ORGANIZATION AND DESCRIPTION OF BUSINESS	6 Months Ended
Jun. 30, 2013
Notes to Financial Statements
Note 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS	Overview ImageWare Systems, Inc. (the “Company”) 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 of the products are integrated into the IWS Biometric Engine. Recent Developments Liquidity and Capital Resources On May 22, 2013, the Securities and Exchange Commission declared effective the Post-Effective Amendment to the Registration Statement on S-1, filed by the Company on May 20, 2013 (file no. 333-179469) (the “Amended S-1”). The Amended S-1 updates, among other things, the plan of distribution to allow certain existing shareholders to sell certain shares of the Company’s common stock and shares of common stock issuable upon exercise of warrants (the “Securities”) at market prices. The Registration Statement on S-1 originally filed by the Company and declared effective by the SEC on May 10, 2012 (the “Original S-1”) only allowed these shareholders to sell the Securities at a fixed price. Following the effectiveness of the Amended S-1 on May 22, 2013 and through the six months ended June 30, 2013, the Company issued 275,000 shares of its common stock and received net proceeds of approximately $137,000 from the exercise of warrants exercisable for shares registered by the Amended S-1. Subsequent to June 30, 2013, the Company issued an additional 2,525,000 shares of its common stock and received net proceeds of approximately $1,263,000 from the exercise of warrants exercisable for shares registered by the Amended S-1. In March 2013, the Company entered into a new unsecured line of credit agreement with available borrowing of up to $2.5 million. The credit line was extended by an existing shareholder and member of our Board of Directors. Borrowings under the credit facility bear interest of 8% per annum and are due in March 2015 (the “Maturity Date”). At any time prior to the Maturity Date, the holder shall have the right to convert the outstanding balance owed into shares of the Company’s common stock by dividing the outstanding balance by $0.95. Advances under the credit facility are made at the Company’s request. The line of credit shall terminate, and no further advances shall be made, upon the earlier of the Maturity Date or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $2.5 million. In the event of such financing, the outstanding balance under the terms of this note shall be due and payable upon demand. As additional consideration for the unsecured line of credit agreement, the Company issued to the holder a warrant exercisable for 1,052,632 shares of the Company’s common stock. The warrant has a term of two years from the date of issuance and an exercise price of $0.95 per share. As of June 30, 2013, no advances were made under the unsecured line of credit agreement. 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. Our principal uses of cash have included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. 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. We expect that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations. Management believes that the Company’s current cash and cash equivalents will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months from the date of this filing.

ORGANIZATION AND DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2013

Note 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Overview

ImageWare Systems, Inc. (the “Company”) 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 of the products are integrated into the IWS Biometric Engine.

Recent Developments

Liquidity and Capital Resources

On May 22, 2013, the Securities and Exchange Commission declared effective the Post-Effective Amendment to the Registration Statement on S-1, filed by the Company on May 20, 2013 (file no. 333-179469) (the “Amended S-1”). The Amended S-1 updates, among other things, the plan of distribution to allow certain existing shareholders to sell certain shares of the Company’s common stock and shares of common stock issuable upon exercise of warrants (the “Securities”) at market prices. The Registration Statement on S-1 originally filed by the Company and declared effective by the SEC on May 10, 2012 (the “Original S-1”) only allowed these shareholders to sell the Securities at a fixed price.

Following the effectiveness of the Amended S-1 on May 22, 2013 and through the six months ended June 30, 2013, the Company issued 275,000 shares of its common stock and received net proceeds of approximately $137,000 from the exercise of warrants exercisable for shares registered by the Amended S-1. Subsequent to June 30, 2013, the Company issued an additional 2,525,000 shares of its common stock and received net proceeds of approximately $1,263,000 from the exercise of warrants exercisable for shares registered by the Amended S-1.

In March 2013, the Company entered into a new unsecured line of credit agreement with available borrowing of up to $2.5 million. The credit line was extended by an existing shareholder and member of our Board of Directors. Borrowings under the credit facility bear interest of 8% per annum and are due in March 2015 (the “Maturity Date”). At any time prior to the Maturity Date, the holder shall have the right to convert the outstanding balance owed into shares of the Company’s common stock by dividing the outstanding balance by $0.95.

Advances under the credit facility are made at the Company’s request. The line of credit shall terminate, and no further advances shall be made, upon the earlier of the Maturity Date or such date that the Company consummates a debt and/or equity financing resulting in net proceeds to the Company of at least $2.5 million. In the event of such financing, the outstanding balance under the terms of this note shall be due and payable upon demand.

As additional consideration for the unsecured line of credit agreement, the Company issued to the holder a warrant exercisable for 1,052,632 shares of the Company’s common stock. The warrant has a term of two years from the date of issuance and an exercise price of $0.95 per share.

As of June 30, 2013, no advances were made under the unsecured line of credit agreement.

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. Our principal uses of cash have included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. 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. We expect that, as our revenues grow, our sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

Management believes that the Company’s current cash and cash equivalents will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months from the date of this filing.