10-K/A 1 form10kamarch05.txt PHOTOWORKS 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended SEPTEMBER 25, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file No. 0-15338 PHOTOWORKS, INC. (Exact name of registrant as specified in its charter) Washington 91-0964899 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 1260 16th Avenue West, Seattle, WA 98119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 281-1390 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share and related preferred share purchase rights. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes: [ ] No: [ X ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: [ ] No: [ X ] As of March 27, 2004 the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was $4,534,935 based on the last sale price of the Registrant's Common Stock as reported by the Over the Counter Bulletin Board Market. As of December 23, 2004, there were issued and outstanding 18,228,875 shares of Common Stock, par value $.01 per share. 1 PART III ITEM 10. Directors and Executive Officers of the Registrant. Information on the Company's executive officers can be found in Part I, "Business", of the Form 10-K. The Board of Directors of the Company currently consists of five directors classified into three classes. The table below sets forth the name, age, class and expiration of the term of the current Board of Directors. --------------------------------------- ----------------- ---------------- -------------------------------------- Name Age Class Expiration of Term --------------------------------------- ----------------- ---------------- -------------------------------------- --------------------------------------- ----------------- ---------------- -------------------------------------- Paul B. Goodrich 59 I 2007 --------------------------------------- ----------------- ---------------- -------------------------------------- --------------------------------------- ----------------- ---------------- -------------------------------------- Ross K. Chapin 52 I 2007 --------------------------------------- ----------------- ---------------- -------------------------------------- --------------------------------------- ----------------- ---------------- -------------------------------------- Philippe Sanchez 41 I 2007 --------------------------------------- ----------------- ---------------- -------------------------------------- --------------------------------------- ----------------- ---------------- -------------------------------------- Mark Kalow 49 II 2005 --------------------------------------- ----------------- ---------------- -------------------------------------- --------------------------------------- ----------------- ---------------- -------------------------------------- Matthew A. Kursh 40 III 2006 --------------------------------------- ----------------- ---------------- -------------------------------------- Philippe Sanchez has been the President and Chief Operating Officer since October 2003. From 2001 to 2003, Mr. Sanchez was senior Vice President of Marketing at Getty Images, a leading imagery company, where he managed worldwide strategic brand initiatives. From 1995 to 2001, Mr. Sanchez worked for Nike, Inc. serving in various general management, product marketing and merchandising roles in Europe, Asia and the Americas. From 1993 to 1995, Mr. Sanchez served as a licensing manager for Disney's Consumer Products Europe and Middle East out of the company's European headquarters in Paris. Ross K. Chapin became a director in February 2000. Mr. Chapin is a principal with Orca Bay Partners, a private equity investment firm headquartered in Seattle, Washington, which he co-founded in 1998. Prior to Orca Bay, he was a founder of Capstan Partners, a Seattle-based management buyout firm. In addition to being a principal investor, he has experience with Ragen MacKenzie and Paine Webber as an investment banker. Mr. Chapin is currently serving as Chairman of 1838 Investment Advisors and sits on the boards of Flow Solutions, Inc., Skeletech, Inc., Parametric Portfolio Associates L.L.C., EnvestNetPMC, Inc., and Andover Acquisition Co., L.L.C. Paul B. Goodrich became a director in February 2000. Mr. Goodrich is a Managing Director of Madrona Venture Group, L.L.C., an early-stage venture capital firm focused on the Internet economy in the Northwest. Mr. Goodrich was formerly the Seattle Partner for a Chicago-based venture capital firm and a Partner with Perkins Coie, a Seattle law firm. He is a director of Sharebuilder Corporation. Matthew A. Kursh became a director of the Company in April 2000. Mr. Kursh started his career as president and co-founder of Clearview Software, which he sold to Apple Computer in 1989. Mr. Kursh then co-founded and was CEO of eShop Corporation, one of the first companies to offer platforms and services for online shopping. eShop's customers included such leading companies as AT&T, Tower Records, Spiegel, 1-800-Flowers and Good Guys. eShop was later acquired by Microsoft where Mr. Kursh ran Sidewalk, HomeAdvisor and MSN.com. Mr. Kursh left Microsoft in 1999 to focus on creative projects and work with start-up companies. 2 Mark L. Kalow became a director of the Company in May 2004. Mr. Kalow co-founded and served as COO and CFO at Live Picture, Inc. in 1993. He also served as Interim CEO to sell Live Picture to MGI Software (transaction closed in June 1999). More recently, Mr. Kalow co-managed the U.S. venture capital activities of a major Japanese strategic software and services investor, Trans Cosmos USA. His experience also includes management positions in finance, product management and marketing at IBM, and as vice president of telecommunications for two years at Chase Manhattan Bank. Mr. Kalow also serves on the board and Audit Committee of ACD Systems, a publicly traded company on the Toronto Stock Exchange. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires directors, certain officers and greater-than-10% shareholders ("Reporting Persons") of all publicly-held companies to file certain reports ("Section 16 Reports") with respect to beneficial ownership of such companies' equity securities. Based solely on its review of the Section 16 Reports furnished to the Company by its Reporting Persons and, where applicable, any written representation by them that no Form 5 was required, all Section 16(a) filing requirements applicable to the Company's Reporting Persons during and with respect to fiscal 2004 have been complied with on a timely basis, except that Mr. Sanchez was one day late in filing a Report on Form 4 relating to a stock option grant on October 17, 2003. Code of Ethics We have adopted the PhotoWorks Finance Code of Professional Conduct (the code of ethics for senior financial officers), a code of ethics that applies to our Chief Executive Officer, Chief Accounting Officer and Controller. A copy of the Code of Professional Conduct may be obtained without charge from the Company by request to Linda Clay at the Company's offices. Information Regarding the Company's Audit Committee The Board of Directors has an Audit Committee which consists of Messrs. Chapin and Kalow. As defined by the rules of the Nasdaq Stock Market, Mr. Kalow is an independent director. Mr. Chapin is not independent due to his position with Orca Bay Partners, L.L.C., an affiliate of the Company. The Board of Directors has determined that Mr. Kalow is an audit committee financial expert as defined by the rules of the Securities and Exchange Commission. ITEM 11. Executive Compensation. The following table sets forth certain information concerning the compensation paid by the Company for services rendered during fiscal years 2004, 2003 and 2002 to any person who served as Chief Executive Officer during fiscal 2004, and executive officers of the Company whose total salary and bonus exceeded $100,000 in fiscal 2004 (the "Named Executive Officers"): 3 Summary Compensation Table Annual Long-term Compensation Compensation Awards ------------------------ ---------------------- ----------- ------------ ---------------------- Name and Fiscal Salary Bonus Securities All Other Principal Position Year Underlying Options Compensation(1) ------------------------------- --------- -- ----------- ------------ -- ---------------------- -------------------- Philippe Sanchez (2) 2004 $209,540 $ 0 1,000,000 $2,029 President/CEO, and Director Gary R. Christophersen (3) 2004 $153,748 $ 0 11,250 $ 270 2003 175,099 43,470 45,000 9,693 2002 150,630 56,182 125,000 7,499 Michael F. Lass 2004 $162,310 $ 0 0 $1,622 Vice President- Operations 2003 175,362 36,450 45,000 7,123 2002 175,304 62,637 125,000 6,646 Loran Cashmore Bond 2004 $118,742 $ 0 0 $1,200 Vice 2003 126,621 21,060 35,000 7,622 President-Administration 2002 125,239 31,675 75,000 6,511 Secretary/Treasurer ___________________________ (1) These amounts represent Company contributions to the PhotoWorks 401(k) Plan and payments for term life insurance, short and long-term disability insurance. (2) Mr. Sanchez was appointed President/CEO and Director on October 20, 2003. (3) Mr. Christophersen resigned as President/CEO in October 2003. Employment Agreements The Company and Mr. Philippe Sanchez are parties to an employment agreement dated October 3, 2003 (the "agreement"). Under terms of the agreement, Mr. Sanchez will receive a base annual salary of $225,000. Upon certain conditions, Mr. Sanchez's salary will increase to $300,000 per year. Mr. Sanchez will also participate in a performance bonus program of up to 60% of base salary. The performance bonus plan provides financial incentives based on the Company's results compared to financial and other metrics established by the Compensation Committee and approved by the Board of Directors. As a hiring incentive, Mr. Sanchez received a stock option grant of 750,000 shares of Common Stock at an exercise price equal to the fair market value of the shares on the date the option was granted with a vesting period equal to four years. In addition, Mr. Sanchez received a stock option grant for 250,000 shares of Common Stock at an exercise price of $0.01. These shares vested in full at the one-year anniversary of the grant date. Vesting of the stock options is subject to continued employment with PhotoWorks. Vesting may accelerate in certain instances. Option Grants in Last Fiscal Year The Company has stock option plans pursuant to which options to purchase Common Stock are granted to officers and key employees of the Company. The following tables show stock option grants 4 and exercises pertaining to the named Executive Officers of the Company during fiscal 2004, and the year-end potential realizable value of all their outstanding options. The vesting of options may be accelerated at the discretion of the administrator of the option plans. Individual Options Granted ------------------------------------------- Potential Realizable Number of % of Total Value at Assumed Securities Options Annual Rates of Stock Underlying Granted to Price Appreciation For Options Employees in Exercise Expiration Exercise Expiration (3) Granted (1) Fiscal Year Price (2) Date __________________________ 5% 10% ----------------------------------------------------------------------------------------------------------------- Philippe Sanchez 750,000 $40.54 $.55 10/17/2010 $167,929 $391,346 250,000 $13.51 $.01 10/28/2010 $243,743 $338,525 Gary R. Christophersen 11,250 $ .61 $.41 05/12/2005 $ 231 $ 461 Michael F. Lass 0 Loran Cashmore Bond 0 ____________________________ (1) The Company's stock option plans are administered by the Compensation Committee of the Board of Directors, which determines to whom options are granted, the number of shares subject to each option, the vesting schedule and the exercise price. The 750,000 options granted to Mr. Sanchez in fiscal year 2004 vest in equal annual installments over four years. The 250,000 options granted to Mr. Sanchez vest in full at the one-year anniversary of the grant date. Options granted to Mr. Christophersen for his services as a Director vested on September 25, 2004. Options granted to officers or directors of the Company from the Company's 1999 Stock Incentive Compensation Plan may be exercised for a period of three months following termination of employment. (2) Options are generally granted with an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. The exercise price may be paid by delivery of shares already owned by the option holder with a market value equal to the aggregate exercise price. With the permission of the Compensation Committee, the exercise price may also be paid by withholding shares that would otherwise be received by the option holder. (3) Potential realizable value is based on the assumption that the stock price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the five year option term. These values are calculated based upon requirements of the Securities and Exchange Commission and do not reflect the Company's estimate or projection of future stock price performance. The actual value realized may be greater or less than the realizable value set forth in this table. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values The following table sets forth certain information as of September 25, 2004, regarding options to purchase Common Stock held as of September 25, 2004, by each of the Named Executive Officers, as well as the exercise of such options during the fiscal year ended September 25, 2004. In addition, the following table reports the values for in-the-money options, which values represent the positive spread between the exercise price of such options and the fair market value of the Company's Common Stock as of September 25, 2004. 5 Shares Number of Securities Acquired Value Underlying Unexercised Value of Unexercised Upon Realized Options at September 25, In-the-Money Options at Exercise (1) 2004 (2) September 25, 2004 (3) ------------------------------ ------------ ----------- ------------------------------ ------------------------------- Exercisable Unexercisable Exercisable Unexercisable ------------------------------ ------------ ----------- -------------- ---------------- --- -------------- ---------------- Philippe Sanchez 0 $0 0 1,000,000 $ 0 $95,000 Gary R. Christophersen 0 $0 168,333 82,917 $26,325 $18,900 Michael F. Lass 0 $0 258,020 91,980 $26,325 $18,900 Loran Cashmore Bond 0 $0 136,667 53,333 $16,475 $12,700 ____________________________ (1) Value realized is calculated by subtracting the exercise price of the option from the market value of a share of the Company's Common Stock on the date of exercise and multiplying the difference thereof by the number of shares purchased. (2) Future exercisability is subject to vesting and the option holder remaining employed by the Company. (3) Value is calculated by subtracting the exercise price of the option from the market value of a share of the Company's Common Stock as reported on the Over The Counter Bulletin Board (OTCBB) on September 24, 2004 and multiplying the difference thereof by the number of shares. Compensation Committee Interlocks and Insider Participation During the fiscal year ended September 25, 2004, the Compensation Committee consisted of Messrs. Goodrich, Kursh and Swerland. None of these individuals has served at any time as an officer or employee of the Company or is an executive officer at any company where an executive officer of the Company serves on the Compensation Committee. Mr. Swerland resigned from the Board on November 18, 2004. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information, as of January 28, 2005, with respect to all shareholders known by the Company who beneficially own more than five percent (5%) of the Company's Common Stock and of the Series A Preferred Stock. Except as noted below, each person or entity has sole voting and investment power with respect to the shares shown. Amount and Nature Percent of Name and Address of Beneficial Ownership Class Common Stock Robert A. Simms (1) 1,137,144 6.8% 55 Railroad Avenue Greenwhich, CT 06830 Gary R. Christophersen (2) 1,644,053 8.9% 1260 16th Avenue West Seattle, WA 98119 6 Amount and Nature Percent of Name and Address of Beneficial Ownership Class Matinicus LP (3) 3,373,533 17.1% 225 West 34th Street, Suite 910 New York, NY 10122 Series A Preferred Stock The Tahoma Fund, L.L.C. (4) 10,000 67% Orca Bay Capital Corporation Orca Bay Partners, L.L.C. Tim Carver and Alexa Carver Stanley McCammon John E. McCaw, Jr. Ross Chapin P.O. Box 21749 Seattle, WA 98111 Madrona Venture Fund I-A, L.P. (5) 5,000 33% Madrona Venture Fund I-B, L.P. Madrona Managing Director Fund L.L.C. Madrona Investment Partners L.L.C. Paul Goodrich 1000 2nd Avenue - Suite 3700 Seattle, WA 98104 (1) The holding shown is as reported by Robert A. Simms ("Simms") in a Schedule 13D filed January 16, 2002 by Simms pursuant to Rule 13d-1 under the Exchange Act. (2) Includes options to purchase 151,250 shares of Common Stock granted under the Company's stock option plans which are currently exercisable or exercisable within 60 days of January 28, 2005. (3) Includes Subordinated Convertible Debentures that are convertible to 3,002,533 shares of Series B Preferred Stock, $0.01 par value with a stated value of $75 per share ("Series B Preferred Stock"). Series B Preferred Stock is convertible into common stock, $0.01 par value ("Common Stock") at a current conversion price of $.736 per share of Common Stock, subject to anti-dilution protection. (4) The holding shown is as reported by Orca Bay Partners, L.L.C., ("Orca Bay") in a Schedule 13G filed February 24, 2000. Orca Bay is the Manager of The Tahoma Fund, L.L.C., ("Tahoma"). Orca Bay Capital Corporation ("OBCC"), Tim and Alexa Carver ("Carver"), Stanley McCammon ("McCammon"), John E. McCaw, Jr. ("McCaw"), and Ross Chapin ("Chapin") are all affiliates of Orca Bay. The schedule 13G relates to shares of Series A Preferred Stock. Each share of Series A Preferred Stock is convertible into shares of Common 7 Stock of the Company at an initial conversion price of $210.526 per share of Common Stock, subject to anti-dilution protection. The total Common Stock covered by the Schedule 13G, when converted, equals 2,105,261 shares, or 10.3% of the Common Stock, based on 18,236,875 shares outstanding as of January 28, 2005. (5) The holding shown is as reported by Madrona Investment Partners, L.L.C., ("Madrona") in a Schedule 13G filed February 24, 2000. Madrona is the Manager of the Madrona Venture Fund I-A, L.P. ("Fund I-A"), Madrona Venture Fund I-B, L.P. ("Fund I-B"), Madrona Managing Director Fund, L.L.C. ("Director LLC"), and Paul Goodrich ("Goodrich"). The schedule 13G relates to shares of Series A Preferred Stock. Each share of Series A Preferred Stock is convertible into shares of Common Stock of the Company at an initial conversion price of $210.526 per share of Common Stock, subject to anti-dilution protection. The total Common Stock covered by the Schedule 13G, when converted, equals 1,052,631 shares, or 5.8% of the Common Stock, based on 18,236,875 shares outstanding as of January 28, 2005. The following chart indicates ownership of the Company's Common Stock by each director of the Company, each executive officer named in the compensation tables, and by all directors and executive officers as a group, all as of January 28, 2005. Amount and Nature of Beneficial Percent of Directors: Age Ownership Class Philippe Sanchez(1) 41 484,375 2.6 Ross K. Chapin (2) 52 128,750 * Paul B. Goodrich (3) 59 128,750 * Matthew A. Kursh (4) 40 367,500 2.0 Mark L. Kalow 49 0 * Additional Named Executives: Michael F. Lass (5) 50 647,073 3.5 Loran Cashmore Bond (6) 48 245,257 1.3 All current directors and named executive officers as a group (7 persons) (7) 2,001,705 10.1 ____________________________ * Percent of class is less than 1% (1) Includes options to purchase 484,375 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. 8 (2) Includes options to purchase 128,750 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. Does not include 2,105,261 common stock equivalents related to preferred stock owned by The Tahoma Fund L.L.C. listed above under "Voting Securities and Principal Holders", for which Mr. Chapin has shared beneficial ownership as an affiliate of the manager of the Fund. (3) Includes options to purchase 128,750 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. Does not include 1,052,631 common stock equivalents related to preferred stock owned by Madrona Investment Partners, L.L.C. listed above under "Voting Securities and Principal Holders", for which Mr. Goodrich has shared beneficial ownership as an affiliate of the manager of the Limited Liability Company. (4) Includes options to purchase 367,500 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. (5) Includes options to purchase 320,000 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. (6) Includes options to purchase 158,333 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. (7) Includes options to purchase 1,587,708 shares of Common Stock which are currently exercisable or exercisable within 60 days of January 28, 2005. Equity Compensation Plan Information (at September 25, 2004) In millions (except per share amounts) Number of securities to Weighted-average Number of securities be issued upon exercise price remaining available for exercise of outstanding of outstanding future issuance under options, warrants options, equity compensation Plan category and rights warrants and plans (excluding securities rights reflected in column (a)) --------------------------- --------- ------------------------------- (a) (b) (c) Equity compensation plans approved by security holders 2,722,867 $1.29 541,639 Equity compensation plans not approved by security holders 1,377,098 $.77 140,813 --------------------------- --------- ------------------------------- Total 4,099,965 1.12 682,452 =========================== =============================== 1999 Employee Stock Option Plan. In October 1999, the Company's board of directors adopted the 1999 Employee Stock Option Plan, or 1999 Employee Plan, which provides for discretionary grants of non-qualified stock options to non-officer employees and other service providers. A total of 800,000 shares of common stock have been reserved for issuance under the 1999 Employee Plan. As of September 25, 2004 there were options to purchase 627,098 shares outstanding and 140,813 shares available for awards under the 1999 Employee Plan. 9 For fiscal 2004, all options under the 1999 Employee Plan expire between five and seven years from the grant date and each option has an exercise price of not less than the fair market value of the Company's stock on the date the option is granted. The options granted under the 1999 Employee Plan generally vest over three to four years. In the event of termination of an optionee's employment with the Company, vesting of options will stop and the optionee may exercise vested options for a specified period of time after the termination. Upon certain changes in control of the Company, options may vest as determined by the Plan Administrator, or unless the acquiring company assumes the options or substitutes with comparable options. Option Grant-Philippe Sanchez. On October 17, 2003, the Company's board of directors granted 750,000 options as a one-time grant to recruit the Company's President and Chief Executive Officer. The options granted to Mr. Sanchez vest over four years and expire seven years from the grant date. The option has an exercise price of $.55 which was the fair market value of the Company's stock on the date the option was granted. In the event of termination of an optionee's employment with the Company, vesting of options will stop and the optionee may exercise vested options for a specified period of time after the termination. Upon certain changes in control of the Company, options may vest as determined by the Plan Administrator. ITEM 13. Certain Relationships and Related Transactions. The Company and Mr. Lass and Ms. Cashmore Bond have entered into a change of control agreement to ensure that the Company will have the continued dedication of the executive, notwithstanding the possibility, threat or occurrence of a Change of Control. In the event of the termination of the executive's employment following a change in control for a reason other than cause or the executive's resignation for good reason, the executive shall be entitled to severance payment equal to one half (50%) of the executive's annual base salary for the fiscal year in which the termination occurs. In addition, the Company and Mr. Lass and Ms. Cashmore Bond entered into an employment and severance agreement to ensure that the Company would have the continued dedication of the executive subsequent to the hiring of Mr. Philippe Sanchez as President and CEO. In the event of the termination of the executive's employment for a reason other than cause or the executive's resignation for good reason, the executive would be entitled to a severance payment equal to one half (50%) of the executive's base salary as of October 2003. These agreement expired on October 20, 2004. The Company and Mr. Sanchez have entered into an employment agreement as more fully described under "Employment Agreements". ITEM 14. Principal Accountant Fees and Services The following table presents the fees for services rendered by Ernst & Young LLP during fiscal 2004. Audit fees...................................................$168,000 Audit-related fees...........................................$ 2,500 Tax fees.....................................................$ 76,630 All other fees...............................................$ 0 The Audit Committee did consider whether the provision of non-audit services is compatible with the principal accountants' independence and concluded that the provision of other non-audit services has been compatible with maintaining the independence of the Company's external auditors. All services provided by Ernst & Young LLP to the Company must be pre-approved by the Audit Committee or a designated member of the Audit Committee. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHOTOWORKS, INC. (REGISTRANT) DATED: March 2, 2005 By: /s/ Philippe Sanchez Philippe Sanchez President and Chief Executive Officer (Principal Executive Officer) 11 EXHIBIT 31.1 CERTIFICATION I, Philippe Sanchez, certify that: 1. I have reviewed this annual report on Form 10K/A of PhotoWorks, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 2, 2005 /s/ PHILIPPE SANCHEZ Philippe Sanchez Chief Executive Officer and President 12 EXHIBIT 31.2 CERTIFICATION I, Loran Cashmore Bond, certify that: 1. I have reviewed this annual report on Form 10K/A of PhotoWorks, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 2, 2005 /s/ Loran Cashmore Bond Loran Cashmore Bond Chief Accounting Officer 13 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of PhotoWorks, Inc. (the "Company") on Form 10-K/A for the period ending September 25, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philippe Sanchez, Chief Executive Officer of the Company, and Loran Cashmore Bond, Chief Accounting Officer certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, as of the date hereof, to the best of our knowledge and belief: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the stated periods. Signature: /s/ Philippe Sanchez Signature: /s/ Loran Cashmore Bond Philippe Sanchez Loran Cashmore Bond Chief Executive Officer Chief Accounting Officer Dated: March 2, 2005 Dated: March 2, 2005