Iteration 3 should include the following at a minimum:
The SRS should be completed, incorporating feedback from the customer. Include analysis models (dialog map, sequence, activity, state, class diagrams) as appropriate. Remember this is requirements not architecture or design. The SRS should be complete in this iteration. In other words, all sections should be filled in with minimal if any TBDs. The SRS should have undergone formal reviews, both internal and with our corporate customer.
Create a horizontal prototype. See the definition in the text. Although your horizontal prototype may be "lo-fi," it should be electronic so it can be posted on a wiki. Your horizontal prototype should include a dialog map or similar diagram that clearly demonstrates flows through the user interface.