ORGANIZATION AND DESCRIPTION OF BUSINESS	9 Months Ended
Sep. 30, 2014
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 market for biometrically enabled software-based identity management solutions. The Company develops mobile and cloud-based identity management solutions providing biometric, secure credential and law enforcement technologies. Our patented biometric product line includes our flagship product, the Biometric Engine®, a hardware and algorithm independent multi-biometric engine that enables the enrollment and management of unlimited population sizes. Our identification products are used to create, issue and manage secure credentials, including national IDs, passports, driver's licenses, smart cards and access control credentials. Our digital booking products provide law enforcement with integrated mug shots, fingerprint live scans, and investigative capabilities. The Company is headquartered in San Diego, CA, with offices in Portland, OR, Washington, D.C., Mexico, and Ottawa, Ontario. Recent Developments Amendment to 1999 Stock Option Plan On July 1, 2014, the Company solicited written consents from its shareholders to approve an amendment to the Company’s 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million, which amendment was approved on July 21, 2014, when the Company received approvals from over 50% of the Company’s stockholders. Settlement of Blue Spike Matter On August 21, 2012, a complaint for patent infringement was filed by Blue Spike, LLC (“Blue Spike”) against the Company in the United States District Court for the Eastern District of Texas, entitled Blue Spike, LLC v. ImageWare Systems, Inc., Case No. 12-cv-688-LED. The four patents-in-suit were related to digital signal abstracting technology (the “Patents”). On October 20, 2014, the Company and Blue Spike entered into a Settlement and License Agreement (the “Settlement Agreement), wherein Blue Spike agreed to release the Company from all present and/or future claims in exchange for the Company’s purchase of a license to the Patents for a one-time $40,000 royalty payment. In connection with the Settlement Agreement and Blue Spike’s release of all claims against the Company, on October 23, 2014, the Court dismissed all claims against the Company with prejudice. Liquidity, Capital Resources and Going Concern Uncertainty These unaudited condensed consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. We do not currently believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months. 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 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 Software-as-a-Service ("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 as a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations. At September 30, 2014, our principal sources of liquidity consisted of cash and cash equivalents of $488,000 and accounts receivable, net of $261,000. As of September 30, 2014, we had negative working capital of $1,631,000, which included $1,995,000 of deferred revenue. We have a history of recurring losses, and as of September 30, 2014, we have incurred a cumulative net loss of approximately $134,320,000. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty. In October and November of 2014, we borrowed an aggregate of $1,000,000 under one of the existing Lines of Credit, as defined in Note 5, “Notes Payable and Lines of Credit” below, for working capital purposes. We currently have remaining available borrowing capacity under the Lines of Credit aggregating $2,500,000. The Lines of Credit expire on March 27, 2015, and all amounts due and payable thereunder are required to be repaid at that time, unless the maturity date is extended or the outstanding balance is converted into shares of common stock at the option of the holder. We do not anticipate that we can generate sufficient cash from operations to repay the amount due under the Lines of Credit before expiration on March 27, 2015. We will therefore need to either extend the maturity date of the Lines of Credit, or raise substantial additional capital through debt or equity financing to continue to execute our business plan. No assurances can be given that any such financing will be available on favorable terms, if at all. The inability to obtain debt or equity financing in a timely manner and in amounts sufficient to fund our operations, or the inability to extend the maturity date of the Lines of Credit would have an immediate and substantial adverse impact on our business, financial condition and results of operations. It also may require us to significantly modify our plan of operations to reduce spending to a sustainable level, which may include delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, research and development projects, regulatory submissions, business development initiatives, and sales and marketing activities.

ORGANIZATION AND DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 30, 2014

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 market for biometrically enabled software-based identity management solutions. The Company develops mobile and cloud-based identity management solutions providing biometric, secure credential and law enforcement technologies. Our patented biometric product line includes our flagship product, the Biometric Engine®, a hardware and algorithm independent multi-biometric engine that enables the enrollment and management of unlimited population sizes. Our identification products are used to create, issue and manage secure credentials, including national IDs, passports, driver's licenses, smart cards and access control credentials. Our digital booking products provide law enforcement with integrated mug shots, fingerprint live scans, and investigative capabilities. The Company is headquartered in San Diego, CA, with offices in Portland, OR, Washington, D.C., Mexico, and Ottawa, Ontario.

Recent Developments

Amendment to 1999 Stock Option Plan

On July 1, 2014, the Company solicited written consents from its shareholders to approve an amendment to the Company’s 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million, which amendment was approved on July 21, 2014, when the Company received approvals from over 50% of the Company’s stockholders.

Settlement of Blue Spike Matter

On August 21, 2012, a complaint for patent infringement was filed by Blue Spike, LLC (“Blue Spike”) against the Company in the United States District Court for the Eastern District of Texas, entitled Blue Spike, LLC v. ImageWare Systems, Inc., Case No. 12-cv-688-LED. The four patents-in-suit were related to digital signal abstracting technology (the “Patents”). On October 20, 2014, the Company and Blue Spike entered into a Settlement and License Agreement (the “Settlement Agreement), wherein Blue Spike agreed to release the Company from all present and/or future claims in exchange for the Company’s purchase of a license to the Patents for a one-time $40,000 royalty payment. In connection with the Settlement Agreement and Blue Spike’s release of all claims against the Company, on October 23, 2014, the Court dismissed all claims against the Company with prejudice.

Liquidity, Capital Resources and Going Concern Uncertainty

These unaudited condensed consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. We do not currently believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months.

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 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 Software-as-a-Service ("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 as a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

At September 30, 2014, our principal sources of liquidity consisted of cash and cash equivalents of $488,000 and accounts receivable, net of $261,000. As of September 30, 2014, we had negative working capital of $1,631,000, which included $1,995,000 of deferred revenue. We have a history of recurring losses, and as of September 30, 2014, we have incurred a cumulative net loss of approximately $134,320,000. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

In October and November of 2014, we borrowed an aggregate of $1,000,000 under one of the existing Lines of Credit, as defined in Note 5, “Notes Payable and Lines of Credit” below, for working capital purposes. We currently have remaining available borrowing capacity under the Lines of Credit aggregating $2,500,000. The Lines of Credit expire on March 27, 2015, and all amounts due and payable thereunder are required to be repaid at that time, unless the maturity date is extended or the outstanding balance is converted into shares of common stock at the option of the holder.

We do not anticipate that we can generate sufficient cash from operations to repay the amount due under the Lines of Credit before expiration on March 27, 2015. We will therefore need to either extend the maturity date of the Lines of Credit, or raise substantial additional capital through debt or equity financing to continue to execute our business plan. No assurances can be given that any such financing will be available on favorable terms, if at all. The inability to obtain debt or equity financing in a timely manner and in amounts sufficient to fund our operations, or the inability to extend the maturity date of the Lines of Credit would have an immediate and substantial adverse impact on our business, financial condition and results of operations. It also may require us to significantly modify our plan of operations to reduce spending to a sustainable level, which may include delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, research and development projects, regulatory submissions, business development initiatives, and sales and marketing activities.