for whichapproximately $130,000 in performance bonds have not yet been released by the UAE Department of Transportation. We also have been expanding ourdistribution capabilities for our Roadway Sensors segment internationally, particularly in Canada, Australia, New Zealand, Europe and in South America. Weplan to continue to expand our international efforts, but we cannot assure you that we will be successful in such efforts. International operations subject us tovarious inherent risks including, among others:•political, social and economic instability, as well as international conflicts and acts of terrorism; •bonding requirements for certain international projects; •longer accounts receivable payment cycles; •import and export license requirements and restrictions of the U.S. and each other country in which we operate; •currency fluctuations and restrictions, and our ability to repatriate currency from certain foreign regions;20Table of Contents•unexpected changes in regulatory requirements, tariffs and other trade barriers or restrictions; •required compliance with existing and new foreign regulatory requirements and laws, more restrictive labor laws and obligations, includingbut not limited to the U.S. Foreign Corrupt Practices Act; •difficulties in managing and staffing international operations; •potentially adverse tax consequences; and •reduced protection for intellectual property rights in some countries. Substantially all of our international product sales are denominated in U.S. dollars. As a result, an increase in the relative value of the dollar could makeour products more expensive and potentially less price competitive in international markets. We do not currently engage in any transactions as a hedgeagainst risks of loss due to foreign currency fluctuations. Any of the factors mentioned above may adversely affect our future international revenues and, consequently, affect our business, financial conditionand operating results. Additionally, as we pursue the expansion of our international business, certain fixed and other overhead costs could outpace ourrevenues, thus adversely affecting our results of operations. We may likewise face local competitors in certain international markets who are more established,have greater economies of scale and stronger customer relationships. Furthermore, as we increase our international sales, our total revenues may also beaffected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and certain otherparts of the world. We may need to raise additional capital in the future, which may not be available on terms acceptable to us, or at all. We have historicallyexperienced volatility in our earnings and cash flows from operations from year to. On September 1, 2017, we filed a registration statement on a Form S-3,utilizing a "shelf" registration process, and may consider a new equity financing in the future. Should the credit markets further tighten or our businessdeclines, we may need or choose to raise additional capital to fund our operations, to repay indebtedness, pursue acquisitions or expand our operations. Suchadditional capital may be raised through bank borrowings, or other debt or equity financings. We cannot assure you that any additional capital will beavailable on a timely basis, on acceptable terms, or at all, and such additional financing may result in further dilution to our stockholders. Our capital requirements will depend on many factors, including, but not limited to:•market acceptance of our products and product enhancements, and the overall level of sales of our products; •our ability to control costs; •the supply of key components for our products; •our ability to increase revenue and net income; •increased research and development expenses and sales and marketing expenses; •our need to respond to technological advancements and our competitors' introductions of new products or technologies; •capital improvements to new and existing facilities and enhancements to our infrastructure and systems; •potential acquisitions of businesses and product lines; •our relationships with customers and suppliers;21Table of Contents•government budgets, political agendas and other funding issues, including potential delays in government contract awards; •our ability to successfully negotiate credit arrangements with our bank and the state of the financial markets in general; and •general economic conditions, including the effects of the economic slowdowns and international conflicts. If our capital requirements are materially different from those currently planned, we may need additional capital sooner than anticipated. If additionalfunds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and suchsecurities may have rights, preferences and privileges senior to our common stock. Additional equity or debt financing may not be available on favorableterms, on a timely basis, or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to continue our operations asplanned, develop or enhance our products, expand our sales and marketing programs, take advantage of future opportunities or respond to competitivepressures. The trading price of our common stock is highly volatile. The trading price of our common stock has been subject to wide fluctuations in the past.From August 1, 2015 through May 31, 2018, our common stock has traded at prices as low as $1.77 per share and as high as $8.17 per share. The market priceof our common stock could continue to fluctuate in the future in response to various factors, including, but not limited to:•quarterly variations in operating results; •our ability to control costs, improve cash flow and sustain profitability; •our ability to raise additional capital; •shortages announced by suppliers; •announcements of technological innovations or new products or applications by our competitors, customers or us; •transitions to new products or product enhancements; •acquisitions of businesses, products or technologies; •the impact of any litigation; •changes in investor perceptions; •government funding, political agendas and other budgetary constraints; •changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry in general; •changes in earnings estimates or investment recommendations by securities analysts; and •international conflicts, political unrest and acts of terrorism. The stock market has from time to time experienced volatility, which has often affected and may continue to affect the market prices of equity securitiesof many technology companies. This volatility has often been unrelated to the operating performance of these companies. These broad market fluctuationsmay adversely affect the market price of our common stock. In the past, companies that have experienced volatility in the market price of their securities havebeen the subject of securities class action litigation. If we were to become the subject of a class action lawsuit, it could result in substantial losses and divertmanagement's attention and resources from other matters.22Table of Contents Certain provisions of our charter documents may discourage a third party from acquiring us and may adversely affect the price of our commonstock. Certain provisions of our certificate of incorporation could make it difficult for a third party to acquire us, even though an acquisition might bebeneficial to our stockholders. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.Under the terms of our certificate of incorporation, our Board of Directors is authorized to issue, without stockholder approval, up to 2,000,000 shares ofpreferred stock with voting, conversion and other rights and preferences superior to those of our common stock. In August 2009, we adopted a stockholderrights plan and declared a dividend of preferred stock purchase rights to our stockholders. Generally, the stockholder rights plan provides that if a person orgroup acquires 15% or more of our common stock, subject to certain exceptions and under certain circumstances, the rights may be exchanged by us forcommon stock or the holders of the rights, other than the acquiring person or group, could acquire additional shares of our capital stock at a discount off ofthe then current market price. Such exchanges or exercise of rights could cause substantial dilution to a particular acquirer and discourage the acquirer frompursuing our company. The mere existence of a stockholder rights plan often delays or makes a merger, tender offer or other acquisition of the company moredifficult. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our headquarters and principal operations are housed in approximately 41,000 square feet of leased office, manufacturing and warehouse space locatedin Santa Ana, California, pursuant to a lease which terminates in March 2022. For additional information regarding our lease obligations, see Note 8 of Notesto Consolidated Financial Statements, included in Part II, Item 8 of this report. ITEM 3. LEGAL PROCEEDINGS The information set forth under the heading "Litigation and Other Contingencies" under Note 8 of Notes to Consolidated Financial Statements, includedin Part II, Item 8 of this report, is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.23Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT's COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES Market Information and Holders Our common stock is traded on the NASDAQ Capital Market under the symbol "ITI" since February 8, 2016. Prior to that, our common stock traded onthe NYSE MKT under the same symbol. The following table sets forth, for the periods indicated, the highest and lowest sales prices for our common stock: On May 29, 2018, the last reported sales price of our common stock on the NASDAQ Capital Market was $5.16. As of May 29, 2018, we had 331 holdersof record of our common stock according to information furnished by our transfer agent. The actual number of stockholders is greater than this number ofrecord holders, and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.Securities Authorized for Issuance under Equity Compensation Plans Information regarding securities authorized for issuance can be found under Part III, "Item 12. Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters."Dividend Policy We have never paid or declared cash dividends on our common stock, and have no current plans to pay such dividends in the foreseeable future. Wecurrently intend to retain any earnings for working capital and general corporate purposes. The payment of any future dividends will be at the discretion ofour Board of Directors and will depend upon a number of factors, including, but not limited to, future earnings, the success of our business, our capitalrequirements, our general financial condition and future prospects, general business conditions, the consent of our lender and such other factors as the Boardof Directors may deem relevant.Issuer Purchases of Equity Securities In August 2011, our Board of Directors approved a stock repurchase program pursuant to which we were authorized to acquire up to $3.0 million of ouroutstanding common stock from time to time through August 2012. We repurchased approximately 964,000 shares under this original program for a totalpurchase price of $1.3 million. On August 9, 2012, our Board of Directors cancelled the initial stock repurchase program and the approximate $1.7 million ofremaining funds, and approved a new stock repurchase program pursuant to which we may acquire up to $3 million of our outstanding common stock for anunspecified length of time. Under the new program, we may repurchase shares24 High Low Fiscal 2018 Quarter Ended June 30, 2017 $6.50 $4.88 Quarter Ended September 30, 2017 6.91 5.68 Quarter Ended December 31, 2017 8.17 5.30 Quarter Ended March 31, 2018 7.88 4.43 Fiscal 2017 Quarter Ended June 30, 2016 $2.99 $2.20 Quarter Ended September 30, 2016 4.04 2.81 Quarter Ended December 31, 2016 3.79 3.20 Quarter Ended March 31, 2017 5.64 3.52 Table of Contentsfrom time to time in open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading planduring our closed trading windows. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate therepurchase program at any time without prior notice. On November 6, 2014, our Board of Directors approved a $3.0 million increase to the Company'sexisting stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for anunspecified length of time. For our fiscal years ended March 31, 2018 and 2017, we did not repurchase any shares. For our fiscal year ended March 31, 2016, we repurchasedapproximately 656,000 shares of our common stock. From inception of the program in August 2011 through March 31, 2018, we repurchased approximately3,422,000 shares of our common stock for an aggregate price of approximately $5.6 million, at an average price per share of $1.63. As of March 31, 2018, allrepurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock. As of March 31, 2018,approximately $1.7 million remains available for the repurchase of our common stock under our current program.Performance Graph The following performance graph compares the cumulative total stockholder return of the Company's common stock for the five-year period endedMarch 31, 2018 to the total returns of (i) the NASDAQ Composite Index and (ii) the NASDAQ Telecommunications Index. This comparison assumes in eachcase that $100 was invested at the close of market on March 29, 2013, the last trading day immediately preceding the Company's fifth preceding fiscal year,and that any dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.25 2013 2014 2015 2016 2017 2018 Iteris $100.00 $108.79 $100.00 $134.07 $298.90 $272.53 NASDAQ Composite $100.00 $130.18 $153.76 $154.62 $189.99 $229.43 NASDAQ Telecommunications $100.00 $120.57 $133.29 $131.52 $162.03 $188.13 Table of Contents The foregoing performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilitiesunder that section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data for the five-year period ended March 31, 2018 has been derived from our consolidated financial statements. Thehistorical results are not necessarily indicative of the results to be expected in any future period. The following selected consolidated financial data should beread in conjunction with, and are qualified in their entirety by reference to, the section entitled "Management's Discussion and Analysis of FinancialCondition and Results of Operations" and our consolidated audited financial statements and the related notes included elsewhere in this Annual Report. Theconsolidated statements of operations data for the years ended March 31, 2015 and 2014 and the consolidated balance sheet data as of March 31, 2016, 2015and 2014 have been derived from consolidated financial statements not included herein In July 2011, we completed the sale of substantially all of the assets used in connection with our prior Vehicle Sensors business. As a result, the results ofoperations of this business are all reflected as a discontinued operation for all periods presented below. See Note 3 (Sale of Vehicle Sensors) of the Notes toConsolidated Financial Statements included in this Annual Report.26 For the Years Ended March 31, 2018 2017 2016 2015 2014 (in thousands except share and per share data) Selected Consolidated Statement of Operations Data: Total revenues $103,729 $95,982 $77,748 $72,251 $68,228 Gross profit 39,831 37,402 30,669 28,182 25,974 Income (loss) from continuing operations (3,768) (5,187) (12,535) (1,277) 1,320 Gain on sale of discontinued operation, net of tax 242 361 214 207 89 Net income (loss) (3,526) (4,826) (12,321) (1,070) 1,409 Earnings (loss) per share (basic and diluted): (Loss) income per share from continuing operations $(0.12)$(0.16)$(0.39)$(0.04)$0.04 Gain per share on sale of discontinued operation, net of tax $0.01 $0.01 $0.01 $0.01 $0.00 Net (loss) income per share $(0.11)$(0.15)$(0.38)$(0.03)$0.04 Weighted average common shares used in basic per sharecalculations 32,776 32,174 32,049 32,595 32,665 Weighted average common shares used in diluted per sharecalculations 32,776 32,174 32,049 32,595 32,847 Selected Consolidated Balance Sheet Data: Total assets $62,886 $62,345 $60,020 $70,632 $70,607 Long-term liabilities 871 1,542 1,631 1,009 199 Stockholders' equity 39,521 40,224 43,462 55,968 57,490 (1)See Note 2 to our accompanying consolidated financial statements in Part II, Item 8 of this Annual Report for a description of themethod used to compute basic and diluted net loss per common shareTable of Contents ITEM 7. MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with our Consolidated Financial Statements and related Notes thereto includedin Part II, Item 8 of this report and the "Risk Factors" section in Item 1A, as well as the other cautionary statements and risks described elsewhere in thisreport before deciding to purchase, hold or sell our common stock.Overview General. We are a provider of essential applied informatics that enable smart transportation and digital agriculture. Municipalities, governmentagencies, crop science companies, farmers and agronomists use our solutions to make roads safer and travel more efficient, as well as farmlands moresustainable, healthy and productive. Sale of Vehicle Sensors. On July 29, 2011, we completed the sale of substantially all of our assets used in connection with our former Vehicle Sensorssegment to Bendix Commercial Vehicle Systems LLC ("Bendix"), a member of Knorr-Bremse Group, pursuant to an Asset Purchase Agreement signed onJuly 25, 2011 (the "Asset Sale"). In connection with the Asset Sale, we were entitled to additional consideration in the form of certain performance androyalty-related earn-outs through December 31, 2017. From the date of the Asset Sale through March 31, 2018, we received approximately $2.6 million inconnection with such royalty-related earn-out provisions. We also had approximately $106,000 in royalty-related receivables included in the prepaidexpenses and other current assets in the accompanying consolidated balance sheet as of March 31, 2018. We do not anticipate any further payments fromBendix. As a result of the Asset Sale, we no longer operate in the Vehicle Sensors segment. We determined that the Vehicle Sensors segment, which previouslyconstituted one of our operating segments, qualified as a discontinued operation. The applicable financial results of our former Vehicle Sensors segmentthrough the closing of the Asset Sale have been reclassified as a discontinued operation for all periods presented in this report. Refer to Note 3 of Notes toConsolidated Financial Statements, included in Part II, Item 8 of this report, for additional discussion regarding the Asset Sale. Business Segments. We currently operate in three reportable segments: Roadway Sensors, Transportation Systems and Agriculture and WeatherAnalytics. The Roadway Sensors segment provides various advanced detection sensors and systems for traffic intersection management, communication systemsand roadway traffic data collection applications. The Roadways Sensors product line uses advanced image processing technology and other techniques tocapture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of bothvideo images and data using various communication technologies. Our Roadway Sensors products include, among others, Vantage, VantageLive!,VantageNext, VantagePegasus, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products. The Transportation Systems segment includes engineering and consulting services, performance measurement and traffic analytics solutions, as well asthe development of transportation management and traveler information systems for the ITS industry. Our Transportation Systems services include planning,design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement,commercial vehicle operations, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion.Our Transportation Systems product line includes: iPeMS, our performance measurement and information management solution, as well as our commercialvehicle operations and vehicle safety compliance platforms, known as "CVIEW-Plus," "CheckPoint," "UCRLink," and "inspect."27Table of Contents The Agriculture and Weather Analytics segment includes ClearPath Weather, our road maintenance applications, and ClearAg, our digital agricultureplatform. Our ClearPath Weather suite of tools, such as tools for assessing historical weather conditions to both short-term and long-range weather forecastsand customizable route/site weather and pavement forecast tools, provide winter road maintenance recommendations for state agencies, municipalities andfor commercial companies that allow such users to create solutions to meet roadway maintenance decision needs. Our ClearAg solutions combine weatherand agronomic data with proprietary land-surface modeling and analytics to solve complex agricultural problems. Our ClearAg solutions include ourClearAg applications, ClearAg APIs and components, WeatherPlot mobile application and ClearAg Insights applications.Critical Accounting Policies and Estimates "Management's Discussion and Analysis of Financial Condition and Results of Operations" is based on our consolidated financial statements includedherein, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of thesefinancial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosuresof contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Onan ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition, the collectability of accounts receivable, thevaluation of inventories, the recoverability of long-lived assets and goodwill, the realizability of deferred tax assets, accounting for stock-basedcompensation, the valuation of equity instruments, warranty reserves and other contingencies. We base these estimates on historical experience and onvarious other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from other sources. These estimates and assumptions by their nature involve risks anduncertainties, and may prove to be inaccurate. In the event that any of our estimates or assumptions are inaccurate in any material respect, it could have amaterial adverse effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. The following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financialstatements. Revenue Recognition. Product revenues and related costs of sales are recognized when all of the following criteria are met: (i) persuasive evidence ofan arrangement exists, (ii) delivery under the terms of the arrangement has occurred, (iii) the price to the customer is fixed or determinable, and (iv) collectionof the receivable is reasonably assured. These criteria are typically met at the time of product shipment but, in certain circumstances, may not be met untilreceipt or acceptance by the customer. Accordingly, at the date revenue is recognized, the significant obligations or uncertainties concerning the sale havebeen resolved. Transportation Systems revenues are derived primarily from long-term contracts with governmental agencies. Certain Agriculture and Weather Analyticsrevenues are also derived from long-term contracts with governmental agencies, as well as contracts with commercial companies. ClearAg revenues that arederived from contracts with commercial companies are from subscription revenue that we typically invoice our customers at the beginning of the term, inmultiyear, annual, semi-annual or quarterly installments, and revenue is recognized ratably over the period of the subscription beginning once allrequirements for revenue recognition have been met, including provisioning the service so that it is available to our customers. When appropriate, revenuesare recognized using the percentage of completion method of accounting, whereby revenue is recognized as contract performance progresses and isdetermined based on the relationship of costs incurred to total estimated costs. Any anticipated losses on contracts are charged to earnings when identified.Changes in job28Table of Contentsperformance and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions tocosts and revenues and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization isreasonably assured. Certain of our revenues are recognized as services are performed and amounts are earned, which is measured by time incurred or othercontractual milestones or output measures. Revenues accounted for in this manner generally relate to certain fixed fee professional services, cost-plus fixedfee or time-and-materials contracts. Revenues for ongoing operations and maintenance services contracts are generally accounted for ratably as the servicesare performed throughout the term of the contract. Payments received in advance of services performed are deferred and recognized when the related servicesare performed. We recognize revenue from the sale of deliverables that are part of a multiple-element arrangement in accordance with applicable accounting guidancethat establishes a relative selling price hierarchy permitting the use of an estimated selling price to determine the allocation of arrangement consideration to adeliverable in a multiple-element arrangement where neither vendor specific objective evidence ("VSOE") nor third-party evidence ("TPE") of fair value isavailable for that deliverable. In the absence of VSOE or TPE of the stand-alone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, we are required to estimate the selling prices of those elements. Overall arrangement consideration is allocated to each element (bothdelivered and undelivered items) that has stand-alone value based on their relative selling prices, regardless of whether those selling prices are evidenced byVSOE or TPE or are based on our estimated selling prices. Goodwill and Other Long-Lived Assets. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition andthe fair value of the acquired net tangible and intangible assets. Other long-lived assets primarily represent internally developed and purchased intangibleassets including developed technology, customer relationships, trade names and patents. We currently amortize our intangible assets with definitive livesover periods ranging from one to seven years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed orotherwise used or, if that pattern cannot be reliably determined, using a straight-line amortization method over the estimated useful life of the asset. We perform an annual qualitative assessment of our goodwill during the fourth fiscal quarter, or more frequently, to determine if any events orcircumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely thannot reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of areporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, weperform a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. If the carryingvalue of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unitto its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. We determine the fairvalues of our reporting units using the income valuation approach, as well as other generally accepted valuation methodologies. In Fiscal 2017, we adopted the provisions issued by the FASB that were intended to simplify goodwill impairment testing. This guidance permits us toeliminate the second step of the goodwill impairment test, and eliminate the requirements for any reporting unit with a zero or negative carrying amount toperform a qualitative assessment. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the amount by which the carrying value ofthe goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. We monitor the indicators for goodwill impairment testing betweenannual tests.29Table of Contents We test long-lived assets and purchased intangible assets (other than goodwill) for impairment if we believe indicators of impairment exist. Wedetermine whether the carrying value of an asset or asset group is recoverable, based on comparisons to undiscounted expected future cash flows the asset orasset group is expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the assetexceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long-lived assets and purchased intangible assets. Income Taxes. We utilize the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on thetemporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in whichthe basis differences reverse. A valuation allowance is recorded when it is more-likely-than-not that some or all of the deferred tax assets will not be realized,which increases our income tax expense in the period such determination is made. On an interim basis, we estimate what our anticipated annual effective tax rate will be, while also separately considering applicable discrete and othernon-recurring items, and record a quarterly income tax provision in accordance with this anticipated rate. As the fiscal year progresses, we refine our estimatesbased upon actual events and financial results during the year. This estimation process can result in significant changes to our expected effective tax rate.When this occurs, we adjust our income tax provision during the quarter in which our estimates are refined so that the year-to-date provision reflects theexpected annual effective tax rate. These changes, along with adjustments to our deferred taxes, among others, may create fluctuations in our overall effectivetax rate from quarter to quarter. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet themore-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized taxpositions that no longer meet the more-likely-than-not threshold are reversed in the first subsequent financial reporting period in which that threshold is nolonger met. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselvesare subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actualliability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities orpotentially reverse previously recorded tax liabilities. In relation to the Tax Act, we determine reasonable provisional estimate on our existing deferred tax balances and the one-time transition tax under theSEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"). Actual future operating results andthe underlying amount and type of income could differ materially from our estimates, assumptions and judgments, thereby impacting our consolidatedfinancial position and results of operations. Stock-Based Compensation. We record stock-based compensation in the statements of operations as an expense, based on the grant date estimated fairvalue of our stock-based awards, whereby such fair values are amortized over the requisite service period. Our stock-based awards are currently comprised ofcommon stock options and restricted stock units. The fair value of our stock option awards is estimated on the grant date using the Black-Scholes-Mertonoption-pricing formula. While utilizing this model meets established requirements, the estimated fair values generated by it may not be indicative of theactual fair values of our stock option awards as it does not consider certain factors important to those awards to employees, such as continued employmentand periodic vesting requirements, as well as the limited transferability of the awards. The fair value of our restricted stock units is based on the closingmarket price of our common stock on the grant date. If there are any modifications or cancellations of the underlying unvested stock-based awards, we may berequired to accelerate, increase or cancel any remaining unearned stock-based compensation expense.30 Table of ContentsRecent Accounting Pronouncements Refer to Note 1 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for a discussion of recent accountingpronouncements.Results of Operations The following table sets forth certain statement of operations data as a percentage of revenues for the periods indicated.Analysis of Fiscal 2018, Fiscal 2017 and Fiscal 2016 Results of Operations Total Revenues. Total revenues are comprised of sales from our Roadway Sensors, Transportation Systems and Agriculture and Weather Analyticssegments. The following table's present details of total revenues for Fiscal 2018 compared to Fiscal 2017, and Fiscal 2017 compared to Fiscal 2016:31 Year Ended March 31, 2018 2017 2016 Product revenues 44.8% 45.6% 53.7%Service revenues 55.2 54.4 46.3 Total revenues 100.0 100.0 100.0 Cost of product revenues 25.7 24.8 30.0 Cost of service revenues 35.9 36.2 30.5 Cost of revenues 61.6 61.0 60.6 Gross profit 38.4 39.0 39.4 Operating expenses: Selling, general and administrative 36.0 34.6 34.4 Research and development 7.7 7.2 8.9 Amortization of intangible assets 0.1 0.3 0.5 Loss on impairment of goodwill — 2.3 — Total operating expenses 43.8 44.4 43.8 Operating loss (5.4) (5.4) (4.4)Non-operating income (expense): Other (expense) income, net (0.0) (0.0) 0.0 Interest income, net 0.0 0.0 0.0 Loss from continuing operations before income taxes (5.4) (5.4) (4.4)Benefit (provision) for income taxes 1.8 0.0 (11.7)Loss from continuing operations (3.6) (5.4) (16.1)Gain on sale of discontinued operation, net of tax 0.2 0.4 0.3 Net loss (3.4)% (5.0)% (15.8)% Year EndedMarch 31, $Increase %Change 2018 2017 (In thousands, except percentages) Product revenues $46,464 $43,735 $2,729 6.2%Service revenues 57,265 52,247 5,018 9.6%Total revenues $103,729 $95,982 $7,747 8.1%Table of Contents Product revenues for Fiscal 2018 increased approximately 6.2% to $46.5 million, compared to $43.7 million in Fiscal 2017, primarily due to increases inunit sales of our core Roadway Sensors products, Roadway Sensors OEM sales, as well as our Transportation Systems third-party product sales. Servicerevenues for Fiscal 2018 increased approximately 9.6% to $57.3 million, compared to $52.2 million in Fiscal 2017, primarily due to higher TransportationSystems traffic engineering service revenue for government agencies. Total revenues for Fiscal 2018 increased approximately 8.1% to $103.7 million,compared to $96.0 million in Fiscal 2017, primarily due to an approximate 11% increase in Transportation Systems revenues, an approximate 5% increase inRoadway Sensors revenues, and an approximate 8% increase in Agriculture and Weather Analytics revenues. Roadway Sensors revenues in Fiscal 2018 included approximately $44.2 million in product revenues and approximately $194,000 of service revenues,reflecting an increase in total revenues of approximately $2.2 million or 5%, compared to Fiscal 2017. The increase was primarily due to higher unit sales ofour core Roadway Sensors video detection products aided by a corresponding increase of in our distribution of certain OEM products for the trafficintersection market. Revenue generated through the distribution of certain third party products was approximately $5.3 million and approximately$4.8 million for Fiscal 2018 and Fiscal 2017, respectively. Roadway Sensors revenues in Fiscal 2017 included approximately $42.1 million in productrevenues and $111,000 of service revenues, reflecting an increase in total revenues of approximately $1.9 million or 5%, compared to Fiscal 2016. Theincrease was primarily due to higher unit sales of our Roadway Sensors products, slightly offset by a decrease in our distribution of OEM products for thetraffic intersection market. Revenue generated through the distribution of certain third party products was approximately $4.8 million and approximately$5.3 million for Fiscal 2017 and Fiscal 2016, respectively. Going forward, we plan to grow revenues by focusing on our core domestic intersection market,and refine and deliver products that address the needs of this market, primarily our Vantage processors and camera systems, and our Vantage Vectorvideo/radar hybrid sensor, as well as our SmartCycle, Velocity, PedTrax and SmartSpan products. Transportation revenues in Fiscal 2018 included approximately $52.2 million of service revenues and approximately $2.3 million of sales of third-partyproducts purchased for installation under certain construction-type contracts, reflecting an increase in total revenues of approximately $5.2 million or 11%,compared to Fiscal 2017. The increase was primarily a result of extensions granted on certain large contracts, new contract awards, and the timing of backlogfulfilment on certain other projects. Transportation revenues in Fiscal 2017 included approximately $47.6 million of service revenues and approximately$1.7 million of sales of third-party products purchased for installation under certain construction-type contracts, reflecting an increase in total revenues ofapproximately $15.2 million or 45%, compared to Fiscal 2016. The increase was primarily due as a result of one large contract win during the fourth quarterof Fiscal 2017 and two large contract wins during the third quarter of Fiscal 2016, which was a key contributor to positively impacting revenue growth inFiscal 2017, as well as timing of backlog fulfilment on certain other projects. While one of the aforementioned large contracts is expected to be nearcompletion by the first quarter of our fiscal year ending March 31, 2019, we plan to continue to pursue larger contracts that may contain significant sub-consulting content. While we believe larger contacts will contribute to overall revenue growth, the mix of sub-consulting content will32 Year EndedMarch 31, $Increase %Change 2017 2016 (in thousands, except percentages) Product revenues $43,735 $41,733 $2,002 4.8%Service revenues 52,247 36,015 16,232 45.1%Total revenues $95,982 $77,748 $18,234 23.5%Table of Contentslikely affect the related gross profit from period to period, as revenues derived from sub-consultants generally have lower gross margins than revenuesgenerated by our professional services. Agriculture and Weather Analytics revenues in Fiscal 2018 included no product revenue and approximately $4.9 million of service revenues, largelyconsisting of subscription revenues, reflecting an increase in total revenues of approximately $351,000 or 8%, compared to Fiscal 2017. The increase wasprimarily due to an increase in ClearAg solutions under newly signed contracts during Fiscal 2018 and Fiscal 2017. Agriculture and Weather Analyticsrevenues in Fiscal 2017 included no product revenue and approximately $4.5 million of service revenues, largely consisting of subscription revenues,reflecting an increase in total revenues of approximately $1.1 million or 34%, compared to Fiscal 2016. The increase was primarily due to increases in bothClearPath Weather and ClearAg solutions under newly signed contracts during Fiscal 2017. Going forward, we plan to continue investing in this segment,particularly in the research and development and sales and marketing of the ClearAg and ClearPath Weather solutions. We also plan to pursue commercialopportunities in the precision agriculture technology markets by offering software applications, content, and modeling services that provide analytics anddecision support services that leverage our precision weather, soil and agronomic content and applications. Gross Profit. The following tables present details of our gross profit for Fiscal 2018 compared to Fiscal 2017, and Fiscal 2017 compared to Fiscal 2016: Our product gross profit as a percentage of product revenues for Fiscal 2018 decreased approximately 270 basis points compared to Fiscal 2017 primarilydue an increase in our Roadway Sensors OEM sales, as well as our Transportation Systems third-party product sales, both of which typically yield lower grossmargins than our Roadway Sensors core video detection products. Our service gross profit as a percentage of service revenues for Fiscal 2018 increased 130basis points compared to Fiscal 2017 primarily due to the timing of certain extension contracts, the contract mix and a decrease in the amount of related sub-consulting content of such contracts. Sub-consulting content generally results in lower gross margins than our workforce. Our total gross profit as apercentage of total revenues for Fiscal 2018 decreased 60 basis points compared to Fiscal 201733 Year EndedMarch 31, $Increase(Decrease) %Change 2018 2017 (In thousands, except percentages) Product gross margin $19,831 $19,858 $(27) (0.1)%Service gross margin 20,000 17,544 2,456 14.0%Total gross margin $39,831 $37,402 $2,429 6.5%Product gross margin as a % of product revenues 42.7% 45.4% Service gross margin as a % of service revenues 34.9% 33.6% Total gross margin as a % of total revenues 38.4% 39.0% Year EndedMarch 31, $Increase %Change 2017 2016 (in thousands, except percentages) Product gross margin $19,858 $18,393 $1,465 8.0%Service gross margin 17,544 12,276 5,268 42.9%Total gross margin $37,402 $30,669 $6,733 22.0%Product gross margin as a % of product revenues 45.4% 44.1% Service gross margin as a % of service revenues 33.6% 34.1% Total gross margin as a % of total revenues 39.0% 39.4% Table of Contentsprimarily as a result of the revenue mix between the Roadway Sensors and Transportation Systems segments, as Roadway Sensors revenues generally yieldhigher total gross margins than our other segments. As such, the increase in our Transportation Systems total revenues from approximately 51% of totalrevenues for Fiscal 2017 to approximately 53% of total revenues for Fiscal 2018 was a primary contributor to our decline in total gross margin. RoadwaySensors revenue decreased as a percentage of total revenues from approximately 44% for Fiscal 2017 to approximately 43% for Fiscal 2018. Our product gross profit as a percentage of product revenues for Fiscal 2017 increased approximately 130 basis points compared to Fiscal 2016 primarilydue an increase in unit sales of our core Roadway Sensors products, coupled with a decrease in our Transportation Systems third-party product sales in Fiscal2017, both of which typically yield lower gross margins than our Roadway Sensors core video detection products. Our service gross profit as a percentage ofservice revenues for Fiscal 2017 decreased 50 basis points compared to Fiscal 2016 primarily due to the timing of certain extension contracts, the contractmix and an increase in the amount of related sub-consulting content of such contracts. Sub-consulting content generally results in lower gross margins thanour workforce. Our total gross profit as a percentage of total revenues for Fiscal 2017 decreased approximately 40 basis points compared to Fiscal 2016primarily due to higher revenues derived from our Transportation Systems segment in Fiscal 2017, which has generally experienced lower gross profits thanour other segments and which increased to approximately 51% of our total revenues for Fiscal 2017, as compared to 44% for Fiscal 2016. Therefore, theincrease in Transportation Systems revenues, as a percentage of our overall revenue mix, decreased our overall margin. Roadway Sensors gross profit can fluctuate in any specific quarter or year based on, among other factors, customer and product mix between coreproducts and third party OEM products, competitive pricing requirements, product warranty costs and provisions for our excess and obsolete inventories, aswell as shifts of engineering resources from development activities to sustaining activities, which we record as cost of goods sold. We recognize a portion of our Transportation Systems revenues and related gross profit using percentage of completion contract accounting, and theunderlying mix of contract activity affects the related gross profit recognized in any given period. For the Transportation Systems segment, we expect toexperience gross profit variability in future periods due to our contract mix and the amount of related sub-consulting content of such contracts, as well asfactors such as our ability to efficiently utilize our internal workforce, which could cause fluctuations in our margins from period to period.Selling, General and Administrative Expense Selling, general and administration expense for Fiscal 2018 increased approximately 12.3% to $37.4 million, compared to $33.3 million in Fiscal 2017.The overall increase was primarily due to an increase in business development costs aimed at the pursuit of large contracts in the Transportations Systemssegment. In addition, there were higher personnel compensation costs driven by higher revenues. This increase in personnel also drove an increase infacilities costs. The overall increase was also attributable to an increase in other selling, general and administrative expenses, primarily due to a reversal ofcertain bad debt reserves on specific accounts receivable that were subsequently collected during Fiscal 2017, which did not reoccur in Fiscal 2018. Selling, general and administration expense for Fiscal 2017 increased approximately 24.1% to $33.3 million, compared to $26.8 million in Fiscal 2016.The overall increase was primarily due to planned headcount increases in corporate headquarters general and administrative positions, as well as plannedinvestments in Agriculture and Weather Analytics sales and marketing, including an increase in the salesforce headcount, which resulted in higher salary andpersonnel-related costs. The increases in general and administrative expense were also due to legal costs incurred (i) to reach a proxy contest settlementduring our second quarter of Fiscal 2018 and (ii) for recent stockholder litigation which was34Table of Contentssettles in the first half of Fiscal 2018 (see Note 8 of Notes to Consolidated Financial Statements). The increases in general and administrative were alsoattributable to additional costs for internal control framework to comply with Sarbanes-Oxley standards as an accelerated filer. These increases were partiallyoffset by a reversal of certain bad debt reserves that were placed on specific accounts receivable that were collected during Fiscal 2017.Research and Development Expense Research and development expense for Fiscal 2018 increased approximately 15.5% to $7.9 million, compared to $6.9 million in Fiscal 2017. The overallincrease was primarily due to continued investment in research, discovery, and development largely focused on our software related product offerings. We continued to invest in the development of our iPeMS software offering as well as our ClearAg and ClearPath Weather solutions. In addition, weinvested in further enhancements and functionality in our Vantage products family. During Fiscal 2018, we successfully released Iteris SPM, our cloud-basedsignal performance measures application. During Fiscal 2017, we released our VantageLive! platform as well as a number of generally available advisoryapplications, including our Harvest Advisory and Nitrogen Advisory. Certain development costs were capitalized into intangible assets in the consolidatedbalance sheets; however, certain costs did not meet the criteria for capitalization under GAAP and are included in research and development expense. Goingforward, we expect to continue to invest in our solutions. This continued investment may result in increases in research and development costs in futureperiods. Research and development for Fiscal 2017 and Fiscal 2016 was relatively consistent at $6.9 million for both periods as the Company continued to investin research, discovery, and development.Impairment of Goodwill Based on our goodwill impairment testing for Fiscal 2018, we believe the carrying value of our goodwill was not impaired, as the estimated fair values ofour reporting units exceeded their carrying values at the end of Fiscal 2018. Based on our goodwill impairment testing for Fiscal 2017, we determined the fairvalue of the Agriculture and Weather Analytics reporting unit was less than its carrying amount and resulted in approximately $2.2 million impairmentcharge in the consolidated statement of operations for Fiscal 2017. We also determined our Roadway Sensors and Transportation Systems reporting units hadno impairment, as their estimated fair values exceeded their respective carrying values. Based on our goodwill impairment testing for Fiscal 2016, we believethe carrying value of our goodwill was not impaired, as the estimated fair values of our reporting units exceeded their carrying values at the end of such fiscalyear. If our actual financial results, or the plans and estimates used in future goodwill impairment analyses, are lower than our original estimates used to assessimpairment of our goodwill, we could incur goodwill impairment charges in the future.Amortization of Intangible Assets Amortization of intangible assets was approximately $88,000, $281,000 and $360,000 in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively. Thedecrease in amortization was primarily due to the completion of amortization on certain older intangible assets.Interest Income, Net Net interest income was approximately $32,000, $13,000 and $12,000 in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively.35Table of ContentsIncome Taxes The following table presents our (benefit) provision for income taxes for Fiscal 2018, Fiscal 2017 and Fiscal 2016: For Fiscal 2018, the difference between the statutory and the effective tax rate was primarily attributable to an increase in tax expense resulting from theimpact of the change in the U.S. federal tax rate on the Company's deferred tax assets, offset by a corresponding change to the valuation allowancemaintained against the deferred tax assets and a benefit for research tax credits generated during the current fiscal year. The effective tax rate for Fiscal 2018was also favorably impacted by the reversal of the valuation allowance related to Alternative Minimum Tax credit carryforwards, which were maderefundable by the tax legislation discussed below. For Fiscal 2017 and 2016, the difference between the statutory and the effective tax rate was primarily attributable to the valuation allowance recordedagainst the Company's deferred tax assets. In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred taxliabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As the Company has sustained acumulative pre-tax loss over the trailing three years, we considered it appropriate to maintain valuation allowances of $9.8 million and $11.7 million againstour deferred tax assets at March 31, 2018 and 2017, respectively. We will continue to reassess the appropriateness of maintaining a valuation allowance. As we update our estimates in future periods, adjustments to our deferred tax asset and valuation allowance may be necessary. We anticipate this willcause our future overall effective tax rate in any given period to fluctuate from prior effective tax rates and statutory tax rates. We utilize the liability methodof accounting for income taxes. We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. At March 31, 2018, we had $6.8 million of federal net operating loss carryforwards that do not expire as a result of recent tax law changes and$5.6 million of federal net operating loss carryforwards that begin to expire in 2022. We also had $4.4 million of state net operating loss carryforwards thatbegin to expire in 2031. Although the impact cannot be precisely determined at this time, we believe that our net operating loss carryforwards will providereductions in our future income tax payments, that would otherwise be higher using statutory tax rates. The Tax Act was enacted on December 22, 2017 and reduced U.S. corporate income tax rates to 21.0% as of January 1, 2018. The rate change becameeffective during Fiscal 2018 resulting in a blended statutory tax rate of 30.8% for Fiscal 2018. As a consequence of the tax legislation, the Company recordeda decrease in its net deferred tax assets of $4.1 million and a decrease in the valuation allowance maintained against its deferred tax assets of $5.8 million.The estimated impact of the tax legislation was an income tax benefit of $1.7 million, of which $1.1 million was due to the release of valuation allowancethat had been maintained against Alternative Minimum Tax credit carryforwards, which were made refundable by the tax legislation, and $640,000 was dueto the remeasurement of a deferred tax liability related to indefinite-lived assets.36 Year Ended March 31, 2018 2017 2016 (In thousands, exceptpercentages) (Benefit) provision for income taxes $(1,818)$(44)$9,079 Effective tax rate 32.5% 0.8% (262.6)%Table of Contents On December 22, 2017, the SEC issued guidance under SAB 118 directing taxpayers to consider the impact of the tax legislation as "provisional" whenit does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for thechange in tax law. In accordance with SAB 118, the income tax effects discussed above represent the Company's best estimate based on its currentinterpretation of this tax legislation. The Company is accumulating data to finalize the underlying calculations and evaluate other aspects of this taxlegislation, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the tax legislation. Inaccordance with SAB 118, the income tax effects of the tax legislation discussed above are considered provisional and will be finalized in Fiscal 2019.Liquidity and Capital ResourcesCash Flows We have historically financed our operations with a combination of cash flows from operations and the sale of equity securities. We have historicallyrelied, and expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which we believe to be sufficient to fund ouroperations for at least the next twelve months. However, we may need or choose to raise additional capital to fund potential future acquisitions and our futuregrowth. We may raise such funds by selling equity or debt securities to the public or to selected investors or by borrowing money from financial institutions.If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders may experience significant dilution, and any equitysecurities that may be issued may have rights senior to our existing stockholders. There is no assurance that we will be able to secure additional funding on atimely basis, on terms acceptable to us, or at all. At March 31, 2018, we had $17.4 million in working capital, which included $10.2 million in cash and cash equivalents, as well as $5.3 million in shortterm investments. This compares to working capital of $22.7 million at March 31, 2017, which included $18.2 million in cash and cash equivalents. The following table summarizes our cash flows for Fiscal 2018, Fiscal 2017 and Fiscal 2016: Operating Activities. Cash used in our operations during Fiscal 2018 was primarily the result of our net loss of approximately $3.5 million, adjusted byapproximately $2.4 million in non-cash items for deferred income taxes, depreciation, stock-based compensation, amortization, gain on sales of discontinuedoperations, and loss on disposal of equipment. The net loss was offset in part by approximately $819,000 of working capital provided in Fiscal 2018. Cash provided by our operations during Fiscal 2017 was primarily the result of approximately $3.6 million of working capital provided and offset by ournet loss of approximately $4.8 million, adjusted by approximately $4.2 million in non-cash items for deferred income taxes, depreciation, stock-basedcompensation, amortization, gain on sales of discontinued operations, loss on disposal of equipment and loss on impairment of goodwill. Cash used in our operations during Fiscal 2016 was primarily the result of our net loss of approximately $12.3 million, adjusted by approximately$10.5 million in non-cash items, of which37 Year Ended March 31, 2018 2017 2016 (In thousands) Net cash provided by (used in): Operating activities $(268)$2,903 $(4,110)Investing activities (8,823) (1,343) (978)Financing activities 1,042 612 (844)Table of Contentsapproximately $9.0 million related to the change in our deferred income taxes and related valuation allowance recorded against our federal net operating losscarryforwards. Such non-cash items also included higher stock-based compensation primarily due to the recent large equity grant to our new CEO, as well asdepreciation, amortization, gain on the sale of discontinued operation and loss on disposal of equipment. Cash used in our operations was also driven byapproximately $2.3 million used in working capital. Investing Activities. Cash used in our investing activities during Fiscal 2018 consisted of approximately $5.3 million in investment purchases,approximately $1.1 million for purchases of property and equipment primarily related to leasehold improvement to our corporate headquarters, and$2.9 million of capitalized software development primarily related to the development of our new Oracle ERP system, and to a lesser extent, in theAgriculture and Weather Analytics and Roadway Sensors business segments related to ClearAg assets and VantageLive! developments. These investmentswere partially offset by approximately $511,000 in proceeds from the earn-out provision included in the sale of the Vehicle Sensors segment. Cash used in our investing activities during Fiscal 2017 consisted of approximately $1.2 million of capitalized software development in the Agricultureand Weather Analytics and Roadway Sensors business segments related to ClearAg assets and VantageLive! development, respectively, and approximately$668,000 for purchases of property and equipment, primarily related to computers and related equipment which were offset by approximately $495,000 inproceeds from the sale of the Vehicle Sensors segment. Cash used in our investing activities during Fiscal 2016 consisted of approximately $856,000 for purchases of property and equipment, primarily relatedto computers and related equipment and approximately $490,000 of capitalized software development in the Agriculture and Weather Analytics businesssegment related to ClearAg assets, which were offset by approximately $368,000 in proceeds from the sale of the Vehicle Sensors segment. Financing Activities. Net cash provided by financing activities during Fiscal 2018 and Fiscal 2017 was primarily the result of approximately$1.0 million and $612,000, respectively, of cash proceeds received from the exercises of stock options. Net cash used in financing activities during Fiscal 2016 was primarily the result of approximately $1.2 million in cash used to repurchase shares of ourcommon stock under our stock repurchase program, which was offset in part by approximately $383,000 of cash proceeds received from the exercises of stockoptions.Borrowings We previously had a $12.0 million revolving line of credit with California Bank & Trust ("CB&T"), which expired on October 1, 2016. We wereobligated to pay an unused line fee of 0.15% per annum applied to the average unused portion of the revolving line of credit. We chose not to renew our lineof credit as we do not foresee a need to utilize credit within the next twelve months, and we will avoid paying an unused line fee.Off-Balance Sheet Arrangements Other than our operating leases, which are further described at Note 8 of Notes to Consolidated Financial Statements, included in Part II, Item 8 of thisreport, we do not have any other material off-balance sheet arrangements at March 31, 2018.38Table of ContentsSeasonality We have historically experienced seasonality, particularly with respect to our Roadway Sensors segment, which adversely affects such sales in our thirdand fourth fiscal quarters due to a reduction in intersection construction and repairs during the winter months due to inclement weather conditions, with thethird fiscal quarter generally impacted the most by inclement weather. We have also experienced seasonality, particularly with respect to our TransportationSystems segment, which adversely impacts our third fiscal quarter due to the increased number of holidays, causing a reduction in available billable hours. Inaddition, we have experienced seasonality related to certain ClearPath Weather services, which adversely impacts such sales in our first and second fiscalquarters, mainly because these services are generally not required during Spring and Summer when weather conditions are comparatively milder. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. The primary objective of our investmentactivities is to preserve principal and liquidity while at the same time maximizing yields without significantly increasing risk. To achieve this objective, wemaintain our investments portfolio in a variety of available-for-sale fixed debt securities, including both government and corporate obligations and moneymarket funds. Investments in fixed rate interest bearing instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market valueadversely impacted due to a rise in prevailing interest rates. Due in part to these factors, we may suffer losses in principal if we need the funds prior tomaturity and choose to sell securities that have declined in market value due to changes in interest rates or perceived credit risk related to the securities'issuers.39Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Iteris, Inc.Index to Consolidated Financial Statement 40Report of Independent Registered Public Accounting Firm 41Consolidated Balance Sheets as of March 31, 2018 and 2017 43Consolidated Statements of Operations for the fiscal years ended March 31, 2018, 2017 and 2016 44Consolidated Statements of Stockholders' Equity for the fiscal years ended March 31, 2018, 2017 and 2016 45Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2018, 2017 and 2016 46Notes to Consolidated Financial Statements 47 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Iteris, Inc.Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Iteris, Inc. and subsidiary (the "Company") as of March 31, 2018 and 2017, therelated consolidated statements of operations, stockholders' equity, and cash flows, for each of the three years in the period ended March 31, 2018, and therelated notes (collectively referred to as the "financial statements"). We also have audited the Company's internal control over financial reporting as ofMarch 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31,2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2018, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of March 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued byCOSO.Basis for Opinions The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control OverFinancial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control overfinancial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether dueto error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amountsand disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.41Table of ContentsDefinition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate./s/ Deloitte & Touche LLPCosta Mesa, CAJune 7, 2018We have served as the Company's auditor since fiscal 2016.42Table of Contents Iteris, Inc. Consolidated Balance Sheets (In thousands, except par value) See accompanying notes.43 March 31, 2018 2017 Assets Current assets: Cash and cash equivalents $10,152 $18,201 Short-term investments 5,319 — Trade accounts receivable, net of allowance for doubtful accounts of $333 and $389 atMarch 31, 2018 and March 31, 2017, respectively 12,866 14,299 Unbilled accounts receivable 7,473 6,456 Inventories 2,921 2,250 Prepaid expenses and other current assets 1,165 2,108 Total current assets 39,896 43,314 Property and equipment, net 2,333 2,064 Intangible assets, net 3,751 1,498 Goodwill 15,150 15,150 Other assets 1,756 319 Total assets $62,886 $62,345 Liabilities and stockholders' equity Current liabilities: Trade accounts payable $7,838 $7,886 Accrued payroll and related expenses 7,398 6,443 Accrued liabilities 2,358 2,201 Deferred revenue 4,900 4,049 Total current liabilities 22,494 20,579 Deferred rent 638 649 Deferred income taxes 65 707 Unrecognized tax benefits 168 186 Total liabilities 23,365 22,121 Commitments and contingencies (Note 9) Stockholders' equity: Preferred stock, $1.00 par value: Authorized shares—2,000 Issued and outstanding shares—none — — Common stock, $0.10 par value: Authorized shares—70,000 at March 31, 2018 and March 31, 2017 Issued and outstanding shares—33,186 at March 31, 2018 and 32,488 at March 31, 2017 3,318 3,249 Additional paid-in capital 139,722 136,968 Accumulated deficit (103,519) (99,993)Total stockholders' equity 39,521 40,224 Total liabilities and stockholders' equity $62,886 $62,345 Table of Contents Iteris, Inc. Consolidated Statements of Operations (In thousands, except per share amounts) See accompanying notes.44 Year Ended March 31, 2018 2017 2016 Product revenues $46,464 $43,735 $41,733 Service revenues 57,265 52,247 36,015 Total revenues 103,729 95,982 77,748 Cost of product revenues 26,633 23,877 23,340 Cost of service revenues 37,265 34,703 23,739 Cost of revenues 63,898 58,580 47,079 Gross profit 39,831 37,402 30,669 Operating expenses: Selling, general and administrative 37,400 33,313 26,846 Research and development 7,945 6,877 6,933 Amortization of intangible assets 88 281 360 Loss on impairment of goodwill — 2,168 — Total operating expenses 45,433 42,639 34,139 Operating loss (5,602) (5,237) (3,470)Non-operating income (expense): Other (expense) income, net (16) (7) 2 Interest income, net 32 13 12 Loss from continuing operations before income taxes (5,586) (5,231) (3,456)Benefit (provision) for income taxes 1,818 44 (9,079)Loss from continuing operations (3,768) (5,187) (12,535)Gain on sale of discontinued operation, net of tax 242 361 214 Net loss $(3,526)$(4,826)$(12,321)Loss per share from continuing operations—basic and diluted $(0.12)$(0.16)$(0.39)Gain per share from sale of discontinued operation—basic and diluted $0.01 $0.01 $0.01 Net loss per share—basic and diluted $(0.11)$(0.15)$(0.38)Shares used in basic per share calculations 32,776 32,174 32,049 Shares used in diluted per share calculations 32,776 32,174 32,049 Table of Contents Iteris, Inc. Consolidated Statements of Stockholders' Equity (In thousands) See accompanying notes.45 Common Stock AdditionalPaid-InCapital AccumulatedDeficit TotalStockholders'Equity Shares Amount Balance at March 31, 2015 32,411 $3,242 $135,572 $(82,846)$55,968 Stock option exercises 243 24 359 — 383 Stock-based compensation — — 659 — 659 Issuance of shares pursuant to vesting of restricted stockunits, net of payroll withholding taxes 50 5 (37) — (32)Repurchases of common stock (656) (66) (1,129) — (1,195)Net loss (12,321) (12,321)Balance at March 31, 2016 32,048 $3,205 $135,424 $(95,167)$43,462 Stock option exercises 388 40 628 — 668 Stock-based compensation — — 976 — 976 Issuance of shares pursuant to vesting of restricted stockunits, net of payroll withholding taxes 52 4 (60) — (56)Net loss (4,826) (4,826)Balance at March 31, 2017 32,488 $3,249 $136,968 $(99,993)$40,224 Stock option exercises 591 59 1,131 — 1,190 Stock-based compensation — — 1,781 — 1,781 Issuance of shares pursuant to vesting of restricted stockunits, net of payroll withholding taxes 107 10 (158) — (148)Net loss (3,526) (3,526)Balance at March 31, 2018 33,186 $3,318 $139,722 $(103,519)$39,521 Table of Contents Iteris, Inc. Consolidated Statements of Cash Flows (In thousands) See accompanying notes.46 Year Ended March 31, 2018 2017 2016 Cash flows from operating activities Net loss $(3,526)$(4,826)$(12,321)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Deferred income taxes (660) 12 8,859 Depreciation of property and equipment 819 729 649 Stock-based compensation 1,781 976 659 Amortization of intangible assets 726 623 526 Gain on sale of discontinued operation, net of tax (242) (361) (214)Loss on disposal of equipment 16 14 58 Loss on impairment of goodwill — 2,168 — Changes in operating assets and liabilities, net of effects of discontinued operation: Accounts receivable 1,433 (1,058) (2,035)Unbilled accounts receivable and deferred revenue, net (166) 549 (239)Inventories (671) 903 (91)Prepaid expenses and other assets (693) (408) (407)Accounts payable and accrued expenses 915 3,582 446 Net cash (used in) provided by operating activities (268) 2,903 (4,110)Cash flows from investing activities Purchases of property and equipment (1,079) (668) (856)Capitalized software development costs (2,936) (1,170) (490)Purchase of short term investments (5,319) — — Net proceeds from sale of business segment 511 495 368 Net cash used in investing activities (8,823) (1,343) (978)Cash flows from financing activities Repurchases of common stock — — (1,195)Proceeds from stock option exercises 1,190 668 383 Tax withholding payments for net share settlements of restricted stock units (148) (56) (32)Net cash provided by (used in) financing activities 1,042 612 (844)(Decrease) increase in cash and cash equivalents (8,049) 2,172 (5,932)Cash and cash equivalents at beginning of period 18,201 16,029 21,961 Cash and cash equivalents at end of period $10,152 $18,201 $16,029 Supplemental cash flow information: Cash paid during the year for: Interest $— $14 $18 Income taxes 130 166 177 Supplemental schedule of non-cash investing and financing activities: Capitalized software development costs included in accounts payable and accruedexpenses $102 $— $— Issuance of common stock for vested restricted stock units 10 5 5 Landlord contribution for tenant improvements 145 — — Table of Contents Iteris, Inc. Notes to Consolidated Financial Statements March 31, 2018 1. Description of Business and Summary of Significant Accounting PoliciesDescription of Business Iteris, Inc. (referred to collectively with its wholly-owned subsidiary, ClearAg, Inc., in this report as "Iteris", the "Company", "we", "our", and "us") is aprovider of essential applied informatics that enable smart transportation and digital agriculture. Municipalities, government agencies, crop sciencecompanies, farmers and agronomists use our solutions to make roads safer and travel more efficient, as well as farmlands more sustainable, healthy andproductive. We offer a comprehensive range of intelligent transportation systems ("ITS") technology solutions to our customers throughout the U.S. andinternationally through a combination intellectual property, products, and decades of experience in traffic management, weather forecasting solutions andinformation technologies. In the agribusiness markets, we have combined our intellectual property with enhanced atmospheric, land surface and agronomic modeling techniques tooffer smart content solutions that provide analytical support to large enterprises in the agriculture industry, such as seed and crop protection companies,integrated food companies, and agricultural equipment manufacturers and service providers. We believe our products, solutions and services improve and safely optimize mobility within our communities, while minimizing environmental impacton the roads we travel and the lands we farm. We continue to make significant investments to leverage our existing technologies and further expand both our advanced detection sensors andperformance analytics systems in the transportation infrastructure market, while supporting the entire value chain in the agriculture market with our smartcontent and digital farming platform. Iteris was incorporated in Delaware in 1987.Recent DevelopmentsClearAg, Inc. In April 2017, Iteris, Inc. formed a wholly-owned subsidiary, ClearAg, Inc., a Delaware corporation, to provide ClearAg solutions in the agribusinessmarkets.Basis of Presentation Our consolidated financial statements include the accounts of Iteris, Inc. and its subsidiary and have been prepared in accordance with generallyaccepted accounting principles in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated inconsolidation. The results of continuing operations for all periods presented in the consolidated financial statements exclude the financial impact of a discontinuedoperation. See Note 3, "Sale of Vehicle Sensors," for further discussion related to the discontinued operation presentation.47Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires our management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reportedamounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in the preparationof the consolidated financial statements include the collectability of accounts receivable and related allowance for doubtful accounts, projections of taxableincome used to assess realizability of deferred tax assets, warranty reserves, costs to complete long-term contracts, indirect cost rates used in cost pluscontracts, the valuation of purchased intangible assets and goodwill, the valuation of equity instruments, estimates of future cash flows used to assess therecoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate the stock-based compensation.Revenue Recognition Product revenues and related costs of sales are recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists,(ii) delivery under the terms of the arrangement has occurred, (iii) the price to the customer is fixed or determinable, and (iv) collection of the receivable isreasonably assured. These criteria are typically met at the time of product shipment but, in certain circumstances, may not be met until receipt or acceptanceby the customer. Accordingly, at the date revenue is recognized, the significant obligations or uncertainties concerning the sale have been resolved. Transportation Systems revenues are derived primarily from long-term contracts with governmental agencies. Certain Agriculture and Weather Analyticsrevenues are also derived from long-term contracts with governmental agencies, as well as contracts with commercial companies. Agriculture and WeatherAnalytics revenues that are derived from contracts with commercial companies are generally from subscription revenue that we typically invoice ourcustomers at the beginning of the term, in multiyear, annual, semi-annual or quarterly installments, and revenue is recognized ratably over the period of thesubscription beginning once all requirements for revenue recognition have been met, including provisioning the service so that it is available to ourcustomers. When appropriate, revenues are recognized using the percentage of completion method of accounting, whereby revenue is recognized as contractperformance progresses and is determined based on the relationship of costs incurred to total estimated costs. Changes in job performance and estimatedprofitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenues, and arerecognized in the period in which the revisions are determined. Profit incentives are included in revenues, when their realization is reasonably assured.Certain of our revenues are recognized as services are performed and amounts are earned, which is measured by time incurred or other contractual milestonesor output measures. Revenues accounted for in this manner generally relate to certain fixed fee professional services, cost plus fixed fee, or time and materialscontracts. Revenues for ongoing operations and maintenance services contracts are generally accounted for ratably as the services are performed throughoutthe term of the contract. Payments received in advance of services performed are deferred and recognized when the related services are performed.48Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued) We recognize revenue from the sale of deliverables that are part of a multiple element arrangement in accordance with applicable accounting guidancethat establishes a relative selling price hierarchy permitting the use of an estimated selling price to determine the allocation of arrangement consideration to adeliverable in a multiple element arrangement where neither vendor specific objective evidence ("VSOE") nor third party evidence ("TPE") of fair value isavailable for that deliverable. In the absence of VSOE or TPE of the stand-alone selling price for one or more delivered or undelivered elements in a multipleelement arrangement, we are required to estimate the selling prices of those elements. Overall arrangement consideration is allocated to each element (bothdelivered and undelivered items) that has stand-alone value based on their relative selling prices, regardless of whether those selling prices are evidenced byVSOE or TPE or are based on our estimated selling prices. We record provisions for estimated losses on uncompleted contracts in the period in which such losses become known. The cumulative effects ofrevisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can bereasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or othercontractual penalties and adjustments for contract closeout settlements.Unbilled Accounts Receivable Unbilled accounts receivable in the accompanying audited consolidated balance sheets represent unbilled amounts earned and reimbursable underservices sales arrangements, including approximately $1.5 million of costs and estimated earnings in excess of billings on uncompleted contracts as ofMarch 31, 2018, accounted for under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-35, Construction-Type and Production-Type Contracts ("ASC 605-35"). At any given period-end, a large portion of the balance in this account represents the accumulation oflabor, materials and other costs that have not been billed due to timing, whereby the accumulation of each month's costs and earnings are notadministratively billed until the subsequent month. Also included in this account are amounts that will become billable according to contract terms, whichusually require the consideration of the passage of time, achievement of milestones or completion of the project.Deferred Revenue Deferred revenue in the accompanying consolidated balance sheets is comprised of cash collected from customers and billings to customers on contractsin advance of work performed, advance payments negotiated as a contract condition, estimated losses on uncompleted contracts, project-related legalliabilities and other project-related reserves, including approximately $1.5 million of billings in excess of costs and estimated earnings on uncompletedcontracts accounted for under FASB ASC 605-35. The unearned amounts are expected to be earned within the next twelve months.Concentration of Credit Risk Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and trade accountsreceivable.49Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued) Cash and cash equivalents consist primarily of demand deposits and money market funds maintained with several financial institutions. Deposits heldwith banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintainedwith high quality financial institutions, and therefore are believed to have minimal credit risk. Our accounts receivable are primarily derived from billings with customers located throughout North America, as well as in the Middle East, Europe,South America and Asia. We generally do not require collateral or other security from our domestic customers. We maintain an allowance for doubtfulaccounts for potential credit losses, which losses have historically been within management's expectations. We currently have, and historically have had, a diverse customer base. For the fiscal years ended March 31, 2018 ("Fiscal 2018") and March 31, 2017("Fiscal 2017"), one individual customer represented approximately 22% of our total revenues, respectively, and no other individual customer representedgreater than 10% of our total revenues. . For the fiscal year ended March 31, 2016 ("Fiscal 2016"), no individual customer represented greater than 10% of ourtotal revenues.Fair Values of Financial Instruments The fair value of cash equivalents, receivables, accounts payable and accrued expenses approximate carrying value because of the short period of time tomaturity. Our investments are measured at fair value on a recurring basis. The framework for measuring fair value and related disclosure requirements about fair value measurements are provided in ASC 820, Fair ValueMeasurements ("ASC 820"). This pronouncement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in theprincipal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair valuehierarchy proscribed by ASC 820 contains three levels as follows: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similarassets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the fullterm of the assets or liabilities. Level 3—Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would usein pricing the asset or liability.Cash and Cash Equivalents Cash and cash equivalents consist of cash and short-term investments with initial maturities of ninety days or less.50Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)Investments The Company's investments are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320. Held-to-maturitysecurities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that theCompany intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale.Held-to-maturity securities are recorded at amortized cost which approximates fair market value. Trading securities are carried at fair value with unrealizedgains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated othercomprehensive loss as a separate component of stockholders' equity. FASB ASC 820 defines fair value as the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair valuehierarchy which requires an entity to maximize the use of observable inputs, where available (see Note 5). Under FASB ASC 320-10-35, a security isconsidered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security's amortized cost basis(the difference being defined as the "Credit Loss") or if the fair value of the security is less than the security's amortized cost basis and the investor intends, orwill be required, to sell the security before recovery of the security's amortized cost basis. If an other-than-temporary impairment exists, the charge to earningsis limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of thesecurity's amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicabletaxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of areview by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry andinformation on the issuer's financial condition and, if applicable, information on the guarantors' financial condition. Factors considered in determiningwhether a loss is temporary include the length of time and extent to which the investment's fair value has been less than its cost basis, the financial conditionand near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the Company's intentand ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets were $1.2 million as of March 31, 2018 and $2.1 million as of March 31, 2017 and included approximately$130,000 of cash designated as collateral on performance bonds, as required under certain of our Transportation Systems contracts in the Middle East. Theperformance bonds require us to maintain 100% cash value of the bonds as collateral in a bank that is local to the purchasing agency. The performance bondcollateral is required throughout the delivery of our services and is maintained in the local bank until the contract is closed by the purchasing agency. Weexpect these requirements, and the related cash collateral restrictions, to be released during calendar year 2018.51Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)Allowance for Doubtful Accounts The collectability of our accounts receivable is evaluated through review of outstanding invoices and ongoing credit evaluations of our customers'financial condition. In cases where we are aware of circumstances that may impair a specific customer's ability to meet its financial obligations subsequent tothe original sale, we will record an allowance against amounts due, and thereby reduce the net recognized accounts receivable to the amount we reasonablybelieve will be collected. We also maintain an allowance based on our historical collections experience. When we determine that collection is not likely, wewrite off accounts receivable against the allowance for doubtful accounts.Inventories Inventories consist of finished goods, work-in-process and raw materials and are stated at the lower of cost or net realizable value. Cost is determinedusing the first-in, first-out method.Property and Equipment Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful life ranging from three to eightyears. Leasehold improvements are depreciated over the term of the related lease or the estimated useful life of the improvement, whichever is shorter.Goodwill and Long-Lived Assets We perform an annual qualitative assessment of our goodwill during the fourth fiscal quarter, or more frequently, to determine if any events orcircumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely thannot reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of areporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, weperform a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. If the carryingvalue of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unitto its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. We determine the fairvalues of our reporting units using the income valuation approach, as well as other generally accepted valuation methodologies. In Fiscal 2017, we adopted the provisions issued by the FASB that were intended to simplify goodwill impairment testing. This guidance permits us toeliminate the second step of the goodwill impairment test, and eliminate the requirements for any reporting unit with a zero or negative carrying amount toperform a qualitative assessment. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the amount by which the carrying value ofthe goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. We monitor the indicators for goodwill impairment testing betweenannual tests. As of March 31, 2018, we determined that no adjustments to the carrying value of goodwill and intangible assets were required. As of March 31,2017, we52Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)determined the carrying amount of the goodwill in the Agriculture and Weather Analytics reporting unit exceeded its implied fair value, and as a result,recognized an approximate $2.2 million impairment loss in the accompanying consolidated financial statements. We also determined that no adjustments tothe carrying value of goodwill and intangible assets were required in the Roadway Sensors and Transportation Systems reporting units for any year presented. We test long-lived assets and purchased intangible assets (other than goodwill) for impairment if we believe indicators of impairment exist. Wedetermine whether the carrying value of an asset or asset group is recoverable, based on comparisons to undiscounted expected future cash flows the asset orasset group is expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the assetexceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long lived assets and purchased intangible assets. Asof March 31, 2018, there was no impairment to our long-lived and intangible assets.Income Taxes We utilize the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differencesbetween the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differencesreverse. A valuation allowance is recorded when it is more-likely-than-not that some or all of the deferred tax assets will not be realized, which increases ourincome tax expense in the period such determination is made. As such, we determined it was appropriate to record a valuation allowance of approximately$10.1 million in the third quarter of Fiscal 2016 against our deferred tax assets. We will continuously reassess the appropriateness of maintaining a valuationallowance. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet themore-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized taxpositions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold isno longer met.Stock-Based Compensation We record stock-based compensation in our consolidated statements of operations as an expense, based on the estimated grant date fair value of ourstock-based awards, whereby such fair values are amortized over the requisite service period. Our stock-based awards are currently comprised of commonstock options and restricted stock units. The fair value of our common stock option awards is estimated on the grant date using the Black-Scholes-Mertonoption-pricing formula. While utilizing this model meets established requirements, the estimated fair values generated by it may not be indicative of theactual fair values of our common stock option awards as it does not consider certain factors important to those awards to employees, such as continuedemployment and periodic vesting requirements, as well as limited transferability. The fair value of our restricted stock units is based on the closing marketprice of our common stock on the grant date. If there are any modifications or cancellations of the underlying unvested stock-based awards, we may berequired to accelerate, increase or cancel any remaining unearned stock-based compensation expense.53Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)Research and Development Expenditures Research and development expenditures are charged to expense in the period incurred.Shipping and Handling Costs Shipping and handling costs are included as cost of revenues in the period during which the products ship.Sales Taxes Sales taxes are presented on a net basis (excluded from revenues) in the consolidated statements of operations.Advertising Expenses Advertising costs are expensed in the period incurred and totaled $148,000, $146,000, and $164,000 in Fiscal 2018, Fiscal 2017 and Fiscal 2016,respectively.Warranty We generally provide a one to three year warranty from the original invoice date on all products, materials and workmanship. Products sold to variousoriginal equipment manufacturer customers sometimes carry longer warranties. Defective products will be either repaired or replaced, usually at our option,upon meeting certain criteria. We accrue a provision for the estimated costs that may be incurred for product warranties relating to a product as a componentof cost of sales at the time revenue for that product is recognized. The accrued warranty reserve is included within accrued liabilities in the accompanyingconsolidated balance sheets.Repair and Maintenance Costs We incur repair and maintenance costs in the normal course of business. Should the repair or maintenance result in a permanent improvement to one ofour leased facilities, the cost is capitalized as a leasehold improvement and amortized over its useful life or the remainder of the lease period, whichever isshorter. Non-permanent repair and maintenance costs are charged to expense as incurred.Comprehensive Loss The difference between net loss and comprehensive loss was de minimis for Fiscal 2018. Comprehensive loss equaled net loss for Fiscal 2017 and Fiscal2016.Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). The newrevenue recognition standard ("ASC 606") provides a five-step analytical framework for transactions to determine when and how revenue is recognized. Thecore principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the54Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued)entity expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospectivemethod or the modified retrospective method. We are required to adopt this standard effective April 1, 2018. We plan to adopt this standard using the modified retrospective method with an immaterial adjustment to accumulative deficit for the cumulative effectof adoption. Our assessment process has consisted of reviewing current accounting policies and practices to identify potential differences that would resultfrom applying the requirements of the new standard to our revenue contracts. We have reviewed individual customer contracts and purchase orders related tothese revenues streams as well as identified appropriate changes to our business processes, systems and controls to support the revenue recognition anddisclosure requirements under the new standard. We believe that the new standard and related revenue recognition policies will not result in a materialchange to our consolidated financial statements, but will require additional disclosures in our financial statements as to the nature, amount and timing ofrevenue and cash flows arising from contracts with customers. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers("ASU 2016-20"), which allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entitiesthat use any of the new or previously existing optional exemptions to expand their qualitative disclosures. The new standard is effective for fiscal years, andinterim periods within those years, beginning after December 15, 2017, with early adoption permitted. The adoption of ASU 2016-20 is not expected to havea material impact on our consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and FinancialLiabilities ("ASU 2016-01"). This standard revises an entity's accounting related to (1) the classification and measurement of investments in equity securitiesand (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associatedwith the fair value of financial instruments. Under the new guidance, entities will have to measure certain equity investments at fair value and recognize anychanges in fair value in net income unless the investments qualify for a new practicality exception. ASU 2016-01 is effective for financial statements issuedfor fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are currently evaluating the impact of ASU 2016-01 onour consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). The pronouncement requires an entity to recognize assets and liabilitiesfor the rights and obligations created by leases on the entity's balance sheet for both finance and operating leases. For leases with a term of 12 months or less,an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 willrequire new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity's leases. Companies are required to adopt the newstandard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 ispermitted. The Company expects adoption to increase the assets and liabilities recorded on its consolidated balance sheet and increase the level ofdisclosures related to leases. We are currently evaluating the impact of ASU 2016-02 on our consolidated financial statements.55Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20181. Description of Business and Summary of Significant Accounting Policies (Continued) In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments("ASU 2016-15"), which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard iseffective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The adoption of ASU2016-15 is not expected to have a material impact on our consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), requiring restricted cashand cash equivalents to be included with cash and cash equivalents on the statement of cash flows. The new standard is effective for fiscal years, and interimperiods within those years, beginning after December 15, 2017, with early adoption permitted. The adoption of ASU 2016-18 is not expected to have amaterial impact on our consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation: Scope of Modification Accounting ("ASU 2017-09"). Theamendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to applymodification accounting in ASC 718 Compensation—Stock Compensation. The adoption of ASU 2017-09, which will become effective for annual periodsbeginning after December 15, 2017, is not expected to have a material impact on our consolidated financial statements. In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting BulletinNo. 118 ("ASU 2018-05"). ASU 2018-05 adds various Securities and Exchange Commission ("SEC") paragraphs pursuant to the issuance of the December2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which was effectiveimmediately. The SEC issued SAB 118 to address concerns about reporting entities' ability to timely comply with the accounting requirements to recognizeall of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the incometax effects from the Tax Cuts and Jobs Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. TheCompany has accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118, on a provisional basis. The Company's accountingfor certain income tax effects is incomplete, but the Company has determined reasonable estimates for those effects and has recorded provisional amounts inits consolidated financial statements as of March 31, 2018.2. Supplementary Financial InformationInventories The following table presents details regarding our inventories:56 March 31, 2018 2017 (In thousands) Materials and supplies $1,745 $887 Work in process 232 298 Finished goods 944 1,065 $2,921 $2,250  Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20182. Supplementary Financial Information (Continued)Property and Equipment, net The following table presents details of our property and equipment, net: Depreciation expense was approximately $819,000, $729,000, and $649,000 in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively. Approximately$288,000, $269,000, and $252,000 of the depreciation expense was recorded to cost of revenues, and approximately $531,000, $397,000 and $300,000 wasrecorded to operating expenses in Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively, in the consolidated statements of operations.Intangible Assets The following table presents details regarding our intangible assets: Amortization expense for intangible assets subject to amortization was approximately $726,000, $623,000, and $526,000 for Fiscal 2018, Fiscal 2017and Fiscal 2016, respectively. Approximately $638,000, $342,000, and $166,000 of the intangible asset amortization was recorded to cost of revenues, andapproximately $88,000, $281,000, and $360,000 was recorded to amortization expense for Fiscal 2018, Fiscal 2017 and Fiscal 2016, respectively, in theconsolidated statements of operations. We do not have any intangible assets with indefinite useful lives. As of March 31, 2018, our net capitalized software development costs ofapproximately $3.8 million is associated with our Oracle ERP development of approximately $2.3 million, which has a useful life of 10 years beginningFiscal 2019; as57 March 31, 2018 2017 (In thousands) Equipment $6,053 $7,078 Leasehold improvements 2,880 2,494 Accumulated depreciation (6,600) (7,508) $2,333 $2,064 March 31, 2018 2017 GrossCarryingAmount AccumulatedAmortization GrossCarryingAmount AccumulatedAmortization (In thousands) Technology $1,856 $(1,856)$1,856 $(1,828)Customer contracts / relationships 750 (750) 750 (726)Trade names and non-compete agreements 1,110 (1,102) 1,110 (1,066)Capitalized software development costs 5,108 (1,365) 2,158 (756)Total $8,824 $(5,073)$5,874 $(4,376)Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20182. Supplementary Financial Information (Continued)well as our Agriculture and Weather Analytics and Roadway Sensors segments, which have an average useful life of three years. The future estimatedamortization expense is as follows:Goodwill The following table presents the activity related to the carrying value of our goodwill by reportable segment for Fiscal 2016, Fiscal 2017 and Fiscal2018:58Year Ending March 31, (In thousands) 2019 $1,076 2020 807 2021 339 2022 244 2023 244 Thereafter 1,041 $3,751 RoadwaySensors TransportationSystems Ag & WeatherAnalytics Total (In thousands) Balance—March 31, 2016 Goodwill $8,214 $14,906 $2,168 $25,288 Accumulated impairment losses — (7,970) — (7,970) $8,214 $6,936 $2,168 $17,318 Balance—March 31, 2017 Goodwill $8,214 $14,906 $2,168 $25,288 Accumulated impairment losses — (7,970) (2,168) (10,138) 8,214 6,936 — 15,150 Balance—March 31, 2018 Goodwill $8,214 $14,906 $2,168 $25,288 Accumulated impairment losses — (7,970) (2,168) (10,138) $8,214 $6,936 $— $15,150 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20182. Supplementary Financial Information (Continued)Warranty Reserve Activity The following table presents activity with respect to the warranty reserve:Earnings Per Share The following table sets forth the computation of basic and diluted loss from continuing operations per share:59 Year Ended March 31, 2018 2017 2016 (In thousands) Balance at beginning of fiscal year $278 $193 $181 Additions charged to cost of sales 623 382 236 Warranty claims (498) (297) (224)Balance at end of fiscal year $403 $278 $193 Year Ended March 31, 2018 2017 2016 (In thousands,except per share amounts) Numerator: Loss from continuing operations $(3,768)$(5,187)$(12,535)Denominator: Weighted average common shares used in basic computation 32,776 32,174 32,049 Dilutive stock options — — — Dilutive restricted stock units — — — Dilutive warrants — — — Weighted average common shares used in diluted computation 32,776 32,174 32,049 Loss from continuing operations per share: Basic $(0.12)$(0.16)$(0.39)Diluted $(0.12)$(0.16)$(0.39)Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20182. Supplementary Financial Information (Continued) The following instruments were excluded for purposes of calculating weighted average common share equivalents in the computation of diluted loss pershare from continuing operations as their effect would have been anti-dilutive:3. Sale of Vehicle Sensors On July 29, 2011, we completed the sale of substantially all of our assets used in connection with our prior Vehicle Sensors segment to BendixCommercial Vehicle Systems LLC ("Bendix"), a member of Knorr-Bremse Group. In connection with the asset sale, we are entitled to additional considerationin the form of the following performance and royalty-related earn-outs: Bendix is obligated to pay us an amount in cash equal to 85% of revenue associatedwith royalties received under our license and distribution agreements with Audiovox Electronics Corporation and Valeo Schalter and Sensoren GmbHthrough December 31, 2017, subject to certain reductions and limitations set forth in the asset purchase agreement. From the date of the asset sale, throughMarch 31, 2018, we received approximately $2.6 million in connection with royalty-related earn-outs provisions for a total of $17.9 million in cash from theasset sale. In accordance with applicable accounting guidance, we determined that the Vehicle Sensors segment, which constituted one of our operating segments,qualified as a discontinued operation. For the fiscal year ended March 31, 2018, 2017 and 2016, we recorded a gain on sale of discontinued operation ofapproximately $242,000, $361,000, and $214,000, respectively, net of tax, related to the earn-out provisions of the asset purchase agreement.4. Impairment of Goodwill As discussed in Note 1, goodwill is tested for impairment on an annual basis in our fourth fiscal quarter or more frequently if indicators of impairmentexist. Based on our goodwill impairment testing for Fiscal 2018, we determined our Roadway Sensors and Transportation Systems reporting units were notimpaired as of March 31, 2018, as the estimated fair values of our reporting units exceeded their carrying values at the end of such fiscal years. Based on ourgoodwill impairment testing for Fiscal 2017, we believe the carrying value of our goodwill in our Agriculture and Weather Analytic reporting unit wasimpaired as of March 31, 2017, and resulted in approximately $2.2 million impairment charge. We also determined our Roadway Sensors and TransportationSystems reporting units were not impaired as of March 31, 2017. Based on our goodwill impairment testing for Fiscal 2016, we believe the carrying value ofour goodwill was not impaired. If our actual financial results, or the plans and estimates used in future goodwill impairment analyses, are lower than ouroriginal estimates used to assess impairment of our goodwill, we could incur goodwill impairment charges in the future.60 Year Ended March 31, 2018 2017 2016 (In thousands) Stock options 3,917 3,491 3,220 Restricted stock units 228 179 186 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20185. Fair Value Measurements We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements arebased on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets orliabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assetsor liabilities. Level 3—Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use inpricing the asset or liability. We did not have any material financial assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of March 31, 2018 or 2017.Our non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value on a non-recurring basis, generally whenthere is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. In Fiscal 2018, Level 3inputs were used to evaluate the fair value of our goodwill in our two reporting units that had goodwill balances. In Fiscal 2017, Level 3 inputs were used toevaluate the fair value of our goodwill in our three reporting units. As a result of our impairment testing, we recorded an adjustment for impairment ofapproximately $2.2 million in our Agriculture and Weather Analytics reporting unit. No other non- financial assets were measured at fair value during thefiscal years ended March 31, 2018, 2017, and 2016. The following tables present the Company's financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levelswithin the fair value hierarchy:61 As of March 31, 2018 AmortizedCost GrossUnrealizedLoss GrossUnrealizedGain EstimatedFairValue (In thousands) Level 1: Money market funds 666 — — 666 Subtotal 666 — — 666 Level 2: Commercial paper 1,891 — — 1,891 Corporate notes and bonds 2,008 (2) — 2,006 US Treasuries 1,500 (1) — 1,499 US Government agencies 2,950 (1) — 2,949 Subtotal 8,349 (4) — 8,345 Total 9,015 (4) — 9,011 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20186. Credit Facility We had a $12.0 million revolving line of credit with California Bank & Trust ("CB&T"), which expired on October 1, 2016. We chose not to renew ourline of credit as we do not foresee a need to utilize credit within the next twelve months.7. Income Taxes The components of current and deferred federal and state income tax (benefits) provision are as follows: The reconciliation of our income tax (benefit) provision to taxes computed at U.S. federal statutory rates is as follows:62 Year Ended March 31, 2018 2017 2016 (In thousands) Loss from continuing operations before income taxes $(5,586)$(5,231)$(3,456)Current income tax provision: Federal $3 $71 $170 State 45 62 50 Total current tax provision 48 133 220 Deferred income tax (benefit) provision: Federal (1,849) (166) 8,289 State (17) (11) 570 Total deferred tax (benefit) provision (1,866) (177) 8,859 (Benefit) provision for income taxes on continuing operations (1,818) (44) 9,079 Loss from continuing operations, net of tax $(3,768)$(5,187)$(12,535) Year Ended March 31, 2018 2017 2016 (In thousands) (Benefit) for income taxes at statutory rates $(1,720)$(1,778)$(1,175)Change in federal tax rate 4,134 — — State income taxes net of federal benefit (255) (124) (184)Impairment charges — 737 — Tax credits (567) (125) (258)Compensation charges (324) 29 91 Change in valuation allowance (3,153) 1,148 10,557 Other 67 69 48 (Benefit) provision for income taxes $(1,818)$(44)$9,079 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20187. Income Taxes (Continued) The components of deferred tax assets and liabilities are as follows: At March 31, 2018, we had $1.1 million in federal Alternative Minimum Tax credit carryforwards that were reclassified from a deferred tax asset to anoncurrent income tax receivable as we expect this amount to be refunded over the next four years. We also had $1.5 million in federal research credits thatbegin to expire in 2031 and $703,000 in state tax credits that begin to expire in 2023. We had $6.8 million of federal net operating loss carryforwards atMarch 31, 2018 that do not expire as a result of recent tax law changes. We had $5.6 million of federal net operating loss carryforwards at March 31, 2018that begin to expire in 2022. We also had $4.4 million of state net operating loss carryforwards at March 31, 2018 that begin to expire in 2031. Our deferred tax assets at March 31, 2017 did not include approximately $1.1 million of excess tax benefits from employee stock option exercises thatwere a component of our net operating loss carryforwards. Due to the adoption of ASU 2016-09 in Fiscal 2018, this amount was recognized throughaccumulated deficit, offset by a corresponding amount of valuation allowance, resulting in no net impact to accumulated deficit. In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred taxliabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As the Company has sustained acumulative pre-tax loss over the trailing three years, we considered it appropriate to maintain valuation allowances of $9.8 million and $11.7 million againstour deferred tax assets at March 31, 2018 and63 March 31, 2018 2017 (In thousands) Deferred tax assets: Net operating losses $2,853 $830 Capitalized R&D 2,734 5,003 Credit carry forwards 2,043 2,387 Deferred compensation and payroll 1,603 2,064 Bad debt allowance and other reserves 567 820 Deferred rent 235 313 Property and equipment 844 521 Other, net 203 255 Total deferred tax assets 11,082 12,193 Valuation allowance (9,814) (11,726)Total deferred tax assets, net of valuation allowance 1,268 467 Deferred tax liabilities: Acquired intangibles (866) (467)Goodwill (467) (707)Total deferred tax liabilities (1,333) (1,174)Net deferred tax liabilities $(65)$(707)Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20187. Income Taxes (Continued)2017, respectively. We will continuously reassess the appropriateness of maintaining a valuation allowance. The Tax Cuts and Jobs Act ("tax legislation") was enacted on December 22, 2017 and reduced U.S. corporate income tax rates to 21.0% as of January 1,2018. The rate change became effective during Fiscal 2018 resulting in a blended statutory tax rate of 30.8% for Fiscal 2018. As a consequence of the taxlegislation, the Company recorded a decrease in its net deferred tax assets of $4.1 million and a decrease in the valuation allowance maintained against itsdeferred tax assets of $5.8 million. The estimated impact of the tax legislation was an income tax benefit of $1.7 million, of which $1.1 million was due to therelease of valuation allowance that had been maintained against Alternative Minimum Tax credit carryforwards, which were made refundable by the taxlegislation, and $640,000 was due to the remeasurement of a deferred tax liability related to indefinite-lived assets. On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts andJobs Act ("SAB 118") directing taxpayers to consider the impact of the tax legislation as "provisional" when it does not have the necessary informationavailable, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance withSAB 118, the income tax effects discussed above represent the Company's best estimate based on its current interpretation of this tax legislation. TheCompany is accumulating data to finalize the underlying calculations and evaluate other aspects of this tax legislation, or in certain cases, the U.S. Treasuryis expected to issue further guidance on the application of certain provisions of the tax legislation. In accordance with SAB 118, the income tax effects of thetax legislation discussed above are considered provisional and will be finalized in Fiscal 2019.Unrecognized Tax Benefits As of March 31, 2018 and 2017, our gross unrecognized tax benefits were $586,000 and $426,000, respectively, of which $461,000 and $286,000,respectively, are netted against certain noncurrent deferred tax assets. The amounts that would affect our effective tax rate if recognized are $513,000 and$359,000, respectively. We recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2018 and 2017, we had accruedcumulatively $43,000 and $46,000, respectively, for the payment of potential interest and penalties. The total amount of interest and penalties recognized inthe consolidated statements of operations for the fiscal years ended March 31, 2018 and 2017 was $(3,000) and $(6,000), respectively.64 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20187. Income Taxes (Continued) A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows: We do not anticipate a significant change in gross unrecognized tax benefits within the next twelve months. We are subject to taxation in the U.S. andvarious state tax jurisdictions. We are subject to U.S. federal tax examination for fiscal tax years ended March 31, 2015 or later, and state and local incometax examination for fiscal tax years ended March 31, 2014 or later. However, if NOL carryforwards that originated in earlier tax years are utilized in the future,the amount of such NOLs from such earlier years remain subject to review by tax authorities.8. Commitments and ContingenciesLitigation and Other Contingencies As a provider of traffic engineering services, hardware products, software and other various solutions for the traffic and agricultural industries, theCompany is, and may in the future from time to time, be involved in litigation relating to claims arising out of its operations in the normal course of business.While the Company cannot accurately predict the outcome of any such litigation, except as described below, the Company is not a party to any legalproceeding, the outcome of which, in management's opinion, individually or in the aggregate, would have a material effect on the Company's consolidatedresults of operations, financial position or cash flows. On September 15, 2016, a stockholder class action and derivative action (captioned Ionni v. Bergera, et al., Case No. 16-cv00807-RGA) was filed in theUnited States District Court for the District of Delaware (the "Court") against certain of the Company's current and former directors and officers (the"Individual Defendants") and the Company as a nominal defendant (together with the Individual Defendants, the "Defendants"). The complaint assertedclaims for breach of fiduciary duty and unjust enrichment. Plaintiff contended that, in 2014 and 2015, the Individual Defendants caused the Company toissue purportedly false and misleading proxy statements in connection with the Company's annual meeting of stockholders in 2014 and 2015 (collectively,the "Proxy Statements"). In those Proxy Statements, the Company's stockholders were asked to approve amendments (the "Amendments") to increase thenumber of shares of the Company's common stock reserved for issuance under the Iteris, Inc. 2007 Omnibus Incentive Plan (the "2007 Plan"). Among otherthings, Plaintiff alleged that the Proxy Statements were materially false and misleading because they affirmatively represented that no person could receivemore than 500,000 stock options or SARs under the 2007 Plan in any fiscal65 Year Ended March 31, 2018 2017 2016 (In thousands) Gross unrecognized tax benefits at beginning of year $426 $394 $319 Increases for tax positions taken in prior years 62 18 22 Decreases for tax positions taken in prior years — (8) — Increases for tax positions taken in the current year 122 59 68 Lapse in statute of limitations (24) (37) (15)Gross unrecognized tax benefits at March 31 $586 $426 $394 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20188. Commitments and Contingencies (Continued)year (the "Share Limit") and failed to disclose that the Compensation Committee had the discretion to approve an annual grant to a 2007 Plan participant inexcess of that amount. Plaintiff contended that, the Amendments were not valid and sought rescission of any stock options granted pursuant to theAmendments, including the option to purchase up to 1,350,000 shares of the Company's common stock that was granted in September 2015 to Mr. Bergera(the "CEO Option") in connection with his appointment to serve as President and Chief Executive Officer of the Company. The Individual Defendants denied that they breached their fiduciary duties and the Company believed (and still believes) the Amendments wereproperly approved and that all of the options granted pursuant to the Amendments, including the CEO Option, were valid. Nonetheless, to eliminate theburden, expense and uncertainty of the litigation, on November 8, 2016, the parties entered into a Memorandum of Understanding setting forth theiragreement in principle to resolve the litigation. In consideration for a release of claims and dismissal of this litigation with prejudice, the Company agreed tosubmit a proposal at its 2016 Annual Meeting of Stockholders seeking stockholder approval for that portion of the CEO Option that exceeds the Share Limit(i.e., the 850,000 options above the Share Limit (the "Excess Shares")). The Company submitted a proposal of the Excess Shares for approval by the Companystockholders at the 2016 Annual Meeting of Stockholders. On December 15, 2016, the Company's stockholders approved the Excess Shares. On April 28, 2017, the parties entered into a Stipulation of Settlement and Compromise (the "Stipulation") that provides for, among other things, arelease of claims against Defendants. Under the Stipulation, Defendants agreed not to oppose any award of attorneys' fees and expenses to Plaintiff up to$215,000. The Court approved the settlement and entered a final judgment dismissing the action with prejudice on September 8, 2017, and the settlementbecame effective on October 10, 2017. Pursuant to the settlement terms, Defendants paid $215,000 in October 2017. An immaterial accrued liability for thesettlement was included in the accompanying consolidated balance sheet as of March 31, 2017, which was sufficient to cover the settlement payment.Operating Leases In May 2007, we entered into an agreement to lease 52,000 square feet of office space in Santa Ana, California for a term of 88 months. In September2007, we relocated our headquarters and principal operations into this space. The monthly lease rate was $102,000 during the first year of the lease andincreased each year thereafter, to $120,000 per month during the last year of the lease. In February 2014, we entered into an amendment to the lease, whichreduced our office space by approximately 11,000 square feet and changed the lease term to 96 months, commencing on April 1, 2014. The monthly leaserate is approximately $76,000 during the first year of the amended term and increases each year thereafter, up to a maximum of approximately $90,000 duringthe last year of the term. Additionally, the lease amendment provided for approximately $328,000 in incentives in the form of tenant improvementallowances, which we recorded as fixed assets and deferred rent in our consolidated balance sheet. The leasehold improvements were capitalized into fixedassets during Fiscal 2015 and will be depreciated over the estimated useful life of the improvements, or the term of the lease amendment, whichever is shorter.The corresponding deferred rent amount will reduce monthly rent expense over the term of the lease amendment. On January 23, 2017, we entered into anamendment to the lease, which added approximately 5,980 square feet and will expire after 60 months,66Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20188. Commitments and Contingencies (Continued)commencing on April 1, 2017. The monthly lease rate is approximately $14,000 during the first year of the term and increase each year thereafter, up to amaximum of approximately $16,000 during the last year of the term. Additionally, the lease amendment provided for approximately $119,000 in incentivesin the form of tenant improvement allowances. We have lease commitments for facilities in various locations throughout the U.S., as well as for certain equipment. Future minimum rental paymentsunder these non-cancelable operating leases at March 31, 2018 were as follows: Rent expense totaled approximately $1.8 million for Fiscal 2018, and $1.7 million for each of Fiscal 2017 and Fiscal 2016.Related Party Transaction We previously subleased office space to Maxxess Systems, Inc. ("Maxxess"), one of our former subsidiaries that we sold in September 2003. The subleaseterminated in September 2007, at which time Maxxess owed us an aggregate of $274,000. Maxxess executed a promissory note for such amount, which wassubsequently amended and restated on July 23, 2013 and on August 11, 2016. The amended and restated note bears interest at a rate of 6% per annum,compounded annually, with accrued interest payable annually on the first business day of each calendar year. When authorized by the Company, Maxxessmay pay down the balance of this note by providing consulting services to Iteris. We have previously fully reserved for amounts owed to us by Maxxess andthe outstanding principal balance remains fully reserved. As of March 31, 2018, approximately $146,000 of the original principal balance was outstandingand payable to Iteris. Maxxess is currently owned by an investor group that includes, among others, one former Iteris director, who has not been a director ofIteris since September 2013, and one existing director of Iteris, who currently owns less than 2% of Maxxess' capital stock.9. Stockholders' EquityPreferred Stock Our certificate of incorporation provides for the issuance of up to 2,000,000 shares of preferred stock. Our Board of Directors is authorized to issue fromtime to time such authorized but unissued shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and anyqualifications, limitations or restrictions of the shares of each such series, including the67Year Ending March 31, (In thousands) 2019 $2,185 2020 1,936 2021 1,836 2022 1,725 2023 295 Thereafter — $7,977 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 20189. Stockholders' Equity (Continued)dividend, conversion, voting, redemption and liquidation rights. As of March 31, 2018 and 2017, there were no outstanding shares of preferred stock, and wedo not currently have plans to issue any shares of preferred stock. In August 2009, our Board of Directors adopted a stockholder rights plan, which calls for preferred stock purchase rights (each, a "Right") to bedistributed, as a dividend, at the rate of one Right for each share of common stock held as of September 3, 2009. Each Right will entitle holders of commonstock to buy one one-thousandth of one share of Series A Junior Participating Preferred Stock of Iteris. A further description and terms of the Rights are setforth in the Rights Agreement dated August 20, 2009 (as amended in August 2012) by and between Iteris and Computershare Trust Company, N.A., as rightsagent. In connection with the stockholder rights plan, our Board of Directors approved the adoption of a Certificate of Designations, which created theSeries A Junior Participating Preferred Stock, and likewise authorized the filing of a Certification of Elimination to eliminate the two series of juniorparticipating preferred stock, which were originally created in April 1998 in connection with our previous stockholder rights plan which expired in 2008.Common Stock Reserved for Future Issuance The following summarizes common stock reserved for future issuance at March 31, 2018:10. Employee Benefit PlansStock Incentive Plans In September 2007, our stockholders approved the 2007 Omnibus Incentive Plan (the "2007 Plan"), which provides that options to purchase shares of ourunissued common stock may be granted to our employees, officers, consultants and directors at exercise prices which are equal to or greater than the marketvalue of our common stock on the date of grant. The 2007 Plan also allows for the issuance of stock appreciation rights, restricted stock, restricted stock units("RSUs") and other stock-based awards based on the value of our common stock. New shares are issued to satisfy stock option exercises and share issuancesunder the 2007 Plan. In September 2009, our stockholders approved an amendment to increase the number of shares of our common stock authorized andreserved for issuance under the 2007 Plan by 800,000 shares to a total of 1,650,000 shares. In September 2012, our stockholders approved an amendment toincrease the number of shares of our common stock authorized and reserved for issuance under the 2007 Plan by 800,000 shares to a total of 2,450,000 shares.In October 2014, our stockholders approved an amendment of the 2007 Plan to increase the number of shares of common stock authorized for issuance underthe 2007 Plan by an additional 1,500,000 shares to a total of 3,950,000 shares. In September 2015, our stockholders approved an68 Number of Shares (In thousands) Stock options outstanding 4,124 Restricted stock units outstanding 144 Authorized for future issuance under stock incentive plans 1,496 5,764 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201810. Employee Benefit Plans (Continued)amendment of the 2007 Plan to increase the number of shares of common stock authorized for issuance under the 2007 Plan by an additional 1,000,000shares to a total of 4,950,000 shares. In December 2016, our stockholders approved the 2016 Omnibus Incentive Plan (the "2016 Plan") which allows for theissuance of stock options, stock appreciation rights, restricted stock, RSUs", cash incentive awards and other stock-based awards to our employees, officers,consultants and directors at exercise prices which are equal to or greater than the market value of our common stock on the date of grant. Options expire nomore than ten years after the date of grant and generally vest at the rate of 25% on each of the first four anniversaries of the grant date. Stock appreciationrights, restricted stock, RSUs and other stock-based awards are based on the value of our common stock. New shares are issued to satisfy stock optionexercises and share issuances under the 2016 Plan. We currently maintain both the 2007 Plan and the 2016 Plan. Of these plans, we may only grant future awards from the 2016 Plan. As of the 2016 AnnualMeeting of Stockholders, no future shares could be granted under the 2007 Plan. At March 31, 2018, there were approximately 1.5 million shares of commonstock available for grant under the 2016 plan. As of March 31, 2018, options to purchase approximately 2,309,000 shares of common stock, as well as 45,000RSUs, were outstanding under the 2007 Plan and options to purchase approximately 1,816,000 shares of common stock, as well as 99,000 RSUs, wereoutstanding under the 2016 Plan.Stock Options A summary of activity in the Plans with respect to our stock options for Fiscal 2018 is as follows:Restricted Stock Units RSU awards are stock-based awards that entitle the holder to receive one share of our common stock for each RSU upon vesting. RSUs granted under the2007 Plan vest at the rate of 25% on each of the first four anniversaries of the grant date provided that the holder remains in service (as defined69 Options WeightedAverageExercisePrice PerShare WeightedAverageRemainingContractualLife AggregateIntrinsicValue (In thousands) (Years) (In thousands) Options outstanding at March 31, 2017 3,776 $2.76 Granted 1,103 5.59 Exercised (591) 2.02 Forfeited (164) 4.00 Expired — — Options outstanding at March 31, 2018 4,124 $3.58 8.1 $6,394 Options exercisable at March 31, 2018 1,616 $2.45 7.0 $4,049 Vested and expected to vest at March 31, 2018 4,124 $3.58 8.1 $6,394 Options exercisable at March 31, 2018 pursuant to a change-in-control 4,124 $3.58 8.1 $6,394 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201810. Employee Benefit Plans (Continued)by the 2007 Plan) as of the vesting date. RSUs granted under the 2016 Plan vest at varying terms between one and four anniversaries of the grant dateprovided that the holder remains in service (as defined by the 2016 Plan) as of the vesting date. The fair value per RSU is determined based on the closingmarket price of our common stock on the grant date. A summary of activity with respect to our RSUs for Fiscal 2018 is as follows:Stock-Based Compensation The following table presents stock-based compensation expense that is included in each functional line item in our consolidated statements ofoperations: At March 31, 2018, there was approximately $4.6 million and $578,000 of unrecognized compensation expense related to unvested stock options andRSUs, respectively. This expense is currently expected to be recognized over a weighted average period of approximately 2.8 years for stock options and1.8 years for RSUs. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel anyremaining unearned stock-based compensation expense. Future stock based compensation expense and unearned stock-based compensation will increase tothe extent that we grant additional stock options, RSUs or other stock-based awards.70 # of Shares WeightedAveragePrice PerShare WeightedAverageRemainingLife AggregateIntrinsicValue (In thousands) (Years) (In thousands) RSUs outstanding at March 31, 2017 232 $3.84 Granted 73 6.40 Vested (134) 4.06 Forfeited (27) 4.88 RSUs outstanding at March 31, 2018 144 $4.72 1.9 $167 Expected to vest at March 31, 2018 144 $4.72 1.9 $167 Common stock issuable (for RSUs) at March 31, 2018 upon achange-in-control 144 $4.72 1.9 $167 Year Ended March 31, 2018 2017 2016 (In thousands) Cost of revenues $71 $51 $42 Selling, general and administrative expense 1,558 858 567 Research and development expense 152 67 50 Total stock-based compensation $1,781 $976 $659  Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201810. Employee Benefit Plans (Continued) The grant date fair value of stock options granted was estimated using the following weighted-average assumptions: Expected Life: The Company's expected life represents the weighted-average period that the Company's stock options are expected to be outstanding.The expected life is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previouslygranted options to derive employee behavioral patterns used to forecast expected exercise patterns. Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expectedterm of the option. Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is basedon the most recent volatility of the stock price over a period of time equivalent to the expected term of the option. A summary of certain fair value and intrinsic value information pertaining to our stock options is as follows:Employee Incentive Programs Under the terms of a Profit Sharing Plan, we may contribute to a trust fund such amounts as determined annually by the Board of Directors. Nocontributions were made during the fiscal years ended March 31, 2018, 2017 and 2016. We sponsor a defined contribution 401(k) plan (the "401(k) Plan"), adopted in 1990, under which eligible associates voluntarily contribute to the plan,up to IRS maximums, through payroll deductions. We match up to 50% of contributions, up to a stated limit, with all matching contributions being fullyvested after three years of service. Our matching contributions under the 401(k) Plan were approximately $1,067,000, $881,000, and $716,000 for the fiscalyears ended March 31, 2018, 2017 and 2016, respectively.71 Year Ended March 31, 2018 2017 2016 Expected life—years 6.5 6.5 7.2 Risk-free interest rate 2.7% 2.2% 1.9%Expected volatility of common stock 43% 40% 47%Dividend yield —% —% —% Year Ended March 31, 2018 2017 2016 (In thousands, exceptper share amounts) Weighted average grant date fair value per share of options granted $2.59 $2.11 $1.19 Intrinsic value of options exercised $2,469 $1,061 $135 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201810. Employee Benefit Plans (Continued)Other Stock-Based Compensation Plans Beginning January 1, 2018, the Company offers an Employee Stock Purchase Plan ("ESPP") which allows employees to have a percentage of their basecompensation withheld to purchase the Company's common stock at 95% of the fair market on the last trading day of the offering period. There are twooffering periods during a calendar year, which consist of the six months beginning each January 1 and July 1. Employees may contribute 1-15% of theireligible gross pay up to a $25,000 annual stock value limit. There were no share purchases in Fiscal 2018. The ESPP is considered a non-compensatory planand accordingly no compensation expense is recorded in connection with this benefit.11. Stock Repurchase Program In August 2011, our Board of Directors approved a stock repurchase program pursuant to which we were authorized to acquire up to $3 million of ouroutstanding common stock from time to time through August 2012. We repurchased approximately 964,000 shares under this original program for a totalpurchase price of $1.3 million. On August 9, 2012, our Board of Directors cancelled the initial stock repurchase program and the approximate $1.7 million ofremaining funds, and approved a new stock repurchase program pursuant to which we may acquire up to $3 million of our outstanding common stock for anunspecified length of time. Under the new program, we may repurchase shares from time to time in open market and privately negotiated transactions andblock trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows. There is no guarantee as to the exactnumber of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, ourBoard of Directors approved a $3.0 million increase to the Company's existing stock repurchase program, pursuant to which the Company may continue toacquire shares of its outstanding common stock from time to time for an unspecified length of time. For our fiscal years ended March 31, 2018 and 2017, we did not repurchase any shares. For our fiscal year ended March 31, 2016, we repurchasedapproximately 656,000 shares of our common stock. From inception of the program in August 2011 through March 31, 2018, we repurchased approximately3,422,000 shares of our common stock for an aggregate price of approximately $5.6 million, at an average price per share of $1.63. As of March 31, 2018, allrepurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock. As of March 31, 2018,approximately $1.7 million remains available for the repurchase of our common stock under our current program.72Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201812. Investments Our investments consisted of the following: Unrealized losses related to these investments are due to interest rate fluctuations as opposed to credit quality. In addition, we do not intend to sell, and itis not more likely than not that we would be required to sell, these investments before recovery of their cost basis. As a result, there is no other-than-temporaryimpairment for these investments as of March 31, 2018. The following table summarizes the contractual maturities of our investments at March 31, 2018:13. Business Segments, Significant Customer and Geographic InformationBusiness Segments We currently operate in three reportable segments: Roadway Sensors, Transportation Systems, and Agriculture and Weather Analytics. The Roadway Sensors segment provides various advanced detection sensors and systems for traffic intersection management, communication systemsand roadway traffic data collection applications. The Roadways Sensors product line uses advanced image processing technology and other techniques tocapture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of bothvideo images and data using various communication technologies. Our Roadway Sensors products include, among others, Vantage, VantageLive!,VantageNext, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products. The Transportation Systems segment provides engineering and consulting services, performance measurement and traffic analytics solutions, as well asthe development of transportation management and traveler information systems for the ITS industry. Our Transportation Systems services include planning,design, implementation, operation and management of surface transportation infrastructure73 As of March 31, 2018 AmortizedCost GrossUnrealizedLoss GrossUnrealizedGain EstimatedFairValue (In thousands) Cash and cash equivalents $3,692 $— $— $3,692 Short term investments 5,323 (4) — 5,319 Long term investments — — — — Total $9,015 $(4)$— $9,011 As of March 31, 2018 Maturity break out: AmortizedCost Fair Value (In thousands) Due within one year $9,015 $9,011 Due within two years — — Total $9,015 $9,011 Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201813. Business Segments, Significant Customer and Geographic Information (Continued)systems. We perform analysis and study goods movement, commercial vehicle operations, provide travel demand forecasting and systems engineering, andidentify mitigation measures to reduce traffic congestion. Our Transportation Systems product line includes: iPeMS, our performance measurement andinformation management solution as well as our commercial vehicle operations and vehicle safety compliance platforms known as CVIEW Plus, CheckPoint,UCRLink and inspect. The Agriculture and Weather Analytics segment includes ClearPath Weather, our road maintenance applications, and ClearAg, our digital agricultureplatform. Our ClearPath Weather suite of tools, such as tools for assessing historical weather conditions to both short-term and long-range weather forecastsand customizable route/site weather and pavement forecast tools, provide winter road maintenance recommendations for state agencies, municipalities andfor commercial companies that allow such users to create solutions to meet roadway maintenance decision needs. Our ClearAg solutions combine weatherand agronomic data with proprietary land-surface modeling and analytics to solve complex agricultural problems. Our ClearAg solutions include ourClearAg applications, ClearAg APIs and components, WeatherPlot mobile application, and ClearAg Insights applications. The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies (Note 1). Certaincorporate general and administrative expenses, including general overhead functions such as information systems, accounting, human resources, marketing,compliance costs and certain administrative expenses, as well as interest and amortization of intangible assets, are not allocated to the segments. Thereportable segments are each managed separately because they manufacture and distribute distinct products or provide services with different processes. Allreported segment revenues are derived from external customers. Our Chief Executive Officer, who is our chief operating decision maker ("CODM"), reviewsfinancial information at the operating segment level. Our CODM does not review assets by segment in his resource allocation, and therefore, assets bysegment are not disclosed below.74Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201813. Business Segments, Significant Customer and Geographic Information (Continued) Selected financial information for our reportable segments for the fiscal years ended March 31, 2018, 2017 and 2016 is as follows: The following table reconciles total segment income to consolidated income from continuing operations before income taxes:75 RoadwaySensors TransportationSystems Agricultureand WeatherAnalytics Total (In thousands) Year Ended March 31, 2018 Product revenues $44,163 $2,301 $— $46,464 Service revenues 194 52,180 4,891 57,265 Revenues 44,357 54,481 4,891 103,729 Depreciation 221 204 109 534 Segment income (loss) 8,825 8,639 (8,048) 9,416 Year Ended March 31, 2017 Product revenues 42,059 1,676 — 43,735 Service revenues 111 47,594 4,542 52,247 Revenues 42,170 49,270 4,542 95,982 Depreciation 180 191 131 502 Loss from continuing operations before income taxes — — 2,168 2,168 Segment income (loss) 9,799 8,482 (9,557) 8,724 Year Ended March 31, 2016 Product revenues 39,923 1,810 — 41,733 Service revenues 336 32,286 3,393 36,015 Revenues 40,259 34,096 3,393 77,748 Depreciation 152 175 122 449 Segment income (loss) $8,401 $4,170 $(6,140)$6,431 Year Ended March 31, 2018 2017 2016 (In thousands) Segment income: Total income from reportable segments $9,416 $8,724 $6,431 Unallocated amounts: Corporate and other expenses (14,930) (13,680) (9,541)Amortization of intangible assets (88) (281) (360)Other (expense) income, net (16) (7) 2 Interest income, net 32 13 12 Loss from continuing operations before income taxes $(5,586)$(5,231)$(3,456)Table of ContentsIteris, Inc.Notes to Consolidated Financial Statements (Continued)March 31, 201813. Business Segments, Significant Customer and Geographic Information (Continued)Significant Customer and Geographic Information One individual customer who is also a government agency had a receivable balance of 13% of our total trade accounts receivable balance as ofMarch 31, 2018. No individual customer or government agency had a receivable balance at March 31, 2017 or 2016 greater than 10% of our total tradeaccounts receivable balances as of March 31, 2017 and 2016, respectively. The following table sets forth the percentages of our revenues, by geographic region, derived from shipments to, or contract, service and other revenuesfrom, external customers located outside the U.S.: Substantially all of our long-lived assets are held in the U.S.14. Quarterly Financial Data (Unaudited)76 Year EndedMarch 31, 2018 2017 2016 Canada 1% 1% —%Europe 1 1 — Middle East — — 1 2% 2% 1%Quarter Ended: Revenues Gross Profit Net (Loss)Income Basic NetIncome/Lossper Share Diluted NetIncome/Lossper Share (In thousands, except per share amounts) June 30, 2017 $27,183 $9,905 $(470)$(0.02)$(0.02)September 30, 2017 25,248 9,968 (984) (0.03) (0.03)December 31, 2017 26,025 9,943 343 0.01 0.01 March 31, 2018 25,273 10,015 (2,415) (0.07) (0.07) $103,729 $39,831 $(3,526)$(0.11)**$(0.11)**June 30, 2016 $23,927 $9,409 $(38)$(0.00)$(0.00)September 30, 2016 24,060 9,455 (40) (0.00) (0.00)December 31, 2016 22,691 8,620 (1,380) (0.04) (0.04)March 31, 2017 25,304 9,918 (3,368)* (0.10) (0.10) $95,982 $37,402 $(4,826)$(0.15)**$(0.15)***Net Loss includes a goodwill impairment charge of approximately $2.2 million related to our Agriculture and Weather Analyticsreporting unit. Refer to Note 4 for additional discussion regarding the goodwill impairment charge. **Annual per share amounts may not agree to the sum of the quarterly per share amounts due to differences between average sharesoutstanding during the periods.z Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered bythis Annual Report on Form 10-K, management evaluated, with the participation of our President and Chief Executive Officer, and our Chief FinancialOfficer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Basedupon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer have concludedthat our disclosure controls and procedures were effective as of the date of such evaluation in ensuring that information required to be disclosed in ourExchange 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 requireddisclosure. (b) Changes in internal control. There was no significant change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the fourth quarter of Fiscal 2018 that has materially affected, or is reasonably likely to materiallyaffect, our internal controls 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 controlsystem are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have beendetected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simpleerrors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override ofthe 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 noassurance 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 lossmay have an adverse and material effect on our business, financial condition and results of operations.Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefFinancial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under theframework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective asof March 31, 2018. The effectiveness of77Table of Contentsour internal control over financial reporting as of March 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accountingfirm, as stated in their report, which is included herein. ITEM 9B. OTHER INFORMATION On June 5, 2018, the Board of Directors amended the Bylaws by adding a Section 5 to Article VI (General Provisions) in order to adopt the necessaryprovisions relating to professional engineers required by the state of Washington. The information set forth above is included herewith for the purpose of providing the disclosure required under "Item 5.03—Amendments to Articles ofIncorporation or Bylaws; Change in Fiscal Year" of Form 8-K. The foregoing description of the amendment to the Bylaws is only a summary and is qualifiedin its entirety by reference to the full Restated Bylaws, which are filed as Exhibit 3.3 to this Annual Report on Form 10-K and incorporated by referenceherein. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 will be either (i) included in an amendment to this Annual Report on Form 10-K ("the Form 10-K Amendment) or(ii) incorporated by reference to our Definitive Proxy Statement to be filed with the SEC in connection with our 2018 Annual Meeting of Stockholders (the"2018 Proxy Statement") under the headings "Executive Compensation and Other Information—Executive Officers," "Election of Directors," "CorporateGovernance," and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 will be either included in the Form 10-K Amendment or is incorporated by reference to our 2018 Proxy Statementunder the heading "Executive Compensation and Other Information—Executive Officers." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 will be either included in the Form 10-K Amendment or is incorporated by reference to our 2018 Proxy Statementunder the heading "Equity Compensation Plan Information" and "Principal Stockholders and Common Stock Ownership of Certain Beneficial Owners andManagement." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 will be either included in the Form 10-K Amendment or is incorporated by reference to our 2018 Proxy Statementunder the heading "Corporate Governance" and "Certain Transactions." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 will be either included in the Form 10-K Amendment or is incorporated by reference to our 2018 Proxy Statementunder the heading "Fees Paid to Independent Registered Public Accounting Firm."78Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)Documents filed as part of this report: 1.Financial Statements. Our consolidated financial statements are listed in the "Index to Consolidated Financial Statements" under Part II, Item 8, of this Annual Report.2.Financial Statement Schedules. All financial statement schedules have been omitted because they are not required or are not applicable, or the required information is shown in ourconsolidated financial statements or the notes thereto.3.Exhibits. The following financial statements of Iteris, Inc. are included in a separate section of this Annual Report on Form 10-K commencing on the pagesreferenced below: Exhibit Index 79ExhibitNumber Description Reference 2.2+Asset Purchase Agreement by and between Iteris, Inc.and Bendix Commercial Vehicle Systems LLC, datedas of July 25, 2011 Exhibit 2.1 to the registrant's Current Report onForm 8- K/A as filed with the SEC on November 1,2011 3.1 Restated Certificate of Incorporation of the registrant Exhibit 3.1 to the registrant's Quarterly Report onForm 10-Q for the quarter ended September 30, 2009as filed with the SEC on October 30, 2009 3.2 Certificate of Designations of Series A JuniorParticipating Preferred Stock Exhibit 3.2 to the registrant's Quarterly Report onForm 10-Q for the quarter ended September 30, 2009as filed with the SEC on October 30, 2009 3.3 Restated Bylaws of the registrant, as amendedthrough June 5, 2018 Filed herewith 4.1 Specimen of common stock certificate Exhibit 4.1 to registrant's Registration Statement onForm 8-A as filed with the SEC on December 8, 2004 4.2 Rights Agreement dated August 20, 2009 between theregistrant and Computershare Trust Company, N.A.,which includes the form of Certificate of Designationsfor the Series A Junior Participating Preferred Stock,the form of Right Certificate, and Summary of Rightsto Purchase Preferred Stock as exhibits thereto Exhibit 4.1 to the registrant's Current Report onForm 8-K as filed with the SEC on August 21, 2009Table of Contents80ExhibitNumber Description Reference 4.3 Amendment No. 1 to Rights Agreement, entered intoas of August 8, 2012 by and between Iteris, Inc. andComputershare Trust Company, N.A. Exhibit 4.1 to the registrant's Quarterly Report onForm 10-Q for the quarter ended June 30, 2012 asfiled with the SEC on August 10, 2012 10.1 Form of Indemnity Agreement entered into by theregistrant and certain of its officers and directors Exhibit 19.4 to the registrant's Quarterly Report onForm 10-Q for the quarter ended September 30, 1988 10.2 Form of Indemnification Agreement entered into bythe registrant and certain of its officers and directors Exhibit 10.5 to the registrant's Annual Report onForm 10- K for the year ended March 31, 2004 asfiled with the SEC on June 29, 2004 10.3 Office Lease, dated May 24, 2007, by and betweenthe registrant and Realty Associates Fund X, L.P. (asthe successor to Crown Carnegie Associates, LLC) Exhibit 10.2 to the registrant's Quarterly Report onForm 10-Q for the quarter ended June 30, 2007 asfiled with the SEC on August 14, 2007 10.4*Iteris, Inc. Employee Stock Purchase Plan Filed herewith 10.5*2007 Omnibus Incentive Plan Exhibit 10.19 to the registrant's Annual Report onForm 10-K for the year ended March 31, 2012 asfiled with the SEC on June 11, 2012 10.6*Forms of Stock Option Agreements under the 2007Omnibus Incentive Plan Exhibit 10.20 to the registrant's Annual Report onForm 10-K for the year ended March 31, 2012 asfiled with the SEC on June 11, 2012 10.7*Form of Restricted Stock Unit Award Agreementunder the 2007 Omnibus Incentive Plan Exhibit 10.3 to the registrant's Quarterly Report onForm 10-Q for the quarter ended June 30, 2010 asfiled with the SEC on July 28, 2010 10.8*2016 Omnibus Incentive Plan Filed herewith 10.9*Form of Restricted Stock Unit Issuance Agreement foruse with 2016 Omnibus Incentive Plan Exhibit 99.2 to the registrant's RegistrationStatement on Form S-8 (File No.333-216407) as filedwith the SEC on March 2, 2017 10.10*Form of Form of Notice of Grant of Stock Option andform of Stock Option Agreement for use with 2016Omnibus Incentive Plan Exhibit 99.3 to the registrant's RegistrationStatement on Form S-8 (File No.333-216407) as filedwith the SEC on March 2, 2017 10.11 Amended and Restated Promissory Note, effectiveJuly 23, 2013, by and between Maxxess Systems, Inc.in favor of Iteris, Inc. Exhibit 10.1 to the registrant's Quarterly Report onForm 10-Q for the quarter ended June 30, 2013 asfiled with the SEC on August 1, 2013 10.12 First Amendment to Lease, dated February 21, 2014,by and between RREF II Freeway Acquisitions, LLCand Iteris, Inc. Exhibit 10.29 to the registrant's Annual Report onForm 10-K for the year ended March 31, 2014 asfiled with the SEC on September 4, 2014.Table of Contents81ExhibitNumber Description Reference 10.13 Second Amendment to Lease, dated September 29,2014, by and between Realty Associates Fund X, L.P.and Iteris, Inc. (as the successor to Realty AssociateRREF II Freeway Acquisitions, LLC) and Iteris, Inc. Filed herewith 10.14 Third Amendment to Lease, dated December 15,2016, by and between Realty Associates Fund X, L.P.and Iteris, Inc. Filed herewith 10.15*Employment Agreement dated March 9, 2015between Iteris, Inc. and Andrew Schmidt Exhibit 10.1 to the registrant's Current Report onForm 8-K as filed with the SEC on March 15, 2015 10.16*Amendment 1 to Employment Agreement datedJune 12, 2017 between Iteris, Inc. and AndrewSchmidt Exhibit 10.33 to the registrant's Annual Report onForm 10-K for the year ended March 31, 2016 asfiled with the SEC on June 13, 2017. 10.17*Employment Agreement dated September 8, 2015between Iteris, Inc. and Joe Bergera Exhibit 10.1 to the registrant's Current Report onForm 8-K as filed with the SEC on September 22,2015 10.18 Seperation Agreement and General Release datedMarch 29, 2018 between Iteris, Inc. and Thomas N.Blair Exhibit 99.1 to Amendment No. 1 tothe registrant'sCurrent Report on Form 8-K as filed with the SEC onApril 5, 2018 21 List of Subsidiaries Filed herewith 23 Consent of Independent Registered PublicAccounting Firm, dated June 7, 2018 Filed herewith 24 Power of Attorney Filed herewith (included on the Signature page) 31.1 Certification of the Chief Executive Officer, asrequired pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification of the Chief Financial Officer, asrequired pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.1 Certification of the Chief Executive Officer, asrequired pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.2 Certification of the Chief Financial Officer, asrequired pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith 101.INS XBRL Instance Document Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument Filed herewithTable of Contents82ExhibitNumber Description Reference 101.LAB XBRL Taxonomy Extension Label LinkbaseDocument Filed herewith 101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument Filed herewith 101.DEF XBRL Taxonomy Definition Presentation LinkbaseDocument Filed herewith*Indicates a contract, compensatory plan or arrangement in which directors or executive officers of the registrant are eligible toparticipate. +Confidential treatment has been previously granted by the SEC for certain portions of the referenced exhibit pursuant to Rule 24b-2 ofthe Securities Exchange Act of 1934, as amended. In accordance with Rule 24b- 2, these confidential portions have been omitted fromthe exhibit and filed separately with the SEC. #Pursuant to Rule 406T of Regulation S-T, these interactive data files i) are not deemed filed or part of a registration statement orprospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are not deemed filed for purposes of Section 18 of theSecurities Exchange Act of 1934, irrespective of any general incorporation language included in any such filings, and otherwise arenot subject to liability under these sections; and ii) are deemed to have complied with Rule 405 of Regulation S-T ("Rule 405") andare not subject to liability under the anti-fraud provisions of the Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of theSecurities Exchange Act of 1934 or under any other liability provision if we have made a good faith attempt to comply with Rule 405and, after we become aware that the interactive data files fail to comply with Rule 405, we promptly amend the interactive data files.Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. POWER OF ATTORNEY We, the undersigned officers and directors of Iteris, Inc., do hereby constitute and appoint Joe Bergera and Andrew C. Schmidt, and each of them, our trueand lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with theSecurities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each andevery act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby,ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtuehereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalfof the registrant in the capacities and on the dates indicated:83Dated: June 7, 2018 ITERIS, INC.(Registrant) By /s/ JOE BERGERAJOE BERGERAChief Executive Officer(Principal Executive Officer)Signature Title Date /s/ JOE BERGERAJoe Bergera Director, President and Chief ExecutiveOfficer (principal executive officer) June 7, 2018/s/ ANDREW C. SCHMIDTAndrew C. Schmidt Chief Financial Officer (principal financialand accounting officer) June 7, 2018/s/ THOMAS L. THOMASThomas L. Thomas Chairman of the Board June 7, 2018/s/ LAURA L. SIEGALLaura L. Siegal Director June 7, 2018Table of Contents84Signature Title Date /s/ KEVIN C. DALY, PH.DKevin C. Daly, Ph.D Director June 7, 2018/s/ GERARD M. MOONEYGerard M. Mooney Director June 7, 2018/s/ SCOTT E. DEETERScott E. Deeter Director June 7, 2018/s/ MIKEL WILLIAMSMikel Williams Director June 7, 2018Exhibit 3.3 RESTATED BYLAWSOFITERIS, INC. (hereinafter called the “Corporation”)(As amended through June 5, 2018) ARTICLE IOFFICES Section 1. Registered Office. The Board of Directors shall fix the location of the principal executive office of the Corporation at any place within or outside the State ofDelaware. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time totime determine. ARTICLE IIMEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board of Directors. In the absence ofany such designation, meetings of stockholders shall be held at the principal executive office of the Corporation. Section 2. Annual Meeting. The annual meeting of stockholders shall be held at such date and time as the Board of Directors may determine. The annual meeting shall be heldat the Corporation’s principal executed office, or at any other location as may be determined by the Board of Directors. At each annual meeting, directorsshall be elected and any other proper business may be transacted. Section 3. Special Meetings. Special meetings of the stockholders may be called at any time by the Board of Directors, by the chairman of the board, by the president or by one ormore stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of suchmeeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic ofother facsimile transmission to the chairman of the board, the president, any vice-president, or the secretary of the Corporation. The officer receiving therequest shall promptly cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II,that a meeting will be held at the time requested 1 by the person or persons calling the meeting, not fewer than 35 or more than 60 days after the receipt of the request. If such notice is not given within 20 daysafter the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shallbe construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 4. Notice of Meetings of Stockholders. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not fewer than ten or more than60 days before the date of the meeting. Such notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the generalnature of the business to be transacted, or (ii) in the case of the annual meeting, those matters that the Board of Directors, at the time of giving the notice,intends to present for action by the stockholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee ornominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financialinterest, pursuant to Section 144 of the General Corporation Law of the State of Delaware (the “Delaware GCL”), (ii) an amendment of the Certificate ofIncorporation, pursuant to Section 242 of the Delaware GCL, (iii) a reorganization of the Corporation pursuant to Section 251 of the Delaware GCL, (iv) avoluntary dissolution of the Corporation pursuant to Section 275 of the Delaware GCL, or (v) a distribution in dissolution, other than in accordance with therights of outstanding preferred shares, pursuant to Section 275 of the Delaware GCL, the notice shall also state the general nature of that proposal. Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of stockholders shall be given either personally or by mail or telegraphic or other written communication, charges prepaid,addressed to each stockholder at the address of such stockholder appearing on the books of the Corporation or given by the stockholder to the Corporationfor the purpose of notice. If no such address appears on the books of the Corporation or is given, notice shall be deemed to have been given if sent to astockholder by first-class mail or telegraphic or other written communication to the Corporation’s principal executive office, or if published at least-once in anewspaper of general circulation in the county where such office is located. Notice shall be deemed to have been given at the time when delivered personallyor deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a stockholder at the address of such stockholder appearing on the books of the Corporation is returned to the Corporationby the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver such notice to such stockholder at suchaddress, each future notice and report shall be deemed to have been duly given without further mailing if it shall be available to the stockholder on writtendemand by the shareholder at the principal executive office of the Corporation for a period of one year from the date of the giving of such notice or report. 2 An affidavit of the mailing or other means of giving any notice of any meeting of stockholders shall be executed by the secretary, assistant secretaryor any transfer agent of the Corporation giving the notice and shall be filed and maintained in the minute book of the Corporation. Section 6. Quorum. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at a meeting of stockholders shall constitute a quorumfor the transaction of business at such meeting. The stockholders present at a duly called or held meeting at which a quorum is present may continue to dobusiness until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment)is approved by at least a majority of the shares required to constitute a quorum. Section 7. Adjourned Meeting; Notice. Any meeting of stockholders, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majorityof the shares represented at such meeting, either in person or by proxy; but in the absence of a quorum, no other business may be transacted at such meeting,except as provided in Section 6 of this Article II. When any meeting of stockholders, annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if thetime and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed or unless theadjournment is for more than 45 days from the date set for the original meeting, in which case the Board of Directors shall set a new record date. Notice ofany such adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions ofSections 4 and 5 of this Article II. At any adjourned meeting any business may be transacted that might have been transacted at the original meeting. Section 8. Voting. The stockholders entitled to vote at any meeting of the stockholders shall be determined in accordance with the provisions of Article V, Section 5,subject to the provisions of Section 217 of the Delaware GCL (relating to voting shares held by a fiduciary, or in joint ownership). Unless otherwise requiredby law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders at which a quorum is present shall bedecided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Unless otherwise required by law, the Certificate ofIncorporation or these Bylaws, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stockentitled to vote thereat held by such stockholder [and shall not be entitled to cumulate votes in the election of directors](1). (1) The bracketed language was approved by the Corporation’s Board of Directors on May 15, 2018, but such language will not become effective unless anduntil the Corporation’s stockholders approve the removal of cumulative voting from the Corporation’s Certificate of Incorporation. 3 Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized bya written proxy signed by the person and filed with the secretary of the Corporation. A proxy shall be deemed signed if the stockholder’s name is placed onthe proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the stockholder or the stockholder’s attorney in fact. Avalidly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, beforethe vote pursuant to that proxy, by a writing delivered to the Corporation stating that the proxy is revoked, or by a subsequent proxy executed by, orattendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxyis received by the Corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of threeyears from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall begoverned by the provisions of Section 212 of the Delaware GCL. At any meeting of stockholders, the stockholders’ vote may be by voice vote or by ballot; provided, however, that any election for directors must beby ballot if demanded by any stockholder before the voting has begun. On any matter other than elections of directors, any stockholder may vote part of theshares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify thenumber of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to allshares that the stockholder is entitled to vote. Section 9. Consent of Stockholders in Lieu Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any meeting of stockholders of theCorporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall besigned by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at ameeting at which all shares entitled to vote thereon were present and voted. In the case of election of directors, such a consent shall be effective only ifsigned by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time tofill a vacancy on the Board of Directors that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding sharesentitled to vote for the election of directors. All such consents shall be filed with the secretary of the Corporation and shall be maintained in the corporaterecords. Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares or a personal representative of thestockholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the Corporation before written consents of thenumber of shares required to authorize the proposed action have been filed with the secretary. Prompt notice of the taking of the corporate action without ameeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. This notice shall be given in themanner specified in Section 5 of this Article II. 4 Section 10. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meetingof stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of eachstockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for anypurpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city wherethe meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Thelist shall also be produced and kept at the time and place of the meeting, during the whole time thereof, and may be inspected by any stockholder of theCorporation who is present. Section 11. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list requiredby Section 10 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 12. Waiver of Notice or Consent by Absent Stockholders. The transactions of any meeting of stockholders, annual or special, however called and noticed and wherever held, shall be as valid as though had ata meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after such meeting, each personentitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of such meeting or an approval of theminutes thereof. Such waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting ofstockholders except that, if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of thisArticle II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with thecorporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of such meeting, except that when the person objects at the beginning ofthe meeting to the transaction of any business thereat because such meeting is not lawfully called or convened, and except that attendance.at a meeting is nota waiver of any right to object to the consideration of matters not included in the notice of such meeting if an objection is expressly made at such meeting. Section 13. Inspectors of Election. Before any meeting of stockholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election atthe meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any stockholder or astockholder’s proxy shall, appoint inspectors of election at the meeting. The number of such inspectors shall be either one or three. If such inspectors areappointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shalldetermine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or 5 refuses to act, the chairman of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of aquorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Section 14. Advance Notice of Stockholder Business Only business that has been properly brought before the stockholders meeting may be conducted at an annual meeting of the stockholders. To beproperly brought before an annual stockholders meeting, business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors; (ii) otherwise properly brought before the stockholders meeting by or at the direction of the Board of Directors; or (iii) a proper matter for stockholder action under the Delaware General Corporation Law that has been properly brought before the stockholdersmeeting by a stockholder (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 14 and on the record date forthe determination of stockholders entitled to vote at such annual meeting of the stockholders and (B) who complies with the notice procedures set forth inthis Section 14. For such business to be considered properly brought before the meeting by a stockholder, such stockholder must, in addition to any other applicablerequirements, have given timely notice in proper form of such stockholder’s intent to bring such business before such meeting. To be timely, suchstockholder’s notice must: (i) in the case of a proposal submitted for inclusion in the Corporation’s proxy statement and form of proxy pursuant to Rule 14a-8 under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), meet the deadline for proposals submitted under such rule, or 6 (ii) in the case of all other matters, be delivered to or mailed and received by the secretary of the Corporation at the Corporation’s principalexecutive offices not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the anniversary date ofthe immediately preceding annual meeting of the stockholders; provided, however, that in the event that no annual meeting of the stockholders was held inthe previous year or the annual meeting of the stockholders is called for a date that is not within 30 days before or after such anniversary date, notice by thestockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of themeeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first. To be in proper form, a stockholder’s notice shall be in writing and shall set forth: (i) the name and record address of the stockholder who intends to propose the business, the class or series and number of shares of capital stockof the Corporation which are owned beneficially or of record by such stockholder or any Associated Person (as defined below) of such stockholder and anyother direct or indirect positions, agreements or understandings to which such stockholder or any Associated Person of such stockholder is a party (includinghedged positions, short positions, options, derivatives, convertible securities and any other stock appreciation or voting interests) which provide theopportunity to profit or share in any profit derived from any increase or decrease in the value of the shares of the Corporation; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appearin person or by proxy at the meeting to introduce the business specified in the notice; (ii) a complete description of the business desired to be brought before the annual meeting of the stockholders and the reasons for conductingsuch business at the annual meeting of the stockholders; (iv) any material interest of the stockholder or any Associated Person of such stockholder in such business including any agreements thestockholder or any Associated Person of such stockholder may have with others in connection with such business; and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act. If any of the foregoing information changes in any material respect from the date the notice is received through the date of the meeting, thestockholder shall promptly supplement such information to reflect such change by notice in writing and delivered to or mailed and received by the secretaryof the Corporation at the Corporation’s principal executive offices. For purposes of this Section 14 and Section 15, an “Associated Person” of any stockholder or proposed nominee shall mean (i) any member of theimmediate family of such stockholder or proposed nominee sharing the same household with such stockholder or proposed nominee; (ii) any personcontrolling, controlled by, or under common control with, such stockholder or proposed nominee; (iii) any person acting in concert or as part of a group(within the meaning of the Exchange Act and the regulations promulgated thereunder) with such 7 stockholder or proposed nominee; or (iv) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder orproposed nominee. In order to include information with respect to a stockholder proposal in the Corporation’s proxy statement and form of proxy for a stockholders’meeting, stockholders must provide notice as required by, and otherwise comply with the requirements of, the Exchange Act and the regulations promulgatedthereunder in addition to the requirements of this Section 14. No business shall be conducted at the annual meeting of the stockholders except business brought before the annual meeting of the stockholders inaccordance with the procedures set forth in this Section 14. The chairperson of the meeting may refuse to acknowledge the proposal of any business not madein compliance with the foregoing procedure. Section 15. Advance Notice of Director Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors, except as may be otherwiseprovided in the certificate of incorporation with respect to the right of holders of a class of preferred stock of the Corporation to nominate and elect aspecified number of directors. To be properly brought before an annual meeting of the stockholders, or any special meeting of the stockholders called for thepurpose of electing directors, nominations for the election of a director must be (i) specified in the notice of meeting (or any supplement thereto), (ii) made byor at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) made by any stockholder of the Corporation (A) who is astockholder of record on the date of the giving of the notice provided for in this Section 15 and on the record date for the determination of stockholdersentitled to vote at such meeting and (B) who complies with the notice procedures set forth in this Section 15. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely noticethereof in proper written form to the secretary of the Corporation. To be timely, a stockholder’s notice to the secretary must be delivered to or mailed andreceived at the Corporation’s principal executive offices, in the case of an annual meeting of the stockholders, in accordance with the provisions set forth inSection 14, and, the case of a special meeting of the stockholders called for the purpose of electing directors, not later than the close of business on the 10thday following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made,whichever occurs first. To be in proper form, a stockholder’s notice shall be in writing and shall set forth: (i) as to each person whom the stockholder proposes to nominate for election as a director (A) the name, age, business address and residenceaddress of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of theCorporation which are owned beneficially or of record by the person or any Associated Person of the person, (D) any other direct or indirect positions,agreements or understandings to which such person or any Associated Person of such person is a party (including hedged positions, short positions, options,derivatives, convertible securities and any other stock appreciation or voting interests) which provide the opportunity to profit or share in any profit derivedfrom any increase or decrease in the value of the shares of the Corporation, (E) 8 a description of all arrangements, understandings or material relationships between the stockholder and each nominee and any other person or persons(naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (F) any other information relating to such personthat is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A underthe Exchange. Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as adirector if elected and a completed questionnaire concerning such person’s business experience, beneficial ownership, relationships and transactions with theCorporation, independence and other matters typically contained in the Corporation’s questionnaire for directors and officers); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to Section 14. If any of the foregoing information changes in any material respect from the date the notice is received through the date of the meeting, thestockholder shall promptly supplement such information to reflect such change by notice in writing and delivered to or mailed and received by the secretaryof the Corporation at the Corporation’s principal executive offices. Subject to the rights of any holders of a class of preferred stock of the Corporation, no person shall be eligible for election as a director of theCorporation unless nominated in accordance with the procedures set forth in this Section 15. If the chairperson of the meeting properly determines that anomination was not made in accordance with the foregoing procedures, the chairperson shall declare to the meeting that the nomination was defective andsuch defective nomination shall be disregarded. ARTICLE IIIDIRECTORS Section 1. Number, Election and Term of Directors. The Board of Directors shall consist of not less than six (6) nor more than eleven (11) members, the exact number of which shall be six (6) untilchanged, within the limits specified above by a resolution duly adopted by the Board of Directors. The indefinite number of directors may be changed, or adefinite number fixed without provisions for an indefinite number, by a bylaw amending this Section 1; provided, however, that an amendment reducing thenumber of directors to a number less than five cannot be adopted if the votes case against its adoption at a meeting, or the shares not consenting in the case ofaction by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote. At any meeting of stockholders at which directors maybe elected, each director nominee shall be elected by an affirmative vote of a majority of the votes cast with respect to such director nominee by thestockholders entitled to vote in the election at a meeting at which a quorum is present, unless the number of nominees exceeds the number of directors to beelected, in which case each director nominee shall be elected by a plurality of the votes of the shares properly represented and entitled to vote in the electionat such meeting. In the event that a nominee is already a director of the Corporation and does not receive a majority of the votes cast with respect to suchnominee in an election where the number of nominees equals the number of directors to be elected, such nominee shall promptly tender his or her resignationto the Board of Directors for consideration. 9 Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Unless otherwise required by law or the Certificate of Incorporation, vacancies in the Board of Directors may be filled by a majority vote or writtenconsent of the directors then in office, through less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a directorby the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote for such directorrepresented at a duly held meeting at which a quorum is present, or by the written consent of holders of all shares entitled to vote for the election of suchdirector. The directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlierresignation or removal. The Board of Directors may increase the number of directors within the limits specified in Section 1 of this Article and any vacancy so created maybe filled by the Board of Directors in accordance with the provisions of Article Ninth of the Certificate of Incorporation unless otherwise required by law. A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if theBoard of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony,or if the authorized number of directors is increased, or if the stockholders fail, at any meeting of stockholders at which any director or directors are elected, toelect the number of directors to be voted for at that meeting. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the Board of Directors, unlessthe notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors mayelect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of theCorporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to beexercised or done by the stockholders, Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regularmeetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board ofDirectors. In the absence of such a determination, regular meetings shall be held at 10 the principal executive office of the Corporation. Special meetings of the Board of Directors may be called by the chairman, if there be one, the president, ora majority of the directors. Notice of special meetings stating the place, date and hour of the meeting shall be delivered personally or by telephone to eachdirector or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of theCorporation. In case the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Incase the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to aperson at the office of the director who the person giving notice has reason to believe will promptly communicate it to the director. The notice need notspecify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting for the purpose of organization, anydesired election of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, amajority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at anymeeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, thedirectors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of theBoard of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be,consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Waiver of Notice. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meetingduly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver ofnotice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. Allsuch waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also bedeemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director. 11 Section 8. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or anycommittee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conferencetelephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in ameeting pursuant to this Section 8 shall constitute presence in person at such meeting. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committeeto consist of two or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of anycommittee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of acommittee, and in the absence of a designation by the Board of Directors of an alternate member, the member or members thereof present at any meeting andnot disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at themeeting in the place of any absent or disqualified member. Each committee shall keep regular minutes and report to the Board of Directors when required. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Delaware GCL, also requires stockholders’ approval or approval of the outstandingshares; (b) the filling of vacancies on the Board of Directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to the stockholders of the Corporation, except at a rate or in a periodic amount or within a price range determined bythe Board of Directors; (g) the appointment of any other committees of the Board of Directors or the members of these committees. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws,Sections 4 (Meetings), 5 (Quorum), 6 (Actions of Board), and 7 (Waiver of Notice) with such changes in the context of those bylaws as are necessary tosubstitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may bedetermined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolutionof the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members, who shall 12 have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with theprovisions of these Bylaws. Section 10. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendanceat each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in anyother capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committeemeetings. Section 11. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any othercorporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a for interest, shallbe void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors orcommittee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as tohis or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board ofDirectors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even thoughthe disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction aredisclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of thestockholders; or (iii) the contract or transactions fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, acommittee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board ofDirectors or of a committee which authorizes the contract or transaction. 13 ARTICLE IVOFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a president, a secretary and a chief financial officer. The Boardof Directors, in its discretion, may also choose a chairman of the Board of Directors (who must be a director) and one or more vice-presidents, assistantsecretaries, assistant treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificateof Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the chairman of theBoard of Directors, need such officers be directors of the Corporation. Except as otherwise provided herein, the officers of the Corporation shall perform suchduties as the Board of Directors shall determine. Section 2. Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall appoint the officers of the Corporation who shallhold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors;and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. The salaries ofall officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may beexecuted in the name of an on behalf of the Corporation by the president or any vice-president and any such officer may, in the name of and on behalf of theCorporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting or security holders of any corporationin which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownershipof such securities and which, as the owner thereof the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution,from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board. The chairman of the board shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, havegeneral supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders and at allmeetings of the Board of Directors. He shall be ex officio a member of all of the committees of the board, including the executive committee, if any, and shallhave the general powers and duties of management usually vested in the chief executive officer of a Corporation, and shall have such other powers and dutiesas may be prescribed by the Board of Directors or the Bylaws. 14 Section 5. President. The president shall, subject to the control of the Board of Directors and, if there be one, the chairman of the Board of Directors, have generalsupervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall executeall bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required orpermitted by law.to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when soauthorized by these Bylaws, the Board of Directors or the president. In the absence or disability of the chairman of the Board of Directors, or if there be none,the president shall preside at all meetings of the stockholders and the Board of Directors. If there be no chairman of the Board of Directors, the president shallbe the chief executive officer of the Corporation. The president shall also perform such other duties and may exercise such other powers as from time to timemay be assigned to him by these Bylaws or by the Board of Directors. Section 6. Vice Presidents. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, avice president designated by the Board of Directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and besubject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may beprescribed for them respectively by the Board of Directors or the bylaws, and the president, or the chairman of the board. Section 7. Secretary. The secretary shall keep or cause to be. kept, at the principal office or such other place as the Board of Directors may direct, a book of minutes of allmeetings and actions of directors, committees of directors, and stockholders, with the time and place of holding, whether regular or special, and, if special,how authorized, the notice given, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented atstockholders’ meetings, and the proceedings. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporations transfer agent or registrar, asdetermined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses,the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of everycertificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by the bylaws or bylaw to be given, and he shall keep the seal of the Corporation if one be adopted, in safe custody, and shall have such other powers and perform such otherduties as may be prescribed by the Board of Directors or by the Bylaws. 15 Section 8. Chief Financial Officer. The chief financial officer shall keep and maintain, or cause to he kept and maintained, adequate and correct books and records of accounts of theproperties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retainedearnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries asmay be designated.by the Board of Directors. He, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to thepresident and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of theCorporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors of the Bylaws. Section 9. Removal and Resignation of Officers. Subject to the rights; if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Boardof Directors at any regular or special meeting of the Board or, except in the case of any officer chosen by the Board of Directors, by any officer upon whomsuch power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of suchnotice or at any later time specified in such notice; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary tomake it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the resigning officer is a party. Section 10. Vacancies in Offices. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in theseBylaws for regular appointments to such office. ARTICLE VSTOCK Section 1. Form of Certificates. The shares of stock of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may, subject tothe limits imposed by law, provide by resolution or resolutions that some or all of any or all classes or series of the stock of the Corporation shall beuncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Everyholder of stock represented by certificates shall be entitled to have a certificate signed, in the name of the Corporation (i) by the chairperson or vice-chairperson of the Board of Directors, or the president or a vice-president, and (ii) by the treasurer or an assistant treasurer, or the secretary or an assistantsecretary, of the Corporation, representing the number of shares registered in 16 certificate form. Certificates shall be in such form as the Board of Directors may from time to time prescribe, to the extent consistent with applicable law,provided that the Corporation shall not have the power to issue a certificate in bearer form. Section 2. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation orits employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimilesignature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued bythe Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have beenlost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. Whenauthorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the ownerof such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or togive the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to thecertificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these Bylaws. Transfers of stock shall be made onthe books of the Corporation only by the registered holder thereof in person or by his or her attorney lawfully constituted in writing, (i) with regard tocertificated shares, upon surrender for cancellation of certificates therefor properly endorsed for transfer and payment of all necessary transfer taxes, and(ii) with regard to uncertificated shares, upon delivery of proper transfer instructions and payment of all necessary transfer taxes and compliance withappropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment oftaxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournmentthereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution orallotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawfulaction, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than ten days before the date of such meeting,nor more than 60 days prior to any other action. A 17 determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting ofstockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjournedmeeting. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close ofbusiness on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day nextpreceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, (i) when noprior action by the board has been taken, shall be the day on which the first written consent is given or (ii) when prior action of the board has been taken,shall be at the close of business on the day on which the board adopts the resolution relating to such prior action, or the sixtieth (60th) day before the date ofsuch prior action, whichever is later. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, andto vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognizeany equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof,except as otherwise provided by law. ARTICLE VIGENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to applicable law and the provisions of the Certificate of Incorporation, if any, may bedeclared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment ofany dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time,in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining anyproperty of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Boardof Directors may from time to time designate. 18 Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 5. Designated Engineer in the State of Washington. The Board of Directors, as required by the Revised Code of Washington, has appointed a licensed professional engineer in the state of Washingtonas the Designated Engineer being in responsible charge of the Corporation’s engineering decisions pertaining to engineering activities in that state. TheDesignated Engineer named in a resolution as being in responsible charge, or an engineer under the Designated Engineer’s direct supervision, shall make allengineering or land surveying decisions pertaining to engineering or land surveying activities in the state of Washington. ARTICLE VIIINDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to anythreatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right ofthe Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of theCorporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (includingattorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceedingif he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to anycriminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment,order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in goodfaith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action orproceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to anythreatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was adirector, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent ofanother 19 corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him inconnection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed tothe best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall havebeen adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was broughtshall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly andreasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upona determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard ofconduct set forth in Section 1 or Section 2 of this Article VII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majorityvote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or, even if obtainablea quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that adirector, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding describedabove, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonablyincurred by him in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VII, a person shall be deemed to have acted in good faith and in a manner hereasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had noreasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or oninformation supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for theCorporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certifiedpublic accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” asused in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at therequest of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in anyway the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article VII, as thecase may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this 20 Article VII, and notwithstanding the absence of any determination thereunder, any director, officer, employee or agent may apply to any court of competentjurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VII. The basis of suchindemnification by a court shall be a determination by such court that indemnification of the director, officer, employee or agent is proper in thecircumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VII, as the case may be. Notice of anyapplication for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance ofthe final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay suchamount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VII. Section 7. Non-exclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VII shall not be deemed exclusive of any otherrights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders ordisinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his officialcapacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified inSections 1 and 2 of this Article VII shall be made to the fullest extent permitted by law. The provisions of this Article VII shall not be deemed to preclude theindemnification of any person who is not specified in Sections 1 or 2 of this Article VII but whom the Corporation has the power or obligation to indemnifyunder the provisions of the General Corporation Law of the State of Delaware, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of theCorporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or notthe Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VII. Section 9. Meaning of “Corporation” for Purposes of Article VII. For purposes of this Article VII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation(including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power andauthority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of suchconstituent 21 corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership,joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VII with respect to the resulting or survivingcorporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided whenauthorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executorsand administrators of such a person. ARTICLE VIIIFORUM FOR ADJUDICATION OF DISPUTES Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery (the “Chancery Court”) of the State ofDelaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of theState of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalfof the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or stockholder of the Corporation to theCorporation or to the Corporation’s stockholders, (c) any action arising pursuant to any provision of the Delaware GCL or the certificate of incorporation orthese bylaws (as each may be amended from time to time), (d) any action to interpret, apply, enforce or determine the validity of the Certificate ofIncorporation or these Bylaws or (e) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entitypurchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of, and to have consented to, theprovisions of this Article VIII. ARTICLE IXAMENDMENTS Section 1. Amendments by Stockholders or Board. These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the majority vote or written consent of thestockholders or the Board of Directors; provided however, that a change in the authorized number of directors must be accomplished as provided inArticle III, Section 1 of these Bylaws. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, unlessotherwise required by applicable law, Sections 14 and 15 of Article II the Bylaws shall not be amended, modified or repealed by the stockholders, and noprovision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of at least 66% of the voting power of allof the outstanding shares of the Corporation’s capital stock, voting together as a single class. 222/3 CERTIFICATE OF SECRETARY The undersigned does hereby certify: (1) That the undersigned is the duly elected and acting Secretary of ITERIS, INC., a Delaware corporation; and (2) That the foregoing Bylaws, comprising 22 pages, constitute the restated Bylaws of said Corporation as amended as of the date hereof. IN WITNESS WHEREOF, the undersigned has duly signed his name as of the 5th day of June, 2018. /s/ Andrew C. SchmidtAndrew C. Schmidt, Secretary 23 Exhibit 10.4 ITERIS, INC. EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. This Iteris, Inc. (“Company”) Employee Stock Purchase Plan (the “Plan”) is intended to provide employees of the Company and itsParticipating Subsidiaries with an opportunity to acquire a proprietary interest in the Company through the purchase of shares of Common Stock. TheCompany intends that the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code and the Plan shall be interpreted in a mannerthat is consistent with that intent. 2. Definitions. “Board or Board of Directors” means the Board of Directors of the Company, as constituted from time to time. “Code” means the U.S. Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Codeshall be deemed to include a reference to any regulations promulgated thereunder. “Committee” means the Compensation Committee or other committee appointed by the Board to administer the Plan. “Common Stock” means the common stock of the Company, par value $0.10 per share. “Company” means Iteris, Inc., a Delaware corporation, including any successor thereto. “Compensation” means the fixed salary or base wage paid by the Company or a Participating Subsidiary to a Participant as reported bythe Company or a Participating Subsidiary, as applicable, to the United States government for income tax purposes, including bonuses and commissionsand an Employee’s portion of salary deferral contributions pursuant to Section 401(k) of the Code and any amount excludable pursuant to Section 125of the Code, overtime, vacation pay, holiday pay, jury duty pay and funeral leave pay, but excluding education or tuition reimbursements, imputedincome arising under any group insurance or benefit program, travel expenses, business and relocation expenses, and income received in connectionwith stock options or other equity-based awards. “Corporate Transaction” means a merger, consolidation, acquisition of property or stock, separation, reorganization or other corporateevent described in Section 424 of the Code. “Designated Broker” means the financial services firm or other agent designated by the Company to maintain ESPP Share Accounts onbehalf of Participants who have purchased shares of Common Stock under the Plan. “Effective Date” means January 1, 2018, subject to the Plan obtaining stockholder approval in accordance with Section 19.11 hereof.  “Employee” means any person who renders services to the Company or a Participating Subsidiary as an employee pursuant to anemployment relationship with such employer. For purposes of the Plan, the employment relationship shall be treated as continuing intact while theindividual is on military leave, sick leave or other leave of absence approved by the Company or a Participating Subsidiary that meets the requirementsof Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months, or such other period of time specified in TreasuryRegulation Section 1.421-1(h)(2), and the individual’s right to re-employment is not guaranteed by statute or contract, the employment relationshipshall be deemed to have terminated on the first day immediately following such three-month period, or such other period specified in TreasuryRegulation Section 1.421-1(h)(2). “Eligible Employee” means an Employee who is customarily employed (and regularly scheduled) for at least twenty (20) hours perweek and more than five (5) months in any calendar year. Notwithstanding the foregoing, the Committee may exclude from participation in the Plan orany Offering Employees who are “highly compensated employees” of the Company or a Participating Subsidiary (within the meaning ofSection 414(q) of the Code) or a sub-set of such highly compensated employees. “Enrollment Form” means an agreement pursuant to which an Eligible Employee may elect to enroll in the Plan, to authorize a newlevel of payroll deductions, or to stop payroll deductions and withdraw from an Offering Period. “ESPP Share Account” means an account into which Common Stock purchased with accumulated payroll deductions at the end of anOffering Period are held on behalf of a Participant. “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended. “Fair Market Value” means, as of any date, the value of the shares of Common Stock as determined below. If the shares are listed onany established stock exchange or a national market system, including, without limitation, the NASDAQ Stock Market, the Fair Market Value shall bethe closing selling price of a share (or if no sales were reported, the closing price on the date immediately preceding such date) at the close of regularhours trading (i.e., before after-hours trading begins) as quoted on such exchange or system on the day of determination, as reported by the NationalAssociation of Securities Dealers (if primarily traded on the Nasdaq Global or Global Select Market) or as officially quoted in the composite tape oftransactions on any other Stock Exchange on which the Common Stock is then primarily traded. In the absence of an established market for the shares,the Fair Market Value shall be determined in good faith by the Committee and such determination shall be conclusive and binding on all persons. “Offering Date” means the first Trading Day of each Offering Period as designated by the Committee. 2 “Offering” or “Offering Period” means a period of six months beginning each January 1st and July 1 of each year; provided, that,pursuant to Section 5, the Committee may change the duration of future Offering Periods (subject to a maximum Offering Period of twenty-seven (27)months) and/or the start and end dates of future Offering Periods. “Participant” means an Eligible Employee who is actively participating in the Plan. “Participating Subsidiaries” means the Subsidiaries that have been designated as eligible to participate in the Plan, and such otherSubsidiaries that may be designated by the Committee from time to time in its sole discretion. “Plan” means this Iteris, Inc. Employee Stock Purchase Plan, as set forth herein, and as amended from time to time. “Purchase Date” means the last Trading Day of each Offering Period. “Purchase Price” means an amount equal to the lesser of (1) eighty-five percent (85%) (or such greater percentage as determined by theCommittee) of the Fair Market Value on the Offering Date or (2) eighty-five percent (85%) (or such greater percentage as determined by the Committee)of the Fair Market Value on the Purchase Date; provided, that, the Purchase Price per share of Common Stock will in no event be less than the par valueof the Common Stock. “Securities Act” means the Securities Act of 1933, as amended. “Subsidiary” means any domestic corporation, of which not less than 50% of the combined voting power is held by the Company or aSubsidiary, whether or not such corporation exists now or is hereafter organized or acquired by the Company or a Subsidiary. In all cases, thedetermination of whether an entity is a Subsidiary shall be made in accordance with Section 424(f) of the Code. “Trading Day” means any day on which the national stock exchange upon which the Common Stock is listed is open for trading or, ifthe Common Stock is not listed on an established stock exchange or national market system, a business day, as determined by the Committee in goodfaith. 3. Administration. The Plan shall be administered by the Committee, which shall have the authority to construe and interpret the Plan, prescribe,amend and rescind rules relating to the Plan’s administration and take any other actions necessary or desirable for the administration of the Plan. TheCommittee may correct any defect or supply any omission or reconcile any inconsistency or ambiguity in the Plan. The Committee shall have the authorityand discretion to change the Purchase Price within the parameters set forth above, and if the Committee changes the Purchase Price from one Offering Periodto another, the Company will notify Participants of any change in Purchase Price at least fifteen (15) days prior to the beginning of the next Offering Period towhich the changed Purchase Price applies. The decisions of the Committee shall be final and binding on all persons. All expenses of administering the Planshall be borne by the Company. 3st 4. Eligibility. Unless otherwise determined by the Committee in a manner that is consistent with Section 423 of the Code, any individual who is anEligible Employee as of the Offering Date for a particular Offering Period shall be eligible to participate in such Offering Period, subject to the requirementsof Section 423 of the Code. Notwithstanding any provision of the Plan to the contrary, no Eligible Employee shall be granted an option under the Plan if (i) immediatelyafter the grant of the option, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant toSection 424(d) of the Code) would own capital stock of the Company or hold outstanding options to purchase stock possessing 5% or more of the totalcombined voting power or value of all classes of stock of the Company or any Subsidiary or (ii) such option would permit his or her rights to purchase stockunder all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate that exceeds $25,000of the Fair Market Value of such stock (determined at the time the option is granted) for each calendar year in which such option is outstanding at any time. 5. Offering Periods. The Plan shall be implemented by a series of Offering Periods, each of which shall be six (6) months in duration, with newOffering Periods commencing on or about January 1 and July 1 of each year (or such other times as determined by the Committee). The Committee shall havethe authority to change the duration, frequency, start and end dates of Offering Periods. 6. Participation. 6.1 Enrollment; Payroll Deductions. An Eligible Employee may elect to participate in the Plan by properly completing an Enrollment Form,which may be electronic, and submitting it to the Company, in accordance with the enrollment procedures established by the Committee. Participationin the Plan is entirely voluntary. By submitting an Enrollment Form, the Eligible Employee authorizes payroll deductions from his or her pay check inan amount equal to at least 1%, but not more than 15% of his or her Compensation on each pay day occurring during an Offering Period (or such othermaximum percentage as the Committee may establish from time to time before an Offering Period begins). Payroll deductions shall commence on thefirst payroll date following the Offering Date and end on the last payroll date on or before the Purchase Date. The Company shall maintain records of allpayroll deductions but shall have no obligation to pay interest on payroll deductions or to hold such amounts in a trust or in any segregated account. 6.2 Election Changes. During an Offering Period, a Participant may decrease or increase his or her rate of payroll deductions applicable tosuch Offering Period only once. To make such a change, the Participant must submit a new Enrollment Form authorizing the new rate of payrolldeductions and any change shall become effective on the next payroll period that begins no earlier than five (5) business days after the Company’sreceipt of a new Enrollment Form or such other notice period as may be established by the Compensation Committee from time to time in its solediscretion (to the extent practical 4 under the Company’s payroll practices) following delivery of a new Enrollment Form. A Participant may decrease or increase his or her rate of payrolldeductions for future Offering Periods by submitting a new Enrollment Form authorizing the new rate of payroll deductions at least fifteen days beforethe start of the next Offering Period. 6.3 Automatic Re-enrollment. The deduction rate selected in the Enrollment Form shall remain in effect for subsequent Offering Periodsunless the Participant (a) submits a new Enrollment Form authorizing a new level of payroll deductions in accordance with Section 6.2, (b) withdrawsfrom the Plan in accordance with Section 10, or (c) terminates employment or otherwise becomes ineligible to participate in the Plan. 7. Grant of Option. On each Offering Date, each Participant in the applicable Offering Period shall be granted an option to purchase, on the PurchaseDate, a number of shares of Common Stock determined by dividing the Participant’s accumulated payroll deductions by the applicable Purchase Price;provided, however, that in no event shall any Participant purchase more than 5,000 shares of Common Stock during an Offering Period (subject to adjustmentin accordance with Section 18 and the limitations set forth in Section 13 of the Plan). 8. Exercise of Option/Purchase of Shares. A Participant’s option to purchase shares of Common Stock will be exercised automatically on thePurchase Date of each Offering Period. The Participant’s accumulated payroll deductions will be used to purchase the maximum number of whole shares thatcan be purchased with the amounts in the Participant’s notional account. No fractional shares may be purchased but any remaining funds that are not used topurchase Common Stock will carry forward to the next Offering Period, subject to earlier withdrawal by the Participant in accordance with Section 10 ortermination of employment in accordance with Section 11. 9. Transfer of Shares. As soon as reasonably practicable after each Purchase Date, the Company will arrange for the delivery to each Participant ofthe shares of Common Stock purchased upon exercise of his or her option. The Committee may permit or require that the shares be deposited directly into anESPP Share Account established in the name of the Participant with a Designated Broker and may require that the shares of Common Stock be retained withsuch Designated Broker for a specified period of time. Participants will not have any voting, dividend or other rights of a shareholder with respect to theshares of Common Stock subject to any option granted hereunder until such shares have been delivered pursuant to this Section 9. 10. Withdrawal. 10.1 Withdrawal Procedure. A Participant may withdraw from an Offering by submitting to the Company a revised EnrollmentForm indicating his or her election to withdraw at any time before the Purchase Date, provided that such revised Enrollment Form is received at least ten(10) business days prior to the Purchase Date (or such other period as may be established by the Compensation Committee from time to time in its solediscretion). The accumulated payroll deductions held on behalf of a Participant in his or her notional account (that have not been used to purchaseshares of Common Stock) shall be paid to the Participant promptly following receipt of the Participant’s Enrollment Form indicating his or 5 her election to withdraw and the Participant’s option shall be automatically terminated. If a Participant withdraws from an Offering Period, no payrolldeductions will be made during any succeeding Offering Period, unless the Participant re-enrolls in accordance with Section 6.1 of the Plan. 10.2 Effect on Succeeding Offering Periods. A Participant’s election to withdraw from an Offering Period will not have any effect upon his orher eligibility to participate in succeeding Offering Periods that commence following the completion of the Offering Period from which the Participantwithdraws, provided the Participant submits a new Enrollment Form in accordance with this Plan. 11. Termination of Employment; Change in Employment Status. Upon termination of a Participant’s employment for any reason, including death,disability or retirement, or a change in the Participant’s employment status following which the Participant is no longer an Eligible Employee, which ineither case occurs at least fifteen days (or such other period as may be established by the Compensation Committee from time to time in its sole discretion)before the Purchase Date, the Participant will be deemed to have withdrawn from the Plan and the payroll deductions in the Participant’s notional account(that have not been used to purchase shares of Common Stock) shall be returned to the Participant, or in the case of the Participant’s death, to theperson(s) entitled to such amounts under Section 17, and the Participant’s option shall be automatically terminated. If the Participant’s termination ofemployment or change in status occurs within fifteen days (or such other period as may be established by the Compensation Committee from time to time inits sole discretion) before a Purchase Date, the accumulated payroll deductions shall be used to purchase shares on the Purchase Date. 12. Interest. No interest shall accrue on or be payable with respect to the payroll deductions of a Participant in the Plan. 13. Shares Reserved for Plan. 13.1 Number of Shares. A total of One Million (1,000,000) shares of Common Stock have been reserved as authorized for the grant of optionsunder the Plan. The shares of Common Stock may be newly issued shares, treasury shares or shares acquired on the open market. 13.2 Over-subscribed Offerings. The number of shares of Common Stock which a Participant may purchase in an Offering under the Plan maybe reduced if the Offering is over-subscribed. No option granted under the Plan shall permit a Participant to purchase shares of Common Stock which, ifadded together with the total number of shares of Common Stock purchased by all other Participants in such Offering would exceed the total number ofshares of Common Stock remaining available under the Plan. If the Committee determines that, on a particular Purchase Date, the number of shares ofCommon Stock with respect to which options are to be exercised exceeds the number of shares of Common Stock then available under the Plan, theCompany shall make a pro rata allocation of the shares of Common Stock remaining available for purchase in as uniform a manner as practicable and asthe Committee determines to be equitable. 6 14. Transferability. No payroll deductions credited to a Participant, nor any rights with respect to the exercise of an option or any rights to receiveCommon Stock hereunder may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution,or as provided in Section 17 hereof) by the Participant. Any attempt to assign, transfer, pledge or otherwise dispose of such rights or amounts shall be withouteffect. 15. Application of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporatepurpose to the extent permitted by applicable law, and the Company shall not be required to segregate such payroll deductions or contributions. 16. Statements. Participants will be provided with statements at least annually which shall set forth the contributions made by the Participant to thePlan, the Purchase Price of any shares of Common Stock purchased with accumulated funds, the number of shares of Common Stock purchased, and anypayroll deduction amounts remaining in the Participant’s notional account. 17. Designation of Beneficiary. A Participant may file, on forms supplied by the Company, a written designation of beneficiary who is to receive anyshares of Common Stock and cash in respect of any fractional shares of Common Stock, if any, from the Participant’s ESPP Share Account under the Plan inthe event of such Participant’s death. In addition, a Participant may file a written designation of beneficiary who is to receive any cash withheld throughpayroll deductions and credited to the Participant’s notional account in the event of the Participant’s death prior to the Purchase Date of an Offering Period. 18. Adjustments Upon Changes in Capitalization; Dissolution or Liquidation; Corporate Transactions. 18.1 Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, or other property),recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, reincorporation, other reorganization, split-up, spin-off,combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the Company’s structure affecting theCommon Stock occurs without the Company’s receipt of consideration, or should the value of shares of Common Stock be substantially reduced as aresult of a spin-off transaction or an extraordinary dividend or distribution, then in order to prevent dilution or enlargement of the benefits or potentialbenefits intended to be made available under the Plan, the Committee will, in such manner as it deems equitable, adjust the number of shares and classof Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by eachoutstanding option under the Plan, and the numerical limits of Section 7 and Section 13. 18.2 Dissolution or Liquidation. Unless otherwise determined by the Committee, in the event of a proposed dissolution or liquidation of theCompany, any Offering Period then in progress will be shortened by setting a new Purchase Date and the Offering Period will end immediately prior tothe proposed dissolution or liquidation. The new Purchase Date will be before the date of the Company’s proposed dissolution or liquidation. Before thenew Purchase Date, the Committee will provide each Participant with written notice, which may 7 be electronic, of the new Purchase Date and that the Participant’s option will be exercised automatically on such date, unless before such time, theParticipant has withdrawn from the Offering in accordance with Section 10. 18.3 Corporate Transaction. In the event of a Corporate Transaction, the Committee may cause each outstanding option to be assumed or anequivalent option substituted by the successor corporation or a parent or Subsidiary of such successor corporation. If the successor corporation does notassume or substitute the option, the Committee may either: (a) shorten the Offering Period with respect to which the option relates and set a newPurchase Date on which the Offering Period will end. The new Purchase Date will occur before the date of the Corporate Transaction. Prior to the newPurchase Date, the Committee will provide each Participant with written notice, which may be electronic, of the new Purchase Date and that theParticipant’s option will be exercised automatically on such date, unless before such time, the Participant has withdrawn from the Offering in accordancewith Section 10; or (b) terminate the Offering Period and refund all accumulated payroll deductions to the Participants. 19. General Provisions. 19.1 Equal Rights and Privileges. Notwithstanding any provision of the Plan to the contrary and in accordance with Section 423 of the Code,all Eligible Employees who are granted options under the Plan shall have the same rights and privileges. 19.2 No Right to Continued Service. Neither the Plan nor any compensation paid hereunder will confer on any Participant the right tocontinue as an Employee or in any other capacity. 19.3 Rights as Stockholder. A Participant will become a stockholder with respect to the shares of Common Stock that are purchased pursuantto options granted under the Plan when the shares are transferred to the Participant’s ESPP Share Account. A Participant will have no rights as astockholder with respect to shares of Common Stock for which an election to participate in an Offering Period has been made until such Participantbecomes a stockholder as provided above. 19.4 Successors and Assigns. The Plan shall be binding on the Company and its successors and assigns. 19.5 Entire Plan. This Plan constitutes the entire plan with respect to the subject matter hereof and supersedes all prior plans with respect tothe subject matter hereof. 19.6 Compliance with Law. The obligations of the Company with respect to payments under the Plan are subject to compliance with allapplicable laws and regulations. Common Stock shall not be issued with respect to an option granted under the Plan unless the exercise of such optionand the issuance and delivery of the shares of Common Stock pursuant thereto shall comply with all applicable provisions of law, including, withoutlimitation, the Securities Act, the Exchange Act, and the requirements of any stock exchange upon which the shares may then be listed. 8 19.7 Notice of Disqualifying Dispositions. Each Participant shall give the Company prompt written notice of any disposition or other transferof shares of Common Stock acquired pursuant to the exercise of an option acquired under the Plan, if such disposition or transfer is made within twoyears after the Offering Date or within one year after the Purchase Date. 19.8 Term of Plan. The Plan shall become effective on the Effective Date and, unless terminated earlier pursuant to Section 19.9, shall have aterm of ten years. 19.9 Amendment or Termination. The Committee may, in its sole discretion, amend, suspend or terminate the Plan at any time and for anyreason, provided, however, that in no event may the Committee effect any of the following amendments or revisions to the Plan without the approval ofthe Company’s shareholders: (i) increase the number of shares of Common Stock issuable under the Plan (other than adjustments pursuant toSection 19.1) or (ii) materially modify the requirements for eligibility to participate in the Plan. If the Plan is terminated, the Committee may elect toterminate all outstanding Offering Periods either immediately or once shares of Common Stock have been purchased on the next Purchase Date (whichmay, in the discretion of the Committee, be accelerated) or permit Offering Periods to expire in accordance with their terms (and subject to anyadjustment in accordance with Section 18). If any Offering Period is terminated before its scheduled expiration, all amounts that have not been used topurchase shares of Common Stock will be returned to Participants (without interest, except as otherwise required by law) as soon as administrativelypracticable. 19.10 Applicable Law. The laws of the State of Delaware shall govern all questions concerning the construction, validity and interpretation ofthe Plan, without regard to such state’s conflict of law rules. 19.11 Stockholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before orafter the date the Plan is adopted by the Board. 19.12 Section 423. The Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. Any provision of thePlan that is inconsistent with Section 423 of the Code shall be reformed to comply with Section 423 of the Code. 19.13 Withholding. To the extent required by applicable Federal, state or local law, a Participant must make arrangements satisfactory to theCompany for the payment of any withholding or similar tax obligations that arise in connection with the Plan. 19.14 Severability. If any provision of the Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceabilityshall not affect any other provision hereof, and the Plan shall be construed as if such invalid or unenforceable provision were omitted. 19.15 Headings. The headings of sections herein are included solely for convenience and shall not affect the meaning of any of the provisionsof the Plan. 9Exhibit 10.8 ITERIS, INC. 2016 OMNIBUS INCENTIVE PLAN ARTICLE 1 GENERAL PROVISIONS 1.1 PURPOSE OF THE PLAN This 2016 Omnibus Incentive Plan (the “Plan”) is intended to promote the interests of Iteris, Inc., a Delaware corporation, by providing eligiblepersons in the Corporation’s service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporationas an incentive for them to remain in such service. The Plan serves as the successor to the Corporation’s 2007 Omnibus Incentive Plan (the “Predecessor Plan”), and no further awards shall be madeunder the Predecessor Plan on or after the Plan Effective Date. All awards outstanding under the Predecessor Plan on the Plan Effective Date shall remainoutstanding under the Predecessor Plan and shall be governed solely by the terms of the documents evidencing such award, and no provision of the Plan shallbe deemed to affect or otherwise modify the rights or obligations of the holders of such awards. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. 1.2 TYPES OF AWARDS Awards may be made under the Plan in the form of (i) options, (ii) stock appreciation rights, (iii) stock awards, (iv) restricted stock units, (v) cashincentive awards and (vi) dividend equivalent rights. 1.3 ADMINISTRATION OF THE PLAN (a) The Compensation Committee shall have sole and exclusive authority to administer the Plan with respect to Section 16 Insiders. Administration of the Plan with respect to all other persons eligible to participate in the Plan may, at the Board’s discretion, be vested in the CompensationCommittee or a Secondary Board Committee, or the Board may retain the power to administer those programs with respect to such persons. To the extentpermitted by law, the Board or the Compensation Committee may delegate any or all of its authority to administer the Plan with respect to one or moreclasses of eligible persons (other than Section 16 Insiders) to one or more officers of the Corporation. (b) Members of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board maydetermine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee andreassume all powers and authority previously delegated to such committee.  (c) Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full authority to determine(i) which eligible persons are to receive Awards under the Plan, (ii) the type, size, terms and conditions of the Awards to be made to each Participant, (iii) thetime or times when those Awards are to be made, (iv) the number of shares or amount of payment to be covered by each such Award, (v) the time or timeswhen the Award is to become exercisable, (vi) the status of an option for federal tax purposes, (vii) the maximum term for which an Award is to remainoutstanding, (viii) the vesting and issuance schedules applicable to the shares which are the subject of the Award, (ix) the cash consideration (if any) payablefor those shares and the form (cash or shares of Common Stock) in which the Award is to be settled, (x) the vesting schedule for a cash incentive award, and(xi) with respect to performance—based Awards, the performance objectives for each such Award, the amounts payable at designated levels of attainedperformance, any applicable service vesting requirements, and the payout schedule for each such Award. (d) Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority(subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to makesuch determinations under, and issue such interpretations of, the provisions of the Plan and any outstanding Awards thereunder as it may deem necessary oradvisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties whohave an interest in the Plan under its jurisdiction or any Award thereunder. (e) Service as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shallconstitute service as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement asBoard members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee shall be liable for anyact or omission made in good faith with respect to the Plan or any Award thereunder. 1.4 ELIGIBILITY (a) The persons eligible to participate in the Plan are as follows: (i) Employees, (ii) Non-Employee Directors and non-employee members of the board of any Parent or Subsidiary, and (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). 2 1.5 STOCK SUBJECT TO THE PLAN (a) The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including sharesrepurchased by the Corporation on the open market. Subject to Section 1.5(h) and adjustment pursuant to Section 1.5(j), the number of shares reserved forissuance under the Plan shall be 3,404,771. However, such share reserve shall be reduced by one (1) share for every one (1) share that was subject to anoption or stock appreciation right granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan and 1.79 shares for every one(1) share that was subject to an award (other than an option or stock appreciation right) granted after July 22, 2016 and prior to the Plan Effective Date underthe Predecessor Plan (such awards granted after July 22, 2016 and prior to the Plan Effective Date under the Predecessor Plan, the “Interim Period Awards”). (b) Subject to adjustment pursuant to Section 1.5(j), the maximum number of shares of Common Stock that may be issued pursuant toIncentive Options granted under the Plan shall be 3,404,771. (c) The maximum number of shares of Common Stock for which options and stock appreciation rights that are settled in shares may begranted to any person under the Plan in any fiscal year shall not exceed 2,000,000 shares of Common Stock in the aggregate. (d) The maximum number of shares of Common Stock for which Awards (other than options and stock appreciation rights that aresettled in shares) may be granted to any person under the Plan in any fiscal year shall not exceed 2,000,000 shares of Common Stock (which limit shall referto the maximum amount that can be earned) in the aggregate. (e) During any fiscal year no Participant may be granted cash incentive awards under which a total of more than $3,000,000 may beearned for each twelve (12) months in the performance period. (f) The maximum aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accountingrules) of all Awards made to any Non-Employee Director under the Plan in any fiscal year, taken together with any cash payments (including the annualretainer and any other compensation) paid to such Non-Employee Director in respect of such fiscal year, shall not exceed $250,000 in total value. (g) The number of shares of Common Stock reserved for award and issuance under this Plan pursuant to Section 1.5(a) shall bereduced on a one-for-one basis for each share of Common Stock subject to an option or stock appreciation right and by a fixed ratio of 1.79 shares ofCommon Stock for each share of Common Stock subject to a Full Value Award. (h) Shares of Common Stock subject to outstanding Awards (including awards granted under the Predecessor Plan) shall be availablefor subsequent award and issuance under the Plan to the extent those Awards expire, are forfeited or cancelled or terminate for any reason prior to the issuanceof the shares of Common Stock subject to those Awards. Any shares that again become available for Awards under the Plan pursuant to this Section shall beadded as (i) one (1) share for every one (1) share subject to options or stock appreciation rights granted under the Plan and the Predecessor Plan, (ii) as 1.79shares for every one (1) share subject to 3 Awards other than options or stock appreciation rights granted under the Plan and the Predecessor Plan, and (iii) for each unvested share issued under the Planand the Predecessor Plan for cash consideration not less than the Fair Market Value per share of Common Stock on the date of grant and subsequentlyrepurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rightsunder the Plan and Predecessor Plan, as applicable, one share shall become available for subsequent award and issuance under the Plan. (i) Should the exercise price of an option or any withholding taxes incurred in connection with the exercise of an option under thePlan (or any options granted under the Predecessor Plan) be paid with shares of Common Stock (whether through the withholding of a portion of theotherwise issuable shares or through the tender of actual outstanding shares), then in each such case, the shares so tendered or withheld shall be added to theshares of Common Stock available for grant under the Plan on a one-for-one basis. Upon the exercise of any stock appreciation right under the Plan (and anyInterim Period Awards), the share reserve shall be reduced only by the net number of shares issued upon such exercise and not by the gross number of sharesas to which such right is exercised. If shares of Common Stock are withheld by the Corporation, or if shares of Common Stock are tendered by the Participant,in either case, in satisfaction of the withholding taxes incurred in connection with the vesting or settlement of a Full Value Award (or an award other than astock option or stock appreciation right that was granted under the Predecessor Plan), then in each such case the shares of Common Stock so tendered orwithheld shall be added to the shares of Common Stock available for issuance under the Plan in accordance with the ratio described in Sections 1.5(h) above. (j) Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination ofshares, exchange of shares, spin-off transaction or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt ofconsideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinarydividend or distribution, or should there occur any merger, consolidation, reincorporation or other reorganization, then equitable adjustments shall be madeby the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities forwhich any one person may be granted options and Stand-alone Rights that are settled in shares under the Plan in any fiscal year, (iii) the maximum numberand/or class of securities for which any one person may be granted Awards (other than Stock options and Stand-alone Rights that are settled in shares) underthe Plan in any fiscal year, (iv) the maximum number and/or class of securities that may be issued pursuant to Incentive Options, (v) the number and/or classof securities and the exercise or base price per share in effect under each outstanding Award under the Plan (including the Interim Period Awards) and theconsideration (if any) payable per share, and (vi) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under thePlan and the repurchase price payable per share. The adjustments shall be made in such manner as the Plan Administrator deems appropriate and suchadjustments shall be final, binding and conclusive. In addition, in the event of a Change in Control, the provisions of Section 2.7 shall apply. (k) Outstanding Awards granted pursuant to the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganizeor otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 4 (l) Substitute Awards shall not reduce the shares authorized for issuance under the Plan or the limitations on grants to a Participantunder Section 1.5(c) or 1.5(d), nor shall shares subject to a terminated, cancelled or forfeited Substitute Award be added to the shares available for issuanceunder the Plan as provided above. Additionally, in the event that a company acquired by the Company or any Subsidiary (or Parent) or with which theCompany or any Subsidiary (or Parent) combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplationof such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, usingthe exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to theholders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the sharesauthorized for issuance under the Plan (and shares subject to such Awards shall not be added to the shares available for issuance under the Plan as providedabove); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Non-Employee Directors prior tosuch acquisition or combination. For purposes of this section, “Substitute Awards” shall mean Awards granted or shares issued by the Company inassumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a companyacquired by the Company or any Subsidiary (or Parent) or with which the Company or any Subsidiary (or Parent) combines. ARTICLE 2 AWARDS 2.1 OPTIONS (a) Authority. The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant IncentiveOptions and Non-Statutory Options evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms ofeach such agreement shall not be inconsistent with the terms specified below. Each agreement evidencing an Incentive Option shall, in addition, be subjectto the provisions of Section 2.1(f) below. (b) Exercise Price. (i) The exercise price per share shall be fixed by the Plan Administrator; provided, however, that such exercise price shall notbe less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date. (ii) The exercise price shall be payable in one or more of the following forms as determined by the Plan Administrator andspecified in the Award Agreement: (A) cash or check made payable to the Corporation, 5 (B) shares of Common Stock (whether delivered in the form of actual stock certificates or through attestation ofownership) held for the requisite period (if any) necessary to avoid any resulting charge to the Corporation’s earnings for financial reporting purposes andvalued at Fair Market Value on the Exercise Date, (C) shares of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction ofthe exercise price, with such withheld shares to be valued at Fair Market Value on the exercise date, or (D) to the extent the option is exercised for vested shares of Common Stock, through a special sale and remittanceprocedure pursuant to which the Participant shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation forpurposes of administering such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of thepurchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise pricepayable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and(b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on theExercise Date. (c) Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number ofshares as shall be determined by the Plan Administrator and set forth in the Award Agreement evidencing the option, subject to Section 2.9. However, nooption shall have a term in excess of ten (10) years measured from the option grant date. (d) Effect of Termination of Service. (i) The following provisions shall govern the exercise of any options that are outstanding at the time of the Participant’scessation of Service or death: (A) Any option outstanding at the time of the Participant’s cessation of Service for any reason shall remainexercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but nosuch option shall be exercisable after the expiration of the option term. (B) Any option held by the Participant at the time of the Participant’s death and exercisable in whole or in part atthat time may be subsequently exercised by the personal representative of the Participant’s estate or by the person or persons to whom the option istransferred pursuant to the Participant’s will or the laws of inheritance or by the Participant’s designated beneficiary or beneficiaries of that option. (C) Should the Participant’s Service be terminated for Misconduct or should the Participant otherwise engage inMisconduct while holding one or more outstanding options, then all of those options shall terminate immediately and cease to be outstanding. 6 (D) During the applicable post-Service exercise period, the option may not be exercised for more than the number ofvested shares for which the option is at the time exercisable. No additional shares shall vest under the option following the Participant’s cessation of Serviceexcept to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to an express written agreement with theParticipant. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease tobe outstanding for any shares for which the option has not been exercised. (ii) The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any timewhile the option remains outstanding, to: (A) extend the period of time for which the option is to remain exercisable following the Participant’s cessation ofService from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, butin no event beyond the expiration of the option term; (B) include an automatic extension provision whereby the specified post-Service exercise period in effect for anyoption shall automatically be extended by an additional period of time equal in duration to any interval within the specified post-Service exercise periodduring which the exercise of that option or the immediate sale of the shares acquired under such option could not be effected in compliance with applicablefederal and state securities laws, but in no event shall such an extension result in the continuation of such option beyond the expiration date of the term ofthat option; and/or (C) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to thenumber of vested shares of Common Stock for which such option is exercisable at the time of the Participant’s cessation of Service but also with respect toone or more additional installments in which the Participant would have vested had the Participant continued in Service. (e) Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares ofCommon Stock. Should the Participant exercise an option for unvested shares and subsequently cease Service while such shares are unvested, theCorporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per shareor (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall be exercisable(including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administratorand set forth in the document evidencing such repurchase right. (f) Incentive Options. The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisionsof this Section 2.1(f), all the provisions of the Plan shall be applicable to Incentive Options. Options which are specifically designated as Non-StatutoryOptions when issued under the Plan shall not be subject to the terms of this Section 2.1(f). 7 (i) Eligibility. Incentive Options may only be granted to Employees. (ii) Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective dateor dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent orSubsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred ThousandDollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the samecalendar year, then for purposes of the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed tobecome first exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise providedunder applicable law or regulation. (iii) 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise priceper share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the optionterm shall not exceed five (5) years measured from the option grant date. 2.2 STOCK APPRECIATION RIGHTS (a) Authority. The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stockappreciation rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each suchagreement shall not be inconsistent with the terms specified below. (b) Types. Two types of stock appreciation rights shall be authorized for issuance under this Section 2.2: (i) tandem stockappreciation rights (“Tandem Rights”) and (ii) stand-alone stock appreciation rights (“Stand-alone Rights”). (c) Tandem Rights. The following terms and conditions shall govern the grant and exercise of Tandem Rights. (i) One or more Participants may be granted a Tandem Right, exercisable upon such terms and conditions as the PlanAdministrator may establish, subject to Section 2.9, to elect between the exercise of the underlying option for shares of Common Stock or the surrender ofthat option in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) ofthe number of shares in which the Participant is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregateexercise price payable for such vested shares. (ii) Any distribution to which the Participant becomes entitled upon the exercise of a Tandem Right may be made in(i) shares of Common Stock valued at Fair Market Value on the option surrender date, (ii) cash or (iii) a combination of cash and shares of Common Stock, asspecified in the applicable Award Agreement. 8 (d) Stand-Alone Rights. The following terms and conditions shall govern the grant and exercise of Stand-alone Rights: (i) One or more Participants may be granted a Stand-alone Right not tied to any underlying option. The Stand-alone Rightshall relate to a specified number of shares of Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator mayestablish, subject to Section 2.9. In no event, however, may the Stand-alone Right have a maximum term in excess of ten (10) years measured from the grantdate. (ii) Upon exercise of the Stand-alone Right, the holder shall be entitled to receive a distribution from the Corporation in anamount equal to the excess of (i) the aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over(ii) the aggregate base price in effect for those shares. (iii) The number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those sharesshall be determined by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base price pershare be less than the Fair Market Value per underlying share of Common Stock on the grant date. (iv) The distribution with respect to an exercised Stand-alone Right may be made in (i) shares of Common Stock valued atFair Market Value on the exercise date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement. (v) The holder of a Stand-alone Right shall have no stockholder rights with respect to the shares subject to the Stand-aloneRight unless and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued upon theexercise of such Stand-alone Right. (e) Post-Service Exercise. The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of theParticipant’s Service shall be substantially the same as those set forth in Section 2.1(d) for the options granted under the Plan, and the Plan Administrator’sdiscretionary authority under Section 2.1(d)(ii) shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights. 2.3 STOCK AWARDS (a) Authority. The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock awardseither as vested or unvested shares of Common Stock, through direct and immediate issuances. Each stock award shall be evidenced by an Award Agreementin the form approved by the Plan Administrator; provided, however, that the terms of each such agreement shall not be inconsistent with the terms specifiedbelow. 9 (b) Consideration. Shares of Common Stock may be issued under a stock award for any of the following items of consideration which the PlanAdministrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, (ii) past services rendered to the Corporation (or any Parent or Subsidiary); or (iii) any other valid consideration under the State in which the Corporation is at the time incorporated. (c) Vesting Provisions. (i) Stock awards may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance as a bonusfor Service rendered or may vest in one or more installments over the Participant’s period of Service and/or upon the attainment of specified performanceobjectives. The elements of the vesting schedule applicable to any stock award shall be determined by the Plan Administrator and incorporated into theAward Agreement. (ii) The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure oneor more stock awards so that the shares of Common Stock subject to those Awards shall vest upon the achievement of pre-established performance objectivesbased on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. (iii) Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issuedunder a stock award or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then thoseshares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to thoseshares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent, the Corporation shallrepay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time ofcancellation. (iv) The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares ofCommon Stock which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicableto those shares. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiverapplies. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to shares which were intended at thetime of issuance to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s death or PermanentDisability or a Change in Control. 10 (v) Any new, substituted or additional securities or other property (including money paid other than as a regular cashdividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stockdividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other changeaffecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vestingrequirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deemappropriate, unless and to the extent the Plan Administrator determines at the time to vest and distribute such securities or other property. Notwithstandingthe provisions of this Section, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect to any stockAward that vests based on achievement of Performance Goals shall be accumulated, subject to restrictions and risk of forfeiture to the same extent as theunderlying Award, and shall be paid at the time such restrictions and risk of forfeiture lapse. Equitable adjustments to reflect each such transaction shall alsobe made by the Plan Administrator to the repurchase price payable per share by the Corporation for any unvested securities subject to its existing repurchaserights under the Plan; provided the aggregate repurchase price shall in each instance remain the same. 2.4 RESTRICTED STOCK UNITS (a) Authority. The Plan Administrator shall have the full power and authority, exercisable in its sole discretion, to grant restrictedstock units evidenced by an Award Agreement in the form approved by the Plan Administrator; provided, however, that the terms of each such agreementshall not be inconsistent with the terms specified below. (b) Terms. Each restricted stock unit award shall entitle the Participant to receive the shares underlying that Award (or an amountbased on the value of the shares) upon vesting or upon the expiration of a designated time period following the vesting of those Awards. Payment of sharesunderlying a restricted stock unit Award may be deferred for a period specified by the Plan Administrator at the time the restricted stock unit is initiallygranted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to a timely deferral election made in accordance withthe requirements of Code Section 409A. Restricted stock units subject to performance vesting may also be structured so that the underlying shares areconvertible into shares of Common Stock (or a payment based on the value of the shares), but the rate at which each share is to so convert shall be based onthe attained level of performance for each applicable performance objective. (c) Vesting Provisions. (i) Restricted stock units may, in the discretion of the Plan Administrator, vest in one or more installments over theParticipant’s period of Service or upon the attainment of specified performance objectives. (ii) The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure oneor more restricted stock unit awards so that the shares of Common Stock subject to those Awards shall vest (or vest and become 11 issuable) upon the achievement of pre-established performance objectives based on one or more Performance Goals and measured over the performanceperiod specified by the Plan Administrator at the time of the grant of the Award. (iii) Outstanding restricted stock units shall automatically terminate without any payment if the designated PerformanceGoals or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionaryauthority to make a payment under one or more outstanding Awards of restricted stock units as to which the designated Performance Goals or Servicerequirements have not been attained or satisfied. However, no vesting requirements tied to the attainment of Performance Goals may be waived with respectto Awards which were intended, at the time those Awards were granted, to qualify as performance-based compensation under Code Section 162(m), except inthe event of the Participant’s death or Permanent Disability or a Change in Control. (d) Payment. Restricted stock units that vest may be settled in (i) cash, (ii) shares of Common stock valued at Fair Market Value onthe payment date or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole discretion. 2.5 CASH INCENTIVE AWARDS (a) The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant cash incentive awards. ThePlan Administrator shall determine the terms and conditions applicable to cash incentive awards, including the criteria for the vesting and payment of cashincentive awards. Cash incentive awards shall be based on such measures as the Plan Administrator deems appropriate and need not relate to the value ofshares of Common Stock. Cash incentive awards may, in the discretion of the Plan Administrator, vest in one or more installments over the Participant’speriod of Service or upon the attainment of specified performance objectives. Payment of cash incentive awards may be deferred for a period specified by thePlan Administrator at the time the Award is initially granted or (to the extent permitted by the Plan Administrator) designated by the Participant pursuant to atimely deferral election made in accordance with the requirements of Code Section 409A. (b) The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or morecash incentive awards so that the awards shall vest upon the achievement of pre-established performance objectives based on one or more Performance Goalsand measured over the performance period specified by the Plan Administrator at the time of the grant of the Award. (c) Outstanding cash incentive awards units shall automatically terminate without any payment if the designated Performance Goalsor Service requirements established for those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority tomake a payment under one or more outstanding cash incentive awards as to which the designated Performance Goals or Service requirements have not beenattained or satisfied. However, no vesting requirements tied to the attainment of Performance Goals may be waived with respect to cash incentive awardswhich were intended, at the time those Awards 12 were granted, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s death or PermanentDisability or a Change in Control. 2.6 DIVIDEND EQUIVALENT RIGHTS (a) Authority. The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant dividendequivalent rights evidenced by an Award Agreement in the form approved by the Plan Administrator; provided however, that the terms of each suchagreement shall not be inconsistent with the terms specified below. (b) Terms. The dividend equivalent rights may be granted as stand-alone awards or in tandem with other Awards made under thePlan, except dividend equivalent rights shall not be granted in connection with an option, stock appreciation right or cash incentive award. The term of eachdividend equivalent right award shall be established by the Plan Administrator at the time of grant, but no such award shall have a term in excess of ten(10) years. (c) Entitlement. Each dividend equivalent right shall represent the right to receive the economic equivalent of each dividend ordistribution, whether in cash, securities or other property (other than shares of Common Stock), which is made per issued and outstanding share of CommonStock during the term the dividend equivalent right remains outstanding. A special account on the books of the Corporation shall be maintained for eachParticipant to whom a dividend equivalent right is granted, and that account shall be credited per dividend equivalent right with each such dividend ordistribution made per issued and outstanding share of Common Stock during the term of that dividend equivalent right remains outstanding. (d) Timing of Payment. Payment of the amounts credited to such book account may be made to the Participant either concurrentlywith the actual dividend or distribution made per issued and outstanding share of Common Stock or may be deferred for a period specified by the PlanAdministrator at the time the dividend equivalent right is initially granted or (to the extent permitted by the Plan Administrator) designated by theParticipant pursuant to a timely deferral election made in accordance with the requirements of Code Section 409A. In no event, however, shall any dividendequivalent right award made with respect to an Award subject to performance-vesting conditions vest or become payable prior to the vesting of that Award(or the portion thereof to which the dividend equivalent right award relates) upon the attainment of the applicable Performance Goals and shall accordinglybe subject to cancellation and forfeiture to the same extent as the underlying Award. (e) Form of Payment. Payment of the amounts due with respect to dividend equivalent rights may be made in (i) cash, (ii) shares ofCommon Stock or (iii) a combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole discretion and set forth in theAward Agreement. If payment is to be made in the form of Common Stock, the number of shares of Common Stock into which the cash dividend ordistribution amounts are to be converted for purposes of the Participant’s book account may be based on the Fair Market Value per share of Common Stockon the date of conversion, a prior date or an average of the Fair Market Value per share of Common Stock over a designated period, as determined by the PlanAdministrator in its sole discretion. 13 2.7 EFFECT OF CHANGE IN CONTROL Unless otherwise provided in an Award Agreement, the following provisions shall apply with respect to Awards in the event of a Change in Control: (a) In the event of a Change in Control, each outstanding Award, as determined by the Plan Administrator in its sole discretion, maybe (i) assumed by the successor corporation (or parent thereof), (ii) canceled and substituted with an Award granted by the successor corporation (or parentthereof), (iii) otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, or (iv) replaced with a cash retentionprogram of the Corporation or any successor corporation (or parent thereof) which preserves the spread existing on the unvested Award shares subject to theAward at the time of the Change in Control (the excess of the Fair Market Value of those shares over the aggregate purchase price payable for such shares)and, subject to Section 2.7(c) below, provides for subsequent payout of that spread in accordance with the same exercise/vesting schedule applicable to thoseunvested Award shares, but only if such replacement cash program would not result in the treatment of the Award as an item of deferred compensation subjectto Code Section 409A. (b) To the extent an outstanding Award is not assumed, substituted, continued or replaced in accordance with Section 2.7(a), suchAward shall automatically vest in full immediately prior to the effective date of the Change in Control, unless the acceleration of such Award is subject toother limitations imposed by the Plan Administrator at the time of the grant of the Award. The Plan Administrator in its sole discretion shall have theauthority to provide that to the extent any such Award, as so accelerated, remains unexercised and outstanding on the effective date of the Change in Control,such Award shall terminate and cease to be outstanding. The holder of such Award shall become entitled to receive, upon consummation of the Change inControl and subject to Section 2.7(c), a lump sum cash payment in an amount equal to the product of (i) number of shares of Common Stock subject to suchAward and (ii) the excess of (a) the Fair Market Value per share of Common Stock on the date of the Change in Control over (b) the per share exercise price orpurchase price in effect for such Award. However, any such Award shall be subject to cancellation and termination, without cash payment or otherconsideration due the Award holder, if the Fair Market Value per share of Common Stock on the date of such Change in Control is less than the per shareexercise price or purchase price in effect for such Award. Notwithstanding the foregoing, if any Award is subject to a performance-vesting condition tied tothe attainment of one or more specified Performance Goals, and such Award is not to be so assumed, substituted, continued, or replaced, that Award shall vestimmediately prior to the effective date of the actual Change in Control transaction, based on actual performance as of the Change in Control, and the sharesof Common Stock underlying the portion of the Award that vests on such accelerated basis (if any) shall be issued in accordance with the applicable AwardAgreement, unless such accelerated vesting is precluded by other limitations imposed in the Award Agreement. (c) The Plan Administrator shall have the authority to provide that any escrow, holdback, earn-out or similar provisions in thedefinitive agreement effecting the Change in Control shall apply to any cash payment made pursuant to Section 2.7(a) or Section 2.7(b) to the same extentand in the same manner as such provisions apply to a holder of a share of Common Stock. 14 (d) Immediately following the consummation of the Change in Control, all outstanding Awards shall terminate and cease to beoutstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the termsof the Change in Control transaction. (e) In the event of any Change in Control, the Plan Administrator in its sole discretion may determine that all outstanding repurchaserights (i) are to be assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Changein Control transaction or (ii) are to be terminated and the shares of Common Stock subject to those terminated rights are to immediately vest in full, unlesssuch accelerated vesting is precluded by limitations imposed by the Plan Administrator at the time the repurchase right is issued. (f) Each Award which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriatelyadjusted, immediately after such Change in Control, to apply to the number and class of securities into which the shares of Common Stock subject to thatAward would have been converted in consummation of such Change in Control had those shares actually been outstanding at that time. Appropriateadjustments to reflect such Change in Control shall also be made to (i) the exercise or base price or cash consideration payable per share in effect under eachoutstanding Award, provided the aggregate exercise or base price or cash consideration in effect for such securities shall remain the same, (ii) the maximumnumber and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities for whichIncentive Options may be granted under the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted Awards underthe Plan per calendar year and (v) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under the Plan and therepurchase price payable per share. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for theirCommon Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of theoutstanding Awards under the Plan and subject to the Plan Administrator’s approval, substitute, for the securities underlying those assumed Awards, one ormore shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change inControl transaction, provided such common stock is readily traded on an established U.S. securities exchange or market. (g) The Plan Administrator shall have the discretion, exercisable either at the time an Award is granted or at any time while an Awardremains outstanding, to structure such Award so that (i) it shall automatically accelerate and vest in full (and any repurchase rights of the Corporation withrespect to the unvested shares subject to that Award shall immediately terminate) upon the occurrence of a Change in Control, whether or not such Award isto be assumed in the Change in Control or otherwise continued in effect or (ii) the shares subject to such Award will automatically vest on an acceleratedbasis should the Participant’s Service terminate by reason of an Involuntary Termination within a designated period following the effective date of anyChange in Control in which the Award is assumed or otherwise continued in effect and the repurchase rights applicable to those shares do not otherwiseterminate. 15 (h) The portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an IncentiveOption only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation isexceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. 2.8 REPRICING PROGRAMS The Plan Administrator shall not have the discretionary authority, except pursuant to Section 1.5(j), to (i) implement cancellation/regrant programspursuant to which outstanding options or stock appreciation rights under the Plan are cancelled and new options or stock appreciation rights are granted inreplacement with a lower exercise or base price per share, (ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or baseprices per share in excess of the then current Fair Market Value per share of Common Stock for consideration payable in cash, other Awards, or in equitysecurities of the Corporation (except in the event of a Change in Control) or (iii) reduce the exercise or base price in effect for outstanding options or stockappreciation rights under the Plan, in any case without stockholder approval. 2.9 MINIMUM VESTING No option or stock appreciation right may vest over a period of less than one year from the date of grant of the award. Notwithstanding theforegoing, up to 5% of the available shares of Common Stock authorized for issuance under the Plan as of the Plan Effective Date may be issued pursuant tooptions or stock appreciation rights that vest (in full or in part) over a period of less than one year from the date of grant of the awards (the “5% Basket”). Anyoption or stock appreciation right granted under the Plan may vest in full or in part upon death or disability of the Participant, or upon a Change in Control,under Section 2.7 or the applicable Award Agreement, and such vesting shall not count against the 5% Basket. ARTICLE 3 MISCELLANEOUS 3.1 DEFERRED COMPENSATION (a) The Plan Administrator may, in its sole discretion, structure one or more Awards (other than options and stock appreciation rights)so that the Participants may be provided with an election to defer the compensation associated with those Awards for federal income tax purposes. Any suchdeferral opportunity shall comply with all applicable requirements of Code Section 409A. (b) The Plan Administrator may implement a non-employee Board member retainer fee deferral program under the Plan so as to allowthe non-employee Board members the opportunity to elect, prior to the start of each calendar year, to convert the Board and Board committee retainer fees tobe earned for such year into restricted stock units under the Plan that will defer the issuance of the shares of Common Stock that vest under those restrictedstock units until a permissible date or event under Code Section 409A. If such program is implemented, the 16 Plan Administrator shall have the authority to establish such rules and procedures as it deems appropriate for the filing of such deferral elections and thedesignation of the permissible distribution events under Code Section 409A. (c) To the extent the Corporation maintains one or more separate non-qualified deferred compensation arrangements which allow theParticipants the opportunity to make notional investments of their deferred account balances in shares of Common Stock, the Plan Administrator mayauthorize the share reserve under the Plan to serve as the source of any shares of Common Stock that become payable under those deferred compensationarrangements. In such event, the share reserve under the Plan shall be reduced on a share-for-share basis for each share of Common Stock issued under thePlan in settlement of the deferred compensation owed under those separate arrangements. 3.2 TRANSFERABILITY OF AWARDS The transferability of Awards granted under the Plan shall be governed by the following provisions: (a) Incentive Options. During the lifetime of the Participant, Incentive Options shall be exercisable only by the Participant and shallnot be assignable or transferable other than by will or the laws of inheritance following the Participant’s death. (b) Other Awards. All other Awards shall be subject to the same limitation on transfer as Incentive Options, except that the PlanAdministrator may structure one or more such Awards so that the Award may be assigned in whole or in part during the Participant’s lifetime to one or moreFamily Members of the Participant or to a trust established exclusively for the Participant and/or such Family Members, to the extent such assignment is inconnection with the Participant’s estate plan or pursuant to a domestic relations order. The assigned portion of an Award may only be exercised (ifapplicable) by the person or persons who acquire a proprietary interest in the Award pursuant to the assignment. The terms applicable to the assigned portionof the Award shall be the same as those in effect for the Award immediately prior to such assignment and shall be set forth in such documents issued to theassignee as the Plan Administrator may deem appropriate. (c) Beneficiary Designation. Notwithstanding the foregoing, a Participant may, to the extent permitted by the Plan Administrator,designate one or more persons as the beneficiary or beneficiaries of some or all of his or her outstanding Awards, and those Awards shall, in accordance withsuch designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Awards. Such beneficiaryor beneficiaries shall take the transferred Awards subject to all the terms and conditions of the applicable agreement evidencing each such transferred Award,including (without limitation) the limited time period during which the Award may be exercised (if applicable) following the Participant’s death. 3.3 STOCKHOLDER RIGHTS A Participant shall not have any of the rights of a stockholder with respect to shares of Common Stock covered by an Award until the Participantbecomes the holder of record of such shares. However, a Participant may be granted the right to receive dividend equivalents under Section 2.6 with respectto one or more outstanding Awards. 17 3.4 TAX WITHHOLDING (a) The Corporation’s obligation to deliver shares of Common Stock upon the exercise, issuance or vesting of an Award under the Planshall be subject to the satisfaction of all applicable tax withholding requirements. (b) The Plan Administrator may, in its discretion, provide Participants to whom Awards are made under the Plan with the right to useshares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such holders may become subject in connection with the issuance,exercise, vesting or settlement of those Awards or the issuance of shares of Common Stock thereunder. Such right may be provided to any such holder ineither or both of the following formats: (i) Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuableupon the issuance, exercise, vesting or settlement of such Award or the issuance of shares of Common Stock thereunder, a portion of those shares with anaggregate Fair Market Value at the time of delivery equal to the percentage of the Withholding Taxes based on the minimum required tax withholding ratefor the Participant, or such other rate as determined by the Plan Administrator. (ii) Stock Delivery: The election to deliver to the Corporation, at the time of the issuance, exercise, vesting or settlement ofsuch Award, one or more shares of Common Stock previously acquired by such individual (other than in connection with the exercise, share issuance or sharevesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed onehundred percent (100%)) designated by the individual. 3.5 SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vestsor may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. 3.6 EFFECTIVE DATE AND TERM OF THE PLAN (a) The Plan shall become effective on the Plan Effective Date. (b) The Plan shall terminate upon the earliest to occur of (i) the date immediately preceding the tenth anniversary of the Plan EffectiveDate, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully vested shares, (iii) the termination of alloutstanding Awards in connection with a Change in Control, or (iii) the termination of the Plan by the Board. Should the Plan terminate under subsection(i) above, then all Awards outstanding at that time shall continue to have force and effect in accordance with the provisions of the documents evidencingthose Awards. 18 3.7 AMENDMENT OF THE PLAN (a) The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, subject tostockholder approval to the extent required under applicable law or regulation or pursuant to the listing standards of the Stock Exchange on which theCommon Stock is at the time primarily traded. However, no such amendment or modification shall adversely affect the rights and obligations with respect toAwards at the time outstanding under the Plan unless the Participant consents to such amendment or modification. (b) The Compensation Committee shall have the discretionary authority to adopt and implement from time to time such addenda orsubplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations of any foreign jurisdictions inwhich Awards are to be made under the Plan and/or to obtain favorable tax treatment in those foreign jurisdictions for the individuals to whom the Awards aremade. (c) Awards may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available forissuance under the Plan, provided no shares shall actually be issued pursuant to those Awards until the number of shares of Common Stock available forissuance under the Plan is sufficiently increased by stockholder approval of an amendment of the Plan authorizing such increase. If such stockholderapproval is not obtained within twelve (12) months after the date the first excess Award is made, then all Awards granted on the basis of such excess sharesshall terminate and cease to be outstanding. 3.8 USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. 3.9 REGULATORY APPROVALS (a) The implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock inconnection with the issuance, exercise, vesting or settlement of any Award under the Plan shall be subject to the Corporation’s procurement of all approvalsand permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of Common Stock issuablepursuant to those Awards. (b) No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have beencompliance with all applicable requirements of applicable securities laws, and all applicable listing requirements of any Stock Exchange on which CommonStock is then listed for trading. 3.10 NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with orotherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Participant, which rightsare hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause. 19 3.11 RECOUPMENT Participants shall be subject to any clawback, recoupment or other similar policy required by law or regulations or adopted by the Board as in effectfrom time to time and Awards and any cash, shares of Common Stock or other property or amounts due, paid or issued to a Participant shall be subject to theterms of such policy, as in effect from time to time. 20 APPENDIX The following definitions shall be in effect under the Plan: (a) Award shall mean any of the following awards authorized for issuance or grant under the Plan: options, stock appreciation rights,stock awards, restricted stock units, cash incentive awards and dividend equivalents. (b) Award Agreement shall mean the written agreement(s) (which may be in electronic form) between the Corporation and theParticipant evidencing a particular Award made to that individual under the Plan, as such agreement(s) may be in effect from time to time. (c) Board shall mean the Corporation’s Board of Directors. (d) Change in Control shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: (i) Change in Control shall have the meaning assigned to such term in the Award Agreement for the particular Award or inany other agreement incorporated by reference into the Award Agreement for purposes of defining such term. (ii) In the absence of any other Change in Control definition in the Award Agreement (or in any other agreementincorporated by reference into the Award Agreement), Change in Control shall mean a change in ownership or control of the Corporation effected throughany of the following transactions: (A) consummation of a merger, consolidation or other reorganization approved by the Corporation’s stockholders,unless securities representing at least fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation areimmediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned theCorporation’s outstanding voting securities immediately prior to such transaction, (B) a sale, transfer or other disposition of all or substantially all of the Corporation’s assets, (C) the closing of any transaction or series of related transactions pursuant to which any person or any group ofpersons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transactionor series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Corporation) becomes directly orindirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the mostrecent acquisition) the beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable forsecurities possessing) more than fifty percent (50%) of the total combined voting power of the Corporation’s securities (as measured in terms of the power tovote with respect to the election of Board members) outstanding immediately after the consummation of such transaction or series of related transactions,whether such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more of the Corporation’sexisting stockholders, or A-1 (D) a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such thata majority of the Board members ceases to be comprised of individuals who either (A) have been Board members continuously since the beginning of suchperiod (“Incumbent Directors”) or (B) have been elected or nominated for election as Board members during such period by at least a majority of theIncumbent Directors who were still in office at the time the Board approved such election or nomination; provided that any individual who becomes a Boardmember subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprisingthe Incumbent Directors will be considered an Incumbent Director. (e) Code shall mean the Internal Revenue Code of 1986, as amended. (f) Common Stock shall mean the Corporation’s Common Stock. (g) Compensation Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employeeBoard members, each of whom is intended to qualify as a “non-employee director” (as defined in Rule 16b-3 under the Exchange Act), an “outside director”for purposes of Section 162(m) of the Code and an “independent director” under the rules of any securities exchange or automated quotation system onwhich the Common Stock is then listed, quoted or traded; provided that any action taken by the Compensation Committee shall be valid and effective,whether or not one or more members of the Compensation Committee at the time of such action are later determined not to have satisfied the requirements formembership set forth in this definition or otherwise provided in the charter of the Compensation Committee. (h) Corporation shall mean Iteris, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets orvoting stock of Iteris, Inc. (i) Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing orsubsequently established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method ofperformance. (j) Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise. (k) Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the followingprovisions: (i) If the Common stock is at the time traded on a Stock Exchange, then the Fair Market Value shall be the closing sellingprice per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on date in question on the Stock Exchangeserving as the primary market for the Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on theNasdaq Global or Global Select Market) or as officially quoted in the composite tape of transactions on any other A-2 Stock Exchange on which the Common Stock is then primarily traded. If there is no closing selling price for the Common Stock on the date in question, thenthe Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time quoted on a national or regional securities exchange or market system (includingover-the-counter markets and the Nasdaq Capital Market) determined by the Plan Administrator to be the primary market for the Common Stock, then the FairMarket Value shall be the closing selling price per share of Common Stock on the date in question, as such price is officially reported by such exchange ormarket system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling priceof a share of Common Stock on the last preceding date for which such quotation exists. (l) Family Member shall mean, with respect to a particular Participant, any child, stepchild, grandchild, parent, stepparent,grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. (m) Full Value Award means an Award other than an option or stock appreciation right. (n) Good Reason shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: (i) Good Reason shall have the meaning assigned to such term in the Award Agreement for the particular Award or in anyother agreement incorporated by reference into the Award Agreement for purposes of defining such term. (ii) In the absence of any other Good Reason definition in the Award Agreement (or in any other agreement incorporated byreference into the Award Agreement), Good Reason shall mean an individual’s voluntary resignation following one or more of the following without theindividual’s consent; (A) a change in his or her position with the Corporation (or any Parent or Subsidiary) which materially reduces his or her duties,responsibilities or authority, (B) a material diminution in the duties, responsibilities or authority of the person to whom such individual reports, (C) a materialreduction in such individual’s level of base compensation, with a reduction of more than fifteen percent (15%) to be deemed material for such purpose, or(D) a material relocation of such individual’s place of employment, with a relocation of more than fifty (50) miles to be deemed material for such purpose,provided, however, that a resignation for Good Reason may be effected only after (i) the individual provides written notice to the Corporation of the event ortransaction constituting grounds for such resignation within sixty (60) days after the occurrence of that event or transaction, (ii) the Corporation fails to takethe requisite remedial action with respect to such event or transaction within thirty (30) days after receipt of such notice, and (iii) the individual resignswithin thirty (30) days after the expiration of the Corporation’s cure period set forth in subsection (ii). (o) Incentive Option shall mean an option which satisfies the requirements of Code Section 422. A-3 (p) Involuntary Termination shall, with respect to each Award made under the Plan, be defined in accordance with the followingprovisions: (i) Involuntary Termination shall have the meaning assigned to such term in the Award Agreement for the particular Awardor in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term. (ii) In the absence of any other Involuntary Termination definition in the Award Agreement (or in any other agreementincorporated by reference into the Award Agreement), Involuntary Termination shall mean such individual’s involuntary dismissal or discharge by theCorporation (or any Parent or Subsidiary) for reasons other than Misconduct, or such individual’s voluntary resignation for Good Reason. (q) Misconduct shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: (i) Misconduct shall have the meaning assigned to such term in the Award Agreement for the particular Award or in anyother agreement incorporated by reference into the Award Agreement for purposes of defining such term. (ii) In the absence of any other Misconduct definition in the Award Agreement for a particular Award (or in any otheragreement incorporated by reference into the Award Agreement), Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty bythe Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent orSubsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) ina material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge ordismiss any Participant or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts oromissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct. (r) 1934 Act shall mean the Securities Exchange Act of 1934, as amended. (s) Non-Employee Director shall mean a non-employee member of the Board. (t) Non-Statutory Option shall mean an option not an Incentive Option. (u) Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation,provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) ormore of the total combined voting power of all classes of stock in one of the other corporations in such chain. (v) Participant shall mean any eligible person who is granted an Award under the Plan. A-4 (w) Permanent Disability shall mean the inability of the Participant to engage in any substantial gainful activity by reason of anymedically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. (x) Performance Goals shall mean any of the following performance criteria upon which the vesting of one or more Awards under thePlan may be based: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes,depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings);(iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) totalstockholder return or growth in total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or netassets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income ornet income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operatingmargin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) market share, (xviii) market capitalization, (xix) applicationapprovals, (xx) litigation and regulatory resolution goals, (xxi) implementation, completion or attainment of key projects, product sales or milestones,(xxii) budget comparisons, (xxiii) growth in stockholder value relative to the growth of a peer group or index; (xxiv) development and implementation ofstrategic plans and/or organizational restructuring goals; (xxv) development and implementation of risk and crisis management programs;(xxvi) improvement in workforce diversity; (xxvii) compliance requirements and compliance relief; (xxviii) productivity goals; (xxix) workforcemanagement and succession planning goals; (xxx) economic value added (including typical adjustments consistently applied from generally acceptedaccounting principles required to determine economic value added performance measures); (xxxi) recruiting and maintaining personnel, employee retention,measures of customer satisfaction, employee satisfaction or staff development; (xxxii) development or marketing collaborations, formations of joint venturesor partnerships or the completion of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customerbase; and (xxxiii) merger and acquisitions. In addition, such performance criteria may be based upon the attainment of specified levels of the Corporation’sperformance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of anyof the Corporation’s business units or divisions or any Parent or Subsidiary. Any performance goals that are financial metrics, may be determined inaccordance with U.S. Generally Accepted Accounting Principles (“GAAP”), in accordance with accounting principles established by the InternationalAccounting Standards Board (“IASB Principles”), or may be adjusted when established to include or exclude any items otherwise includable or excludableunder GAAP or under IASB Principles. Each applicable Performance Goal may include a minimum threshold level of performance below which no Awardwill be earned, levels of performance at which specified portions of an Award will be earned and a maximum level of performance at which an Award will befully earned. Each applicable Performance Goal may be structured at the time of the Award to provide for appropriate adjustment for one or more of thefollowing items: (A) asset impairments or write-downs; (B) litigation or claim judgments or settlements; (C) the effect of changes in tax law, accountingprinciples or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; A-5 (E) the operations of any business acquired by the Corporation; (F) the divestiture of one or more business operations or the assets thereof; (G) the effects ofany corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Corporation) orreorganization; (H) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges orevents; (I) acquisitions or divestitures; (J) change in the corporate structure or capital structure of the Corporation; (K) an event either not directly related tothe operations of the Corporation, Parent, Subsidiary, division, business segment or business unit or not within the reasonable control of management;(L) foreign exchange gains and losses; (M) a change in the fiscal year of the Corporation; (N) the refinancing or repurchase of bank loans or debt securities;(O) unbudgeted capital expenditures; (P) the issuance or repurchase of equity securities and other changes in the number of outstanding shares;(Q) conversion of some or all of convertible securities to common stock; (R) any business interruption event; (S) the cumulative effects of tax or accountingchanges in accordance with GAAP; (T) the effect of changes in other laws or regulatory rules affecting reported results; and (U) any other adjustmentconsistent with the operation of the Plan. (y) Plan shall mean the Corporation’s 2016 Equity Omnibus Plan, as set forth in this document. (z) Plan Administrator shall mean the particular entity, whether the Compensation Committee, the Board, the Secondary BoardCommittee or any delegate of the Board or the Compensation Committee authorized to administer the Plan with respect to one or more classes of eligiblepersons, to the extent such entity is carrying out its administrative functions under the Plan with respect to the persons under its jurisdiction. (aa) Plan Effective Date shall mean the date upon which the Plan is approved by the stockholders. (bb) Predecessor Plan shall mean the Corporation’s 2007 Omnibus Incentive Plan. (cc) Secondary Board Committee shall mean a committee of one or more Board members appointed by the Board to administer thePlan with respect to eligible persons other than Section 16 Insiders. (dd) Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 ofthe 1934 Act. (ee) Service shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions: (i) Service shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any otheragreement incorporated by reference into the Award Agreement for purposes of defining such term. (ii) In the absence of any other definition of Service in the Award Agreement for a particular Award (or in any otheragreement incorporated by reference into the Award Agreement), Service shall mean the performance of services for the Corporation (or any A-6 Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an Employee, a Non-Employee Director or aconsultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Award. For purposes of thisparticular definition of Service, a Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) theParticipant no longer performs services in any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which theParticipant is performing such services ceases to remain a Parent or Subsidiary of the Corporation, even though the Participant may subsequently continue toperform services for that entity. (iii) Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by theCorporation; provided, however, that should such leave of absence exceed three (3) months, then for purposes of determining the period within which anIncentive Option may be exercised as such under the federal tax laws, the Participant’s Service shall be deemed to cease on the first day immediatelyfollowing the expiration of such three (3)-month period, unless Participant is provided with the right to return to Service following such leave either bystatute or by written contract. Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’swritten policy on leaves of absence, no Service credit shall be given for vesting purposes for any period the Participant is on a leave of absence. (ff) Stand-alone Rights shall have the meaning set forth in Section 2.2. (gg) Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global or Global Select Market or the New York StockExchange. (hh) Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with theCorporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fiftypercent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (ii) Tandem Rights shall have the meaning set forth in Section 2.2. (jj) 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent(10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). (kk) Withholding Taxes shall mean the applicable federal, state and foreign income and employment withholding taxes and otherpayments to which the holder of an Award under the Plan may become subject in connection with the issuance, exercise, vesting or settlement of that Award. A-7Exhibit 10.13 SECOND AMENDMENT TO LEASE This SECOND AMENDMENT TO LEASE (“Amendment”) is made as of September 29, 2014, between RREF II FREEWAY ACQUISITIONS, LLC, aDelaware limited liability company (“Landlord”), and ITERIS, INC., a Delaware corporation (“Tenant”), with reference to the following: RECITALS A. Tenant and Landlord’s predecessor-in-interest, Crown Carnegie Associates, LLC, a Delaware limited liability company (“Crown”) are parties to thatcertain Office Lease, dated as of May 24, 2007 (“Original Lease”), pursuant to which Tenant leased from Crown certain office space within the office buildingat 1700 E. Carnegie Avenue, Suites 100 & 200, Santa Ana, California, as more particularly described in the Lease (“Premises”) within the complex known asFreeway Corporate Park (“Development”); B. Landlord acquired the Development, including the Premises, from Crown on or about May 30, 2013; C. Landlord and Tenant amended the Original Lease pursuant to that certain First Amendment to Lease, dated February 21, 2014 (“First Amendment”,and collectively with the Original Lease, the “Lease”); and D. Landlord and Tenant desire to further amend the Lease upon the terms and conditions set forth herein. NOW, THEREFORE, for good, valuable and sufficient consideration received, Landlord and Tenant hereby agree as follows: 1. Terms. All capitalized terms used but not defined herein shall have the meaning given to them in the Lease. 2. Parking Spaces; Fenced Area. The Fenced Area, as defined in Section 8.3 of the Original Lease, shall be increased by four (4) parking spaces foruse by another tenant within the Building, Bendix Commercial Vehicle Systems, LLC (“Bendix”). Bendix shall also be assigned two (2) of the eighteen (18)existing spaces within the fenced area. Except as may be otherwise agreed between Tenant and Bendix (and subject to Landlord approval), Tenant shallcontinue to have the right to use only sixteen (16) parking spaces within the Fenced Area. The expansion of the Fenced Area shall be made at Bendix’s solecost and expense. Tenant shall provide Bendix with access to the Fenced Area. Exhibit F to the Original Lease depicting the Fenced Area, Test Lane, TestTarget Area and the Parking Lot is hereby deleted and replaced with attached Exhibit F. All other terms related to parking spaces and the Parking Lot remainunchanged. 3. Lease Unchanged and Complete. Except as changed by this Amendment, the Lease remains unchanged and contains the entire agreement ofLandlord and Tenant with respect to the Premises. Landlord and Tenant each represent and warrant it does not believe or claim there are 1 any oral or written agreements between Landlord and Tenant relating to the Premises, and that it is not relying on any agreements relating to the Premises,other than those agreements contained in the Lease as amended by this Amendment. 4. Authority. Each person signing this Amendment on behalf of Landlord or Tenant represents and warrants that that party has duly authorized him orher to execute and deliver this Amendment and by so doing to bind that party. 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall constitute one and the same instrument. [Signatures on following page] 2 IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first set forth above. “LANDLORD” RREF II FREEWAY ACQUISITIONS, LLC,a Delaware limited liability company By:RREF II REI, LP,a Delaware limited partnership,its Sole Member By:Rialto Partners GP II, LLC,a Delaware limited liability company,its General Partner By:Rialto Capital Advisors, LLC,a Delaware limited liability company,its Attorney in fact By:Name:Title: “TENANT” ITERIS, INC.,a Delaware corporation By:Name:Title: By:Name:Title: 3 EXHIBIT F PARKING LOT [See attached]  Exhibit 10.14 THIRD AMENDMENT TO LEASE This Third Amendment to Lease (the “Third Amendment”) is dated for reference purposes this 15 day of December, 2016 and is entered into byand between The Realty Associates Fund X, L.P., a Delaware limited partnership (“Landlord”), and Iteris, Inc., a Delaware corporation (“Tenant”), withreference to the following recitals. R E C I T A L S: A. On or about May 24, 2007, Crown Carnegie Associates, LLC (“Crown”) and Tenant entered into an Office Lease (the “Original Lease”) forthat certain premises commonly known as Suites 100 and 200 (the “Original Premises”), 1700 East Carnegie, Santa Ana, California (the “Building”). TheOriginal Premises was comprised of approximately 52,116 rentable square feet of space. Crown subsequently assigned all of its rights and obligations underthe Original Lease to RREF II Freeway Acquisitions, LLC (“RREF”) and RREF assumed all of Crown’s rights and obligations under the Original Lease. Onor about February 21, 2014, RREF and Tenant entered into a First Amendment to Lease (the “First Amendment”). Pursuant to the First Amendment the sizeof the Original Premises was reduced by 11,059 rentable square feet, and Tenant now occupies 41,057 rentable square feet in the Building (the “ExistingPremises”). On or about September 29, 2014, RREF and Tenant entered into a Second Amendment to Lease (the “Second Amendment”). The OriginalLease as modified by the First Amendment and the Second Amendment is hereinafter referred to as the “Lease”. B. Tenant now desires to lease from Landlord Suite 225 in the Building which contains approximately 5,980 rentable square feet and which isdepicted on Exhibit A attached hereto (the “Expansion Space”). C. Landlord and Tenant wish to amend the Lease on the terms and conditions set forth below. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree asfollows: 1. Lease of Expansion Space. Subject to the terms and conditions set forth below, Landlord hereby agrees to lease to Tenant and Tenanthereby agrees to lease from Landlord the Expansion Space. The Expansion Space is currently occupied by Bendix Commercial Vehicle Systems LLC (the“Existing Tenant”) and the Existing Tenant’s lease is scheduled to expire on March 31, 2017. The date that Existing Tenant delivers possession of theExpansion Space to Landlord is hereinafter referred to as the “Existing Tenant Delivery Date”. On the later to occur of one (1) business day after the ExistingTenant Delivery Date and March 31, 2017, Landlord shall offer Tenant possession of the Expansion Space (the “Landlord Delivery Date”). Tenant shallaccept possession of the Expansion Space from Landlord on the Landlord Delivery Date in its “as is” condition. As of the Landlord Delivery Date, the totalrentable area of the Premises (the Existing Premises and the Expansion Space) shall be 47,037 square feet. From and after the Landlord Delivery Date, allreferences in the Lease to the “Premises” shall include the Expansion Space. For purposes of this Third Amendment, the “Rent Commencement Date” shallmean the date that is ninety (90) days after the Landlord Delivery Date. When the Landlord Delivery Date and Rent Commencement Date are established byLandlord, Tenant shall, within five (5) business days after Landlord’s request, complete and execute the memorandum attached hereto as Exhibit B anddeliver it to Landlord. Tenant’s failure to execute the memorandum attached hereto as Exhibit B within said five (5) business day period shall constituteTenant’s acknowledgment of the truth of the facts contained in the memorandum delivered by Landlord to Tenant. 2. Term. Tenant’s lease of the Expansion Space shall commence on the Landlord Delivery Date and shall end when the term of the Lease endson March 31, 2022, subject to extension of the term of the Lease, as hereby amended, by Tenant pursuant to Section 4 of the First Amendment. th 3. Base Rent. Prior to the Landlord Delivery Date, Tenant shall continue to pay the monthly Base Rent required by the Lease. Notwithstanding anything to the contrary contained in the Lease, from and after the Landlord Delivery Date, in addition to the Base Rent Tenant pays for theExisting Premises pursuant to the Lease, Tenant shall pay additional Base Rent for its use of the Expansion Space in the following amounts: PeriodBase Rent DueEach MonthLandlord Delivery Date — Rent Commencement Date:$0Rent Commencement Date through 12 full calendar month after Rent Commencement Date:$14,053.0013 through 24 month after Rent Commencement Date:$14,474.5925 through 36 month after Rent Commencement Date:$14,908.8337 through 48 month after Rent Commencement Date:$15,356.0949 month after Rent Commencement Date through March 31, 2022:$15,816.78 4. Abatement of Expansion Space Base Rent. Landlord hereby agrees to waive the Base Rent due for the Expansion Space for the first, secondand third full calendar months after the Rent Commencement Date. The Base Rent applicable to the Existing Premises shall not be waived. No amounts dueto Landlord under the Lease other than the Base Rent referred to above shall be waived. 5. Tenant’s Share. Tenant’s Share (as defined in the Original Lease) with respect to the Existing Premises shall continue to be 52.291% withrespect to the Project and 32.009% with respect to the Development. Tenant’s Share with respect to the Expansion Space shall be 7.815% with respect to theProject and 4.662% with respect to the Development. 6. Base Year. For purposes of calculating Tenant’s Share of Direct Expenses applicable to the Existing Premises, the Base Year for theExisting Premises shall continue to be the calendar year 2014. For purposes of calculating Tenant’s Share of Direct Expenses applicable to the ExpansionSpace, the Base Year for the Expansion Space shall be the calendar year 2017. 7. Direct Expenses. Notwithstanding anything to the contrary contained in the Lease, Tenant shall not be obligated to pay Tenant’s Share ofDirect Expenses attributable to the Expansion Space during the period commencing on the Landlord Delivery Date and ending on the date that is twelve (12)full calendar months after the Rent Commencement Date. 8. Limitation on Operating Expense Increases. Section 6(b) of the First Amendment shall not apply to or otherwise limit the payment byTenant of Tenant’s Share of Direct Expenses attributable to the Expansion Space. 9. Parking. From and after the Landlord Delivery Date, the number of unreserved parking spaces allotted to Tenant is hereby increased fromone hundred twenty-eight (128) parking spaces to one hundred fifty-two (152) parking spaces. All other terms related to parking spaces and the Parking Lotshall remain the same. Pursuant to Section 2 of the Second Amendment, the Existing Tenant has the right to use six (6) parking spaces in the Fenced Area (asdefined in the Original Lease) (the “Existing Tenant Fenced Area Spaces”). The Existing Tenant Fenced Area Spaces shall constitute six (6) of the onehundred fifty-two (152) parking spaces referred to above. 10. Tenant Improvements. (a) Improvements. Within thirty (30) days after the execution of this Third Amendment, Tenant shall submit to Landlord for approvala detailed space plan (“Space Plan”) for the improvements to the Expansion Space which shall include without limitation, the location of doors, partitions,electrical and telephone outlets, plumbing fixtures, heavy floor loads and other special requirements. The Space Plan and 2thththththththth the Construction Drawings (as defined below) shall be prepared by H. Hendy Associates (the “Architect”). Landlord agrees to cooperate with Tenant and itsdesign representatives in connection with the preparation of the Space Plan. Within five (5) business days after receipt by Landlord of the Space Plan,Landlord (i) shall give its written approval with respect thereto, or (ii) shall notify Tenant in writing of its disapproval and state with specificity the groundsfor such disapproval and the revisions or modifications necessary in order for Landlord to give its approval. Within five (5) business days following Tenant’sreceipt of Landlord’s disapproval, Tenant shall submit to Landlord for approval the requested revisions or modifications. Within five (5) business daysfollowing receipt by Landlord of such revisions or modifications, Landlord shall give its written approval with respect thereto or shall request other revisionsor modifications therein (but relating only to the extent Tenant has failed to comply with Landlord’s earlier requests). The preceding sentence shall beimplemented repeatedly until Landlord gives its approval to Tenant’s Space Plan. The improvements to be made to the Expansion Space that are describedin the final Space Plan are hereinafter referred to as the “Improvements”. (b) Construction Drawings. If the preparation of the Construction Drawings requires the input of engineers (the “Engineers”), asreasonably determined by Landlord, Architect shall retain Engineers that are reasonably acceptable to Landlord to prepare all plans and engineeringdrawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the Expansion Space. The plans andspecifications to be prepared by the Architect and the Engineers hereunder shall reflect only the improvements described on the Space Plan and shall beknown collectively as the “Construction Drawings.” Tenant and Architect shall verify, in the field, the dimensions of the Expansion Space and theconditions at the Expansion Space, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility inconnection therewith. Landlord shall have the right to approve the Construction Drawings in Landlord’s reasonable discretion, and the ConstructionDrawings shall not materially deviate from the Space Plan. Landlord’s review of the Construction Drawings are for its sole benefit and Landlord shall haveno liability to Tenant or Tenant’s contractors arising out of or based on Landlord’s review. Accordingly, notwithstanding that any Construction Drawings arereviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered toTenant or Tenant’s Architect, Engineers or contractors by Landlord or Landlord’s space planner, architect, engineers and consultants, Landlord shall have noliability whatsoever in connection therewith and shall not be responsible for any omissions or errors arising therefrom. (c) Permits and Changes. The Construction Drawings approved by Landlord (the “Final Construction Drawings”) shall be submittedby Tenant to the appropriate governmental agencies in order to obtain all applicable building permits. Prior to commencing construction of theImprovements, Tenant shall provide Landlord with copies of the permits. Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall beresponsible for obtaining any building permits or a certificate of occupancy for the Expansion Space and that obtaining the same shall be Tenant’s soleresponsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial actsreasonably necessary to enable Tenant to obtain any such permits or certificate of occupancy. No changes, modifications or alterations in the FinalConstruction Drawings may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. (d) Compliance with Laws. Tenant shall be solely responsible for constructing the Improvements in compliance with all laws. Tenantacknowledges and agrees that it may be obligated to modify, alter or upgrade the Expansion Space and the systems therein in order to complete theconstruction of the Improvements, and Landlord shall have no liability or responsibility for modifying, altering or upgrading the Expansion Space or itsexisting systems. If, as a result of Improvements constructed in accordance with this Third Amendment, Landlord is obligated to comply with the AmericansWith Disabilities Act and such compliance requires Landlord to make any improvements or alterations to any portion of the Development in the commonareas of the Development outside the Expansion Space and Existing Premises (an “Exterior Alteration”), Landlord shall pay the cost of making the ExteriorAlteration at Landlord’s sole cost and expense and the cost of the Exterior Alteration shall not be paid from the Improvement Allowance. 3 (e) Contractors. Landlord shall have the right to approve in advance the contractors (the “Contractors”) used by Tenant to constructthe Improvements, in Landlord’s reasonable discretion, and Landlord may require Tenant to use union Contractors. Notwithstanding the forgoing, Landlordshall have the right to designate which subcontractors may perform work on the Building’s systems, including, but not limited to, the Building’s HVAC,electrical, plumbing, roof and life, fire and safety systems. Tenant’s indemnification obligations in the Lease shall also apply with respect to any and alldamages, cost, loss or expense (including attorney’s fees) related to any act or omission of Tenant or its Contractors, or anyone directly or indirectlyemployed by any of them, or in connection with Tenant’s non-payment of any amount arising out of the Improvements. The Contractors shall carry worker’scompensation insurance covering all of their respective employees, public liability insurance, including property damage, and such other insurance asrequired by Landlord, in Landlord’s sole discretion. Certificates for all insurance carried pursuant to this section shall be delivered to Landlord before thecommencement of construction of the Improvements. All such policies of insurance shall name Landlord and its property manager as an additional insured. (f) Construction Procedures. The Contractors shall comply with all of Landlord’s rules, regulations and procedures concerning theconstruction of improvements at the Project (collectively, the “Construction Procedures”), and if any Contractor fails to comply with the ConstructionProcedures after Landlord has provided the Contractor with written notice of its non-compliance, Landlord shall have the right to prohibit such Contractorfrom performing any further work in the Building, and Landlord shall have no liability to Tenant due to such prohibition. Landlord’s ConstructionProcedures are available from the Building’s property manager. To the extent not inconsistent with the provisions of this Section 10, Article 11 of theOriginal Lease shall apply to the construction of the Improvements. If there is a conflict between Article 11 of the Original Lease, and this Section 10, thisSection 10 shall control. Tenant’s Contractors shall not perform any construction work at the Building if such work might disturb other tenants of theBuilding, as determined by Landlord in Landlord’s sole discretion, from 8:00 a.m. to 6:00 p.m., Monday through Friday. Tenant and the Contractors shallnot have the right, at any time, to disrupt any Building service (e.g., electrical, plumbing etc.) to the Common Areas or to another tenant’s premises. Tenantand the Contractors shall only store construction materials inside the Premises or the Expansion Space and the Contractors shall not dispose of their refuse orconstruction materials in the Project’s or Developments trash receptacles. Tenant’s Contractors shall only use Building entrances and Building freightelevators designated by Landlord to transport construction materials to the Expansion Space, and Tenant and Tenant’s Contractors shall take whateverprecautions Landlord may reasonably prescribe to protect the Project and the Development from damages due to such activities. Tenant shall reimburseLandlord for the cost of repairing any damage to the Project or Development caused by the construction of the Improvements. Landlord shall have the rightto inspect the Improvements at all times upon reasonable notice to Tenant, provided however, that Landlord’s inspection of the Improvements shall notconstitute Landlord’s approval of the Improvements. Should Landlord reasonably disapprove any portion of the Improvements, Landlord shall notify Tenantin writing of such disapproval and shall specify the items disapproved. Any defects in the Improvements shall be rectified by Tenant at no expense toLandlord. Landlord shall have the right to receive a fee to reimburse it for its costs in providing approvals hereunder and in monitoring the construction ofthe Improvements in an amount equal to one and one-half percent (1.5%) of the total cost of constructing the Improvements (the “Landlord Fee”). Inaddition, if Landlord incurs architectural, engineering or other consultants’ fees in evaluating such Improvements (“Third Party Fees”), Tenant shallreimburse Landlord for these fees in addition to the Landlord Fee. Landlord shall have the right to deduct the Landlord Fee and the Third Party Fees from theImprovement Allowance (as defined below). (g) Improvement Allowance. Landlord hereby grants to Tenant an “Improvement Allowance” of $119,600.00, which ImprovementAllowance shall be used only to reimburse Tenant for the actual out-of-pocket costs paid by Tenant to independent third parties for the construction of theImprovements. After the completion of the construction of the Improvements, Landlord shall make one (1) disbursement of the Improvement Allowance. Prior to Landlord making the disbursement, Tenant shall deliver to Landlord: (A) a request for payment, approved by Tenant, in a form which is reasonablyacceptable to Landlord; (B) invoices from all contractors whose work is being paid with respect to such payment request; (C) copies of executed mechanic’slien releases from all of the contractors which shall comply with the 4 provisions of California Civil Code Section 8138; (D) proof that Tenant has previously paid to the contractors the monies described in the payment request;(E) “as built” plans for the Improvements and (F) all other information reasonably requested by Landlord. Within thirty (30) days after Landlord has receivedall of this information, Landlord shall deliver a check to Tenant in an amount equal to the lesser of (i) the actual monies paid by Tenant to Tenant’scontractors with respect to such payment request or (ii) the Improvement Allowance. (h) Unused Allowance. If the actual cost of the Improvements does not exceed the Improvement Allowance, Tenant may use up to$59,800.00 of the unused portion of the Improvement Allowance (the “Maximum Amount”) to reimburse Tenant for the actual out-of-pocket costs it pays tounrelated third parties in order to (a) move its existing furniture and equipment into the Expansion Space, (b) purchase new furniture and equipment for use inthe Expansion Space and (c) install telephone and computer cabling in the Expansion Space (collectively, “Expenses”). If Tenant desires to use the unusedportion of the Improvement Allowance (not to exceed the Maximum Amount) to reimburse itself for Expenses, Tenant shall provide to Landlord bills,invoices and other information reasonably acceptable to Landlord to document monies paid by Tenant for Expenses, and Landlord shall reimburse Tenantwithin thirty (30) days after receiving such information for the lesser of the Maximum Amount and amount of the unused Improvement Allowance. After theImprovements are completed, Tenant shall have the right to make one request for the reimbursement of Expenses (the “Reimbursement Request”) and theReimbursement Request shall include all Expenses for which Tenant requests reimbursement. Landlord shall have no obligation to reimburse Tenant for anyExpense that is not included in the Reimbursement Request. Any portion of the Improvement Allowance that has not been expended on or beforeDecember 31, 2017 on the construction of the Improvements or on the reimbursement of Expenses shall be retained by Landlord, and Tenant shall have nofurther right to the use of such unused portion of the Improvement Allowance for any purpose. (i) Commencement Date. Tenant shall construct the Improvements after the Landlord Delivery Date, and Tenant’s obligation to payBase Rent and other charges due under the Lease is not conditioned on the completion of the Improvements. 11. Conflict. If there is a conflict between the terms and conditions of this Third Amendment and the terms and conditions of the Lease, theterms and conditions of this Third Amendment shall control. Except as modified by this Third Amendment, the terms and conditions of the Lease shallremain in full force and effect. Capitalized terms included in this Third Amendment shall have the same meaning as capitalized terms in the Lease unlessotherwise defined herein. Tenant hereby acknowledges and agrees that the Lease is in full force and effect, Landlord is not currently in default under theLease, and, to the best of Tenant’s knowledge, no event has occurred which, with the giving of notice or the passage of time, or both, would ripen intoLandlord’s default under the Lease. The Lease, as hereby amended, contains all agreements of the parties with respect to the lease of the Premises. No prioror contemporaneous agreement or understanding pertaining to the Lease, as hereby amended, shall be effective. 12. Brokers. Tenant and Landlord each represent and warrant to the other that neither has had any dealings or entered into any agreements withany person, entity, broker or finder in connection with the negotiation of this Third Amendment except CBRE, Inc., and no other broker, person, or entity isentitled to any commission or finder’s fee in connection with the negotiation of this Third Amendment, and Tenant and Landlord each agree to indemnify,defend and hold the other harmless from and against any claims, damages, costs, expenses, attorneys’ fees or liability for compensation or charges which maybe claimed by any such unnamed broker, finder or other similar party by reason of any dealings, actions or agreements of the indemnifying party. 13. Authority. The persons executing this Third Amendment on behalf of the parties hereto represent and warrant that they have the authorityto execute this Third Amendment on behalf of said parties and that said parties have authority to enter into this Third Amendment. 5 14. Confidentiality. Tenant acknowledges and agrees that the terms of this Third Amendment are confidential and constitute proprietaryinformation of Landlord. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the propertyand may impair Landlord’s relationship with other tenants of the property. Tenant agrees that it and its partners, officers, directors, employees, brokers, andattorneys, if any, shall not disclose the terms and conditions of this Third Amendment to any other person or entity without the prior written consent ofLandlord which may be given or withheld by Landlord, in Landlord’s sole discretion. It is understood and agreed that damages alone would be aninadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and toseek injunctive relief to prevent its breach or continued breach. 15. Execution. This Third Amendment and any documents or addenda attached hereto (collectively, the “Documents”) may be executed intwo or more counterpart copies, each of which shall be deemed to be an original and all of which together shall have the same force and effect as if the partieshad executed a single copy of the Document. Landlord shall have the right, in Landlord’s sole discretion, to insert the name of the person executing aDocument on behalf of Landlord in Landlord’s signature block using an electronic signature (an “Electronic Signature”), and in this event the Documentdelivered to Tenant will not include an original ink signature and Landlord shall have no obligation to provide a copy of such Document to Tenant withLandlord’s original ink signature. A Document delivered to Tenant by Landlord with an Electronic Signature shall be binding on Landlord as if theDocument had been originally executed by Landlord with an ink signature. Without the prior written consent of Landlord, which may be withheld inLandlord’s sole discretion, Tenant shall not have the right to insert the name of the person executing the Document on behalf of Tenant using an ElectronicSignature and all Documents shall be originally executed by Tenant using an ink signature. A Document executed by Landlord or Tenant and delivered tothe other party in PDF, facsimile or similar electronic format (collectively, “Electronic Format”) shall be binding on the party delivering the executedDocument with the same force and effect as the delivery of a printed copy of the Document with an original ink signature. At any time upon Landlord’swritten request, Tenant shall provide Landlord with a printed copy of the Document with an original ink signature. This Section describes the only ways inwhich Documents may be executed and delivered by the parties. An email from Landlord, its agents, brokers, attorneys, employees or other representativesshall never constitute Landlord’s Electronic Signature or be otherwise binding on Landlord. Subject to the limitations set forth above, the parties agree that aDocument executed using an Electronic Signature and/or delivered in Electronic Format may be introduced into evidence in a proceeding arising out of orrelated to the Document as if it was a printed copy of the Document executed by the parties with original ink signatures. Landlord shall have no obligationto retain copies of Documents with original ink signatures, and Landlord shall have the right, in its sole discretion, to elect to discard originals and to retainonly copies of Documents in Electronic Format. 16. Delivery of Amendment. Preparation of this Third Amendment by Landlord or Landlord’s agent and submission of same to Tenant shallnot be deemed an offer by Landlord to enter into this Third Amendment. This Third Amendment shall become binding upon Landlord only when fullyexecuted by all parties. The delivery of this Third Amendment to Tenant shall not constitute an agreement by Landlord to negotiate in good faith, andLandlord expressly disclaims any legal obligation to negotiate in good faith. To Landlord’s actual knowledge, as of the date of this Third Amendment, thePremises has not undergone an inspection by a certified access specialist. Landlord’s actual knowledge shall mean and be limited to the actual knowledge ofthe person who is the Building owner’s asset manager (not the Building’s property manager) on the date this Third Amendment is executed by Landlord,without any duty of inquiry or investigation, and such asset manager shall have no personal liability if such representation is untrue. 17. Energy Use. Landlord shall have the right to require Tenant to provide Landlord with copies of bills from electricity, natural gas or similarenergy providers (collectively, “Energy Providers”) Tenant receives from Energy Providers relating to Tenant’s energy use at the Premises (“Energy Bills”)within ten (10) days after Landlord’s written request. In addition, Tenant hereby authorizes Landlord to obtain copies of the Energy Bills directly from theEnergy Provider(s), and Tenant hereby authorizes each Energy Provider to provide Energy Bills and related usage information directly to Landlord withoutTenant’s consent. From time 6 to time within ten (10) days after Landlord’s request, Tenant shall execute and deliver to Landlord an agreement provided by Landlord authorizing theEnergy Provider(s) to provide to Landlord Energy Bills and other information relating to Tenant’s energy usage at the Premises. 18. Notices. All notices provided by Tenant to Landlord pursuant to the Lease shall be sent to the following addresses: The Realty Associates Fund X, L.P.c/o TA Realty1301 Dove Street, Suite 860Newport Beach, California 92660Attention: Asset Manager/Freeway Corporate Park and The Realty Associates Fund X, L.P.c/o TA Realty28 State Street, Tenth FloorBoston, Massachusetts 02109Attention: Asset Manager/Freeway Corporate Park With a copy to: Davis Partners LLC1420 Bristol Street North, Suite 100Newport Beach, CA 92660Attention: Property Manager/Freeway Corporate Park. [Remainder of page left intentionally blank.] 7 IN WITNESS WHEREOF, the parties hereby execute this Third Amendment as of the date first written above. LANDLORD: The Realty Associates Fund X, L.P.,a Delaware limited partnership By:Realty Associates Fund X LLC,its general partner By:TA Realty, LLC, its manager By:Officer By:Realty Associates Fund X REIT GP, LLC,its general partner By:Realty Associates Fund X REIT, LLC,its manager By:Realty Associates Fund X UTP, L.P.its manager By:Realty Associates Fund X, LLCits general partner By:TA Realty, LLC, its manager By:Officer 8 TENANT: Iteris, Inc.,a Delaware corporation By: (print name) Its:(print title) By: (print name) Its: (print title) 9 Exhibit A (Depiction of Expansion Space) 10 Exhibit B Memorandum The Realty Associates Fund X, L.P., a Delaware limited partnership (“Landlord”), and Iteris, Inc., a Delaware corporation (“Tenant”), have enteredinto an Office Lease, as previously amended (the “Lease”), for certain space in the building located at 1700 East Carnegie, Santa Ana, California. Landlordand Tenant have entered into a Third Amendment to Lease (the “Third Amendment”) amending the Lease, and pursuant to the Third Amendment Tenanthereby acknowledges and agrees as follows: 1. The Landlord Delivery Date (as defined in the Third Amendment) is , 2017. 2. The Rent Commencement Date (as defined in the Third Amendment) is , 2017. Iteris, Inc.,a Delaware corporation By: (print name) Its: (print title) By: (print name) Its: (print title) 11Exhibit 21 List of Subsidiaries SubsidiaryJurisdiction of Incorporation ClearAg, Inc.Delaware Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-221790, 333-216407, 333-190309, 333-162807, 333-146459, and 333-75728 on Form S-8 and Registration Statement No. 333-220305 on Form S-3 of our report dated June 7, 2018, relating to the consolidated financialstatements of Iteris, Inc. and subsidiary and the effectiveness of Iteris, Inc. and subsidiary’s internal control over financial reporting appearing in this AnnualReport on Form 10-K of Iteris, Inc. and subsidiary for the year ended March 31, 2018. /s/ Deloitte & Touche LLPCosta Mesa, CAJune 7, 2018 Exhibit 31.1 CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Joe Bergera, certify that: 1. I have reviewed this annual report on Form 10-K of Iteris, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: June 7, 2018 /s/ JOE BERGERAJoe BergeraChief Executive Officer(Principal Executive Officer) 1Exhibit 31.2 CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Andrew C. Schmidt, certify that: 1. I have reviewed this annual report on Form 10-K of Iteris, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: June 7, 2018 /s/ ANDREW C. SCHMIDTAndrew C. SchmidtChief Financial Officer(Principal Financial Officer) 1Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Iteris, Inc. (the “Company”) on Form 10-K for the fiscal year ended March 31, 2018, as filed with theSecurities and Exchange Commission (the “Report”), I, Joe Bergera, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date: June 7, 2018 /s/ JOE BERGERAJoe BergeraChief Executive Officer A signed original of this written statement required by Section 906, or any other document authenticating, acknowledging, or otherwise adoptingthe signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Companyand will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 1Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. §1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Iteris, Inc. (the “Company”) on Form 10-K for the fiscal year ended March 31, 2018 as filed with theSecurities and Exchange Commission (the “Report”), I, Andrew C. Schmidt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date: June 7, 2018 /s/ ANDREW C. SCHMIDTAndrew C. SchmidtChief Financial Officer A signed original of this written statement required by Section 906, or any other document authenticating, acknowledging, or otherwise adoptingthe signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Companyand will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 1

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