**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-KSB/A**

**Amendment No. 1**

** **

| **ý**                                                                                                                                                                          | **ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|
|                                                                                                                                                                                |                                                                                     |
| **For the fiscal year  ended December 31, 2002.**                                                                                                                                   |
|                                                                                                                                                                                |                                                                                     |
| **o**                                                                                                                                                                               | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|                                                                                                                                                                                |                                                                                     |
| **For the transition  period              to            .** |
|                                                                                                                                                                                |                                                                                     |
| **Commission File  Number 001-15757**                                                                                                                                               |
|                                                                                                                                                                                |                                                                                     |

** **

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** **

**IMAGEWARE SYSTEMS, INC.**

(Name of Small Business Issuer in Its Charter)

 

| **California**                                                        |   | **33-0224167**                                    |
|-----------------------------------------------------------------------|--------|---------------------------------------------------|
| (State or Other Jurisdiction ofIncorporation or Organization)         |   | (I.R.S. EmployerIdentification No.)               |
|                                                                  |   |                                              |
| **10883 Thornmint  Road, San Diego, California**                      |   | **92127**                                         |
| (Address of Principal Executive  Offices)                             |   | (Zip Code)                                        |
|                                                                  |   |                                              |
| **(858) 673-8600**                                                    |
| (Issuer’s Telephone Number, Including  Area Code)                |
| Securities registered under Section  12(b) of the Exchange Act:       |
|                                                                  |   |                                              |
| **Title  of Each Class**                                              |   | **Name  of Each Exchange****on Which Registered** |
| Common Stock, $0.01 par valueWarrants to Purchase Common Stock        |   | American Stock ExchangeAmerican Stock Exchange    |
|                                                                  |   |                                              |
| Securities registered pursuant to  Section 12(g) of the Act: **None** |

 

Check whether the issuer: (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.

Yes ý  No o

 

Check if no disclosure of delinquent filers in response to Item 405 ofRegulation S-B is contained in this form, and no disclosure will be contained,to the best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB orany amendment to this Form 10-KSB. o

 

The issuer’s revenues for the fiscalyear ended December 31, 2002 were $18,255,693.

 

The aggregate market value of thevoting stock and non-voting common equity held by non-affiliates of the issuer,based on the closing sales price of the issuer’s Common Stock on April 11, 2003as reported on the American Stock Exchange was approximately $10,452,368. Excluded from this computation were 263,206 shares of Common Stock held by allcurrent executive officers and directors and by each person who is known by theregistrant to own 5% or more of the outstanding Common Stock.  Shareownership information of certain persons known by the issuer to own greaterthan 5% of the outstanding Common Stock for purposes of the precedingcalculation is based solely on information on Schedule 13G filed with theCommission and is as of April 11, 2003. Exclusion of shares held by any personor entity should not be construed to indicate that such person possesses thepower, directly or indirectly, to direct or cause the direction of themanagement or the policies of the Registrant.

 

The number of shares of Common Stockoutstanding as of April 11, 2003 was 5,489,390.

 

Transitional Small Business DisclosureFormat (check one):    Yes o  No ý

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Certain Exhibits filed with the Registrant’sRegistration Statement on Form SB-2 (333-93131), Registration Statement on FormS-3 (333-64192), Form 10-KSB for the Years Ended December 31, 2000and December 31, 2001, Form 10-QSB for each of the quarters ended March31, 2001, June 30, 2001, September 30, 2001, March 31, 2002, andJune 30, 2002, and Forms 8-K as filed with the Commission onAugust 13, 2001 and on May 24, 2002 are incorporated by reference intoPart III of this Form 10-KSB.

 

 

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**IMAGEWARE SYSTEMS, INC.**

 

**2002 ANNUAL REPORT ON FORM 10-KSB**

 

**TABLE OF CONTENTS**

 

EXPLANATORY NOTE: This AmendmentNo. 1 on Form 10-KSB/A (“Amendment No. 1”) amends the Registrant’sAnnual Report on Form 10-KSB, as filed by the Registrant on April 15,2003 (the “Report”), and is being filed solely to replace Part III, Item 9through Item 12. Consistent with rules amendments recently proposed by theUnited States Securities and Exchange Commission (the “SEC”), this AmendmentNo. 1 is also accompanied by a new certification by the Registrant's Chief ExecutiveOfficer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. In accordance with SEC ReleaseNo. 34-47551, this certification is submitted as Exhibit 99.1 to this AmendmentNo. 1. Except as otherwise stated herein, all other informationcontained in the original Report has not been updated by this AmendmentNo. 1.

 
| PART III       |
|----------------|
|           |
|           | ITEM  9. | Directors,  Executive Officers, Promoters and Control Persons; Compliance with Section  16(a) of the Exchange Act |
|           |   |   |
|           | ITEM 10. | Executive  Compensation |
|           |   |   |
|           | ITEM 11. | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters |
|           |   |   |
|           | ITEM 12. | Certain Relationships  and Related Transactions |
|           |   |   |
| SIGNATURES     |
|           |
| CERTIFICATIONS |

 

 

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**PART III**

 

**ITEM 9. Directors, Executive Officers,Promoters and Control Persons; Compliance with Section 16(a) of theExchange Act.**

 

The following table sets forthinformation regarding our Directors as of April 15, 2003:

** **
| **NAME**                  |   | **AGE** |   | **POSITION CURRENTLY HELD WITH THE COMPANY**                           |
|---------------------------|--------|---------|--------|------------------------------------------------------------------------|
| Mr. S. James  Miller, Jr. |   | 49      |   | Chief  Executive Officer and  Chairman of the  Board of Directors |
| Mr. John  Callan          |   | 56      |   | Director                                                               |
| Mr. Patrick  Downs        |   | 66      |   | Director                                                               |
| Mr. John  Holleran        |   | 76      |   | Director                                                               |
| Mr. David  Loesch         |   | 58      |   | Director                                                               |
| Mr. Yukuo  Takenaka       |   | 60      |   | Director                                                               |

* *

*S. James Miller, Jr.* has served as the Company’sChief Executive Officer of the Company since 1990 and Chairman of the Boardsince 1996.  He also served as theCompany’s President from 1990 until 2003. From 1980 to 1990, Mr. Miller was an executive with Oak Industries,Inc., a manufacturer of components for the telecommunications industry.  While at Oak Industries, Mr. Miller servedas a director and as General Counsel, Corporate Secretary andChairman/President of Oak Industries’ Pacific Rim subsidiaries. Mr. Miller hasa J.D. from the University of San Diego School of Law and a B.A. from theUniversity of California, San Diego.

* *

*John Callan* was elected to the board in September 2000.  In 2002, Mr. Callan co-founded a logisticsstrategy consulting firm, Ursa Major Associates, LLC, where he serves as itsprincipal.  From 1997 to 2002, he was anindependent business strategy consultant in the imaging and logisticsfields.  From 1995 to 1997, he served asChief Operating Officer for Milestone Systems, a shipping systems softwarecompany, and from 1987 to 1995, served as a senior executive at Polaroid Corporation.

* *

*Patrick Downs* was elected to the board in August 1994.  Since 1997, Mr. Downs has been Chairman ofControl Commerce, LLC, an internet e-commerce business.  He is also a founding shareholder of NTNCommunications, Inc., an interactive television Company, and served as itsChairman and Chief Executive Officer from 1983 to 1997.  Since 1999, Mr. Downs has also served on theBoard of Directors of Tullamore Corp., a video services company.  In 2002, Mr. Downs co-founded DNA ProtectiveCorporation, a private company involved in marketing DNA testing services tothe general public through the use of DNA technology which previously was onlyavailable to researchers.  Mr. Downsserves as Chairman and CEO of DNA Protective Corporation.

* *

*John Holleran* was elected to the board in May 1996.  Since 1974, Mr. Holleran has been amanagement and investment consultant. Prior to consulting, Mr. Holleran served as the Chief Financial Officer,Executive Vice President and Chief Operating Officer of Southwest Gas Corporation.  He served as Executive Vice President of theHawaii Corporation, a diversified holding company, and as President andChairman of Property Research Financial Corporation, a real estate investmentand syndication firm, from 1972 to 1974. Mr. Holleran has also served as a director of Kilroy Industries, anational office building and office park developer, as a director of Walker& Lee, a national full service real estate firm, and as a director of NTNCommunications, Inc., a company engaged in the interactive television business.

* *

*David Loesch* was elected to the board in September 2001 after 29 yearsof service as a Special Agent with the Federal Bureau of Investigations (FBI).At the time of his retirement from the FBI, Mr. Loesch was the AssistantDirector in Charge of the Criminal Justice Information Services Division of theFBI.  Mr. Loesch was awarded thePresidential Rank Award for Meritorious Executive in 1998 and has served on theboard of directors of the Special Agents Mutual Benefit Association since 1996.He is also a member of the International Association of Chiefs of Police andthe Society of Former Special Agents of the FBI, Inc.  Mr. Loesch served in the United States Army as an Officer withthe 101st Airborne Division in Vietnam. He holds a Bachelor’s degree fromCanisius College and a Master’s degree in Criminal Justice from GeorgeWashington University.

 

*Yukuo Takenaka* was elected to the board in April 1997.  Mr. Takenaka is a founder and has served asChairman of The Takenaka Partners Group, a global investment banking and advisoryorganization with headquarters in Los Angeles since 1989.  From 1973 to 1989, Mr. Takenaka was apartner of KPMG Peat Marwick where he was the National Director of theirJapanese Practice.  Mr. Takenaka is amember of the American Institute of Certified Public Accountants and theCalifornia Society of Certified Public Accountants.

 

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The followingtable sets forth the names, ages and positions of the Company’s ExecutiveOfficers as of April 15, 2003:

 

| **NAME**                  |   | **AGE** |   | **PRINCIPAL POSITION HELD WITH THE COMPANY**                            |
|---------------------------|--------|---------|--------|-------------------------------------------------------------------------|
| Mr. S. James  Miller, Jr. |   | 49      |   | Chief  Executive Officer and  Chairman of the  Board of Directors  |
| Mr. Wayne  Wetherell      |   | 50      |   | Sr. Vice  President of Administration and Chief Financial Officer       |
| Mr. William  Ibbetson     |   | 34      |   | Chief  Technical Officer and Vice President of Research and Development |
| Mr. Paul  Devermann       |   | 47      |   | President of  ImageWare Digital Photography Systems                     |
| Ms. Lori  Rodriguez       |   | 39      |   | President of  Law Enforcement Solutions Group                           |
| Mr. Joe  Schuler          |   | 61      |   | President of  ID Solutions Group                                        |

 

*Wayne Wetherell* has served as the Company’s Senior Vice President ofAdministration and Chief Financial Officer since May 2001.  From 1996 to May 2001, he served as VicePresident of Finance and Chief Financial Officer.  From 1991 to 1996, Mr. Wetherell was the Vice President and ChiefFinancial Officer of Bilstein Corporation of America, a manufacturer anddistributor of automotive parts.  Mr.Wetherell holds a B.S. degree in Management and a M.S. degree in Finance fromSan Diego State University.

* *

*William Ibbetson* joined the Company in 1992 as a Field Support Technicianand has served as the Company’s Chief Technical Officer since April 1996.  Mr. Ibbetson has served as the Company’sVice President of Research and Development since November 2000. Mr. Ibbetsonholds a Certification in Computer Electronics Technology from Coleman College.

* *

*Paul Devermann* has served as President of ImageWare Digital PhotographySystems LLC since August 2001. From March 2001 to August 2001, Mr. Devermannserved as Senior Vice President of Corporate Development.  From 1997 to March 2001, Mr. Devermannserved as Vice President of Sales and Business Development.  From 1992 to 1997, Mr. Devermann served asthe managing director and founding partner of Intra-International Trade andTransactions, an international consulting and trading company that facilitatesbusiness transactions between United States and Japanese companies.  Mr. Devermann holds a B.S. degree in Marketingfrom Northern Illinois University and an M.B.A. from the University of PugetSound.

* *

*Lori Rodriguez* has served as President of the Company’s Law EnforcementSolutions Group since October 2002. Prior to that, Ms. Rodriguez served as President of the Company’sAmericas Group from January 2002 to October 2002 and prior to that, as VicePresident of Sales and Marketing for the Company.  From 1998 until joining the Company in March 2001, Ms. Rodriguezserved as Chief Operating Officer of SDCR Business Systems, a point-of-salesystems integrator for the retail and foodservice industries.  From 1996 to 1998, Ms. Rodriguez served asthe Executive Director of Sales and Marketing at SDCR Business Systems. Ms.Rodriguez holds a B.S. degree in Marketing and an Executive M.B.A. from SanDiego State University.

* *

*Joe Schuler* has served as President of the Company’s ID Solutions Groupsince October 2002.  From 1999 to 2002Mr. Schuler was Director of Business Development for Fargo Electronics, amanufacturer of plastic card printers and encoding systems.  During 1997 and 1998, Mr. Schuler wasCorporate Director and Senior Vice President of Sales & Marketing for ThePathways Group. Other previous positions held by Mr. Schuler include Directorof Sales & Marketing and Project Management for Schlumberger Smart Cardsand Systems; President/CEO for Gemplus Card International Corp (North America);Vice President and General Manager for DataCard Corporation; Director of SmartCard Planning for Visa International; and Vice President of Product Developmentfor Citicorp.  Mr. Schuler is a graduateof the Carlson School of Management.

### *** ***

### ***Section 16(a) Beneficial Ownership Reporting Compliance***

 

Section 16(a) ofthe Securities Exchange Act of 1934 (the “1934 Act”) requires the Company’sdirectors and executive officers, and persons who own more than ten percent ofa registered class of the Company’s equity securities, to file with the SECinitial reports of ownership and reports of changes in ownership of commonstock and other equity securities of the Company.  Officers, directors and greater than ten percent shareholders arerequired by SEC regulation to furnish the Company with copies of all Section16(a) forms they file.

 

To the Company’s knowledge, based solely on a review of thecopies of such reports furnished to the Company and written representationsthat no other reports were required, during the fiscal year ended December 31,2002, all Section 16(a) filing requirements applicable to its officers,directors and greater than ten percent beneficial owners were complied with,except that: (i) one report, covering one grant of options, was filed late byMr. Callan; (ii) one report, covering one grant of options, was filed late byMr. Downs; (iii) one report, covering one grant of options, was filed late byMr. Holleran; (iv) one report, covering one grant of options, was filed late byMr. Loesch; (v) one report, covering one grant of options, was filed late byMr. Takenaka; and (vi) an initial report of ownership and one report, coveringone grant of options, were filed late by Mr. Schuler.

 

4

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**ITEM 10.****Executive Compensation.**

 

### ***Compensation of Directors***

 

Each non-employeedirector of the Company receives a monthly retainer of $2,000 for serving onthe Board.  The members of the Board ofDirectors are also eligible for reimbursement for their expenses incurred inattending Board meetings in accordance with Company policy.  For the fiscal year ended December 31, 2002,the total amounts paid to non-employee directors were $128,513.98.

 

Non-employeedirectors of the Company are also eligible to receive stock option grants underthe 1994 Nonqualified Stock Option Plan (the “Directors’ Plan”) or the 2001Equity Incentive Plan (the “2001 Plan”). Only non-employee directors of the Company or an affiliate of suchdirectors (as defined in the Internal Revenue Code) are eligible to receiveoptions under the Directors’ Plan. Options granted under the Directors’ Plan and the 2001 Plan are intendedby the Company not to qualify as incentive stock options under the InternalRevenue Code.

 

Under the Director’s Plan, wehave issued options to purchase 18,957 shares at a weighted average exerciseprice of $8.39.  The plan isadministered by our board.  Subject to theprovisions of this plan, the board determines who will receive options, thenumber of options granted, the manner of exercise and the exercise price of theoptions. The term of the options granted under the Director’s Plan may notexceed five years.  No options may begranted after August 31, 2004.  Theexercise price of the options granted under this plan must be equal to orgreater than 85% of the fair market value of the shares of our common stock onthe date the option is granted.  The term of options granted under the 2001 Plan is 10 years.  In the event of a merger of the Company withor into another corporation or a consolidation, acquisition of assets or otherchange-in-control transaction involving the Company, an equivalent option willbe substituted by the successor corporation, provided, however, that theCompany may cancel outstanding options upon consummation of the transaction bygiving at least thirty (30) days notice.

 

During the lastfiscal year, the Company granted options under the 2001 Plan covering 23,508shares to non-employee directors of the Company.  John Callan was granted 2,000 options at an exercise price pershare of $2.15.  The fair market valueof such common stock on the date of grant was $2.15 per share (based on theclosing sales price reported on the American Stock Exchange for the date ofgrant).  Patrick Downs was granted 5,261options at an exercise price per share of $4.90 and 2,000 options at anexercise price per share of $2.15.  Thefair market value of such common stock on the dates of grant was $4.90 and$2.15, respectively, per share (based on the closing sales prices reported onthe American Stock Exchange for the date of grant).  John Holleran was granted 5,261 options at an exercise price pershare of $4.90 and 2,000 options at an exercise price per share of $2.15.  The fair market value of such common stockon the dates of grant was $4.90 and $2.15, respectively, per share (based onthe closing sales prices reported on the American Stock Exchange for the dateof grant).  Yukuo Takenaka was granted2,986 options at an exercise price per share of $4.90 and 2,000 options at anexercise price per share of $2.15.  Thefair market value of such common stock on the dates of grant was $4.90 and$2.15, respectively, per share (based on the closing sales prices reported onthe American Stock Exchange for the date of grant).  David Loesch was granted 2,000 options at an exercise price pershare of $2.15.  The fair market value ofsuch common stock on the date of grant was $2.15 per share (based on the closingsales price reported on the American Stock Exchange for the date ofgrant).    As of April 15, 2003, nooptions had been exercised by non-employee directors under the Directors’ Planor the 2001 Plan.

** **

**CompensationOf Executive Officers**

 

The following tableshows, for the fiscal years ended December 31, 2000, 2001 and 2002,compensation awarded or paid to, or earned by, the Company’s Chief ExecutiveOfficer and its other four most highly compensated executive officers atDecember 31, 2002  (the “Named ExecutiveOfficers”):

 

**SummaryCompensation Table**

 
|                                      |   |             |   | **Annual Compensation** |   | **Long-Term Compensation** |   |
|-------------------------------------------|--------|------------------|--------|-------------------------|--------|----------------------------|--------|
| **Name and Principal  Position**          |   | **Fiscal  Year** |   | **Salary  ($)**         |   | **Bonus  ($)**             |   | **Other  Annual  Compen-  sation($)** |   | **Securities  Underlying  Options (#)** |   | **All Other  Compen-  sation ($)** |   |
| Mr. S. James  Miller, Jr Chief            |   | 2002             |   | 266,535                 |   | —                     |   |   |   | 50,000 |   | 1,022 | (1) |
| Executive Officer                         |   | 2001             |   | 253,614                 |   | —                     |   |   |   | 103,500 |   | 37,029 |   |
|                                      |   | 2000             |   | 222,120                 |   | —                     |   |   |   | 89,000 |   | 5,646 |   |
|                                      |   |             |   |                    |   |                       |   |   |   |   |   |   |   |
| Mr. Wayne  Wetherell                      |   | 2002             |   | 159,466                 |   | —                     |   |   |   | 25,000 |   | 705 | (1) |
| Vice President of Administration and      |   | 2001             |   | 149,453                 |   | —                     |   |   |   | 47,000 |   | 36,539 |   |
| Chief Financial Officer                   |   | 2000             |   | 139,351                 |   | —                     |   |   |   | 58,000 |   | 4,340 |   |
|                                      |   |             |   |                    |   |                       |   |   |   |   |   |   |   |
| Mr. William  Ibbetson                     |   | 2002             |   | 142,380                 |   | —                     |   |   |   | 12,500 |   | 232 | (1) |
| Chief Technical Officer and               |   | 2001             |   | 133,552                 |   | —                     |   |   |   | 24,000 |   | 1,462 |   |
| Vice President of Research Development    |   | 2000             |   | 109,097                 |   | —                     |   |   |   | 15,000 |   | 2,537 |   |
|                                      |   |             |   |                    |   |                       |   |   |   |   |   |   |   |
| Mr. Paul  Devermann                       |   | 2002             |   | 155,101                 |   | —                     |   |   |   | — |   | 504 | (1) |
| President of ImageWare Digital            |   | 2001             |   | 142,002                 |   | —                     |   |   |   | 34,000 |   | 36,510 |   |
| Photography Systems                       |   | 2000             |   | 133,162                 |   | —                     |   |   |   | 58,000 |   | 4,253 |   |
|                                      |   |             |   |                    |   |                       |   |   |   |   |   |   |   |
| Ms. Lori  Rodriguez(2)                    |   | 2002             |   | 159,536                 |   | —                     |   |   |   | — |   | 504 | (1) |
| President Law Enforcement Solutions Group |   | 2001             |   | 102,854                 |   | —                     |   |   |   | 80,000 |   | 368 |   |

 

5

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(1)                                  Amountrepresents payment for term life insurance premium.

 

(2)                                  Ms.Rodriguez was first employed by the Company in March 2001.

 

**StockOption Grants And Exercises**

 

The Company grants options to its executive officers andemployees under its 2001 Plan, its 1999 Stock Option Plan (the “1999 Plan”),and its 1994 Employee Stock Option Plan (the “1994 Plan”).  As of April 15, 2003, options to purchase atotal of 120,760 shares were outstanding and options to purchase 29,193 sharesremained available for grant under the 1994 plan.  Additionally, options to purchase a total of 345,915 shares wereoutstanding and options to purchase 3,145 shares remained available for grantunder the 1999 Plan.   Lastly, optionsto purchase a total of 889,903 shares were outstanding and options to purchase109,365 remained available for grant under the 2001 Plan.

 

The followingtables show for the fiscal year ended December 31, 2002, certain informationregarding options granted to, exercised by, and held at year-end by, the NamedExecutive Officers:

 

**Option Grants in LastFiscal Year**

** **
| **Name**             |   | **Number of Securities   Underlying Options** |   | **% of Total  Options(1)** |   | **Exercise Or Base  Price ($/Sh)** |   | **Expiration  Date** |   |
|----------------------|--------|-----------------------------------------------|--------|----------------------------|--------|------------------------------------|--------|----------------------|--------|
| S. James Miller, Jr. |   | 50,000                                        |   | 19.6                       | %      | 5.60                               |   | 1/23/12              |   |
| Wayne Wetherell      |   | 25,000                                        |   | 9.8                        | %      | 5.60                               |   | 1/23/12              |   |
| William Ibbetson     |   | 12,500                                        |   | 4.9                        | %      | 5.60                               |   | 1/23/12              |   |
| Paul Devermann       |   | 0                                             |   |                       |   |                               |   |                 |   |
| Lori Rodriguez       |   | 0                                             |   |                       |   |                               |   |                 |   |

 

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(1)                                  Percentagecalculated based upon a total of 255,508 options granted to employees of the Companyin 2002.

 

**AggregatedOption Exercises in Last Fiscal Year, and Fiscal Year-End Option Values**

** **
| **Name**             |   | **Number of Securities  Underlying Unexercised  Options at Fiscal Year-End(1) (#)  Exercisable/Unexercisable** |   | **Value of Unexercised  In-the-Money Options(2) at Fiscal  Year-End($)  Exercisable/Unexercisable** |   |
|----------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|
| S. James Miller, Jr. |   | 160,936/121,000                                                                                                |   | $1,563/$2,188                                                                                       |   |
| Wayne Wetherell      |   | 99,601/59,200                                                                                                  |   | $521/$729                                                                                           |   |
| William Ibbetson     |   | 63,508/31,783                                                                                                  |   | $417/$583                                                                                           |   |
| Paul Devermann       |   | 94,184/26,617                                                                                                  |   | $250/$350                                                                                           |   |
| Lori Rodriguez       |   | 33,334/46,666                                                                                                  |   | $1,667/$2,333                                                                                       |   |

 

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(1)           Noneof the Named Executive Officers exercised Options during 2002.

 

(2)                                  The“Value of Unexercised In-The-Money Options” is the aggregate, calculated on agrant by grant basis, of the product of the number of unexercised options atthe end of fiscal year 2002, multiplied by the difference between the exerciseprice for the grant and the closing price of a share of Common Stock on thelast day of the 2002 fiscal year ($3.05), excluding grants for which the exerciseprice is greater than the closing price of a share of Common Stock on thatday.  The actual value, if any, thatwill be realized upon the exercise of an option will depend upon the differencebetween the exercise price of the option and the market price of the CommonStock on the date that the option is exercised.

 

6

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**Employment,Severance and Change of Control Agreements**

 

In September 2000,we entered into an amended employment agreement with Mr. Miller pursuant towhich Mr. Miller will serve as President and Chief Executive officer. Thisagreement is for a three-year term ending December 31, 2004, which period isrenewed annually on December 31 of each year for a three-year term unless wegive Mr. Miller prior notice of termination. This agreement provides for annualbase compensation in the amount of $234,000, which amount will be increasedbased on cost-of-living increases. Currently, Mr. Miller’s annual salary is $261,506. Under this agreement,we will reimburse Mr. Miller for reasonable expenses incurred in connectionwith our business. Mr. Miller may, within 30 days of a change in control,terminate his employment as of a date not more than 60 days from the date ofsuch change in control by giving 30 days advance written notice.  In such event, he will be entitled topayment of his entire unpaid Base Salary for the remaining term of hisEmployment Agreement, paid in one lump sum, in addition to immediate vesting ofall unvested options with sixty days to exercise the options and a continuationof all of his benefits for a period of 3 years.

 

On March 1, 1999,we entered into an amended employment agreement with Mr. Wetherell pursuant towhich Mr. Wetherell will serve as our Chief Financial Officer. This agreementwas for a term ending April 30, 2002, and has been extended to a term endingApril 30, 2003 and extended thereafter for additional one year terms unlesseither party gives 30 days notice prior to the expiration of a term.  This agreement provides for annual basesalary in the amount of $112,144, which amount will be increased based oncost-of-living increases and may also be increased based on performancereviews. Currently, Mr. Wetherell’s annual salary is $156,457. Under thisagreement, we will reimburse Mr. Wetherell for reasonable expenses incurred inconnection with our business. Additionally, Mr. Wetherell will be entitled to the full amount of hisrespective base salary for a period of one year in the event his employmentwith the Company is involuntarily terminated other than for cause.  Upon a change of control, Mr. Wetherell mayterminate his employment by giving 30 days advance written notice. In suchevent he will be entitled to payment of his entire unpaid Base Salary for aperiod of one year from the date of his termination of employment.

 

On November 15,2000, we entered into an employment agreement with Mr. Ibbetson pursuant towhich Mr. Ibbetson will serve as our Vice President of Research and Developmentand Chief Technical Officer. This agreement is for a term ending November 15,2003. This agreement provides for an annual base salary of $125,000, whichamount will be increased based on cost-of-living increases and may also beincreased based on performance reviews. Currently, Mr. Ibbetson’s annual salary is $139,693. Under thisagreement, we will reimburse Mr. Ibbetson for reasonable expenses in connectionwith our business. Mr. Ibbetson will also be entitled to the full amount of hisrespective base salary for a period of one year in the event his employmentwith the Company is involuntarily terminated other than for cause. Upon achange in control, Mr. Ibbetson may terminate his employment by giving 30 daysadvance written notice. In such event he will be entitled to payment of hisentire unpaid Base Salary for a period of one year from the date of histermination of employment.

 

On March 1, 1999,we entered into an amended employment agreement with Mr. Devermann pursuant towhich Mr. Devermann will serve as our Vice President of Sales and BusinessDevelopment.  This agreement was for aterm ending February 28, 2002, and has been extended to a term ending March 1,2003 and extended thereafter for additional one year terms unless either partygives 30 days notice prior to the expiration of a term.  This agreement provides for annual basesalary in the amount of $103,731, which amount will be increased based oncost-of-living increases and may also be increased based on performancereviews. Currently, Mr. Devermann’s annual salary is $150,869. Under thisagreement, we will reimburse Mr. Devermann for reasonable expenses incurred inconnection with our business. Additionally, Mr. Devermann will be entitled to the full amount of hisrespective base salary for a period of one year in the event his employmentwith the Company is involuntarily terminated other than for cause.  If there is a change of control, Mr.Devermann may terminate his employment by giving 30 days advance writtennotice. If he does this, he will be entitled to payment of his entire unpaidBase Salary for a period of one year from the date of his termination ofemployment.

 

On April 15, 2001,we entered into an employment agreement with Lori Rodriguez pursuant to whichMs. Rodriguez will serve as our Vice President of Sales and Marketing. Theagreement is for a term ending April 15, 2004. This agreement provides for an annual base salary of $130,000, whichamount will be increased based on cost-of-living increases and may also beincreased based on performance reviews.  Currently, Ms. Rodriguez’s annual salary is $157,946. Under thisagreement, we will reimburse Ms. Rodriguez for reasonable expenses inconnection with our business. Additionally, Ms. Rodriguez is entitled to the fullamount of her respective base salary for a period of one year in the event heremployment with the Company is involuntarily terminated other than forcause.  Upon a change of control, Ms.Rodriguez may terminate her employment by giving 30 days advance writtennotice. In such event she will be entitled to payment of her entire unpaid BaseSalary for a period of one year from the date of her termination of employment.

 

 “Change of control” is defined in each of theemployment agreements as the occurrence of any of the following events: (i) theacquisition by a person of 50% or more of the voting power of the Company, (ii)a merger or consolidation of the Company with any other corporation (other thana merger or consolidation that would result in the voting securities of theCompany outstanding immediately prior thereto continuing to represent 50% ormore of the total voting power), (iii) the election to the Board of Directorsof a majority of directors not nominated by the Company’s management, or (iv)the approval by the Company’s shareholders of a plan of complete liquidation orsale of substantially all of the Company’s assets.

 

**ITEM 11****. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters.**

 

The informationconcerning securities authorized for issuance under equity compensation plansis set forth in Item 5 above.

 

The followingtable sets forth certain information regarding the ownership of the Company’scommon stock as of April 15, 2003 by: (i) each director; (ii) each of theexecutive officers named in the Summary Compensation Table in Item 10 above;(iii)

 

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all executive officers and directors of the Company as a group; and(iv) all those known by the Company to be beneficial owners of more than five percentof its common stock.

 
|                                                                                          |   | **Beneficial Ownership(1)** |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
| **Name and Address of Beneficial Owner**                                                      |   | **Number of Shares**        |   | **Percent of Class** |   |
| S. James Miller, Jr.**(2)**                                                                   |   | 331,234                     |   | 5.6 | % |
| John Callan**(3)**                                                                            |   | 31,861                      |   | * |   |
| Patrick Downs**(4)**                                                                          |   | 54,538                      |   | * |   |
| John Holleran**(5)**                                                                          |   | 7,154                       |   | * |   |
| David Loesch**(6)**                                                                           |   | 5,499                       |   | * |   |
| Yukuo Takenaka**(7)**                                                                         |   | 8,578                       |   | * |   |
| Wayne Wetherell**(8)**                                                                        |   | 150,729                     |   | 2.6 | % |
| William Ibbetson**(9)**                                                                       |   | 84,536                      |   | 1.5 | % |
| Paul Devermann**(10)**                                                                        |   | 129,981                     |   | 2.3 | % |
| Lori Rodriguez**(11)**                                                                        |   | 47,068                      |   | * |   |
| Perseus 2000 LLC**(12)**2009 Pennsylvania Avenue, N.W.  Suite 900  Washington, DC  20006 |   | 1,202,631                   |   | 17.8 | % |
| Total Shares Held By Directors and Executive Officers                                         |   | 851,178                     |   | 13.9 | % |

 

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*              Less than one percent.

(1)               Thistable is based upon information supplied by officers, directors and principalshareholders and Schedules 13D and 13G filed with the Securities and ExchangeCommission (the “SEC”).  Unlessotherwise indicated in the footnotes to this table and subject to communityproperty laws where applicable, the Company believes that each of the shareholdersnamed in this table has sole voting and investment power with respect to theshares indicated as beneficially owned. Applicable percentages are based on 5,489,390 shares of common stockoutstanding on April 15, 2003, plus 61,755 shares of Series B Preferred Stockon an as-converted basis and adjusted as required by rules promulgated by theSEC. Unless otherwise indicated, the address for each listed shareholder is c/oImageWare Systems, Inc. 10883 Thornmint Road, San Diego, CA  92127.

 

(2)             Mr.Miller serves as Chairman of the Board of Directors and Chief Executive Officerof the Company.  Includes 84,679 sharesheld jointly with spouse and by sons and 204,893 options exercisable within 60days of the date reported.

 

(3)               Includes6,861 options exercisable within 60 days of the date reported.

 

(4)               Includes6,492 options exercisable within 60 days of the date reported.

 

(5)               Includes6,492 shares exercisable within 60 days of the date reported.

 

(6)               Includes4,999 shares exercisable within 60 days of the date reported.

 

(7)               Includes8,009 shares exercisable within 60 days of the date reported.

 

(8)               Includes120,966 shares exercisable within 60 days of the date reported.

 

(9)               Includes77,332 shares exercisable within 60 days of the date reported.

 

(10)         Includes102,967 shares exercisable within 60 days of the date reported.

 

(11)         Includes46,668 shares exercisable within 60 days of the date reported.

 

(12)         Includes1,052,631 shares issuable upon the conversion of convertible debt plus 150,000shares issuable upon the exercise of warrants.

 

**ITEM 12****. Certain Relationships and Related Transactions.**

 

In addition to the employment agreements described above,the Company has entered into indemnity agreements with certain officers anddirectors which provide, among other things, that the Company will indemnifysuch officer or director, under the circumstances and to the extent providedfor therein, for expenses, damages, judgments, fines and settlements he or shemay be required to pay in actions or proceedings which he or she is or may bemade a party by reason of his or her position as a director, officer or otheragent of the Company, and otherwise to the fullest extent permitted underCalifornia law and the Company’s Bylaws.

 

During the year ended December 31, 2001, the Company enteredinto a consulting agreement for business development consulting services withMr. Callan, a member of the Company’s Board of Directors.  The agreement, which commenced in August2001, was for a period of five months and called for a fee of $10,000 permonth, plus reimbursable expenses. During the year ended December 31, 2001, the Company recorded expensesof $99,000 under this agreement.  As ofDecember 31, 2001, the agreement had expired and was not renewed.

 

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**SIGNATURES**

 

In accordance with Section 13 or15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

 
|           |   | **IMAGEWARE SYSTEMS, INC.** |
|----------------|--------|----------------------------------|
|           |   |
| April 30, 2003 |   | By:                              | /s/ **S.  JAMES MILLER, JR.** |
|           |   |                             | **S. James Miller, Jr.** |
|           |   |                             | Chief Executive Officer and  Chairman of the Board of Directors |

 

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**CERTIFICATION**

 

I, S. James Miller, the ChiefExecutive Officer of ImageWare Systems, Inc., certify that:

 

1.             I have reviewed this annual report on Form 10-KSB ofImageWare Systems, Inc.;

 

2.             Based on my knowledge, this annual report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this annual report;

 

3.             Based on my knowledge, the financial statements, andother financial information included in this annual report, fairly present inall material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this annualreport;

 

4.             The registrant’s other certifying officer and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andhave:

 

(a)           designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared;

 

(b)           evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis annual report (the “Evaluation Date”); and

 

(c)           presented in this annual report, our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5.             The registrant’s other certifying officer and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

(a)           all significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified forthe registrant’s auditors any material weaknesses in internal controls; and

 

(b)           any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.             The registrant’s other certifying officer and I haveindicated in this annual report whether there were significant changes ininternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 
| Dated: | April 30,  2003 |                     | /s/ S. James  Miller |   |
|--------|-----------------|--------------------------|----------------------|--------|
|   |            | S. James  Miller         |
|   |            | Chief  Executive Officer |

 

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**CERTIFICATION**

 

I, Wayne G. Wetherell, the ChiefFinancial Officer of ImageWare Systems, Inc., certify that:

 

1.             I have reviewed this annual report on Form 10-KSB ofImageWare Systems, Inc.;

 

2.             Based on my knowledge, this annual report does notcontain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this annual report;

 

3.             Based on my knowledge, the financial statements, andother financial information included in this annual report, fairly present inall material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this annualreport;

 

4.             The registrant’s other certifying officer and I areresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant andhave:

 

(a)           designed such disclosure controls and procedures to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this annual report is being prepared;

 

(b)           evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis annual report (the “Evaluation Date”); and

 

(c)           presented in this annual report, our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5)             The registrant’s other certifying officer and I havedisclosed, based on our most recent evaluation, to the registrant’s auditorsand the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

(a)           all significant deficiencies in the design or operation ofinternal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified forthe registrant’s auditors any material weaknesses in internal controls; and

 

(b)           any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.             The registrant’s other certifying officer and I haveindicated in this annual report whether there were significant changes ininternal controls or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Dated: | April 30,  2003 |                     | /s/ Wayne G.  Wetherell |   |
|--------|-----------------|--------------------------|-------------------------|--------|
|   |            | Wayne G.  Wetherell      |
|   |            | Chief  Financial Officer |

 

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