ImageWare Systems (IWSY) 10-Q 19 Aug 20 2020 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 12, 2020
Cover [Abstract]
Entity Registrant Name	IMAGEWARE SYSTEMS INC
Entity Central Index Key	0000941685
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Interactive Data Current	Yes
Entity Incorporation, State or Country Code	DE
Entity File Number	001-15757
Entity Common Stock, Shares Outstanding		0
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current Assets:
Cash and cash equivalents	$ 431	$ 1,030
Accounts receivable, net of allowance for doubtful accounts of $7 at June 30, 2020 and December 31, 2019.	578	657
Inventory, net	697	615
Other current assets	148	243
Total current assets	1,854	2,545
Property and equipment, net	184	216
Other assets	557	257
Operating lease right-of-use assets	1,738	1,906
Intangible assets, net of accumulated amortization	64	70
Goodwill	3,416	3,416
Total assets	7,813	8,410
Current Liabilities:
Accounts payable	1,029	515
Deferred revenue	1,754	1,629
Accrued expenses	3,668	1,312
Notes payable to related parties	900	0
Operating lease liabilities, current portion	401	373
Note payable - bank, current portion	517	0
Derivative liabilities	535	369
Total current liabilities	8,804	4,198
Other long-term liabilities	118	118
Note payable - bank, net of currentportion	1,054	0
Lease liabilities, net of current portion	1,513	1,716
Pension obligation	2,311	2,256
Total liabilities	13,800	8,288
Mezzanine Equity:
Series C Convertible Redeemable Preferred Stock, $0.01 par value, designated 1,000 shares, 1,000 shares issued and outstanding at June 30, 2020 (unaudited) and December 31, 2019, respectively; liquidation preference $10,500 at June 30, 2020 (unaudited) and $10,000 at December 31, 2019.	9,231	8,884
Shareholders' Deficit:
Common Stock, $0.01 par value, 345,000,000 and 175,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 129,041,871 and 113,353,176 shares issued at June 30, 2020 (unaudited) and December 31, 2019, respectively, and 129,035,167 and 113,346,472 shares outstanding at June 30, 2020 (unaudited) and December 31, 2019, respectively.	1,290	1,133
Additional paid in capital	196,924	195,079
Treasury stock, at cost 6,704 shares	(64)	(64)
Accumulated other comprehensive loss	(1,774)	(1,741)
Accumulated deficit	(211,596)	(203,171)
Total shareholders' deficit	(15,218)	(8,762)
Total liabilities, mezzanine equity and shareholders' deficit	7,813	8,410
Series A Preferred Stock
Shareholders' Deficit:
Preferred stock	0	0
Series B Preferred Stock
Shareholders' Deficit:
Preferred stock	$ 2	$ 2

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current Assets:
Accounts receivable, net of allowance for doubtful accounts	$ 7	$ 7
Shareholders' deficit:
Preferred stock, shares authorized	4,000,000	4,000,000
Common stock, par value	$ .01	$ 0.01
Common stock, shares authorized	345,000,000	175,000,000
Common stock, shares issued	129,041,871	113,353,176
Common stock, shares outstanding	129,035,167	113,346,472
Treasury stock, shares	6,704	6,704
Mezzanine Preferred Stock
Shareholders' deficit:
Preferred stock, par value	$ .01	$ .01
Preferred stock, shares authorized	1,000	1,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares outstanding	1,000	1,000
Preferred stock, liquidation preference	$ 10,500	$ 10,000
Series A Preferred Stock
Shareholders' deficit:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	38,000	38,000
Preferred stock, shares issued	37,467	37,467
Preferred stock, shares outstanding	37,467	37,467
Preferred stock, liquidation preference	$ 39,340	$ 37,467
Series B Preferred Stock
Shareholders' deficit:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	750,000	750,000
Preferred stock, shares issued	389,400	389,400
Preferred stock, shares outstanding	239,400	239,400
Preferred stock, liquidation preference	$ 607	$ 607

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues	$ 733	$ 812	$ 1,529	$ 1,743
Cost of revenue	154	140	270	343
Gross profit	579	672	1,259	1,400
Operating expense:
General and administrative	939	894	1,922	2,001
Sales and marketing	566	934	1,624	1,939
Research and development	1,517	1,840	3,388	3,614
Depreciation and amortization	18	17	36	36
Total	3,040	3,685	6,970	7,590
Loss from operations	(2,461)	(3,013)	(5,711)	(6,190)
Interest expense (income), net	51	(31)	75	(53)
Other expense	0	(1)	0	(1)
Change in fair value of derivative liabilities	363	(481)	166	(57)
Other components of net periodic pension expense	27	45	75	78
Loss before income taxes	(2,902)	(2,547)	(6,027)	(6,159)
Income tax expense	0	1		1
Net loss	(2,902)	(2,548)	(6,027)	(6,160)
Preferred dividends, deemed dividend accretion	(1,372)	(1,374)	(2,746)	(2,668)
Net loss available to common shareholders	$ (4,274)	$ (3,922)	$ (8,773)	$ (8,828)
Basic income and diluted loss per common share - see Note 3:
Basic and diluted loss per share available to common shareholders	$ (0.03)	$ (0.04)	$ (0.07)	$ (0.09)
Basic and diluted weighted-average shares outstanding	127,065,608	103,431,623	121,630,902	100,928,835
Product
Revenues	$ 121	$ 160	$ 272	$ 438
Cost of revenue	47	34	65	117
Maintenance
Revenues	612	652	1,257	1,305
Cost of revenue	$ 107	$ 106	$ 205	$ 226

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Other Comprehensive Income [Abstract]
Net loss	$ (2,902)	$ (2,548)	$ (6,027)	$ (6,160)
Other comprehensive income (loss):
Foreign currency translation adjustment	(64)	(20)	(33)	(5)
Comprehensive loss	$ (2,966)	$ (2,568)	$ (6,060)	$ (6,165)

CONSOLIDATED STATEMENTS OF SHAR

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT - USD ($) $ in Thousands	Series A Preferred Stock	Series B Preferred Stock	Common Stock	Treasury Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total
Beginning balance, shares at Dec. 31, 2018	37,467	239,400	98,230,336	(6,704)
Beginning balance, amount at Dec. 31, 2018	$ 0	$ 2	$ 981	$ (64)	$ 184,130	$ (1,428)	$ (186,648)	$ (3,027)
Accretion of preferred stock discount					(186)			(186)
Issuance of common stock pursuant to option exercises, shares			286,834
Issuance of common stock pursuant to option exercises, amount			$ 3		103			106
Stock-based compensation expense					166			166
Common stock issued in exchange for unexercised options, amount								0
Foreign currency translation adjustment						15		15
Dividends on Series A preferred stock, shares			591,803
Dividends on Series A preferred stock, amount			$ 6		858		(864)	0
Dividends on Series C preferred stock, shares			157,945
Dividends on Series C preferred stock, amount			$ 2		229		(231)	0
Net loss							(3,612)	(3,612)
Ending balance, shares at Mar. 31, 2019	37,467	239,400	99,266,918	(6,704)
Ending balance, amount at Mar. 31, 2019	$ 0	$ 2	$ 992	$ (64)	185,300	(1,413)	(191,355)	(6,538)
Beginning balance, shares at Dec. 31, 2018	37,467	239,400	98,230,336	(6,704)
Beginning balance, amount at Dec. 31, 2018	$ 0	$ 2	$ 981	$ (64)	184,130	(1,428)	(186,648)	(3,027)
Accretion of preferred stock discount								(370)
Stock-based compensation expense								347
Net loss								(6,160)
Ending balance, shares at Jun. 30, 2019	37,467	239,400	106,552,389	(6,704)
Ending balance, amount at Jun. 30, 2019	$ 0	$ 2	$ 1,065	$ (64)	192,565	(1,433)	(195,107)	(2,972)
Beginning balance, shares at Mar. 31, 2019	37,467	239,400	99,266,918	(6,704)
Beginning balance, amount at Mar. 31, 2019	$ 0	$ 2	$ 992	$ (64)	185,300	(1,413)	(191,355)	(6,538)
Accretion of preferred stock discount					$ (184)			$ (184)
Issuance of common stock net of stock issuance costs, shares			5,954,545		6,035			6,095
Issuance of common stock net of stock issuance costs, amount			$ 60
Issuance of common stock pursuant to option exercises, shares			64,500
Issuance of common stock pursuant to option exercises, amount			$ 1		$ 59			$ 60
Stock-based compensation expense					181			181
Issuance of common stock warrants as compensation					8			8
Foreign currency translation adjustment						$ (20)		(20)
Dividends on Series A preferred stock, shares			999,633
Dividends on Series A preferred stock, amount			$ 10		920		$ (930)
Dividends on Series B preferred stock, amount							(26)	(26)
Dividends on Series C preferred stock, shares			266,793
Dividends on Series C preferred stock, amount			$ 2		246		(248)
Net loss							(2,548)	(2,548)
Ending balance, shares at Jun. 30, 2019	37,467	239,400	106,552,389	(6,704)
Ending balance, amount at Jun. 30, 2019	$ 0	$ 2	$ 1,065	$ (64)	192,565	(1,433)	(195,107)	(2,972)
Beginning balance, shares at Dec. 31, 2019	37,467	239,400	113,353,176	(6,704)
Beginning balance, amount at Dec. 31, 2019	$ 0	$ 2	$ 1,133	$ (64)	195,079	(1,741)	(203,171)	(8,762)
Accretion of preferred stock discount					(175)			(175)
Issuance of common stock net of stock issuance costs, shares			10,000,000
Issuance of common stock net of stock issuance costs, amount			$ 100		1,287			1,287
Stock-based compensation expense					124			124
Common stock issued in exchange for unexercised options, shares			400,000
Common stock issued in exchange for unexercised options, amount			$ 4		58			62
Foreign currency translation adjustment						31		31
Dividends on Series A preferred stock, amount							(937)	(937)
Dividends on Series C preferred stock, amount							(250)	(250)
Net loss							(3,124)	(3,124)
Ending balance, shares at Mar. 31, 2020	37,467	239,400	123,753,176	(6,704)
Ending balance, amount at Mar. 31, 2020	$ 0	$ 2	$ 1,237	$ (64)	196,373	(1,710)	(207,482)	(11,644)
Beginning balance, shares at Dec. 31, 2019	37,467	239,400	113,353,176	(6,704)
Beginning balance, amount at Dec. 31, 2019	$ 0	$ 2	$ 1,133	$ (64)	195,079	(1,741)	(203,171)	(8,762)
Accretion of preferred stock discount								(347)
Issuance of common stock net of stock issuance costs, shares			12,500,000
Stock-based compensation expense								322
Net loss								(6,027)
Ending balance, shares at Jun. 30, 2020	37,467	239,400	129,041,871	(6,704)
Ending balance, amount at Jun. 30, 2020	$ 0	$ 2	$ 1,290	$ (64)	196,924	(1,774)	(211,596)	(15,218)
Beginning balance, shares at Mar. 31, 2020	37,467	239,400	123,753,176	(6,704)
Beginning balance, amount at Mar. 31, 2020	$ 0	$ 2	$ 1,237	$ (64)	196,373	(1,710)	(207,482)	(11,644)
Accretion of preferred stock discount					(172)			(172)
Issuance of common stock net of stock issuance costs, shares			2,500,000
Issuance of common stock net of stock issuance costs, amount			$ 25		215			240
Issuance of common stock for financing facility, shares			2,500,000
Issuance of common stock for financing facility, amount			$ 25		375			400
Stock-based compensation expense					40			40
Common stock issued in exchange for unexercised options, shares			288,695
Common stock issued in exchange for unexercised options, amount			$ 3		93			96
Foreign currency translation adjustment						(64)		(64)
Dividends on Series A preferred stock, amount							(937)	(937)
Dividends on Series B preferred stock, amount							(25)	(25)
Dividends on Series C preferred stock, amount							(250)	(250)
Net loss							(2,902)	(2,902)
Ending balance, shares at Jun. 30, 2020	37,467	239,400	129,041,871	(6,704)
Ending balance, amount at Jun. 30, 2020	$ 0	$ 2	$ 1,290	$ (64)	$ 196,924	$ (1,774)	$ (211,596)	$ (15,218)

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities
Net loss	$ (6,027)	$ (6,160)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	36	36
Stock-based compensation	322	347
Warrants issued in lieu of cash as compensation for services	0	8
Application of rent deposit in lieu of cash payments	89	0
Change in fair value of derivative liabilities	166	(57)
Change in assets and liabilities
Accounts receivable	79	592
Inventory	(81)	(290)
Other assets	97	8
Operating lease right-of-use assets	(9)	106
Accounts payable	513	(127)
Deferred revenue	125	(142)
Accrued expense	(14)	473
Contract costs	0	(29)
Pension obligation	55	52
Total adjustments	1,378	977
Net cash used in operating activities	(4,649)	(5,183)
Cash flows from investing activities
Purchase of property and equipment	0	(8)
Net cash used in investing activities	0	(8)
Cash flows from financing activities
Proceeds from issuance of common stock, net	1,637	6,095
Proceeds from issuance of related party notes payable	900	0
Proceeds from issuance of note payable to bank	1,571	0
Dividends paid	(25)	(25)
Proceeds from exercise of stock options	0	166
Net cash provided by financing activities	4,083	6,236
Effect of exchange rate changes on cash	(33)	(5)
Net increase (decrease) in cash and cash equivalents	(599)	1,040
Cash and cash equivalents at beginning of period	1,030	5,694
Cash and cash equivalents at end of period	431	6,734
Supplemental disclosure of cash flow information:
Cash paid for interest	35	0
Cash paid for income taxes	0	0
Summary of non-cash investing and financing activities:
Issuance of common stock for financing facility	400	0
Stock dividends on Series A Convertible Preferred Stock	1,874	1,794
Stock dividends on Series C Convertible Redeemable Preferred Stock	500	479
Accretion of discount on Series C convertible redeemable preferred stock	347	370
Recognition of operating lease right-of-use assets from adoption of ASC 842	0	2,265
Recognition of lease liabilities from adoption of ASC 842	$ 0	$ (2,280)

DESCRIPTION OF BUSINESS AND OPE

DESCRIPTION OF BUSINESS AND OPERATIONS	6 Months Ended
	Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
DESCRIPTION OF BUSINESS AND OPERATIONS	Overview As used in this Report, “we”, “us”, “our”, “ImageWare”, “ImageWare Systems” or the “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 the products are integrated into the IWS Biometric Engine. Liquidity, Going Concern and Management’s Plan 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, and payments relating to purchases of property and equipment. 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 Related Party Financings On February 12, 2020, the Company entered into a factoring agreement with a member of the Company’s Board of Directors for $350,000. Such amount is to be repaid with the proceeds from certain of the Company’s trade accounts receivable approximating $500,000 and were due no later than 21 days after February 12, 2020. As of August 19, 2020, despite collection of the Company’s trade accounts receivable, $315,000 of such amounts have not been repaid and the Company is seeking an extension from the Board member. During the three and six months ended June 30, 2020, the Company recorded approximately$46,000 and $70,000, respectively in interest expense related to this factoring agreement. In May 2020, the Company repaid $35,000 in accrued interest to the Board member. Accrued unpaid interest at June 30, 2020 approximated $70,000 and is included in the Company’s condensed consolidated June 30, 2020 balance sheet under the caption “Accrued expense”. During the three months ended June 30, 2020, two members of the Company's Board of Directors advanced the Company an aggregate amount of $550,000. On June 29, 2020, the Company entered into promissory notes (the " Notes Common Stock 2020 Common Stock Financings Triton Funds LP On February 20, 2020, the Company entered into a securities purchase agreement (the “ Triton Purchase Agreement Triton Investor Offering Purchase Notice Purchase Notice Amount Purchased Shares In February and March of 2020, the Company sold, and Triton purchased, an aggregate of 10,000,000 shares of Common Stock for cash. In February, the Company sold 4,000,000 shares of Common Stock for $0.16 per share resulting in gross proceeds to the Company of $640,000. In March 2020, the Company sold 6,000,000 shares of Common Stock resulting in gross proceeds to the Company of $765,000, or a per share purchase price of $0.13 per share. Aggregate net proceeds from this financing approximated $1,387,000 after recognition of direct offering costs. Lincoln Park Capital Fund, LLC On April 28, 2020, the Company entered into a purchase agreement, as amended on June 11, 2020 (the “ Purchase Agreement Registration Rights Agreement Lincoln Park Under the terms and subject to the conditions of the Purchase Agreement, including stockholder approval of an amendment to the Company’s Certificate of Incorporation to increase the number of shares of the Company’s capital stock to 350 million shares, obtained from our shareholders effective June 9, 2020, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $10,250,000 of shares of Common Stock. On April 28, 2020, we sold 1,000,000 shares of Common Stock to Lincoln Park under the Purchase Agreement for an aggregate purchase price of $100,000 (the “ Initial Purchase Shares) Commencement Purchase Shares SEC Commencement Date After the Commencement Date, on any business day over the term of the Purchase Agreement, the Company has the right, in its sole discretion, to direct Lincoln Park to purchase up to 125,000 shares on such business day (the “ Regular Purchase accelerated purchases and additional accelerated purchases as described in the Purchase Agreement Pursuant to the terms of the Purchase Agreement, in no event may the Company issue or sell to Lincoln Park under the shares of Common Stock under the Purchase Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its affiliates of more than 4.99% of the then issued and outstanding shares of Common Stock (the “ Beneficial Ownership Limitation The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions and indemnification obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. The Company issued to Lincoln Park 2,500,000 shares of Common Stock in consideration for entering into the Purchase Agreement. Pursuant to this issuance, $400,000 was recorded by the Company as a deferred stock issuance cost. Such amount is recorded in the Company’s condensed consolidated June 30, 2020 balance sheet under the caption “Other assets”. Such deferred stock issuance costs will be recognized as a charge against paid in capital in proportion to securities sold under this Purchase Agreement. During the three months ended June 30, 2020, the Company recognized approximately $10,000 as a charge against paid in capital relating to securities sold under the Lincoln Park Purchase Agreement. Due to the terms of the Purchase Agreement as described above, management is not currently expecting the related proceeds from the Purchase Agreement to be sufficient to sustain operations for an extended period of time. Subsequent to June 30, 2020 and through August 19, 2020, the Company sold an aggregate 3,200,000 shares of Common Stock to Lincoln Park under the terms of the Purchase Agreement resulting in cash proceeds to the Company of approximately $669,000. CARES Act Financing On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief and Economic Security Act (“ CARES Act PPP Loan Comerica PPP SBA Amendment to Certificate of Incorporation On June 9, 2020, the Company amended its Certificate of Incorporation, as amended (the “ Charter Preferred Stock Going Concern At June 30, 2020, we had negative working capital of approximately $6,950,000. Our principal sources of liquidity at June 30, 2020 consisted of approximately $431,000 of cash and cash equivalents. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect the Company's operations and those of third parties on which the Company relies. Additionally, as the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the financial markets may reduce our ability to access capital, which could negatively impact the Company's short-term and long-term liquidity. These effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of the third parties on which the Company relies. Considering the financings consummated in 2020, as well as our projected cash requirements, and assuming we are unable to generate incremental revenue, our available cash will be insufficient to satisfy our cash requirements for the next twelve months from the date of this filing. At August 17, 2020, cash on hand approximated $351,000.Based on the Company’s rate of cash consumption in the first six months of 2020, the Company will need additional capital in the third quarter of 2020 and its prospects for obtaining that capital are uncertain. As a result of the Company’s historical losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern. To address our working capital requirements, management has instituted several cost cutting measures and has utilized cash proceeds available under the Lincoln Park facility to satisfy its working capital requirements. Additionally, management has consummated a restructuring of its Series A Convertible Preferred Stock ( "Series A Preferred" Series C Preferred In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to continue to raise capital and generate positive cash flows from operations. However, the Company operates in markets that are emerging and highly competitive. There is no assurance that the Company will be able to obtain additional capital, operate at a profit or generate positive cash flows in the future. Therefore, management’s plans do not alleviate the substantial doubt regarding the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	6 Months Ended
	Jun. 30, 2020
Accounting Policies [Abstract]
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION	Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other future periods. Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated. Operating Cycle Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying condensed consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing, assumptions used in the application of revenue recognition policies, assumptions used in the derivation of the Company’s incremental borrowing rate used in the computation of the Company’s operating lease liabilities and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates. Accounts Receivable In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. Inventories Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 4. Property, Equipment and Leasehold Improvements Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Fair Value of Financial Instruments For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, and deferred revenue, the carrying amounts approximate fair value due to their relatively short maturities. Lease Liabilities and Operating Lease Right-of-Use Assets The Company is a party to certain contractual arrangements for office space which meet the definition of leases under Accounting Standards Codification (“ ASC ASC 842 A package of practical expedients to not reassess: ● Whether a contract is or contains a lease ● Lease classification, and ● Initial direct costs Revenue Recognition Effective January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct, or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Sales of computer hardware and identification media; ● Services; and ● Post-contract customer support. Software Licensing and Royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer Hardware and Identification Media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-Contract Customer Support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with Multiple Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service, and (ii) the percent discount off of list price approach. Contract Costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. At June 30, 2020 and December 31, 2019, we had capitalized incremental costs of obtaining a contract with a customer of approximately $118,000. We recorded no additional contract costs during the three and six months ended June 30, 2020. Additionally, we recognized no revenue during the three and six months ended June 30, 2020 that was related to contract costs at the beginning of the period. Other Items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The following table sets forth our disaggregated revenue for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, Six Months Ended June 30, Net Revenue 2020 2019 2020 2019 (dollars in thousands) Software and royalties $ 68 $ 122 $ 193 $ 234 Hardware and consumables 47 27 62 38 Services 6 11 17 166 Maintenance 612 652 1,257 1,305 Total revenue $ 733 $ 812 $ 1,529 $ 1,743 Customer Concentration For the three months ended June 30, 2020, one customer accounted for approximately 30% or $216,000 of our total revenue and had trade receivables at June 30, 2020 of $0. For the six months ended June 30, 2020, one customer accounted for approximately 28% or $433,000 of our total revenue and had trade receivables at June 30, 2020 of $0. For the three months ended June 30, 2019, one customer accounted for approximately 27% or $216,000 of our total revenue and had trade receivables at June 30, 2019 of $0. For the six months ended June 30, 2019, two customers accounted for approximately 41% or $717,000 of our total revenue and had trade receivables at June 30, 2019 of $161,000. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“ FASB FASB Accounting Standards Update (‘ASU”) No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2019-12 Income Taxes (Topic 740) FASB ASU No. 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, FASB ASU No. 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

NET LOSS PER COMMON SHARE

NET LOSS PER COMMON SHARE	6 Months Ended
	Jun. 30, 2020
Basic income and diluted loss per common share - see Note 3:
NET LOSS PER COMMON SHARE	Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period, adjusted to include, if dilutive, potential dilutive shares consisting of convertible preferred stock, convertible related party lines of credit, stock options and warrants, calculated using the treasury stock and if-converted methods. For diluted loss per share calculation purposes, the net loss available to common shareholders is adjusted to add back any preferred stock dividends and any interest on convertible debt reflected in the condensed consolidated statement of operations for the respective periods. The table below presents the computation of basic and diluted loss per share: (Amounts in thousands except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Numerator for basic and diluted loss per share: Net loss $ (2,902 ) $ (2,548 ) $ (6,027 ) $ (6,160 ) Preferred dividends, deemed dividends and accretion (1,372 ) (1,374 ) (2,746 ) (2,668 ) Net loss available to common shareholders $ (4,274 ) $ (3,922 ) $ (8,773 ) $ (8,828 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 127,065,608 103,431,623 121,630,902 100,928,835 Basic and diluted loss per share available to common shareholders $ (0.03 ) $ (0.04 ) $ (0.07 ) $ (0.09 ) The following potential dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding, as their effect would have been antidilutive: Potential Dilutive Securities Six Months Ended June 30, 2020 2019 Restricted stock units 2,353,721 — Convertible redeemable preferred stock 44,755,071 42,626,028 Stock options 1,910,000 7,232,346 Warrants 1,693,856 1,813,856 Total potential dilutive securities 50,712,648 51,672,230

SELECT BALANCE SHEET DETAILS

SELECT BALANCE SHEET DETAILS	6 Months Ended
	Jun. 30, 2020
Balance Sheet Related Disclosures [Abstract]
SELECT BALANCE SHEET DETAILS	Inventory Inventories of $697,000 as of June 30, 2020 were comprised of work in process of $686,000 representing direct labor costs on in-process projects and finished goods of $11,000 net of reserves for obsolete and slow-moving items of $3,000. Inventories of $615,000 as of December 31, 2019 were comprised of work in process of representing direct labor costs on in-process projects and finished goods of net of reserves for obsolete and slow-moving items of . Intangible Assets The carrying amounts of the Company’s patent intangible assets were $64,000 and $70,000 as of June 30, 2020 and December 31, 2019, respectively, which includes accumulated amortization of $595,000 and $589,000 as of June 30, 2020 and December 31, 2019, respectively. Amortization expense for patent intangible assets was $3,000 and $6,000 for the three and six months ended June 30, 2020 and 2019, respectively. Patent intangible assets are being amortized on a straight-line basis over their remaining life of approximately 6.0 years. There was no impairment of the Company’s intangible assets during the three and six months ended June 30, 2020 and 2019. The estimated intangible amortization expense for the next five fiscal years is as follows: Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2020 (six months) $ 6 2021 12 2022 12 2023 12 2024 12 Thereafter 10 Totals $ 64 Goodwill The Company annually, or more frequently if events or circumstances indicate a need, tests the carrying amount of goodwill for impairment. The Company performs its annual impairment test in the fourth quarter of each year. In December 2018, the Company adopted the provisions of ASU 2017-04, " Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment Other Assets In conjunction with the Lincoln Park Purchase Agreement, the Company issued to Lincoln Park, in May 2020, 2,500,000 shares of Common Stock as consideration for entering into the Purchase Agreement. Pursuant to this issuance, the Company recorded $400,000 as a deferred stock issuance cost. Such deferred stock issuance costs will be recognized as a charge against paid in capital in proportion to securities sold under this Purchase Agreement. During the three months ended June 30, 2020, the Company recognized approximately $10,000 as a charge against paid in capital relating to securities sold under the Lincoln Park Purchase Agreement.

LEASES

LEASES	6 Months Ended
	Jun. 30, 2020
Leases [Abstract]
LEASES	The Company is a party to certain contractual arrangements for office space which meet the definition of leases under ASC 842 – Leases. In accordance with ASC 842, the Company has determined that such arrangements are operating leases and accordingly the Company has, as of January 1, 2019, recorded operating lease right-of-use assets and related lease liability for the present value of the lease payments over the lease terms using the Company’s estimated weighted-average incremental borrowing rate of approximately 14.5% as the discount rates implicit in the Company’s leases cannot be readily determined. Such assets and liabilities aggregated approximately $2,265,000 and $2,280,000 as of January 1, 2019, respectively and $1,906,000 and $2,089,000 as of December 31, 2019, respectively. At June 30, 2020, such assets and liabilities aggregated approximately $1,738,000 and $1,914,000, respectively. The Company determined that it had no arrangements representing finance leases. The Company’s operating leasing arrangements are summarized below: ● The Company’s corporate headquarters is located in San Diego, California, where it occupies 8,511 square feet of office space at an average cost of approximately $28,000 per month. This facility’s lease was entered into by the Company in July 2018. This lease commenced on November 1, 2018 and terminates on April 30, 2025; ● 1,508 square feet in Ottawa, Province of Ontario, Canada, at a cost of approximately $3,000 per month until the expiration of the lease on March 31, 2021; ● 9,720 square feet in Portland, Oregon, at a cost of approximately $23,000 per month until the expiration of the lease on February 28, 2023; and ● 183 square feet of office space in Mexico City, Mexico, at a cost of approximately $2,000 per month until September 30, 2020. The above leases contain no residual value guarantees provided by the Company and there are no options to either extend or terminate the leases. The Company is not a party to any subleasing arrangements. For the three and six months ended June 30, 2020 and 2019, the Company recorded approximately $169,000 and $338,000 and $182,000 and $349,000, respectively, in lease expense using the straight-line method. Under the provisions of ASC 842, lease expense is comprised of the total lease payments under the lease plus any initial direct costs incurred less any lease incentives received by the lessor amortized ratably using the straight-line method over the lease term. The weighted-average remaining lease term of the Company’s operating leases as of June 30, 2020 is 4.07 years. Cash payments under operating leases aggregated approximately $162,000 and $323,000, respectively, for the three and six months ended June 30, 2020 and $116,000 and $233,000, respectively, for the comparable periods in 2019, and are included in operating cash flows. The Company’s lease liability was computed using the present value of future lease payments. The Company has utilized the practical expedient regarding lease and non-lease components and combined such components into a single combined component in the determination of the lease liability. The Company has excluded the lease of its office space in Mexico City, Mexico in the determination of the lease liability as of January 1, 2019 as its term is less than 12 months. At June 30, 2020, future minimum undiscounted lease payments are as follows: ($ in thousands) 2020 (six months) $ 333 2021 642 2022 652 2023 425 2024 387 Thereafter 132 Total 2,571 Short-term leases not included in lease liability (7 ) Present Value effect on future minimum undiscounted lease payments at June 30, 2020 (650 ) Lease liability at June 30, 2020 $ 1,914 Less current portion (401 ) Non-current lease liability at June 30, 2020 $ 1,513

MEZZANINE EQUITY

MEZZANINE EQUITY	6 Months Ended
	Jun. 30, 2020
Equity [Abstract]
MEZZANINE EQUITY	Series C Convertible Redeemable Preferred Stock On September 10, 2018, the Company filed the Certificate of Designations, Preferences, and Rights of Series C Preferred (the “ Series C COD Stated Value accrue dividends cumulatively and are payable quarterly at a rate of 8% per annum if paid in cash, or 10% per annum if paid by the issuance of shares of Common Stock. Each share of Series C Preferred has a liquidation preference Conversion Shares On September 10, 2018, the Company offered and sold a total of 890 shares of Series C Preferred at a purchase price of $10,000 per share, and on September 21, 2018, the Company offered and sold an additional 110 shares of Series C Preferred at a purchase price of $10,000 per share. The total gross proceeds to the Company from the Series C Financing were $10,000,000. Issuance costs incurred in conjunction with the Series C Financing were approximately $1,211,000. Such costs have been recorded as a discount on the Series C Preferred Stock and will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these costs is recorded as a deemed dividend. There were no issuances or conversions of Series C Preferred during the three and six months ended June 30, 2020 or June 30, 2019. The Company issued the holders of Series C Preferred 157,945 and 266,793 shares of Common Stock on March 31, 2019 and June 30, 2019, respectively, as payment of dividends due on these dates. At June 30, 2020 and December 31, 2019, the Company had cumulative dividends of approximately $500,000 and $0, respectively. At June 30, 2020, the unpaid Series C Preferred dividend of $500,000 is included as a current liability under the caption “Accrued expense” in the Company’s condensed consolidated balance sheet. Guidance for accounting for freestanding financial instruments that contain characteristics of both liabilities and equity are contained in ASC 480, Distinguishing Liabilities From Equity ASR 268 Redeemable Preferred Stocks. Liquidation Preference Amount The Company noted that the Series C Preferred Stock instrument was a hybrid instrument that contains several embedded features. In November 2014, the FASB issued ASU 2014-16 to amend ASC 815, “ Derivatives and Hedging ASC 815 The whole instrument approach requires an issuer or investor to consider the economic characteristics and risks of the entire hybrid instrument, including all of its stated and implied substantive terms and features. Under this approach, all stated and implied features, including the embedded feature being evaluated for bifurcation, must be considered. Each term and feature should be weighed based on the relevant facts and circumstances to determine the nature of the host contract. This approach results in a single, consistent determination of the nature of the host contract, which is then used to evaluate each embedded feature for bifurcation. That is, the host contract does not change as each feature is evaluated. The revised guidance further clarifies that the existence or omission of any single feature, including an investor-held, fixed-price, noncontingent redemption option, does not determine the economic characteristics and risks of the host contract. Instead, an entity must base that determination on an evaluation of the entire hybrid instrument, including all substantive terms and features. However, an individual term or feature may be weighed more heavily in the evaluation based on facts and circumstances. An evaluation of all relevant terms and features, including the circumstances surrounding the issuance or acquisition of the equity share, as well as the likelihood that an issuer or investor is expected to exercise any options within the host contract, to determine the nature of the host contract, requires judgement. Using the whole instrument approach, the Company concluded that the host instrument is more akin to debt than equity as the majority of identified features contain more characteristics of debt. The Company evaluated the identified embedded features of the Series C Preferred host instrument and determined that certain features meet the definition of and contained the characteristics of derivative financial instruments requiring bifurcation at fair value from the host instrument. Accordingly, the Company has bifurcated from the Series C Preferred host instrument the conversion options, redemption option and participating dividend feature in accordance with the guidance in ASC 815. These bifurcated features aggregated approximately $833,000 at issuance and have been recorded as a discount to the Series C Preferred. Such amount will be accreted to the point of earliest redemption which is the third anniversary of the Series C Financing or September 10, 2021 using the effective interest rate method. The accretion of these features is recorded as a deemed dividend. For the three and six months ended June 30, 2020, the Company recorded the accretion of debt issuance costs and derivative liabilities aggregating approximately $175,000 and $347,000, respectively, using the effective interest rate method. For the three and six months ended June 30, 2019, the Company recorded the accretion of debt issuance costs and derivative liabilities aggregating approximately $184,000 and $370,000, respectively, using the effective interest rate method. There were no conversions of Series C Preferred into Common Stock during the three and six months ended June 30, 2020 and 2019. The Company reflected the following in Mezzanine Equity for the Series C Preferred Stock as of December 31, 2019 and June 30, 2020: Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Series C Preferred Stock as of December 31, 2019 1,000 $ 8,884 Accretion of discount – deemed dividend for the six months ended June 30, 2020 - 347 Total Series C Preferred Stock as of June 30, 2020 1,000 $ 9,231

DERIVATIVE LIABILITIES

DERIVATIVE LIABILITIES	6 Months Ended
	Jun. 30, 2020
Derivative Liability [Abstract]
DERIVATIVE LIABILITIES	The Company accounts for its derivative instruments under the provisions of ASC 815, “ Derivatives and Hedging The Company determined that the conversion option, redemption option and participating dividend feature contained in the Series C Preferred host instrument required bifurcation. The Company valued the bifurcatable features at fair value. Such liabilities aggregated approximately $833,000 at inception and are classified as current liabilities on the Company’s condensed consolidated balance sheets under the caption “Derivative liabilities”. The Company will revalue these features at each balance sheet date and record any change in fair value in the determination of period net income or loss. Such amounts are recorded in the caption “Change in fair value of derivatives liabilities” in the Company’s condensed consolidated statements of operations. During the three and six months ended June 30, 2020, the Company recorded an increase to these derivative liabilities using fair value methodologies of approximately $363,000 and $166,000, respectively. As a result of this increase, such liabilities aggregated approximately $535,000 at June 30, 2020. During the three and six months ended June 30, 2019, the Company recorded a decrease to these derivative liabilities using fair value methodologies of approximately $481,000 and $57,000, respectively. See Note 9 to these condensed consolidated financial statements for a reconciliation of amounts recorded at June 30, 2020.

EQUITY

EQUITY	6 Months Ended
	Jun. 30, 2020
Equity [Abstract]
EQUITY	The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock”. The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine. On June 9, 2020, the Company amended its Charter to increase the number of shares of the Company’s Common Stock and the number of shares of the Company’s Preferred Stock authorized thereunder from an aggregate of 179 million to 350 million, consisting of 345 million shares of Common Stock and 5 million shares of Preferred Stock. Series A Convertible Preferred Stock The Company had 37,467 shares of Series A Preferred outstanding as of June 30, 2020 and December 31, 2019. At June 30, 2020 and December 31, 2019, the Company had cumulative dividends of approximately $1,874,000 and $0, respectively. There were no conversions of Series A Preferred into Common Stock during the three and six months ended June 30, 2020 and 2019. At June 30, 2020, the unpaid Series A Preferred dividend of approximately $1,874,000 is included as a current liability under the caption “Accrued expense” in the Company’s condensed consolidated balance sheet. In conjunction with the Series A Restructuring, as defined in Note 12 below, in July 2020, approximately $1,847,000 in dividends payable to the Series A Holders and payable for the quarters ended March 31, 2020 and June 30, 2020 was waived in consideration for the issuance of Series A-1 Convertible Preferred Stock (“ Series A-1 Preferred Series B Convertible Preferred Stock The Company had 239,400 shares of Series B Convertible Preferred stock, par value $0.01 per share (“ Series B Preferred Common Stock The following table summarizes Common Stock activity for the six months ended June 30, 2020: Common Stock Shares outstanding at December 31, 2019 113,346,472 Shares issued pursuant to option exchange 688,695 Shares issued to secure financing facility 2,500,000 Shares issued for cash 12,500,000 Shares outstanding at June 30, 2020 129,035,167 In February and March of 2020, the Company sold, and Triton purchased, an aggregate of 10,000,000 shares of the Company’s Common Stock for cash. In February, the Company sold 4,000,000 shares of Common Stock for $0.16 per share resulting in gross proceeds to the Company of $640,000. In March 2020, the Company sold 6,000,000 shares of Common Stock resulting in gross proceeds to the Company of $765,000, or a per share purchase price of $0.13 per share. Aggregate net proceeds from this financing approximated $1,387,000 after recognition of direct offering costs. During May 2020, the Company sold 2,500,000 shares of its Common Stock to Lincoln Park pursuant to the Lincoln Park Purchase Agreement for $0.10 per share resulting in proceeds to the Company of $250,000. Also in May 2020, the Company issued to Lincoln Park 2,500,000 shares of its Common Stock as consideration for entering into the Purchase Agreement. The Company has recorded this issuance as a deferred stock issuance cost in the amount of $400,000. Such deferred stock issuance costs will be recognized as a charge against paid in capital in proportion to securities sold under this Purchase Agreement. During the six months ended June 30, 2020, the Company issued 600,000 shares of its Common Stock pursuant to exchange agreements with certain terminated employees whereby such employees exchanged an aggregate 1,200,000 Common Stock purchase options for 600,000 shares of Common Stock as a component of their severance agreement. Disclosure of any incremental compensation expense and the related accounting is set forth in the Stock-Based Compensation section of this note. During the six months ended June 30, 2020, the Company granted 708,916 restricted stock units (“ RSUs Warrants The following table summarizes warrant activity for the following periods: Warrants Weighted-Average Exercise Price Balance at December 31, 2019 1,733,856 $ 0.14 Granted — — Expired/Canceled (40,000 ) 1.46 Exercised — — Balance at June 30, 2020 1,693,856 $ 0.11 As of June 30, 2020, warrants to purchase 1,693,856 Stock-Based Compensation The Company’s 1999 Stock Award Plan (the “ 1999 Plan On June 9, 2020, pursuant to authorization obtained from the Company’s stockholders, the Company adopted the 2020 Omnibus Stock Incentive Plan (the ” 2020 Plan Code The 2020 Plan supersedes and replaces the 1999 Plan and therefore no new awards will be granted under the 1999 Plan. Any awards outstanding under the 1999 Plan on the date of approval of the 2020 Plan will remain subject to the 1999 Plan. All shares of Common Stock remaining authorized and available for issuance under the 1999 Plan and any shares subject to outstanding awards under the 1999 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2020 Plan. As of June 30, 2020, 29,401,175 shares are available for issuance under the 2020 Plan. ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-pricing model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s Common Stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for the six months ended June 30, 2020 and 2019 ranged from 66% to 57%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the six months ended June 30, 2019 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. Interest rates used in the Company’s Black-Scholes calculations for the six months ended June 30, 2020 and 2019 averaged 2.58%. Dividend yield is zero as the Company does not expect to declare any dividends on the Company’s common shares in the foreseeable future. In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has adopted the provisions of ASU 2016-09 and will continue to use an estimated annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. A summary of the activity under the Company’s stock option plans is as follows: Options Weighted-Average Exercise Price Balance at December 31, 2019 7,204,672 $ 1.32 Granted 1,750,000 $ 0.15 Expired/Cancelled (7,044,672 ) $ 1.34 Exercised — $ — Balance at June 30, 2020 1,910,000 $ 0.22 During the six months ended June 30, 2020, the Company issued 600,000 shares of its Common Stock pursuant to an exchange agreement with certain terminated employees whereby such employees exchanged 1,200,000 Common Stock purchase options for 600,000 shares of Common Stock as a component of their severance agreement. The Company recorded the grant date fair value of these Common Stock issuances as severance expense in the amount of approximately $86,000. The Company periodically issues RSUs to certain employees which vest over time. When vested, each RSU represents the right to that number of shares of Common Stock equal to the number of RSUs granted. The grant date fair value for RSUs is based upon the market price of the Company's Common Stock on the date of the grant. The fair value is then amortized to compensation expense over the requisite service period or vesting term. During t he six month period ended June 30, 2020, the Company granted 708,916 RSUs to certain employees in exchange for options to purchase 1,417,832 shares of Common Stock held by such employees. On May 8, 2020, 88,695 RSUs vested with the remainder of such RSUs vesting quarterly over a period of two years. Also, during the six months ended June 30, 2020, the Company agreed to grant 1,733,500 RSUs to certain officers and members of the Company’s Board of Directors in exchange for options to purchase 3,467,000 shares of Common Stock held by such officers and directors. However, principally due to the lack of authorized but unissued shares of Common Stock to satisfy certain commitments of the Company, and in lieu of pending efforts to restructure certain issued and outstanding preferred stock and secure additional working capital, the Company and certain officers and directors have agreed to suspend the issuance of such RSUs in exchange for their options. . In addition to the aggregate 6,110,332 options exchanged or pending exchange as disclosed above, an additional 959,840 options expired unexercised during the six months ended June 30, 2020. The Company determined that the exchange agreements are a modification of a share-based payment award under ASC 718. Accordingly, the Company computed any incremental compensation expense as a component of the total compensation cost to be measured at the modification date. Aggregate incremental compensation expense measured from the modifications of stock option was approximately $385,000. The intrinsic value of options exercisable and outstanding at June 30, 2020 was $0. T he aggregate intrinsic value for all options outstanding as of June 30, 2020 was approximately $368,000. Stock-based compensation expense for employees, officers and members of the Company’s Board of Directors, related to RSUs, equity options, and the modifications of equity options, has been classified as follows in the accompanying condensed consolidated statements of operations (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cost of revenue $ 2 $ 4 $ 5 $ 7 General and administrative 89 97 156 190 Sales and marketing 10 42 100 81 Research and development 35 38 61 69 Total $ 136 $ 181 $ 322 $ 347

FAIR VALUE ACCOUNTING

FAIR VALUE ACCOUNTING	6 Months Ended
	Jun. 30, 2020
Fair Value Disclosures [Abstract]
FAIR VALUE ACCOUNTING	The Company accounts for fair value measurements in accordance with ASC 820, “ Fair Value Measurements and Disclosures ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Fair Value at June 30, 2020 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,711 $ — $ — $ 1,711 Totals $ 1,711 $ — $ — $ 1,711 Liabilities: Derivative liabilities $ 535 $ — $ — $ 535 Totals $ 535 $ — $ — $ 535 Fair Value at December 31, 2019 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,713 $ — $ — $ 1,713 Totals $ 1,713 $ — $ — $ 1,713 Liabilities: Derivative liabilities $ 369 $ — $ — $ 369 Totals $ 369 $ — $ — $ 369 The Company’s German pension plan is funded by insurance contract policies whereby the insurance company guarantees a fixed minimum return. The Company has determined that the pension assets are appropriately classified within Level 3 of the fair value hierarchy because they are valued using actuarial valuation methodologies which approximate cash surrender value that cannot be corroborated with observable market data. All plan assets are managed in a policyholder pool in Germany by outside investment managers. The investment manager is responsible for the investment strategy of the insurance premiums that Company submits and does not hold individual assets per participating employer. The German Federal Financial Supervisory oversees and supervises the insurance contracts. As of June 30, 2020, the Company had embedded features contained in the Series C Preferred host instrument (issued in September 2018) that qualified for derivative liability treatment. The recorded fair market value of these features was approximately $535,000 and $369,000 at June 30, 2020 and December 31, 2019, respectively, and are classified as a current liability in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The fair value of the Company’s derivative liabilities is classified within Level 3 of the fair value hierarchy because they are valued using pricing models that incorporate management assumptions that cannot be corroborated with observable market data. The Company uses the lattice framework, Monte-Carlo simulations and other fair value methodologies in the determination of the fair value of derivative liabilities. Some of the aforementioned fair value methodologies are affected by the Company’s stock price as well as assumptions regarding the expected stock price volatility over the term of the derivative liabilities in addition to the probability of future events. Significant assumptions used in the fair value methodologies during the six months ended June 30, 2020 and 2019 are a risk-free rate of 0.16% to 2.22% equity volatility of 63% to 109%, effective life of 1.20 years to 4.45 years, and a preferred stock dividend rate of 0%. Additionally, management has made certain estimates regarding the timing of potential change of control events. The Company monitors the activity within each level and any changes with the underlying valuation techniques or inputs utilized to recognize if any transfers between levels are necessary. That determination is made, in part, by working with outside valuation experts for Level 3 instruments and monitoring market related data and other valuation inputs for Level 1 and Level 2 instruments. The reconciliations of Level 3 pension assets measured at fair value during the three months ended June 30, 2020 and 2019 are presented below: ($ in thousands) Three months ended June 30, 2020 Three months ended June 30, 2019 Pension assets: Fair value at beginning of period $ 1,675 $ 1,699 Return on plan assets 16 15 Company contributions and benefits paid, net (23 ) (19 ) Effect of exchange rate changes 43 26 Fair value at end of period $ 1,711 $ 1,721 The reconciliations of Level 3 pension assets measured at fair value during the six months ended June 30, 2020 and 2019 are presented below: ($ in thousands) Six months ended June 30, 2020 Six months ended June 30, 2019 Pension assets: Fair value at beginning of period $ 1,713 $ 1,733 Return on plan assets 30 30 Company contributions and benefits paid, net (33 ) (30 ) Effect of exchange rate changes 1 (12 ) Fair value at end of period $ 1,711 $ 1,721 The reconciliations of Level 3 derivative liabilities measured at fair value during the three months ended June 30, 2020 and 2019 are presented below: ($ in thousands) Three months ended June 30, 2020 Three months ended June 30, 2019 Derivative liabilities: Fair value at beginning of period $ 172 $ 1,489 Change in fair value included in earnings 363 (481 ) Fair value at end of period $ 535 $ 1,008 The reconciliations of Level 3 derivative liabilities measured at fair value during the six months ended June 30, 2020 and 2019 are presented below: ($ in thousands) Six months ended June 30, 2020 Six months ended June 30, 2019 Derivative liabilities: Fair value at beginning of period $ 369 $ 1,065 Change in fair value included in earnings 166 (57 ) Fair value at end of period $ 535 $ 1,008

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	6 Months Ended
	Jun. 30, 2020
Related Party Transactions [Abstract]
RELATED PARTY TRANSACTIONS	Notes Payable On February 12, 2020, the Company entered into a factoring agreement with a member of the Company’s Board of Directors for $350,000. Such amount is to be repaid with the proceeds from certain of the Company’s trade accounts receivable approximating $500,000 and are due no later than 21 days after February 12, 2020. As of August 19, 2020, despite collection of the Company’s trade accounts receivable, the borrowed amounts have not been repaid and the Company is seeking an extension from the Board member. Under the terms of the factoring agreement, factored money will bear interest at the rate of 1% of the factoring money for the first seven days, and 1% for each additional seven days until the factoring money is paid in full. In May 2020, the Company paid $35,000 in accrued interest to the Board member. In April 2020, the Company received an aggregate amount of $550,000 from two members of the Company’s Board of Directors. On June 29, 2020, the Company entered into promissory notes (the " Notes

CONTINGENT LIABILITIES

CONTINGENT LIABILITIES	6 Months Ended
	Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
CONTINGENT LIABILITIES	Employment Agreements The Company has employment agreements with its Chief Executive Officer and its Chief Technical Officer. The Company may terminate the agreements with or without cause. Subject to the conditions and other limitations set forth in each respective employment agreement, each executive will be entitled to the following severance benefits if the Company terminates the executive’s employment without cause or in the event of an involuntary termination (as defined in the employment agreements) by the Company or by the executive: Under the terms of the employment agreement with our Chief Executive Officer, executed April 10, 2020, the Chief Executive Officer will be entitled to the following severance benefits if we terminate her employment without cause or in the event of an involuntary termination: (i) severance payments equal to the lesser of twelve (12) months of salary or the remaining period prior to the expiration of the employment period; (ii) continuation of medical insurance for a period of twelve months. Under the terms of the employment agreement with our Chief Technical Officer, this executive will be entitled to the following severance benefits if we terminate his employment without cause or in the event of an involuntary termination: (i) a lump sum cash payment equal to six months of base salary; and (ii) continuation of their fringe benefits and medical insurance for a period of six months. In the event that his employment is terminated within six months prior to or thirteen months following a change of control (as defined in the employment agreements), he is entitled to the severance benefits described above, except that 100% of his outstanding stock options and restricted stock awards will immediately vest. On February 28, 2020, the employment agreement for the Company’s Chief Technical Officer was amended to extend the term of the employment agreement until December 31, 2020. On July 21, 2020, the employment agreement for the Company’s Chief Technical Officer was terminated effective with the Officer’s voluntary resignation on this date. Litigation There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS	6 Months Ended
	Jun. 30, 2020
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	Creation of Series A-1 Convertible Preferred Stock On July 14, 2020, the Company filed the Certificate of Designations, Preferences, and Rights of Series A-1 Convertible Preferred Stock (“ Series A-1 COD accrue cumulative dividends and are payable quarterly beginning March 31, 2021 at a rate of 8% per annum if paid in cash, or 10% per annum if paid by the issuance of shares of Common Stock. Series A Restructuring During July 2020, the Company entered into an Exchange Agreement, Consent and Waiver (“ Exchange Agreement Series A Holders Series A Restructuring Subsequent to June 30, 2020 and through August 19, 2020, certain Holders of Series A-1 Preferred converted 350 shares of Series A-1 Preferred into 538,452 shares of the Company’s Common Stock. Subsequent to June 30, 2020 and through August 19, 2020, the Company sold an aggregate 3,200,000 shares of Common Stock to Lincoln Park under the terms of the Purchase Agreement resulting in cash proceeds to the Company of approximately $669,000. Subsequent to June 30, 2020 and through August 19, 2020, the Company issued 87,198 shares of its Common Stock pursuant to share based compensation agreements. On July 21, 2020, David Harding, Senior Vice President and Chief Technical Officer submitted his resignation to the Company.

SIGNIFICANT ACCOUNTING POLICI_2

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies)	6 Months Ended
	Jun. 30, 2020
Accounting Policies [Abstract]
Basis of Presentation	The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“ GAAP Operating results for the three and six months ending June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other future periods.
Principles of Consolidation	The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s wholly-owned subsidiaries are: XImage Corporation, a California Corporation; ImageWare Systems ID Group, Inc., a Delaware corporation (formerly Imaging Technology Corporation); I.W. Systems Canada Company, a Nova Scotia unlimited liability company; ImageWare Digital Photography Systems, LLC, a Nevada limited liability company (formerly Castleworks LLC); Digital Imaging International GmbH, a company formed under German laws; and Image Ware Mexico S de RL de CV, a company formed under Mexican laws. All significant intercompany transactions and balances have been eliminated.
Operating Cycle	Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying condensed consolidated balance sheets, although they will be liquidated in the normal course of contract completion which may take more than one operating cycle.
Use of Estimates	The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, deferred tax asset valuation allowances, recoverability of goodwill, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series C Preferred Financing, assumptions used in the application of revenue recognition policies, assumptions used in the derivation of the Company’s incremental borrowing rate used in the computation of the Company’s operating lease liabilities and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Actual results could differ from estimates.
Accounts Receivable	In the normal course of business, the Company extends credit without collateral requirements to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful.
Inventories	Finished goods inventories are stated at the lower of cost, determined using the average cost method, or net realizable value. See Note 4.
Property, Equipment and Leasehold Improvements	Property and equipment, consisting of furniture and equipment, are stated at cost and are being depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. When assets are sold or abandoned, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Expenditures for leasehold improvements are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Fair Value of Financial Instruments	For certain of the Company’s financial instruments, including accounts receivable, accounts payable, accrued expense, and deferred revenue, the carrying amounts approximate fair value due to their relatively short maturities.
Lease Liabilities and Operating Lease Right-of-Use Assets	The Company is a party to certain contractual arrangements for office space which meet the definition of leases under Accounting Standards Codification (“ ASC ASC 842 A package of practical expedients to not reassess: ● Whether a contract is or contains a lease ● Lease classification, and ● Initial direct costs
Revenue Recognition	Effective January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ ASC 606 In accordance with ASC 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The core principle of the standard is that we should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve that core principle, we apply the following five step model: 1. Identify the contract with the customer; 2. Identify the performance obligation in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) each performance obligation is satisfied. At contract inception, we assess the goods and services promised in a contract with a customer and identify as a performance obligation each promise to transfer to the customer either: (i) a good or service (or a bundle of goods or services) that is distinct, or (ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. We recognize revenue only when we satisfy a performance obligation by transferring a promised good or service to a customer. Determining the timing of the satisfaction of performance obligations as well as the transaction price and the amounts allocated to performance obligations requires judgement. We disclose disaggregation of our customer revenue by classes of similar products and services as follows: ● Software licensing and royalties; ● Sales of computer hardware and identification media; ● Services; and ● Post-contract customer support. Software Licensing and Royalties Software licenses consist of revenue from the sale of software for identity management applications. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licensing at a point in time upon delivery, provided all other revenue recognition criteria are met. Royalties consist of revenue from usage-based arrangements and guaranteed minimum-based arrangements. We recognize revenue for royalty arrangements at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. Computer Hardware and Identification Media We generate revenue from the sale of computer hardware and identification media. Revenue for these items is recognized upon delivery of these products to the customer, provided all other revenue recognition criteria are met. Services Services revenue is comprised primarily of software customization services, software integration services, system installation services and customer training. Revenue is generally recognized upon completion of services and customer acceptance provided all other revenue recognition criteria are met. Post-Contract Customer Support (“PCS”) Post contract customer support consists of maintenance on software and hardware for our identity management solutions. Arrangements with Multiple Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. In addition to selling software licenses, hardware and identification media, services and post-contract customer support on a standalone basis, certain contracts include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on our best estimate of the relative standalone selling price. The standalone selling price for a performance obligation is the price at which we would sell a promised good or service separately to a customer. The primary methods used to estimate standalone selling price are as follows: (i) the expected cost-plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service, and (ii) the percent discount off of list price approach. Contract Costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We apply a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. At June 30, 2020 and December 31, 2019, we had capitalized incremental costs of obtaining a contract with a customer of approximately $118,000. We recorded no additional contract costs during the three and six months ended June 30, 2020. Additionally, we recognized no revenue during the three and six months ended June 30, 2020 that was related to contract costs at the beginning of the period. Other Items We do not offer rights of return for our products and services in the normal course of business. Sales tax collected from customers is excluded from revenue. The following table sets forth our disaggregated revenue for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, Six Months Ended June 30, Net Revenue 2020 2019 2020 2019 (dollars in thousands) Software and royalties $ 68 $ 122 $ 193 $ 234 Hardware and consumables 47 27 62 38 Services 6 11 17 166 Maintenance 612 652 1,257 1,305 Total revenue $ 733 $ 812 $ 1,529 $ 1,743
Customer Concentration	For the three months ended June 30, 2020, one customer accounted for approximately 30% or $216,000 of our total revenue and had trade receivables at June 30, 2020 of $0. For the six months ended June 30, 2020, one customer accounted for approximately 28% or $433,000 of our total revenue and had trade receivables at June 30, 2020 of $0. For the three months ended June 30, 2019, one customer accounted for approximately 27% or $216,000 of our total revenue and had trade receivables at June 30, 2019 of $0. For the six months ended June 30, 2019, two customers accounted for approximately 41% or $717,000 of our total revenue and had trade receivables at June 30, 2019 of $161,000.
Recently Issued Accounting Standards	From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“ FASB FASB Accounting Standards Update (‘ASU”) No. 2018-14 “Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans” ASU 2018-14 FASB ASU No. 2019-12 Income Taxes (Topic 740) FASB ASU No. 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, FASB ASU No. 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

SIGNIFICANT ACCOUNTING POLICI_3

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Tables)	6 Months Ended
	Jun. 30, 2020
Accounting Policies [Abstract]
Disaggregation of revenue	Three Months Ended June 30, Six Months Ended June 30, Net Revenue 2020 2019 2020 2019 (dollars in thousands) Software and royalties $ 68 $ 122 $ 193 $ 234 Hardware and consumables 47 27 62 38 Services 6 11 17 166 Maintenance 612 652 1,257 1,305 Total revenue $ 733 $ 812 $ 1,529 $ 1,743

NET LOSS PER COMMON SHARE (Tabl

NET LOSS PER COMMON SHARE (Tables)	6 Months Ended
	Jun. 30, 2020
Basic income and diluted loss per common share - see Note 3:
Computation of basic and diluted loss per share	The table below presents the computation of basic and diluted loss per share: (Amounts in thousands except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Numerator for basic and diluted loss per share: Net loss $ (2,902 ) $ (2,548 ) $ (6,027 ) $ (6,160 ) Preferred dividends, deemed dividends and accretion (1,372 ) (1,374 ) (2,746 ) (2,668 ) Net loss available to common shareholders $ (4,274 ) $ (3,922 ) $ (8,773 ) $ (8,828 ) Denominator for basic and dilutive loss per share – weighted-average shares outstanding 127,065,608 103,431,623 121,630,902 100,928,835 Basic and diluted loss per share available to common shareholders $ (0.03 ) $ (0.04 ) $ (0.07 ) $ (0.09 )
Antidilutive securities excluded from earnings per share	The table below presents the computation of basic and diluted loss per share: Potential Dilutive Securities Six Months Ended June 30, 2020 2019 Restricted stock units 2,353,721 — Convertible redeemable preferred stock 44,755,071 42,626,028 Stock options 1,910,000 7,232,346 Warrants 1,693,856 1,813,856 Total potential dilutive securities 50,712,648 51,672,230

SELECT BALANCE SHEET DETAILS (T

SELECT BALANCE SHEET DETAILS (Tables)	6 Months Ended
	Jun. 30, 2020
Balance Sheet Related Disclosures [Abstract]
Estimated acquired intangible amortization expense	Fiscal Year Ended December 31, Estimated Amortization Expense ($ in thousands) 2020 (six months) $ 6 2021 12 2022 12 2023 12 2024 12 Thereafter 10 Totals $ 64

LEASES (Tables)

LEASES (Tables)	6 Months Ended
	Jun. 30, 2020
Leases [Abstract]
Future minimum undiscounted lease payments	($ in thousands) 2020 (six months) $ 333 2021 642 2022 652 2023 425 2024 387 Thereafter 132 Total 2,571 Short-term leases not included in lease liability (7 ) Present Value effect on future minimum undiscounted lease payments at June 30, 2020 (650 ) Lease liability at June 30, 2020 $ 1,914 Less current portion (401 ) Non-current lease liability at June 30, 2020 $ 1,513

MEZZANINE EQUITY (Tables)

MEZZANINE EQUITY (Tables)	6 Months Ended
	Jun. 30, 2020
Equity [Abstract]
Mezzanine equity	Series C Convertible, Redeemable Preferred (amounts in thousands, except share amounts) Shares Amount Total Series C Preferred Stock as of December 31, 2019 1,000 $ 8,884 Accretion of discount – deemed dividend for the six months ended June 30, 2020 347 Total Series C Preferred Stock as of June 30, 2020 1,000 $ 9,231

EQUITY (Tables)

EQUITY (Tables)	6 Months Ended
	Jun. 30, 2020
Equity [Abstract]
Summary of common stock activity	Common Stock Shares outstanding at December 31, 2019 113,346,472 Shares issued pursuant to option exchange 688,695 Shares issued to secure financing facility 2,500,000 Shares issued for cash 12,500,000 Shares outstanding at June 30, 2020 129,035,167
Summary of warrant activity	Warrants Weighted-Average Exercise Price Balance at December 31, 2019 1,733,856 $ 0.14 Granted — — Expired/Canceled (40,000 ) 1.46 Exercised — — Balance at June 30, 2020 1,693,856 $ 0.11
Summary of stock option plans activity	Options Weighted-Average Exercise Price Balance at December 31, 2019 7,204,672 $ 1.32 Granted 1,750,000 $ 0.15 Expired/Cancelled (7,044,672 ) $ 1.34 Exercised — $ — Balance at June 30, 2020 1,910,000 $ 0.22
Stock based compensation expense allocation	Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cost of revenue $ 2 $ 4 $ 5 $ 7 General and administrative 89 97 156 190 Sales and marketing 10 42 100 81 Research and development 35 38 61 69 Total $ 136 $ 181 $ 322 $ 347

FAIR VALUE ACCOUNTING (Tables)

FAIR VALUE ACCOUNTING (Tables)	6 Months Ended
	Jun. 30, 2020
Fair Value Disclosures [Abstract]
Fair value measurement of assets and liabilities	Fair Value at June 30, 2020 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,711 $ — $ — $ 1,711 Totals $ 1,711 $ — $ — $ 1,711 Liabilities: Derivative liabilities $ 535 $ — $ — $ 535 Totals $ 535 $ — $ — $ 535 Fair Value at December 31, 2019 ($ in thousands) Total Level 1 Level 2 Level 3 Assets: Pension assets $ 1,713 $ — $ — $ 1,713 Totals $ 1,713 $ — $ — $ 1,713 Liabilities: Derivative liabilities $ 369 $ — $ — $ 369 Totals $ 369 $ — $ — $ 369
Pension assets measured at fair value on a recurring basis	($ in thousands) Three months ended June 30, 2020 Three months ended June 30, 2019 Pension assets: Fair value at beginning of period $ 1,675 $ 1,699 Return on plan assets 16 15 Company contributions and benefits paid, net (23 ) (19 ) Effect of rate changes 43 26 Fair value at end of period $ 1,711 $ 1,721 ($ in thousands) Six months ended June 30, 2020 Six months ended June 30, 2019 Pension assets: Fair value at beginning of period $ 1,713 $ 1,733 Return on plan assets 30 30 Company contributions and benefits paid, net (33 ) (30 ) Effect of rate changes 1 (12 ) Fair value at end of period $ 1,711 $ 1,721
Schedule of derivative liabilities	($ in thousands) Three months ended June 30, 2020 Three months ended June 30, 2019 Derivative liabilities: Fair value at beginning of period $ 172 $ 1,489 Change in fair value included in earnings 363 (481 ) Fair value at end of period $ 535 $ 1,008 ($ in thousands) Six months ended June 30, 2020 Six months ended June 30, 2019 Derivative liabilities: Fair value at beginning of period $ 369 $ 1,065 Change in fair value included in earnings 166 (57 ) Fair value at end of period $ 535 $ 1,008

DESCRIPTION OF BUSINESS AND O_2

DESCRIPTION OF BUSINESS AND OPERATIONS (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
State of incorporation	DE
Working capital deficit	$ (6,433)
Cash	$ 431	$ 1,030	$ 6,734	$ 5,694

SIGNIFICANT ACCOUNTING POLICI_4

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenue	$ 733	$ 812	$ 1,529	$ 1,743
Software and Royalties
Revenue	68	122	193	234
Hardware and Consumables
Revenue	47	27	62	38
Services
Revenue	6	11	17	166
Maintenance
Revenue	$ 612	$ 652	$ 1,257	$ 1,305

SIGNIFICANT ACCOUNTING POLICI_5

SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenue	$ 733	$ 812	$ 1,529	$ 1,743
One Customer
Percentage of revenue	30.00%	27.00%	28.00%
Revenue	$ 216	$ 216	$ 433
Trade receivables	0	$ 0	0	$ 0
Two Customers
Percentage of revenue				41.00%
Revenue				$ 717
Trade receivables	$ 161		$ 161

NET LOSS PER COMMON SHARE (Deta

NET LOSS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Basic income and diluted loss per common share - see Note 3:
Net loss	$ (2,902)	$ (3,124)	$ (2,548)	$ (3,612)	$ (6,027)	$ (6,160)
Preferred dividends, deemed dividend accretion	(1,372)		(1,374)		(2,746)	(2,668)
Net loss available to common shareholders	$ (4,274)		$ (3,922)		$ (8,773)	$ (8,828)
Denominator for basic and dilutive loss per share - weighted-average shares outstanding	127,065,608		103,431,623		121,630,902	100,928,835
Basic and diluted loss per share available to common shareholders	$ (0.03)		$ (0.04)		$ (0.07)	$ (0.09)

NET LOSS PER COMMON SHARE (De_2

NET LOSS PER COMMON SHARE (Details 1) - shares	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Total potential dilutive securities	50,712,648	51,672,230
Restricted Stock Units [Member]
Total potential dilutive securities	2,353,721	0
Convertible Redeemable Preferred Stock
Total potential dilutive securities	44,755,071	42,626,028
Stock Options
Total potential dilutive securities	1,910,000	7,232,346
Warrants
Total potential dilutive securities	1,693,856	1,813,856

SELECT BALANCE SHEET DETAILS (D

SELECT BALANCE SHEET DETAILS (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Balance Sheet Related Disclosures [Abstract]
2020 (six months)	$ 6
2021	12
2022	12
2023	12
2024	12
Thereafter	10
Totals	$ 64	$ 70

SELECT BALANCE SHEET DETAILS _2

SELECT BALANCE SHEET DETAILS (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Balance Sheet Related Disclosures [Abstract]
Inventory	$ 697		$ 697		$ 615
Work in process	686		686		608
Finished goods	11		11		7
Reserves for obsolete and slow-moving items	3		3		3
Carrying amounts of patent assets	64		64		70
Accumulated amortization	595		595		$ 589
Patent amortization expense	3	$ 3	$ 6	$ 6
Weighted-average remaining life of intangible assets			6 years
Impairment of intangible assets	$ 0	$ 0

LEASES (Details)

LEASES (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Leases [Abstract]
2020 (six months)	$ 333
2021	642
2022	652
2023	425
2024	387
Thereafter	132
Total	2,571
Short-term leases not included in lease liability	(7)
Present value effect on future minimum undiscounted lease payments	(650)
Lease liability	1,914
Less current portion	(401)	$ (373)
Non-current lease liability	$ 1,513	$ 1,716

MEZZANINE EQUITY (Details)

MEZZANINE EQUITY (Details) - Series C Preferred Stock $ in Thousands	6 Months Ended
	Jun. 30, 2020USD ($)shares
Issuance of Series C preferred stock, shares | shares	1,000
Accretion of discount - deemed dividend, shares | shares	0
Total Series C preferred stock, shares | shares	1,000
Issuance of Series C preferred stock, amount | $	$ 8,884
Accretion of discount - deemed dividend, amount | $	347
Total Series C preferred stock, amount | $	$ 9,231

DERIVATIVE LIABILITIES (Details

DERIVATIVE LIABILITIES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Derivative Liability [Abstract]
(Gain) loss on change in fair value of derivative liabilities	$ 363	$ (481)	$ 166	$ (57)

EQUITY (Details)

EQUITY (Details) - shares	3 Months Ended			6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Jun. 30, 2020
Shares issued for cash			6,095
Common Stock
Beginning balance, shares	123,753,176	113,353,176	99,266,918	113,353,176
Shares issued pursuant to option exchange				688,695
Shares issued to secure financing facility				2,500,000
Shares issued for cash	2,500,000	10,000,000	5,954,545	12,500,000
Ending balance, shares	129,041,871	123,753,176	106,552,389	129,041,871

EQUITY (Details 1)

EQUITY (Details 1) - Warrants	6 Months Ended
	Jun. 30, 2020$ / sharesshares
Number of warrants, begining balance | shares	129,041,871
Number of warrants, granted | shares	0
Number of warrants, expired/cancelled | shares	(40,000)
Number of warrants, exercised | shares	0
Number of warrants, ending balance | shares	1,693,856
Weighted-average exercise price, begining balance | $ / shares	$ 0.14
Weighted-average exercise price, granted | $ / shares	0
Weighted-average exercise price, expired/cancelled | $ / shares	1.46
Weighted-average exercise price, exercised | $ / shares	0
Weighted-average exercise price, ending balance | $ / shares	$ 0.11

EQUITY (Details 2)

EQUITY (Details 2) - Stock Options	6 Months Ended
	Jun. 30, 2020$ / sharesshares
Number of options, begining balance | shares	7,204,672
Number of options, granted | shares	1,750,000
Number of options, expired/cancelled | shares	(7,044,672)
Number of options, exercised | shares	0
Number of options, ending balance | shares	1,910,000
Weighted-average exercise price, begining balance | $ / shares	$ 1.32
Weighted-average exercise price, granted | $ / shares	0.15
Weighted-average exercise price, expired/cancelled | $ / shares	1.34
Weighted-average exercise price, exercised | $ / shares	0
Weighted-average exercise price, ending balance | $ / shares	$ 0.22

EQUITY (Details 3)

EQUITY (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Stock based compensation	$ 136	$ 181	$ 322	$ 347
Cost of Revenue
Stock based compensation	2	4	5	7
General and Administrative
Stock based compensation	89	97	156	190
Sales and Marketing
Stock based compensation	10	42	100	81
Research and Development
Stock based compensation	$ 35	$ 38	$ 61	$ 69

EQUITY (Details Narrative)

EQUITY (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Intrinsic value of options exercisable	$ 0
Intrinsic value of options outstanding	368,000
Unrecognized compensation cost	$ 238,000
Unrecognized compensation cost, recognition period	1 year 5 months
Series A Preferred Stock
Preferred stock, shares outstanding	37,467	37,467
Series B Preferred Stock
Preferred stock, shares outstanding	239,400	239,400

FAIR VALUE ACCOUNTING (Details)

FAIR VALUE ACCOUNTING (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Assets:
Pension assets	$ 1,711		$ 1,713
Totals	1,711		1,713
Liabilities:
Derivative liabilities	535	$ 172	369	$ 1,489	$ 1,489	$ 1,065
Totals	535		369
Fair Value, Inputs, Level 1
Assets:
Pension assets	0		0
Totals	0		0
Liabilities:
Derivative liabilities	0		0
Totals	0		0
Fair Value, Inputs, Level 2
Assets:
Pension assets	0		0
Totals	0		0
Liabilities:
Derivative liabilities	0		0
Totals	0		0
Fair Value, Inputs, Level 3
Assets:
Pension assets	1,711		1,713
Totals	1,711		1,713
Liabilities:
Derivative liabilities	535		369
Totals	$ 535		$ 369

FAIR VALUE ACCOUNTING (Details

FAIR VALUE ACCOUNTING (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Fair Value Disclosures [Abstract]
Fair value of plan assets, beginning	$ 1,675	$ 1,699	$ 1,713	$ 1,733
Return on plan assets	16	15	30	30
Company contributions and benefits paid, net	(23)	(19)	(33)	(30)
Effect of rate changes	43	26	1	(12)
Fair value of plan assets, ending	$ 1,711	$ 1,721	$ 1,711	$ 1,721

FAIR VALUE ACCOUNTING (Detail_2

FAIR VALUE ACCOUNTING (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Fair Value Disclosures [Abstract]
Derivative liabilities, beginning	$ 172	$ 1,489	$ 369	$ 1,065
(Gain) loss on change in fair value of derivative liabilities	363	(481)	166	(57)
Derivative liabilities, ending	$ 535	$ 1,489	$ 535	$ 1,489