Dutton Associates Announces Investment Opinion: ImageWare Systems Speculative Buy Rating Maintained by Dutton Associates

Dutton Associates continues its coverage of ImageWare Systems (AMEX:IW) maintaining its rating of Speculative Buy and its $3.25 target price. The 11-page report by Dutton senior analyst Rafael Kapelinski is available at www.jmdutton.com as well as from First Call, Bloomberg, Zacks, Reuters, Knobias, and other leading financial portals.

ImageWare Systems, Inc. has reported roughly in-line 2Q 2006 results. Revenue came in at USD 2.9 million (+3.2% over the previous quarter) and EPS was USD -0.10. Identification security (ID) continued the positive trend with revenues increasing as much as 12.4% sequentially and 61% year-on-year. In contrast, both law enforcement and digital photography declined sequentially 9.7% and 27.3%, respectively. We reiterate our Speculative Buy rating on ImageWare as we consider it an attractive pure software play on the increasing security spending. The Company continues to exhibit the highest gross margins in the peer group on the higher software content in the sales mix. Importantly, ImageWare is gaining ground in the ID security market on the back one of the best biometric engines in the industry. In the past 12 months, the Company has retooled its identification products to enable customization for large project applications, added the biometric engine for incorporation into large scale biometric installations and reoriented the internal organization to direct resources toward establishing a foothold in the market for large-scale secure identification solutions. In contrast to the other biometric peers, the Company offers a fully platform-agnostic software solution that has won Frost and Sullivan's Product of the Year Award.

About Dutton Associates

Dutton Associates is one of the largest independent investment research firms in the U.S. Its 31 senior analysts are primarily CFAs, and have expertise in many industries. Dutton Associates provides continuing analyst coverage of over 140 enrolled companies, and its research, estimates, and ratings are carried in all the major databases serving institutions and online investors.

The cost of enrollment in our one-year continuing research program is US $39,500 prepaid for 4 Research Reports, typically published quarterly, and requisite Research Notes. Dutton Associates received $55,000 from the Company for 8 Research Reports with coverage commencing on 6/21/04. The Firm does not accept any equity compensation. Our principals and analysts are prohibited from owning or trading in securities of covered companies. The views expressed in this research report accurately reflect the analyst's personal views about the subject securities or issuer. Neither the analyst's compensation nor the compensation received by us is in any way related to the specific ratings or views contained in this research report or note. Please read full disclosures and analyst background at www.jmdutton.com before investing.

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