941685--4/15/2008--IMAGEWARE_SYSTEMS

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RISKS RELATED TO OUR BUSINESS Risks Related to Our Business We have incurred net losses in our six most recent fiscal years and AMEX has issued us a letter that it intends to remove our common stock from listing and registration on the exchange We have a history of significant recurring losses totaling approximately $75.9 million, and these losses may continue in the future We received a going concern opinion from our independent registered public accounting firm for the fiscal years ended December 31, 2006 and 2007, which may negatively impact our business. We currently have limited cash resources and we will require additional funding to finance our working capital requirements for at least the next twelve months Our current ineligibility to use the Registration Statement on Form S-3 may affect our ability to finance our working capital requirements for the next twelve months 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 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 A significant number of our customers and potential 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 and retain current government customers We may fail to create new applications for our products and enter new markets, which may have an adverse effect on our operations, financial condition and prospects We occasionally rely on systems integrators to manage our large projects, and if these companies do not perform adequately, we may lose business If the patents we own or license, or our other intellectual property rights, do not adequately protect our products and technologies, we may lose market share to our competitors and our business, financial condition and results of operations would be adversely affected 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 The failure to successfully integrate any business or asset acquisitions into our existing operations, or if we discover previously undisclosed liabilities, could negatively affect 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 We depend on key personnel, the loss of any of whom could materially adversely affect future operations Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 may result in substantial costs to us and a diversion of management attention and resources, and failure to maintain adequate internal controls over financial reporting could result in our business being harmed and our stock price declining We face competition from companies with greater financial, technical, sales, marketing and other resources, and, if we are unable to compete effectively with these competitors, our market share may decline and our business could be harmed Risks Related to Our Securities 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 stock price has been volatile, and your investment in our common stock could suffer a decline in value Our 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 If registration rights that we have previously granted are exercised, then the price of our common stock may be adversely affected Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company We do not expect to pay cash dividends on our common stock for the foreseeable future 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 stock s 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

Full 10-K form ▸

941685--4/15/2008--IMAGEWARE_SYSTEMS_INC