SAN DIEGO, CA, November 12, 2004 - ImageWare® Systems, Inc. (AMEX: IW), a global leader in identity management solutions, today reported financial results for the third quarter ended September 30, 2004.

For the quarter ended September 30, 2004 total revenues were $2.0 million, down 58% from $4.8 million reported for the third quarter of 2003. The decrease from the prior year is due to decreases in revenues of $2.9 million from the Company’s identification and professional photography segments.

In the third and fourth quarter of 2003 the company took actions to reposition our foreign sales offices in Germany and Singapore to lower fixed costs and pursue significant international ID and biometric projects utilizing the company’s software technologies as our primary differentiator. These offices had historically emphasized the resale of third party merchandise (hardware and consumables) which generated lower gross margins than software (as a percentage of revenue) and required significant fixed costs for hardware sales, service and support. Revenues from these two locations were $1.5 million below their levels in the same quarter of 2003, however, fixed costs in those locations were approximately $433,000 lower in the quarter than the previous year.

Channel revenue for the ID segment in North America was lower in the third quarter compared to the same period in 2003, which included approximately $875,000 in product sales to a newly established “master distributor” for our EPI line of software. The anticipated revenue increases from that master distributor strategy did not materialize and we terminated the relationship in June 2004. During the third and fourth quarter we have been re-tooling our channel strategy. With the recent release of our new generation EPI products, which include multiple foreign language versions, we anticipate that channel revenue will recover in the coming months.

The loss from operations totaled $1.5 million in the quarter as compared to operating income of $10,000 in the third quarter of 2003. The operating loss is due to the lower revenues in the quarter. Gross margins, which can fluctuate from period to period due to product mix, were 72% of revenue in the quarter ended September 30, 2004 compared to 65% for the same period last year. The increase in gross margin percentage was due to a higher level of software in the product mix for all segments. Cost cutting measures taken by the Company over the past year resulted in lower operating expenses of $115,000 despite our increased investment in Research and Development activities and increased expenditures in Sales and Marketing, enabling the Company to more effectively pursue large identification projects.

Net loss for the period increased to $1.5 million, or $0.13 per share for the quarter, compared with a net loss of $0.1 million, or $0.02 per share for the same period last year. The increase in the net loss is due to the increased loss from operations.

“In 2003, we took a hard look at our markets and at ImageWare. We developed a plan to which we have remained true, we believe to our benefit, even though it has resulted in interim reductions in top line revenue,” said Jim Miller, ImageWare’s chairman and CEO. “Our vision then remains the same today, that the world will rapidly upgrade identification systems and adopt biometrics in response to new identification requirements being developed by central governments worldwide. In the ensuing quarters, we went about our plan to retire our debt, cut our fixed overhead, consolidate our products to emphasize those capabilities that best meet the need of this looming market adjustment, differentiate ImageWare as best-in-breed for identification and biometric application software, and redirect our resources to put ‘feet on the street’ to get our name and our product out into the world.” Miller went on to say, “We have done a good job. We are known; our products have earned respect; our technology is being incorporated into the product offerings of major international players; and we are on short lists for major projects. We are ready for the market, which from our perspective, has begun to move.”

Miller added that in recent months there was continued validation of ImageWare’s products and capabilities with the following achievements:

• The integration of ImageWare’s Digital Booking Solutions with fingerprint capture technologies from Sagem Morpho, Inc. for the New Jersey State Police. This integration will enable the New Jersey State Police to capture a variety of images including digital mug shots, scars, marks and tattoos, as well as fingerprints from a single booking station.
• We announced an agreement with Unisys Corporation whereby Unisys has selected our IWS™ EPI Builder® secure credential platform as part of Unisys framework for large-scale identity management and secure credentialing projects worldwide. These projects encompass the production of secure credentials including national IDs, passports, International Civil Aviation Office (ICAO)-compliant travel documents, smart cards and driver licenses.
• Announcement with IBM, ActivCard, Bioscrypt and Verisign to partner in the development of IBM’s New Identity Management Security Solution. The result of this collaboration is a solution that helps control and protect virtually every aspect of ID-management, from data, computers and networks to employee badges, door locks and security cameras. This solution helps eliminate many of the confusing technology choices and complicated business processes by providing a single platform to help customers’ fulfill their logical and physical-access needs.
• Announcement of a $2 million contract from the Mexican government to provide a multi-biometric identification and identity management solution by utilizing our IWS™ Biometric Engine®. This contract contains options and renewals, which if exercised, would result in a total contract value of approximately $9.5 million.

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. The Company also provides comprehensive digital workflow solutions for the professional photography industry. 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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