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ImageWare Systems Issues Corporate Update

Companies mentioned in this article: ImageWare Systems, Inc.

SAN DIEGO, CA -- (Marketwired) -- 03/17/14 -- ImageWare Systems, Inc. (OTCQB: IWSY) (ImageWare), a leader in mobile and cloud-based, multi-modal biometric identity management solutions, has issued financial results for the fourth quarter and full year ended December 31, 2013, as well as provided a corporate update to highlight the company's progress since its last update on November 14, 2013.

Key Milestones and Events

  • Initiated a pilot with T-Systems, a wholly owned subsidiary of one of the world's leading integrated telecommunications companies, Deutsche Telekom AG. The partnership will start with a pilot in T-Systems' labs in Germany to integrate ImageWare's patented, multi-modal biometric, cloud-based identity management and credential technology into T-Systems' products.
  • Completed delivery of ImageWare's QuickCapture application in connection with a U.S. federally sponsored pilot program for iris recognition with 20 state and local law enforcement agencies.
  • Recognized as 2014 Innovation and Design Award Winner for its Biometric Engine 2.0® by industry research firm Envisioneering at the Mobile World Congress in Barcelona, Spain.
  • Settled patent litigation with WCC Services US (WCC) and Creative Information Technology (CITI) that resulted in WCC and CITI obtaining royalty bearing licenses from IWSY for the patents at issue. These patents cover IWSY's multi-modal biometric platform and fusion of biometric modalities.

Fourth Quarter and Full Year 2013 Financial Results

Total revenues in the fourth quarter of 2013 increased to $929,000 from $926,000 in the fourth quarter of 2012. Total revenues for the full year of 2013 increased 135% to $5.3 million from $4.0 million in 2012, with the increase primarily due to approximately $1.5 million received in August for software licenses in connection with a $2.2 million contract with the U.S. Department of Veteran Affairs.

Gross margin in the fourth quarter of 2013 increased 160 basis points to 72.4% compared to 70.8% in the fourth quarter of 2012, with the increase primarily due to reduced costs from the relocation of certain technical support functions from the company's Canadian office to its San Diego office. Gross margin for the full year of 2013 increased to 79.4% from 69.6% in 2012, with the increase primarily due to higher software license revenues and, to a lesser extent, savings from the aforementioned relocation of technical support functions.

Net loss in the fourth quarter of 2013 was $1.8 million, or ($0.02) per diluted share, compared to net income of $62,000, or $0.00 per diluted share, in the fourth quarter of 2012. Net income in the fourth quarter of 2012 included a $1.8 million gain from the change in fair value of derivative liabilities. Net loss in the full year of 2013 was $9.9 million, or ($0.12) per diluted share, compared to a net loss of $10.2 million, or ($0.14) per diluted share, in 2012. Net loss in 2013 included a $4.8 million loss from the change in fair value of derivative liabilities, while net loss in 2012 included a $ $4.7 million loss from the change in fair value of derivative liabilities.

At December 31, 2013, cash and cash equivalents totaled $2.4 million compared to $4.2 million at December 31, 2012. The company continues to carry virtually no debt and, subsequent to the end of the quarter, increased their line of credit from $2.5 million to $3.5 million.

Management Commentary
"2013 was a pivotal year for ImageWare, as we formed partnerships with two of the world's largest IT services providers, Fujitsu and T-Systems," said Jim Miller, chairman and CEO of ImageWare. "We are starting to see a shift in companies evangelizing biometrics, moving from the small biometric companies trying to prove their practical application in the commercial and consumer markets, to many large corporations understanding the real-world benefits of bringing biometrics to the mainstream public. This shift has created an attractive opportunity for ImageWare and we plan to leverage our large partners' sales and marketing power to capitalize on it.

"Our new partnership and close collaboration with T-Systems represents the outcome of a number of months of discussion and planning. We're now taking the next step by integrating our technology into their products and expect this new relationship to expand our presence throughout European and worldwide markets.

"These and other proactive steps we've taken to position ImageWare as a leader in multi-modal biometric security are beginning to attract broader attention. We recently attended the Mobile World Congress in Barcelona where the reception we received was incredible, particularly for our patented PillPhone®, which is the first and only FDA-approved biometric-enabled enterprise mobile application."

Miller concluded: "Working closely with our technology partners, we continue to build a healthy pipeline of potential customers and are currently in discussions with several clients regarding licensing opportunities. We will continue to target large enterprise businesses and emerging applications and believe the steps we are taking to advance our cloud, SaaS and mobile offerings in the commercial and consumer marketplace will continue to build shareholder value, along with greater visibility that includes a healthy recurring revenue stream."

Conference Call
ImageWare will hold a conference call today at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) to discuss its fourth quarter 2013 results. The company's Chairman and CEO Jim Miller and CFO Wayne Wetherell will host the conference call, followed by a question and answer period.

Date: Monday, March 17, 2014
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-877-941-1427
International dial-in number: 1-480-629-9664
Conference ID: 4671653

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=108105 and via ImageWare's investor relations section at www.iwsinc.com.

A replay of the conference call will be available after 8:00 p.m. Eastern time today through April 17, 2014.

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay ID: 4671653

About ImageWare Systems, Inc.

ImageWare Systems, Inc. (OTCQB: IWSY) is a leading developer of mobile and cloud-based identity management solutions, providing biometric, secure credential and law enforcement technologies. Scalable for worldwide deployment, ImageWare'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's 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, CA, with offices in Portland, OR, Washington, D.C., and Ottawa, Ontario. For more information on ImageWare Systems, Inc., please visit www.iwsinc.com.

Forward Looking Statements

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "if", "should" and "will" and similar expressions as they relate to ImageWare Systems, Inc. ("ImageWare") are intended to identify such forward-looking statements. ImageWare may from time to time update these publicly announced projections, but it is not obligated to do so. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. For a discussion of such risks and uncertainties, see "Risk Factors" in ImageWare's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its other reports filed with the Securities and Exchange Commission under the Securities 3 Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.



                           IMAGEWARE SYSTEMS, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
               (In Thousands, except share and per share data)

                                                December 31,   December 31,
                                                    2013           2012
                                               -------------- --------------
Assets:
  Cash                                         $        2,363 $        4,225
  Accounts receivable, net                                302            328
  Inventories                                             505            262
  Other current assets                                    148             86
  Property and equipment, net                             245            150
  Other assets                                            395             44
  Intangible assets, net                                  172            200
  Goodwill                                              3,416          3,416
                                               -------------- --------------
Total Assets                                   $        7,546 $        8,711
                                               ============== ==============

Liabilities and Shareholders' Equity:
  Current liabilities                          $        3,127 $        3,651
  Derivative liabilities                                   57          2,244
  Pension obligation                                    1,031            401
  Other long-term liabilities                               0             72
  Shareholders' equity                                  3,331          2,343
                                               -------------- --------------
Total Liabilities and Shareholders' Equity     $        7,546 $        8,711
                                               ============== ==============



                           IMAGEWARE SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (In Thousands, except share and per share amounts)
                                 (Unaudited)

                            Three Months Ended            Year Ended
                               December 31,              December 31,
                         ------------------------  ------------------------
                             2013         2012         2013         2012
                         -----------  -----------  -----------  -----------
Revenues
  Product                $       273  $       247  $     2,686  $     1,145
  Maintenance                    656          679        2,618        2,806
                         -----------  -----------  -----------  -----------
Total Revenues                   929          926        5,304        3,951

Cost of Revenue
  Product                         70           43          319          227
  Maintenance                    186          227          771          975
                         -----------  -----------  -----------  -----------

Gross Profit                     673          656        4,214        2,749
                                  72%          71%          79%          70%
Operating Expenses
  General &
   administrative                818          850        3,378        3,430
  Sales and marketing            632          553        2,129        1,830
  Research and
   development                 1,008          889        3,869        3,180
  Depreciation and
   amortization                   48           25          125           69
                         -----------  -----------  -----------  -----------
    Total Operating
     Expenses                  2,506        2,317        9,501        8,509

                         -----------  -----------  -----------  -----------
Loss from operations          (1,833)      (1,661)      (5,287)      (5,760)

Interest (income)
 expense, net                     73            4          221           18
Change in fair value of
 derivative liabilities           97       (1,761)       4,776        4,712
Other (income) expense,
 net                            (212)           5         (443)        (322)

                         -----------  -----------  -----------  -----------
Income (loss) from
 continuing operations
 before income taxes          (1,791)          91       (9,841)     (10,168)

Income taxes                       3           16            8           22

                         -----------  -----------  -----------  -----------
Income (loss) from
 continuing operations        (1,794)          75       (9,849)     (10,190)

Net income (loss)        $    (1,794) $        75  $    (9,849) $   (10,190)
Preferred dividends              (13)         (13)         (51) $       (51)
                         -----------  -----------  -----------  -----------
Net income (loss)
 available to common
 shareholders            $    (1,807) $        62  $    (9,900) $   (10,241)
                         ===========  ===========  ===========  ===========

Per share data - basic
  Net income (loss) from
   continuing operations $     (0.02) $         -  $     (0.12) $     (0.14)
  Preferred dividends              -            -            -            -
                         -----------  -----------  -----------  -----------
  Basic income (loss)
   per share available
   to common
   shareholders          $     (0.02) $         -  $     (0.12) $     (0.14)
                         ===========  ===========  ===========  ===========

Basic weighted-average
 common shares            85,594,118   76,561,858   81,231,962   70,894,916

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Contact:

ImageWare Investor Relations Contact:
Liolios Group, Inc.
Cody Slach or Greg Falesnik
Tel 1-949-574-3860
Email Contact