**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, 2005.** |
| ** **                                            | ** ** | ** **                                                                                    |
| **o**                                                 | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |

 

**For the transitionperiod               to               .**

 

**Commission File Number**

** **

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**IMAGEWARE SYSTEMS, INC.**

(Name of Small Business Issuer in Its Charter)

 
| **Delaware**                                                   | ** ** | **33-0224167**                      |
|----------------------------------------------------------------|------------|-------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer Identification 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 value     |       | American Stock Exchange                          |       |
| Warrants to Purchase Common Stock |       | American Stock Exchange                          |       |

 

Securities registered pursuant to Section 12(g) of the Act: **None**

 

Check whether the issuer is not required to file reports pursuant toSection 13 or 15(d) of the Exchange Act  o

 

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

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B is contained in this form, and no disclosure will becontained, to the best of the registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-KSB or any amendment to this Form 10-KSB. ý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o   No ý

 

Theissuer’s revenues for the fiscal year ended December 31, 2005, were$9,518,769.

 

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates of the issuer, based on the closing sales price of the issuer’sCommon Stock on March 25, 2006, as reported on the American Stock Exchangewas approximately $22,321,541.  Excludedfrom this computation were 337,204 shares of Common Stock held by all currentexecutive officers and directors and 1,704,512 shares held by each person whois known by the registrant to own 5% or more of the outstanding CommonStock.  Share ownership information ofcertain persons known by the issuer to own greater than 5% of the outstandingCommon Stock for purposes of the preceding calculation is based solely oninformation on Schedule 13G filed with the Commission and is as of March25, 2006. Exclusion of shares held by any person or entity should not beconstrued to indicate that such person or entity possesses the power, directlyor indirectly, to direct or cause the direction of the management or the policiesof the Registrant.

 

The number of shares of Common Stockoutstanding as of March 25, 2006, was 13,547,662.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

CertainExhibits filed with the Small Business Issuer’s Registrant’s RegistrationStatement on Form SB-2 (333-93131), and Registration Statement on Form S-3(333-64192).

 
| Transitional  Small Business Disclosure Format (check one): |   | Yes o   No ý |
|-------------------------------------------------------------|--------|--------------------------------------------|

 

 

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EXPLANATORYNOTE: This Amendment No. 1 on Form 10-KSB/A amends the Registrant’s AnnualReport on Form 10-KSB, as filed by the Registrant on April 15, 2006, and isbeing filed solely to replace Part III, Item 9 through Item 12, and Item 14,previously intended to be incorporated by reference to the definitive proxystatement for our annual meeting.  Therequired certifications are included with this amendment under Exhibits 31 and32, as disclosed in Item 13 of this amended report.

 

**PART III**

 

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

 

Thefollowing table sets forth information regarding our Directors as of April 15,2006:

 
| **Name**                            | ** ** | **Age** | ** ** | **Principal  Occupation/Position  Currently Held With the Company** |
|-------------------------------------|------------|---------|------------|---------------------------------------------------------------------|
| Mr. S.  James Miller, Jr. |       | 52      |       | Chief  Executive Officer and Chairman of the Board of Directors     |
| Mr. John  Callan               |       | 59      |       | Director                                                            |
| Mr. Patrick  Downs             |       | 69      |       | Director                                                            |
| Mr. John  Holleran             |       | 79      |       | Director                                                            |
| Mr. David  Loesch              |       | 61      |       | Director                                                            |
| Mr. Guy  Steven Hamm           |       | 58      |       | Director                                                            |
| Mr. David  Carey               |       | 61      |       | Director                                                            |

 

*S. James Miller, Jr.*has served as the Company’s Chief ExecutiveOfficer of the Company since 1990 and Chairman of the Board since 1996. He alsoserved as the Company’s President from 1990 until 2003. From 1980 to 1990,Mr. Miller was an executive with Oak Industries, Inc., a manufacturerof components for the telecommunications industry. While at Oak Industries,Mr. Miller served as a director and as Senior Vice President, GeneralCounsel, Corporate Secretary and Chairman/President of Oak Industries’ PacificRim subsidiaries. Mr. Miller has a J.D. from the University of San DiegoSchool of Law and a B.A. from the University of California, San Diego. Mr.Miller also serves as a member of the board of directors of Argus Solutions, apublic company headquartered in Australia.

 

*John Callan*was elected to the board in September 2000.In 2006, Mr. Callan joined DHL Global Mail as Vice President - Domestic ProductManagement. From 2001 to 2006, Mr. Callan served as Principal of Ursa MajorAssociates, LLC, the logistics strategy consulting firm he co-founded. From1997 to 2002, he was an independent business strategy consultant in the imagingand logistics fields. From 1995 to 1997, he served as Chief Operating Officerfor Milestone Systems, a shipping systems software company, and from 1987 to1995, served as Director of Entertainment Imaging at Polaroid Corporation.

 

*Patrick Downs*was elected to the board in August 1994. Since 1997,Mr. Downs has been Chairman of Control Commerce, LLC, an internete-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 the Board of Directors of Tullamore Corp., avideo 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. Downs serves as Chairman and CEO of DNAProtective Corporation.

 

2

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*John Holleran*was elected to the board in May 1996. Since 1974,Mr. Holleran has been a management and investment consultant. Prior toconsulting, Mr. Holleran served as the Chief Financial Officer, ExecutiveVice President and Chief Operating Officer of Southwest Gas Corporation. Heserved as Executive Vice President of the Hawaii Corporation, a diversifiedholding company, and as President and Chairman of Property Research FinancialCorporation, a real estate investment and syndication firm, from 1972 to 1974.Mr. Holleran has also served as a director of Kilroy Industries, a nationaloffice 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 televisionbusiness.

 

*David Loesch*was elected to the board in September 2001 after 29 years ofservice as a Special Agent with the Federal Bureau of Investigations (FBI). Atthe 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 the Presidential Rank Award for MeritoriousExecutive in 1998 and has served on the board of directors of the SpecialAgents Mutual Benefit Association since 1996. He is also a member of theInternational Association of Chiefs of Police and the Society of Former SpecialAgents of the FBI, Inc. Mr. Loesch served in the United States Armyas an Officer with the 101st Airborne Division in Vietnam. Heholds a Bachelor’s degree from Canisius College and a Master’s degree inCriminal Justice from George Washington University. Mr. Loesch is currently aprivate consultant on public safety and criminal justice solutions.

 

*Guy Steven Hamm* was appointed to the board in October 28, 2004. Mr. Hamm is a retiredPricewaterhouseCoopers (PwC) national partner-in-charge of middle market andwas instrumental in growing the Audit Business Advisory Services (ABAS) MiddleMarket practice where he was responsible for $300 million in revenue and morethan 100 partners. Mr. Hamm is also a member of the board of directors ofClarient, Inc.

 

*DavidCare*y wasappointed to the board in February 2006. Mr. Carey is a former Executive Director of the Central IntelligenceAgency.  Since April 2005, Mr. Carey hasserved as Executive Director for Blackbird Technologies, which providesstate-of-the-art IT security expertise, where he assists the company withbusiness development and strategic planning. Prior to joining BlackbirdTechnologies, Mr. Carey was Vice President, Information Assurance for Oracle Corporationfrom September 2001 to April 2005. In addition, Mr. Carey worked for the CIAfor 32 years until 2001. During his career at the CIA, Mr. Carey held severalsenior positions including that of Executive Director, often referred to as theChief Operating Officer, or No. 3 person in the agency, from 1997 to 2001.Before assuming that position, Mr. Carey was Director of the DCI Crime andNarcotics Center, the Director of the Office of Near Eastern and South AsianAnalysis, and Deputy Director of the Office of Global Issues. Mr. Carey is agraduate of Cornell University and the University of Delaware.

 

Thefollowing table sets forth the names, ages and positions of the Company’sExecutive Officers and certain significant employees as of April 15, 2006:

 
| **Name**                            | ** ** | **Age** | ** ** | **Principal  Position Held With the Company**                                     |
|-------------------------------------|------------|---------|------------|-----------------------------------------------------------------------------------|
| Mr. S.  James Miller, Jr. |       | 52      |       | Chief  Executive Officer and Chairman of the Board of Directors                   |
| Mr. Wayne  Wetherell           |       | 53      |       | Sr.  Vice President Administration, Chief Financial Officer, Secretary, Treasurer |
| Mr. Charles  AuBuchon          |       | 62      |       | Vice  President Sales                                                             |
| Mr. William  Willis            |       | 47      |       | Executive  Vice President Business Development                                    |
| Mr. David  Harding             |       | 36      |       | Vice  President and Chief Technical Officer                                       |

 

*Wayne Wetherell*has served as the Company’s Senior Vice President, Administration andChief Financial Officer since May 2001 and additionally as SecretaryTreasurer since October of 2005. 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 Chief Financial Officer ofBilstein Corporation of America, a manufacturer and distributor of automotiveparts. Mr. Wetherell holds a B.S. degree in Management and a M.S. degreein Finance from San Diego State University.

 

3

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*Chuck AuBuchon*has served as Vice President, Sales since May of 2004. From 2003 to2004 he served as Director of North American Sales. From 2000 to 2003 was VicePresident Sales & Marketing at Card Technology Corporation, a manufacturerof Card Personalization Systems, where he was responsible for distributionwithin the Americas, Asia Pacific, and EMEA (Europe, Middle East and Africa)regions. From 1992 to 2000 he served as held various sales management positionsincluding Vice President Sales and Marketing for Gemplus and Datacard.

 

*William Willis*has served as Executive Vice President, Business Development since January,2006. From 2003 to January 2006, he served as Senior Vice President ofTechnology and Business Development. From 2001 until July 2003,Mr. Willis served as the Chief Technology Officer for IridianTechnologies, a developer of authentication technologies based on irisrecognition. From 2000 to 2001, Mr. Willis was the Chief Operating Officerof e-dn.com. From 1993 to 2000, Mr. Willis served as Chief TechnologyOfficer and Vice President of Engineering of Access360 (formerly known asEnable Solutions).

 

*David Harding* hasserved as Vice President and Chief Technology Officer since January, 2006.Before joining ImageWare, Mr. Harding was the Chief Technology Officer at ICSolutions, Inc., where he was responsible for all technology departmentsincluding the development and management of software development, IT andquality assurance as well as their respective hardware, software and humanresource budgets from 2001 to 2003.  Hewas the Chief Technology Officer at Thirsty.com from 1999 to 2000, the ChiefTechnology Officer at Fulcrum Point Technologies, Inc., from 1996 to 1999; andconsultant to Access360, which is now part of IBM/Tivoli, from 1995 to 1996.

 

The Audit Committee of ImageWare’s Board of Directors is comprised ofthree directors and operates under a written charter approved by the Board ofDirectors. The members of the Audit Committee are G. Steve Hamm (Chairman),David Loesch and Jack Holleran. All members of the Company’s Audit Committeeare independent (as independence is defined in Section 121(A) of the AmericanStock Exchange Listing Standards). Mr. Hamm is an audit committee financialexpert. 

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) of theSecurities Act of 1934 (the “1934 Act”) requires the Company’s directors andexecutive officers, and persons who own more than ten percent of a registeredclass of the Company’s equity securities, to file with the SEC initial reportsof ownership and reports of changes of ownership of common stock and otherequity securities of the Company. Officers, directors and greater than tenpercent shareholders are required by SEC regulation to furnish the Company withcopies of all Section 16(a) forms they file.

 

To the Company’s knowledge,based solely on a review of the copies of such reports furnished to the Companyand written representations that no other reports were required, during the fiscalyear ended December 31, 2005, all Section 16(a) filing requirements applicableto its officers, directors and greater that ten percent beneficial owners werecomplied with.

 

**ITEM 10. EXECUTIVE COMPENSATION**

 

**COMPENSATION OF DIRECTORS**

 

Eachnon-employee director of the Company receives a monthly retainer of $2,000 forserving on the Board. Board members who also serve on the Audit Committeereceive additional compensation. The members of the Board of Directors are alsoeligible for reimbursement for their expenses incurred in attending Boardmeetings in accordance with Company policy. For the fiscal year endedDecember 31, 2005, the total amounts paid to non-employee directors ascompensation (excluding reimbursable expenses) was $142,500.

 

Non-employeedirectors of the Company are also eligible to receive stock option grants underthe Amended and Restated 1999 Stock Award Plan (the “1999 Plan”) or the 2001Equity Incentive Plan (the “2001 Plan”). Options granted under the 1999 Planand the 2001 Plan are intended by the Company not to qualify as incentive stockoptions under the Internal Revenue Code.

 

4

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Theterm of options granted under the 2001 Plan is 10 years. In the event of amerger of the Company with or into another corporation or a consolidation,acquisition of assets or other change-in-control transaction involving theCompany, an equivalent option will be substituted by the successor corporation,provided, however, that the Company may cancel outstanding options uponconsummation of the transaction by giving at least thirty (30) daysnotice.

 

Duringthe last fiscal year, the Company granted 51,000 options under the 1999 Planand 10,000 options under the 2001 Plan to non-employee directors of the Company.John Callan was granted 2,000 options at an exercise price per share of $2.74under the 2001 Plan and 12,000 options at an exercise price per share of $2.36under the 1999 Plan. The fair market value of such common stock on the date ofgrants was $2.74 and $2.36, respectively per share (based on the closing salesprice reported on the American Stock Exchange for the date of grant). PatrickDowns was granted 2,000 options at an exercise price per share of $2.74 underthe 2001 Plan and 18,000 options at an exercise price per share of $2.36 underthe 1999 Plan. The fair market value of such common stock on the date of grantswas $2.74 and $2.36, respectively per share (based on the closing sales pricereported on the American Stock Exchange for the date of grant). John Holleranwas granted 2,000 options at an exercise price per share of $2.74 under the2001 Plan and 12,000 options at an exercise price per share of $2.36 under the1999 Plan. The fair market value of such common stock on the date of grants was$2.74 and $2.36, respectively per share (based on the closing sales pricereported on the American Stock Exchange for the date of grant). David Loeschwas granted 2,000 options at an exercise price per share of $2.74 under the2001 Plan and 9,000 options at an exercise price per share of $2.36 under the1999 Plan. The fair market value of such common stock on the date of grants was$2.74 and $2.36, respectively per share (based on the closing sales pricereported on the American Stock Exchange for the date of grant). G. Steve Hammwas granted 2,000 options at an exercise price per share of $2.74 under the2001 Plan. The fair market value of such common stock on the date of grant was$2.74 per share (based on the closing sales price reported on the AmericanStock Exchange for the date of grant). As of April 15, 2006, no options hadbeen exercised by non-employee directors under the Directors’ Plan, the 1999Plan or the 2001 Plan.

 

**COMPENSATION OF NAMED EXECUTIVE OFFICERS**

 

Thefollowing table shows, for the fiscal years ended December 31, 2003, 2004and 2005, compensation awarded or paid to, or earned by, the Company’s ChiefExecutive Officer and its other four most highly compensated executive officersat December 31, 2005, and one additional individual who was no longerserving as an executive officer as of December 31, 2005 (the “Named ExecutiveOfficers”):

 

5

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**Summary Compensation Table**

 
| ** **                                                                                                          | ** ** | ** **       | ** ** | **Annual  Compensation**  | ** ** | **Long-Term  Compensation** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------|------------|-----------------------------|------------|
| ** **                                                                                                          | ** ** | ** **       | ** ** | ** **                | ** ** | ** **                  | ** ** | ** ** | ** ** | **Awards** | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| ** **                                                                                                          | ** ** | ** **       | ** ** | ** **                | ** ** | ** **                  | ** ** | ** ** | ** ** | **Restricted** | ** ** | **Securities** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                          | ** ** | ** **       | ** ** | ** **                | ** ** | ** **                  | ** ** | **Other  Annual** | ** ** | **Stock** | ** ** | **Underlying** | ** ** | **LTIP** | ** ** | ** ** | ** ** |
| ** **                                                                                                          | ** ** | **Fiscal**       | ** ** | **Salary**                | ** ** | **Bonus**                   | ** ** | **Compensation** | ** ** | **Award(s)** | ** ** | **Options** | ** ** | **payouts** | ** ** | **All  Other** | ** ** |
| **Name and Principal Position**                                                                                     | ** ** | **Year**         | ** ** | **($)**                   | ** ** | **($)**                     | ** ** | **($)** | ** ** | **($)** | ** ** | **(#)** | ** ** | **($)** | ** ** | **Compensation  ($)** | ** ** |
| Mr. S. James  Miller, Jr (4)  Chairman of the Board andChief Executive Officer                            |       | 2005

2004

2003 |       | 294,645

284,441

275,699 |       | —

—

—      |       | —

—

— |   | 258,892

478,204

  |   | 209,700

100,000

25,000 |   |   |   | 1,023

1,023

504 | (1)

(1)

(1) |
|                                                                                                                |       |             |       |                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Mr. Wayne  Wetherell (4)  Senior Vice President Administration, Chief Financial Officer, Secretary,  Treasurer |       | 2005

2004

2003 |       | 173,800

168,043

164,947 |       | —

—

—      |       | —

—

— |   | 124,136

309,082

  |   | 112,600

10,000

  |   |   |   | 879

705

705 | (1)

(1)

(1) |
|                                                                                                                |       |             |       |                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Mr. William  Willis(2)  Executive Vice President Business Development                                          |       | 2005

2004

2003 |       | 200,000

200,000

98,837  |       | —

—

       |       | —

—

  |   |   |   | 60,000

50,000

67,500 |   |   |   | 504

501

  | (1)

(1)

  |
|                                                                                                                |       |             |       |                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Mr. Charles  AuBuchon (3)  Vice President Sales                                                                |       | 2005

2004

2003 |       | 150,933

127,637

41,065  |       | —

—

       |       | —

—

  |   |   |   | 90,000

40,000

10,000 |   |   |   | 504

242

20 | (1)

(1)

(1) |
|                                                                                                                |       |             |       |                      |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Lori Rodriguez(5)  Senior Vice President, Operations                                                                |       | 2005

2004

2003 |       | 131,999

163,481

166,517 |       | —

—

—      |       | —

—

— |   |   |   | —

—

— |   |   |   | 618

504

504 | (1)

(1)

(1) |

 

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(1)           Amount represents payment for term lifeinsurance premium.

 

(2)           Mr. Willis was first employed by the Companyin July of 2003.

 

(3)           Mr. AuBuchon was first employed by theCompany in August of 2003.

 

 (4)          Total shares awarded Messrs. Miller andWetherell in 2005 were 109,700 and 52,600 respectively. These shares vestratably on a quarterly basis over three years ending September 27, 2008. Totalshares awarded Messrs. Miller and Wetherell in 2004 were 124,162 and 80,281respectively. These shares vest ratably on a quarterly basis over three yearsending March 31, 2007.

 

(5)           Ms. Rodriguez’s employment with the companyended in October of 2005.

 

**Stock Option Grants and Exercises**

 

TheCompany grants options to its executive officers and employees under its 2001Plan, its Amended 1999 Stock Option Plan (the “1999 Plan”), and its 1994Employee Stock Option Plan (the “1994 Plan”). As of April 15, 2005, options topurchase a total of 63,700 shares were outstanding and no options remainedavailable for grant under the 1994 plan. Additionally, stock grants and optionsto purchase a total of 1,344,100 shares were outstanding and options topurchase 65,739 shares remained available for grant under the 1999 Plan.Lastly, stock grants and options to purchase a total of 517,836 shares wereoutstanding and options to purchase and none remained available for grant underthe 2001 Plan.

 

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Thefollowing tables show for the fiscal year ended December 31, 2005, certaininformation regarding options granted to, exercised by, and held at year-endby, the Named Executive Officers:

 

**OPTION/SAR GRANTS IN LAST FISCAL YEAR**

 
| **Name**                  | ** ** | **Number of  Securities  Underlying  Options/SARs  granted (#)** | ** ** | **% of Total  Options/SARs  granted to  employees in fiscal  year (1)** | ** ** | **Exercise Or  Base Price  ($/Sh)** | ** ** | **Expiration Date** | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|
| S. James Miller, Jr. |       | 100,000                                                                    |       | 15.6                                                                                                  | %          | 2.62                                          |       | 8/16/2015                |       |
| S. James Miller, Jr. |       | 109,700                                                                    |       | 17.1                                                                                                  | %          | 2.36                                          |       | 9/27/2015                |       |
| Wayne Wetherell           |       | 60,000                                                                     |       | 9.3                                                                                                   | %          | 2.62                                          |       | 8/16/2015                |       |
| Wayne Wetherell           |       | 52,600                                                                     |       | 8.2                                                                                                   | %          | 2.36                                          |       | 9/27/2015                |       |
| William Willis            |       | 60,000                                                                     |       | 9.3                                                                                                   | %          | 2.62                                          |       | 8/16/2015                |       |
| Charles AuBuchon          |       | 60,000                                                                     |       | 9.3                                                                                                   | %          | 2.62                                          |       | 8/16/2015                |       |

 

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(1)           Percentage calculated based upon a total of 642,800options granted to employees of the company in 2005. 

 

**AGGREGATEDOPTION/ SAR EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION/SARVALUES**

 
| **Name**                  | ** ** | **Shares  Acquired on  Exercise  (#)** | ** ** | **Value  Realized  ($ )** | ** ** | **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. |       |                                        |       |                           |       | 197,914/211,786                                                                                                                               |       | $0/$0                                                                                                                              |       |
| Wayne Wetherell           |       |                                        |       |                           |       | 84,164/113,436                                                                                                                                |       | $0/$0                                                                                                                              |       |
| William Willis            |       |                                        |       |                           |       | 67,625/169,875                                                                                                                                |       | $0/$0                                                                                                                              |       |
| Chuck AuBuchon            |       |                                        |       |                           |       | 6,665/193,335                                                                                                                                 |       | $0/$0                                                                                                                              |       |
| Lori Rodriguez            |       |                                        |       |                           |       | 80,000/0                                                                                                                                      |       | $0/$0                                                                                                                              |       |

 

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(1)           None of the Named Executive Officersexercised Options during 2005.

 

(2)           The “Value of Unexercised In-The-MoneyOptions” is the aggregate, calculated on a grant by grant basis, of the productof the number of unexercised options at the end of fiscal year 2005, multipliedby the difference between the exercise price for the grant and the closingprice of a share of common stock on the last day of the 2005 fiscal year($1.96), excluding grants for which the exercise price is greater than theclosing price of a share of common stock on that day. The actual value, if any,that will be realized upon the exercise of an option will depend upon thedifference between the exercise price of the option and the market price of thecommon stock on the date that the option is exercised.

 

**EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS**

 

OnOctober 1, 2005, we entered into an employment agreement withMr. Miller pursuant to which Mr. Miller will serve as President and ChiefExecutive officer. This agreement is for a three-year term ending September 30,2008. This agreement provides for annual base compensation in the amount of $291,048,which amount will be increased based on cost-of-living increases. Under thisagreement, we will reimburse Mr. Miller for reasonable expenses incurredin connection with our business. Under the terms of the agreement, Mr. Millerwill be entitled to the following severance benefits if we terminate hisemployment without cause or in the event of an involuntary termination (i) alump sum cash payment equal to twenty-four months; (ii) continuation ofMr. Miller’s fringe benefits and medical insurance for a period of three years;(iii) immediate vesting of 50% of Mr. Miller’s outstanding stock optionsand restricted stock awards. In the event that Mr. Miller’s employment isterminated within six months prior to or the thirteen months following a changeof control (defined below), Mr. Miller is entitled to the severance benefitsdescribed above, except that 100% of Mr. Miller’s outstanding stock options andrestricted stock awards will immediately vest.

 

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OnOctober 1, 2005, we entered into an amended employment agreement withMr. Wetherell pursuant to which Mr. Wetherell will serve as our ChiefFinancial Officer. This agreement is for a three-year term ending September 30,2008. This agreement provides for annual base salary in the amount of $174,100,which amount will be increased based on cost-of-living increases and may alsobe increased based on performance reviews. Under this agreement, we willreimburse Mr. Wetherell for reasonable expenses incurred in connectionwith our business. Under the terms of the agreement, Mr. Wetherell will beentitled to the following severance benefits if we terminate his employmentwithout cause or in the event of an involuntary termination (i) a lump sumcash payment equal to twelve months; (ii) continuation of Mr. Wetherell’sfringe benefits and medical insurance for a period of three years; (iii) immediatevesting of 50% of Mr. Wetherell’s outstanding stock options and restrictedstock awards. In the event that Mr. Wetherell’s employment is terminated withinsix months prior to or the thirteen months following a change of control(defined below), Mr. Wetherell is entitled to the severance benefits describedabove, except that 100% of Mr. Wetherell’s outstanding stock options andrestricted stock awards will immediately vest.

 

On October 31, 2005, we entered into a Changeof Control and Severance Benefits Agreement (the “Agreement”) with Mr. CharlesAuBuchon, our Vice President of Sales.

 

The Agreement has a three year term,commencing on October 31, 2005. Subject to the conditions and other limitationsset forth in the Agreement, Mr. AuBuchon will be entitled to the followingseverance benefits if we terminate his employment without cause (as defined inthe Agreement) prior to the closing of any change of control transaction (asdefined in the Agreement): (i) a lump sum cash payment equal to six monthsof base salary; and (ii) continuation of Mr. AuBuchon’s health insurancebenefits until the earlier of six (6) months following the date oftermination, the date on which he is no longer entitled to continuation coveragepursuant to COBRA or the date that he obtains comparable health insurancecoverage.

 

In the event that the Mr. Aubuchon’semployment is terminated within the twelve months following a change of control(as defined in the Agreement), he is entitled to the severance benefitsdescribed above, plus his stock options will immediately vest and becomeexercisable.

 

Mr. Aubuchon’s eligibility to receiveseverance payments or other benefits upon his termination is conditioned uponhim executing a general release of liability.

 

“Changeof control” is defined in each of the employment agreements as the occurrenceof any of the following events:

 

thedate on which any “person” (as such term is used in Sections 13(d) and 14(d) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”))obtains “beneficial ownership” (as defined in Rule 13d-3 of the Exchange Act)or a pecuniary interest in fifty percent (50%) or more of the combined votingpower of the Company’s then outstanding securities (“Voting Stock”);

 

### (i)    the consummation of a merger,consolidation, reorganization, or similar transaction other than a transaction:(1) in which substantially all of the holders of the Company’s Voting Stockhold or receive directly or indirectly fifty percent (50%) or more of thevoting stock of the resulting entity or a parent company thereof, insubstantially the same proportions as their ownership of the Companyimmediately prior to the transaction; or (2) in which the holders of theCompany’s capital stock immediately before such transaction will, immediatelyafter such transaction, hold as a group on a fully diluted basis the ability toelect at least a majority of the directors of the surviving corporation (or aparent company);

 

### (ii)   there is consummated a sale, lease,exclusive license, or other disposition of all or substantially all of theconsolidated assets of the Company and its Subsidiaries, other than a sale,lease, license, or other disposition of all or substantially all of theconsolidated assets of the Company and its Subsidiaries to an entity, fiftypercent (50%) or more of the combined voting power of the voting securities ofwhich are owned by stockholders of the Company in substantially the sameproportions as their ownership of the Company immediately prior to such sale,lease, license, or other disposition; or

 

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### (iii)  individuals who, on the date this Plan isadopted by the Board, are Directors (the “Incumbent Board”) cease forany reason to constitute at least a majority of the Directors; provided,however, that if the appointment or election (or nomination forelection) of any new Director was approved or recommended by a majority vote ofthe members of the Incumbent Board then still in office, such new member shall,for purposes of this Plan, be considered as a member of the Incumbent Board.

###  

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

 

**SECURITY OWNERSHIP OF**

**CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Thefollowing table sets forth certain information regarding the ownership of theCompany’s common stock as of April 15, 2006 by: (i) each director andnominee for director; (ii) each of the executive officers named in theSummary Compensation Table; (iii) all executive officers and directors ofthe Company as a group; and (iv) all those known by the Company to bebeneficial owners of more than five percent of its common stock.

 
| ** **                                                                          | ** ** | **Beneficial Ownership(1)** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| **Name and Address of Beneficial  Owner**                                           | ** ** | **Number of  Shares**       | ** ** | **Percent of  Class** | ** ** |
| S. James Miller, Jr.(2)                                                        |       | 378,076                     |       | 2.8 | % |
| John Callan(3)                                                                      |       | 43,703                      |       | * |   |
| Patrick Downs(4)                                                                    |       | 54,080                      |       | * |   |
| G. Steve Hamm (5)                                                                   |       | 5,772                       |       | * |   |
| John Holleran(6)                                                                    |       | 12,091                      |       | * |   |
| David Loesch(7)                                                                     |       | 20,668                      |       | * |   |
| Wayne Wetherell(8)                                                                  |       | 148,213                     |       | 1.1 | % |
| William Willis (9)                                                                  |       | 73,250                      |       | * |   |
| Charles AuBuchon (10)                                                               |       | 27,498                      |       | * |   |
| Gruber & McBaine Capital Management LLC  50 Osgood Place  San Francisco, CA(11) |       | 2,129,525                   |       | 15.2 | % |
| Total Shares Held By Directors And  Executive Officers                              |       | 763,300                     |       | 5.5 | % |

 

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*              Less than one percent.

 

(1)           This table is based upon information suppliedby officers, directors and principal shareholders and Schedules 13D and13G filed with the Securities and Exchange Commission (the “SEC”). Unlessotherwise indicated in the footnotes to this table and subject to communityproperty laws where applicable, the Company believes that each of theshareholders named in this table has sole voting and investment power withrespect to the shares indicated as beneficially owned. Applicable percentagesare based on 13,547,662 shares of common stock outstanding on April 15, 2006,calculated on an as-converted basis and adjusted as required by rulespromulgated by the SEC. Unless otherwise indicated, the address for each listedshareholder is c/o ImageWare Systems, Inc. 10883 Thornmint Road, SanDiego, CA 92127.

 

(2)           Mr. Miller serves as Chairman of theBoard of Directors and Chief Executive Officer of the Company. Includes 178,076shares held jointly with spouse and by sons and 200,000 options exercisablewithin 60 days of the date reported.

 

(3)           Includes 13,703 options exercisable within60 days of the date reported.

 

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(4)           Includes 11,429 options exercisable within60 days of the date reported.

 

(5)           Includes 5,722 shares exercisable within60 days of the date reported.

 

(6)           Includes 11,429 shares exercisable within60 days of the date reported.

 

(7)           Includes 16,168 shares exercisable within60 days of the date reported.

 

(8)           Includes 85,000 shares exercisable within60 days of the date reported.

 

 (9)          Includes 73,250 shares exercisable within60 days of the date reported.

 

(10)         Includes 7,498 shares exercisable within60 days of the date reported.

 

(11)         Includes 425,013 shares issuable upon theexercise of warrants.

 

Equity Compensation Plan Informationis incorporated by reference to Item 5 of this report.

 

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**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

In addition to the employment agreements described above, the Companyhas entered into indemnity agreements with certain officers and directors whichprovide, among other things, that the Company will indemnify such officer ordirector, under the circumstances and to the extent provided for therein, forexpenses, damages, judgments, fines and settlements he or she may be requiredto pay in actions or proceedings which he or she is or may be made a party byreason of his or her position as a director, officer or other agent of theCompany, and otherwise to the fullest extent permitted under California law andthe Company’s Bylaws.

 

**ITEM 13.  Exhibits**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                            |
|--------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1               |       | Certification by Chief  Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the  Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                      |
| 31.2               |       | Certification by Chief  Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the  Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002.                                                                      |
| 32.1               |       | Certification by Chief  Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the  Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States  Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2               |       | Certification by Chief  Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the  Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States  Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

**ITEM 14.  Principal Accountant Fees and Services.**

 

The following table represents aggregate fees billed to the Company forthe fiscal years ended December 31, 2005 and 2004 by Stonefield Josephson,Inc., the Company’s principal accountant for the fiscal years ended December31, 2005 and 2004:

 
| ** **         | ** ** | **Fiscal Year Ended  (in thousands)** | ** ** |
|--------------------|------------|---------------------------------------|------------|
| ** **         | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Audit Fees         |       | $                                     | 84,526     |   | $ | 49,207 |   |
|               |       |                                  |       |   |   |
| Audit-Related Fees |       | 54,922                                |       | 43,275 |   |
|               |       |                                  |       |   |   |
| Tax Fees           |       | —                                |       | 3,415 |   |
|               |       |                                  |       |   |   |
| All Other Fees     |       | —                                |       | — |   |
|               |       |                                  |       |   |   |
| Total Fees         |       | $                                     | 139,897    |   | $ | 95,897 |   |

 

All fees described above were approved by the Audit Committee of theCompany’s Board of Directors.

 

*Pre-ApprovalPolicies and Procedures.*

 

TheAudit Committee has adopted a policy and procedures for the pre-approval ofaudit and non-audit services rendered by our independent auditor, StonefieldJosephson, Inc. The policy generally pre-approves specified services in thedefined categories of audit services, audit-related services, and tax servicesup to specified amounts. Pre-approval may also be given as part of the AuditCommittee’s approval of the scope of the engagement of the independent auditoror on an individual explicit case-by-case basis before the independent auditoris engaged to provide each service. The pre-approval of services may bedelegated to one or more of the Audit Committee’s members, but the decisionmust be reported to the full Audit Committee at its next scheduled meeting.

 

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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                 | IMAGEWARE  SYSTEMS, INC. |
|----------------------|-------------------------------|
|                 |                          |
|                 |                          |
| April 30,  2006 | By:                           | /s/ Wayne G. Wetherell |
|                 |                          | Wayne G. Wetherell |
|                 |                          | Chief Financial Officer |

 

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