ImageWare Systems Reports Preliminary Fourth Quarter and Year End 2007 Results

SAN DIEGO--(Business Wire)--
ImageWare(R) Systems, Inc. (AMEX:IW), a leading developer and
provider of identity management solutions, reported preliminary
financial results for the fourth quarter and year ended Dec. 31, 2007.

"In 2007, we continued our focus on building relationships with
major systems integrators, which produced important wins with GE
Security, Unisys, Boeing, Motorola, and others," stated Jim Miller,
ImageWare's chairman and chief executive officer. "Our efforts have
begun to deliver results. Today we announced new orders totaling $3.5
million from multiple customers, the majority of which were received
in the last two weeks. We expect $1.3 million of the related revenue
to be recognized in the first quarter with the remainder recognized in
the second and third quarters of 2008. However, the fourth quarter
2007 government budget freeze affected our fourth quarter and full
year 2007 results and delayed the positive impact of our efforts and
success."

Miller added, "These recent orders, the fruit of our expanded
relationships with major systems integrators and government
organizations, validate our strategy and prove our ability to
integrate our solution into large-scale biometric projects. Demand
continues for our identity management solutions and showcases our
interoperable and cross-functional solutions. After completing the Sol
Logic, Inc. integration and introducing the IWS(TM) Mediator(TM) in
February, we are experiencing sooner than expected high demand for our
real-time voice recognition and multi-lingual translation technology.
We look forward to delivering more of our solutions as we broaden our
customer base and increase our offerings to existing customers."

Total net revenues for the fourth quarter 2007 were $1.9 million,
compared to $2.4 million for the fourth quarter 2006 due primarily to
lower product revenue recognition in the quarter. During 2007, the
company implemented its plan to shift from a direct sales model to an
indirect model through partnering, which resulted in lower sales and
marketing costs. These changes, combined with lower stock based
compensation expense and lower consulting and professional services
expenditures, reduced operating expenses to $2.5 million in the fourth
quarter 2007, compared to $2.8 million in the fourth quarter of 2006.
This resulted in an improved net loss available to common shareholders
for the fourth quarter of 2007 of $1.4 million, compared to $1.6
million in the fourth quarter of 2006. Net loss per share was $0.08
for the fourth quarter, compared to a net loss per share of $0.11 in
the fourth quarter of 2006.

For the full year 2007, total net revenues were $8.5 million,
compared to $10.2 million for 2006. 2007 gross margins improved to 70
percent, up from 67 percent for 2006. The company reduced operating
expenses by $1.5 million, with the largest reduction of $920,000 in
sales and marketing costs. Net loss available to common shareholders
for 2007 was $5.9 million, which included $1.2 million of preferred
dividends, or $0.39 per share, as compared to $6.0 million, or $0.44
per share, for 2006.

As of Dec. 31, 2007, ImageWare Systems had cash of $1.0 million.

Financial Guidance

Miller concluded, "We experienced more activity in the last two
weeks of the first quarter of 2008 than we have in the company's
history, resulting in a March 31, 2008 backlog of $2.9 million. In
summary, we have set the stage for a stronger year, and we estimate
revenues for the 2008 first quarter to be approximately $2.3 million."

Recent and Fourth Quarter 2007 Customer Developments

-- Selected by GE Security for its FUPAC (Florida Uniform Port
Access Credential) project.

-- Won a one-year, multiple-award initial task order contract
from Boeing Integrated Defense Systems unit.

-- Signed a three-year, royalty-based, worldwide OEM agreement
with GE Security as an integral part of its identity
management solution offerings.

-- Signed a two-year, non-exclusive distribution agreement with
iBilt Technologies Ltd., a New Delhi based end-to-end IT
solutions provider for government IT business.

Recent and Fourth Quarter 2007 Product Developments

-- Acquired the assets of Sol Logic, Inc., a leader in real-time
voice recognition and language translation technology.

-- Launched IWS(TM) Mediator(TM), a suite of multilingual
translation, collaborative and integrated multimodal biometric
capabilities.

-- Awarded patent for a multimodal biometric identification or
authentication system.

-- Received technology excellence and superior performance
recognition for the IWS(TM) Biometric Engine(R) platform in
conjunction with the Technology-to-Sea Excellence Award to the
Navy's Tactical Biometric Collection and Matching System
(TBCMS) team.

-- Received Minutiae interoperability Exchange (MINEX)
Certification from the National Institute of Standards and
Technology (NIST) for the IWS(TM) Biometric Engine(R).

-- Awarded a certificate of completion for HSPD-12 Vendor
Evaluation as a member of the Science Applications
International Corporation (SAIC) team.

Conference call information

A conference call on ImageWare's fourth-quarter and year-end
earnings will be conducted today. The conference call will be
conducted at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) and will
be available to all interested parties by dialing 877-407-9210 in the
U.S. or 201-689-8049, if outside of the U.S. The call will also be
available through a live audio web broadcast at
www.iwsinc.com/investors.cfm.

The call will be archived and available for replay from the
investor relations page of ImageWare's web site at www.iwsinc.com
until June 30, 2008. The call will also be available for replay until
April 2, 2008 by calling 877-660-6853 in the U.S. or 201-612-7415, if
outside of the U.S. To access the call, all parties will need the
following replay pass codes: Account #286 and Conference ID # 280040.

About ImageWare Systems, Inc.

ImageWare Systems, Inc. (AMEX:IW) is a leading developer and
provider of identity management solutions, providing biometric, secure
credential, law enforcement and digital imaging technologies. Scalable
for worldwide deployment, the Company's biometric product line
includes a multi-biometric engine that is hardware and algorithm
independent, enabling the enrollment and management of unlimited
population sizes. ImageWare's identification products are used to
manage and issue secure credentials including national IDs, passports,
driver licenses, smart cards and access control credentials.
ImageWare's digital booking products provide law enforcement with
integrated mug shot, fingerprint Livescan and investigative
capabilities. ImageWare is headquartered in San Diego, with offices in
Washington DC and Canada. For more information visit www.iwsinc.com.

Safe Harbor Statement

This news release may contain forward-looking statements made
pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. While these statements are meant to
convey to the public the company's progress, business opportunities
and growth prospects, readers are cautioned that such forward-looking
statements represent management's opinion. While management believes
such representation to be true and accurate based on the information
available to the company, actual results may differ materially from
those described. The company's operations and business prospects are
always subject to risks and uncertainties. Important facts that may
cause actual results to differ are set forth in the company's periodic
filings with the U.S. Securities and Exchange Commission.

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IMAGEWARE SYSTEMS, INC.
SELECTED COMPARATIVE FINANCIAL HIGHLIGHTS
In thousands, except share and per share amounts
----------------------------------------------------------------------

Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------ ------------------------
2007 2006 2007 2006
------------------------ ------------------------
Revenues
Product $ 955 $ 1,481 $ 5,652 $ 7,606
Maintenance 911 900 2,836 2,584
------------------------ ------------------------
Total Revenues 1,866 2,381 8,488 10,190

Cost of Revenue
Product 389 528 1,380 2,216
Maintenance 295 307 1,166 1,133
------------------------ ------------------------

Gross Profit 1,182 1,546 5,942 6,841
63% 65% 70% 67%
Operating Expenses
General &
administrative 877 1,094 3,865 4,365
Sales and marketing 674 825 2,647 3,567
Research and
development 928 780 3,669 3,678
Depreciation and
amortization 58 59 258 304
------------------------ ------------------------
Total Operating
Expenses 2,537 2,758 10,439 11,914

------------------------ ------------------------
Income (loss) from
operations (1,355) (1,212) (4,497) (5,073)

Interest (income)
expense, net (21) 226 215 564
Other (income)
expense, net (16) (8) 23 (119)

------------------------ ------------------------
Income (loss) from
continuing
operations before
income taxes (1,318) (1,430) (4,735) (5,518)

Income taxes 0 0 0 0

------------------------ ------------------------
Income (loss) from
continuing
operations (1,318) (1,430) (4,735) (5,518)

Discontinued
operations:
Gain (loss) from
operations of
discontinued
Digital
Photography
Component
(including gain on
disposal of
Digital
Photography
component) 33 (62) 50 (408)
Income tax benefit
(expense) 0 0 0 0
------------------------ ------------------------
Gain (loss) on
discontinued
operations 33 (62) 50 (408)

Net income (loss) $ (1,285)$ (1,492) $ (4,685)$ (5,926)
Preferred dividends $ (95)$ (72) $ (1,171)$ (111)
------------------------ ------------------------
Net loss available to
common shareholders $ (1,380)$ (1,564) $ (5,856)$ (6,037)
======================== ========================

Per share data -
basic
Net income (loss)
from continuing
operations $ (0.08)$ (0.11) $ (0.31)$ (0.41)
Discontinued
operations $ 0.00 $ (0.00) $ 0.00 $ (0.03)
Preferred
dividends $ (0.00)$ (0.00) $ (0.08)$ (0.00)
------------------------ ------------------------
Basic loss per
share available
to common
shareholders $ (0.08)$ (0.11) $ (0.39)$ (0.44)
======================== ========================

Basic common shares 16,924,422 13,626,280 15,070,308 13,592,841
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IMAGEWARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------

December 31, December 31,
2007 2006
------------------------------------------------------- --------------
Assets:
Cash $ 1,044,242 $ 938,553
Accounts receivable, net 424,739 1,721,892
Inventories 130,342 57,990
Other current assets 440,459 137,609
Property and equipment, net 287,989 351,700
Other assets 718,213 784,459
Intangible assets, net 2,436,576 141,294
Goodwill 4,452,042 3,415,647
------------ --------------
Total Assets $ 9,934,602 $ 7,549,144
============ ==============

Liabilities and Shareholders' Equity:
Current liabilities $ 5,268,953 $ 5,212,961
Pension obligation 1,138,911 1,016,293
Shareholders' equity 3,526,738 1,319,890
------------ --------------
Total Liabilities and Shareholders' Equity $ 9,934,602 $ 7,549,144
============ ==============
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Company Contact:
ImageWare Systems, Inc.
Wayne Wetherell, 858-673-8600
or
Investor Relations Contact:
Lippert/Heilshorn & Associates
Christiane Pelz / Cathy Mattison
415-433-3777
cpelz@lhai.com / cmattison@lhai.com

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