Imageware Systems Inc (OTCMKTS:IWSY) Finished The Week In The Red
Imageware Systems Inc (OTCMKTS:IWSY) closed Friday’s trading with a loss of around half a percent and this marked the second red session in a row. Even so, the price is still double compared to what it was just two months ago and that really is shocking.
It’s perplexing because unlike so many penny stocks that seem to make similar moves only when there’s a lot of PR action or a paid pump for them, IWSY seems to be moving along solely because of the trust that investors put in the company. That said, as we wrote in our article from Friday, there seem to be rumors about some sort of promotional coverage running for them, and if they turn out to be true, things could end up in the ditch. You only need to have a look at our latest articles on Petrosonic Energy Inc (OTCMKTS:PSON) and Norstra Energy, Inc (OTCBB:NORX) and you will see exactly what we mean.
It would really be a shame if someone decides that an awareness campaign is due since, if the press releases are to be believed, IWSY do have an interesting piece of technology and they could potentially find a lot of applications for it. They even seem to have a relatively strong financial statement when compared to what we’re used to seeing from most of the penny stocks every day. Here are the figures as found in their latest quarterly report once again:
- cash: $2.2 million
- current assets: $3.2 million
- current liabilities: $3.4 million
- quarterly revenue: $856 thousand
- quarterly net loss: $2.7 million
You can see, however, that while it is better looking than the ones of most small cap ventures, IWSY‘s report is not absolutely spot on. The losses are quite substantial and while $7.6 million in total assets is a respectable figure for a penny stock venture, it’s nowhere near enough to justify the market cap which, when estimated at Friday’s close, amounts to around $155 million.
Another issue that has been plaguing small cap ventures since the beginning of time is that a lot of money is needed in order to be moving in the right direction. Because IWSY have never managed to achieve profitability, they needed to sign numerous financing agreements, sometimes under some pretty woeful conditions.
Back in March, they announced that they have closed a $2.5 million credit line which was extended by an unnamed shareholder and Member of the Board. The full amount is convertible into common stock at a rate of $0.95 per share which is quite a discount when you have in mind that IWSY closed Friday’s session at just under $2.
This could cause quite a lot of dilution in case IWSY don’t manage to start making money out of their software, and if the credit gets converted and then let out on the open market, it could put some pressure on the price which, in turn would disappoint quite a lot of investors.
Another thing that you might want to consider before making your final decision on IWSY is the Schedule 13 form that was published on Friday. It was filed by Mr. Bruce Toll and two funds controlled by him – Bet Funding LLC and Bru Holding Co. LLC. We can see that Mr. Toll owns quite a lot of IWSY stock which was issued to him under a credit facility that was established back in 2009. Of course, we did a quick research on Mr. Toll to see if we will find some more information about him and we saw that he was once named a defendant in a court case against a company called Toll Brothers Inc (NYSE:TOL) where he was acting as Vice Chairman. Apparently some investors weren’t happy with the way Toll Brothers published information and we read in this article that the company eventually settled the dispute by paying the plaintiffs a total of $25 million without admitting any wrongdoings.
All these things might have absolutely no effect on the way IWSY perform in the coming weeks and months, but we reckon that having them in mind is not a bad call. In any case, the volatility of penny stocks is notorious and a correction, even a sharp one, is possible, which is why you should always be sure to weigh the potential risks carefully before making any decisions.
