941685--4/17/2007--IMAGEWARE_SYSTEMS

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{stock, price, operating}

{property, intellectual, protect}

{product, liability, claim}

{provision, law, control}

{interest, director, officer}

{customer, product, revenue}

{acquisition, growth, future}

{control, financial, internal}

{regulation, government, change}

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RISKS RELATED TO OUR BUSINESS We have had net losses in our five most recent fiscal years and currently have stockholder s 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. We have a history of significant recurring losses totaling approximately $70 million, and these losses may continue in the future. We have received a going concern opinion from our independent registered public accounting firm, 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 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 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. We may fail to create new applications for our products and enter new markets, which may affect our future success. 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, we may lose market share to our competitors and be unable to operate our business profitably. 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. 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 operate in foreign countries and are exposed to risks associated with foreign political, economic and legal environments and with foreign currency exchange rates. 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 stock price has been volatile, and your investment in our common stock could suffer a decline in value. 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. Future sales of our common stock could adversely affect its price. 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--4/17/2007--IMAGEWARE_SYSTEMS_INC