-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKyV2ckMXfYY2Fbxmfam6LxMtwCL84O/4OLam0FVHylO5huZE/veUWIr0XoRmEQ/ E1Gge53SJygnE/blHRKySA== 0000912057-01-520114.txt : 20010618 0000912057-01-520114.hdr.sgml : 20010618 ACCESSION NUMBER: 0000912057-01-520114 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010330 ITEM INFORMATION: FILED AS OF DATE: 20010615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMAGEWARE SYSTEMS INC CENTRAL INDEX KEY: 0000941685 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330224167 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-15757 FILM NUMBER: 1662077 BUSINESS ADDRESS: STREET 1: 10883 THORNMINT RD STREET 2: 619-673-8600 CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6196738600 MAIL ADDRESS: STREET 1: 10883 THORNMINT RD CITY: SAN DIEGO STATE: CA ZIP: 92127 FORMER COMPANY: FORMER CONFORMED NAME: IMAGEWARE SOFTWARE INC DATE OF NAME CHANGE: 19991123 8-K/A 1 a2051602z8-ka.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 March 30, 2001 Date of report (Date of earliest event reported): IMAGEWARE SYSTEMS, INC. (Exact Name of Registrant as Specified in Charter) CALIFORNIA 001-15757 33-0224167 - --------------------------------- ----------------------- ------------------- (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) (COMMISSION FILE NUMBER) IDENTIFICATION NO.) 10833 THORNMINT ROAD SAN DIEGO, CA 92127 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 673-8600 ================================================================================ This Current Report on Form 8-K/A amends Item 7 of the Current Report on Form 8-K filed by ImageWare Systems, Inc. on April 16, 2001, to read as follows: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. The following financial statements of G & A Imaging, Ltd. are filed herein as Exhibit 99.1: Audited Consolidated Balance Sheet at September 30, 2000 and 1999 Audited Consolidated Statement of Operations and Deficit for the year ended September 30, 2000 and 1999 Audited Consolidated Statement of Cash Flows for the year ended September 30, 2000 and 1999 Notes to Audited Consolidated Financial Statements (b) Pro forma financial information. The following unaudited pro forma condensed combined financial statements and notes thereto giving pro forma effect to our acquisition of G & A Imaging, Ltd. are filed herein as Exhibit 99.2: Unaudited Pro Forma Condensed Combined Balance Sheet at December 31, 2000 Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2000 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information (c) The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION 2.1* Asset Purchase Agreement, dated as of March 8, 2001, by and among ImageWare Systems, Inc., I.W. Systems Canada Company, G&A Imaging Ltd. and R&G Imaging Ltd. 23.1 Consent of KPMG LLP, Independent Accountants. 99.1 Audited financial statements of G & A Imaging, Ltd. 99.2 Unaudited pro forma condensed combined financial statements of ImageWare Systems, Inc.
- ------------------ * Previously filed with the Current Report on Form 8-K filed by the Company on April 16, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: June 15, 2001 ImageWare Systems, Inc. /s/ Wayne Wetherell ----------------------------------------- Wayne Wetherell Chief Financial Officer EXHIBITS
EXHIBIT NO. DESCRIPTION 2.1* Asset Purchase Agreement, dated as of March 8, 2001, by and among ImageWare Systems, Inc., I.W. Systems Canada Company, G&A Imaging Ltd. and R&G Imaging Ltd. 23.1 Consent of KPMG LLP, Independent Auditors. 99.1 Audited financial statements of G & A Imaging, Ltd. 99.2 Unaudited pro forma condensed combined financial statements of ImageWare Systems, Inc.
- ------------------ * Previously filed with the Current Report on Form 8-K filed by the Company on April 16, 2001. EX-23.1 2 a2051602zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement (No. 333-51310) on Form S-8 of ImageWare Systems, Inc. of our report dated June 1, 2001, with respect to the consolidated balance sheets of G & A Imaging Ltd. (and subsidiaries) as of September 30, 2000 and 1999, and the related consolidated statements of operations and deficit and cash flows for each of the two years ended Septemer 30, 2000 and 1999, which report appears in the Form 8-K/A of ImageWare Systems, Inc. dated June 15, 2001. /s/ KPMG LLP - ---------------------- Ottawa, Canada June 15, 2001 EX-99.1 3 a2051602zex-99_1.txt EXHIBIT 99.1 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of G & A Imaging Ltd. as at September 30, 2000 and 1999 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made be management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2000 and 1999 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Ottawa, Canada June 1, 2001 G & A IMAGING LTD. Consolidated Balance Sheet September 30, 2000, with comparative figures for 1999 Amounts in Canadian Dollars
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 256,972 $ 887,210 Restricted cash (note 2) 635,583 590,200 Amounts receivable 2,199,174 1,096,138 Investment tax credits receivable 466,948 464,406 Inventory (note 3) 1,637,088 760,487 Prepaid expenses 202,755 221,306 - ------------------------------------------------------------------------------- 5,398,520 4,019,747 Furniture and equipment (note 4) 539,670 598,000 Pension asset (note 5) 139,027 199,341 Software distribution licence (note 6) 411,500 576,101 Goodwill (note 7) 203,456 271,274 Deferred income taxes 32,530 24,974 - ------------------------------------------------------------------------------- $ 6,724,703 $ 5,689,437 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank operating loan (note 8) $ 776,717 $ 415,000 Accounts payable and accrued liabilities 3,835,886 2,030,839 Income taxes payable 229,831 281,984 Unearned revenue 254,531 262,387 Current portion of capital lease obligations (note 9) 82,513 109,134 Current portion of long-term debt (note 10) 572,000 8,800 Due to a related party 195,000 -- - ------------------------------------------------------------------------------- 5,946,478 3,108,144 Capital lease obligations (note 9) 46,430 41,417 Long-term debt (note 10) -- 572,000 Shareholders' equity: Share capital (note 11) 4,982,255 4,982,255 Contributed surplus 1,535,950 1,535,950 Deficit (5,513,406) (4,480,804) Cumulative translation adjustment (273,004) (69,525) - ------------------------------------------------------------------------------- 731,795 1,967,876 Commitments and contingencies (notes 2 and 13) - ------------------------------------------------------------------------------- $ 6,724,703 $ 5,689,437 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. G & A IMAGING LTD. Consolidated Statement of Operations and Deficit Year ended September 30, 2000, with comparative figures for 1999 Amounts in Canadian Dollars
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Revenues: Software $ 4,736,585 $ 4,263,763 Hardware 1,180,278 762,194 Media 4,178,600 3,231,642 Service and maintenance 1,433,377 2,806,663 - ------------------------------------------------------------------------------- 11,528,840 11,064,282 Cost of revenues 4,169,379 3,104,296 - ------------------------------------------------------------------------------- Gross margin 7,359,461 7,959,986 Operating expenses: Sales and marketing 3,799,885 4,868,016 General and administrative 2,665,220 3,222,060 Research and development 1,682,484 1,126,982 Investment tax credits (499,072) (503,236) Amortization 594,884 618,384 - ------------------------------------------------------------------------------- 8,243,401 9,332,206 - ------------------------------------------------------------------------------- Operating loss (883,940) (1,372,220) Interest expense, net (163,770) (154,367) Other income (expense) (15,395) 154,427 - ------------------------------------------------------------------------------- (179,165) (1,372,160) Income tax expense (recovery)(note 12) (30,503) 102,554 - ------------------------------------------------------------------------------- Net loss (1,032,602) (1,474,714) Deficit, beginning of year (4,480,804) (3,006,090) - ------------------------------------------------------------------------------- Deficit, end of year $ (5,513,406) $ (4,480,804) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. G & A IMAGING LTD. Consolidated Statement of Cash Flows Year ended September 30, 2000, with comparative figures for 1999 Amounts in Canadian Dollars
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Cash provided by (used in): Operations: Net loss $ (1,032,602) $ (1,474,714) Items not involving cash: Amortization of furniture and equipment 362,466 381,985 Amortization of goodwill 67,818 71,799 Amortization of software distribution license 164,600 164,600 Deferred income tax (7,556) (34,194) Change in non-cash working capital (85,766) (55,193) - ------------------------------------------------------------------------------- (531,062) (945,717) Investing activities: Purchase of furniture and equipment (221,831) (84,668) Acquisition of business -- (1,182,816) - ------------------------------------------------------------------------------- (221,831) (1,267,484) Financing activities: Increase in restricted cash (117,871) (126,100) Proceeds from related parties 195,000 -- Bank loan proceeds (repayment) 361,717 (230,000) Repayment of capital lease obligations (147,674) (125,709) Proceeds from long-term debt -- 150,000 Repayment of long-term debt (8,800) (15,098) Proceeds from issue of share capital, net of expenses -- 2,444,078 - ------------------------------------------------------------------------------- 282,372 2,097,171 Cumulative translation adjustment (159,717) (164,941) - ------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (630,238) (280,971) Cash and cash equivalents, beginning of year 887,210 1,168,181 - ------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 256,972 $ 887,210 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Cash and cash equivalents is defined as cash and certificates of deposit. See accompanying notes to consolidated financial statements. G & A IMAGING LTD. Notes to Consolidated Financial Statements Year ended September 30, 2000 - -------------------------------------------------------------------------------- The Company is a developer and publisher of software that catalogues and manages digital images such as photographs, graphics, signatures and fingerprints and a developer of the hardware and media related products that accompany the software. The Company's products incorporate its expertise in relational database technology and range in scope from commercial applications targeted at the identification card market to software designed to capture, communicate, and manage digital images. 1. Significant accounting policies: (a) Basis of consolidation: The consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries, Digital Imaging International GmbH ("DII") and Digital Imaging Asia Pacific Pte Ltd. and G & A Imaging, Inc. All significant Intercompany transactions and balances have been eliminated. (b) Inventory: Inventory is stated at the lower of cost and net realizable value. (c) Furniture and equipment: Furniture and equipment are recorded at cost and are amortized over the estimated useful lives of the underlying assets on a straight-line basis as follows: --------------------------------------------------------------------- ASSET RATE --------------------------------------------------------------------- Computer hardware and software 33% Office furniture and equipment 20% --------------------------------------------------------------------- (d) Software distribution licence and goodwill: The software distribution licence and goodwill are recorded at cost and are amortized over a period of five years. The net book value of goodwill would be written down if the value was permanently impaired. The Company assesses impairment by determining whether the unamortized goodwill balance can be recovered through the undiscounted future operating cash flow of the related business. (e) Leases: Leases are classified as either capital or operating in nature. Capital leases are those that substantially transfer the benefits and risks of ownership to the lessee. Assets acquired under capital leases are amortized at the same rates as those described in note 1(c). Obligations recorded under capital leases are reduced by rental payments net of imputed interest. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 2 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 1. Significant accounting policies (continued): (f) Revenue recognition: Revenue from software licenses is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Revenue from maintenance agreements is recognized rateably over the term of the related agreements. Revenue from other software-related services is recognized as the services are rendered. Revenue from hardware and media is recognized on delivery and when collectibility is reasonably probable. For contracts with multiple obligations (e.g. deliverable and undeliverable products, support obligations, consulting and other software-related services), the Company allocates revenue to each element of the contract based on objective evidence, specific to the Company, of the fair value of the element. Billings in excess of revenue earned are recorded as unearned revenue. (g) Research and development costs: Research costs are expensed as incurred. Development costs are expensed in the year incurred unless management believes a development project meets the generally accepted accounting criteria for deferral and amortization. In the opinion of management, no development costs incurred to date meet all the criteria for deferral and amortization. Therefore, all development costs have been expensed as incurred. (h) Foreign currency translation: The Company's subsidiaries represent foreign operations. The Company considers that for translation purposes its foreign operations are self-sustaining. The assets and liabilities of self-sustaining foreign operations are translated into Canadian dollars at period-end exchange rates and the resulting unrealized exchange gains or losses are included in the cumulative translation adjustment as a separate component of shareholders' equity. The income statements of such operations are translated at exchange rates prevailing during the year. Monetary assets and liabilities, and revenue and expenses of the parent Company denominated in foreign currencies are translated into Canadian dollars on the following basis: monetary assets and liabilities, at year-end rates of exchange; revenue and expenses, at approximate rates of exchange prevailing at the time of the transaction. All realized and unrealized foreign exchange gains and losses are included in net loss. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 3 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (i) Use of estimates: The preparation of financial statements in conformity with Canadian generally accepted accounting principles required 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 the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 2. RESTRICTED CASH: Restricted cash includes approximately $243,000 (1999 - 125,000), which is held as security for letters of credit issued by a bank for a customer security deposit and a bond investment of $392,583 (1999 - $465,200) which has been pledged to a bank that has provided a guarantee to a customer that provided the security deposit. 3. INVENTORY:
--------------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------------- Software $ 58,438 $ 93,907 Hardware 1,379,013 330,854 Media 199,637 335,726 --------------------------------------------------------------------------- $ 1,637,088 $ 760,487 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
4. FURNITURE AND EQUIPMENT:
---------------------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------------------------- Accumulated Net book Accumulated Net book Cost amortization value Cost amortization value ---------------------------------------------------------------------------------------------------------- Computer hardware and software $ 943,823 $ 795,079 $ 148,744 $ 895,396 $ 703,508 $ 191,888 Office furniture and equipment 587,283 335,351 251,932 501,475 253,239 248,236 ---------------------------------------------------------------------------------------------------------- 1,531,106 1,130,430 400,676 1,396,871 956,747 440,124 Property under capital leases: Computer hardware and software 483,003 378,683 106,320 389,695 282,677 107,018 Office furniture and equipment 89,047 60,373 32,674 100,214 49,356 50,858 ---------------------------------------------------------------------------------------------------------- 582,050 443,056 138,994 489,909 332,033 157,876 ---------------------------------------------------------------------------------------------------------- $2,113,156 $1,573,486 $ 539,670 $ 1,886,780 $ 1,288,780 $ 598,000 ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 4 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 4. FURNITURE AND EQUIPMENT (CONTINUED): During the year, furniture and equipment were acquired at an aggregate cost of $347,897, of which $126,066 were acquired by means of capital leases. Cash payments of $221,831 were made to purchase furniture and equipment. 5. PENSION ASSET: (a) Description: The Company's subsidiary, DII, maintains two defined benefit pension plans that provide benefits based on length of service and final average earnings. Information about the Company's defined benefit plans is as follows:
----------------------------------------------------------------------------------------- Internal pension External pension benefit plan benefit plan 2000 1999 2000 1999 ----------------------------------------------------------------------------------------- Accrued benefit obligation $ 327,011 $ 353,018 $ 432,757 $ 490,082 Fair value of plan assets 466,038 538,329 170,100 129,570 ----------------------------------------------------------------------------------------- Funded status - surplus (deficit) $ 139,027 $ 185,311 $ (262,657) $ (360,512) ----------------------------------------------------------------------------------------- Accrued benefit asset, net of valuation allowance $ 139,027 $ 199,341 $ - $ - -----------------------------------------------------------------------------------------
The significant actuarial assumptions are the same for both plans and have been adopted in measuring the Company's accrued benefit obligation as follows (weighted-average assumptions as of September 30):
---------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------- Discount rate 7.0% 6.5% Expected long-term rate of return on plan assets 7.0% 6.5% Rate on compensation increase 2.5% 2.0% ----------------------------------------------------------------------
Other information about the Company's defined benefit pension plans is as follows:
---------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------- Defined benefit plans expense $ 84,375 $ 83,668 Employer contributions 81,346 202,341 Employees' contributions - - Benefits paid - - ----------------------------------------------------------------------
G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 5 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 6. SOFTWARE DISTRIBUTION LICENCE: The accumulated amortization of the software distribution licence at September 30, 2000 is $411,500 (1999-$246,900). 7. GOODWILL: The accumulated amortization of goodwill at September 30, 2000 is $141,149 (1999-$73,330). 8. BANK OPERATING LOAN: At September 30, 2000, the Company had bank credit facilities that included an operating loan in the maximum amount of $1,087,500 (1999-$750,000). Any amounts that become outstanding on this loan are due on demand and are secured by the amounts receivable of the Company, certain equipment, cash and cash equivalents and guarantees by a related party. The loan balance at September 30, 2000 bears interest at bank prime plus 1/2%. 9. CAPITAL LEASE OBLIGATIONS: The Company leases computer and office equipment under long-term capital leases expiring at various times through November 2002. The Company's obligations under capital leases are as follows:
-------------------------------------------------------------------------- -------------------------------------------------------------------------- 2001 $91,996 2002 43,262 2003 6,182 -------------------------------------------------------------------------- Total minimum lease payments 141,440 Less amount representing interest (at rates ranging from approximately 8.25% to 15.5%) 12,497 -------------------------------------------------------------------------- Present value of minimum lease payments 128,943 Current portion of obligations under capital leases 82,513 -------------------------------------------------------------------------- $ 46,430 -------------------------------------------------------------------------- --------------------------------------------------------------------------
Interest expense of $19,127 (1999-$20,735) relating to capital lease obligations has been included in interest expense. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 6 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 10. LONG-TERM DEBT:
--------------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------------- Loan payable, interest at 10% payable monthly, principal due March 15, 2003 ($400,000) and December 31, 2003 ($150,000). The principal becomes due on demand should a related party cease to control a specific portion of the Company's outstanding shares. Secured by promissory notes and guarantees of related parties $ 550,000 $ 550,000 Loan payable in principal installments of $4,400 every February and August, no interest, due February 2003 22,000 30,800 --------------------------------------------------------------------------- 572,000 580,800 Less current portion 572,000 8,800 --------------------------------------------------------------------------- $ - $ 572,000 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
Due to the change in control of the Company, subsequent to year end (note 16), the long-term debt was repaid. Accordingly, both loans are classified as a current liability at September 30, 2000. 11. SHARE CAPITAL: (a) Authorized share capital: The authorized share capital of the Company consists of an unlimited number of Common Shares, Class A Shares and Class A Preference Shares. Common Shares and Class A Shares: The Common Shares and the Class A Shares rank equally with respect to dividends and the remaining assets of the Company upon liquidation. The holders of the Common Shares are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. The Class A Shares are non-voting. The Class A Shares are automatically converted into an equal number of Common Shares on the earlier of the date on which a change in control occurs and the date on which the Company completes an initial public offering. There are no Class A Shares issued. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 7 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 11. SHARE CAPITAL (CONTINUED): (a) Authorized share capital (continued): Class A Preference Shares: The Class A Preference Shares rank ahead of the Common Shares and the Class A Shares with respect to dividends and the remaining assets of the Company upon liquidation. The Class A Preference Shares carry an annual cumulative dividend of 10% payable upon conversion, retraction or redemption. The shares are retractable at the option of the holder and redeemable at the option of the Company, after June 23, 2002, for an amount equal to the purchase price plus unpaid dividends. The shares are convertible into Common Shares, and entitle the holder to the same number of votes which they would be entitled to if the shares had been converted to Common Shares. Until September 30, 2000 the conversion rate for Class A Preference shares to Common Shares is one to one. After September 30, 2000 the conversion rate is a formula based on an assumed Company value and the actual combined revenue reported by the Company for the 1999 and 2000 fiscal years. The Class A Preference shares automatically convert into Common upon an initial public offering. The undeclared cumulative dividend as at September 30, 2000 is $310,167. (b) Issued share capital:
------------------------------------------------------------------------------------------------ Common Class A Preference ------------------------------------------------------------------------------------------------ Shares Amount Shares Amount ------------------------------------------------------------------------------------------------ Balance, September 30, 1998 10,400,000 1,538,177 - - Shares issued for cash 1,188,572 962,020 2,134,000 1,705,480 Shares issued in exchange for cancellation of debt 297,143 270,833 800,000 729,167 Share Issue costs - (75,105) - (148,317) ------------------------------------------------------------------------------------------------ Balance, September 30, 1999 and 2000 11,885,715 $2,695,925 2,934,000 $2,286,330 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
(c) Warrants: At September 30, 2000, there are 666,668 warrants outstanding, and are exercisable at a price of $1.70 per warrant until September 30, 2002. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 8 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 11. SHARE CAPITAL (CONTINUED): (d) Stock option plan: Under the Company's stock option plan, options to purchase the lesser of 1,300,000 Class A shares or 10% of outstanding Class A shares at the time of the grant may be granted to employees, directors and consultants. Stock options are granted with an exercise price not lower than the stock's fair market value at the date of the grant. The options expire on the fifth September 30th following the grant. Options are granted periodically and vest over four years. One quarter of the options vest immediately on the date of the grant and the balance vest in equal instalments on September 30th of each of the next three years. A summary of the status of the plan is as follows:
--------------------------------------------------------------------------------------------------- 2000 1999 --------------------------- --------------------------- Weighted Weighted average average Shares exercise price Shares exercise price --------------------------------------------------------------------------------------------------- Options outstanding, beginning of year 257,250 $ 0.91 - $ - Granted 198,500 0.91 328,500 0.91 Forfeited (106,500) (0.91) (71,250) (0.91) --------------------------------------------------------------------------------------------------- Options outstanding, end of year 349,250 $ 0.91 257,250 $ 0.91 --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- Options exercisable, end of year 214,938 $ 0.91 128,625 $ 0.91 --------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------
On September 30, 2000, the weighted average remaining contractual life on outstanding shares is 3.8 years. The weighted average exercise price for these shares on September 30, 2000 is $0.91. The weighted average exercise price for options exercisable on September 30, 2000 is $0.91. G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 9 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 12. INCOME TAXES: (a) Income tax expense is attributable to taxes on income earned by DII to September 30, 2000 and is made up of the following components:
---------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------- Current income tax expense (recovery) $ (22,947) $ 136,748 Deferred income tax recovery (7,556) (34,194) ---------------------------------------------------------------------- $ (30,503) $ 102,554 ---------------------------------------------------------------------- ----------------------------------------------------------------------
(b) The Canadian parent company has unused federal and provincial Scientific Research and Experimental Development expenditures of approximately $1,557,000 and $3,386,000, respectively, available to reduce future taxable income for an indefinite period. The Company has investment tax credits of approximately $185,000 available for carryforward against future taxes payable, which begin to expire in 2002. The Company has federal and provincial non-capital losses which expire as follows:
Federal Provincial ---------------------------------------------------------------------- 2002 $ 73,000 $ 30,000 2003 309,000 309,000 2004 392,000 339,000 2005 1,022,000 1,022,000 2006 1,115,000 1,111,000 2007 589,000 589,000 ---------- ---------- $3,500,000 $3,400,000 ========== ==========
The potential benefits arising from these unused federal and provincial Scientific Research and Experimental Development expenditures, investment tax credits and non-capital losses have not been recorded in these financial statements. 13. COMMITMENTS: The Company has signed equipment and vehicle rental, and office space agreements. The future minimum annual lease payments are as follows:
2001 $ 160,500 2002 24,000 2003 16,900 2004 1,400 -------------------------------------------------------------------------- $ 202,800 -------------------------------------------------------------------------- --------------------------------------------------------------------------
G & A IMAGING LTD. Notes to Consolidated Financial Statements, page 10 Year ended September 30, 2000 - -------------------------------------------------------------------------------- 14. RELATED PARTY TRANSACTIONS: During the year ended September 30, 2000, the Company incurred rental expense of approximately $21,500 (1999 - $36,100) for the use of property rented from an officer of the Company and fees of approximately $24,940 (1999 - $32,000) for loan guarantees provided by an officer of the Company and a related party. Also during the year, the Company earned $108,700 (1999 - $142,000) of software, hardware, service and maintenance revenue from a corporation in which its major shareholder was a director of the Company, and paid $31,000 (1999 - $16,000) for accounting services. The interest accrued in 2000 on the amount due to a related party was $12,859. The amount payable to these related parties at September 30, 2000 is $21,342 (1999 - $24,500). 15. FINANCIAL INSTRUMENTS: The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. The Company does not hedge these exposures. Amounts receivable and accounts payable and accrued liabilities at September 30, 2000, include $738,372 (1999 - $528,000) and $182,540 (1999 - $296,000), respectively, which are denominated in U.S. dollars. 16. SUBSEQUENT EVENT: On March 30, 2001, all of the assets and liabilities of the Company, with the exception of the long-term debt, and the amount due to a related party were sold to Image Ware Systems Inc. Cash consideration of $2,500,000 USD as well as 665,000 shares in Image Ware Systems Inc. was received in exchange for the sale. 17. ACQUISITION OF MINORITY INTEREST IN SUBSIDIARY COMPANY: Effective October 1, 1998, the Company acquired 24% of the share capital of DII pursuant to a purchase option agreement dated November 8, 1997, between the Company and the Managing Director of DII. The purchase price for the share capital was $618,514 in cash. The assets acquired are as follows: Net identifiable assests acquired: Cash and certificate of deposit $ 150,640 Non-cash current assets 699,743 Other non-current assets 138,058 Liabilities (714,531) Goodwill 344,604 ------------------------------------------------------------------------- $ 618,514 ------------------------------------------------------------------------- -------------------------------------------------------------------------
18. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting policies ("GAAP") as applied in Canada. The significant differences between Canadian and United States GAAP and their effect on the consolidated financial statements of the Company are described below: Net loss, total assets and total liabilities as reported in accordance with Canadian GAAP are in all material respects consistent with net loss, total assets and total liabilities as reported in accordance with United States GAAP. Under United States GAAP, the Company is required to disclose certain information about comprehensive income. This information would be as follows:
- ------------------------------------------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------------------- Net loss in accordance with United States GAAP $ (1,032,602) $ (1,474,714) Other comprehensive loss: Foreign currency translation adjustment (203,479) (192,692) - ------------------------------------------------------------------------------------------------------------------- Comprehensive loss in accordance with United States GAAP $ (1,236,081) $ (1,667,406) - -------------------------------------------------------------------------------------------------------------------
At September 30, 2000, accumulated other comprehensive income amounted to $273,004. EX-99.2 4 a2051602zex-99_2.txt EXHIBIT 99.2 EX-99.2 MISCELLANEOUS EXHIBIT IMAGEWARE SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS On March 30, 2001, ImageWare Systems, Inc., a California corporation ("ImageWare"), completed the purchase of substantially all of the assets and assumed certain liabilities of G & A Imaging, Ltd., a Canadian corporation ("G & A") pursuant to that certain Asset Purchase Agreement, dated as of March 8, 2001 and incorporated herein by reference (the "Asset Purchase"). The following ImageWare Unaudited Pro Forma Condensed Combined Financial Statements are presented to illustrate the effects of the merger on the historical financial position and operating results of ImageWare. The pro forma condensed combined statements were prepared as if the Asset Purchase had been completed as of January 1, 2000 for statement of operations purposes and as of December 31, 2000 for balance sheet purposes. The pro forma condensed combined statements have been derived from, and should be read in conjunction with, the historical financial statements and related notes of each of ImageWare Systems, Inc. and G & A Imaging, Ltd. For ImageWare, those financial statements are included in ImageWare's annual report on Form 10-K for the fiscal year ended December 31, 2000, and are incorporated into this Form 8-K/A by reference. For G & A, those financial statements are attached as exhibit 99.1 to this Form 8-K/A. The ImageWare balance sheet at December 31, 2000 is combined with the G & A balance sheet at September 30, 2000. The ImageWare income statement for the year ended December 31, 2000 is combined with the G & A income statement for the twelve months ended September 30, 2000. The financial statements of G & A have been translated into United States dollars at year-end exchange rates for the assets and liabilities and at weighted average exchange rates for the income statement. The pro forma condensed combined statements include adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase consideration, including estimated acquisition costs, to the acquired assets and assumed liabilities of G & A. The final allocation of the purchase consideration will be based upon comprehensive appraisals of the fair value of G & A's tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill at the time of the Asset Purchase. As a result, the final allocation of costs related to the Asset Purchase may differ significantly from that presented herein. The pro forma condensed combined statements of operations exclude any potential benefits that might result from the Asset Purchase due to synergies that may be derived and from the elimination of any duplicate costs. The pro forma condensed combined statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of ImageWare would have been had the Asset Purchase occurred on the date assumed, nor are they necessarily indicative of future consolidated results of operations or financial position. IMAGEWARE SYSTEMS, INC. PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED) AT DECEMBER 31, 2000 (IN THOUSANDS)
ASSETS Historical ---------------------------- ImageWare G & A Systems Imaging December 31, September 30, Pro Forma Pro Forma 2000 2000 Adjustments Combined ------------- ------------- ----------- ---------- Current Assets: Cash $ 6,900 $ 333 $ (2,500)(A) $ 4,733 Accounts receivable, net 2,945 1,462 4,407 Inventory 286 1,088 1,374 Other assets 711 445 1,156 --------- -------- --------- -------- Total Current Assets 10,842 3,328 (2,500) 11,670 Property and equipment, net 535 359 894 Intangible assets, net 1,628 523 5,948(B) 8,099 --------- -------- --------- -------- Total Assets $ 13,005 $ 4,210 $ 3,448 $ 20,663 --------- -------- --------- -------- --------- -------- --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 791 - 791 Deferred revenue 611 169 780 Accrued expenses 752 2,441 302 (C) 3,495 Accrued expenses - related parties 321 130 451 Deferred compensation - - Accrued interest 299 - 299 Notes & advances payable to bank and 3rd parties 132 516 648 Notes payable to related parties 210 - 210 --------- -------- --------- -------- Total Current Liabilities 3,116 3,256 302 6,674 Notes payable to related parties, net of current portion - 466 466 --------- -------- --------- -------- Total Liabilities 3,116 3,722 302 7,140 Shareholders' equity (deficit): Preferred stock 3 1,520 (1,520) (D) 3 Common stock 41 1,792 (1,785) (D) 48 Additional paid in capital 34,667 1,021 2,606 (D) 38,294 Unearned stock-based compensation (63) - (63) Treasury stock, at cost - 6,704 shares (64) - (64) Accumulated deficit (24,545) (3,664) 3,664 (D) (24,545) Cumulative translation adjustment (181) 181 (D) (0) --------- -------- --------- -------- Sub-total 10,039 488 3,146 13,673 Shareholder note receivable (150) - (150) --------- -------- --------- -------- Total shareholders' equity (deficit) 9,889 488 3,146 13,523 --------- -------- --------- -------- Total Shareholders' Equity and Liabilities $ 13,005 $ 4,210 $ 3,448 $ 20,663 --------- -------- --------- -------- --------- -------- --------- --------
The accompanying notes are an integral part of these pro forma condensed financial statements. IMAGEWARE SYSTEMS, INC. PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
IMAGEWARE G & A SYSTEMS IMAGING TWELVE MONTHS TWELVE MONTHS DECEMBER 31, SEPTEMBER 30, Pro Forma Pro Forma 2000 2000 Adjustments Combined ------------- ------------ ----------- ------------ REVENUES: Product $ 7,896 $ 6,859 $ 14,755 Maintenance 1,503 974 2,477 ----------- ----------- ------- ----------- 9,399 7,833 0 17,232 COST OF REVENUES: Product 2,975 2,587 5,562 Maintenance 1,252 246 1,498 ----------- ----------- ------- ----------- Gross profit 5,172 5,000 0 10,172 ----------- ----------- ------- ----------- OPERATING EXPENSES: General & administrative 4,284 1,811 6,095 Sales and marketing 2,009 2,582 4,591 Research & development 1,629 1,143 2,772 Depreciation and amortization 1,019 404 1,190 (E) 2,613 Investment tax credits - (339) (339) ----------- ----------- ------- ----------- 8,941 5,601 1,190 15,732 ----------- ----------- ------- ----------- Loss from operations (3,769) (601) (1,190) (5,560) Interest expense, net 844 111 955 Other expense, net 674 10 684 ----------- ----------- ------- ----------- Loss before income taxes and extraordinary items (5,287) (722) (1,190) (7,199) Income taxes - (21) (21) ----------- ----------- ------- ----------- Loss before income taxes and extraordinary items (5,287) 701 (1,190) (7,178) Extraordinary items: Gain on debt extinguishments net of income taxes of $0 1,168 0 1,168 ----------- ----------- ------- ----------- Net loss $ (4,119) $ (701) $ (1,190) $ (6,010) ----------- ----------- ------- ----------- ----------- ----------- ------- ----------- Basic (loss) per share Loss before extraordinary item $ (1.55) $ (1.76) Extraordinary item $ 0.34 $ 0.28 ----------- ----------- Net loss $ (1.21) $ (1.48) ----------- ----------- ----------- ----------- Weighted average shares (basic) 3,467,711 665,000 4,132,711
The accompanying notes are an integral part of these pro forma condensed financial statements. NOTES TO IMAGEWARE SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRO FORMA PRESENTATION On March 30, 2001, ImageWare Systems, Inc., a California corporation (ImageWare), completed the purchase of substantially all of the assets and assumed certain liabilities of G & A Imaging, Ltd., a Canadian corporation ("G & A") pursuant to that certain Asset Purchase Agreement, dated as of March 8, 2001 (the "Asset Purchase"). As consideration for the Asset Purchase, ImageWare paid to G & A and certain of its creditors, in cash, a total of $2,500,000 in United States dollars and issued a total of 665,000 shares of its common stock to certain shareholders of G & A. The purchase consideration is estimated as follows (in thousands): Cash $2,500,000 Common Stock 3,634,000 Estimated transaction expenses 302,000 ------------ Total consideration $6,436,000 ------------
The following analysis assumes a total purchase price $6,436,000 based on the balance sheet as of September 30, 2000. The pro forma preliminary purchase price allocation, which is subject to change based on ImageWare's final analysis, is as follows: Cash 333,000 Accounts receivable 1,462,000 Inventories 1,088,000 Other current assets 445,000 Property, plant and equipment, net 359,000 Other intangibles 523,000 Goodwill 5,950,000 ---------- Total assets 10,160,000 ---------- Amounts payable to banks and long-term due within one year (517,000) Other current liabilites (2,741,000) Long-term obligations, net of current portion (466,000) ---------- Total liabilites (3,724,000) ---------- Total acquisition cost 6,436,000 ---------- ----------
2. PRO FORMA ADJUSTMENTS The pro forma statements give effect, based upon preliminary estimates, to the allocation of the total purchase consideration to the assets and liabilities of G & A. The following pro forma adjustments have been made to the ImageWare Systems, Inc. Unaudited Pro Forma Condensed Combined Financial Statements: (A) To adjust cash for funds expended to execute the acquisition of G & A of $2.5 million. (B) To adjust goodwill and other intangible assets to their estimated fair value of $5,590,000 less amortization of $1,190,000. (C) To record professional fees incurred and capitalized as part of the acquisition consideration. (D) To eliminate G & A's historical stockholders' equity, and record purchase consideration of $3,634,000 pursuant to the issuance of 665,000 shares of common stock. (E) To record amortization of goodwill related to the acquisition as if the transaction had occurred on January 1, 2000. Goodwill is amortized over five years. -----END PRIVACY-ENHANCED MESSAGE-----