RISK
FACTORS
An investment in our common stock
involves a high degree of risk. Before investing in our common stock, you
should consider carefully the specific risks detailed in this Risk Factors
section and any applicable prospectus supplement, together with all of the
other information contained in this prospectus and any prospectus supplement.
If any of these risks occur, our business, results of operations and financial
condition could be harmed, the price of our common stock could decline, and you
may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
We have had net losses in our five
most recent fiscal years and currently have stockholders equity of less than
$6,000,000, and as a result, the American Stock Exchange (AMEX), may consider
suspending or delisting our securities from the exchange.
The AMEX Company Guide
provides that AMEX will normally consider suspending dealings in, or removing
from the list, securities of a company which sustains net losses in its five
most recent fiscal years and has stockholders equity of less than $6,000,000,
unless the company has total market capitalization of at least $50,000,000, or
total assets and revenue of $50,000,000. We have sustained net losses during
our five most recent fiscal years, and as of the year ended December 31, 2006,
our stockholders equity dropped to $1,319,890, from $3,365,602 for the year
ended December 31, 2005. We do not meet the alternative minimum market
capitalization or total asset and revenue requirements. As a result, we may be
considered for suspension or delisting from AMEX. During May 2006, we received
notification from AMEX that we were not in compliance with certain sections of
the AMEX Company Guide. To maintain an AMEX listing, we were required to submit
a plan to AMEX which demonstrates our ability to regain compliance with the
continued listing standards within a maximum of 18 months. We submitted our
plan to AMEX during June 2006. The Listing Qualifications Department of AMEX
evaluated our plan and in September 2006 notified us that we had made a
reasonable demonstration in the plan of an ability to regain compliance with
the continued listing standards by the end of the plan periods which AMEX
determined to be November 15, 2006 for Section 1003(a)(iv) of the AMEX Company
Guide and November 30, 2007 for Sections 1003(a)(i), 10033(a)(ii) and
1003(a)(iii) of the AMEX Company Guide. Accordingly, in September 2006, AMEX
notified us that they would continue the listing of the Company subject to us
making a public announcement disclosing the fact that we are not in compliance
with the continued listing standards of the Exchange and that our listing is
being continued pursuant to an extension and our providing certain supporting
documentation of key elements of our plan. We made the required public
announcement and provided the requested information. We are subject to periodic
review to determine if we are making progress consistent with the plan. Failure
to make progress consistent with the plan or regain compliance with the
continued listing standards by the end of the applicable extension periods
could result in the AMEX initiating delisting proceedings pursuant to Section
1009 of the AMEX Company Guide. There is no assurance that we will make
progress consistent with the plan, or that we will be able to continue our
listing on AMEX.
We have a history of significant
recurring losses totaling approximately $74.5 million, and these losses may
continue in the future.
As of June 30, 2007,
we had an accumulated deficit of $74.5 million, and these losses may continue
in the future. We will need to raise capital to cover these losses, and
financing may not be available to us on favorable terms. In the event financing
is not available, in the time frame required, we will be forced to sell certain
of our assets or license our technologies to others. We expect to continue to
incur significant sales and marketing, research and development, and general
and administrative expenses. As a result, we will need to generate significant
revenues to achieve profitability and we may never achieve profitability.
Our operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. We may experience
fluctuations in our quarterly results of operations as a result of:
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varying demand
for and market acceptance of our technology and products;
changes in our
product or customer mix;
the gain or loss
of one or more key customers or their key customers, or significant changes in
the
financial condition of one
or more of our key customers or their key customers;
our ability to
introduce, certify and deliver new products and technologies on a timely basis;
the announcement
or introduction of products and technologies by our competitors;
competitive
pressures on selling prices;
costs associated
with acquisitions and the integration of acquired companies, products and technologies;
our ability to
successfully integrate acquired companies, products and technologies;
our accounting
and legal expenses; and
general economic
conditions.
These factors, some of which are not within our
control, may cause the price of our stock to fluctuate substantially. To
respond to these and other factors, we may need to make business decisions that
could result in failure to meet financial expectations. If our quarterly
operating results fail to meet or exceed the expectations of securities
analysts or investors, our stock price could drop suddenly and significantly.
Most of our expenses, such as employee compensation, inventory and debt
repayment obligations, are relatively fixed in the short term. Moreover, our
expense levels are based, in part, on our expectations regarding future revenue
levels. As a result, if our revenue for a particular period were below our
expectations, we would not be able to proportionately reduce our operating
expenses for that period. Any revenue shortfall would have a disproportionately
negative effect on our operating results for the period.
We have received a going concern opinion
from our independent registered public accounting firm, which may negatively
impact our business.
We have received a report from Stonefield Josephson,
Inc., our independent registered public accounting firm, regarding our
consolidated financial statements for the fiscal year ended December 31, 2006,
which included an explanatory paragraph stating that the consolidated financial
statements were prepared assuming we will continue as a going concern. The
report also stated that our substantial net losses and monetary liabilities
have raised substantial doubt about our ability to continue as a going concern.
Any failure to dispel any continuing doubts about our ability to continue as a
going concern could adversely affect our ability to enter into collaborative
relationships with business partners, to raise additional capital and to sell
our products, and could have a material adverse effect on our business,
financial condition and results of operations.
We currently have limited cash
resources and we will require additional funding to finance our working capital
requirements for the next twelve months.
We currently have limited cash resources and we will
require financing to fund our anticipated working capital requirements for at
least the next twelve months. If we are not able to generate positive cash
flows from operations in the near future, we will be required to seek
additional funding through public or private equity or debt financing. There
can be no assurance that additional financing will be available on acceptable
terms, or at all. If we are required to sell equity to raise additional funds,
our existing stockholders may incur substantial dilution and any shares so
issued may have rights, preferences and privileges superior to the rights, preferences
and privileges of our outstanding common stock. Also, we may be required to
obtain funds through arrangements with third parties that
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require us to relinquish rights to certain of our
technologies or products that we would seek to develop or commercialize
ourselves. In addition, our ability to raise additional capital may be
dependent upon our common stock being listed on AMEX. We cannot guarantee that
we will be able to satisfy the criteria for continued listing on AMEX.
We depend upon a small number of
large system sales ranging from $500,000 to in excess of $2,000,000, and we may
fail to achieve one or more large system sales in the future.
In the past three years, we have derived a substantial
portion of our revenues from a small number of sales of large, relatively
expensive systems, typically ranging in price from $500,000 to $2,000,000. As a
result, if we fail to receive orders for these large systems in a given sales
cycle on a consistent basis, our business could be significantly harmed.
Further, our quarterly results are difficult to predict because we cannot
predict in which quarter, if any, large system sales will occur in a given
year. As a result, we believe that quarter-to-quarter comparisons of our
results of operations are not a good indication of our future performance. In
some future quarters, our operating results may be below the expectations of
securities analysts and investors, in which case the market price of our common
stock may decrease significantly.
Our lengthy sales cycle may cause us
to expend significant resources for as long as one year in anticipation of a
sale to certain customers, yet we still may fail to complete the sale.
When considering the purchase of a large computerized
identity management system, a government agency may take as long as one year to
evaluate different systems and obtain approval for the purchase. If we fail to
complete a sale, we will have expended significant resources and received no
revenue in return. Generally, agencies consider a wide range of issues before
committing to purchase our products, including product benefits, ability to
operate with their current systems, product reliability and their own budgetary
constraints. While potential customers are evaluating our products and before
they place an order with us, we may incur substantial selling costs and expend
significant management effort to accomplish a sale.
A significant number of our customers
are government agencies that are subject to unique political and budgetary
constraints and have special contracting requirements which may affect our
ability to obtain new government customers.
A significant number of our customers are government
agencies. These agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In addition, these
agencies experience political pressure that may dictate the manner in which
they spend money. Due to political and budgetary processes and other scheduling
delays that may frequently occur relating to the contract or bidding process,
some government agency orders may be canceled or substantially delayed, and the
receipt of revenues or payments may be substantially delayed. In addition,
future sales to government agencies will depend on our ability to meet
government contracting requirements, certain of which may be onerous or
impossible to meet, resulting in our inability to obtain a particular contract.
Common requirements in government contracts include bonding requirements,
provisions permitting the purchasing agency to modify or terminate at will the
contract without penalty, and provisions permitting the agency to perform
investigations or audits of our business practices.
We may fail to create new
applications for our products and enter new markets, which may affect our
future success.
We believe our future success depends in part on our
ability to develop and market our technology for applications other than
booking systems for the law enforcement market. If we fail in these goals, our
business strategy and ability to generate revenues and cash flow would be
significantly impaired. We intend to expend significant resources to develop
new technology, but the successful development of new technology cannot be
predicted and we cannot guarantee we will succeed in these goals.
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We occasionally rely on systems
integrators to manage our large projects, and if these companies do not perform
adequately, we may lose business.
We occasionally act as a subcontractor to systems
integrators who manage large projects that incorporate our systems,
particularly in foreign countries. We cannot control these companies, and they
may decide not to promote our products or may price their services in such a
way as to make it unprofitable for us to continue our relationship with them.
Further, they may fail to perform under agreements with their customers, in
which case we might lose sales to these customers. If we lose our relationships
with these companies, our business may suffer.
If the patents we own or license, or
our other intellectual property rights, do not adequately protect our products,
we may lose market share to our competitors and be unable to operate our
business profitably.
Our success depends significantly on our ability to
protect our rights to the technologies used in our products. We rely on patent
protection, trade secrets, as well as a combination of copyright and trademark
laws and nondisclosure, confidentiality and other contractual arrangements to
protect our technology. However, these legal means afford only limited protection
and may not adequately protect our rights or permit us to gain or keep any
competitive advantage. In addition, we cannot be assured that any of our
pending patent applications will result in the issuance of a patent to us. The
U.S. Patent and Trademark Office (PTO) may deny or require significant
narrowing of claims in our pending patent applications, and patents issued as a
result of the pending patent applications, if any, may not provide us with
significant commercial protection or be issued in a form that is advantageous
to us. We could also incur substantial costs in proceedings before the PTO.
These proceedings could result in adverse decisions as to the claims included
in our patents.
Our issued and licensed patents and those that may be
issued or licensed in the future may be challenged, invalidated or
circumvented, which could limit our ability to stop competitors from marketing
related products. Additionally, upon expiration of our issued or licensed
patents, we may lose some of our rights to exclude others from making, using,
selling or importing products using the technology based on the expired
patents. We also must rely on contractual rights with the third parties that
license technology to us to protect our rights in the technology licensed to
us. Although we have taken steps to protect our intellectual property and
technology, there is no assurance that competitors will not be able to design
around our patents. We also rely on unpatented proprietary technology. We
cannot assure you that we can meaningfully protect all our rights in our
unpatented proprietary technology or that others will not independently develop
substantially equivalent proprietary products or processes or otherwise gain
access to our unpatented proprietary technology. We seek to protect our
know-how and other unpatented proprietary technology with confidentiality
agreements and intellectual property assignment agreements with our employees.
However, such agreements may not provide meaningful protection for our proprietary
information in the event of unauthorized use or disclosure or other breaches of
the agreements or in the event that our competitors discover or independently
develop similar or identical designs or other proprietary information. In
addition, we rely on the use of registered and common law trademarks with
respect to the brand names of some of our products. Our common law trademarks
provide less protection than our registered trademarks. Loss of rights in our
trademarks could adversely affect our business, financial condition and results
of operations.
Furthermore, the laws of foreign countries may not
protect our intellectual property rights to the same extent as the laws of the
United States. If we fail to apply for intellectual property protection or if
we cannot adequately protect our intellectual property rights in these foreign
countries, our competitors may be able to compete more effectively against us,
which could adversely affect our competitive position, as well as our business,
financial condition and results of operations.
If third parties claim that we
infringe their intellectual property rights, we may incur liabilities and costs
and may have to redesign or discontinue selling certain products.
Whether a product infringes a patent involves complex
legal and factual issues, the determination of which is often uncertain. We
face the risk of claims that we have infringed on third parties intellectual
property rights. Searching for existing intellectual property rights may not
reveal important intellectual property and our competitors may also have filed
for patent protection, which is not as yet a matter of public knowledge, or
claimed trademark rights that
6
have not been revealed through our availability
searches. Our efforts to identify and avoid infringing on third parties
intellectual property rights may not always be successful. Any claims of patent
or other intellectual property infringement, even those without merit, could:
increase the
cost of our products;
be expensive and
time consuming to defend;
result in us
being required to pay significant damages to third parties;
force us to
cease making or selling products that incorporate the challenged intellectual
property;
require us to
redesign, reengineer or rebrand our products;
require us to
enter into royalty or licensing agreements in order to obtain the right to use
a third partys intellectual property, the terms of which may not be acceptable
to us;
require us to
indemnify third parties pursuant to contracts in which we have agreed to
provide indemnification to such parties for intellectual property infringement
claims;
divert the
attention of our management; and
result in our
customers or potential customers deferring or limiting their purchase or use of
the affected products until the litigation is resolved.
In addition, new patents obtained by our competitors
could threaten a products continued life in the market even after it has
already been introduced.
Existing or future acquisitions of
businesses could negatively affect our business, financial condition and
results of operations if we fail to integrate the acquired businesses
successfully into our existing operations or if we discover previously undisclosed
liabilities.
We completed the acquisitions of several companies,
including G&A Imaging Ltd. (G&A) in April 2001, and we plan to
continue to review potential acquisition candidates. Our business and our
strategy include building our business through acquisitions. However,
acceptable acquisition candidates may not be available in the future or may not
be available on terms and conditions acceptable to us.
Successful acquisitions depend upon our ability to
identify, negotiate, complete and integrate suitable acquisitions and to obtain
any necessary financing. Even if we complete acquisitions, we may experience:
difficulties in
integrating any acquired companies, personnel and products into our existing
business;
delays in
realizing the benefits of the acquired company or products;
diversion of our
managements time and attention from other business concerns;
limited or no
direct prior experience in new markets or countries we may enter;
higher costs of
integration than we anticipated; and
difficulties in
retaining key employees of the acquired business who are necessary to manage
these acquisitions.
In addition, an acquisition could materially impair
our operating results by causing us to incur debt or requiring us to
7
amortize acquisition expenses and acquired assets. We
may also discover deficiencies in internal controls, data adequacy and
integrity, product quality, regulatory compliance and product liabilities that
we did not uncover prior to our acquisition of such businesses, which could
result in us becoming subject to penalties or other liabilities. Any
difficulties in the integration of acquired businesses or unexpected penalties
or liabilities in connection with such businesses could have a material adverse
effect on our business, financial condition and results of operations.
We operate in foreign countries and
are exposed to risks associated with foreign political, economic and legal
environments and with foreign currency exchange rates.
With our acquisition of G&A, we have significant
foreign operations. As a result, we are exposed to risks, including among
others, risks associated with foreign political, economic and legal
environments and with foreign currency exchange rates. Our results may be
adversely affected by, among other things, changes in government policies with
respect to laws and regulations, anti-inflation measures, currency conversions,
remittance abroad and rates and methods of taxation.
RISKS RELATED TO OWNING OUR STOCK
The holders of our preferred stock
have certain rights and privileges that are senior to our common stock, and we
may issue additional shares of preferred stock without stockholder approval
that could have a material adverse effect on the market value of the common
stock.
Our Board of Directors has the authority to issue a
total of up to 4,000,000 shares of preferred stock and to fix the rights,
preferences, privileges, and restrictions, including voting rights, of the
preferred stock, which typically are senior to the rights of the common
stockholders, without any further vote or action by the common stockholders.
The rights of our common stockholders will be subject to, and may be adversely
affected by, the rights of the holders of the preferred stock that have been
issued, or might be issued in the future. Preferred stock also could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of ImageWare. This could delay, defer, or prevent
a change in control. Furthermore, holders of preferred stock may have other
rights, including economic rights, senior to the common stock. As a result,
their existence and issuance could have a material adverse effect on the market
value of the common stock. We have in the past issued and may from time to time
in the future issue, preferred stock for financing or other purposes with
rights, preferences, or privileges senior to the common stock. At
September 30, 2007 we had three series of preferred stock outstanding,
Series B preferred stock, Series C 8% convertible preferred stock and Series D
8% convertible preferred stock.
The provisions of our Series B Preferred Stock
prohibit the payment of dividends on the common stock unless the dividends on
those preferred shares are first paid. In addition, upon a liquidation,
dissolution or sale of ImageWares business, the holders of the Series B
Preferred Stock will be entitled to receive, in preference to any distribution
to the holders of common stock, initial distributions of $2.50 per share, plus
all accrued but unpaid dividends. Pursuant to the terms of our Series B
Preferred Stock we are obligated to pay cumulative cash dividends on shares of
Series B Preferred Stock from legally available funds at the annual rate of
$0.2125 per share, payable in two semi-annual installments of $0.10625 each,
which cumulative dividends must be paid prior to payment of any dividend on our
common stock. As of September 30, 2007, the Company had cumulative undeclared
dividends on the Series B Preferred Stock of approximately $21,197.
The Series C Preferred Stock has a liquidation
preference equal to its stated value, plus any accrued and unpaid dividends
thereon and any other fees or liquidated damages owing thereon. The Series C
Preferred Stock accrues cumulative dividends at the rate of 8.0% of the stated
value per share per annum. At the option of the Company, the dividend payment
may be made in the form of cash, after the payment of cash dividends to the
holders of Series B Preferred Stock, or common stock issuable upon conversion
of the Series C Preferred Stock. Each share of Series C Preferred Stock is
convertible at any time at the option of the holder into a number of shares of
common stock equal to the stated value (initially $1,000 per share, subject to
adjustment), plus any accrued and unpaid dividends, divided by the conversion
price (initially $1.50 per share, subject to adjustment). Subject to certain
limitations, the conversion price per share shall be adjusted in the event of
certain subsequent stock dividends, splits, reclassifications, dilutive
issuances, rights offerings, and reclassifications. The Series C Preferred
Stock generally
8
does not have voting rights except as required by law,
however, certain activities may not be undertaken by the Company without the
affirmative vote of a majority of the holders of the outstanding shares of
Series C Preferred Stock. As of September 30, 2007, the Company had
cumulative undeclared dividends on the Series C Preferred Stock of
approximately $162,175.
The Series D Preferred Stock has a liquidation
preference equal to its stated value, plus any accrued and unpaid dividends
thereon and any other fees or liquidated damages owing thereon. The Series D
Preferred Stock accrues cumulative dividends at the rate of 8.0% of the stated
value per share per annum. At the option of the Company, the dividend payment
may be made in the form of cash, after the payment of cash dividends to the
holders of Series B and Series C Preferred Stock, or common stock issuable upon
conversion of the Series D Preferred Stock. Each share of Series D Preferred
Stock is convertible at any time at the option of the holder into a number of
shares of common stock equal to the stated value (initially $1,000 per share,
subject to adjustment), plus any accrued and unpaid dividends, divided by the
conversion price (initially $1.90 per share, subject to adjustment). Subject to
certain limitations, the conversion price per share shall be adjusted in the
event of certain subsequent stock dividends, splits, reclassifications,
dilutive issuances, rights offerings, and reclassifications. The Series D
Preferred Stock generally does not have voting rights except as required by
law, however, certain activities may not be undertaken by the Company without
the affirmative vote of a majority of the holders of the outstanding shares of
Series D Preferred Stock. As of September 30, 2007, the Company had
cumulative undeclared dividends on the Series D Preferred Stock of
approximately $67,562.
Our stock price has been volatile,
and your investment in our common stock could suffer a decline in value.
There has been significant volatility in the market
price and trading volume of equity securities, which is unrelated to the
financial performance of the companies issuing the securities. These broad
market fluctuations may negatively affect the market price of our common stock.
You may not be able to resell your shares at or above the price you pay for
those shares due to fluctuations in the market price of our common stock caused
by changes in our operating performance or prospects and other factors.
Some specific factors that may have a significant
effect on our common stock market price include:
actual or
anticipated fluctuations in our operating results or future prospects;
our
announcements or our competitors announcements of new products;
the publics
reaction to our press releases, our other public announcements and our filings
with the SEC;
strategic
actions by us or our competitors, such as acquisitions or restructurings;
new laws or
regulations or new interpretations of existing laws or regulations applicable
to our business;
changes in
accounting standards, policies, guidance, interpretations or principles;
changes in our
growth rates or our competitors growth rates;
developments
regarding our patents or proprietary rights or those of our competitors;
our inability to
raise additional capital as needed;
concern as to
the efficacy of our products;
changes in
financial markets or general economic conditions;
sales of common
stock by us or members of our management team; and
9
changes in stock
market analyst recommendations or earnings estimates regarding our common
stock, other comparable companies or our industry generally.
Future sales of our common stock
could adversely affect its price and our future capital-raising activities
could involve the issuance of equity securities, which would dilute your
investment and could result in a decline in the trading price of our common
stock.
We may sell securities in the public or private equity
markets if and when conditions are favorable, even if we do not have an
immediate need for additional capital at that time. Sales of substantial
amounts of common stock, or the perception that such sales could occur, could
adversely affect the prevailing market price of our common stock and our ability
to raise capital. We may issue additional common stock in future financing
transactions or as incentive compensation for our executive management and
other key personnel, consultants and advisors. Issuing any equity securities
would be dilutive to the equity interests represented by our then-outstanding
shares of common stock. The market price for our common stock could decrease as
the market takes into account the dilutive effect of any of these issuances.
Furthermore, we may enter into financing transactions at prices that represent
a substantial discount to the market price of our common stock. A negative
reaction by investors and securities analysts to any discounted sale of our
equity securities could result in a decline in the trading price of our common
stock.
If registration rights that we have
previously granted are exercised, then the price of our common stock may be
adversely affected.
We have agreed to register with the SEC up to
2,016,666 shares of common stock, an additional 210,528 shares of common stock
underlying our outstanding Series D Preferred Stock, and up to 1,273,416
shares of common stock underlying outstanding warrants, which are included in
the registration statement of which this prospectus is a part. In the event
these securities are registered with the SEC, they may be freely sold in the
open market provided the registration statement of which this prospectus forms
a part remains effective and subject to trading restrictions to which our
affiliates holding the shares may be subject from time to time. We expect that
we also will be required to register any securities sold in future private
financings. The sale of a significant amount of shares in the open market, or
the perception that these sales may occur, could cause the trading price of our
common stock to decline or become highly volatile.
Our corporate documents and Delaware
law contain provisions that could discourage, delay or prevent a change in
control of our company.
Provisions in our certificate of incorporation and
bylaws may discourage, delay or prevent a merger or acquisition involving us
that our stockholders may consider favorable. For example, our certificate of
incorporation authorizes preferred stock, which carries special rights,
including voting and dividend rights. With these rights, preferred stockholders
could make it more difficult for a third party to acquire us.
We are also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. Under these provisions, if
anyone becomes an interested stockholder, we may not enter into a business
combination with that person for three years without special approval, which
could discourage a third party from making a takeover offer and could delay or
prevent a change of control. For purposes of Section 203, interested
stockholder means, generally, someone owning 15% or more of our outstanding
voting stock or an affiliate of ours that owned 15% or more of our outstanding
voting stock during the past three years, subject to certain exceptions as
described in Section 203.
We do not expect to pay cash
dividends on our common stock for the foreseeable future.
We have never paid cash dividends on our common stock
and do not anticipate that any cash dividends will be paid on the common stock
for the foreseeable future. The payment of any cash dividend by us will be at
the discretion of our board of directors and will depend on, among other
things, our earnings, capital, regulatory requirements and financial condition.
Furthermore, the terms of our Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock directly limit our ability to pay cash
dividends on our common stock.
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Securities analysts may not continue
to cover our common stock or may issue negative reports, and this may have a
negative impact on our common stocks market price.
There is no guarantee that securities analysts will
continue to cover our common stock. If securities analysts do not cover our
common stock, the lack of research coverage may adversely affect our common
stocks market price. The trading market for our common stock relies in part on
the research and reports that industry or financial analysts publish about our
business or us. If one or more of the analysts who cover us downgrades our
stock, our stock price may decline rapidly. If one or more of these analysts
ceases coverage of ImageWare, we could lose visibility in the market, which in
turn could cause our stock price to decline. In addition, rules mandated by the
Sarbanes-Oxley Act of 2002, and a global settlement reached between the SEC,
other regulatory analysts and a number of investment banks in April 2003, may
lead to a number of fundamental changes in how analysts are reviewed and
compensated. In particular, many investment banking firms will now be required
to contract with independent financial analysts for their stock research. It
may be difficult for companies with smaller market capitalizations, such as our
company, to attract independent financial analysts that will cover our common
stock, which could have a negative effect on our market price.
The large number of holders and lack
of concentration of ownership of our common stock may make it difficult for us
to reach a quorum or obtain an affirmative vote of our stockholders at future
stockholder meetings.
Our stock is held in a
large number of individual accounts with no one registered holder or group of
registered holders individually accounting for more than 5% of our outstanding
common stock. As a result, it may be difficult for us to reach a quorum or
obtain an affirmative vote of a majority of our stockholders where either of
those thresholds are measured based on the total number of shares of our common
stock outstanding. Difficulty in obtaining a stockholder vote could impact our
ability to complete any financing or strategic transaction requiring
stockholder approval or effect basic corporate governance changes, such as an
increase in the authorized number of shares of our common stock.
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business strategies,
operating efficiencies or synergies, competitive positions, growth
opportunities for existing patents, technologies, products, plans and
objectives of management, markets for stock of ImageWare and other matters.
Statements in this prospectus that are not historical facts are hereby
identified as forward-looking statements for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), and Section 27A of the Securities Act. Such forward-looking
statements, including, without limitation, those relating to the future
business prospects, revenues and income of ImageWare, wherever they occur, are
necessarily estimates reflecting the best judgment of our senior management on
the date on which they were made, or if no date is stated, as of the date of
this prospectus. These forward-looking statements are subject to risks,
uncertainties and assumptions, including those described in the section entitled
Risk Factors, may affect the operations, performance, development and results
of our business. Because the factors discussed in this prospectus could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by us or on our behalf, you should not place
undue reliance on any such forward-looking statements. New factors emerge from
time to time, and it is not possible for us to predict which factors will
arise. In addition, we cannot assess the impact of each factor on our business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
You are advised to read carefully the section titled Risk
Factors beginning on page 3 of this prospectus.
11
We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or any other reason. All subsequent forward-looking statements
attributable to ImageWare or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to herein. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur. Except
as required under the federal securities laws and the rules and regulations of
the SEC, we do not have any intention or obligation to update publicly any
forward-looking statements after we distribute this prospectus, whether as a
result of new information, future events or otherwise.
USE OF
PROCEEDS
All of our common stock being offered under this
prospectus is being sold by or for the account of the selling stockholders. We
will not receive any proceeds from the sale of our common stock by or for the
account of the selling stockholders.
However, we will receive proceeds to the extent the selling stockholders
exercise their warrants for cash. Any
such proceeds will be used for general corporate purposes. General corporate purposes may include
capital expenditures, repayment of debt, possible acquisitions, investments and
any other purposes that we may specify in any prospectus supplement.
SELLING
STOCKHOLDERS
The following table sets
forth certain information available to us as of November 5, 2007 with respect
to persons for whom we are registering the selling stockholders securities for
resale to the public. We will not receive any of the proceeds from the sale of
the selling stockholders securities. Beneficial ownership of the selling
stockholders securities by such selling stockholders after the offering will
depend on the number of selling stockholders securities sold by each selling
stockholder. This assumes that selling stockholders will still hold shares that
are not registered hereby.
In September 2007, we
completed a financing pursuant to which the Company sold to certain accredited
investors (the Investors) an aggregate of 2,016,666 shares (the Shares) of
the Companys common stock, par value $0.01 per share (the Common Stock), at
a purchase price of $1.50 per share for aggregate gross proceeds of
approximately $3.0 million, and issued to the Investors warrants (the
Warrants) to purchase up to an aggregate of 1,008,333 shares of common stock
of the Company with an exercise price of $1.67 per share (the Financing). The
warrants become exercisable on March 26, 2008. As part of the Financing, we entered into a
registration rights agreement (the Rights Agreement) with the Investors
covering the resale of the Shares, all shares of common stock issuable upon
exercise of the Warrants, and all shares of common stock issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
contemplated by Rule 416 of the Securities Act, with respect to the
foregoing, with certain exceptions described in the Rights Agreement. Pursuant to these registration rights, the
shares of common stock issuable upon exercise of the Warrants and the Shares
are being registered hereunder.
Empire Financial Group, Inc. acted as placement agent and financial advisor to the Company in connection with the
Financing. In connection with its services, we issued Empire and certain of its
affiliates warrants to purchase up to an aggregate of 151,249 shares of common
stock and agreed to register these shares for resale. Accordingly, the shares
of common stock issuable upon exercise of these warrants are being registered
hereunder.
The table below also contains information for selling
stockholders who hold (i) warrants previously issued by us (the
Prior Warrants) and (ii) Series D Preferred Stock previously
issued by us (the Series D Stock), each with certain antidilution and
registration rights. Upon the consummation of the Financing, (i) the
exercise price and number of shares issuable upon exercise of the Prior
Warrants were adjusted, resulting in an additional 113,834 shares of common
stock becoming issuable upon the exercise of the Prior Warrants, and
(ii) the conversion price and number of shares issuable upon conversion of
the Series D Stock were adjusted, resulting in an additional 210,528
shares of common stock becoming issuable upon conversion of the Series D
Stock. We have agreed to register for
resale all of the shares of common stock issuable as a result of these
antidilution adjustments upon exercise of the Prior Warrants.
12
The table below presents information regarding the
selling stockholders and the shares of our common stock that they may offer and
sell from time to time under this prospectus. Percentages of beneficial
ownership are based upon 16,776,785 shares of common stock issued and
outstanding as of November 5, 2007.
We
considered the following factors and made the following assumptions regarding
the table:
except as otherwise noted in footnote (2) to
the table, beneficial ownership is determined under Section 13(d) of the
Securities Exchange Act of 1934 and generally includes voting or investment
power with respect to securities and including any securities that grant the
selling stockholder the right to acquire common stock within 60 days of
November 5, 2007;
unless otherwise indicated below, to our
knowledge, the selling stockholders named below have sole voting and investment
power with respect to their shares of common stock, except to the extent
authority is shared by spouses under applicable law; and
the selling stockholders may sell all of the
securities offered by this prospectus under certain circumstances.
Notwithstanding
these assumptions, the selling stockholders may sell less than all of the
shares listed on the table. In addition, the selling stockholders may have sold
or transferred, in transactions exempt from the registration requirements of
the Securities Act, some or all of the shares since the date on which the
information in the table below is presented. The shares listed below may be sold
pursuant to this prospectus or in privately negotiated transactions.
Accordingly, we cannot estimate the number of shares of common stock that the
selling stockholders will sell under this prospectus. Information about the
selling stockholders may change over time.
Under
the terms of the Warrants, a selling stockholder may not exercise the Warrants
to the extent such exercise would cause such selling stockholder, together with
its affiliates, to beneficially own a number of shares of common stock which would
exceed 4.99% of our then outstanding shares of common stock following such
exercise, excluding for purposes of such determination shares of common stock
issuable upon exercise of the warrants which have not been exercised. The
calculation of the shares beneficially owned below does not take into account
this 4.99% beneficial ownership limitation.
|
|
NUMBER OF
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
|
BENEFICIALLY
|
|
|
|
|
|
|
|
|
|
OWNED
|
|
SHARES OF
|
|
SHARES BENEFICIALLY OWNED
|
|
|
|
BEFORE OFFERING
|
|
COMMON STOCK
|
|
AFTER OFFERING
|
|
SELLING STOCKHOLDERS (1)
|
|
(2)
|
|
BEING OFFERED (3)
|
|
NUMBER (3)
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
AJW Offshore
Ltd. (4)(5)
|
|
27,758
|
|
4,627
|
|
23,131
|
|
*
|
|
AJW Partners,
LLC (6)(5)
|
|
5,006
|
|
835
|
|
4,171
|
|
*
|
|
AJW Qualified
Partners, LLC (7)(5)
|
|
12,286
|
|
2,048
|
|
10,238
|
|
*
|
|
Asset Factoring
Ansbacher Bahamas
Ltd. (8)(5)
|
|
45,503
|
|
7,584
|
|
37,919
|
|
*
|
|
Bank of America
NA & Harrison H. Augur Co-Trustees Laura T.H. Hoblitzelle T/U/W dtd
2/1/1929 FBO Harrison H. Augur (9)
|
|
75,000
|
|
75,000
|
|
0
|
|
*
|
|
Corman
Foundation, Inc. (10)(5)
|
|
22,752
|
|
3,792
|
|
18,960
|
|
*
|
|
13
|
|
NUMBER OF
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
|
BENEFICIALLY
|
|
|
|
|
|
|
|
|
|
OWNED
|
|
SHARES OF
|
|
SHARES BENEFICIALLY OWNED
|
|
|
|
BEFORE OFFERING
|
|
COMMON STOCK
|
|
AFTER OFFERING
|
|
SELLING STOCKHOLDERS (1)
|
|
(2)
|
|
BEING OFFERED (3)
|
|
NUMBER (3)
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital, L.P. (11)
|
|
337,507
|
|
218,961
|
|
118,546
|
|
*
|
|
Empire Financial
Group, Inc. (12)(5)
|
|
56,415
|
|
44,415
|
|
12,000
|
|
*
|
|
Eugene and
Natalie Ciner (13)
|
|
4,551
|
|
759
|
|
3,792
|
|
*
|
|
Gruber &
McBaine International (14)
|
|
593,246
|
|
108,948
|
|
484,298
|
|
2.9
|
%
|
Harrison H.
Augur Smith Barney 401-K Prototype, Harrison H. Augur,
Trustee (15)
|
|
128,613
|
|
14,035
|
|
114,578
|
|
*
|
|
Iroquois Master
Fund Ltd. (16)
|
|
357,606
|
|
139,220
|
|
218,386
|
|
1.3
|
%
|
J. Patterson
McBaine (17)
|
|
494,159
|
|
89,035
|
|
405,124
|
|
2.4
|
%
|
JMR Capital
Partners II LTD (18)
|
|
69,299
|
|
49,999
|
|
19,300
|
|
*
|
|
JMR Capital
Partners LTD (19)
|
|
340,599
|
|
249,999
|
|
90,600
|
|
*
|
|
Jon D. and Linda
W. Gruber Trust (20)
|
|
136,880
|
|
75,000
|
|
61,880
|
|
*
|
|
Kenneth H.
Robertson (21)
|
|
24,999
|
|
24,999
|
|
0
|
|
*
|
|
Lagunitas
Partners LP (22)
|
|
1,904,499
|
|
421,755
|
|
1,482,744
|
|
8.7
|
%
|
Little Bear
Investments, LLC (23)
|
|
79,402
|
|
7,200
|
|
72,202
|
|
*
|
|
Michael R. Jacks
(24)(5)
|
|
210,117
|
|
51,817
|
|
158,300
|
|
*
|
|
Neal Goldman IRA
(25)
|
|
600,000
|
|
600,000
|
|
0
|
|
*
|
|
New Millennium
Capital Partners II,
LLC (26)(5)
|
|
455
|
|
76
|
|
379
|
|
*
|
|
Patience
Partners, L.P. (27)
|
|
115,000
|
|
75,000
|
|
40,000
|
|
*
|
|
Porter Partners,
L.P. (28)
|
|
150,000
|
|
150,000
|
|
0
|
|
*
|
|
RHP Master Fund,
Ltd. (29)
|
|
250,002
|
|
250,002
|
|
0
|
|
*
|
|
RMW Envirovest
(30)(5)
|
|
22,752
|
|
3,792
|
|
18,960
|
|
*
|
|
Robert D van Roijen, Jr. TTEE U/A DTD 12-14-82 FBO
Robert D van
Roijen, Jr.
(31)
|
|
1,411,169
|
|
670,176
|
|
740,993
|
|
4.3
|
%
|
Sean Greene (32)
|
|
22,752
|
|
3,792
|
|
18,960
|
|
*
|
|
Taylor Family
Trust, Trude C. Taylor, Trustee (33)
|
|
233,798
|
|
3,982
|
|
229,816
|
|
1.4
|
%
|
The Kybartai
Trust (34)
|
|
45,503
|
|
7,584
|
|
37,919
|
|
*
|
|
The Wallace
Foundation (35)
|
|
79,087
|
|
15,719
|
|
63,368
|
|
*
|
|
Thomas R. Noonan
IRA (36)
|
|
24,999
|
|
24,999
|
|
0
|
|
*
|
|
Trustees of
Hamilton College (37)
|
|
79,793
|
|
15,860
|
|
63,933
|
|
*
|
|
Union Financial
Corporation (38)
|
|
3,200
|
|
3,200
|
|
0
|
|
*
|
|
14
|
|
NUMBER OF
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
|
BENEFICIALLY
|
|
|
|
|
|
|
|
|
|
OWNED
|
|
SHARES OF
|
|
SHARES BENEFICIALLY OWNED
|
|
|
|
BEFORE OFFERING
|
|
COMMON STOCK
|
|
AFTER OFFERING
|
|
SELLING STOCKHOLDERS (1)
|
|
(2)
|
|
BEING OFFERED (3)
|
|
NUMBER (3)
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
Valkyrie Leasing, LLC (39)
|
|
91,007
|
|
15,168
|
|
75,839
|
|
*
|
|
William Corbett (40)
|
|
69,451
|
|
51,817
|
|
17,634
|
|
*
|
|
Zachary Prensky (41)
|
|
190,131
|
|
19,415
|
|
170,716
|
|
1.0
|
%
|
*
Represents beneficial ownership of less than 1%
|
|
(1)
|
|
Unless
otherwise noted, this table is based on information supplied to us by the
selling stockholders and certain records of the Company.
|
|
|
|
(2)
|
|
Under
the terms of the Warrants, a selling stockholder may not convert exercise the
Warrants to the extent such exercise would cause such selling stockholder,
together with its affiliates, to beneficially own a number of shares of
common stock which would exceed 4.99% of our then outstanding shares of
common stock following such exercise, excluding for purposes of such
determination shares of common stock issuable upon exercise of the warrants
which have not been exercised. The calculation of the shares beneficially
owned in this column does not take into account this 4.99% beneficial
ownership limitation.
|
|
|
|
(3)
|
|
We do not know when or in what amounts a selling stockholder may
offer shares for sale. The selling stockholders might not sell any or all of
the shares offered by this prospectus. Because the selling stockholders may
offer all or some of the shares pursuant to this offering and because there
are currently no agreements, arrangements or understandings with respect to
the sale of any of the shares, we cannot estimate the number of the shares
that will be held by the selling stockholders after completion of the offering. However, for
purposes of this table, we have assumed that, after completion of the
offering, none of the shares covered by this prospectus will be held by the selling stockholders.
|
|
|
|
(4)
|
|
Comprised of 27,758
shares of common stock issuable upon exercise of warrants. Corey S. Ribotsky
has voting and investment control over these shares.
|
|
|
|
(5)
|
|
This
information is based on certain records of the Company.
|
|
|
|
(6)
|
|
Comprised of 5,006
shares of common stock issuable upon exercise of warrants. Corey S. Ribotsky
has voting and investment control over these shares.
|
|
|
|
(7)
|
|
Comprised of 12,286
shares of common stock issuable upon exercise of warrants. Corey S. Ribotsky
has voting and investment control over these shares.
|
|
|
|
(8)
|
|
Comprised of 45,503
shares of common stock issuable upon exercise of warrants. Charles Johnston,
vice president of investing of Asset Factoring Ansbacher Bahamas Ltd., has
voting and investment control over these shares.
|
|
|
|
(9)
|
|
Comprised of 50,000
shares of common stock held directly and 25,000 shares of common stock
issuable upon exercise of warrants. Bank of America NA and Harrison H. Augur
are co-trustees and share voting and investment control over these shares.
|
|
|
|
(10)
|
|
Comprised of 22,752
shares of common stock issuable upon exercise of warrants. James Corman,
president of Corman Foundation, Inc., has voting and investment control over
these shares.
|
|
|
|
(11)
|
|
Comprised of 143,434
shares of common stock held directly and 194,073 shares of common stock
issuable upon exercise of warrants. Mitchell P. Kopin, the president of
Downsview Capital, Inc., or DCI, the
|
15
|
|
general partner of
Cranshire Capital, L.P., or CCLP, has sole voting control and investment
discretion over these shares. Each of Mitchell P. Kopin and DCI disclaims
beneficial ownership of the shares held by CCLP.
|
|
|
|
(12)
|
|
Comprised of 56,415
shares of common stock issuable upon exercise of warrants. Steve Rabinivice,
the chief executive officer of Empire Financial Group, Inc., has voting and
investment control over these shares.
|
|
|
|
(13)
|
|
Comprised of 4,551
shares of common stock issuable upon exercise of warrants.
|
|
|
|
(14)
|
|
Comprised of 98,760
shares of common stock held directly, 266,666 shares of common stock issuable
upon conversion of Series C Preferred Stock, 90,000 shares of common stock
issuable upon conversion of Series D Preferred Stock and 137,820 shares
of common stock issuable upon exercise of warrants. Jon D. Gruber and J.
Patterson McBaine, as managers of Gruber & McBaine Capital Management,
LLC, have shared voting and investment control over these shares.
|
|
|
|
(15)
|
|
Comprised of 58,000
shares of common stock held directly, 66,666 shares of common stock issuable
upon conversion of Series D Preferred Stock and 3,947 shares of common stock
issuable upon exercise of warrants. Harrison H. Augur is the trustee and has
sole voting and investment control over these shares.
|
|
|
|
(16)
|
|
Comprised of 83,333
shares of common stock held directly and 274,273 shares of common stock
issuable upon exercise of warrants. Joshua
Silverman has voting and investment control over these shares. Mr. Silverman
disclaims beneficial ownership over these shares.
|
|
|
|
(17)
|
|
Comprised
of 69,379 shares of common stock held directly, 266,666 shares of common
stock issuable upon conversion of Series C Preferred Stock, 66,666 shares of
common stock issuable upon conversion of Series D Preferred Stock, and 91,448
shares of common stock issuable upon exercise of warrants. J. Patterson
McBaine, as a manager of Gruber & McBaine Capital Management, LLC, has shared
voting and investment control over the shares being sold by Gruber &
McBaine International and Lagunitas Partners as referenced in footnotes 14
above and 22 below, respectively.
|
|
|
|
(18)
|
|
Comprised of 52,633
shares of common stock held directly and 16,666 shares of common stock
issuable upon exercise of warrants. Back Bay Management, or BBM, is the
general partner of JMR Capital Partners II LTD. J. Michael Reisert is the
president of BBM and has sole voting and investment control over these
shares.
|
|
|
|
(19)
|
|
Comprised of 257,266
shares of common stock held directly and 83,333 shares of common stock
issuable upon exercise of warrants. JMR Group is the general partner of JMR
Capital Partners LTD. J. Michael Reisert is the president of JMR Group and
has sole voting and investment control over these shares.
|
|
|
|
(20)
|
|
Comprised of 69,379
shares of common stock held directly and 67,501 shares of common stock
issuable upon exercise of warrants. Jon D. Gruber is the trustee and
has voting and investment control over these shares.
|
|
|
|
(21)
|
|
Comprised of 16,666
shares of common stock held directly and 8,333 shares of common stock
issuable upon exercise of warrants.
|
|
|
|
(22)
|
|
Comprised of 356,280
shares of common stock held directly, 800,000 shares of common stock issuable
upon conversion of Series C Preferred Stock, 293,333 shares of common
stock issuable upon conversion of Series D Preferred Stock, and 454,886
shares of common stock issuable upon exercise of warrants. Jon D. Gruber and
J. Patterson McBaine, managers of Gruber & McBaine Capital Management,
LLC, have shared voting and investment control over these shares.
|
|
|
|
(23)
|
|
Comprised of 79,402
shares of common stock issuable upon exercise of warrants. Zachary Prensky
and
|
16
|
|
Jeffrey Mann have
shared voting and investment control over these shares. Zachary Prensky, an
affiliate and 50% owner of Little Bear Investments, LLC, or Little Bear,
directly owns 190,131 shares of common stock issuable upon exercise of warrants
referenced in footnote 41 below. Little Bear disclaims any ownership or
control over common stock and warrants held directly by Mr. Prensky.
|
|
|
|
(24)
|
|
Comprised of 210,117
shares of common stock issuable upon exercise of warrants.
|
|
|
|
(25)
|
|
Comprised of 400,000
shares of common stock held directly and 200,000 shares of common stock
issuable upon exercise of warrants. Neal Goldman has voting and investment
control over these shares.
|
|
|
|
(26)
|
|
Comprised
of 455 shares of common stock issuable upon exercise of warrants. Corey S.
Ribotsky has voting and investment control over these shares.
|
|
|
|
(27)
|
|
Comprised of 90,000
shares of common stock held directly and 25,000 shares of common stock
issuable upon exercise of warrants. Harrison H. Augur and Robert van Roijen,
Jr. are the managing partners of Patience Partners, L.P. and have shared
voting and investment control over these shares.
|
|
|
|
(28)
|
|
Comprised of 100,000
shares of common stock held directly and 50,000 shares of common stock
issuable upon exercise of warrants. Jeffrey H. Porter is the general partner
of Porter Partners, L.P. and has voting and investment control over these
shares.
|
|
|
|
(29)
|
|
Comprised of 166,668
shares of common stock held directly and 83,334 shares of common stock issuable
upon exercise of warrants. RHP Master Fund, Ltd., or RHPMF, is a party to an
investment agreement with Rock Hill Investment Management, L.P., or RHIM, a
limited partnership of which the general partner is RHP General Partner, LLC.
Pursuant to such agreement, RHIM directs the voting and disposition of shares
owned by RHPMF. Messrs. Wayne Bloch and Peter Lockhart own all of the
interests in RHP General Partner, LLC. The aforementioned entities and
individuals disclaim beneficial ownership of the Companys securities owned
by RHPMF.
|
|
|
|
(30)
|
|
Comprised of 22,752
shares of common stock issuable upon exercise of warrants. Michael Withers
has voting and investment control over these shares.
|
|
|
|
(31)
|
|
Comprised of 858,100
shares of common stock held directly, 333,333 shares of common stock issuable
upon conversion of Series D Preferred Stock and 219,736 shares of common
stock issuable upon exercise of warrants. Robert D. van Roijen, Jr. is the
trustee and has voting and investment control over these shares.
|
|
|
|
(32)
|
|
Comprised of 22,752
shares of common stock issuable upon exercise of warrants.
|
|
|
|
(33)
|
|
Comprised of 209,908
shares of common stock held directly and 23,890 shares of common stock
issuable upon exercise of warrants. Trude C. Taylor is the trustee and has
sole voting and investment control over these shares.
|
|
|
|
(34)
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Comprised of 45,503
shares of common stock issuable upon exercise of warrants. Zachary Prensky is
the trustee of the Kybartai Trust and has sole voting and investment control
over these shares.
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(35)
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Comprised of 74,666
shares of common stock issuable upon conversion of Series D Preferred Stock
and 4,421 shares of common stock issuable upon exercise of warrants. The
following are officers of The Wallace Foundation: M. Christine DeVita, president, Rob D.
Nagel, treasurer & director of investments, Mary E. Geras, assistant
treasurer and director of finance, and Sharon W. Clark, director of
operations. Any two such officers acting together may exercise voting and
investment control over these shares.
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(36)
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Comprised of 16,666
shares of common stock held directly and 8,333 shares of common stock
issuable
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17
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upon exercise of
warrants. Thomas R. Noonan has voting and investment control over these
shares.
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(37)
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Comprised of 75,333
shares of common stock issuable upon conversion of Series D Preferred Stock
and 4,640 shares of common stock issuable upon exercise of warrants. Peter J.
Blanchfield, chief investment officer and Karen Leach, vice president of
administration and finance, of the Trustees of Hamilton College have shared
voting and investment control over these shares.
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(38)
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Comprised of 3,200
shares of common stock issuable upon exercise of warrants. Thomas R. Noonan
is the president of Union Financial Corporation and has voting and investment
control over these shares.
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(39)
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Comprised of 91,007
shares of common stock issuable upon exercise of warrants. Charles Simonyi
has voting and investment control over these shares.
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(40)
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Comprised of 69,451
shares of common stock issuable upon exercise of warrants.
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(41)
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Comprised of 190,131
shares of common stock issuable upon exercise of warrants. Zachary Prensky is
an affiliate and 50% owner of Little Bear Investments, LLC, or Little Bear.
Mr. Prensky beneficially owns the securities held by Little Bear referenced
in footnote 23 above. Mr. Prensky is also the trustee of The Kybartai Trust
and beneficially owns the securities held by The Kybartai Trust referenced in
footnote 34 above.
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Selling stockholders who are registered broker-dealers
are underwriters within the meaning of the Securities Act. In addition,
selling stockholders who are affiliates of registered broker-dealers may be
deemed to be underwriters within the meaning of the Securities Act if such
selling stockholders (a) did not acquire its Common Stock, warrants or
underlying stock in the ordinary course of business or (b) had any agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock, warrants or underlying common stock.
RELATIONSHIP
OF SELLING STOCKHOLDERS TO THE COMPANY
Gruber & McBaine Capital Management, LLC and its
affiliates, which include Lagunitas Partners, LP and Gruber & McBaine International,
beneficially own more than 10% of our issued and outstanding common
stock. J. Patterson McBaine, a selling stockholder, together with Jon D.
Gruber, exercises voting and investment control over the shares held by Gruber
& McBaine Capital Management, LLC, Lagunitas Partners, LP, and Gruber &
McBaine International. In addition, Empire Financial Group, Inc. served as a
placement agent for our Financing, as well as our private placement of Series C
Preferred Stock and warrants to purchase common stock completed in November
2006. None of the other selling stockholders listed above has held any position
or office, or has had any material relationship, with us or any of our
affiliates within the past three years.
PLAN OF
DISTRIBUTION
We are registering the sale of shares of our common
stock on behalf of the selling stockholders. A selling stockholder is a person
named in the section entitled selling stockholders and also includes any
donee, pledgee, transferee or other successor-in-interest selling shares
received after the date of this prospectus from a selling stockholder as a gift
or other non-sale related transfer.
We do not know of any plan of distribution for the
resale of our common stock by the selling stockholders. We will not receive any
of the proceeds from the sale by the selling stockholders of any of the resale
shares.
Each selling stockholder of the common stock may, from
time to time, sell any or all of their shares of common stock on AMEX or any
other stock exchange, market or trading facility on which the shares are traded
or in private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the following
methods when selling shares:
18
ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
block trades
in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;
purchases by
a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange
distribution in accordance with the rules of the applicable exchange;
privately
negotiated transactions;
settlement of
short sales entered into after the effective date of the registration statement
of which this prospectus is a part;
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
through the
writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;
a combination
of any such methods of sale; or
any other
method permitted pursuant to applicable law.
The selling stockholders may also sell shares under
Rule 144 under the Securities Act, if available, rather than under this
prospectus.
Broker-dealers engaged by the selling stockholders may
arrange for other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with NASDR Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or
interests therein, the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage
in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of the common stock
short and deliver these securities to close out their short positions entered
into after the effective date of the registration statement of which this
prospectus is a part, or loan or pledge the common stock to broker-dealers that
in turn may sell these securities. The selling stockholders may also
enter into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
The selling stockholders and any broker-dealers or
agents that are involved in selling the shares may be deemed to be underwriters
within the meaning of the Securities Act in connection with such sales.
In such event, any commissions received by such broker-dealers or agents and
any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. Each
selling stockholder has informed the Company that it does not have any written
or oral agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive
fees, commissions and markups which, in the aggregate, would exceed eight
percent.
19
The Company is required to pay certain fees and
expenses incurred by the Company incident to the registration of the
shares. The Company has agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because selling stockholders may be deemed to be underwriters
within the meaning of the Securities Act, they will be subject to the
prospectus delivery requirements of the Securities Act including Rule 172
thereunder. In addition, any securities covered by this prospectus which
qualify for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than under this prospectus. There is no underwriter
or coordinating broker acting in connection with the proposed sale of the
resale shares by the selling stockholders.
We agreed to keep this prospectus effective until the
earlier of (i) the date on which the shares may be resold by the selling stockholders
without registration and without regard to any volume limitations by reason of
Rule 144(k) under the Securities Act or any other rule of similar effect or
(ii) all of the shares have been sold pursuant to this prospectus or Rule 144
under the Securities Act or any other rule of similar effect. The resale
shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain
states, the resale shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the resale shares may
not simultaneously engage in market making activities with respect to the
common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of shares of the common stock by the selling stockholders
or any other person. We will make copies of this prospectus available to
the selling stockholders and have informed them of the need to deliver a copy
of this prospectus to each purchaser at or prior to the time of the sale
(including by compliance with Rule 172 under the Securities Act).
EXPERTS
Stonefield Josephson, Inc., independent registered
public accounting firm, has audited our financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2006, as amended, as
set forth in their report (which contains an explanatory paragraph describing
conditions that raise substantial doubt about our ability to continue as a
going concern as described in Note 1 to the consolidated financial statements),
which is incorporated by reference in this prospectus and elsewhere in the
registration statement of which this prospectus forms a part. Our financial
statements are incorporated by reference in reliance on Stonefield Josephson,
Inc.s report, given on their authority as experts in accounting and auditing.
LEGAL
MATTERS
The validity of our common stock offered hereby will
be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, San Diego,
California.
WHERE
YOU CAN FIND MORE INFORMATION
We electronically file annual, quarterly and special
reports, proxy and information statements and other information with the SEC.
The public may read and copy any materials we file with the SEC at the SECs
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov. Our website address is www.iwsinc.com. Information
contained in, or accessible through, our website is not a part of this
prospectus.
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by
20
reference is considered to be part of this prospectus,
and information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents
listed below and any filings that we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the initial filing date of the
registration statement of which this prospectus forms a part and prior to the
termination of this offering:
(1)
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Our Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the SEC on April 17, 2007, as amended pursuant
to our Annual Report on Form 10-K/A filed on each of April 30,
2007, May 7, 2007 and May 9, 2007;
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(2)
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Our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007 filed with the SEC on May 15, 2007;
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(3)
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Our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007 filed with the SEC on August 14, 2007;
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(4)
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Our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007 filed with the SEC on November 14, 2007;
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(5)
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Our Current Reports on Form 8-K (other than
information contained in Current Reports on Form 8-K that is furnished, but
not filed) filed with the SEC on March 15, 2007, April 3, 2007,
May 21, 2007, August 14, 2007, September 26, 2007,
October 18, 2007 and November 16, 2007; and
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(6)
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The description of the common stock included in our
registration statement on Form 8-A, filed with the SEC on March 21, 2000.
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We will furnish without charge to you, upon written or
oral request, a copy of any or all of the documents incorporated by reference,
including exhibits to these documents. You should direct any requests for
documents to:
Corporate Secretary
ImageWare Systems, Inc.
10883 Thornmint Road
San Diego, CA 92127
Telephone: (858) 673-8600
You should rely only on the
information contained or incorporated by reference in this prospectus and any
prospectus supplement. We have not authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. The selling stockholders will not make
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing in this
prospectus, as well as information we previously filed with the SEC and
incorporated by reference in this prospectus, is accurate only as of the date
on the front cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that date.
21
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