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February 25, 2005

VIA EDGAR AND FEDERAL EXPRESS

Securities
and Exchange Commission

450
Fifth Street, N.W.

Washington,
D.C. 20549

Attn:  Mr. Derek B. Swanson

  Re:

  Iteris, Inc. (formerly known as Iteris Holdings, Inc.)

  Registration Statement on Form S-3 filed January 10, 2005

  (File No. 333-121942)

  Form 8-K filed October 12, 2004 (File No. 0-10605)

Dear
Mr.Swanson:

We
are in receipt of the additional comments of the Staff of the Securities and
Exchange Commission (the “Commission”) set forth in your letter dated February
4, 2005 (the “SEC Comment Letter”) regarding our November 12, 2004 responses to
the Commission’s comment letter of October 28, 2004, regarding the Form 8-K
filed by Iteris, Inc. (the “Company” or “Iteris”) on October 12, 2004.  We are responding to the SEC Comment Letter
on behalf of the Company as set forth below.
The numbered responses set forth below contain each of the Staff’s
comments in total, set off in bold type and correspond to the numbered comments
contained in the SEC Comment Letter.  All
factual representations in this letter are based upon information provided to
us by the Company.

*****

1.             We note from your supplemental materials that Ernst
& Young identified numerous significant deficiencies in the design or operation
of the company’s internal control that, in its judgment, could “adversely
affect” your ability to initiate, record, process, and report financial data
consistent with the assertions of management in the consolidated financial
statements.  We also note from your
response letter dated November 12, 2004, that, despite these significant
deficiencies, Iteris does not believe that they represent a material weakness
and continues to believe that its disclosure controls and procedures were
effective as of September 30, 2004.  In
light of the numerous significant deficiencies identified by Ernst & Young
in the June 8, 2004 Management Letter, it is unclear why the company believes
its disclosure controls and procedures are effective as of September 30,
2004.  In particular, we note the
following deficiencies in your response letter and in Ernst & Young’s 2004
Management Letter:

•                  the excessive
length of time required to close your books;

•                  the lack of
communication of important transactions that occurred during the period giving
rise to matters being identified at or near the filing of your Form 10-K;

•                  the lack of
detailed listing of required reconciliations and account analysis required to
close the books;

•                  delays in the
closing of the books and completing account reconciliations and analysis in a
timely manner and the continuous recording of adjusting entries and accruals
through the date of the filing of the Form 10-K, resulting in a need to “audit
a moving target;”

•                  the heavy
involvement of the professional service providers in the closing process and
filing of the Form 10-K; and

•                  the significant
rework of account reconciliations and analysis.

Accordingly, tell us in detail why you still
believe that your disclosure controls and procedures are effective and the
basis for your belief that the significant deficiencies, either individually or
in the aggregate, do not rise to the level of a material weakness.  To the extent you now believe that the
disclosure controls and procedures are not effective, revise your periodic
reports as appropriate.

As
previously stated, the Company believes that its disclosure controls and
procedures are effective and that the reportable condition noted by Ernst &
Young (“E&Y”) in its management letter resulted from unusual circumstances,
which do not represent a material weakness in the Company’s internal
controls.  In fact, on June 24, 2004,
immediately prior to the filing of the Company’s annual report on Form 10-K,
E&Y met with the Company’s Audit Committee and informed the Audit Committee
that it was not aware of any material weakness in the Company’s internal
controls.  Moreover, although the Company
received the management letter from E&Y in late September 2004 after the
Company had advised E&Y that it intended to seek competitive bids for the
Company’s audit and tax work, primarily in an effort to reduce the Company’s
overall costs, at no time did E&Y allege that there was a material weakness
in the Company’s internal controls.
E&Y re-confirmed in October 2004, in connection with the filing of
the Company’s Current Report on Form 8-K relating to the change in auditors,
that it was not alleging that there was a material weakness in the Company’s
internal controls.

The
delays in the reporting process during the period noted in the management
letter were primarily the result of the following one-time events: (i)
transitional issues related to the replacement of the controller of the Company
with the controller of the Iteris, Inc. subsidiary (the “Iteris Subsidiary”)
and the subsequent promotion of that controller to the Company’s chief
financial officer; (ii) the Company’s recent divestiture of multiple business
units and reorganization of the Company’s business; and (iii) the travel
schedules of key management during the audit and review process.  In addition, as further described in the
response to Comment Number 3 below, the adjustments and reconciliations
referred to by E&Y were

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generally due to differences in judgment,
which were often subjective, relating to accruals and reserves.

The
Company believes that its disclosure controls and procedures are effective in
timely alerting them to material information regarding the ongoing business of
the Company, and the management team was and continues to be actively involved
in the preparation of the Company’s public reports.

2.             Please advise us of the basis for management’s
conclusion that as of September 30, 2004 there were no changes in the company’s
internal control over financial reporting that have materially affected, or
which are reasonably likely to materially affect, the company’s internal
control over financial reporting.  While
we recognize that Ernst & Young identified various significant deficiencies
in its report to management for the year ended March 31, 2004, and that your
company did not receive the Ernst & Young report until late September 2004,
we also note your discussion, in your response to our prior comment 5, of what
appear to be various changes in your internal control over financial reporting
which have recently been implemented.

As
previously noted, the management of the Company believes the Company’s
disclosure controls and procedures were and are effective in timely alerting
them to the material information required to be included in reports that the
Company files or submits with the Commission under the Securities Exchange Act
of 1934, as amended; however, the Company does supplement and enhance its
controls and procedures based on internal and external recommendations and
analyses.  As noted in the SEC’s comment,
the Company did not receive E&Y’s management letter until late September
2004.  As such, although the Company
subsequently supplemented its disclosure controls and identified changes to be
made, primarily relating to better documentation of the performance of certain
controls, the Company does not believe that the changes made as of September
30, 2004 constitute material changes to its internal control over financial
reporting.

3.             Please provide a list of adjusting journal entries made
prior to filing the Form 10-K for the year ended March 31, 2004, as referenced
on page 1 of Ernst & Young’s 2004 Management Letter.

The
adjustments made prior to the filing of the Form 10-K were generally due to the
following:  (i) differences in judgment;
(ii) reclassification issues; (iii) changes in analyses; and (iv) transitional
issues.  The aggregate effect of such
adjustments on the Company’s statement of operations was a decrease of $94,245
to the statement of operations when not including the compensation expense
described in the response to Comment Number 4 below, and a decrease of $107,245
if including such expense.  In addition,
there were a few adjustments that had no impact on the statement of
operations.  The net effect of such
adjustments was a decrease in cash of $53,406, a reduction to additional
paid-in-capital of $80,551 and an increase in current liabilities of $27,145.

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A
significant portion of the adjustments made prior to the filing of the Form
10-K were due to differences in judgment or opinion, especially those relating
to accruals and reserves, which are often subjective.  The Company had continued to accrue reserves
in certain categories based on historical practice and/or the information then
available to it.  Based on various
analyses, during the 2004 audit, E&Y determined that the Company had
overaccrued in certain categories and requested that the Company make
adjustments to its reserves.  E&Y’s
analyses also resulted in different inventory values.  The Company complied with all requests for
adjustments to its reserves and inventory values.  The net impact on the Company’s statement of
operations was an increase of $108,101.

E&Y
also requested adjustments based on changes in their own analyses, which
resulted in adjustments and entries that were not required or made in prior
years.  Contrary to prior practice,
E&Y requested that the Company (i) capitalize labor and overhead in Inventory
- Finished Goods, (ii) change the cut-off date of systems consulting revenues,
and (iii) accrue for and record certain liabilities (including its own audit
fees) which the Company had never previously accrued or recorded, as
applicable.  The adjustments resulted in
an increase of $6,499 to the Company’s statement of operations.

The
remaining adjustments affecting the Company’s statement of operations were principally
related to transitional issues resulting from the changes in the offices of
controller and chief financial officer of the Company.  Some of the adjustments were due to
subjective judgments regarding accruals such as the amounts reserved for health
trust expenses of the parent company under its self-insured medical plans and
the amounts reserved for state franchise taxes.
Additionally, some adjustments resulted from having better information
available at the time of the audit.  The
adjustments relating to transitional issues resulted in a decrease to the
statement of operations in the amount of $208,845.

A
few of the adjustments made in connection with the filing of the Form 10-K for
the year ended March 31, 2004 had no impact on the Company’s statement of
operations.  For example, the Company had
historically accounted for demo inventory as inventory.  For the year ended March 31, 2004, E&Y
requested that such inventory be reclassified as a long-term asset rather than
inventory.  The Company complied with
such request, adding $147,611 to the Long-Term Asset entry and reducing
Inventory by the same amount.  There was
no impact on total assets, total liabilities or the statement of operations as
a result of such adjustment.  The Company
also reclassified certain entries for cash, accounts payable and other current
liabilities, which resulted in a decrease in cash of $53,406 and a decrease in
current liabilities for that amount.  In
addition, an adjustment of $80,551 (which included $29,520 for the fees of
E&Y) was required to account for certain legal, accounting and printer fees
relating to a registration statement, for which invoices were received after
March 31, 2004.

4.             Refer to page 9 of Ernst & Young’s 2004 Management
Letter.  Tell us in more detail about the
stock options and warrants that were “not identified and accounted for correctly.”  Your response should address the following:

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•                  the number of
options issued and the related grant price and fair market value at the date of
issuance;

•                  whether these
options were issued to your employees or non-employees and how you accounted
for the issuance;

•                  provide the journal
entries to record the issuance of such options and warrants; and

•                  provide more
details of the transactions related to the issuance of warrants and how you
accounted for those transactions.

The
only stock option adjustment related to stock options issued by the Iteris
Subsidiary in 1999.  Initially, options
to purchase an aggregate of 96,563 shares of the Iteris Subsidiary common stock
were granted at exercise prices which ranged from $2.67 to $9.07 per share,
which represented the fair market value of the underlying Iteris Subsidiary
common stock on the respective grant dates.
The options vested over four years.
In previous years, the Iteris Subsidiary had recorded compensation
expense of approximately $25,000 per year in connection with the options.  The expense amount had always been recorded
in the books of the subsidiary as a closing adjustment and not recorded at the
parent level because the amount was deemed to be immaterial.  The compensation expense in the year ended
March 31, 2004 was only $13,000 due to certain forfeitures during that
year.  Although not deemed material in
prior years, E&Y requested that the Company record the $13,000 as
compensation expense for the year ended March 31, 2004.

The
adjustment relating to warrants related to a commission of $118,127 which was
paid to Roth Capital Partners upon the exercise by a warrant holder of warrants
issued in 2002 by the Company.  This
commission was recorded as a reduction to additional paid-in-capital and a
corresponding increase to accrued liabilities.
Roth Capital Partners acted as placement agent in the private placement
completed in August 2002 and was entitled to certain payments upon the exercise
of the warrants issued in such financing.
A warrant issued in such private placement was exercised on March 31,
2004, thus requiring the payment to Roth Capital and the above-described
adjustment.

*****

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Any
comments or questions regarding the foregoing should be directed to the
undersigned at (949) 932-3665.  Thank you
very much for your assistance with this matter.

  Sincerely,

  /S/
  JOO RYUNG KANG

  Joo
  Ryung Kang

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