IW Imageware Systems,

ImageWare� 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� Mediator� 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� Mediator�, 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� Biometric Engine� 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� Biometric Engine�. 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. 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 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