<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST __, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-QSB
--------------------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from _____________________ to _______________________
Commission file number 333-93131
IMAGEWARE SYSTEMS, INC.
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0224167
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10883 THORNMINT ROAD
SAN DIEGO, CA 92127
(Address of principal executive officers)
(858) 673-8600
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 10, 2000 the number of
outstanding shares of the Registrant's common stock, par value $.01, was
3,311,348.
<PAGE>
IMAGEWARE SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2000 and 1999 4
Condensed Consolidated Statement of Cash Flows for the six months
ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS ON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 11
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION - ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
IMAGEWARE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
6/30/00 12/31/99
----------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash 7,665 156
Accounts receivable, net 3,871 2,920
Inventory 8 112
Other Assets 320 183
----------- --------
Total Current Assets 11,864 3,371
Property and Equipment, net 202 192
Intangible assets, net 1,413 2,347
----------- --------
TOTAL ASSETS 13,479 5,910
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 438 1,625
Deferred Revenue 677 853
Accrued expenses 1,344 2,227
Deferred compensation - 294
Accrued interest 170 437
Notes payable to bank - 500
Notes payable to related parties 56 1,719
----------- --------
Total Current liabilities 2,685 7,655
Notes Payable to Related Parties, Net of
current portion - 925
----------- --------
Total Liabilities 2,685 8,580
Stockholders' equity (deficit):
Common Stock at par value 33 12
Preferred Stock 4 4
Additional paid in capital 31,190 16,600
Treasury Stock (64) -
Accumulated Deficit (20,369) (19,286)
----------- --------
Total stockholders' equity 10,794 (2,670)
----------- --------
TOTAL EQUITY AND LIABILITIES 13,479 5,910
=========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
IMAGEWARE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Product 1,688 664 3,115 1,417
Maintenance 356 385 627 742
License and other 24 43 58 81
--------- --------- --------- ---------
2,068 1,092 3,800 2,240
Cost of revenue
Product 312 317 868 554
Maintenance 310 222 617 430
--------- --------- --------- ---------
Gross profit 1,446 553 2,315 1,256
--------- --------- --------- ---------
Operating, Gen & Admin. 673 791 1,312 1,167
Sales and marketing 301 281 702 495
Research & Development 302 265 624 569
Depreciation and amortization 252 262 496 533
--------- --------- --------- ---------
1,528 1,599 3,134 2,764
Loss from Operations (82) (1,046) (819) (1,508)
Interest expense, net (87) 104 84 192
Income (loss) before income taxes 5 (1,150) (903) (1,700)
Tax provision
--------- --------- --------- ---------
Net income (loss) 5 (1,150) (903) (1,700)
========= ========= ========= =========
Basic earnings (loss) per share - see note 2 $ (0.00) $ (1.01) $ (0.43) $(1.69)
Weighted average shares (basic) 3,220,989 1,163,114 2,198,346 1,031,097
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
IMAGEWARE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, Ended June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (903) $ (1,700)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 496 543
Noncash compensation and fees 50 348
Deferred revenue - -
Change in assets and liabilities
Accounts receivable, net (951) (476)
Inventory 104 (24)
Other current assets (137) 13
Other long-term assets (332) (6)
Accounts payable (1,187) 148
Accrued expenses (808) 532
Deferred compensation (294) -
Accrued interest (205) 70
Deferred revenue (176) 93
Total adjustments (3,440) 1,241
---------- ----------
Net cash used by operating activities (4,343) (459)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (65) (8)
---------- ----------
Net cash used by investing activities (65) (8)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 56 500
Repayment of loans (3,473) (10)
Proceeds from issuance of stock, net of issuance costs 15,579 -
Repurchase of common stock (64) -
Dividends paid (181) -
---------- ----------
Net cash (used)/provided by financing activities 11,917 490
---------- ----------
Net (decrease) increase) in cash 7,509 23
Cash at beginning of period 156 46
---------- ----------
Cash at end of period $ 7,665 $ 69
========== ==========
NON-CASH TRANSACTIONS
Value allocated to warrants for services 3
Issuance of stock for loan guarantee 348
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest 377 66
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
IMAGEWARE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying condensed consolidated unaudited financial statements of
ImageWare Systems, Inc. ("ImageWare" or the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with consolidated financial statements for the year ended
December 31, 1999 and notes thereto included in the Company's SB-2
registration statement dated March 30, 2000. In the opinion of management,
the accompanying condensed consolidated financial statements contain all
adjustments, consisting of only normal recurring items, necessary for a fair
presentation of the Company's financial position as of June 30, 2000 and its
results of operations for the six months ended June 30, 2000 and 1999,
respectively. These condensed consolidated unaudited financial statements are
not necessarily indicative of the results to be expected for the entire year.
NOTE 2. EARNINGS PER COMMON SHARE
Effective November 29, 1999, the Company declared a 5.275-for-1 reverse stock
split of common stock. All references to the number of shares, per share
amounts, conversion amounts and stock option data of the Company's common
stock have been restated to reflect this reverse stock split for all periods
presented.
Basic earnings per common share is calculated by dividing net income (loss)
available to common shareholders for the period by the weighted-average
number of common shares outstanding during the period. Diluted earnings per
common share is calculated by dividing net income (loss) available to common
shareholders for the period by the weighted-average number of common shares
outstanding during the period, increased to include, if dilutive, the number
of additional common shares that would have been outstanding if the potential
common shares had been issued. The dilutive effect of outstanding stock
options is included in the calculation of diluted earnings per common share
using the treasury stock method. During the period ended June 30, 1999 and
2000, the Company has excluded all convertible preferred stock and
outstanding stock options from the calculation of diluted loss per share, as
their effect would have been antidilutive.
The following table sets forth the computation of basic and diluted loss per
share for the periods ended June 30, 1999 and 2000:
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Net income (loss) $ 5 $ (1,150) $ (903) $ (1,700)
Less Series B preferred dividends (21) (21) (41) (41)
------------ ------------ ---------- ----------
Loss available to common shareholders $ (16) $ (1,171) $ (944) $ (1,741)
============ ============ ========== ==========
Denominator
Weighted-average shares outstanding 3,221 1,163 2,198 1,031
============ ============ ========== ==========
Basic and diluted earnings per share
$ (0.00) $ (1.01) $ (0.43) $ (1.69)
============ ============ ========== ==========
</TABLE>
NOTE 3. RELATED PARTY TRANSACTIONS.
On March 30, 2000, two officers of the Company loaned ImageWare $58,000
pursuant to short-term promissory notes. This debt was incurred to meet
working capital needs. The entire amount of the notes was due on the date the
Company closed its Initial Public Offering. The loan was paid in full on
April 5, 2000.
On June 15, 2000, the Company paid in full two short-term promissory notes
due an officer of the Company and member of the Board of Directors in
accordance with the maturity date of these notes.
NOTE 4. INITIAL PUBLIC OFFERING
On March 31, 2000, the Company completed an IPO of 1,875,000 units, (units
consists of one share of common stock and a warrant to purchase one share of
common stock) at $8.00 per unit. Net proceeds to ImageWare aggregated
approximately $13.5 million. The IPO proceeds were received by the Company on
April 5, 2000. On May 2, 2000 the Company received approximately $2.0 million
in additional net proceeds from the exercise the of the over allotment option
by the underwriter to sell an additional 281,250 units. The Company utilized
approximately $3.5 million of the proceeds to reduce notes payable in the
second quarter of 2000.
NOTE 5. LETTER OF CREDIT
As collateral for performance on the Company's operating lease for its office
and research and development facilities, the Company is contingently liable
under an irrevocable standby letter of credit in the amount of $120,000. The
letter of credit expires July 31, 2003 and will automatically reduce to
$90,000 on August 1, 2000, $60,000 on August 1, 2001, and $30,000 on August
1, 2002 provided there are no drawings against the outstanding balance. As a
condition, the bank required the Company to invest $120,000 in the form of a
one year certificate of deposit which matures in June 2001.
NOTE 6. SUBSEQUENT EVENTS
On July 7, 2000 ImageWare announced that it had signed a definitive agreement
to acquire Imaging Technology Corporation ("ITC") of Hudson, MA in a stock
transaction.
Founded in 1994, ITC develops digital imaging software for photo
identification cards and documents. ITC's software is used for driver's
licenses, voter registration programs, national ID programs, passport
programs and for public and private security applications.
ITC sells its ID software worldwide through OEMs, agents, resellers and
system integrators such as Sensormatic/Software House, Polaroid, and
Cardkey/Johnson Control.
ITC has powered solutions ranging from a Polaroid branded ID card product, ID
Cardmaker-TM-, to full identification solutions for Massachusetts Institute
of Technology, the U.S. Bureau of Engraving and Printing, JFK International
Airport and for the countries such as Nigeria and Peru.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risk and
uncertainties. ImageWare Systems, Inc.'s ("ImageWare" or "the Company")
future results could differ materially from those discussed here. Factors
that could cause or contribute to such differences include but are not
limited to: fluctuations in the Company's operating results, continued new
product introductions by the Company, market acceptance of the Company's new
product introductions, new product introductions by competitors,
technological changes in the digital imaging industry, uncertainties
regarding intellectual property rights and the other factors referred to
herein including, but not limited to, the items discussed under "Risk
Factors" in the Company's SB-2 registration statement dated March 30, 2000.
The following discussion should be read in conjunction with the consolidated
financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly results may occur as a result of factors
affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and the Company's
customers' political and budgetary constraints. Due to such fluctuations,
historical results and percentage relationships are not necessarily
indicative of the operating results for any future period.
7
<PAGE>
OVERVIEW
ImageWare Systems, Inc. develops, sells and supports a suite of modular
software products used by law enforcement and public safety agencies to
manage criminal history records and to investigate crime. Its software
systems and associated hardware enable its customers to quickly capture,
archive, search, retrieve and share digital photographs and criminal history
records.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Product revenues increased 154% from $0.7 million for the three
months ended June 30, 1999 to $1.7 million for the corresponding period in
2000. The increase reflected the further purchases of the Crime Capture
System by new and existing customers. The backlog of product orders as of
June 30, 2000 was approximately $1.1 million.
Customer service revenues decreased 8% from $385,000 for the three months
ended June 30, 1999 to $356,000 for the corresponding period in 2000. In
1999, the Company offered its UNIX-based customers incentives to upgrade to
the Windows-based Crime Capture System. As part of the upgrade incentives,
the customers received reduced maintenance fees in 1999, a portion of which
carried over into 2000 due primarily to the timing of the installations late
in 1999 with maintenance commencing 90 days after final system acceptance.
These price reductions were justified based upon the need to consolidate the
number of versions of systems the Company would have to support and to avoid
the cost of bringing the older installations into Y2K compliance. The Company
does not expect to offer similar price reductions in the future and expects
customer service revenues to increase along with its expanded installed base.
COST OF REVENUES. Cost of products and maintenance increased 15% from $0.5
million, or 49% of revenue, for the three months ended June 30, 1999 to $0.6
million, or 30% of revenue for the corresponding period in 2000. Cost of
product revenues was unchanged from $0.3 million in 1999 to $0.3 million for
the corresponding period in 2000. Cost of product revenues as a percentage of
product sales decreased from 48% for the three months ended June 30, 1999 to
18% for the corresponding period in 2000. This reduction was due to a higher
than normal concentration of software only product mix during the three
months ended June 30, 2000. Costs of products can vary as a percentage of
product revenue from quarter to quarter depending upon product mix and the
hardware content included in systems installed during a given period. Costs
of maintenance revenue increased $0.1 million as the Company increased
staffing levels to maintain optimal service to its expanding installed base.
GROSS MARGINS. Total gross margins increased from $0.6 million, or 51% of
revenues, for the three month period ended June 30, 1999 to $1.4 million, or
70% of revenues for the corresponding period in 2000. Gross margins related
to product sales increased from $0.3 million, or 52% of revenues, to $1.4
million or 82% of revenues for the corresponding period in 2000 due to an
uncharacteristically high product mix of software only components. Gross
margins related to maintenance revenues decreased from $163,000 for the three
months ended June 30, 1999 to $46,000 for the corresponding period in 2000
due to increased staffing levels and the impact of the upgrades of the
Company's UNIX based customers on maintenance revenue.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses are comprised primarily of salaries for
administrative personnel, legal and professional services, occupancy and
communication costs. Such expenses decreased 15% from $0.8 million for the
three months ended June 30, 1999 to $0.7 million for the corresponding period
in 2000 due primarily to a one-time charge for costs associated with loan
guarantees by certain officers and directors of the Company in 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of the
salaries, commissions, other incentive compensation, employee benefits and
travel expenses of the Company's sales force. Such expenses increased 7% from
$281,000 for the three months ended June 30, 1999 to $301,000 for the
corresponding period in 2000 due primarily to increased salaries as the
Company enlarged and restructured its sales force to better capture market
opportunities.
8
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development costs consist primarily of
salaries, employee benefits and outside contractors for new product
development, product enhancements and custom integration work. Such expenses
increased 14% for the three months ended June 30, 1999 from $265,000 in 1999
to $302,000 for the corresponding period in 2000. The Company expects to
continue to invest in the development of products for which it believes there
is a need in the market, however, there can be no assurance that research and
development programs invested in by the Company will be successful or that
products resulting from such programs will achieve market acceptance.
INTEREST EXPENSE, NET. For the three months ended June 30, 1999, the Company
recognized interest income of $2,000 and interest expense of $106,000. For
the three months ended June 30, 2000, the Company recognized interest income
of $102,000 and interest expense of $15,000. Interest income increased
substantially due to higher cash and cash equivalents held in interest
bearing accounts, resulting from the proceeds of the Company's initial public
offering. Interest expense decreased substantially due to the paydown of
interest bearing obligations.
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES. Product revenues increased 120% from $1.4 million for the six
months ended June 30, 1999 to $3.1 million for the corresponding period in
2000. The increase reflected the further purchases of the Crime Capture
System by new and existing customers.
Customer service revenues decreased 15% from $0.7 million for the six months
ended June 30, 1999 to $0.6 million for the corresponding period in 2000. In
1999, the Company offered its UNIX-based customers incentives to upgrade to
the Windows-based Crime Capture System. As part of the upgrade incentives,
the customers received reduced maintenance fees in 1999, a portion of which
carried over into 2000 due primarily to the timing of the installations late
in 1999 with 90 day warranties and maintenance commencing 90 days after final
system acceptance. These price reductions were justified based upon the need
to consolidate the number of versions of systems the Company would have to
support and to avoid the cost of bringing the older installations into Y2K
compliance. The Company does not expect to offer similar price reductions in
the future and expects customer service revenues to increase along with its
expanded installed base.
COST OF REVENUES. Cost of products and maintenance increased 51% from $1.0
million, or 44% of revenue, for the six months ended June 30, 1999 to $1.5
million, or 39% of revenue for the corresponding period in 2000. Cost of
product revenues increased 57% from $0.6 million, or 39% of revenue in 1999
to $0.9 million, or 28% of revenue for the corresponding period in 2000. The
decrease in product revenues as a percentage of product sales from 39% for
the six months ended June 30, 1999 to 28% for the corresponding period in
2000 was due to a higher than normal concentration of software only product
mix during the six months ended June 30, 2000. Costs of products can vary as
a percentage of product revenue from quarter to quarter depending upon
product mix and the hardware content included in systems installed during a
given period. Costs of maintenance revenue increased $0.2 million as the
Company increased staffing levels to maintain optimal service to its
expanding installed base.
GROSS MARGINS. Total gross margins increased from $1.3 million, or 56% of
revenues, for the six month period ended June 30, 1999 to $2.3 million, or
61% of revenues for the corresponding period in 2000. Gross margins related
to product sales increased from $0.9 million, or 61% of revenues, to $2.2
million or 72% of revenues for the corresponding period in 2000. Gross
margins related to maintenance revenues decreased from $312,000 for the six
months ended June 30, 1999 to $10,000 for the corresponding period in 2000
due to increased staffing levels and the impact of the upgrades of the
Company's UNIX based customers on maintenance revenue.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses are comprised primarily of salaries for
administrative personnel, legal and professional services, occupancy and
communication costs. Such expenses increased 12% from $1.2 million for the
six months ended June 30, 1999 to $1.3 million for the corresponding period
in 2000.
SALES AND MARKETING. Sales and marketing expenses consist primarily of the
salaries, commissions, other incentive compensation, employee benefits and
travel expenses of the Company's sales force. Such expenses
9
<PAGE>
increased 42% from $0.5 million for the six months ended June 30, 1999 to
$0.7 million for the corresponding period in 2000 due primarily to increased
salaries and commissions as the Company enlarged and restructured its sales
force to better capture market opportunities.
RESEARCH AND DEVELOPMENT. Research and development costs consist primarily of
salaries, employee benefits and outside contractors for new product
development, product enhancements and custom integration work. Such expenses
increased 10% from $569,000 in 1999 to $624,000 for the corresponding period
in 2000. The Company expects to continue to invest in the development of
products for which it believes there is a need in the market; however, there
can be no assurance that research and development programs invested in by the
Company will be successful or that products resulting from such programs will
achieve market acceptance.
INTEREST EXPENSE, NET. For the six months ended June 30, 1999, the Company
recognized interest income of $3,000 and interest expense of $195,000. For
the six months ended June 30, 2000, the Company recognized interest income of
$105,000 and interest expense of $189,000. Interest income increased
substantially due to higher cash and cash equivalents held in interest
bearing accounts, resulting from the proceeds of the Company's initial public
offering, such proceeds received by the Company on April 5, 2000.
LIQUIDITY AND CAPITAL RESOURCES. Since inception, the Company has funded
operations primarily from proceeds from the sale of stock and borrowings from
individuals and financial institutions. On March 31, 2000, the Company
completed an IPO of 1,875,000 units, (units consist of one share of commons
stock and a warrant to purchase one share of common stock) at $8.00 per unit.
Net proceeds to ImageWare aggregated approximately $13.5 million. The IPO
proceeds were received by the Company on April 5, 2000. On May 2, 2000 the
Company received approximately $2.0 million in additional net proceeds from
the exercise of the over allotment option by the underwriter to sell an
additional 281,250 units.
As of June 30, 2000, ImageWare had total current assets of $11.9 million and
total current liabilities of $2.7 million, or working capital of $9.2 million.
Net cash used in operating activities was $0.5 million for the six months
ending June 30, 1999 as compared to $4.3 million for the six months ending
June 30, 2000. The Company used cash to fund net losses of $1.7 million for
the six months ended June 30, 1999 and $0.9 million for the corresponding
period in 2000. In 1999, the Company used cash of $0.5 million to fund
increases in current assets offset by increases in current liabilities of
$0.8 million (excluding debt) and $0.9 from non cash expenses (depreciation,
amortization and non cash compensation). In 2000, the Company used cash of
$1.3 million to fund increases in current assets and other long-term assets,
$2.6 million from decreases in current liabilities and deferred revenues
(excluding debt) offset by $0.5 million from non cash expenses (depreciation,
amortization and non-cash compensation).
Net cash generated by financing activities was $0.5 million for the six
months ending June 30, 1999 as compared to $12.0 million for the
corresponding period of 2000. Net cash generated for the six months ending
June 30, 2000 was primarily from net proceeds of $15.6 million from the
company's IPO, completed March 31, 2000, offset by repayment of loans of $3.4
million, dividends paid on the Company's Series B preferred stock of $181,000
and the repurchase of the Company's common stock of $64,000.
The Company believes that the funds held in cash and cash equivalents and
funds provided by operations will be sufficient to finance its working
capital requirements for at least the next twelve months.
The Company is currently considering strategic transactions and alternatives
with the goal of maximizing stockholder value. These transactions may include
a variety of different business arrangements, including acquisitions,
strategic partnerships, joint ventures and business combinations. Such
transactions create a number of risks for the Company, including the risk
that such transactions may not be consummated on favorable terms or at all,
the risk that such transactions may not enhance stockholder value and may
adversely affect the business or the trading price of the Company's stock and
the risk that any such transaction may require the Company to incur
non-recurring or other charges and may pose significant integration
challenges and/or management and business disruptions.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES
On March 30, 2000, the Securities and Exchange Commission declared the
Company's Amendment No. 2 of the Registration Statement on Form SB-2
(333-93131) effective under the Securities Act of 1933, as amended.
The registered securities were offered to the public on March 31,
2000, and the offering terminated on the same day, with the sale of
all of the registered securities. The managing underwriters of the
offering were Paulson Investment Company, Inc. and I-Bankers
Securities, Inc.
As of March 31, 2000, the Company sold 1,875,000 of the 2,156,250
units registered for an aggregate offering price for the amount sold
of $15,000,000. The aggregate price of the offering amount registered
was $17,250,000. Each unit consists of one share of common stock and
one public warrant to purchase an additional share of common stock.
The common stock and public warrants traded only as a unit until May
1, 2000, when the units separated and the common stock and warrants
began trading separately.
On April 18, 2000, the Company repurchased 6,704 shares of common
stock for an aggregate price of $63,688.
On May 2, 2000, the Company sold the remaining 281,250 units
registered for an aggregate offering price of $2,250,000.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IMAGEWARE SYSTEMS, INC.
By: /s/ Wayne Wetherell
----------------------------------------
Wayne Wetherell, Chief Financial Officer
