ImageWare Systems Reports Operating Profit For Third Quarter 2003; -- Company to Retire Outstanding Secured Debt --.Business Editors/High-Tech Writers SAN DIEGO--(BUSINESS WIRE)--Nov. 19, 2003 ImageWare Systems, Inc. (AMEX AMEX See: American Stock Exchange : IW) today reported financial results for the third quarter ended September 30, 2003. For the quarter ended September 30, 2003 total revenues were $4.8 million, up 2% from $4.7 million reported for the third quarter of 2002. The increase from the prior year is due to increases in revenues from the Company's identification and professional photography segments. The Company achieved income from operations for the quarter of $10,000, which represents a significant improvement over the loss from operations of $716,000 for the same quarter in 2002. The improvement in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. over the third quarter 2002 is due both to a significant improvement in gross margins and to lower operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . Gross margins, which can fluctuate from period to period due to product mix, were 65% of revenue in the quarter ended September 30, 2003 compared to 57% for the same period last year. The increase in gross margin was due to a higher level of software in the product mix for the identification segment revenue in quarter ended September 30, 2003. Cost cutting measures taken by the Company over the past year resulted in lower operating expenses. Net loss for the period decreased to $116,000, or $0.02 per share for the quarter, compared with a net loss of $964,000, or $0.18 per share for the same period last year. The decrease in the net loss is due to the improvement in operating income and decreased interest expense, which for the quarter ended September 30, 2003 totaled $69,000 compared to $250,000 reported for third quarter 2002. The decrease in interest expense in the quarter ended September 30, 2003 was the result of several significant one-time offsetting entries related to the promissory notes promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. and warrants issued in previous debt financings Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay undertaken by the Company in 2002 and 2003. Each component of the Company's interest expense line is presented in the table below. It is also further discussed in the Company's Form 10QSB QSB Fading QSB Qualified Small Business (IRS category) QSB Queen Street Backpackers (Auckland, New Zealand) QSB Quality System Basics QSB Qualified Supplemental Benefit QSB Quantum Singleton Bound as filed with the SEC on November 14, 2003.
THREE MONTHS ENDED
September 30,
2003 2002
(in thousands)
Components of net interest expense (income):
Interest Expense (Income) related to debt
Coupon interest rate expense $163 $100
Amortization to interest expense of note
discount related to fair value of warrants 262 67
Amortization to interest expense of note
discount related to beneficial conversion
feature 277 67
Interest expense from amortization of
deferred financing fees 80 34
Sub Total 782 268
Change in warrant liability classified as
interest (income) or expense (711) --
-based on a revaluation of warrants as of
September 30, 2003
Interest Income (2) (18)
Total Interest Expense (Income) 69 250
"Since our last round of debt financing in the second quarter of 2003, management's priority has been to recapitalize re·cap·i·tal·ize tr.v. re·cap·i·tal·ized, re·cap·i·tal·iz·ing, re·cap·i·tal·iz·es To change the capital structure of (a corporation). re·cap the Company's balance sheet and retire our outstanding secured debt," stated Wayne Wetherell, ImageWare's senior vice president and CFO See Chief Financial Officer. . "The goal has been to stabilize stabilize See peg. our balance sheet and eliminate the strain the interest expense placed on our cash resources and net income." On November 14, 2003, ImageWare announced it had entered into agreements for the sale of approximately 4,070,000 shares of its common stock and warrants to purchase up to an additional 814,000 shares of common stock to certain institutional and accredited investors Accredited Investor A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Also known as "qualified purchaser". (which is further discussed in the company's Form 8K as filed with the SEC on November 17, 2003). The Company expects to raise approximately $7 million from the private placement, which is subject to closing conditions and is expected to close on November 24, 2003. "These funds will enable us to retire the Company's 12.5% secured debt and strengthen our working capital, giving ImageWare more flexibility as we execute our business plan and pursue opportunities in our markets without the constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. of restrictive, high coupon debt and inadequate working capital," stated Jim Miller Jim Miller may refer to any of the following individuals:
Miller added that this last quarter saw the continued validation of ImageWare's products with the following achievements: -- Announced agreement with Hallmark Cards Hallmark Cards, a privately owned American company based in Kansas City, Missouri, is the largest manufacturer of greeting cards in the United States. Approximately 50% of greeting cards sent in the United States every year are manufactured by Hallmark. , Inc. under which ImageWare will provide an enterprise-wide digital studio workflow solution for The Picture People. The Picture People is a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Hallmark hallmark, mark impressed on silverwork or goldwork to signify official approval of the standard of purity of the metal, also called plate mark. The hallmark was introduced by statute in England in 1300 and enforced by the Goldsmiths' Hall, London. that operates more than 300 contemporary, family and children portrait stores across the U.S. -- Established Fargo Electronics, Inc. as a master distributor of ImageWare's off-the-shelf photo Identification software EPI EPI exocrine pancreatic insufficiency. Suite(R). -- The deployment of ImageWare's law enforcement solutions at the SeaTac, Wash., Greenwich and New Haven New Haven, city (1990 pop. 130,474), New Haven co., S Conn., a port of entry where the Quinnipiac and other small rivers enter Long Island Sound; inc. 1784. Firearms and ammunition, clocks and watches, tools, rubber and paper products, and textiles are among the many , Conn., Escondido, Calif., and Ramsey County There are two places in the United States named Ramsey County:
customers that expanded their use of Imageware law enforcement solutions during the quarter include the Arizona Department of Public Safety, Ariz., Los Angeles County Sheriff's Department This article is about the Los Angeles County Sherriff's Department, not to be confused with the smaller Los Angeles County Police The Los Angeles County Sheriff's Department (LASD) is a local law enforcement agency that serves Los Angeles County, California. , Calif. and Clark County Clark County is the name of twelve counties in the United States of America:
About ImageWare Systems, Inc. ImageWare Systems, Inc. (AMEX:IW) is the leading global developer of digital imaging, identification and biometric software solutions for the corporate, government, law enforcement, professional photography, transportation, education and healthcare markets, among others. ImageWare's secure credential credential verb To determine or verify titles, qualifications, documents, completion of required training, and continuing education, in those persons who function in a professional or official capacity–eg, ER physician, neurosurgeon, etc. Cf Credentials. and biometric product lines are used to produce ID cards, driver licenses, passports, national medical health cards, national IDs and more. The Company's law enforcement and biometric product lines provide the public safety market with booking, investigative and identification solutions that can be accessed and shared via PC, Web and wireless platforms. ImageWare's professional digital imaging product line provides professional photographers with automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. , in-studio and mobile solutions to facilitate the transition from film-based photography to digital imaging. Founded in 1987, ImageWare is headquartered in San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , with offices in Canada, Europe and Asia. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement Statements in this press release that are not strictly historical in nature are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These statements include, but are not limited to references to the proposed financing, the anticipated use of the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of the proposed financing, and expectations regarding future operating results. Forward-looking statements involve known or unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to: the risk that the equity investment does not close as anticipated; the risk that the Company's target markets will not grow as expected; risks related to our ability to achieve and sustain profitability and generate cash internally or to obtain adequate capital for operations from outside sources; risks related to our acquisition strategies and the integration of acquired companies; risks associated with our dependence on a small number of large sales to customers with political purchasing constraints; risks related to our lengthy sales cycle; our reliance on third-party systems integrators An individual or organization that builds systems from a variety of diverse components. With increasing complexity of technology, more customers want complete solutions to information problems, requiring hardware, software and networking expertise in a multivendor environment. and on third-party technology licenses; fluctuations in our operating results; continued new product introductions and market acceptance of our new products; new product introductions by competitors; technological changes in the our industry; uncertainties regarding intellectual property rights. For a discussion of these and other factors which may cause our actual events or results to differ from those projected, please refer to the Company's most recent annual report on Form 10-KSB and quarterly reports on Form 10-QSB, as well as other subsequent filings with the Securities and Exchange commission.
SELECTED COMPARATIVE FINANCIAL HIGHLIGHTS
In thousands, except per share amounts
Three Months Nine Months
Ended Ended
September September
30, 30,
2003 2002 2003 2002
Revenues
Product $4,167 $3,942 $10,636 $10,601
Maintenance 590 729 2,180 2,074
License and
other -- -- -- --
Total Revenues 4,757 4,671 12,816 12,675
Cost of Revenue
Product 1,405 1,695 4,482 4,620
Maintenance 270 306 939 848
Gross Profit 3,082 2,670 7,395 7,207
65% 57% 58% 57%
Operating
Expenses
General &
administrative 1,461 1,646 4,343 5,037
Sales and
marketing 883 957 3,020 3,158
Research and
development 509 538 1,439 1,563
Depreciation and
amortization 219 245 692 660
Total
Operating
Expenses 3,072 3,386 9,494 10,418
Income (loss) from
operations 10 (716) (2,099) (3,211)
Interest (income)
expense, net 69 250 2,323 362
Other (income)
expense, net 57 (2) (116) 21
Loss before
income taxes (116) (964) (4,306) (3,594)
Income taxes 0 0 0 0
Net loss $(116) $(964) $(4,306) $(3,594)
Per share data --
basic and diluted
Net loss (0.02) (0.18) (0.79) (0.66)
Basic and diluted
common shares 5,489,390 5,485,210 5,489,390 5,483,280
CONSOLIDATED
BALANCE SHEETS
In thousands
September December
30, 31,
2003 2002
Assets:
Cash $634 $215
Restricted cash
and cash
equivalents 0 60
Accounts
receivable,
net 1,375 3,295
Inventories 1,692 1,882
Other current
assets 450 422
Property and
equipment, net 794 1,040
Other assets 1,039 744
Intangible
assets, net 1,216 1,562
Goodwill 5,298 5,298
Total Assets $12,498 $14,518
Liabilities and
Shareholders'
Equity:
Current
liabilities $4,747 $6,958
Notes payable,
net of discount 1,298 1,252
Pension
obligation 465 406
Warrant
liability 1,647 0
Stockholders'
equity 4,341 5,902
Total Liabilities
and Shareholders'
Equity $12,498 $14,518
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