In addition, our customers may authorize third-party technology providers to access their customer data, and some of our customers may not have adequate security measures in place to protect their data that is stored on our servers. Because we do not control our customers or third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third parties may also conduct attacks designed to temporarily deny customers access to our services.

A security breach could expose us to a risk of loss or inappropriate use of proprietary and sensitive data, or the denial of access to this data. A security breach could also result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability. Finally, the detection, prevention and remediation of known or potential security vulnerabilities, including those arising from third-party hardware or software may result in additional direct and indirect costs, for example additional infrastructure capacity to mitigate any system degradation that could result from remediation efforts.

RISKS RELATED TO INTELLECTUAL PROPERTY

If the patents we own or license, or our other intellectual property rights, do not adequately protect our products and technologies, we may lose market share to our competitors and our business, financial condition and results of operations would be adversely affected.

Our success depends significantly on our ability to protect our rights to the technologies used in our products. We rely on patent protection, trade secrets, as well as a combination of copyright and trademark laws and nondisclosure, confidentiality and other contractual arrangements to protect our technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, we cannot be assured that any of our current and future pending patent applications will result in the issuance of a patent to us. The U.S. Patent and Trademark Office (“PTO”) may deny or require significant narrowing of claims in our pending patent applications, and patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or may not be issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. These proceedings could result in adverse decisions as to the claims included in our patents.

Our issued and licensed patents and those that may be issued or licensed in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. Additionally, upon expiration of our issued or licensed patents, we may lose some of our rights to exclude others from making, using, selling or importing products using the technology based on the expired patents. We also must rely on contractual rights with the third parties that license technology to us to protect our rights in the technology licensed to us. Although we have taken steps to protect our intellectual property and technology, there is no assurance that competitors will not be able to design around our patents. We also rely on unpatented proprietary technology. We cannot assure you that we can meaningfully protect all our rights in our unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our unpatented proprietary technology. We seek to protect our know-how and other unpatented proprietary technology with confidentiality agreements and intellectual property assignment agreements with our employees. However, such agreements may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. In addition, we rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Our common law trademarks provide less protection than our registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. If we fail to apply for intellectual property protection or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.

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If third parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. We face the risk of claims that we have infringed on third parties’ intellectual property rights. Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which is not yet a matter of public knowledge, or claimed trademark rights that have not been revealed through our availability searches. Our efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims of patent or other intellectual property infringement, even those without merit, could:

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increase the cost of our products;

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be expensive and time consuming to defend;

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result in us being required to pay significant damages to third parties;

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force us to cease making or selling products that incorporate the challenged intellectual property;

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require us to redesign, reengineer or rebrand our products;

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require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property, the terms of which may not be acceptable to us;

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require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification to such parties for intellectual property infringement claims;

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divert the attention of our management; and

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result in our customers or potential customers deferring or limiting their purchase or use of the affected products until the litigation is resolved.

In addition, new patents obtained by our competitors could threaten a product’s continued life in the market even after it has already been introduced.

If our security measures or those of our third-party data center hosting facilities, cloud computing platform providers, or third-party service partners, are breached, and unauthorized access is obtained to a customer’s data, our data or our IT systems, or authorized access is blocked or disabled, our services may be perceived as not being secure, customers may curtail or stop using our services, and we may incur significant legal and financial exposure and liabilities.REGULATORY AND LEGAL RISK FACTORS

~~Our services involve the storage~~Failure to comply with federal, state and ~~transmission of our customers’~~international laws and regulations and our ~~customers’ customers’ proprietary~~contractual obligations relating to privacy, data protection and ~~other sensitive~~consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data ~~including~~protection and consumer protection, could adversely affect our business and our financial information and other personally identifiable information. While we have security measures in place, they may be breached as a result of efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states. Our security measures could also be compromised by employee error or malfeasance, which could result in someone obtaining unauthorized access to, or denying authorized access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information to gain access to our customers’ data, our data or our IT systems.condition.

We ~~take extraordinary measures~~collect and maintain significant amounts of personal data and other data relating to ~~ensure identity authentication~~our customers and employees. A variety of ~~users who access critical IT infrastructure, including but~~federal, state and international laws and regulations, and certain industry standards, govern or apply to our collection, use, retention, sharing and security of consumer data. We are subject to certain laws, regulations, contractual obligations and industry standards (including, for example, the Payment Card Industry Data Security Standard, or PCI-DSS) relating to privacy, data protection, information security and consumer protection, which are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not ~~limited~~comply or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to ~~two-factor, multi-factor and biometric identity verification. This substantially reduces the threat~~comply with our privacy policies or with any federal, state or international laws, regulations, industry self-regulatory principles, industry standards or codes of ~~unauthorized access by bad actors using compromised user credentials.~~

~~Because the techniques used~~conduct, regulatory guidance, orders to ~~breach, obtain unauthorized access to, or sabotage IT systems change frequently, grow more complex over time, and generally are not recognized until launched against a target,~~which we may be ~~unable~~subject or other legal or contractual obligations relating to ~~anticipate~~privacy, data protection, information security or ~~implement adequate measures~~consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to ~~prevent against~~change our operations and/or cease or modify our use of certain data sets. Any such ~~techniques.~~

claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

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~~Our services operate~~Foreign laws and regulations relating to privacy, data protection, information security and consumer protection often are more restrictive than those in ~~conjunction~~the United States. The European Union, for example, traditionally has imposed stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the United States. In May 2018 the European Union's new regulation governing data practices and privacy called the General Data Protection Regulation, or GDPR, became effective and substantially replaced the data protection laws of the individual European Union member states. The law requires companies to meet more stringent requirements regarding the handling of personal data of individuals in the EU than were required under predecessor EU requirements. In the United Kingdom, a Data Protection Bill that substantially implements the GDPR also became law in May 2018. The law also increases the penalties for non-compliance, which may result in monetary penalties of up to €20.0 million or 4% of a company's worldwide turnover, whichever is higher. The GDPR and other similar regulations require companies to give specific types of notice and in some cases seek consent from consumers and other data subjects before collecting or using their data for certain purposes, including some marketing activities. Outside of the European Union, many countries have laws, regulations, or other requirements relating to privacy, data protection, information security, and consumer protection, and new countries are adopting such legislation or other obligations with ~~and are dependent on products and components across a broad ecosystem and, as illustrated by the recent Spectre and Meltdown threats, if there are security vulnerabilities in one~~increasing frequency. Many of these ~~components, a security breach could occur. In addition, our internal IT systems continue to evolve and we are often early adapters~~laws may require consent from consumers for the use of ~~new technologies and new ways of sharing~~ data ~~and communicating internally and with partners and customers,~~for various purposes, including marketing, which ~~increases the complexity of our IT systems. These risks are mitigated by~~may reduce our ability to ~~maintain~~market our products. There is no harmonized approach to these laws and ~~improve~~regulations globally. Consequently, we increase our risk of non-compliance with applicable foreign data protection laws by operating internationally. We may need to change and limit the way we use personal information in operating our business and may have difficulty maintaining a single operating model that is compliant. In addition, various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data ~~governance~~protection, information security and consumer protection. For example, California recently adopted the California Consumer Privacy Act of 2018 (“CCPA”), which provides new data privacy rights for consumers and new operational requirements for businesses. The CCPA includes a statutory damages framework and private rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches. The CCPA went into effect in January 2020. The effects of the CCPA potentially are significant, however, and may require us to modify our data processing practices and policies and ~~processes~~to incur substantial costs and ~~internal~~expenses in an effort to comply. As a general matter, compliance with laws, regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security ~~controls, including~~and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to ~~escalate~~acquire customers, and ~~respond to known and potential risks.~~

A security breach could expose us to a risk of loss or inappropriate use of proprietary and sensitive data, or the denial of access to this data. A security breach could also result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disruptotherwise adversely affect our business, financial condition and lead to legal liability. Finally, the detection, prevention and remediation of known or potential security vulnerabilities, including those arising from third-party hardware or software may result in additional direct and indirect costs, for example additional infrastructure capacity to mitigate any system degradation that could result from remediation efforts.

~~We operate in foreign countries and are exposed to risks associated with foreign political, economic and legal environments and with foreign currency exchange rates~~operating results..

We have significant foreign operations. As a result, we are exposed to risks, including among others, risks associated with foreign political, economic and legal environments and with foreign currency exchange rates. Our results may be adversely affected by, among other things, changes in government policies with respect to laws and regulations, anti-inflation measures, currency conversions, collection of receivables abroad and rates and methods of taxation.

~~We depend on key personnel, the loss of any of whom could materially adversely affect future operations~~.

Our success will depend to a significant extent upon the efforts and abilities of our executive officers and other key personnel. The loss of the services of one or more of these key employees and any negative market or industry perception arising from the loss of such services could have a material adverse effect on us and the trading price of our Common Stock. Our business will also be dependent upon our ability to attract and retain qualified personnel. Acquiring and keeping these personnel could prove more difficult or cost substantially more than estimated and we cannot be certain that we will be able to retain such personnel or attract a high caliber of personnel in the future.

We may have additional tax ~~liabilities~~assessments.

We are subject to income taxes in the United States. Significant judgments are required in determining our provisions for income taxes. In the course of preparing our tax provisions and returns, we must make calculations where the ultimate tax determination may be uncertain. Our tax returns are subject to examination by the Internal Revenue Service (“IRS”) and state tax authorities. There can be no assurance as to the outcome of these examinations. If the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.

We ~~face competition from companies~~operate in foreign countries and are exposed to risks associated with ~~greater financial, technical, sales, marketing~~foreign political, economic and ~~other resources,~~legal environments and ~~if we are unable to compete effectively~~ with ~~these competitors, our market share may decline and our business could be harmed~~foreign currency exchange rates.

We ~~face competition from other established companies. A number of our competitors~~ have ~~longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing and other resources than we do.~~significant foreign operations. As a result, ~~our competitors~~we are exposed to risks, including among others, risks associated with foreign political, economic and legal environments and with foreign currency exchange rates. Our results may be ~~able~~adversely affected by, among other things, changes in government policies with respect to ~~respond more quickly than we can to new or changing opportunities, technologies, standards or client requirements, more quickly develop new products or devote greater resources to the promotion~~laws and ~~sale~~regulations, anti-inflation measures, currency conversions, collection of ~~their products~~receivables abroad and ~~services than we can. Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the identity management solutions industry~~rates and ~~compete more effectively on the basis~~methods of ~~price and production. In addition, new companies may enter the markets in which we compete, further increasing competition in the identity management solutions industry.~~

We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control. We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.

taxation.

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~~Risks Related to Our Securities~~GOVERNANCE RISKS AND RISKS RELATED TO OUR SECURITIES

Our Common Stock is subject to “penny stock” rules.

Our Common Stock is currently defined as a “penny stock” under Rule 3a51-1 promulgated under the Exchange ~~Act. “Penny stocks”~~Act which are subject to Rules 15g-2 through 15g-7 and Rule 15g-9, which impose additional sales practice requirements on broker-dealers that sell penny stocks to persons other than established customers and institutional accredited investors. Among other things, for transactions covered by these rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, these rules may affect the ability of broker-dealers to sell our Common Stock and affect the ability of holders to sell their shares of our Common Stock in the secondary market. To the extent our Common Stock is subject to the penny stock regulations, the market liquidity for our shares will be adversely affected.

Our stock price has been volatile, and your investment in our Common Stock could suffer a decline in value.

There has been significant volatility in the market price and trading volume of equity securities, which is unrelated to the financial performance of the companies issuing the securities. These broad market fluctuations may negatively affect the market price of our Common Stock. You may not be able to resell your shares at or above the price you pay for those shares due to fluctuations in the market price of our Common Stock caused by changes in our operating performance or prospects and other factors.

Some specific factors that may have a significant effect on our Common Stock market price include:

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actual or anticipated fluctuations in our operating results or future prospects;

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our announcements or our competitors’ announcements of new products;

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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

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strategic actions by us or our competitors, such as acquisitions or restructurings;

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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changes in accounting standards, policies, guidance, interpretations or principles;

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changes in our growth rates or our competitors’ growth rates;

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developments regarding our patents or proprietary rights or those of our competitors;

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our inability to raise additional capital as needed;

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substantial sales of Common Stock underlying warrants and preferred stock;

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concern as to the efficacy of our products;

●

changes in financial markets or general economic conditions;

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sales of Common Stock by us or members of our management team; and

●

changes in stock market analyst recommendations or earnings estimates regarding our Common Stock, other comparable companies or our industry generally.

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Our future sales of our Common Stock could adversely affect its price and our future capital-raising activities could involve the issuance of equity securities, which would dilute shareholders’ investments and could result in a decline in the trading price of our Common Stock.

We may sell securities in the public or private equity markets if and when conditions are favorable, even if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of our Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our Common Stock and our ability to raise capital. We may issue additional Common Stock in future financing transactions or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of Common Stock. The market price for our Common Stock could decrease as the market takes into account the dilutive effect of any of these issuances. Furthermore, we may enter into financing transactions at prices that represent a substantial discount to the market price of our Common Stock. A negative reaction by investors and securities analysts to any discounted sale of our equity securities could result in a decline in the trading price of our Common Stock.

The holders of our ~~preferred stock~~Preferred Stock (as defined below) have certain rights and privileges that are senior to our Common Stock, and we may issue additional shares of ~~preferred stock~~Preferred Stock without stockholder approval that could have a material adverse effect on the market value of the Common Stock.

Our Board of Directors has the authority to issue a total of up to ~~four~~5.0 million shares of preferred stock, par value $0.01 per share (“Preferred Stock”) and to fix the rights, preferences, privileges, and restrictions, including voting rights, of the ~~preferred stock,~~Preferred Stock, which typically are senior to the rights of the Common Stock, without any further vote or action by the holders of our Common Stock. The rights of the holders of our Common Stock will be subject to, and may be adversely affected by, the rights of the holders of the ~~preferred stock~~Preferred Stock that have been issued or might be issued in the future. Preferred ~~stock~~Stock also could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. This could delay, defer, or prevent a change in control. Furthermore, holders of our ~~preferred stock~~Preferred Stock may have other rights, including economic rights, senior to the Common Stock. As a result, their existence and issuance could have a material adverse effect on the market value of the Common Stock. We have in the past issued and may from time to time in the future issue, ~~preferred stock~~Preferred Stock for financing or other purposes with rights, preferences, or privileges senior to the Common Stock. As of March ~~18, 2019,~~26, 2021, we had ~~three~~ fourseries of ~~preferred stock~~Preferred Stock outstanding, the Series A Preferred, ~~stock,~~Series A-1 Preferred, Series B Preferred, ~~stock~~ and Series ~~C Preferred stock.~~D Preferred.

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The provisions of our Series A Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series A Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of $1,000 per share, plus all accrued but unpaid dividends. As of December 31, ~~2018~~2020 and ~~2017,~~2019, there were 14,911 and 37,467 shares of our Series A Preferred outstanding, respectively. As of December 31, 2020 and 2019, we had no cumulative undeclared dividends on our Series A Preferred.

The provisions of our Series A-1 Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series A-1 Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of $1,000 per share, plus all accrued but unpaid dividends. As of December 31, 2020 and 2019, there were 14,782 and 0 shares of our Series A-1 Preferred outstanding, respectively. As of December 31, 2020, we had no cumulative undeclared dividends on our Series A-1 Preferred.

The provisions of our Series B Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series B Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of $2.50 per share, plus all accrued but unpaid dividends. As of December 31, ~~2018~~2020 and ~~2017,~~2019, there were 239,400 shares of Series B Preferred outstanding. As of December 31, 2020 and 2019, we had cumulative undeclared dividends on our Series B Preferred of approximately $8,000.

The provisions of our Series CD Preferred prohibit the payment of dividends on our Common Stock unless the dividends on our preferred shares are first paid. In addition, upon a liquidation, dissolution or sale of our business, the holders of our Series CD Preferred will be entitled to receive, in preference to any distribution to the holders of Common Stock, initial distributions of ~~$10,000~~$1,000 per share, plus all accrued but unpaid dividends. As of December 31, ~~2017,~~2020 and 2019, there were no22,863.28 and 0 shares of Series CD Preferred ~~outstanding.~~outstanding, respectively. As of December 31, ~~2018,~~2020, we had no cumulative undeclared dividends on our Series CD Preferred.

The conversion of our Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock and Series D Preferred Stock and the exercise of ~~approximately $0.~~currently outstanding warrants could result in significant dilution to the holders of our common stock.

The holders of our Series A Preferred Stock, Series A-1 Preferred Stock, Stock Series B Preferred Stock and Series D Preferred Stock may elect to convert their shares of Preferred Stock into shares of Common Stock. As of December 31, 2020, we had outstanding: (i) 14,911 shares of Series A Preferred Stock, which are convertible into 74,555,000 shares of Common Stock; (ii) 14,782 shares of Series A-1 Preferred Stock, which are convertible into 73,910,000 shares of Common Stock; (iii) 239,400 shares of Series B Preferred Stock, which are convertible into 46,029 shares of Common Stock; and (iv) 22,863.28 shares of Series D Preferred Stock, which are convertible into 392,166,023 shares of Common Stock. In addition to our outstanding shares of Preferred Stock, as of December 31, 2020, there were outstanding warrants to purchase 753,775 shares of our Common Stock.

The conversion of our Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock and Series D Preferred Stock, as well as the exercise of our outstanding warrants could result in significant dilution to existing common shareholders, adversely affect the market price of our Common Stock and impair our ability to raise capital through the sale of additional equity securities.

Upon the occurrence of certain events, we may be required to redeem all or a portion of our ~~Series C Preferred.~~Preferred Stock.

~~On September 10, 2018, we filed the Series C COD with the Secretary of State of the State of Delaware, pursuant to which~~ Holders of ~~the Series C~~certain of our Preferred Stock may require us to redeem all or any portion of such Holder’s shares ~~of Series C~~ Preferred ~~at a price per share equal to the Stated Value plus all accrued and unpaid dividends at any time~~Stock within specific date from ~~and after the third anniversary of the~~ issuance ~~date~~ or in the event of the consummation of a Change of Control (as such term is defined in the ~~Series C COD)~~Certificate of Designations, Preferences and Rights of each class of Preferred Stock). We cannot assure you that we will maintain sufficient cash reserves or that our business will generate cash flow from operations at levels sufficient to permit us to redeem our shares of ~~Series C~~ Preferred Stock if and when required to do so. In the event we have insufficient cash available or do not have access to additional third-party financings on commercially reasonable terms or at all to complete such redemption, our business, results of operations, and financial condition may be materially adversely affected.

Certain large shareholders may have certain personal interests that may affect the Company.

As a result of the securities issued to ~~Goldman~~Nantahala Capital Management, LLC (“Nantahala Capital Management”), and the related entities controlled by ~~Neal Goldman, a member of our Board of Directors (together, “~~Nantahala Capital Management, (i) Blackwell Partners LLC - Series A, (ii) Nantahala Capital Partners Limited Partnership, (iii) Nantahala Capital Partners II Limited Partnership, (iv) Nantahala Capital Partners SI, LP, (v) NCP QR Limited Partnership, and (vi) Silver Creek CS SAV, L.L.C. (collectively, "~~Goldman~~Nantahala”"), ~~Goldman~~Nantahala beneficiallyowns, in the aggregate, approximately ~~39.5%~~37% of the Company’s outstanding voting securities as of March 26, ~~2019.~~2021. As a result, ~~Goldman~~Nantahala has the potential ability to exert influence over ~~both the actions of the Board of Directors and~~ the outcome of issues requiring approval by the Company’s shareholders. This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other shareholders or preventing transactions in which shareholders might otherwise recover a premium for their shares over current market prices.

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Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of the Company.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes ~~preferred stock,~~Preferred Stock, which carries special rights, including voting and dividend rights. With these rights, ~~preferred stockholders~~holders of Preferred Stock could make it more difficult for a third party to acquire us.

~~We are also subject~~

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Our Amended Charter designates courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, and the federal district courts for the United States of America for claims brought under the Securities Act of 1933, as amended, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Certificate of Incorporation (the “Amended Charter”) require that, to the ~~anti-takeover provisions~~fullest extent permitted by law, and unless the Company consents in writing to the selection of ~~Section 203~~an alternative forum, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

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any derivative action or proceeding brought on behalf of the Company;

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any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

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any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Delaware General Corporation ~~Law. Under these~~Law or the Company’s Amended Charter, or the Amended and Restated Bylaws; or

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any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

Furthermore, the Amended Charter sets forth that the federal district courts of the United States of America are the exclusive forum for the resolution of any causes of action arising under the Securities Act of 1933, as amended (the “Securities Act”).

Because the applicability of the exclusive forum provision is limited to the extent permitted by law, we believe that the exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Securities Exchange Act of 1934, as amended (“Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction. We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law and federal law under the Securities Act in the types of lawsuits to which they apply, the provisions ~~if anyone becomes an “interested stockholder,” we~~ may ~~not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer~~have the effect of discouraging lawsuits against our directors and could delay or prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.officers.

We do not expect to pay cash dividends on our Common Stock for the foreseeable future.

We have never paid cash dividends on our Common Stock and do not anticipate that any cash dividends will be paid on the Common Stock for the foreseeable future. The payment of any cash dividend by us will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, capital, regulatory requirements and financial condition. Furthermore, the terms of our Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred and Series CD Preferred directly limit our ability to pay cash dividends on our Common Stock.

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GENERAL RISK FACTORS

Our business is subject to risks arising from epidemic diseases, such as the recent global outbreak of the COVID-19 coronavirus.

The recent outbreak of the novel coronavirus, COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemics, pose the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the COVID-19 pandemic and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed.

COVID-19 has prevented employees from returning to physical offices. In many cases, our potential customers in the government or commercial enterprise-side like to test our software in their labs with their systems and hardware. Potential customers have been unable to do this and that has caused purchase decisions to be delayed as these employees who would be testing are now working from their homes and can’t simulate test environments. COVID-19 has further led to a distributed work environment. Decision makers are now working from their homes, from all different parts of a state or country. Some have weak or no Internet connections, making it harder to review paperwork to decide on a large financial purchase. Some decision makers want to have more conversations with more people, and mull over decisions longer, versus in the past, when an individual could walk into a decision makers office and garner more rapid approval. Some countries have limits on how many people are permitted to gather in one meeting or have been hit particularly hard with many residents suffering and dying from the COVID-19 virus. There is a new paradigm emerging in making critical decisions from a video conference calls versus in person.

An economic recession had set in from the pandemic in 2020. Some companies are not receiving payments and in turn are not making payments to us, causing impairments in our ability to pay others. COVID-19 has led to some of our customers and potential customers being stricken with the virus causing them to not be able to work for many weeks and therefore causing delays for us in our projects or decisions. Technology partners have slowed down and/or laid off employees, impacting us downstream because decisions makers have been furloughed or the work has been passed to new employees who need to come up to speed on a particular project. The closing/downsizing of our offices due to COVID-19 has further caused employees to work from home on unsecured personal Wifi networks, and as such, working from home may cause security breaches such as malware, ransomware, and Phishing attempts. These attempts in some cases have knocked out their ability to have a connection and be able to work until their IT department resolves their issues.

This outbreak could decrease spending, adversely affect demand for the Company’s products, and harm the Company’s business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity, at this time.

We depend on key personnel, the loss of any of whom could materially adversely affect future operations.

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ITEM 1B.

UNRESOL~~UNRESOLVED~~VED STAFF COMMENTS

None.

ITEM 2.

P~~PROPERTIES~~ROPERTIES

Our corporate headquarters ~~are~~is located in San Diego, California ~~where we occupy 8,511 square feet~~and is currently leased on a month-to-month basis. We sublet our former headquarters effective March 1, 2021. As of office space. The lease for such office space commenced on November 1, 2018 and terminates on April 30, 2025. Annual base rent over the lease term approximates $361,000 per year. Prior to November 1, 2018, we leased 9,927 square feet of office spaceDecember 31, 2020, in ~~San Diego, California for approximately $30,000 per month pursuant to a lease agreement that expired in October 2018.~~

In addition to our corporate headquarters, we ~~also occupied~~lease properties in the following ~~spaces at December 31, 2018:~~

●

~~1,508 square feet in~~locations: Ottawa, Province of Ontario, ~~Canada, at~~Canada; Portland, Oregon; Mexico City, México. Management believes that leaving the former headquarters and subleasing the space saves the company money. The new corporate headquarters space is small and adequate for our needs today. When the company reaches cash flow positive, we will be looking for a ~~cost of approximately $3,000 per month until~~new space that takes into account the ~~expiration of the lease on March 31, 2021;~~

●

~~9,720 square feet in~~distributed workforce. We downsized our Portland, Oregon atengineering office in 2020 and are actively advertising the space to be subleased. The San Diego headquarters suite has been sublet effective March 1, 2021 and the headquarters moved to a ~~cost of approximately $22,000 per month until the expiration of the lease on February 28, 2023;~~smaller office within San Diego. We maintain an office in Ottawa, Canada and

●

~~183 square feet of office space in~~ Mexico City, ~~Mexico, at a cost of approximately $2,000 per month until September 30, 2019.~~

México for our employees and business in those markets. The Tokyo, Japan office was closed in 2020.

ITEM 3.

LEGAL PROCEEDINGS

There is currently no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 4.

MINE SAFETY DISCLOSURES

~~None.~~N/A.

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~~PART~~PART II

ITEM 5.

M~~ARKET~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Common Stock does not trade on an established securities exchange. Our Common Stock is quoted under the symbol “IWSY” on the OTCQB marketplace. Any OTCQB marketplace quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

~~The following table sets forth the high and low sale prices for our Common Stock for each quarter in 2018 and 2017:~~

2018 Fiscal Quarters

High

Low

First Quarter
$2.24
$1.50
Second Quarter
$1.90
$1.08
Third Quarter
$1.44
$0.86
Fourth Quarter
$1.01
$0.55

2017 Fiscal Quarters

High

Low

First Quarter
$1.39
$0.98
Second Quarter
$1.24
$0.81
Third Quarter
$1.50
$0.83
Fourth Quarter
$1.62
$1.25

Holders

As of March 26, ~~2019,~~2021, we had approximately ~~197~~278 registeredholders of record of our Common Stock. A significant number of our shares of Common Stock were held in street name and, as such, we believe that the actual number of beneficial owners of our Common Stock is significantly higher.

Dividends

We have never declared or paid cash dividends on our Common Stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.

As of December 31, ~~2018,~~2020 and ~~2017,~~2019, we had cumulative undeclared dividends of approximately $0 relating to our Series A Preferred, $0 related to our Series A-1 Preferred, $8,000 relating to our Series B Preferred, $0 related to our Series C Preferred, and $0 related to our Series CD Preferred.

Securities Authorized for Issuance under Equity Compensation Plans

For a discussion of our equity compensation plans, please see Item 11 of this Annual Report.

Recent Sales of Unregistered Securities

We issued certain equity securities in unregistered transactions during 2020 and fiscal year ~~2018.~~2019. All of the securities issued in non-registered transactions were issued in reliance on Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act and were reported in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K filed with the Securities and Exchange Commission during the fiscal year ended December 31, ~~2018.~~2020 and through the date of this report.

ITEM 6.

~~SELECTED~~SELECTED FINANCIAL DATA

The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.

●

~~-33-~~Decrease in stock based-compensation expense of approximately $25,000.

~~Table of Contents~~

Our level of expenditures in research and development reflects our belief that to maintain our competitive position in markets characterized by rapid rates of technological advancement, we must continue to invest significant resources in new systems and software as well as continue to enhance existing products.

Depreciation and Amortization

During the year ended December 31, ~~2018,~~2020, depreciation and amortization expense ~~decreased~~increased approximately ~~$17,000~~$1,000 as compared to the corresponding period in ~~2017.~~2019. The relatively small amount of depreciation and amortization reflects the relatively small property and equipment carrying value. ~~The decrease is reflective of the full depreciation of certain fixed assets.~~

Interest Expense (Income), Net

For the year ended December 31, ~~2018,~~2020, we recognized interest income of ~~$78,000~~$2,000 and interest expense of ~~$541,000. For the year ended December 31, 2017, we recognized interest income of $43,000 and interest expense of $634,000.~~

$104,000. Interest expense for the year ended December 31, ~~2018 contains the following components:~~

●

~~Approximately $8,000~~2020 was comprised of ~~amortization expense of deferred financing fees related to the Lines of Credit;~~

●

~~Approximately $162,000 of amortization expense of recognized beneficial conversion feature related to the Lines of Credit borrowings; and~~

●

~~Approximately $371,000 related to coupon interest~~approximately $94,000 on our ~~8% Line of Credit borrowings.~~

~~Interest expense for~~related party notes payable and approximately $10,000 on notes payable under the ~~year ended December 31, 2017 contains the following components:~~

●

~~Approximately $11,000 of amortization expense of deferred financing fees related to the Lines of Credit;~~

●

~~Approximately $198,000 of amortization expense of recognized beneficial conversion feature related to the Lines of Credit borrowings; and~~

●

~~Approximately $425,000 related to coupon interest on our 8% Line of Credit borrowings.~~

~~Other Income~~

PPP Loan program. For the year ended December 31, ~~2018,~~2019, we recognized ~~other~~interest income of ~~approximately $4,000~~$90,000 and ~~other~~interest expense of $0.

Other ~~income for the year ended December 31, 2018 is comprised of approximately$4,000from miscellaneous receipts.~~Expense

For the year ended December 31, ~~2017,~~2020, we recognized other income of approximately ~~$125,000~~$0 and other expense of ~~$0.~~approximately $4,000. Other ~~income~~expense for the year ended December 31, ~~2017~~2020 is comprised of approximately $~~75,000~~4,000 in late payment penalty fees.

For the year ended December 31, 2019, we recognized other income of approximately $0 ~~from~~and other expense of $1,000. Other expense for the ~~write off~~year ended December 31, 2019 is comprised of ~~certain accrued~~approximately$1,000 in foreign transaction expense ~~due the expiration of the legal statute of limitations on such liabilities. Other income also includes $50,000 from the sale of one of the Company’s non-utilized trademarks.~~.

Change in Fair Value of Derivative Liabilities

For the year ended December 31, ~~2018,~~2020, we recognized approximately ~~$232,000~~$369,000 from the ~~increase~~decrease of derivative liabilities arising from the consummation of the Series C ~~Financing~~Convertible Preferred Stock financing in September ~~2018.~~2019 (“Series C Financing”). Such ~~increase~~decrease was determined by management using fair value methodologies and is included as ~~an expense~~non-cash income under the caption “Change in fair value of derivative liabilities” in our consolidated statement of operations for twelve months ended December 31, ~~2018.~~2020. Also for the year ended December 31, 2020, we recognized approximately $1,883,000 from the change in fair value of derivative liabilities arising from the Series D Financing. Such decrease was determined by management using fair value methodologies and is included as non-cash income under the caption “Change in fair value of derivative liabilities” in our consolidated statement of operations for twelve months ended December 31, 2020.

For the year ended December 31, 2019, we recognized approximately $696,000 from the decrease of derivative liabilities arising from the consummation of the Series C Financing in September 2019. Such decrease was determined by management using fair value methodologies and is included as non-cash income under the caption “Change in fair value of derivative liabilities” in our consolidated statement of operations for twelve months ended December 31, 2019.

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Income Tax Expense

~~During the year ended December 31, 2018, we recorded a net expense of approximately $11,000 from income taxes, as compared to a benefit of $124,000 for the year ended December 31, 2017.~~

During the years ended December 31, ~~2018~~2020 and ~~2017,~~2019, we recorded an expense for income taxes of ~~$11,000~~$7,000 and a$10,000, respectively. These tax benefit of $124,000, respectively. The tax benefit reflects the reversal of a prior year accrual related to foreign taxes which expired due to the expiration of the statute of limitation on this foreign tax liability. The 2018 tax expense relatesexpenses relate to taxes on income generated in certain foreign jurisdictions offset by research and development tax credits generated in certain foreign jurisdictions.

We have incurred consolidated pre-tax losses during the years ended December 31, ~~2018,~~2020, and ~~2017,~~2019, and have incurred operating losses in all prior periods. Management has determined that it is more likely than not that a tax benefit from such losses will not be ~~realized.~~realized and has established a full valuation allowance for any tax benefits. Accordingly, we did not record a benefit for income taxes for these periods.

Liquidity, Capital Resources and Going Concern

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of ~~debt, including our Lines of Credit (defined below).~~debt. Our principal uses of cash have included cash used in operations, product development, and payments relating to purchases of property and equipment. We expect that our principal uses of cash in the future will be for product development, including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of SaaS capabilities for existing products as well as general working ~~capital and capital expenditure requirements.~~capital. Management expects that, as our revenue grows, our sales and marketing and research and development expense will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenue to achieve and sustain income from operations.

~~Series A Financing~~Lincoln Park Capital Fund, LLC

On ~~September 18, 2017, the Company offered and sold a total of 11,000 shares of Series A Preferred at a purchase price of $1,000 per share (the “Series A Financing”). As a result of the Series A Financing, the Company generated net proceeds of approximately $10.9 million.~~

~~In addition, on September 18, 2017,~~April 28, 2020, the Company entered into ~~exchange agreements~~a purchase agreement, and as amended on June 11, 2020 (the “Lincoln Purchase Agreement”), and a registration rights agreement (the “Lincoln Registration Rights Agreement”) with ~~holders~~Lincoln Park Capital fund, LLC (“Lincoln Park”) pursuant to which Lincoln Park committed to purchase up to $10,250,000 of ~~all outstanding~~our Common Stock.

Under the terms and subject to the conditions of the Lincoln Purchase Agreement, including stockholder approval of an amendment to the Company’s Certificate of Incorporation, as amended from time to time (the "Certificate of Incorporation"), to increase the number of shares of the Company’s ~~Series E Convertible Preferred Stock, Series F Convertible Preferred Stock~~capital stock to 350 million shares, obtained from our shareholders effective June 9, 2020, we have the right, but not the obligation, to sell to Lincoln Park, and ~~Series G Convertible Preferred Stock (collectively, the “Exchanged Preferred”), pursuant~~Lincoln Park is obligated to ~~which holders~~purchase up to $10,250,000 of ~~the Exchanged Preferred agreed to cancel their respective~~ shares of ~~Exchanged Preferred in exchange for shares~~Common Stock. Future sales of ~~Series A Preferred (the “Preferred~~Common Stock ~~Exchange”), resulting~~under the Lincoln Purchase Agreement, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 24-month period commencing on July 8, 2020, and the other conditions set forth in the ~~issuance to~~Purchase Agreement are satisfied (such date on which all of such conditions are satisfied, the ~~holders of Exchanged Preferred of an aggregate total of 20,021 shares of Series A Preferred.~~

~~Series C Financing~~

~~On September 10, 2018,~~“Commencement Date”). During the ~~Company offered and sold a total of 890 shares of Series C Preferred at a purchase price of $10,000 per share, and on September 21, 2018,~~year ended December 31, 2020, the Company sold an ~~additional 110~~aggregate of 5,700,000 shares of ~~Series C Preferred at a purchase price~~Common Stock to Lincoln Park under the terms of ~~$10,000 per share. The total net~~the Lincoln Purchase Agreement resulting in gross cash proceeds to the Company ~~were~~of approximately ~~$8,789,000, after deducting insurance costs incurred in conjunction with the Series C Financing.~~$918,000.

~~Lines~~After the Commencement Date, on any business day over the term of ~~Credit~~the Lincoln Purchase Agreement, the Company has the right, in its sole discretion, to direct Lincoln Park to purchase up to 125,000 shares of its Common Stock on such business day (the “Regular Purchase”), subject to increases under certain circumstances as provided in the Lincoln Purchase Agreement. The purchase price per share of Common Stock for each such Regular Purchase will be based on prevailing market prices of the Company’s Common Stock immediately preceding the time of sale as computed under the Lincoln Purchase Agreement. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $500,000. In addition to Regular Purchases, provided that the Company presents Lincoln Park with a Lincoln Park Purchase Notice for the full amount allowed for a Regular Purchase, the Company may also direct Lincoln Park to make accelerated purchases and additional accelerated purchases as described in the Lincoln Purchase Agreement.

~~Lines of credit consist~~Pursuant to the terms of the ~~following:~~

~~($ in thousands)~~	~~December 31,~~ ~~2018~~	~~December 31,~~ ~~2017~~
~~Lines of Credit with Related Parties~~
8% convertible lines of credit. Face value of advances under lines of credit $0 at December 31, 2018 and $6,000 at December 31, 2017. Discount on advances under lines of credit is $0 at December 31, 2018 and $226 at December 31, 2017. Maturity date was December 31, 2018; however, the lines of credit were terminated on September 10, 2018, as more thoroughly discussed below.	$—	$~~5,774~~
~~Total lines of credit to related parties~~	—	~~5,774~~
~~Less current portion~~	—	~~(5,774~~)
~~Long-term lines of credit to related parties~~	$—	$—

Lincoln Purchase Agreement, in no event may the Company issue or sell to Lincoln Park shares of Common Stock under the Lincoln Purchase Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by Lincoln Park and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock (the “Beneficial Ownership Limitation”).

The Lincoln Purchase Agreement and the Lincoln Registration Rights Agreement contain customary representations, warranties, agreements and conditions and indemnification obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. The Company issued to Lincoln Park 2,500,000 shares of Common Stock in consideration for entering into the Lincoln Purchase Agreement. Pursuant to this issuance, $400,000 was recorded by the Company as a deferred stock issuance cost. Such amount is recorded in the Company’s consolidated balance sheet under the caption “Other assets”. Such deferred stock issuance costs will be recognized as a charge against paid in capital in proportion to securities sold under this Lincoln Purchase Agreement. During the year ended December 31, 2020, the Company recognized approximately $36,000, respectively, as a charge against paid in capital relating to securities sold under the Lincoln Purchase Agreement.

Due to the terms of the Lincoln Purchase Agreement as described above, management is not currently expecting the related proceeds from the Lincoln Purchase Agreement to be sufficient to sustain operations for an extended period of time.

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Series D Preferred Stock Financings

On ~~September 10, 2018,~~November 12, 2020 and December 23, 2020, the Company ~~entered into Exchange Agreements with Neal Goldman~~consummated private placements of 12,060 shares of its Series D Convertible Preferred Stock, par value $0.01 per share (the "Series D Preferred"), resulting in gross proceeds to the Company of $12.06 million, less fees and ~~Charles Crocker, pursuant to which Messrs. Goldman~~expenses (the “Series D Financing”). The gross proceeds included approximately $2.2 million in principal amount due and ~~Crocker agreed to exchange approximately $6.3 million and $0.6 million, respectively, of outstanding debt (including accrued and unpaid interest) owed~~payable under the terms of ~~their respective lines~~certain term loans issued by the Company on September 29, 2020 (“Bridge Notes”), which Bridge Notes were converted into Series D Preferred at Closing (the “Conversion”). The issuance of ~~credit~~the Series D Preferred was made pursuant to securities purchase agreements, dated September 28, 2020 (the "Series D Purchase Agreement"), by and between the Company and certain accredited investors (the "Purchasers"), for ~~an aggregate~~the sale of ~~6,896~~the Series D Preferred at a purchase price of $1,000 per share of Series D Preferred. The holders of Series D Preferred may voluntarily convert their shares of Series ~~A Preferred. As a result of the Debt Exchange, all indebtedness, liabilities and other obligations arising under the respective lines of credit were cancelled and deemed satisfied in full.~~

~~The following table sets forth the Company’s activity under its former Lines of Credit for the periods indicated:~~

~~Balance outstanding under Lines of Credit as of December 31, 2016~~	$~~2,650~~
~~Borrowings under Lines of Credit~~	~~3,350~~
~~Repayments~~	—
~~Balance outstanding under Lines of Credit as of December 31, 2017~~	$~~6,000~~
~~Borrowings under Lines of Credit~~	—
~~Exchanges~~	~~(6,000~~)
~~Balance outstanding under Lines of Credit as of December 31, 2018~~	$—

~~For a more detailed discussion~~D Preferred into shares of the Company’s ~~former Lines~~Common Stock at any time that is at least ninety days following the issuance date, at the conversion price calculated by dividing the Stated Value by the conversion price of ~~Credit,~~$0.0583 per share of Common Stock, subject to adjustments as set forth in Section 5(e) of the Certificate of Designations, Preferences, and Rights of Series D Convertible Preferred Stock (the "Series D Certificate"). Dividends on shares of Series D Preferred will be paid prior to any junior securities, and are to be paid at the rate of 4% of the Stated Value (as defined in the Series D Certificate) per share per annum in the form of cash or shares of Series D Preferred.

Concurrently with the execution of the Purchase Agreement, the Company and the Investors executed (i) a Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement with the SEC within thirty days of closing to register the shares of Common Stock issuable upon conversion of the Series D Preferred; (ii) a Series C Exchange Agreement (the "Exchange Agreement"), pursuant to which the Company and certain holders of the Company’s Series C Preferred agreed to exchange their Series C Preferred, with a liquidation preference of approximately $10.0 million, for Series D Preferred at closing; and (iii) a Term Loan and Security Agreement (“Loan Agreement”), pursuant to which each investor signatory thereto agreed to make a term loan to the Company, secured by all assets of the Company, in an amount equal to 20% of such investor’s purchase commitment as set forth in the Purchase Agreement (“Bridge Loan”), which Bridge Loan, plus accrued interest, rolled into, and was used to purchase, Series D Preferred at Closing.

Bridge Loan

Concurrently with the execution of the Series D Purchase Agreement, the Company and certain investors in the Series D Financing executed the Loan Agreement, pursuant to which each such investor signatory thereto (the "Investors") agreed to the Bridge Loan, secured by all assets of the Company, in an amount equal to 20% of such Investor’s purchase commitment as set forth in the Series D Purchase Agreement, which Bridge Loan, plus accrued interest, rolled into, and was used to purchase, Series D Preferred at Closing. For more information regarding the Series D Purchase Agreement, the Investors, the Loan Agreement, and the Bridge Loan, see Note ~~5, Related Parties~~ 1, Description of Business and Operations to ~~these~~the consolidated financial ~~statements.~~statements.

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Pursuant to the Bridge Loan, the Company received proceeds of $2,187,000 in September 2020. The Bridge Loan bears interest at a fixed rate of 12% and is due and payable in arrears on the earlier of the Loan Conversion Date, as such term is defined in the Loan Agreement, or six months after the disbursement of the Bridge Loan. All amounts due and payable pursuant to the Bridge Loan are automatically convertible, without further action by the Investors, into shares of Series D Preferred at closing at a purchase price of $1,000 for each share of Series D Preferred. The repayment of all amounts due under the terms of the Loan Agreement are secured by all assets of the Company. On November 12, 2020, contemporaneously with the closing of the Series D Preferred Financing, all amounts due under the Bridge Loan were converted into shares of Series D Preferred Stock.

Going Concern and Management’s Plan

At December 31, ~~2018,~~2020, we had ~~positive~~negative working capital of approximately ~~$3,078,000,~~$19,349,000 as compared to anegative working capital ~~deficit~~ of approximately ~~$415,000~~$1,653,000 at December 31, ~~2017. Our principal sources~~2019.Included in our negative working capital as of ~~liquidity at~~ December 31, ~~2018 consisted~~2020 are $24,128,000 of ~~cash~~ ~~and~~derivative liabilities which are not required to be settled in cash ~~equivalents~~ except in the event of ~~$5,694,000. Our principal sources~~the consummation of ~~liquidity~~a Change of Control or at any time after the fourth anniversary of the Series D Preferred issuance, at which time the holders of the Series D Preferred may require the Company to redeem in cash any or all of the holder’s outstanding Series D Preferred at an amount equal to the Series D Liquidation Preference Amount. At December 31, ~~2017 consisted of cash and cash equivalents of $7,317,000.~~2020 the Liquidation Preference Amount totaled $22,863,000.

~~Considering~~On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect the Company's operations and those of third parties on which the Company relies. Additionally, as the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the financial markets may reduce our ~~projected~~ability to access capital, which could negatively impact the Company's short-term and long-term liquidity. These effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

To address our working capital requirements, management has instituted several cost cutting measures and has utilized cash ~~requirements,~~proceeds from borrowing under the PPP loan, sales of our Common Shares utilizing the Lincoln Park facility and ~~assuming~~closing of the Series D Financing to satisfy the Company’s working capital requirements. However, we ~~are unable to generate incremental revenue,~~believe our available cash ~~may~~balances will be insufficient to satisfy our cash ~~requirements~~requirement for the next twelve months from the date of this filing. ~~These factors raise substantial doubt about our ability to continue as a going concern.~~ To address our working capital requirements, management ~~may~~intends to seek additional equity and/or debt financing through the issuance of additional debt and/or equity ~~securities or may seek strategic or other transactions intended to increase shareholder value. There~~securities. Other than the Lincoln Purchase Agreement, there are currently no formal committed financing arrangements to support our projected cash shortfall, including commitments to purchase additional debt and/or equity securities, or other agreements, and no assurances can be given that we will be successful in raising additional capital through the issuance of debt and/or equity securities, or entering into any other transaction that addresses our ability to continue as a going concern.

InHowever, in view of the matters described in the preceding ~~paragraph,~~paragraphs, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to ~~continue to raise capital and~~ generate positive cash flows from operations. ~~However, the~~The Company, however, operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future. Therefore, management’s plans do not alleviate the substantial doubt regarding the Company’s ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Operating Activities

Net cash used in operating activities was ~~$10,310,000~~approximately $8,009,000 during the year ended December 31, ~~2018~~2020 as compared to ~~$8,703,000~~$11,267,000 during the year ended December 31, ~~2017.~~2019. During the year ended December 31, ~~2018,~~2020, net cash used in operating activities consisted of net loss of ~~$12,550,000~~$7,253,000 and an increase in working capital and other assets and liabilities of ~~$489,000.~~$438,000. Those amounts in addition to approximately $1,194,000 of non-cash income, including $2,252,000 in income from the change in fair value of derivative liabilities offset by $862,000 in stock-based compensation, $72,000 in depreciation and amortization and $124,000 from the application of rent deposits. During the year ended December 31, 2020, we generated cash of $690,000 from decreases in current assets offset by $20,000 from increases in our operating leases right-of-use assets and used cash of $410,000 through decreases in current liabilities and deferred revenue offset by increases of $178,000 in pension liability.

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Net cash used in operating activities was $11,267,000 during the year ended December 31, 2019 as compared to $10,310,000 during the year ended December 31, 2018. During the year ended December 31, 2019, net cash used in operating activities consisted of net loss of $11,581,000 and an increase in working capital and other assets and liabilities of $287,000. Those amounts were offset by approximately ~~$1,751,000~~$723,000 of non-cash costs ~~including $1,298,000~~and $696,000 in non-cash income. Non-cash costs were $652,000 in stock-based compensation ~~$170,000 in debt issuance cost amortization~~ and ~~beneficial conversion feature amortization, $51,000~~$71,000 in depreciation and ~~amortization, and $232,000~~amortization. Non-cash income consisted of $696,000 in the change in fair value of derivative liabilities. During the year ended December 31, ~~2018,~~2019, we used cash of ~~$593,000~~$209,000 from increases in current assets offset by $168,000 from decreases in our operating leases right-of-use assets and generated cash of ~~$1,081,000~~$357,000 through increases in current liabilities and deferred revenue ~~excluding debt.~~

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During the year ended December 31, 2017, net cash used in operating activities consisted of net loss of $10,069,000 and an increase in operating cash from changes in assets and liabilities of $195,000. We also incurred $1,171,000 in net non-cash costs including $1,151,000 in stock based compensation, $209,000 in debt issuance cost amortization and debt discount amortization, $15,000 in provision for losses on accounts receivable and $68,000 in depreciation and amortization offset by ~~$272,000 of non-cash income primarily~~$32,000 used from the write-off of certain accrued expense due to the expiration of the statute of limitations of $222,000 and $50,000 from the sale of one of the Company’s non-utilized trademarks. During the year ended December 31, 2017, we used cash of $282,000 from increasesdecreases in ~~current assets and generated cash of $477,000 through increases in current liabilities and deferred revenue, excluding debt.~~contract costs.

Investing Activities

~~Net~~There was no net cash used inor generated from investing activities ~~was~~for ~~$240,000for~~ the year ended December 31, ~~2018 as compared to net cash provided by investing activities of $45,000 for the year ended December 31, 2017.~~2020. For the year ended December 31, ~~2018,~~2019, we used cash of ~~$240,000~~$31,000 to fund capital ~~expenditures of leasehold improvements and office furniture.For the year ended December 31, 2017,we used cash of $5,000 to fund capital expenditures of computer equipment, software and furniture and fixtures.This level of fixed asset purchases resulted primarily from the replacement of older items.~~expenditures.

Financing Activities

WeCash generated ~~cash of $8,900,000~~ from financing activities was approximately $15,475,000 for the year ended December 31, ~~2018, as compared to $14,495,000~~2020, which consisted of cash of approximately $12,060,000 generated from the sale of 12,060 ~~for~~shares of Series D Preferred. Such amount includes $2,187,000 received by the Company in the form of a Bridge Loan which was converted into shares of Series D Preferred before recognition of approximately $726,000 in cash direct stock issuance costs. We also generated cash of approximately $900,000 from the issuance of related party notes payable and generated cash of $1,571,000 from the issuance of the PPP Loan under the CARES Act. Also in the year ended December 31, ~~2017. During the year ended December 31, 2018,~~2020, we generated cash of approximately ~~$162,000~~$2,360,000 from the ~~exercise~~sales of ~~235,852 stock options resulting in the issuance of 235,852~~15,700,000 shares of Common Stock ~~and generated~~before recognition of approximately $64,000 in direct stock issuance costs. We used cash of ~~$10,000,000 in gross proceeds from the Series C Financing, offset by $1,211,000 in offering costs. During the year ended December 31, 2018, we~~approximately $575,000 to repay certain related party notes payable and used cash of approximately $51,000 for the payment of dividends on our Series B ~~Preferred stock. During~~Preferred.

Cash generated from financing activities was approximately $6,635,000 for the year ended December 31, ~~2017 we~~2019, which consisted of cash generated ~~cash~~ of ~~$11,000,000 from the Series A Financing, offset by $63,000 in offering costs, generated $3,350,000 from borrowings under the former Lines of Credit and generated~~ approximately ~~$259,000~~$166,000 from the exercise of ~~369,004~~351,334 stock options resulting in the issuance of ~~369,004~~351,334 shares of Common ~~Stock. We~~Stock, and cash generated of $6,520,000 from the sale of 5,954,545 shares of Common Stock, offset by cash used ~~cash~~ of approximately $51,000 for the payment of dividends on our Series B Preferred ~~stock.~~

~~Debt~~

~~At December 31, 2017, the Company~~had $6,000,000 in outstanding debt and $527,000 in related accrued but unpaid interest. As a result of the Debt Exchange consummated on September 10, 2018, the Lines of Credit and all indebtedness, liabilities and other obligations arising thereunder were terminated, cancelled and deemed satisfied in full. As a result, no future borrowings are available under the Lines of Credit.

~~Contractual Obligations~~

~~Total contractual obligations and commercial commitments as of December 31, 2018 are summarized in the following table (in thousands):~~

Payment Due by Year

Total

Less than 1 Year

1-3 Years

3-5 Years

More than 5 Years

Operating lease obligations
$3,312
$480
$1,257
$1,575
$—
Total
$3,312
$480
$1,257
$1,575
$—
Stock.

Real Property Leases

Our corporate headquarters ~~are~~is located in San Diego, California, where we now occupy ~~8,511~~approximately 500 square feet of office space at a cost of approximately ~~$30,000~~$2,000 per month. We entered into this facility’s lease ~~was~~ in ~~July 2018~~February 2021 and this new lease commenced on ~~November~~March 1, ~~2018~~2021 and ~~terminates~~is on ~~April 30, 2025.~~a month-to-month basis. In addition to our corporate headquarters, we also occupied the following spaces at December 31, ~~2018:~~
2020:

●

1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, ~~2021;~~2021. The Company extended this lease for a 30-day period and is currently evaluating alternative premises which the Company believes are readily available;

●

9,720 square feet in Portland, Oregon, at a cost of approximately ~~$22,000~~$23,000 per month until the expiration of the lease on February 28, 2023; and

●

183 square feet of office space in Mexico City, Mexico, at a cost of approximately $2,000 per month until September 30, ~~2019.~~2021.

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Prior to entering into ~~the new~~our current lease agreement in ~~July 2018~~January 2021 and moving our corporate headquarters to a new location, we occupied ~~9,927~~8,511 square feet of office space in San Diego, at a cost of approximately $30,000 per month. In January 2021, we entered in a subleasing agreement for our previously occupied corporate headquarters located in San Diego, California. The term of the sublease commences on April 1, 2021 and expires on April 20, 2025 coterminous with the expiration of the Company's master lease. Sublease payments due the Company approximate $26,000 per month over the term of the sublease.

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Stock-Based Compensation

Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):

	Year Ended December 31,		Year Ended December 31,
	2018	2017	2020	2019
Cost of revenue	$19		$15	$13
General and administrative	840	655	550	347
Sales and marketing	216	220	163	148
Research and development	197	200	134	135

Total	$1,272	$1,094	$862	$643

Off-Balance Sheet Arrangements

At December 31, ~~2018,~~2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed elsewhere in this Annual Report.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”), or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Company’s management believes the impact of recently issued standards not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption. See Note 2 to these consolidated financial statements for a detailed discussion of recently issued accounting pronouncements.

Impact of Inflation

The primary inflationary factor affecting our operations is labor costs, and we do not believe that inflation has materially affected earnings during the past four years. Substantial increases in costs and expense, particularly labor and operating expense, could have a significant impact on our operating results to the extent that such increases cannot be passed along to customers and end users.

ITEM 7A.

~~QUANTITATIVE~~QUANTITATIVE AND ~~QUALITATIVE~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business extends to countries outside the United States, and we intend to continue to expand our foreign operations. As a result, our revenue and results of operations are affected by fluctuations in currency exchange rates, interest rates, and other uncertainties inherent in doing business in more than one currency. In addition, our operations are exposed to risks that are associated with changes in social, political, and economic conditions in the foreign countries in which we operate, including changes in the laws and policies that govern foreign investment, as well as, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment.

We had approximately ~~$88,000~~$23,000 and ~~$76,000~~$104,000 in revenue from sources outside the United States for the years ended December 31, ~~2018~~2020 and ~~2017,~~2019, respectively. We made payments in foreign currencies to fund our foreign operations of approximately ~~$1,009,000~~$1,015,000 and ~~$889,000~~$983,000 for the years ended December 31, ~~2018~~2020 and ~~2017,~~2019, respectively. Changes in currency exchange rates affect the relative prices at which we sell our products and purchase goods and services. Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect of these fluctuations on our future business, product pricing, results of operations, or financial condition. We do not use foreign currency exchange contracts or derivative financial instruments for hedging or speculative purposes. To the extent foreign sales become a more significant part of our business in the future, we may seek to implement strategies which make use of these or other instruments in order to minimize the effects of foreign currency exchange on our business.

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ITEM 8.

~~FINANCIAL~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements as of and for the years ended December 31, ~~2018~~2020 and ~~2017~~2019 and the report of our independent registered public accounting firm are included in Item 15 of this Annual Report.

ITEM 9.

~~CHANGES~~

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

C~~CONTROLS~~ONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, ~~2018.~~2020. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control—Integrated Framework.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our internal control over financial reporting as of December 31, ~~2018.~~2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in Internal Control—Integrated Framework. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, ~~2018,~~2020 our internal control over financial reporting was effective.

Mayer Hoffman McCann P.C., our independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report, has issued an attestation report on the effectiveness of our internal control over financial reporting, which report is included in Part IV below.

The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

ITEM 9B.

O~~OTHER~~THER INFORMATION

Not applicable.

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~~PART III~~

~~ITEM 10.~~

D~~IRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

The Board of Directors and executive officers currently consist of the persons named in the table below. Each director serves for a one-year term, until his or her successor is elected and qualified, or until earlier resignation or removal. Our bylaws provide that the number of directors shall not be less than four, but no more than ten. The directors and executive officers are as follows:

~~Name~~	~~Age~~	~~Principal Occupation/Position Held With the Company~~
~~Mr. S. James Miller, Jr.~~	65	~~Chief Executive Officer and Chairman of the Board of Directors~~
~~Mr. Wayne Wetherell~~	66	~~Senior Vice President of Administration, Chief Financial Officer, Secretary and Treasurer~~
~~Mr. David Harding~~	49	~~Senior Vice President, Chief Technical Officer~~
~~Mr. David Somerville~~	58	~~Senior Vice President, Sales and Marketing~~
~~Mr. David Carey~~	74	~~Director~~
~~Mr. Guy Steve Hamm~~	71	~~Director~~
~~Mr. David Loesch~~	74	~~Director~~
~~Mr. John Cronin~~	64	~~Director~~
~~Mr. Neal Goldman~~	74	~~Director~~
~~Mr. Dana W. Kammersgard~~	63	~~Director~~
~~Mr. Charles Frischer~~	52	~~Director~~
~~Mr. Robert T. Clutterbuck~~	68	~~Director~~

~~S. James Miller, Jr.~~ has served as our Chief Executive Officer since 1990 and Chairman of the Board since 1996. He also served as our 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 served as a director and as Senior Vice President, General Counsel, Corporate Secretary and Chairman/President of Oak Industries’ Pacific Rim subsidiaries. He has a J.D. from the University of San Diego School of Law and a B.A. from the University of California, San Diego.

The Nominating and Corporate Governance Committee believes that Mr. Miller possesses substantial managerial expertise leading the Company through its various stages of development and growth, beginning in 1990 when Mr. Miller joined the Company as President and Chief Executive Officer, and that such expertise is extremely valuable to the Board of Directors and the Company as it executes its business plan. In addition, the Board of Directors values the input provided by Mr. Miller given his legal experience.

~~Wayne Wetherell~~ has served as our Senior Vice President, Administration and Chief Financial Officer since August 1996 and additionally as our Secretary and Treasurer since October 2005. From 1996 to May 2001, he served as Vice President of Finance and Chief Financial Officer. From 1991 to 1996, Mr. Wetherell was the Vice President and Chief Financial Officer of Bilstein Corporation of America, a manufacturer and distributor of automotive parts. From 1980 to 1990 Mr. Wetherell served in various financial roles culminating as Director of Financial Planning and Analysis for Oak Industries, Inc., a manufacturer of components for the telecommunications industry traded on the NYSE. Mr. Wetherell holds a B.S. degree in Management and a M.S. degree in Finance from San Diego State University.

~~David Harding~~has served as our Sr. Vice President and Chief Technology Officer since January 2006. Mr. Harding has more than 25 years of technology implementation and management experience, is responsible for strategic design, technology infrastructure and core strategy from concept through delivery. Before joining us, Mr. Harding was the Chief Technology Officer at IC Solutions, Inc., where he was responsible for all technology departments including the development and management of software development, IT and quality assurance, as well as their respective hardware, software and human resource budgets from 2001 to 2003. He was the Chief Technology Officer at Thirsty.com from 1999 to 2000, the Chief Technology Officer at Fulcrum Point Technologies, Inc., from 1996 to 1999, and consultant to Access360, which is now part of IBM/Tivoli, from 1995 to 1996.

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~~David Somerville~~has served as our Senior Vice President of Sales and Marketing since January 2018. Mr. Somerville has spent over 20 years working in executive, consulting, and advisory board positions for public and private companies, supporting the world’s major service providers, enterprises, and government agencies. Mr. Somerville leads our Sales and Marketing efforts and is responsible for bringing our industry leading, patented biometric platforms to mobile and desktop users around the globe via strategic partnerships and direct sales. Prior to joining the Company, Mr. Somerville held senior executive sales and business development positions at leading companies in the cybersecurity industry, including Norse Networks Inc. from January 2017 to January 2018, Fortscale Inc. from March 2016 to January 2017, Norse Corporation Inc. from September 2014 to February 2016, Cloudmark Inc. (now Proofpoint Inc.) from 2005 to March 2014, and Network Equipment Technologies, where he has consistently achieved global market leadership positions in the service provider, enterprise, and government markets. From April 2014 to September 2014, he served as the Principal at David Somerville Consulting. Mr. Somerville holds a Bachelor of Science degree in communications and electronic engineering with a minor in business studies from Edinburgh Napier University, Scotland.

~~David Carey~~ was appointed to the Board in February 2006. Mr. Carey is a former Executive Director of the Central Intelligence Agency. Mr. Carey briefly served on the Board of Cybergy, Inc., a public company, resigning in October 2015 and currently is the Chairman of Proxy Boards for Leonard DRS Technologies and OnPoint Consulting. In addition, he is a member of the Proxy Board for Informatica Federal Operations, Corp. Mr. Carey also serves on a number of Advisory Boards. In addition, Mr. Carey worked for the CIA for 32 years until 2001. During his career at the CIA, Mr. Carey held several senior positions including that of Executive Director, often referred to as the Chief Operating Officer, or No. 3 person in the agency. Mr. Carey is a graduate of Cornell University and the University of Delaware.

The Nominating and Corporate Governance Committee believes that Mr. Carey’s experience as a former Executive Director of the CIA, his experience dealing with IT security matters, and the extensive contacts gained over his career working within the intelligence and security community, provide the Board with specialized expertise that assists the Company in the specific industries in which it operates.

~~Guy Steve Hamm~~ was appointed to the Board in October 2004. Mr. Hamm served as CFO of Aspen Holding, a privately held insurance provider, from December 2005 to February 2007. In 2003, Mr. Hamm retired from PricewaterhouseCoopers, where he was a national partner-in-charge of middle market. Mr. Hamm was instrumental in growing the Audit Business Advisory Services (“~~ABAS”) Middle Market practice at PricewaterhouseCoopers, where he was responsible for $300 million in revenue and more than 100 partners. Mr. Hamm is a graduate of San Diego State University.~~

The Nominating and Corporate Governance Committee believes that Mr. Hamm’s experience in public accounting, together with his management experience as a Chief Financial Officer, provide the Audit Committee of the Board with the expertise needed to oversee the Company’s finance and accounting professionals, and the Company’s independent public accountants.

~~David Loesch~~ ~~was appointed to the Board in September 2001 after 29 years of 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 Assistant Director in Charge of the Criminal Justice Information Services Division of the FBI. Mr. Loesch was awarded the Presidential Rank Award for Meritorious Executive in 1998 and has served on the board of directors of the Special Agents Mutual Benefit Association since 1996. He is also a member of the International Association of Chiefs of Police and the Society of Former Special Agents of the FBI, Inc. In 1999, Mr. Loesch was appointed by former Attorney General Janet Reno to serve as one of 15 original members of the Compact Council, an organization charged with promulgating rules and procedures governing the use and exchange of criminal history records for non-criminal justice use. Mr. Loesch served in the United States Army as an Officer with the101st Airborne Division in Vietnam. He holds a Bachelor’s degree from Canisius College and a Master’s degree in Criminal Justice from George Washington University. Mr. Loesch continues to work as a private consultant on criminal justice information sharing and the use of biometrics to help identify criminals and individuals of special concern.

The Nominating and Corporate Governance Committee believes that Mr. Loesch’s extensive service as a Special Agent with the FBI, together with his knowledge of security issues relevant to the Company’s products and markets, provides the Company and the Board of Directors with relevant input regarding the industries in which the Company competes, and the markets served by the Company.

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~~John Cronin~~PA ~~was appointed~~RT III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following sets forth certain information regarding each of our directors and executive officers.

Name	Age	Title/Position Held with the Company
Kristin Taylor	53	President, Chief Executive Officer, Director
Jay B. Lewis	62	Senior Vice President, Chief Financial Officer
James M. Demitrieus	72	Director
Douglas Morgan	68	Director
Lauren C. Anderson	63	Director

There are no familial relationships between any of the Company’s executive officers and directors listed above.

The following biographical information regarding the foregoing directors and officers of the Company following the Board Restructuring is presented below:

Kristin Taylor, President, Chief Executive Officer and Director. Ms. Taylor serves as our President and Chief Executive Officer since her appointment in March 2020 and as a member of our Board since May 2020, and is a seasoned innovative technology executive with over 20 years of experience in leading organizational modernization and developing go-to-market strategies. She formerly served as Principal of Veritas Lux since November 2019 and principal of Kristin Taylor Consulting since 2012, in which she developed a proprietary algorithmic methodology to weigh and rank the most influential global technical analysts. From 2017 to 2019, Ms. Taylor served as Global Vice President of Worldwide Analyst Relations at IBM and led the efforts to modernize and transform IBM's analyst relations organization to drive revenue, not just influence. From 2013 to 2017, she served as Vice President, Global Analyst and Public Relations at MediaTek, the third largest fabless semiconductor company in the world with a $30 billion market cap, where she led the buildout of a new global Public and Analyst Relations organization to penetrate the North American, European, Latin American, Russian and Indian markets. Prior to that, she served in various positions of increasing responsibility with Qualcomm from 1998 to 2010 including: Head of Industry Analyst Relations, Senior Director of Business Development, and Director of Information Technology. Ms. Taylor developed and commercialized a highly successful embedded computing module, designed for notebook computers which thrust Qualcomm into the computing sector in 2006 to create hundreds of millions of valuation as they expanded from mobile. Ms. Taylor earned her Bachelor's degree in Sociology and Business Management from the University of New Hampshire in Durham, New Hampshire.

Jay B. Lewis, Senior Vice President and Chief Financial Officer. Mr. Lewis serves as our Senior Vice President and Chief Financial Officer since his appointment on January 8, 2021. On March 23, 2021, Mr. Lewis resigned from his position as Senior Vice President and Chief Financial Officer, effective April 7, 2021. Mr. Lewis has over 20 years of experience as a senior financial officer of high growth public companies, and has raised over $300 million of capital including public and private equity, high-yield and other debt and executed over $400 million of M&A transactions. Mr. Lewis previously served as the Chief Financial Officer of ID Watchdog, Inc. from 2011 until 2017. ID Watchdog provided subscription-based identity theft protection and resolution services to individuals throughout the United States. Prior to the ~~Board in February 2012. Mr. Cronin is currently Managing Director~~August 2017 sale to Equifax, Inc. it was a public company traded on the TSX Venture Exchange. As Chief Financial Officer he managed all finance, accounting, public company reporting, investor relations, tax matters and ~~Chairman of ipCapital Group, Inc. (“ipCG”), an intellectual property consulting firm Mr. Cronin founded in 1998. During his time with ipCG, Mr. Cronin created both a unique ipCapital SysI(R) Methodology for consulting,~~human resources as well as ~~a world-class licensing and transaction process, and worked with over 700 companies, including more than 10% of the Fortune 500.~~other administrative functions. Prior to ~~forming ipCG, Mr. Cronin spent over 17 years at IBM and became its top inventor with over 100 patents and 150 patent publications. He created and ran the IBM Patent Factory,~~ID Watchdog, Lewis served in various senior finance roles, including as Chief Financial Officer of Jones Media Networks, Ltd., which ~~was essential in helping IBM become number one in US patents,~~owned cable television networks and the ~~team that contributed to~~fourth largest network radio company in the ~~startup~~United States, and ~~success~~as Vice President of ~~IBM’s licensing program. Additionally,~~Finance and Treasurer of Jones International, Ltd., a holding company with controlling interests in cable television and other media and technology companies. Mr. ~~Cronin serves~~Lewis is a Certified Public Accountant, an alumnus of EY, a Big-4 public accounting firm, and holds a Bachelor's degree in accounting from the University of Wyoming.

James M. Demitrieus. Mr. Demitrieus was appointed as a member of the Board of Directors on November 13, 2020. From March 2018 to present, Mr. Demitrieus has served as Managing Director of Jameson Associates, a specialty investment management and financial advisory firm. Prior to Jameson, he served in multiple positions at ~~Vermont Electric Power Company (“VELCO”), Armor Designs, Inc., Document Security Systems, and Primal Fusion, Inc., and GraphOn~~Eyelock Corporation beginning in 2009, including Chief Executive Officer from 2010 to 2018. Eyelock Corporation provides iris based biometric solutions to various business verticals. Prior to Eyelock Corporation, he served in various senior executive roles, including as President of Sherwood Valve, a division of Harsco Corporation, and as ~~a member~~Chief Executive Officer at Aluma Systems. Earlier in Mr. Demitrieus’ career, he served in numerous senior accounting and finance roles, including with the public accounting firm of ~~the advisory board for innoPad, Inc. He~~Arthur Andersen & Co. Mr. Demitrieus holds a ~~B.S. and a M.S.in electrical engineering, and a B.A. degree~~Bachelor's in ~~Psychology~~Business Administration from ~~the~~Adelphi University ~~of Vermont.~~in New York.

~~The Nominating and Corporate Governance Committee believes that~~ Mr. Cronin’s experience developing and extracting the value from intellectual property, and his experience serving on, and advising, boards of directors, will contribute to deliberations of our Board of Directors, and assist the Company as it capitalizes on the opportunities presented by its portfolio of intellectual property assets.

~~Neal Goldman~~Demitrieus was appointed to the Board in August 2012. Mr. Goldman is currently president, chief compliance officer and a director of Goldman Capital Management, Inc., an employee owned investment advisor that he founded in 1985. Additionally, Mr. Goldman is Chairman of Charles and Colvard, LTD, a specialty jewelry company. Mr. Goldman also servedselected as a member of the Board due to his experience in the field of ~~Directors~~biometrics, as well as his extensive management, finance and ~~Compensation Committee for Blyth, Inc., a New York Stock Exchange-listed designer and marketer of home decorative and fragrance products.~~

~~Mr. Goldman is~~accounting experience, that management believes will provide the Board with valuable insights regarding monetizing the Company’s ~~largest shareholder~~product offerings and has significant investment experience. As a result, the Nominating and Corporate Governance Committee believes that Mr. Goldman can provide valuable guidance to the Board of Directors as it seeks to build shareholder value.

~~Dana Kammersgard~~was appointed to the Board in May of 2016. Mr. Kammersgard is currently the Executive Vice President, Cloud Systems and Solutions for Seagate Technology, where he is responsible for all storage systems related products and strategies. Prior to joining Seagate Systems in 2015, he served as the President, CEO and a director of Dot Hill System Corp. (“~~Dot Hill~~”) since March 2006. He served as President of Dot Hill from August 2004 to March 2006. From August 1999 to August 2004, Mr. Kammersgard served as Dot Hill’s Chief Technical Officer. Mr. Kammersgard was a founder of Artecon, where he served as a director from its inception in 1984 until the company’s merger with Box Hill Systems Corp. in August 1999. At Artecon, Mr. Kammersgard served in various positions, including Secretary and Senior Vice President of Engineering from March 1998 until August 1999, and as Vice President of Sales and Marketing from March 1997 until March 1998. Prior to cofounding Artecon, Mr. Kammersgard was the Director of Software Development at Calma, a division of General Electric Company. Mr. Kammersgard holds a B.A. in chemistry from the University of California, San Diego.

The Nominating and Corporate Governance Committee believes that Mr. Kammersgard’s engineering and technical experience, coupled with his senior executive management experience with technology companies, is valuable to the Company’s Board of Directors and senior management given the technical issues and marketing challenges facing the Company.

~~Charles Frischerwas appointed to the Board in September of 2017.~~Mr. Frischer currently works as self-employed private investor, a role he has occupied since 2009, and serves as General Partner of LF Partners, LLC. Previously, he served as a Principal at Zephyr Management, L.P. from 2005 to 2008. Prior to that, he served as a Senior Vice President at Capri Capital, where he originated commercial loans, from 1995 to 2005, and as General Manager of Ericson Memorial Studios from 1993 to 1994. Mr. Frischer holds a B.A. from Cornell University.

The Nominating and Corporate Governance Committee believes that Mr. Frischer’s background with capital markets and public companies is valuable to the Company’s Board of Directors and senior management.

~~Robert T. Clutterbuck~~was appointed to the Board as a Series A Director in September of 2017. Mr. Clutterbuck is the Founder, and has served as the Managing Director and Portfolio Manager at Clutterbuck Capital Management LLC, since 2006. Mr. Clutterbuck gained more than 30 years of experience at McDonald & Company Investments, Inc., where he specialized in advising affluent clients, professionals and corporate executives on investment management, financial planning, estate preservation and wealth transfer strategies. During his time at McDonald & Company, Mr. Clutterbuck served as Chairman and Chief Executive Partner of Key Capital Partners, and as Chief Executive Officer of McDonald Investments Inc. from 2000 to 2002. Prior to 2000, Mr. Clutterbuck served in several senior management positions within McDonald Investments Inc., including as Chief Financial Officer and Executive Managing Director of McDonald & Co. Securities, Inc., as Treasurer of McDonald & Co. Investments, Inc., and as President and Chief Operating Officer of McDonald & Co. Securities, Inc. Currently, Mr. Clutterbuck serves as an Independent Director of Westmoreland Resources GP, LLC (NYSE: WMLP), a position he has held since January 6, 2015. ~~Mr. Clutterbuck holds a B.A. from Ohio Wesleyan University and an M.B.A from the University of Pennsylvania Wharton School of Business.~~

The Nominating and Corporate Governance Committee believes that Mr. Clutterbuck’s background with capital markets and public companies is valuable to the Company’s Board of Directors and senior management.

intellectual property.

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Douglas Morgan. Mr. Morgan was appointed as a member of the Board of Directors on November 24, 2020. From March 2019 to present, Mr. Morgan has served as an Advisory Board member and Consultant to Clyra Medical Technologies, a biotechnology company specializing in wound healing and antimicrobial solutions, and prior to that as a Consultant to the public parent company, BioLargo (symbol: BLGO) on business strategy and a capital raise. He is CEO of Performance Strategies, Inc., a business and technology consulting firm where he has worked with companies across numerous sectors including security, payments and biotech, assisting them with financing strategies, market positioning, technology development and IP strategy. Earlier in his career, he helped found Hirsch Electronics, a security systems company known for its patented ScamblePad product. He served as Hirsch’s VP Engineering managing the development of their entire line of security systems and controllers, and later as a Director helped negotiate Hirsch’s merger with publicly traded Identiv (symbol: INVE) where he again served on the Board of Directors. He graduated Summa Cum Laude from both MIT with a BS in Computer Science, and Stanford University with an MS in Electrical Engineering, and was also a National Science Foundation Fellow.

Mr. Morgan was selected as a member of the Board due to his past experience in the Security industry, his background in intellectual property development and strategies, and his work and broad experience in business strategy, product definition and market positioning for technology-based companies.

Lauren C. Anderson.Ms. Anderson joined the Company’s Board in February 2021. She is the founder and Chief Executive Officer of LC Anderson International Consulting, founded in 2013. Ms. Anderson, a former Federal Bureau of Investigation ("FBI") Senior Executive, has a background in high risk, complex, domestic, and international environments and currently serves as an advisor to the U.S. Comptroller General at the Government Accountability Office on international security, intelligence, criminal justice, law enforcement, and women’s leadership. Ms. Anderson also serves as an advisor and special skilled role player for the U.S. Army, and she is an advisor with Stellar Solutions. Ms. Anderson worked in various leadership roles for the FBI from February 1984 until December 2012, and was the FBI Legal Attaché at United States Embassies in France and Morocco from March 2002 through November 2006. Ms. Anderson holds numerous professional awards and certifications, including achievement awards from the Director of National Intelligence, Legal Momentum, LIM College and Muhlenberg College. She is a member of the Council on Foreign Relations, a director emeritus for the Women's Forum of NY, served as a judge for the Women's Safety XPrize and the Stevie Awards, and is a mentor with the Women's Foreign Policy Group and Girl Security. She holds a security clearance and numerous certifications with the United States government. Ms. Anderson has an Honorary Doctorate of Humane Letters, awarded in 2019, by LIM College, New York City, a Bachelor of Arts in Psychology from Muhlenberg College, in Allentown, Pennsylvania, and completed executive programs at each of Harvard Business School, Northwestern University's Kellogg School of Management, Cambridge Judge Business School, and the George C. Marshall European Center for Security Studies in Garmisch, Germany.

Ms. Anderson was selected as a member of the Board due to her extensive experience as a security expert at the highest level within the Federal government, and her relationships with law enforcement and government agencies, each key markets for the Company.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or nominee set forth above during the past ten years.

Board of Directors; Attendance at Meetings

The Board held four meetings and acted by unanimous written consent five times during the year ended December 31, 2020. Each director attended at least 75% of Board meetings during the year ended December 31, 2020. We have no formal policy with respect to the attendance of Board members at annual meetings of shareholders, but encourage all incumbent directors and director nominees to attend each annual meeting of shareholders.

Director Independence

Our Board has determined that all of its current members, other than Ms. Taylor, are “independent” within the meaning of the Nasdaq Stock Market Rules and SEC rules regarding independence.

Board Committees and Charters

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below.

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Table of Contents

Audit Committee

The Audit Committee provides assistance to the Board in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The Audit Committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy it that the accountants are independent of management. The Audit Committee currently consists of Messrs. Demitrieus (Committee Chair), and Morgan, each of whom is a non-management member of our Board. Mr. Demitrieus is also our Audit Committee financial expert, as currently defined under current SEC rules. The Audit Committee met four times during the year ended December 31, 2020. We believe that the composition of our Audit Committee meets the criteria for independence under, and the functioning of our Audit Committee complies with the applicable Nasdaq Stock Market Rules and SEC rules and regulations.

Compensation Committee

The Compensation Committee determines our general compensation policies and the compensation provided to our directors and officers. The Compensation Committee also reviews and determines bonuses for our officers and other employees. In addition, the Compensation Committee reviews and determines equity-based compensation for our directors, officers, employees and consultants and administers our stock option plans. The Compensation Committee currently consists of Messrs. Morgan (Committee Chair) and Demitrieus, each of whom is a non-management member of our Board. The Compensation Committee did not meet during the year ended December 31, 2020. All members of the Compensation Committee currently meet the criteria for independence under the applicable Nasdaq Stock Market Rules and SEC rules and regulations.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters. The Nominating and Corporate Governance Committee currently consists of all the members of the Board. The Nominating and Corporate Governance Committee did not meet during the year ended December 31, 2020.

Board Leadership Structure

Our Board has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chair of the Board. Prior to the appointment of Kristin Taylor as President and Chief Executive Officer on March 2, 2020, and during the year ended December 31, 2019, S. James Miller held the roles of both Chief Executive Officer and Chair of the Board since 1996, and our Board believed that at the time, his combined role was advantageous to the Company and its shareholders. Currently, Ms. Taylor serves as both Chief Executive Officer and Chair of the Board as the Board believes, at this time, her combined role is advantageous to the Company and its shareholders.

The Board maintains effective independent oversight through a number of governance practices, including open and direct communication with management, input on meeting agendas, and regular executive sessions.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock and other equity securities. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, ~~2018,~~2019, all Section 16(a) filing requirements were complied with in a timely ~~manner except the following:~~manner.

●

~~Charles Crocker, a director~~-44-

Table of ~~the Company, filed a Form 4 reporting two late transactions;~~Contents

●

~~Wayne Wetherell,~~ Board Role in Risk Assessment

Management, in consultation with outside professionals, as applicable, identifies risks associated with the Company’s ~~Senior Vice President~~operations, strategies and ~~Chief Financial Officer, filed a Form 4 reporting one late transaction;~~

financial statements. Risk assessment is also performed through periodic reports received by the Audit Committee from management, counsel and the Company’s independent registered public accountants relating to risk assessment and management. Audit Committee members meet privately in executive sessions with representatives of the Company’s independent registered public accountants. The Board also provides risk oversight through its periodic reviews of the financial and operational performance of the Company.

●

~~Robert Clutterbuck, a director of the Company, filed a Form 4 reporting four late transactions;~~

●

~~James Miller, the Company’s Chief Executive Officer and Chairman, filed a Form 4 reporting one late transaction;~~

●

~~Neal Goldman, a director of the Company, filed a Form 4 reporting two late transactions; and~~

●

~~Charles Frischer, a director of the Company, filed a Form 4 reporting one late transaction.~~

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics policy that applies to our directors and employees (including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions). The Company intends to promptly disclose (i) the nature of any amendment to this code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of this code of ethics that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver on our website in the future. A copy of our Code of Business Conduct and Ethics can be obtained from our ~~websi~~tewebsite at http://~~www.iwsi~~www.iwsinc.com.~~nc.com.~~

~~Board Leadership Structure~~

Our Board of Directors has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chairman of the Board. S. James Miller has served in both roles since 1996, and our Board continues to believe that his combined role is most advantageous to the Company and our stockholders, as Mr. Miller possesses in-depth knowledge of the issues, opportunities and risks facing us, our business and our industry and is best positioned to fulfill the responsibilities of our Chief Executive Officer, as well as the Chairman’s responsibility to develop meeting agendas that focus the Board’s time and attention on the most critical matters and to facilitate constructive dialogue among Board members on strategic issues.

In addition to Mr. Miller’s leadership, the Board maintains effective independent oversight through a number of governance practices, including open and direct communication with management, input on meeting agendas, and regular executive sessions.

~~Board Role in Risk Assessment~~

Management, in consultation with outside professionals, as applicable, identifies risks associated with the Company’s operations, strategies and financial statements. Risk assessment is also performed through periodic reports received by the Audit Committee from management, counsel and the Company’s independent registered public accountants relating to risk assessment and management. Audit Committee members meet privately in executive sessions with representatives of the Company’s independent registered public accountants. The Board also provides risk oversight through its periodic reviews of the financial and operational performance of the Company.

~~Director Independence~~

Our Board of Directors has determined that all of its members, other than Mr. Miller, who serves as the Company’s Chief Executive Officer, and Mr. Goldman, who beneficially owns approximately 39.4% of the Company’s Common Stock, are “independent” within the meaning of the Nasdaq Stock Market Rules and SEC rules regarding independence.

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~~Committees of the Board of Directors~~

~~Our Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below.~~

~~Audit Committee~~

The Audit Committee provides assistance to the Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The Audit Committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy it that the accountants are independent of management. The Audit Committee currently consists of Messrs. Hamm (Chairman), Carey and Loesch, each of whom is a non-management member of our Board of Directors. Mr. Hamm is also our Audit Committee financial expert, as currently defined under current SEC rules. The Audit Committee met four times during the year ended December 31, 2018. We believe that the composition of our Audit Committee meets the criteria for independence under, and the functioning of our Audit Committee complies with the applicable Nasdaq Stock Market Rules and SEC rules and regulations.

~~Compensation Committee~~

The Compensation Committee determines our general compensation policies and the compensation provided to our directors and officers. The Compensation Committee also reviews and determines bonuses for our officers and other employees. In addition, the Compensation Committee reviews and determines equity-based compensation for our directors, officers, employees and consultants and administers our stock option plans. The Compensation Committee currently consists of Messrs. Carey (Chairman), Cronin and Goldman, each of whom is a non-management member of our Board of Directors. The Compensation Committee met one time during the year ended December 31, 2018. Although Messrs. Carey and Cronin meet the criteria for independence under the applicable Nasdaq Stock Market Rules and SEC rules and regulations, Mr. Goldman is not considered independent under such requirements.

~~Nominating and Corporate Governance Committee~~

The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board of Directors regarding candidates for directorships and the size and composition of the Board. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters. The Nominating and Corporate Governance Committee currently consists of all the nonemployee members of the Board. The Nominating and Corporate Governance Committee met four times during the year ended December 31, 2018.

Indemnification of Officers and Directors

To the extent permitted by Delaware law, the Company will indemnify its directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct.

~~ITEM 11.~~

E~~XECUTIVE COMPENSATION~~

~~Executive Compensation Discussion and Analysis~~

~~Overview of Compensation Program~~

The Compensation Committee of our Board of Directors has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. The Board of Directors has delegated to the Compensation Committee the responsibility for determining our compensation policies and procedures for senior management, including the named executive officers, periodically reviewing these policies and procedures, and making recommendations concerning executive compensation to be considered by the full board of directors, when such approval is required under any of our plans or policies or by applicable laws. The Compensation Committee also has the principal responsibility for the administration of our stock plans, including the approval of stock option grants to the named executive officers.

The compensation received by our named executive officers in fiscal year 2018 is set forth in the Summary Compensation Table, below. For 2018, the named executive officers included: (i) S. James Miller, Jr., Chairman of the Board of Directors and Chief Executive Officer; (ii) David Harding, Senior Vice President Engineering, Chief Technical Officer, and (iii) David Somerville, Senior Vice President Sales and Marketing.

~~-44-~~

~~Table of Contents~~

~~Compensation Philosophy~~

In general, our executive compensation policies are designed to recruit, retain and motivate qualified executives by providing them with a competitive total compensation package based in large part on the executive’s contribution to our financial and operational success, the executive’s personal performance and increases in stockholder value as measured by the price of our common stock. We believe that the total compensation paid to our executives should be fair, reasonable and competitive.

We seek to have a balanced approach to executive compensation with each primary element of compensation (base salary, variable compensation and equity incentives) designed to play a specific role. Overall, we design our compensation programs to allow for the recruitment, retention and motivation of the key executives and high-level talent required in order for us to:

●

~~achieve or exceed our annual financial plan and achieve profitability;~~

●

~~make continuous progression towards achieving our long-term strategic objectives to be a high-growth company with growing profitability; and~~

●

~~increase our share price to provide greater value to our stockholders.~~

~~Role of Executive Officers in Compensation Decisions~~

The Compensation Committee considers action on executive compensation annually. They discuss their proposed actions with the Chief Executive Officer and make recommendations for any changes to the Company’s Board of Directors. Only the Compensation Committee and the Board of Directors are authorized to approve the compensation for any named executive officer. Because our Chief Executive Officer is also a member of our Board of Directors, he does not participate in any conversation or approvals related to his compensation. Compensation of new executives is based on hiring negotiations between the individuals and our Chief Executive Officer and/or Compensation Committee.

~~Elements of Compensation~~

~~Consistent with our compensation philosophy and objectives, we offer executive compensation packages consisting of the following three components:~~

●

~~base salary;~~

●

~~annual incentive compensation (in the form of bonuses or otherwise); and~~

●

~~equity awards pursuant to the terms and conditions of our 1999 Stock Award Plan (the “1999 Plan”).~~

In each fiscal year, the Compensation Committee determines the amount and relative weight of each component for all executives, including the named executive officers. Base salaries are paid in fixed amounts and thus do not encourage risk taking. For 2018, we had no incentive bonus programs.

We also have issued stock options focusing the recipients on the achievement of certain short- and longer-term goals and objectives. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk taking because the ultimate value of the awards is tied to our stock price, and the vesting schedules align our employees’ interests even more closely with those of our investors.

~~Base Salary~~

Because our compensation philosophy stresses performance-based awards, base salary is intended to be a smaller portion of total executive compensation relative to long-term equity. Therefore, we target executive base salary at the median level of the compensation guidelines that have been approved by the Compensation Committee. In addition, the Compensation Committee takes into account the executive’s scope of responsibility and significance to the execution of our long-term strategy, past accomplishments, experience and personal performance and compares each executive’s base salary with those of the other members of senior management. The Compensation Committee may give different weighting to each of these factors for each executive, as it deems appropriate. The Compensation Committee did not retain a compensation consultant or determine a compensation peer group for 2018. In 2018, there were no changes to the base salaries paid to our named executive officers except for the contractually specified cost of living adjustments.

~~Annual Incentive Compensation~~

~~The Compensation Committee has not adopted an executive bonus plan for 2019.~~

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Table of Contents

~~Equity Awards~~

Although we do not have a mandated policy regarding the ownership of shares of Common Stock by officers and directors, we believe that granting equity awards to executives and other key employees on an ongoing basis gives them a strong incentive to maximize stockholder value and aligns their interests with those of our other stockholders on a long-term basis. Our 1999 Plan enables us to grant equity awards, as well as other types of stock-based compensation, to our executive officers and other employees. Under authority delegated to it by the board of directors, the Compensation Committee reviews and approves all equity awards granted to named executive officers under the 1999 Plan. Typically, the options granted upon the executive’s hire vest over three years with a third vesting on the one-year anniversary, and the remainder vesting quarterly over the next eight quarters. The options granted to executives in connection with an annual performance review typically begin vesting on the one-year anniversary of the grant date, and vest ratably over the following eight quarters. Our general policy is to grant the options with an exercise price equal to fair market value, which currently is the closing price of our Common Stock, as reported by the OTCQB marketplace, on the grant date.

~~We intend to grant equity awards to achieve retention and motivation:~~

●

~~upon the hiring of key executives and other personnel;~~

●

~~annually, when we review progress against corporate and personal goals; and~~

●

~~when we believe that competitive forces or economic conditions threaten to cause our key executives to lose their motivation and/or where retention of these key executives is in jeopardy.~~

With the Compensation Committee’s approval, we grant options to purchase shares of Common Stock when we initially hire executives and other employees, as a long-term performance incentive. The Compensation Committee has determined the size of the initial option grants to newly hired executives with reference to existing guidelines and hiring negotiations with the individual, in addition to other relevant information regarding the size and type of compensation package considered necessary to enable us to recruit, retain and motivate the executive.

Historically, no employee was eligible for an annual performance grant until the employee had worked for us for at least sixty days. The Compensation Committee reviews our Chief Executive Officer’s and other executives’ performance and determines whether they should be granted an option to purchase additional shares. Aside from stock award grants in connection with annual performance reviews, we do not have a policy of granting additional awards to executives and, consequently, the Board of Directors and the Compensation Committee has not adopted a policy with respect to granting awards in coordination with the release of material non-public information.

~~In determining the size of equity awards the Compensation Committee takes into account the executive’s current position with and responsibilities to us.~~

Only the Board of Directors or the Compensation Committee may approve options or other equity-based compensation to our executives. However, the Board of Directors has authorized our Chief Executive Officer to approve option grants to non-executive employees. All such grants must be consistent with equity incentive guidelines approved by the Compensation Committee. The exercise price for such grants must be equal to the most recent closing price of a share of the Common Stock as reported by the OTCQB marketplace on the date of grant.

Going forward, we intend to continue to evaluate and consider equity grants to our executives on an annual basis. We expect to consider potential equity awards for executives at the same time as we annually review our employees’ performance and determine whether to award grants for all employees.

~~Accounting and Tax Considerations~~

Our Compensation Committee has reviewed the impact of tax and accounting treatment on the various components of our executive compensation program. Section 162(m) of the Internal Revenue Code (the “~~Code~~”) generally disallows a tax deduction to publicly held companies for compensation paid to “covered” executive officers, to the extent that compensation paid to such an officer exceeds $1.0 million during the taxable year. We endeavor to award compensation that will be deductible for income tax purposes, though other factors will also be considered. Our Compensation Committee may authorize compensation payments that do not comply with the exemptions to Section 162(m) when we believe that such payments are appropriate to attract and retain executive talent.

~~Say-on-Pay~~

Our stockholders have not yet had the opportunity to provide feedback on our executive compensation through an advisory vote, as we have not held an annual meeting of stockholders since 2011, at which time we were not required to hold a “Say-on-Pay” vote as we followed the disclosure guidelines of a Smaller Reporting Company.

~~-46-~~

~~Table of Contents~~

~~Compensation Committee Interlocks and Insider Participation~~

As of December 31, 2018, the members of our Compensation Committee were, and currently are, David Carey (Chairman), John Cronin and Neal Goldman. None of the current or past members of our Compensation Committee is or has been an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served,as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) or director of any entity that has one or more executive officers serving on our Compensation Committee or our Board of Directors.

~~COMPENSATION COMMITTEE REPORT~~

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis provisions to be included in this Annual Report on Form 10-K for the year ended December 31, 2018. Based on this review and discussion, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in this in our Annual Report on Form 10-K for the year ended December 31, 2018.

~~The Compensation Committee of the Board of Directors:~~ITEM 11.

~~David Carey (Chairman)~~

~~John Cronin~~

~~Neal Goldman~~EXECUTIVE COMPENSATION

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~~Table of Contents~~

Summary Compensation Table

The following table sets forth certain information about the compensation paid or accrued during the years ended December 31, ~~2018~~2020 and ~~2017~~2019 to our Chief Executive Officer and each of our two most highly compensated executive officers other than our Chief Executive Officer who were serving as executive officers at December 31, ~~2018,~~2020, and whose annual compensation exceeded $100,000 during such year or would have exceeded $100,000 during such year if the executive officer were employed by the Company for the entire fiscal year (collectively the “Named Executive Officers”).

Name and Principal Position
Year

Salary

Stock Awards

Option
Awards (1)(2)

All Other Compensation

Total

S. James Miller, Jr. 2018
$387,787
$-
$199,408
$19,967(3)
$607,163
Chairman of the Board and 2017
$380,076
$-
$174,125
$19,913
$574,114
   Chief Executive Officer





David Harding 2018
$275,000
$-

$161,481
$5,288(4)
$441,769
Vice President and 2017
$280,288
$-
$163,885
$4,788
$448,961
  Chief Technical Officer





David Somerville 2018
$230,631
$-
$90,400
$67,089(5)
$388,120
Sr. Vice President Sales
   and Marketing

Name and Principal Position (1)	Year	Salary		Bonus		Stock Awards		Option Awards(2)(3)		All Other Compensation			Total

Kristin Taylor (4)	2020	$	275,000	$	-	$	-	$	-	$	11,561	(8)	$	286,561
Chief Executive Officer and Chair of the Board	2019	$	-	$	-	$	-		-	$	-		$	-

Sudheer Koganti	2020	$	131,629	$	12,500	$	-	$		$	-		$	144,129
Vice President of Engineering	2019	$	-	$	-	$	-	$	-	$	-		$	-

Chris Dickson	2020	$	113,352	$	10,359	$	-	$		$	40,680	(9)	$	164,391
Vice President of Sales	2019	$	-	$	-	$	-	$	-	$	-		$	-

S. James Miller, Jr. (5)	2020	$	227,359	$	-	$	-	$	47,250	$	72,665	(10)	$	347,274
Former Chair of the Board and Former Chief Executive Officer	2019	$	400,856	$	-	$	-	$	-	$	16,799		$	417,655

Jonathan Morris (6)	2020	$	168,000	$	-	$	-	$	-	$	-		$	168,000
Former Senior Vice President and Chief Financial Officer	2019	$	-	$	-	$	-	$	-	$	-		$	-

David Harding (7)	2020	$	152,778	$	-	$	-	$	-	$	26,086	(11)	$	178,864
Former Vice President and Chief Technical Officer	2019	$	275,000	$	-	$	-	$	-	$	-		$	275,000

-46-

(1)	Jay B. Lewis was appointed as Senior Vice President and Chief Financial Officer of the Company on January 8, 2021, after the fiscal year end date of December 31, 2020, and therefore has been excluded from the Summary Compensation Table above. On March 23, 2021, Mr. Lewis resigned from his position as Senior Vice President and Chief Financial Officer, effective April 7, 2021.

(2)	All option awards were granted under the Company’s 2020 Plan or the 1999 Plan.

~~(2)~~	(3)	The amounts presented in this column do not reflect the cash value or realizable value of option grants to the named executive officers during the year ended December 31, ~~2018.~~2020 or 2019. During the year ended December 31, ~~2018,~~2020 and 2019, no named executive officer exercised an option and therefore no value was realized during the reporting period. The amounts reflect the grant date fair value of the options awarded in the fiscal ~~year~~years ended December 31, ~~2018~~2020 and ~~2017,~~2019, respectively, in accordance with the provisions of FASB ASC Topic 718. We have elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. We are required to make various assumptions in the application of the Black-Scholes option-pricing model and have determined that the best measure of expected volatility is based on the historical weekly volatility of our ~~common stock.~~Common Stock. Historical volatility factors utilized in our Black-Scholes computations for options granted during the years ended December 31, ~~2018~~2020 and ~~2017~~2019 ranged from ~~57%~~57% to ~~64%~~83%. We have elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the years ended December 31, ~~2018~~2020 and ~~2017~~2019 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the years ended December 31, ~~2018~~2020 and ~~2017~~2019 was ~~2.58%~~2.58%. Dividend yield is zero, as we do not expect to declare any dividends on shares of our ~~common shares~~Common Stock in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. We have estimated an annualized forfeiture rate of 0%5.0% for corporate officers, 4.1% for members of the Board ~~of Directors~~ and ~~6.0%~~15.0% for all other employees. We review the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.
~~(3)~~		~~This amount includes premiums on life insurance and disability insurance of $8,967 and matching 401(k) contributions of $11,000.~~

(4)		~~This amount includes premiums~~ Ms. Taylor was appointed as the Company’s President and Chief Executive Officer on ~~life insurance~~March 2, 2020, and ~~disability insurance~~received no compensation prior to her employment. Under the terms of ~~$2,888 and matching 401(k) contributions~~Kristin Taylor’s Employment Agreement, dated March 2, 2020, Ms. Taylor is entitled to an option to purchase 1,750,000 shares of ~~$2,400.~~Common Stock, which option has not been granted as of the date of this Annual Report, pending the negotiation of a new grant since the consummation of the offering of Series D Preferred in November 2020.

(5)		~~This amount includes premiums in life insurance and disability insurance~~ Effective November 12, 2020, Mr. Miller, Former Chief Executive Officer of ~~$1,232, matching 401(k) contributions of $7,106, and $58,750~~the Company, resigned from his position as a ~~guaranteed draw against commissions.~~member of the Board of Directors of the Company. Although Mr. Miller currently provides consulting services to the Company under the terms of an Amended and Restated Consulting Agreement (“Consulting Agreement”), such Consulting Agreement terminates on April 12, 2021.

(6)	Mr. Morris was appointed as the Company’s Senior Vice President and Chief Financial Officer on May 1, 2020, and received no compensation prior to his employment. Effective December 31, 2020, Mr. Morris’s employment as an officer and employee of the Company was terminated by mutual agreement between Mr. Morris and the Company.

~~-48-~~

~~Table of Contents~~

~~Grants of Plan Based Awards~~

~~The following table provides information on plan-based awards granted in 2018 to each of the Named Executive Officers:~~

Grant Date

All Other Option Awards: Number of Securities Underlying Options
(#)

Exercise or Base Price of Option Awards
($/Share) (1)

Grant Date Fair Value of Stock and Option Awards
($) (2)

S. James Miller, Jr. 1/31/2018
  200,000
  1.75
$197,236




David Harding 1/31/2018
  100,000
  1.75
$98,618




David Somerville
1/31/2018
  300,000
  1.75
$298,853

~~(1)~~(7)	Effective July 21, 2020, Mr. Harding resigned from his position with the Company.

~~Each option was granted at an exercise price equal~~(8)	Includes group benefits paid to all employees of the ~~fair market value of our Common Stock on the grant date which was equal to the closing price of a share of our common stock, as reported by the OTCQB marketplace, on the date of grant.~~Company.

~~(2)~~
~~The amounts reflect~~(9)	Includes $31,126 paid to Mr. Dickson in commissions earned during the ~~grant date fair value,~~fiscal year, and $9,554 in ~~accordance with the provisions of ASC 718. Assumptions used in the calculation of these amounts are included in Note 2~~group benefits paid to all employees of the ~~Consolidated Financial Statements included~~Company.

(10)	Includes $39,315 in ~~our Annual Report on Form 10-K for~~accrued paid time off paid to Mr. Miller upon his resignation, and $33,350 in group benefits paid to all employees of the ~~year ended December 31, 2018.~~Company.

(11)	Includes $17,029 in accrued paid time off paid to Mr. Harding upon his resignation, and $9,057 in group benefits paid to all employees of the Company.

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The accompanying notes are an integral part of these consolidated financial statements.

F-7

Table of Contents

IMAGEWARE SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF ~~CASH~~ F~~LOWS~~SHAREHOLDERS’ DEFICIT

~~(In thousands)~~ (In thousands, except share amounts)

Year Ended December 31,

Cash flows from operating activities

2018

2017

Net loss
$(12,550)
$(10,069)
Adjustments to reconcile net loss to net cash used by operating activities:


Depreciation and amortization
  51
  68
Amortization of debt discounts and debt issuance costs
  170
  209
Stock-based compensation
  1,272
  1,094
Provision for losses on accounts receivable
  —
  15
Gain from sale of trademark
  —
  (50)
Reduction in accrued expense from expiration of statute of limitations
  —
  (222)
Warrants issued in lieu of cash as compensation for services
  26
  57
Loss from change in fair value of derivative liabilities
  232
  —
Change in assets and liabilities


Accounts receivable
  (414)
  (186)
Inventory
  50
  (56)
Other assets
  (229)
  (40)
Accounts payable
  221
  32
Accrued expense
  600
  359
Deferred revenue
  200

  (29)
Pension obligation
  61
  115
Total adjustments
  2,240

  1,366



Net cash used by operating activities
  (10,310)
  (8,703)



Cash flows from investing activities


Purchase of property and equipment
  (240)
  (5)
Proceeds from sale of trademark
  —
  50
Net cash provided by (used by) investing activities
  (240)
  45



Cash flows from financing activities


Proceeds from line of credit
  —
  3,350
Proceeds from exercise of stock options
  162

  259
Proceeds from issuance of preferred stock, net of issuance costs
  8,789
  10,937
Dividends paid to preferred stockholders
  (51)
  (51)



Net cash provided by financing activities
  8,900

  14,495



Effect of exchange rate changes on cash and cash equivalents
  27
  (106)
Net increase (decrease) in cash and cash equivalents
  (1,623)
  5,731
        Cash and cash equivalents at beginning of year
  7,317
  1,586
        Cash and cash equivalents at end of year
$5,694
$7,317
Supplemental disclosure of cash flow information:


        Cash paid for interest
$—
$—
        Cash paid for income taxes
$—
$—
Summary of non-cash investing and financing activities:


Exchange of related party indebtedness for Series A Convertible Preferred Stock
$6,802
$—
Beneficial conversion feature of related party lines of credit
$30
$302
Stock dividends on Series A Convertible Preferred Stock
$3,251
$923

Stock dividends on Series C Convertible Redeemable Preferred Stock
$319
$—
Stock dividends on Series E, Series F and Series G Convertible Preferred Stocks
$—
$1,426

Conversion of Series A Convertible Preferred Stock into Common Stock
$4
$—
Recognition of derivative liabilities on preferred stock issuance
$833
$—
Deemed dividend on preferred stock modification
$92
$—
Accretion of discount on Series C Convertible Redeemable Preferred Stock
$200
$—
Reduction (increase) in additional minimum pension liability
$209
$(15)
Preferred stock exchange
$—
$1,245

	Series A		Series A-1		Series B
	Convertible,		Convertible,		Convertible,							Accumulated
	Redeemable		Redeemable		Redeemable						Additional	Other
	Preferred		Preferred		Preferred		Common Stock		Treasury Stock		Paid-In	Comprehensive	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Total

Balance at December 31, 2019	37,467	$-	-	$-	239,400	$2	113,353,176	$1,133	(6,704)	$(64)	$195,079	$(1,741)	$(203,171)	$(8,762)

Accretion of Preferred Stock discount	-	-	-	-	-	-	-	-	-	-	(2,688)	-	-	(2,688)
Issuance of common stock net of financing costs	-	-	-	-	-	-	15,700,000	157	-	-	2,103	-	-	2,260
Stock-based compensation expense and issuance of Restricted Stock Units	-	-	-	-	-	-	1,883,248	19	-	-	843	-	-	862
Issuance of common stock for financing facility	-	-	-	-	-	-	2,500,000	25	-	-	375	-	-	400
Modification of Series A Preferred Stock from issuance of Series A-1 Preferred Stock	(18,828)	-	18,828	-	-	-	-	-	-	-	1,849	-	-	1,849
Conversion of Series A Preferred to Common Stock	(3,728)	-	-	-	-	-	18,640,000	186	-	-	(186)	-	-	-
Conversion of Series A-1 Preferred to Common Stock	-	-	(4,046)	-	-	-	19,016,452	190	-	-	(190)	-	-	-
Dividends on Series B preferred stock, $(0.21)/share	-	-	-	-	-	-	-	-	-	-	-	-	(51)	(51)
Additional minimum pension liability	-	-	-	-	-	-	-	-	-	-	-	(97)	-	(97)
Foreign currency translation adjustment	-	-	-	-	-	-	-	-	-	-	-	(151)	-	(151)
Dividends on Series A preferred stock, $256.89/share	-	-	-	-	-	-	1,388,876	14	-	-	104	-	(1,967)	(1,849)
Dividends on Series A-1 preferred stock, $867.20/share	-	-	-	-	-	-	1,159,416	12	-	-	81	-	(93)	-
Dividends on Series C preferred stock, $(1,422.31)/share	-	-	-	-	-	-	6,455,149	65	-	-	625	-	(690)	-
Dividends on Series D preferred stock, $(45.70)/share	-	-	-	-	-	-	-	-	-	-	(142)	-	-	(142)
Deemed dividend from issuance of Series D preferred stock $(1859.80)/share	-	-	-	-	-	-	-	-	-	-	(4,201)	-	-	(4,201)
Net loss	-	-	-	-	-	-	-	-	-	-	-	-	(7,253)	(7,253)
Balance at December 31, 2020	14,911	$-	14,782	$-	239,400	$2	180,096,317	$1,801	(6,704)	$(64)	$193,652	$(1,989)	$(213,225)	$(19,823)

	Series A Convertible, Redeemable Preferred		Series B Convertible, Redeemable Preferred		Common Stock		Treasury Stock		Additional Paid-In	Accumulated Other Comprehensive	Accumulated
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Total

Balance at December 31, 2018	37,467	$-	239,400	$2	98,230,336	$981	(6,704)	$(64)	$184,130	$(1,428)	$(186,648)	$(3,027)

Accretion of Preferred Stock discount	-	-	-	-	-	-	-	-	(728)	-	-	(728)
Issuance of common stock net of financing costs	-	-	-	-	5,954,545	60	-	-	6,060	-	-	6,120
Issuance of common stock pursuant to option exercises	-	-	-	-	351,334	4	-	-	162	-	-	166
Stock-based compensation expense	-	-	-	-	-	-	-	-	643	-	-	643
Warrants issued in lieu of cash as compensation for services	-	-	-	-	-	-	-	-	9	-	-	9
Foreign currency translation adjustment	-	-	-	-	-	-	-	-	-	(1)	-	(1)
Additional minimum pension liability	-	-	-	-	-	-	-	-	-	(312)	-	(312)
Dividends on Series A preferred stock, $(103.03)/share	-	-	-	-	6,959,523	70	-	-	3,791	-	(3,861)	-
Dividends on Series B preferred stock, $(0.21)/share	-	-	-	-	-	-	-	-	-	-	(51)	(51)
Dividends on Series C preferred stock, $(1,030.28)/share	-	-	-	-	1,857,438	18	-	-	1,012	-	(1,030)	-
Net loss	-	-	-	-	-	-	-	-	-	-	(11,581)	(11,581)
Balance at December 31, 2019	37,467	$-	239,400	$2	113,353,176	$1,133	(6,704)	$(64)	$195,079	$(1,741)	$(203,171)	$(8,762)

The accompanying notes are an integral part of these consolidated financial statements.

F-8

Table of Contents

IMAGEWARE ~~SYSTEM~~S,SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
Cash flows from operating activities	2020	2019
Net loss	$(7,253)	$(11,581)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	72	71
Stock-based compensation	862	643
Warrants issued in lieu of cash as compensation for services	—	9
Application of rent deposit in lieu of cash payments	124	—
Gain from change in fair value of derivative liabilities	(2,252)	(696)
Change in assets and liabilities
Accounts receivable	81	311
Inventory	576	(586)
Other assets	33	66
Operating lease right-of-use assets	(20)	168
Accounts payable	491	(162)
Accrued expense	(175)	37
Deferred revenue	(726)	415
Contract costs	—	(29)
Pension obligation	178	67
Total adjustments	(756)	314

Net cash used by operating activities	(8,009)	(11,267)

Cash flows from investing activities
Purchase of property and equipment	—	(31)
Net cash used by investing activities	—	(31)

Cash flows from financing activities
Proceeds from issuance of common stock, net	2,296	6,520
Proceeds from issuance of notes payable	4,658	—
Repayment of notes payable	(575)	—
Proceeds from exercise of stock options	—	166
Proceeds from issuance of preferred stock, net of issuance costs	9,147	—
Dividends paid to preferred stockholders	(51)	(51)

Net cash provided by financing activities	15,475	6,635

Effect of exchange rate changes on cash and cash equivalents	(151)	(1)
Net increase (decrease) in cash and cash equivalents	7,315	(4,664)
Cash and cash equivalents at beginning of year	1,030	5,694
Cash and cash equivalents at end of year	$8,345	$1,030
Supplemental disclosure of cash flow information:
Cash paid for interest	$52	$—
Cash paid for income taxes	$—	$—
Summary of non-cash investing and financing activities:
Issuance of common stock for financing facility	$400	$—
Stock dividends on Series A Convertible Redeemable Preferred Stock	$1,849	$3,861
Stock dividends on Series A-1 Convertible Redeemable Preferred Stock	$93	$—
Stock dividends on Series C Convertible Redeemable Preferred Stock	$690	$1,030
Stock dividends on Series D Convertible Redeemable Preferred Stock	$142	$—
Recognition of operating lease right-of-use assets from adoption of ASC 842	$—	$2,265
Recognition of lease liabilities of ASC 842	$—	$(2,280)
Conversion of Series A Convertible Redeemable Preferred Stock into Common Stock	$190	$—
Conversion of Series A-1 Convertible Redeemable Preferred Stock into Common Stock	$186	$—
Conversion of bridge loan into Series D Convertible Redeemable Preferred Stock	$2,187	$—
Conversion of related party notes payable and accrued interest into Series D Convertible Redeemable Preferred Stock	$334	$—
Recognition of derivative liabilities on preferred stock issuance	$26,011	$—
Deemed dividend from holder on preferred stock extinguishment and modification	$6,136	$—
Exchange of Series C Convertible Redeemable Preferred Stock for Series D Convertible Redeemable Preferred Stock	$10,000	$—
Accretion of discount on Series C Convertible Redeemable Preferred Stock	$1,116	$728
Accretion of discount on Series D Convertible Redeemable Preferred Stock	$1,572	$—
Reduction in additional minimum pension liability	$97	$312
Accrued financing costs	$—	$400

The accompanying notes are an integral part of these consolidated financial statements.

F-9

NTable of Contents~~OTES~~

IMAGEWARE SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2018~~2020 AND ~~2017~~2019

1. DESCRIPTION OF BUSINESS AND OPERATIONS

Overview

As used in this ~~Quarterly~~ Report, ~~“we,” “us,” “our,”~~“we”, “us”, “our”, “ImageWare”, “ImageWare~~” “ImageWare Systems,”~~ Systems” or the “Company” ~~or “our Company”~~ refers to ImageWare Systems, Inc. and all of its subsidiaries. ImageWare Systems, Inc. is incorporated in the state of Delaware. The Company is a pioneer and leader in the emerging market for biometrically enabled software-based identity management solutions. Using those human characteristics that are unique to us all, the Company creates software that provides a highly reliable indication of a person’s identity. The Company’s “flagship” product is the patented IWS Biometric Engine®. The Company’s products are used to manage and issue secure credentials, including national IDs, passports, driver licenses and access control credentials. The Company’s products also provide law enforcement with integrated mug shot, fingerprint LiveScan and investigative capabilities. The Company also provides comprehensive authentication security software using biometrics to secure physical and logical access to facilities or computer networks or internet sites. Biometric technology is now an integral part of all markets the Company addresses, and all the products are integrated into the IWS Biometric Engine.

~~Recent Developments~~

~~Creation of Series C Convertible Redeemable Preferred Stock~~

On September 10, 2018, the Company filed the Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred Stock with the Secretary of State for the State of Delaware – Division of Corporations, designating 1,000 shares of the Company’s preferred stock, par value $0.01 per share, as Series C Convertible Redeemable Preferred Stock (“~~Series C Preferred”), each share with a stated value of $10,000 per share.~~

~~Series C Financing~~

~~From September 10, 2018 through September 21, 2018, the Company offered and sold an aggregate of 1,000 shares of Series C Preferred at a purchase price of $10,000 per share (the “Series C Financing~~”). The aggregate gross proceeds to the Company from the Series C Financing were approximately $10,000,000. Issuance costs incurred in conjunction with the Series C Financing were approximately $1,211,000, resulting in net proceeds to the Company of approximately $8,789,000.

~~Amendment to Certificate of Designations of Series A Convertible Preferred Stock~~

On September 10, 2018, the Company filed an Amendment to the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock with the Secretary of State for the State of Delaware – Division of Corporations, to increase the number of shares of Series A Convertible Preferred Stock, par value $0.01 per share (“~~Series A Preferred”), authorized for issuance thereunder to 38,000 shares, in order to permit the Debt Exchange (as defined below).~~

~~Debt Exchange~~

~~On September 10, 2018, the Company entered into exchange agreements (the “Exchange Agreements~~”) with Neal Goldman and Charles Crocker, pursuant to which Messrs. Goldman and Crocker agreed to exchange approximately $6.3 million and $0.6 million, respectively, of outstanding debt (including accrued and unpaid interest) owed under the terms of their respective lines of credit for an aggregate of 6,896 shares of Series A Preferred (the “~~DebtExchange~~”). As a result of the Debt Exchange, all indebtedness, liabilities and other obligations arising under the respective lines of credit were cancelled and deemed satisfied in full. Messrs. Goldman and Crocker are members of the Company’s Board of Directors and related parties.

~~Declaration of Special Dividend~~

~~Concurrently with the Series C Financing, the Company’s Board of Directors declared a special dividend (the “Special Dividend”) for holders of the Series A Preferred (each a “Holder”), pursuant to which each Holder received a warrant (“Dividend Warrant~~”) to purchase 39.87 shares of Company Common Stock for every share of Series A Preferred held, which resulted in the issuance of Dividend Warrants to the Holders as a group to purchase an aggregate of 1,493,856 shares of Common Stock. Each Dividend Warrant has an exercise price of $0.01 per share, and is exercisable immediately upon issuance; ~~provided, however~~, that a Dividend Warrant may only be exercised concurrently with the conversion of shares of Series A Preferred held by a Holder into shares of Common Stock. In addition, each Dividend Warrant held by a Holder shall expire on the earliest to occur of (i) the conversion of all Series A Preferred held by such Holder into Common Stock, (ii) the redemption by the Company of all outstanding shares of Series A Preferred held by such Holder, (iii) the Dividend Warrant no longer representing the right to purchase any shares of Common Stock, and (iv) the tenth anniversary of the date of issuance.

~~F-9~~

~~Table of Contents~~

Liquidity, Going Concern and Management’s Plan

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of ~~debt, including our Lines of Credit (defined below).~~debt. Our principal uses of cash have included cash used in operations, product development, and payments relating to purchases of property and equipment. We expect that our principal uses of cash in the future will be for product development, including customization of identity management products for enterprise and consumer applications, further development of intellectual property, development of Software-as-a-Service (“SaaS”) capabilities for existing products as well as general working capital ~~and capital expenditure~~ requirements. Management expects that, as our revenue grows, our sales and marketing and research and development expense will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenue to achieve and sustain ~~income~~positive cash flows from operations. Historically the Company has not been able to generate sufficient net revenue to achieve and sustain positive cash flows from operations and management has determined that there is substantial doubt about the Company’s ability to continue as a going concern.

At December 31, ~~2018,~~2020 and 2019, we had ~~positive~~negative working capital of ~~approximately $3,078,000, as compared to a~~$19,349,000 and $1,653,000, respectively.Included in our negative working capital ~~deficit~~as of ~~approximately $415,000 at~~ December 31, ~~2017. Our principal sources~~2020 are $24,128,000 of ~~liquidity~~derivative liabilities which are not required to be settled in cash except in the event of the consummation of a Change of Control or at any time after the fourth anniversary of the Series D Preferred issuance, at which time the holders of the Series D Preferred may require the Company to redeem in cash any or all of the holder’s outstanding Series D Preferred at an amount equal to the Series D Liquidation Preference Amount. At December 31, ~~2018 consisted~~2020 the Liquidation Preference Amount totaled $22,863,000.

F-10

Table of ~~cash and cash equivalents of $5,694,000. Our principal sources of liquidity at December 31, 2017 consisted of cash and cash equivalents of $7,317,000.~~Contents

Considering the financings consummated in 2020, as well as our projected cash requirements, and assuming we are unable to generate incremental revenue, our available cash ~~may~~will be insufficient to satisfy our cash requirements for the next 12twelve months from the date of this filing. ~~These factors raise~~At March 26, 2021, cash on hand approximated $5,178,000. Based on the Company’s rate of cash consumption in the first quarter of 2021 and the last quarter of 2020, the Company estimates it will need additional capital in the third quarter of 2021 and its prospects for obtaining that capital are uncertain. As a result of the Company’s historical losses and financial condition, there is substantial doubt about ~~our~~the Company’s ability to continue as a going concern.

To address our working capital requirements, management has begun instituting several cost cutting measures and may seek additional equity and/or debt financing through the issuance of additional debt and/or equity ~~securities or may seek strategic or other transactions intended to increase shareholder value. There~~securities. Other than the Lincoln Purchase Agreement, there are currently no ~~formal committed~~ financing arrangements to support our projected cash shortfall, including commitments to purchase additional debt and/or equity securities, or other agreements, and no assurances can be given that we will be successful in raising additional debt and/or equity securities, or entering into any other transaction that addresses our ability to continue as a going concern.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future. Therefore, management’s plans do not alleviate the substantial doubt of the Company’s ability to continue as a going concern.

F-11

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements are prepared under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 105-10, Generally Accepted Accounting Principles, in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its ~~wholly owned~~wholly-owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated.

Operating Cycle

Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, ~~deferred tax asset valuation allowances, recoverability of goodwill,~~ assumptions used in the Black-Scholes model to calculate the fair value of ~~share based~~share-based payments, fair value of Series D Preferred and financial instruments issued with and affected by the Series CD Preferred Financing (defined ~~above)~~below), fair value of ~~Exchanged~~financial instruments with and affected by the Series C Preferred (defined below), fair value of Series A Preferred (defined below), fair value of Series A-1 Preferred (defined below), assumptions used in the application of revenue recognition policies, assumptions used in the derivation of the Company’s incremental borrowing rate used in the computation of the Company’s operating lease liabilities and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.

~~F-10~~F-12

Table of Contents

Accounts Receivable

In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful.

Inventories

Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 6.

Property, Equipment and Leasehold Improvements

Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

Revenue ~~Recognition.~~ ~~Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method.~~Recognition

In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model:

Identify the contract with the customer;

Identify the performance obligation in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations in the contract; and

Recognize revenue when (or as) each performance obligation is satisfied.

At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer.

F-13

Table of Contents

Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement.

~~F-11~~

~~Table of Contents~~

We disclose disaggregation of our customer revenue by classes of similar products and services as follows:

●

Software licensing and royalties;

●

Computer hardware and identification media;

●

Services; and

●

Post-contract customer support.

Software licensing and royalties

Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met.

Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied.

Computer hardware and identification media

We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met.

Services

Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met.

Post-contract customer support (“PCS”)

Post contract customer support consists of maintenance on software and hardware for our identity management solutions. We recognize PCS revenue from periodic maintenance agreements. Revenue is generally recognized ratably over the respective maintenance periods provided no significant obligations remain. Costs related to such contracts are expensed as incurred.

Arrangements with multiple performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service and (ii) the percent discount off of list price approach.

F-14

Table of Contents

Contract costs

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. At December 31, 2019, we had recorded approximately $118,000 in contract costs relating to capitalized commissions. During the years ended December 31, 2020 and 2019, we recognized approximately $53,000 and $18,000, respectively, of capitalized contract costs as expense. Such expense is included as a component of operating expense and is included under the caption “Sales and marketing” in our consolidated statement of operations for the years ended December 31, 2020 and 2019. We recorded no additional capitalized contract costs in the year ended December 31, 2020. We recognized approximately $1,594,000 of revenue during the year ended December 31, 2020 that was related to contract costs at the beginning of the period.

Other items

We do not offer rights of return for our products and services in the normal course of business.

Sales tax collected from customers is excluded from revenue.

~~F-12~~

~~Table of Contents~~

~~The adoption of ASC 606 as of January 1, 2018 resulted in a cumulative positive adjustment to beginning accumulated deficit and accounts receivable of approximately $96,000.~~ The following table sets forth our disaggregated revenue for the years ended December 31, ~~2018~~2020 and ~~2017:~~2019:

	Year Ended December 31,		Year Ended December 31,
Net Revenue	2018	2017	2020	2019
(dollars in thousands)

Software and royalties	$1,334	$1,248	$872	$489
Hardware and consumables	133	94	84	96
Services	294	272	1,275	338
Maintenance	2,643	2,679	2,554	2,583
Total net revenue	$4,404	$4,293	$4,785	$3,506

Delaware		33-0224167
(State or other jurisdiction of of incorporation or organization)		(I.R.S. Employer Identification No.)

~~13500 Evening Creek Drive N.,~~11440 West Bernardo Court, Suite ~~550~~300 San Diego, CA ~~92128~~92127 (Address of principal executive offices)
(858) 673-8600 (Registrant’s Telephone Number, Including Area Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		IWSY		OTCQB Marketplace

Large accelerated filer	☐	Accelerated filer	☒☐
Non–Accelerated filer	☐☒	Small reporting company	☒
		Emerging growth company	☐

		Page

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	149
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21

PART II
Item 5.	Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3840
Item 8.	Financial Statements and Supplementary Data	3941
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	3941
Item 9A.	Controls and Procedures	3941
Item 9B.	Other Information	3941

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	4042
Item 11.	Executive Compensation	4446
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	5451
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5756
Item 14.	Principal Accounting Fees and Services	5958

PART IV
Item 15.	Exhibits and Financial Statement Schedules	60
		56
EXHIBIT INDEX		6056
SIGNATURES		6263

	~~Level 1~~	~~Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.~~

	~~Level 2~~	Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

	~~Level 3~~	~~Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).~~

2018 Fiscal Quarters	High	Low
First Quarter	$2.24	$1.50
Second Quarter	$1.90	$1.08
Third Quarter	$1.44	$0.86
Fourth Quarter	$1.01	$0.55

2017 Fiscal Quarters	High	Low
First Quarter	$1.39	$0.98
Second Quarter	$1.24	$0.81
Third Quarter	$1.50	$0.83
Fourth Quarter	$1.62	$1.25

	Twelve Months Ended December 31,
Net Product Revenue	2018	2017	$ Change	% Change
(dollars in thousands)
Software and royalties	$1,334	$1,248	$86	7%
Percentage of total net product revenue	76%	77%
Hardware and consumables	$133	$94	$39	41%
Percentage of total net product revenue	7%	6%
Services	$294	$272	$22	8%
Percentage of total net product revenue	17%	17%
Total net product revenue	$1,761	$1,614	$147	9%

	Twelve Months Ended December 31,				Twelve Months Ended December 31,
Maintenance Revenue	2018	2017	$ Change	% Change	2020	2019	$ Change	% Change
(dollars in thousands)
Total maintenance revenue	$2,643	$2,679	$(36)	(1)%	$2,554	$2,583	$(29)	(1)%

	Twelve Months Ended December 31,				Twelve Months Ended December 31,
Cost of Product Revenue:	2018	2017	$ Change	% Change	2020	2019	$ Change	% Change
(dollars in thousands)
Software and royalties	$11	$39	$(28)	(72)%	$54	$36	$18	50%
Percentage of software and royalty product revenue	1%	3%			6%	7%
Hardware and consumables	$92	$64	$28	44%	$52	$66	$(14)	(21)%
Percentage of hardware and consumables product revenue	69%	68%			62%	69%
Services	$102	$49	$53	108%	$694	$116	$578	498%
Percentage of services product revenue	35%	18%			54%	34%
Total product cost of revenue	$205	$152	$53	(35)%	$800	$218	$582	267%
Percentage of total product revenue	12%	9%			36%	24%

Maintenance cost of revenue	Twelve Months Ended December 31,				Twelve Months Ended December 31,
(dollars in thousands)	2018	2017	$ Change	% Change	2020	2019	$ Change	% Change
Total maintenance cost of revenue	$671	$839	$(168)	(20)%	$448	$425	$23	5%
Percentage of total maintenance revenue	25%	31%			18%	16%

	Twelve Months Ended December 31,
Product gross profit	2018	2017	$ Change	% Change
(dollars in thousands)
Software and royalties	$1,323	$1,209	$114	9%
Percentage of software and royalty product revenue	99%	97%
Hardware and consumables	$41	$30	$11	37%
Percentage of hardware and consumables product revenue	31%	32%
Services	$192	$223	$(31)	(14)%
Percentage of services product revenue	65%	82%
Total product gross profit	$1,556	$1,462	$94	6%
Percentage of total product revenue	88%	91%

Maintenance gross profit	Twelve Months Ended December 31,				Twelve Months Ended December 31,
(dollars in thousands)	2018	2017	$ Change	% Change	2020	2019	$ Change	% Change
Total maintenance gross profit	$1,972	$1,840	$132	7%	$2,106	$2,158	$(52)	(2)%
Percentage of total maintenance revenue	75%	69%			82%	84%

	Twelve Months Ended December 31,				Twelve Months Ended December 31,
Operating expense	2018	2017	$ Change	% Change	2020	2019	$ Change	% Change
(dollars in thousands)
General and administrative	$4,285	$3,723	$562	15%	$4,102	$3,614	$488	14%
Percentage of total net revenue	97%	87%			86%	103%
Sales and marketing	$3,571	$2,816	$755	27%	$2,936	$3,937	$(1,001)	(25)%
Percentage of total net revenue	81%	66%			61%	112%
Research and development	$7,351	$6,324	$1,027	16%	$5,706	$7,488	$(1,782)	(24)%
Percentage of total net revenue	167%	147%			119%	214%
Depreciation and amortization	$51	$68	$(17)	(25)%	$72	$71	$1	1%
Percentage of total net revenue	1%	2%			2%

	Payment Due by Year
	Total	Less than 1 Year	1-3 Years	3-5 Years	More than 5 Years
Operating lease obligations	$3,312	$480	$1,257	$1,575	$—
Total	$3,312	$480	$1,257	$1,575	$—

Name and Principal Position	Year	Salary	Stock Awards	Option Awards (1)(2)	All Other Compensation	Total

S. James Miller, Jr.	2018	$387,787	$-	$199,408	$19,967(3)	$607,163
Chairman of the Board and	2017	$380,076	$-	$174,125	$19,913	$574,114
Chief Executive Officer
David Harding	2018	$275,000	$-	$161,481	$5,288(4)	$441,769
Vice President and	2017	$280,288	$-	$163,885	$4,788	$448,961
Chief Technical Officer
David Somerville	2018	$230,631	$-	$90,400	$67,089(5)	$388,120
Sr. Vice President Sales and Marketing

	Grant Date	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Share) (1)	Grant Date Fair Value of Stock and Option Awards ($) (2)
S. James Miller, Jr.	1/31/2018	200,000	1.75	$197,236

David Harding	1/31/2018	100,000	1.75	$98,618

David Somerville	1/31/2018	300,000	1.75	$298,853

	Option Awards				Stock Awards
Name	Number of Securities Underlying Unexercised Options: Exercisable (#)	Number of Securities Underlying Unexercised Options: Unexercisable (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares That Have Not Vested (#)	Market Value of Shares That Have Not Vested ($)
S. James Miller, Jr.	100,000	—	$0.20	1/27/2019	—	$—
	183,000	—	$0.73	1/29/2020	—	$—	Option Awards					Stock Awards
	225,000	—	$1.11	3/10/2021	—	$—	Number of Securities Underlying Unexercised Options: Exercisable (#)	Number of Securities Underlying Unexercised Options: Unexercisable (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares That Have Not Vested (#)	Market Value of Shares That Have Not Vested ($)
Named Executive Officers (1)

Sudheer Koganti							-	100,000	0.13	7/29/2030	100,000	$-
	450,000	—	$0.92	2/2/2022	—	$—
	100,000	—	$0.93	2/8/2023	—	$—
Chris Dickson							-	100,000	0.13	7/29/2030	100,000	$-
	100,000	—	$1.93	10/29/2023	—	$—
	50,000	—	$2.29	12/15/2024	—	$—
	150,000	—	$1.73	9/14/2025	—	$—
	225,000	75,000	$1.37	9/20/2026	—	$—
	—	200,000	1.75	1/31/2028

Former Named Executive Officers

David Harding	50,000	—	$0.20	1/27/2019	—	$—	-		$N/A	N/A	-	$-
	80,000	—	$0.73	1/29/2020	—	$—
	325,000	—	$0.92	2/2/2022	—	$—
	100,000	—	$0.93	2/8/2023	—	$—
	75,000	—	$1.93	10/29/2023	—	$—
	50,000	—	$2.29	12/15/2024	—	$—
	125,000	—	$1.73	9/14/2025	—	$—
	225,000	75,000	$1.37	9/20/2026	—	$—
	—	100,000	$1.75	1/31/2028	—	$—


David Somerville	—	300,000	$1.75	1/31/2028	—	$—
S. James Miller, Jr.							-		$N/A	N/A	-	$-

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted- Average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column) (a)
	(a)	(b)	(c)
Equity compensation plans approved by security holders:
1999 Stock Award Plan, as amended and restated	7,227,248	$1.34	730,677

Total	7,227,248	$1.34	730,677

	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($) (1)	All Other Compensation ($)	Total ($)
Guy Steve Hamm	$5,500	$-	$41,538	$-	$47,038

David Carey	$7,500	$-	$41,538	$-	$49,038

David Loesch	$2,500	$-	$41,538	$-	$44,038

John Cronin	$2,500	$-	$41,538	$-	$44,038

Neal Goldman	$2,500	$-	$41,538	$-	$44,038

Charles Crocker (2)	$-	$-	$41,538	$-	$41,538

Dana Kammersgard	$-	$-	$51,704	$-	$51,704

Charles Frischer	$-	$-	$52,184	$-	$52,184

Robert T. Clutterbuck	$-	$-	$52,184	$-	$52,184

~~(1)~~	The amounts reflect the grant date fair value of options recognized as compensation in 2018, in accordance with the provisions of FASB ASC Topic 718, and thus may include amounts from awards granted prior to 2018. Assumptions used in the calculation of these amounts are included in Notes to the Consolidated Financial Statements.
~~(2)~~	~~Mr. Crocker resigned from his position as a member of our Board of Directors on February 14, 2019.~~

Beneficial Ownership of Series A Preferred Name, Address and Title (if applicable) (1)	Series A Preferred Stock (2)(3)	% Ownership of Class (3)
5% Shareholders:

CAP 1 LLC (4) 14000 Quail Spring Parkway, Suite 2200 Oklahoma City, OK 73134	750	12.2%
Wynnefield Partners (5) 450 7th Ave. Suite 509 New York, NY, 10123	375	6.1%
Charles Frischer 4404 52nd Avenue NE Seattle, WA 98105	576	9.4%
Neal Goldman 767 Third Avenue, 16th Floor New York, NY 10017	2,358.5	38.4%

Beneficial Ownership of Series A Preferred Name, Address and Title (if applicable)	Series A Preferred Stock (2)	% Ownership of Class (2)

Directors and Named Executive Officers: (1)
S. James Miller, Jr., Chairman, Chief Executive Officer	100	*
Neal Goldman, Director	9,434	25.2%
Robert T. Clutterbuck, Director	2,148	5.7%
Charles Frischer, Director	3,105	8.3%
Total beneficial ownership of directors and Named Executive Officers as a group (12 persons):	14,812	39.5%

5% Stockholders:
CF Special Situation Fund I, LP (3) 1360 East 9th Street, Suite 1250 Cleveland, OH 44114	5,605	15.0%
CAP 1 LLC (4) 14000 Quail Spring Parkway, Suite 2200 Oklahoma City, OK 73134	3,000	8.0%
Richard Leahy 322 Pilots Point Mt. Pleasant, SC 29464	2,000	5.3%

(1) Each of the Company’s Named Executive Officers and directors who do not hold shares of Series A Preferred are excluded from this table. The business address of each of the executive officers and directors is 11440 W. Bernardo Court, Suite 300, San Diego, California 92127. (2) In connection with a private placement transaction completed in November and December 23, 2020 (the “Series D Financing”), all of the outstanding shares of Series A-1 Preferred will be converted into shares of Common Stock over a period of time with 100% of the such outstanding shares being converted by August 1, 2021. (3) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. (4) Mr. David Sackler, President of CAP I LLC, may be deemed to have voting and investment discretion over the securities identified herein. (5) Wynnefield Partners owns shares in its Wynnefield Partners SmallCap Value Fund, Wynnefield Partners SmallCap Value LP 1 Funds, and its Wynnefield SmallCap Value Offshore Fund.	~~Each of the Company’s~~ ~~Named Executive Officers~~ ~~and directors who do not hold shares of Series A Preferred were excluded from this table.~~
~~(2)~~	~~Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.~~
~~(3)~~	~~Mr. Robert T. Clutterbuck, Managing Partner of CF Special Situation Fund I, LP, may be deemed to have voting and investment discretion over the securities identified herein.~~
~~(4)~~	~~Mr. David Sackler, President of CAP I LLC, may be deemed to have voting and investment discretion over the securities identified herein.~~

Beneficial Ownership of Series B Preferred Name, Address and Title (if applicable) (1)	Series B Preferred Stock (2)	% Ownership of Class (2)
Darrelyn Carpenter	28,000	12%
Frederick C. Orton	20,000	8%
Howard Harrison	20,000	8%
Wesley Hampton	16,000	7%

Beneficial Ownership of Series C Preferred Name, Address and Title (if applicable) (1)	Series C Preferred Stock (2)	% Ownership of Class (2)
Blackwell Partners LLC – Series A (3) c/o Nantahala Capital Management, LLC 19 Old Kings Highway South, Suite 200 Darien, CT 06820	128	12.8%
Geode Capital Management LP 1 Post Office Square, 20th Floor Boston, MA 02109	100	10.0%
Nantahala Capital Partners Limited Partnership (3) c/o Nantahala Capital Management, LLC 19 Old Kings Highway South, Suite 200 Darien, CT 06820	54	5.4%
Nantahala Capital Partners II Limited Partnership (3) c/o Nantahala Capital Management, LLC 19 Old Kings Highway South, Suite 200 Darien, CT 06820	112	11.2%
Nantahala Capital Partners SI LP (3) c/o Nantahala Capital Management, LLC 19 Old Kings Highway South, Suite 200 Darien, CT 06820	397	39.7%
Shellback Financial, LLC 16405 45th Avenue North Minneapolis, MN 55446	100	10.0%
Silver Creek CS SAV, L.L.C. (3) c/o Nantahala Capital Management, LLC 19 Old Kings Highway South, Suite 200 Darien, CT 06820	59	5.9%

Beneficial Ownership of Series A-1 Preferred Name, Address and Title (if applicable)(1)	Series A-1 Preferred Stock(2)(3)	% Ownership of Class (3)

5% Shareholders:

CAP 1 LLC (4) 14000 Quail Spring Parkway, Suite 2200 Oklahoma City, OK 73134	750	12.7%
Wynnefield Partners (5)	375	6.3%
450 7th Ave. Suite 509 New York, NY, 10123
Charles Frischer 4404 52nd Avenue NE Seattle, WA 98105	576.5	9.7%
Neal Goldman 767 Third Avenue, 16th Floor New York, NY 10017	2,358.5	39.8%

~~(2)~~(4)	~~Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.~~

~~(3)~~	Nantahala Capital Management, LLC is a Registered Investment Adviser and has been delegated the legal power to vote and/or direct the disposition of securities on behalf of ~~these entities~~this entity as a General Partner or Investment Manager and would be considered the beneficial owner of such securities. Wilmot B. Harkley and Daniel Mack, as principles of Nantahala Capital Management, LLC, may be deemed to hold voting and dispositive power over the shares identified herein. The above shall not be deemed to be an admission by the record owners or these selling shareholders that they are themselves beneficial owners of these shares of ~~Series C Preferred~~securities for purposes of Section 13(d) of the Exchange Act or any other purpose.

Name and Address	Number of Shares (1)	Percent of Class (2)

Directors and Named Executive Officers:
S. James Miller, Jr., Chairman, Chief Executive Officer (3)	2,642,736	2.6%
David Carey Director (4)	265,689	*
G. Steve Hamm, Director (5)	265,775	*
David Loesch, Director (6)	293,897	*
Neal Goldman, Director (7)	42,547,329	39.5%
John Cronin, Director (8)	226,189	*
Dana W. Kammersgard, Director (9)	224,003	*
Robert T. Clutterbuck, Director (10)	2,549,538	2.5%
Charles Frischer, Director (11)	3,592,469	3.5%
David Harding, Chief Technical Officer (12)	1,096,725	1.1%
David Somerville, Senior Vice President of Sales and Marketing (13)	125,000	*

Total beneficial ownership of directors and Named Executive Officers as a group (12 persons):	53,829,350	52.6%

~~(1)~~	All entries exclude beneficial ownership of shares issuable pursuant to options that have not vested or that are not otherwise exercisable as of the date hereof, or which will not become vested or exercisable within 60 days of March 26, 2019.

~~(2)~~	Percentages are rounded to nearest one-tenth of one percent. Percentages are based on 98,443,632 shares of Common Stock outstanding as of March 26, 2019. Options that are presently exercisable or exercisable within 60 days of March 26, 2019 are deemed to be beneficially owned by the stockholder holding the options for the purpose of computing the percentage ownership of that stockholder, but are not treated as outstanding for the purpose of computing the percentage of any other stockholder.
(5)
~~(3)~~	Includes ~~75,201 shares held jointly with spouse, 1,591,338~~16,216,124 shares issuable upon ~~exercise~~the conversion of ~~stock options, each exercisable within 60 days~~approximately 945.4 shares of ~~March 26, 2019, and 92,603~~Series D Preferred.
(6)	Includes 47,271,012 shares issuable upon the conversion of approximately 2,755.9 shares of Series D Preferred.
(7)	Includes 122,588,336 shares issuable upon the conversion of approximately 7,146.9 shares of Series D Preferred issued in the Series D Financing, of which 3,970 shares of Series D Preferred were received in exchange for 397 shares of Series C Preferred on November 12, 2020.
(8)	Includes 18,790,738 shares issuable upon the conversion of approximately 1,095.5 shares of Series D Preferred.
(9)	Includes 11,792,500 shares issuable upon the conversion of Series A Preferred, ~~and 3,987 shares issuable upon the exercise of warrants.~~

~~(4)~~	~~Includes 159,003 shares issuable upon exercise of stock options exercisable within 60 days of March 26, 2019.~~

~~(5)~~	~~Includes 161,503 shares issuable upon exercise of stock options exercisable within 60 days of March 26, 2019.~~

~~(6)~~	~~Includes 159,003 shares issuable upon exercise of stock options, each exercisable within 60 days of March 26, 2019.~~

~~(7)~~	~~Includes 8,736,142~~11,792,500 shares issuable upon the conversion of Series AA-1 Preferred, ~~and 136,503~~4,006,861 shares issuable upon the conversion of Series D Preferred, and 112,838 shares issuable upon the exercise of ~~stock options, each~~warrants exercisable within 60 days of March ~~26, 2019.~~12, 2021. Mr. Goldman exercises sole voting and dispositive power over ~~33,298,556~~72,158,770 shares, including the aforementioned Series A conversion shares, Series A-1 conversion shares, Series D conversion shares, stock options and warrants, and shared voting and dispositive power over ~~3,147,700~~14,508,777 reported shares, of which 3,000,000 shares are owned by the Goldman Family 2012 GST Trust, 11,361,077 are held in an individual retirement account, and 147,700 shares are ~~owed~~owned by The Neal and Marlene Goldman ~~Foundation, and 376,128 shares issuable upon the exercise of warrants.~~

~~(8)~~	~~Includes 186,503 shares issuable upon exercise of stock options exercisable within 60 days of March 26, 2019.~~

~~(9)~~	~~Includes 138,503 shares issuable upon exercise of stock options exercisable within 60 days of March 26, 2019.~~
	Foundation.
(10)	Includes ~~1,989,107~~25,883,362 shares issuable upon the conversion of 1,509 shares of Series ~~A Preferred~~D Preferred. Tom Y. Lee, G.P. of Plum Investments L.P., may be deemed to hold voting and ~~47,169~~dispositive power over the shares ~~issuable upon exercise of stock options exercisable within 60 days of March 26, 2019, and 85,642 shares issuable upon the exercise of warrants.~~
	identified herein.
(11)	Includes ~~2,875,315~~12,377,358 shares issuable upon the conversion of approximately 721.6 shares of Series ~~A Preferred and 47,169 shares issuable upon exercise of stock options exercisable within 60 days of March 26, 2019, and 123,795~~D Preferred.
(12)	Includes 17,152,659 shares issuable upon the ~~exercise~~conversion of ~~warrants.~~

~~(12)~~	~~Includes 1,046,725~~approximately 1,000 shares ~~issuable upon exercise~~ of ~~stock options exercisable within 60 days of March 26, 2019.~~Series D Preferred.

(13)	I~~ncludes 125,000~~Includes 17,255,575 shares issuable upon ~~exercise~~the conversion of ~~stock options exercisable within 60 days~~approximately 1,006 shares of ~~March 26, 2019.~~ Series D Preferred.

	Fiscal Year Ended		Fiscal Year Ended
	2018	2017	2020	2019

Audit fees	$396,000	$248,000	$291,000	$374,000

Audit-related fees	—	—	—

Tax fees	—	—	—

All other fees	—	—	—

Total Fees	$396,000	$248,000	$291,000	$374,000

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated October 27, 2005 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
3.1		Certificate of Incorporation (incorporated by reference to Annex B to the Company’s Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
3.2		Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed October 14, 2011).
3.3		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed February 16, 2017).
3.4		Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 2, 2015).
3.5		Certificate of Designations, Preferences and Rights of the Series F Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 9, 2016).
3.6		Certificate of Designations, Preferences and Rights of the Series G Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
3.7		Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed December 30, 2016).
3.8		Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 19, 2017).
3.9		Certificate of Elimination of the Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed October 19, 2017).
3.10		Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 13, 2018).
3.11		Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 13, 2018).
3.12		Amendment No. 1 to the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed September 13, 2018).
3.13		Amended and Restated Certificate of Incorporation of ImageWare Systems, Inc., dated November 12, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated November 18, 2020).
3.14		Amended and Restated Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of ImageWare Systems, Inc., dated November 12, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, dated November 18, 2020).
3.15		Amended and Restated Certificate of Designations, Preferences, and Rights of Series A-1 Convertible Preferred Stock of ImageWare Systems, Inc., dated November 12, 2020 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, dated November 18, 2020).
3.16		Amended and Restated Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock of ImageWare Systems, Inc., dated November 12, 2020 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, dated November 18, 2020).
3.17		Certificate of Designations, Preferences, and Rights of Series D Convertible Preferred Stock of ImageWare Systems, Inc., dated November 12, 2020 (incorporated by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K, dated November 18, 2020).

4.2		Form of Warrant, dated September 10, 2018 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed September 13, 2018).
10.1		Employment Agreement, dated September 27, 2005, between the Company and S. James Miller (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 30, 2005).
10.2		Form of Indemnification Agreement entered into by the Company with its directors and executive officers (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form SB-2 (No. 333-93131), filed December 20, 1999, as amended).
10.3		Amended and Restated 1999 Stock Plan Award (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement on Schedule 14A, filed November 21, 2007).
10.4		Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed July 14, 2005).

10.5		2001 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB, filed November 14, 2001).
10.6		Securities Purchase Agreement, dated September 25, 2007, by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 26, 2007).

10.7		Office Space Lease between I.W. Systems Canada Company and GE Canada Real Estate Equity, dated July 25, 2008 (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.8		Form of Securities Purchase Agreement, dated August 29, 2008 by and between the Company and certain accredited investors (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.9		Change of Control and Severance Benefits Agreement, dated September 27, 2008, between Company and Charles Aubuchon (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.10		Change of Control and Severance Benefits Agreement, dated September 27, 2008, between Company and David Harding (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).
10.11		First Amendment to Employment Agreement, dated September 27, 2008, between the Company and S. James Miller (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K, filed February 24, 2010).