DESCRIPTION OF BUSINESS AND OPERATIONS

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

DESCRIPTION OF BUSINESS AND OPERATIONS

1. DESCRIPTION OF BUSINESS AND OPERATIONS

Overview 

As used in this Annual Report, “we,” “us,” “our,” “ImageWare,” “ImageWare Systems,” “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 of the products are integrated into the IWS Biometric Engine.

 Recent Developments

   Notice of Allowance

In November 2015, the Company received a notice of allowance from the United States Patent and Trademark Office (“USPTO”) that its U.S. patent application, titled “Multi-Modal Biometric Database Searching Methods,” will be granted.  A notice of allowance from the USPTO is a written notification that a patent application has cleared internal review and will be granted. The patent will represent the Company’s 11th U.S. patent.  Under the patent application, we seek exclusive rights to the search process of comparing multiple modalities, whether it be in a single search method in which all modalities are compared simultaneously, or a multiple search method in which one modality is compared to another and is eventually narrowed down to the matching modal.  Once the patent is granted, it will cover database search and biometric comparison strategies that support both asynchronous and synchronous searches of two or more biometric modalities.

Lines of Credit

In March 2016, the Company and a significant shareholder and member of the Company’s Board of Directors (the “Holder”) entered into a fourth amendment (the “Fourth Amendment”) to an existing unsecured line of credit agreement ("Line of Credit") solely to (i) increase available borrowings under the line of credit) to $5,000,000; (ii) extend the maturity date of the Line of Credit to June 30, 2017, and (iii) provide for the conversion of the outstanding balance due under the terms of the Line of Credit into that number of fully paid and non-assessable shares of the Company’s Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25.

Contemporaneous with the execution of the Fourth Amendment, the Company entered into a new unsecured line of credit (“the 500K Line of Credit”) with available borrowings of up to $500,000 with a second member of the Company’s Board of Directors (the “Second Holder”), which replaced an unsecured line of credit with the Second Holder that terminated in February 2015. Similar to the Fourth Amendment, the unsecured line of credit matures on June 30, 2017, and provides for the conversion of the outstanding balance due under the terms of the line of credit into that number of fully paid and non-assessable shares of the Company’s Common Stock as is equal to the quotient obtained by dividing the outstanding balance by $1.25. Amounts due and payable under the unsecured line of credit accrue interest at the rate of 8% per annum. As of March 15, 2016, no advances were made under the Company’s lines of credit.

Liquidity and Capital Resources

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, product development, 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 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 at a slower rate and, as a result, we will need to generate significant net revenues to achieve and sustain income from operations.

With the February 2015 consummation of the Series E Financing and existing and amended lines of credit borrowing facilities, 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 December 31, 2015 and that we will have sufficient liquidity to fund our business and meet our contractual obligations during the aforementioned period.