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ImageWare Systems Reports 2004 Second Quarter Results
SAN DIEGO, CA, August 13, 2004 - ImageWare® Systems, Inc. (AMEX: IW),
today reported financial results for the second quarter ended June 30, 2004.
For the quarter ended June 30, 2004 total revenues were $2.7 million, down 41% from $4.6 million reported for the second quarter of 2003. The decrease from the prior year is due to decreases in revenues of $2.1 million from the Company’s identification and professional photography segments offset by increases of $0.2 from the Company’s law enforcement segment. In the third and fourth quarter of 2003 the Company took actions to reposition its foreign sales offices in Germany and Singapore to lower fixed costs and pursue significant international ID projects utilizing the Company’s software technologies as its primary differentiator. These offices had historically emphasized the resale of third party merchandise (hardware and consumables) which generated lower gross margins than software (as a percentage of revenue) and required significant fixed costs for sales, service and support. Revenues from these two locations were $1.3 million below their levels in the same quarter of 2003, however, fixed costs in those locations were approximately $400,000 lower in the quarter than the previous year.
The loss from operations totaled $1,039,000 in the quarter, up 51% from $688,000 in the second quarter of 2003. The operating loss increase is due to lower revenues. Gross margins, which can fluctuate from period to period due to product mix, were 70% of revenue in the quarter ended June 30, 2004 compared to 53% for the same period last year. The increase in gross margin percentage was due to a higher level of software in the product mix for all segments. Cost cutting measures taken by the Company over the past year resulted in lower operating expenses of $234,000 despite its increased investment in research and development activities during the quarter for the development of the new IWS™ Biometric Engine® and web enablement of the law enforcement product line.
Net loss for the period increased to $4.9 million, or $0.42 per share for the quarter, compared with a net loss of $2.5 million, or $0.46 per share for the same period last year. The increase in the net loss is due to the increased loss from operations and increased interest expense, which for the quarter ended June 30, 2004 totaled $3.9 million compared to $1.9 million reported for second quarter 2003.
The increase in interest expense in the quarter ended June 30, 2004 was primarily the result of several significant one-time entries related to the valuation of warrants issued in previous debt and equity financings undertaken by the Company in 2003 and 2004. 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 to be filed with the SEC on August 16, 2004.
| |
Three Months Ended |
| |
June
30 |
| Components of net interest expense (income): |
2004 |
2003 |
| |
in
thousands |
| Interest
expense (income) related to debt: |
|
|
| Coupon
interest rate expense |
$
5 |
$163 |
Amortization
to interest expense of note discount related to
fair value
of warrants |
$
0 |
$111 |
Amortization
to interest expense of note discount related to
beneficial
conversion feature |
$
0 |
$1,058 |
| Interest
expense from amortization of deferred financing fees |
$
0 |
$241 |
| Subtotal |
$
5 |
$1,573 |
| |
|
|
Change
in warrant liability classified as interest (income)
or
expense
-based
on a revaluation of warrants as of June 30, 2004 |
$3607 |
$321 |
| |
|
|
| Interest
expense from incurrence of liquidated damages related to
non-timely registration of common stock |
$290 |
$
0 |
| |
|
|
| Interest
income |
($
3) |
$
0 |
| Total
interest expense (income) |
$3,898 |
$1,893 |
“It may not be evident from the results posted thus far in 2004, but ImageWare’s management team has never been so confident about its positioning in terms of product offering, position in the marketplace and our ability to deliver,” stated Jim Miller, ImageWare’s chairman and CEO. “We have taken the actions necessary to align the company with the market opportunity as we see it. In some cases these actions required us to cut costs and give up revenues in the short term that did not meet our strategic criteria. As a result, we have seen our pipeline of identified prospective project opportunities expand fivefold during the past four quarters; however, we have been frustrated during the past few quarters that none of these significant opportunities have been converted into revenue or backlog. We are heartened by the fact we have not lost any of these opportunities and they are still out there for us to pursue.”
Miller added that in recent months we saw the continued validation of ImageWare’s products and capabilities with the following achievements:
- The deployment of ImageWare’s new IWS™ Biometric Engine® with the Arizona Department of Public Safety to enable it to search driver’s license images stored in the statewide Arizona Automated Fingerprint Identification System/Mug Photo Interface Subsystem.
- We announced an agreement with Hewlett-Packard to jointly pursue market products, services, and solutions for U.S. Federal Government projects. Projects under consideration include using advanced identity management tools, including biometrics, to address various homeland security requirements of the U.S. government.
- We entered into a teaming agreement with Secured Digital Applications, Inc. to market the companies biometric and identification technology to private and public sector customers in Malaysia, Thailand, and Brunei.
- We announced a co-marketing agreement with ActivCard to undertake joint marketing initiatives to develop new business opportunities together for enhanced identity management and secure identity solutions.
SELECTED COMPARATIVE FINANCIAL HIGHLIGHTS
In thousands, except per share amounts
| |
3
Months Ending |
6
Months Ending |
| |
June
30
2004 |
June
30
2003 |
June 30
2004 |
June
30 2003 |
| Revenues |
|
|
|
|
| Product |
$2,199 |
$3,835 |
$4,079 |
$6469 |
| Maintenance |
$ 479 |
$ 792 |
$ 963 |
$1,590 |
| Total Revenues |
$2,678 |
$4,627 |
$5,042 |
$8,059 |
|
| Cost of Revenues |
|
|
|
|
| Product |
$ 568 |
$1,840 |
$1,070 |
$3,077 |
| Maintenance |
$ 222 |
$ 314 |
$ 470 |
$ 669 |
| Gross Profit |
$1,888 |
$2,473 |
$3,502 |
$4,313 |
| |
70% |
53% |
69% |
54% |
|
| Operating Expenses |
|
|
|
|
| General & Administrative |
$1,135 |
$1,439 |
$2,277 |
$2,881 |
| Sales & Marketing |
$ 890 |
$1,048 |
$1,572 |
$2,137 |
| Research & development |
$ 722 |
$ 437 |
$1,355 |
$ 931 |
| Depreciation and amortization |
$ 180 |
$ 237 |
$ 371 |
$ 473 |
| Total Operating Expenses |
$2,927 |
$3,161 |
$5,575 |
$6,422 |
|
| Income (loss) from operations |
($1,039) |
($ 688) |
($2,073) |
($2,109) |
|
| Interest (income) expense, net |
$3,898 |
$1,893 |
$5,189 |
$2,254 |
| Other (income) expense, net |
($ 9) |
($ 92) |
($ 29) |
($ 173) |
| Loss before income taxes |
($4,928) |
($2,489) |
($7,233) |
($4,190) |
| Income taxes |
$ 0 |
$ 0 |
$ 0 |
$ 0 |
| Net loss |
($4,928) |
($2,489) |
($7,233) |
($4,190) |
|
| Per share data - basic and diluted |
|
|
|
|
| Net loss |
($0.42) |
($0.46) |
($0.63) |
($0.77) |
|
| Basic and diluted common shares |
11,825,414 |
5,489,390 |
11,517,716 |
5,489,390 |
CONSOLIDATED BALANCE SHEETS
In thousands
| |
June 30,
2004 |
Dec.
31, 2003 |
| Assets: |
|
|
| Cash |
$3,727 |
$ 578 |
| Restricted cash and cash equivalents |
$ 107 |
$ 155 |
| Accounts receivable, net |
$1,960 |
$1,450 |
| Inventories |
$ 727 |
$ 805 |
| Other current assets |
$ 388 |
$ 203 |
| Property and equipment, net |
$ 518 |
$ 635 |
| Other assets |
$ 565 |
$ 570 |
| Intangible assets, net |
$ 929 |
$1,121 |
| Goodwill |
$5,298 |
$5,298 |
| Total Assets |
$14,219 |
$10,815 |
|
| Liabilities and Stockholders' Equity: |
|
|
| Current liabilities |
$3,359 |
$3,312 |
| Warrant liabilities |
$ 0 |
$3,460 |
| Pension obligation |
$ 776 |
$ 732 |
| Stockholders' equity |
$10,084 |
$3,311 |
| Total Liabilities and Stockholders' Equity |
$14,219 |
$10,815 |
About ImageWare Systems, Inc.
ImageWare Systems, Inc. (AMEX:IW), is a leading developer and provider of identity management solutions, providing biometric, secure credential, law enforcement and digital imaging technologies. Scalable for worldwide deployment, the Company's biometric product line includes a multi-biometric engine that is hardware and algorithm independent, enabling the enrollment and management of unlimited population sizes. ImageWare's identification products are used to manage and issue secure credentials including national IDs, passports, driver licenses, smart cards and access control credentials. ImageWare's digital booking products provide law enforcement with integrated mug shot, fingerprint Livescan and investigative capabilities. The Company also provides comprehensive digital workflow solutions for the professional photography industry. ImageWare is headquartered in San Diego, with offices in Washington DC and Canada. For more information visit www.iwsinc.com.
Safe Harbor Statement
This news release may contain forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. While these statements are meant to convey to the public the company's progress, business opportunities and growth prospects, readers are cautioned that such forward-looking statements represent management's opinion. While management believes such representation to be true and accurate based on the information available to the company, actual results may differ materially from those described. The company's operations and business prospects are always subject to risks and uncertainties. Important facts that may cause actual results to differ are set forth in the company’s periodic filings with the U.S. Securities and Exchange Commission.
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