<PAGE>


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 2001

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                        --------------------------------

                                   FORM 10QSB/A

                                    AMENDMENT 1
                        --------------------------------

(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
         EXCHANGE ACT

For the transition period from _____________________ to _______________________

                        Commission file number 333-93131

                             IMAGEWARE SYSTEMS, INC.
           (Name of small business issuer as specified in its charter)

           CALIFORNIA                                            33-0224167
(State or other jurisdiction of                                 (IRS Employer
 incorporation or organization)                              Identification No.)

                              10883 THORNMINT ROAD
                               SAN DIEGO, CA 92127
                    (Address of principal executive officers)

                                 (858) 673-8600
                           (Issuer's telephone number)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X  No
                                                             ---    ---

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 10, 2000 the
number of outstanding shares of the Registrant's common stock, par value
$.01, was 3,311,348.

<PAGE>


                             IMAGEWARE SYSTEMS, INC.
                                      INDEX

<TABLE>
<CAPTION>

                                                                                                 Page No.
                                                                                                 --------
<S>                                                                                              <C>
RESTATEMENT                                                                                         3

PART I   FINANCIAL INFORMATION

         ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)                                                  3

                  Condensed Consolidated Balance Sheets as of June 30, 2000
                  and December 31, 1999                                                             3

                  Condensed Consolidated Statements of Operations for the three and six months
                        ended June 30, 2000 and 1999                                                4

                  Condensed Consolidated Statement of Cash Flows for the six months
                        ended June 30, 2000 and 1999                                                5

                  Notes to Condensed Consolidated Financial Statements                              6


         ITEM 2.  Management's Discussion and Analysis of Financial                                 8
                  Condition and Results of Operations


PART II  OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS                                                                14

         ITEM 2.  CHANGES IN SECURITIES                                                            14

         ITEM 3.  DEFAULTS ON SENIOR SECURITIES                                                    14

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE                                                  14
                  OF SECURITY HOLDERS

         ITEM 5.  OTHER INFORMATION                                                                14

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                 14

</TABLE>


                                        2
<PAGE>


RESTATEMENT

The undersigned registrant hereby amends its Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2000 to amend Items 1 and 2 of Part 1 in its
entirety.

The Company is restating the financial statements filed with the Company's
Form 10-QSB for the three month period ending June 30, 2000 to revise the
accounting for a loan issued in November of 1999. The loan contained a
beneficial conversion feature, which required that a portion of the loan
proceeds be allocated to equity. Subsequent to issuance, the amount of the
beneficial conversion feature should have been recognized as interest expense
through the loan conversion date. As a result of the restatement, interest
expense and net loss increased by $889,000 in the 3 months ended March 31,
2000. During the second quarter ending June 30, 2000, the Company
extinguished the debt. The difference between the debt payment of $1,250,000
and the carrying amount of $628,000 was recorded as an extraordinary gain of
$622,000. This change has no impact on the Company's revenues, gross margins,
operating expenses, working capital or cash flows in those periods.

The Company is restating the financial statements filed with the Company's
Form 10-QSB for the three month period ending June 30, 2000 to reflect
additional stock-based compensation relative to a warrant issued for
consulting services. The restatement will reduce net income in the quarter
ended June 30, 2000 by $79,000. This change has no impact on the Company's
revenues, gross margins, working capital or cash flows in that period.

These items are further explained in Note 2 and Note 5 to these Condensed
Consolidated Financial Statements.

                                     PART I
                         FINANCIAL INFORMATION - ITEM 1.
                        FINANCIAL STATEMENTS (UNAUDITED)

                             IMAGEWARE SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>

                                                    6/30/00               12/31/99
                                                  -----------             --------
                                                  (UNAUDITED)
<S>                                               <C>                     <C>
Current Assets:
   Cash                                               7,665                   156
   Accounts receivable, net                           3,871                 2,920
   Inventory                                              8                   112
   Other Assets                                         320                   183
                                                  -----------             --------
        Total Current Assets                         11,864                 3,371

Property and Equipment, net                             202                   192
Intangible assets, net                                1,413                 2,347
                                                  -----------             --------
            TOTAL ASSETS                             13,479                 5,910
                                                  ===========             ========

           LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts Payable                                     438                 1,625
   Deferred Revenue                                     677                   853
   Accrued expenses                                   1,344                 2,227
   Deferred compensation                                  -                   294
   Accrued interest                                     170                   437
   Notes payable to bank                                  -                   500
   Notes payable to related parties                      56                 1,719
                                                  -----------             --------
             Total Current liabilities                2,685                 7,655

Notes Payable to Related Parties, Net of
  current portion                                         -                    36
                                                  -----------             --------
Total Liabilities                                     2,685                 7,691

Stockholders' equity (deficit):
   Common Stock at par value                             33                    12
   Preferred Stock                                        4                     4
   Additional paid in capital                        31,536                17,489
   Treasury Stock                                       (64)                    -
   Accumulated Deficit                              (20,715)              (19,286)
                                                  -----------             --------
              Total stockholders' equity             10,794                (1,781)
                                                  -----------             --------
            TOTAL EQUITY AND LIABILITIES             13,479                 5,910
                                                  ===========             ========

</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                        3
<PAGE>


                             IMAGEWARE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                      JUNE 30,
                                                            2000          1999            2000        1999
                                                         ---------     ---------       ---------   ---------
<S>                                                      <C>           <C>             <C>         <C>
REVENUES:
  Product                                                    1,688           664           3,115       1,417
  Maintenance                                                  356           385             627         742
  License and other                                             24            43              58          81
                                                         ---------     ---------       ---------   ---------
                                                             2,068         1,092           3,800       2,240

Cost of revenue
Product                                                        312           317             868         554
Maintenance                                                    310           222             617         430
                                                         ---------     ---------       ---------   ---------
Gross profit                                                 1,446           553           2,315       1,256
                                                         ---------     ---------       ---------   ---------
Operating, Gen & Admin.                                        752           791           1,391       1,167
Sales and marketing                                            301           281             702         495
Research & Development                                         302           265             624         569
Depreciation and amortization                                  252           262             496         533
                                                         ---------     ---------       ---------   ---------
                                                             1,607         1,599           3,213       2,764

Loss from Operations                                          (161)       (1,046)           (898)     (1,508)

Interest (income) expense, net                                 (87)          104             973         192

Income (loss) before income taxes                              (74)       (1,150)         (1,871)     (1,700)

Tax provision                                                    -             -               -           -

Extraordinary item:
   Gain on debt extinguishment
      net of income taxes of $0                                622             -             622           -
                                                         ---------     ---------       ---------   ---------
Net income (loss)                                              548        (1,150)         (1,249)     (1,700)
                                                         =========     =========       =========   =========

Basic earnings (loss) per share - see note 2

   Earnings (loss) before extraordinary item             $   (0.03)    $   (1.23)      $   (0.87)  $   (1.88)
   Extraordinary item                                         0.19             -            0.28           -
   Earnings (loss) per share                                  0.16         (1.23)          (0.59)      (1.88)

Weighted average shares (basic)                          3,220,989       949,135       2,198,346     924,108

</TABLE>

     See accompanying notes to condensed consolidated financial statements


                                        4
<PAGE>


                             IMAGEWARE SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                            (IN THOUSANDS; UNAUDITED)

<TABLE>
<CAPTION>

                                                                    Six Months                Six Months
                                                                   Ended June 30,            Ended June 30,
                                                                        2000                       1999
<S>                                                                 <C>                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                          $  (1,249)                 $  (1,700)
  Adjustments to reconcile net loss to net cash
   used by operating activities
     Depreciation and amortization                                        496                        543
     Noncash compensation and fees                                        129                        348
     Deferred revenue                                                       -                          -
     Change in assets and liabilities
       Accounts receivable, net                                          (951)                      (476)
       Inventory                                                          104                        (24)
       Other current assets                                              (137)                        13
       Other long-term assets                                            (332)                        (6)
       Accounts payable                                                (1,187)                       148
       Accrued expenses                                                  (808)                       532
       Deferred compensation                                             (294)                         -
       Accrued interest                                                    62                         70
       Deferred revenue                                                  (176)                        93
                                                                    ----------                 ----------
         Total adjustments                                             (3,094)                     1,241
                                                                    ----------                 ----------

         Net cash used by operating activities                         (4,343)                      (459)
                                                                    ----------                 ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                      (65)                        (8)
                                                                    ----------                 ----------

         Net cash used by investing activities                            (65)                        (8)
                                                                    ----------                 ----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of notes payable                                  56                        500
  Repayment of loans                                                   (3,473)                       (10)
  Proceeds from issuance of stock, net of issuance costs               15,579                          -
  Repurchase of common stock                                              (64)                         -
  Dividends paid                                                         (181)                         -
                                                                    ----------                 ----------

         Net cash (used)/provided by financing activities              11,917                        490
                                                                    ----------                 ----------

         Net (decrease) increase) in cash                               7,509                         23

Cash at beginning of period                                               156                         46
                                                                    ----------                 ----------

         Cash at end of period                                      $   7,665                  $      69
                                                                    ==========                 ==========

NON-CASH TRANSACTIONS
  Value allocated to warrants for services                                 82
  Issuance of stock for loan guarantee                                                               348

SUPPLEMENTAL CASH FLOWS INFORMATION
  Cash paid for interest                                                  377                         66

</TABLE>

     See accompanying notes to condensed consolidated financial statements


                                        5
<PAGE>


                             IMAGEWARE SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. BASIS OF PRESENTATION

The preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

The accompanying condensed consolidated unaudited financial statements of
ImageWare Systems, Inc. ("ImageWare" or the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with consolidated financial statements for the year ended December 31, 1999 and
notes thereto included in the Company's SB-2 registration statement dated March
30, 2000. In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments, consisting of only normal
recurring items, necessary for a fair presentation of the Company's financial
position as of June 30, 2000 and its results of operations for the six months
ended June 30, 2000 and 1999, respectively. These condensed consolidated
unaudited financial statements are not necessarily indicative of the results to
be expected for the entire year.

NOTE 2. RESTATEMENT

The second quarter balance sheet has been restated as follows:

<TABLE>
<CAPTION>
                                              December 31, 1999
                                       As reported           As restated
                                       -----------           -----------
<S>                                    <C>                   <C>
Note payable to
   related parties, net of
   current portion(2)                         925                   36
Total Liabilities                           8,580                7,691
Additional paid-in capital(2)              16,600               17,489
Total stockholders' equity(2)              (2,670)              (1,781)

</TABLE>

The second quarter results have been restated as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED                               SIX MONTHS ENDED
                                                        June 30, 2000                                   June 30, 2000
                                                  AS                      AS                     AS                       AS
                                               REPORTED                RESTATED               REPORTED                 RESTATED
                                             ------------             ------------         --------------           --------------
<S>                                          <C>                      <C>                  <C>                      <C>
General & Administrative expense(1)                $ 673                  $   752                $ 1,312                  $ 1,391
Loss from Operations                               $ (82)                 $  (161)               $  (819)                 $  (898)
Interest expense, net(2)                           $ (87)                 $   (87)               $    84                  $   973
Income (loss) before income taxes                  $   5                  $   (74)               $  (903)                 $(1,871)
Extraordinary item:
  Gain on extinguishment of debt,
    net of income tax of $0(2)                     $   -                  $   622                $     -                  $   622
Net income (loss)                                  $   5                  $   548                $  (903)                 $(1,249)
Basic earnings (loss) per share:
  Earnings (loss) before extraordinary item        $   -                  $ (0.03)               $ (0.43)                 $ (0.87)
  Extraordinary item                               $   -                  $  0.19                $     -                  $  0.28
  Earnings (loss) per share                        $   -                  $ (0.16)               $ (0.43)                 $ (0.59)

</TABLE>

(1)      The Company recorded an expense of $79,000 to properly record the
         issuance of common stock purchase warrants for consulting services.

(2)      During the quarter ended March 31, 2000, the Company recorded
         interest expense of $889,000 due to the convertibility feature
         embedded in a debt instrument. The value of this beneficial
         conversion feature was measured using its intrinsic value, i.e. the
         excess of the aggregrate fair value of the common stock into which
         the debt is convertible over the proceeds allocated to the security.
         The intrinsic value of the beneficial conversion feature of
         approximately $10 million exceeded the proceeds allocated to the
         debt of approximately $899,000; therefore the Company limited
         recognition of the beneficial conversion feature to approximately
         $899,000 of proceeds allocated to the debt. The beneficial
         conversion feature was treated as a discount on the Note, as such, a
         portion of the loan proceeds were allocated to additional paid-in
         capital. The Company accreted the entire amount of the beneficial
         conversion feature as interest expense over the period beginning on
         the date of issuance, November 10, 1999 and ending on the date the
         note became immediately convertible, April 1, 2000, using the
         effective interest rate method.

         During the second quarter ending June 30, 2000, the Company
         extinguished the debt. The difference between the debt payment of
         $1,250,000 and the carrying amount of $628,000 was recorded as an
         extraordinary gain of $622,000.

NOTE 3.   EARNINGS PER COMMON SHARE

Effective November 29, 1999, the Company declared a 5.275-for-1 reverse stock
split of common stock. All references to the number of shares, per share
amounts, conversion amounts and stock option data of the Company's common stock
have been restated to reflect this reverse stock split for all periods
presented.

Basic earnings per common share is calculated by dividing net income (loss)
available to common shareholders for the period by the weighted-average number
of common shares outstanding during the period. Diluted earnings per common
share is calculated by dividing net income (loss) available to common
shareholders for the period by the weighted-average number of common shares
outstanding during the period, increased to include, if dilutive, the number of
additional common shares that would have been outstanding if the potential
common shares had been issued. The dilutive effect of outstanding stock options
is included in the calculation of diluted earnings per common share using the
treasury stock method. During the period ended June 30, 1999 and 2000, the
Company has excluded all convertible preferred stock and outstanding stock
options from the calculation of diluted loss per share, as their effect would
have been antidilutive.

The following table sets forth the computation of basic and diluted loss per
share for the periods ended June 30, 1999 and 2000:


                                        6
<PAGE>


<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                         JUNE 30,                               JUNE 30,
                                                   2000              1999                 2000              1999
                                               ------------      ------------        ------------       ------------
<S>                                            <C>               <C>                 <C>                <C>
Numerator
     (Loss) before income taxes and
        extraordinary item                     $        (74)     $     (1,150)       $     (1,871)      $     (1,700)
     Less Series B preferred dividends                  (21)              (21)                (41)               (41)
                                               ------------      ------------        ------------       ------------

     Loss available to common shareholders
        before extraordinary item                       (95)           (1,171)             (1,912)            (1,741)
                                               ------------      ------------        ------------       ------------

     Extraordinary item - see note 5                    622                 -                 622                  -
                                               ------------      ------------        ------------       ------------

     Net income (loss) available to common
        shareholders                                    527            (1,171)             (1,290)            (1,741)
                                               ============      ============        ============       ============

Denominator
     Weighted-average shares outstanding          3,220,989           949,135           2,198,346            924,108
                                               ============      ============        ============       ============

     Basic and diluted earnings per share
        before extraordinary item              $      (0.03)     $      (1.23)       $      (0.87)      $      (1.88)
     Extraordinary item                        $       0.19      $          -        $       0.28       $          -
     Net income (loss) per share               $       0.16      $      (1.23)       $      (0.59)      $      (1.88)

</TABLE>

NOTE 4.  RELATED PARTY TRANSACTIONS.

On March 30, 2000, two officers of the Company loaned ImageWare $58,000 pursuant
to short-term promissory notes. This debt was incurred to meet working capital
needs. The entire amount of the notes was due on the date the Company closed its
Initial Public Offering. The loan was paid in full on April 5, 2000.

On June 15, 2000, the Company paid in full two short-term promissory notes due
an officer of the Company and member of the Board of Directors in accordance
with the maturity date of these notes.

NOTE 5.  INITIAL PUBLIC OFFERING

On March 31, 2000, the Company completed an IPO of 1,875,000 units, (units
consists of one share of common stock and a warrant to purchase one share of
common stock) at $8.00 per unit. Net proceeds to ImageWare aggregated
approximately $13.5 million. The IPO proceeds were received by the Company on
April 5, 2000. On May 2, 2000 the Company received approximately $2.0 million in
additional net proceeds from the exercise the of the over allotment option by
the underwriter to sell an additional 281,250 units. The Company utilized
approximately $3.5 million of the proceeds to reduce notes payable in the second
quarter of 2000.

NOTE 6.  NOTES PAYABLE AND EXTRAORDINARY ITEM

In November 1999, the Company issued a convertible promissory note for
$1,250,000 at an interest rate of 10%, due the earlier of February 10, 2001 or
five days following the closing of an IPO, to an individual affiliated with
Atlus Co. (which beneficially owns approximately 31% of the Company's common
shares outstanding). Under the terms of the note, the principal amount is fixed
in Japanese yen and shall be repaid in U.S. dollars at a fixed (104.55 Japanese
yen per U.S. dollar) conversion rate established on the date of issuance. If the
principal and interest has not been paid prior to April 1, 2000, the note
becomes convertible to common stock at $1.00 per share. In conjunction with the
note, the Company issued the individual a warrant to purchase 125,000 shares of
common stock for $6.00 per share. The Company has recorded the note net of a
discount equal to the fair value allocated to the warrants issued of
approximately $361,000.

The Company recorded a charge of $889,000 for the beneficial conversion feature
embedded in this debt instrument during the first quarter 2000. The value of the
beneficial conversion feature was measured using its intrinsic value, i.e., the
excess of the aggregate fair value of the common stock into which the debt is
convertible over the proceeds allocated to the security. The intrinsic value of
the beneficial conversion feature of approximately $10 million exceeded the
proceeds allocated to the debt of approximately $889,000; therefore, the Company
limited recognition of the beneficial conversion feature to the approximately
$889,000 of proceeds allocated to the debt. The Company accreted the entire
amount of the beneficial conversion feature as interest expense over the period
from the date of issuance, November 10, 1999, to the date the note becomes
immediately convertible, April 1, 2000, using the effective interest method.

On April 5, 2000, the Company used a portion of the proceeds from its initial
public offering to extinguish this outstanding debt. The difference between
the debt payment amount of $1,250,000 and the carrying amount of the debt of
approximately $628,000 was recorded as an extraordinary gain of $622,000.

                                       7
<PAGE>


NOTE 7.  LETTER OF CREDIT

As collateral for performance on the Company's operating lease for its office
and research and development facilities, the Company is contingently liable
under an irrevocable standby letter of credit in the amount of $120,000. The
letter of credit expires July 31, 2003 and will automatically reduce to $90,000
on August 1, 2000, $60,000 on August 1, 2001, and $30,000 on August 1, 2002
provided there are no drawings against the outstanding balance. As a condition,
the bank required the Company to invest $120,000 in the form of a one year
certificate of deposit which matures in June 2001.

NOTE 8.  SUBSEQUENT EVENTS

On July 7, 2000 ImageWare announced that it had signed a definitive agreement to
acquire Imaging Technology Corporation ("ITC") of Hudson, MA in a stock
transaction.

Founded in 1994, ITC develops digital imaging software for photo identification
cards and documents. ITC's software is used for driver's licenses, voter
registration programs, national ID programs, passport programs and for public
and private security applications.

ITC sells its ID software worldwide through OEMs, agents, resellers and system
integrators such as Sensormatic/Software House, Polaroid, and Cardkey/Johnson
Control.

ITC has powered solutions ranging from a Polaroid branded ID card product, ID
Cardmaker-TM-, to full identification solutions for Massachusetts Institute of
Technology, the U.S. Bureau of Engraving and Printing, JFK International Airport
and for the countries such as Nigeria and Peru.



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.

Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risk and uncertainties.
ImageWare Systems, Inc.'s ("ImageWare" or "the Company") future results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include but are not limited to: fluctuations in
the Company's operating results, continued new product introductions by the
Company, market acceptance of the Company's new product introductions, new
product introductions by competitors, technological changes in the digital
imaging industry, uncertainties regarding intellectual property rights and the
other factors referred to herein including, but not limited to, the items
discussed under "Risk Factors" in the Company's SB-2 registration statement
dated March 30, 2000.

The following discussion should be read in conjunction with the consolidated
financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly results may occur as a result of factors
affecting demand for the Company's products such as the timing of the Company's
and competitors' new product introductions and the Company's customers'
political and budgetary constraints. Due to such fluctuations, historical
results and percentage relationships are not necessarily indicative of the
operating results for any future period.


                                       8
<PAGE>


OVERVIEW

ImageWare Systems, Inc. develops, sells and supports a suite of modular software
products used by law enforcement and public safety agencies to manage criminal
history records and to investigate crime. Its software systems and associated
hardware enable its customers to quickly capture, archive, search, retrieve and
share digital photographs and criminal history records.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 AND 1999

REVENUES. Product revenues increased 154% from $0.7 million for the three months
ended June 30, 1999 to $1.7 million for the corresponding period in 2000. The
increase reflected the further purchases of the Crime Capture System by new and
existing customers. The backlog of product orders as of June 30, 2000 was
approximately $1.1 million.

Customer service revenues decreased 8% from $385,000 for the three months ended
June 30, 1999 to $356,000 for the corresponding period in 2000. In 1999, the
Company offered its UNIX-based customers incentives to upgrade to the
Windows-based Crime Capture System. As part of the upgrade incentives, the
customers received reduced maintenance fees in 1999, a portion of which carried
over into 2000 due primarily to the timing of the installations late in 1999
with maintenance commencing 90 days after final system acceptance. These price
reductions were justified based upon the need to consolidate the number of
versions of systems the Company would have to support and to avoid the cost of
bringing the older installations into Y2K compliance. The Company does not
expect to offer similar price reductions in the future and expects customer
service revenues to increase along with its expanded installed base.

COST OF REVENUES. Cost of products and maintenance increased 15% from $0.5
million, or 49% of revenue, for the three months ended June 30, 1999 to $0.6
million, or 30% of revenue for the corresponding period in 2000. Cost of product
revenues was unchanged from $0.3 million in 1999 to $0.3 million for the
corresponding period in 2000. Cost of product revenues as a percentage of
product sales decreased from 48% for the three months ended June 30, 1999 to 18%
for the corresponding period in 2000. This reduction was due to a higher than
normal concentration of software only product mix during the three months ended
June 30, 2000. Costs of products can vary as a percentage of product revenue
from quarter to quarter depending upon product mix and the hardware content
included in systems installed during a given period. Costs of maintenance
revenue increased $0.1 million as the Company increased staffing levels to
maintain optimal service to its expanding installed base.

GROSS MARGINS. Total gross margins increased from $0.6 million, or 51% of
revenues, for the three month period ended June 30, 1999 to $1.4 million, or 70%
of revenues for the corresponding period in 2000. Gross margins related to
product sales increased from $0.3 million, or 52% of revenues, to $1.4 million
or 82% of revenues for the corresponding period in 2000 due to an
uncharacteristically high product mix of software only components. Gross margins
related to maintenance revenues decreased from $163,000 for the three months
ended June 30, 1999 to $46,000 for the corresponding period in 2000 due to
increased staffing levels and the impact of the upgrades of the Company's UNIX
based customers on maintenance revenue.

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses are comprised primarily of salaries for administrative
personnel, legal and professional services, occupancy and communication costs.
Such expenses decreased 4% from $0.8 million for the three months ended June
30, 1999 to $0.7 million for the corresponding period in 2000 due primarily to a
one-time charge for costs associated with loan guarantees by certain officers
and directors of the Company in 1999.

SALES AND MARKETING. Sales and marketing expenses consist primarily of the
salaries, commissions, other incentive compensation, employee benefits and
travel expenses of the Company's sales force. Such expenses increased 7% from
$281,000 for the three months ended June 30, 1999 to $301,000 for the
corresponding period in 2000 due primarily to increased salaries as the Company
enlarged and restructured its sales force to better capture market
opportunities.


                                       9
<PAGE>


RESEARCH AND DEVELOPMENT. Research and development costs consist primarily of
salaries, employee benefits and outside contractors for new product development,
product enhancements and custom integration work. Such expenses increased 14%
for the three months ended June 30, 1999 from $265,000 in 1999 to $302,000 for
the corresponding period in 2000. The Company expects to continue to invest in
the development of products for which it believes there is a need in the market,
however, there can be no assurance that research and development programs
invested in by the Company will be successful or that products resulting from
such programs will achieve market acceptance.

INTEREST EXPENSE, NET. For the three months ended June 30, 1999, the Company
recognized interest income of $2,000 and interest expense of $106,000. For the
three months ended June 30, 2000, the Company recognized interest income of
$102,000 and interest expense of $15,000. Interest income increased
substantially due to higher cash and cash equivalents held in interest bearing
accounts, resulting from the proceeds of the Company's initial public offering.
Interest expense decreased substantially due to the paydown of interest bearing
obligations.

EXTRAORDINARY ITEM.

In November 1999, the Company issued a convertible promissory note for
$1,250,000 at an interest rate of 10%, due the earlier of February 10, 2001
or five days following the closing of an IPO, to an individual affiliated
with Atlus Co. (which beneficially owned approximately 31% of the Company's
common shares outstanding at the date of note issuance). Under the terms of
the note, the principal amount is fixed in Japanese yen and shall be repaid
in U.S. dollars at a fixed (104.55 Japanese yen per U.S. dollar) conversion
rate established on the date of issuance. If the principal and interest has
not been paid prior to April 1, 2000, the note becomes convertible to common
stock at $1.00 per share. In conjunction with the note, the Company issued
the individual a warrant to purchase 125,000 shares of common stock for $6.00
per share. The Company has recorded the note net of a discount equal to the
fair value allocated to the warrants issued of approximately $361,000.

The Company recorded a charge of $889,000 for the beneficial conversion feature
embedded in this debt instrument. The value of the beneficial conversion feature
was measured using its intrinsic value, i.e., the excess of the aggregate fair
value of the common stock into which the debt is convertible over the proceeds
allocated to the security. The intrinsic value of the beneficial conversion
feature of approximately $10 million exceeded the proceeds allocated to the debt
of approximately $889,000; therefore, the Company limited recognition of the
beneficial conversion feature to the approximately $889,000 of proceeds
allocated to the debt. The Company accreted the entire amount of the beneficial
conversion feature as interest expense over the period from the date of
issuance, November 10, 1999, to date the note becomes immediately convertible,
April 1, 2000, using the effective interest method.

On April 5, 2000, the Company used a portion of the proceeds from its initial
public offering to extinguish this outstanding debt. The difference between
the debt payment amount of $1,250,000 and the carrying amount of the debt of
approximately $628,000 was recorded as an extraordinary gain of $622,000.

SIX MONTHS ENDED JUNE 30, 1999 AND 2000

REVENUES. Product revenues increased 120% from $1.4 million for the six months
ended June 30, 1999 to $3.1 million for the corresponding period in 2000. The
increase reflected the further purchases of the Crime Capture System by new and
existing customers.

Customer service revenues decreased 15% from $0.7 million for the six months
ended June 30, 1999 to $0.6 million for the corresponding period in 2000. In


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1999, the Company offered its UNIX-based customers incentives to upgrade to the
Windows-based Crime Capture System. As part of the upgrade incentives, the
customers received reduced maintenance fees in 1999, a portion of which carried
over into 2000 due primarily to the timing of the installations late in 1999
with 90 day warranties and maintenance commencing 90 days after final system
acceptance. These price reductions were justified based upon the need to
consolidate the number of versions of systems the Company would have to support
and to avoid the cost of bringing the older installations into Y2K compliance.
The Company does not expect to offer similar price reductions in the future and
expects customer service revenues to increase along with its expanded installed
base.

COST OF REVENUES. Cost of products and maintenance increased 51% from $1.0
million, or 44% of revenue, for the six months ended June 30, 1999 to $1.5
million, or 39% of revenue for the corresponding period in 2000. Cost of product
revenues increased 57% from $0.6 million, or 39% of revenue in 1999 to $0.9
million, or 28% of revenue for the corresponding period in 2000. The decrease in
product revenues as a percentage of product sales from 39% for the six months
ended June 30, 1999 to 28% for the corresponding period in 2000 was due to a
higher than normal concentration of software only product mix during the six
months ended June 30, 2000. Costs of products can vary as a percentage of
product revenue from quarter to quarter depending upon product mix and the
hardware content included in systems installed during a given period. Costs of
maintenance revenue increased $0.2 million as the Company increased staffing
levels to maintain optimal service to its expanding installed base.

GROSS MARGINS. Total gross margins increased from $1.3 million, or 56% of
revenues, for the six month period ended June 30, 1999 to $2.3 million, or 61%
of revenues for the corresponding period in 2000. Gross margins related to
product sales increased from $0.9 million, or 61% of revenues, to $2.2 million
or 72% of revenues for the corresponding period in 2000. Gross margins related
to maintenance revenues decreased from $312,000 for the six months ended June
30, 1999 to $10,000 for the corresponding period in 2000 due to increased
staffing levels and the impact of the upgrades of the Company's UNIX based
customers on maintenance revenue.

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses are comprised primarily of salaries for administrative
personnel, legal and professional services, occupancy and communication costs.
Such expenses increased 19% from $1.2 million for the six months ended June 30,
1999 to $1.4 million for the corresponding period in 2000.

SALES AND MARKETING. Sales and marketing expenses consist primarily of the
salaries, commissions, other incentive compensation, employee benefits and
travel expenses of the Company's sales force. Such expenses


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<PAGE>


increased 42% from $0.5 million for the six months ended June 30, 1999 to $0.7
million for the corresponding period in 2000 due primarily to increased salaries
and commissions as the Company enlarged and restructured its sales force to
better capture market opportunities.

RESEARCH AND DEVELOPMENT. Research and development costs consist primarily of
salaries, employee benefits and outside contractors for new product development,
product enhancements and custom integration work. Such expenses increased 10%
from $569,000 in 1999 to $624,000 for the corresponding period in 2000. The
Company expects to continue to invest in the development of products for which
it believes there is a need in the market; however, there can be no assurance
that research and development programs invested in by the Company will be
successful or that products resulting from such programs will achieve market
acceptance.

INTEREST EXPENSE, NET. The Company recorded total interest expense of
$1,078,000, net of interest income of $105,000 for the six months ended June
30, 2000 of which $889,000 relates to the accretion of a beneficial conversion
feature embedded in the Company's convertible promissory note issued in
November 1999, as more fully explained in Note 5 to these Condensed
Consolidated Financial Statements.

Exclusive of this charge, for the six months ended June 30, 1999, the Company
recognized interest income of $3,000 and interest expense of $195,000. For
the six months ended June 30, 2000, the Company recognized interest income of
$105,000 and interest expense of $189,000. Interest income increased
substantially due to higher cash and cash equivalents held in interest
bearing accounts, resulting from the proceeds of the Company's IPO, such
proceeds received by the Company on April 5, 2000.

EXTRAORDINARY ITEM.

In November 1999, the Company issued a convertible promissory note for
$1,250,000 at an interest rate of 10%, due the earlier of February 10, 2001
or five days following the closing of an IPO, to an individual affiliated
with Atlus Co. (which beneficially owned approximately 31% of the Company's
common shares outstanding at the date of note issuance). Under the terms of
the note, the principal amount is fixed in Japanese yen and shall be repaid
in U.S. dollars at a fixed (104.55 Japanese yen per U.S. dollar) conversion
rate established on the date of issuance. If the principal and interest has
not been paid prior to April 1, 2000, the note becomes convertible to common
stock at $1.00 per share. In conjunction with the note, the Company issued
the individual a warrant to purchase 125,000 shares of common stock for $6.00
per share. The Company has recorded the note net of a discount equal to the
fair value allocated to the warrants issued of approximately $361,000.

The Company recorded a charge of $889,000 for the beneficial conversion feature
embedded in this debt instrument. The value of the beneficial conversion feature
was measured using its intrinsic value, i.e., the excess of the aggregate fair
value of the common stock into which the debt is convertible over the proceeds
allocated to the security. The intrinsic value of the beneficial conversion
feature of approximately $10 million exceeded the proceeds allocated to the debt
of approximately $889,000; therefore, the Company limited recognition of the
beneficial conversion feature to the approximately $889,000 of proceeds
allocated to the debt. The Company accreted the entire amount of the beneficial
conversion feature as interest expense over the period from the date of
issuance, November 10, 1999, to date the note becomes immediately convertible,
April 1, 2000.

On April 5, 2000, the Company used a portion of the proceeds from its initial
public offering to extinguish this outstanding debt. The difference between
the debt payment amount of $1,250,000 and the carrying amount of the debt of
approximately $628,000 was recorded as an extraordinary gain of $622,000.

LIQUIDITY AND CAPITAL RESOURCES. Since inception, the Company has funded
operations primarily from proceeds from the sale of stock and borrowings from


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<PAGE>


individuals and financial institutions. On March 31, 2000, the Company completed
an IPO of 1,875,000 units, (units consist of one share of commons stock and a
warrant to purchase one share of common stock) at $8.00 per unit. Net proceeds
to ImageWare aggregated approximately $13.5 million. The IPO proceeds were
received by the Company on April 5, 2000. On May 2, 2000 the Company received
approximately $2.0 million in additional net proceeds from the exercise of the
over allotment option by the underwriter to sell an additional 281,250 units.

As of June 30, 2000, ImageWare had total current assets of $11.9 million and
total current liabilities of $2.7 million, or working capital of $9.2 million.

Net cash used in operating activities was $0.5 million for the six months ending
June 30, 1999 as compared to $4.3 million for the six months ending June 30,
2000. The Company used cash to fund net losses of $1.7 million for the six
months ended June 30, 1999 and $1.2 million for the corresponding period in
2000. In 1999, the Company used cash of $0.5 million to fund increases in
current assets offset by increases in current liabilities of $0.8 million
(excluding debt) and $0.9 from non cash expenses (depreciation, amortization and
non cash compensation). In 2000, the Company used cash of $1.3 million to fund
increases in current assets and other long-term assets, $2.6 million from
decreases in current liabilities and deferred revenues (excluding debt) offset
by $0.6 million from non cash expenses (depreciation, amortization and non-cash
compensation).

Net cash generated by financing activities was $0.5 million for the six months
ending June 30, 1999 as compared to $12.0 million for the corresponding period
of 2000. Net cash generated for the six months ending June 30, 2000 was
primarily from net proceeds of $15.6 million from the company's IPO, completed
March 31, 2000, offset by repayment of loans of $3.4 million, dividends paid on
the Company's Series B preferred stock of $181,000 and the repurchase of the
Company's common stock of $64,000.

The Company believes that the funds held in cash and cash equivalents and funds
provided by operations will be sufficient to finance its working capital
requirements for at least the next twelve months.

The Company is currently considering strategic transactions and alternatives
with the goal of maximizing stockholder value. These transactions may include a
variety of different business arrangements, including acquisitions, strategic
partnerships, joint ventures and business combinations. Such transactions create
a number of risks for the Company, including the risk that such transactions may
not be consummated on favorable terms or at all, the risk that such transactions
may not enhance stockholder value and may adversely affect the business or the
trading price of the Company's stock and the risk that any such transaction may
require the Company to incur non-recurring or other charges and may pose
significant integration challenges and/or management and business disruptions.


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<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          The Company is currently not a party to any material legal
          proceedings.

ITEM 2.   CHANGES IN SECURITIES

          On March 30, 2000, the Securities and Exchange Commission declared the
          Company's Amendment No. 2 of the Registration Statement on Form SB-2
          (333-93131) effective under the Securities Act of 1933, as amended.
          The registered securities were offered to the public on March 31,
          2000, and the offering terminated on the same day, with the sale of
          all of the registered securities. The managing underwriters of the
          offering were Paulson Investment Company, Inc. and I-Bankers
          Securities, Inc.

          As of March 31, 2000, the Company sold 1,875,000 of the 2,156,250
          units registered for an aggregate offering price for the amount sold
          of $15,000,000. The aggregate price of the offering amount registered
          was $17,250,000. Each unit consists of one share of common stock and
          one public warrant to purchase an additional share of common stock.
          The common stock and public warrants traded only as a unit until May
          1, 2000, when the units separated and the common stock and warrants
          began trading separately.

          On April 18, 2000, the Company repurchased 6,704 shares of common
          stock for an aggregate price of $63,688.

          On May 2, 2000, the Company sold the remaining 281,250 units
          registered for an aggregate offering price of $2,250,000.

ITEM 3.   DEFAULTS ON SENIOR SECURITIES
          Not Applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          Not Applicable.

ITEM 5.   OTHER INFORMATION
          Not Applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          Not Applicable.


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                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                IMAGEWARE SYSTEMS, INC.




                                By: /s/ Wayne Wetherell
                                    ----------------------------------------
                                        Wayne Wetherell, Chief Financial Officer

                                Date: April 2, 2001


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