Jim Miller - Chairman and CEO Wayne Wetherell - CFO

Jaeson Schmidt - Lake Street Capital Markets Mike Malouf - Craig-Hallum Bob Clutterbuck - Clutterbuck Capital Management Harvey Kohn - HRK Strategic Advisory

Well thank you Sharon and good afternoon everyone. As you saw at the close of the market today, we reported financial results for the second quarter ended June 30, 2015.

I’d like to begin today’s call by speaking first about some specific financial results for the quarters and afterwards, I’ll walk you through some recent developments. In the second quarter of 2015, total revenue increased 81% to $1.7 million compared to $900,000 in the year ago quarter, primarily due to higher software and services revenues related to the recognition of revenue for the biometric identification project for Los Angeles World Airports or LAX.

Gross margin in the quarter was 52.9% compared to 75.2% in the year ago quarter. The decrease was primarily due to the uncharacteristically high cost of professional service revenues which already have inherently low margins.

The high cost relate to the LAX project which was drawn out over a significantly longer period that was originally expected. Net loss in the second quarter was $1.8 million or a negative $0.02 per diluted share compared to a net loss of $2.1 million or a negative $0.02 per diluted share in year ago quarter.

At June 30, 2015, cash and cash equivalents totaled $6.4 million compared to $200,000 at December 31, 2014. Now moving on to our corporate update.

ImageWare’s strategy to target large IT providers and deliver security for their cloud and mobile customers remains on track. Ultimately and as we’ve said in the past, our model is dependent upon our partners, and we have formed very significant relationships with the some of the world’s largest companies such as Fujitsu, TransUnion, Computer Associates Technologies, IBM, Deutsche Telekom, Agility, Extenua, and more recently, with Lockheed Martin and Online Auction.

All of these partners have now moved from the testing phase to the integration phase and some of them are even now moving to the launch of aggressive marketing campaigns. You should know that none of them have changed their mind or their plans with respect to the rollout of the ImageWare products.

Much to the contrary they live in and see the same world that you and I do, the world that saw 50% of all organizations experienced some form of data breach in the last 12 months and two-thirds of those breaches involving the comprehensive of pins and passwords. They see reports such as the one in this weekend’s Wall Street Journal on massive thefts of medical data which led to fraudulent procurement of prescription drugs, health services, and medical equipment.

Several of our channel partners are now farther along in the process and are on the verge of closing licensing agreements with global customers of their own for the use of one or more of our identity management products. While we certainly expected some of these agreements to producing revenues before today, it’s important to note that we’re dealing with large organizations that are thoughtful and methodical about the rollout of our transformational software.

All of them have either completed or will soon complete their development and integration, and move onto market launch. Please recall that each new added user of our products adds monthly regular recurring revenue that will positively impact our financial picture.

In fact, as some of you have already noted, one large user can by themselves transform IWS. Given the activity we currently see, we continue to believe that we will hit several of our financial goals such as turning cash flow positive at some point during the remainder of 2015.

Now let’s dive into some specific projects. Baja California, which is our first on-premise CloudID software-as-a-service installation, we continue to perform well.

Well, we were surprised that it was a government customer who jumped in and become our first CloudID SaaS customer; we are now looking forward to additional opportunities with new government customers who have expressed an interest in the model due to its financial attractiveness in a time of challenging government budget. At the end of 2014, we entered into a partnership with TransUnion to integrate their ID manager solution with our GoVerifyID product allowing ImageWare to deliver advanced fraud prevention capabilities to organization.

Through the relationship, consumer identities will be thoroughly analyzed using both biometrics and the TransUnion ID Manager 2.0 platform. TransUnion has now completed its software upgrade as well as the integration of the IWS GoVerifyID product and has now begun the active marketing and selling of IWS Identity Management product.

We believe they are very close to the first customer. At Computer Associates, we have received final product certification and CA Technologies as another partner that has now initiated its sales activities.

If you take a look at the CA global website, you will see IWS products are featured in a number of places. We have now begun jointly calling on a number of selected financial institutions with our current users of the CA single finance software that is integrated with our GoVerifyID product.

Our global contract with Fujitsu to jointly market a cloud based multimodal biometric identity management system is in its final stages of implementation. As mentioned last quarter, we are in the process of executing a master agreement that would pave the way for a global rollout.

Even as we complete this agreement, Fujitsu has begun an aggressive marketing campaign kicked off by our successful presentation at the Fujitsu Worldwide Forum in Tokyo early this summer. And Fujitsu has a number of pilots being run by large and well-known companies, which are customers of theirs including a major Korean retailer.

In March of this year, we signed a binding agreement with Kuwait-based Agility to create a joint venture company based in Kuwait City, which will sell the IWS product suite throughout the Middle East and other countries such as India where Agility has existing customers under contract. Agility is a nearly $5 billion revenue company, employs over 20,000 people globally and is a leader in the supply chain management space.

They have existing customers with the current need for our products, and under our agreement, we will receive a one-time technology fee upon the commencement of joint venture operations as well as ongoing revenues from the sale of software-as-a-service in the region. As we move to close the formal joint venture paperwork, we have in Agility, at the same time have been finalizing the first three business cases for our joint efforts.

With our goal of opening the joint venture doors with existing revenue generating customers, clearly the only reasons for us to do such a joint venture. We expect to close our deal with Agility and to commence joint venture operations during the current quarter.

Moving on to Extenua. Extenua is a pioneering developer of enterprise security software that simplifies the use and access of cloud storage.

Our GoVerifyID solution is integrated with their Cloud2Drive product to help enterprises both large and small that face security challenges hosted with cloud storage. Extenua is in the process of finalizing their integration with IBM and the two companies have agreed to September 1 launch date.

Again, as with all of our partners, we have been busy in anticipation of that launch and engaged in joint sales efforts with Extenua. We are confident that as with our other partners, we will be able to report sales as a result of these efforts very soon after the Extenua launch.

Once Extenua launches, the joint product will be available on IBM’s Bluemix cloud platform as well as directly from Extenua. You should know that IBM’s Bluemix is similar to an enterprise app store, allowing IBM cloud customers to choose among a collection of either IBM software and services or those from a variety vendors such as ImageWare.

In the beginning of June, we entered into a three-year licensing agreement with Lockheed Martin under which we will integrate our Biometric Engine into the Lockheed Martin cloud-based multimodal biometric IDHaystack Identity as a Service Platform. Lockheed Martin will then offer the identity service to the federal government and other customers through its FedRAMP approved government community cloud, where it is one of three approved vendors for the US federal government.

The integration of the patented IWS Biometric Engine into Lockheed Martin’s cloud-based multimodal biometric product will enable Lockheed to quickly offer advanced, secure, cloud-based capabilities to their customers. Our agreement with Lockheed could potentially be one of the most valuable agreement today.

I’ll remind all of our shareholders that Lockheed Martin has the world’s largest and most successful biometric reference account in the world in the Federal Bureau’s investigation, and to say that we are excited to be part of Lockheed’s efforts to leverage that experience into additional clients around the world doesn’t really do justice to our enthusiasm. Our integration with Lockheed is now complete and Lockheed has begun its sales and marketing efforts.

There could be no argument that Lockheed is a world-class company and we believe that this serves as yet another example that we continue to be recognized as the go-to-company for cloud-based multimodal identification management services as our large partners begin to navigate the emerging business opportunities that is Biometric Identity Management. In July, we executed an agreement with OnlineAuction.com to provide ImageWare’s patented GoVerifyID mobile biometric security software to 200,000 online auction members with integration beginning in the current month, August 2015 and implementation set at the end of September or before.

OnlineAuction.com, known as OLA.com provides online auctioning services throughout the world via the Internet and is expecting significant expansion later this year as to begin its service to the Asian Pacific marketplace. OLA members will access their accounts via biometric authentication of their identify, using voice and face recognition.

OnlineAuction.com will utilize the IWS product under a software-as-a-service agreement paying a monthly service day. We estimate the contract value to be approximately $3.6 million over a 12-month period following the start of customer implementation.

The OLA agreement makes another point. IWS customers may come from unexpected sources or sources some may not be familiar with.

So that does not diminish at least the power of such customers to generate seven-figure recurring revenues and that is both the simplicity and the beauty of the model. Now, moving on to some exciting news on our leadership.

We have recently appointed Bob Brown as Vice President of Sales. Bob has an impressive track record with several very successful software companies such as Ascend Communications, Chipcom, and AeroSpace Network.

He was also one of the founders and managers of the Microsoft Partner Center, located on the Microsoft Corporate Campus in Redmond, Washington. Over the last six weeks, Bob has helped us add three new sales professionals who are based in the East Coast, the Midwest and Silicon Valley.

These are veteran producers with a mission to accelerate moving our product to market. Our products are complete and the opportunity in the biometric space is already there.

We are now focused on speeding the sales process and successfully getting this product in front of potential partners that can bring our products to market on a global scale. Before turning to your questions, I would like to say that over the past several quarters we’ve entered into nine major partnerships, some with major global firms for the integration and resale or direct use of our products.

You should look for us to continue to add additional large global partners as we move forward. Biometrics as an industry is just now moving into the consumer realm and is clearly in the very really innings of its development.

Like many of the successful technologies before, it will take time to root and then explode and flourish as the initial deployments turn full-scale adoption. As you look around and do your own research, you will see these verifiable signs everywhere.

As we’ve cautioned in the past on several locations, we are not quite yet a quarter-to-quarter company, but it is a priority for us to get there and as biometrics grows into the consumer market, we are confident that this will happen shortly, rapidly and successfully. Now I would like to open the call to any questions you might have.

Hey, guys, thanks for taking my questions. Wondering if you could start by sharing how much revenue from the LA World Airports you recognized in Q2 and if you expect to recognize any additional revenue from that project going forward?

Yes, in Q2 we recognized approximately $700,000 in revenue from LAX [ph] project and we have got a little over $100,000 in remaining that we feel we will be able to recognize in Q3.

Okay, great. And then, Jim, wondering if you could share with us some of the potential economics in the Lockheed deal?

Sure. Lockheed and ImageWare’s license agreement, Jaeson, is done as a software as a service, so we will be paid per person per month.

We have a set price list with Lockheed place. It's got a little bit of room to negotiate because that’s just required in the business that we are in.

Pricing may have to be adjusted but all of the prices involved are in excess of $1 and up per person per month. And some of them go into $2 and $3 range.

So it’s kind of a large metrics of pricing, but that's kind of the floor and it goes up from there. So, SaaS-based model, Lockheed actually is very excited about the SaaS-based including in the government space and they’ve had some interest in that space on that model.

And they believe that, as I mentioned in my remarks that because of the challenging government budget, that is pretty much prevalent around the world. They will be able to get acceptance of that model into space that as you know historically has not accepted it.

But I should also point out that Lockheed is not just confining its efforts to government space. They are indeed moving out into the consumer space.

And I can tell you that they are actively engaged in discussions with a number of large companies about biometric identity management products. So we're very enthusiastic on all fronts with Lockheed, it's just a great deal and a great partner to be involved with.

Okay, great. And then looking at the German healthcare rollout, it sounds like those will be starting this quarter, any sense about the size of the initial rollout?

Yeah, I do. It's been a bit of a path and as we’ve seen some healthcare battles in discussions in our own country, none this stuff proceeds in the straight and orderly fashion or line and so it’s true in other countries as well.

And as we’ve said before, the government of Germany has set the states which are two of the 15 states in Germany, Bavaria and Saxony as the pilot area that we're going to start with. And we are going to start with several hundred physicians and a number of hospitals that have already been started to start, but the pilot start of this, Jaeson, will not - is going to be on a set price.

And we haven’t - we pretty much finalized that price. And I will be able to share with you next time we talk, but it will not - we are going to just take a set price on the pilot.

It was easier to do it that way. [indiscernible] for such a small number to set an individual price, but we are happy with the deal.

So you should look at a number in the low-seven figure range for the pilot but then that will give way to a per person per month going forward.

Okay. And the last one before I jump back into queue.

It sounds like you’ve hired some additional sales people. How should we look at OpEx ramping going forward?

I think these folks were really in the play. They were brought on because we see an unprecedented level of activity.

It is the - from an historical perspective it is the most activity and action and interest in our products that this company has ever seen.

And from an OpEx standpoint, at the same time, we do some of our other headcount and costs in the sales department as we ramp these people up.

Okay, thanks a lot guys.

Yeah, you bet.

Great. Thanks guys for taking my questions.

If I could just ask a little bit further on the OpEx side, your G&A was down quite a bit in the quarter and that was due to some cost cutting that you guys embraced. Where do you think if you add up your OpEx at this point, where do you think a steady state is for you on the total amount?

I think right now I mean we are right in the 2.650 million approximately a quarter. I think as we look forward with some of the growth, we see those OpEx coming up to approximately the 3 million range on a quarterly basis, but we don’t see it going much higher than that.

The only thing that’s wildcard in there is which shows up in there is also your commissions and as these revenues start to kick in commissions will probably hit and take that on a higher basis in months where we have particularly high commissionable sales.

Yes, that will make sense. Great.

And, Jim, if you could just help us with the first partner you had with Fujitsu and it's been a while now and I know they kind of went through different agreements network and on the master agreement. Where are we with that rollout again, can you just remind me where they are at and as you look over the next year or maybe even as you reflect on the past couple of years, why haven’t they been as successful as we originally certified?

I think, it was no question, it’s been a bit of a path that we’ve travelled together with our partners there, Mike. But I think really simply what you’re seeing is, extremely large company, I mean clearly one of the largest companies shifting the administration to that agreement from North American group to its corporate headquarter in Tokyo.

The North American group was very conversant and had spent a lot of time working with us when corporate took it over. There was a whole lot of new people and a whole lot of new learning and the process, including some cultural aspects of the process, are just different in other countries than they are here.

And it took a while to get everybody up to speed, but I can assure you this. They are A, up to speed and B, they are out-marketing.

So, we should expect to see things happen there very shortly. They have launched a very ambitious marketing campaign, particularly in the Asian market, they have produced at significant expense to them, quite a bit of marketing materials and they are in the process now of systematically exposing the product to literally every one of their large partner companies.

So, I - it has taken a bit to be sure but I think it’s going to be well worth a wait because they are out there aggressively doing their thing and again, we haven’t seen the metrics reflect that but you will see it very shortly, because they’re going to make that happen. There is no question in our minds about that.

And if you had this sort of project timing on that or maybe even when you take a look at your most closely in the near-term opportunities, are you thinking revenues - significant revenues on the cash side, do you think we’ll see some in the first half of next year?

Yeah, absolutely. We think you’ll see some before in this year.

But significant, yes, yes. There is - given the amount of activity, Mike, that we’re seeing and trying to manage the hours and the day to handle that activity has been a challenge, the challenge you always want and make no mistake, we’re thrilled about it but there is so much activity that we are highly confident given the activity and given our conversations and given the place that that activity is in terms of moving things to sale that those things will be converted and you will see significant revenue, yes.

And then just sort of as a follow-up to that question, when you take a look at your liquidity as it stands out, I think you ended with just over $6 million in cash or is it correct? Can you talk a little bit about how you see that?

Is that enough for you guys to get to cash flow positive, if not, what are some of the other options you have?

We do feel that’s enough. That $6.4 million is also supplemented by another $3.1 million in line of credit, although we don’t anticipate when our forecasting having to dip into the line of credit.

So, that’s a total of almost $9.5 million available to us and we see that getting us to the cash flow which we’ve already said, we anticipate cash flow - hitting some cash flow positive yet this year.

Yeah, Mike, I think we’re in pretty good shape. We’re going to see the conversion here of these opportunities and deals we’ve had working.

I mean it will come as no surprise to you. I mean, as we’re speaking there is - there are dozens of things in discussion a lot.

So, you actually - to make sure I understand, so, you think the fourth quarter of this calendar year 2015, you can be free cash flow positive?

We haven’t projected that but we anticipate that we will see months of cash flow positive. We forecasted out a number of different months during the third and - actually the fourth quarter that would be cash flow positive.

So, crossing in to that positive cash flow by the end of the year, call it that?

Correct, yeah, correct.

Okay. Great.

I appreciate the help.

You bet, Mike.

Hey, Jim, hi, Wayne, how are you guys?

Hey, Bob, good.

Good, good.

Actually couple of my questions were already asked, but I like to follow-up on the previous questions on the cash flow side. Jim and/or Wayne, would you care to extrapolate or expand a little bit 2016 if we expect to be free cash flow positive at several months remaining at 2015?

Are you willing to say that we’ll be cash flow positive in 2016?

Yes, absolutely.

And Jim, you referenced in the previous question about substantial revenues and I know all firms, like you guys are always reluctant to quantify that but since we’re free cash flow in 2016, would you stick any type of range or at least bottom end range on the revenue side in 2016?

Well, I think the bottom is, we know what our breakeven is and we just said, we expect profitability. So, this Company needs somewhere in the $14 million to $15 million in topline revenue to breakeven.

So, there is a floor. That said, that’s not a target that we get up every day and aim to hit because we think it’s too [indiscernible].

We haven’t forecasted out ‘16 totally yet but these - the activity that we’re seeing and investors see it too, it’s not a mirage. The landscape is changing very, very quickly and very positively towards the adoption of biometrics.

It’s a new technology. So, as I have said in the past, it’s not a light switch adoption where you just - it just happened, it’s taken sometime, but make no mistake, it’s happening.

I mean, you can look around and see all kinds as we said it verifiable times. So, I think ImageWare’s shareholders are looking forward to a big 2016 as these things come on and as we said in the remarks, they’ll come from interesting places.

Some companies that are name brand and top in the world and some that maybe folks haven’t heard off but they can all be significant contributors in producing regular recurring seven figure and eight figure revenues for this Company. And as you know, our part across is fairly low.

We’ve kept the expenses and cost reasonable and there is no reason why shouldn’t see a significant top and bottom line in 2016.

Well, that would be terrific. Two more quick ones.

You talked about a lineup of partners and sort of they’re all extraordinarily recognizable names. When you look forward, do you see majority of the revenues coming in any - in government, healthcare or finance or kind of other, like an auction.com, maybe talk about those three sectors.

Yeah. I think those three sectors we originally targeted will be the ones you see, retail, finance and financial services, and medical and healthcare.

There will be undoubtedly a few others. It is remarkable, the creativity of our customers to find use cases where biometrics could be employed, is truly amazing.

Sometimes, people come in here and tell us, hey, we have an idea to take biometrics in to the space and to be honest with you; we look at each other and go wow. We didn’t think of that.

But that said, we can do it. But I think the three principle areas that we targeted are the areas you’ll see the revenues come from and I think it’s going to go heavily in to the private sector now.

I’m not saying that there will be no government revenues. As we’ve said, that’s a special legacy as you all know and that’s a business that we continue to play in and we will very strategically make decisions to go after, but and of course our partners such as Lockheed, that is their business and they will go after those.

But I think you’re going to start to see now the large scale consumer adoption of biometrics, which is really the exciting market that we’ve built these new products for.

Okay. And last but not least, Jim, you talked in your remarks about potential new partners, are they international in name recognition like Lockheed or like several partners?

Yeah. Big name companies that you will know.

Yes, absolutely.

That’s terrific. Well, I hope we have very smooth sailing, could be very exciting.

Thanks for taking the time.

You bet, Bob, anytime.

Hey, Jim. Hey, Wayne.

Hey, Harvey.

Most of my questions were answered, but I wonder if you could perhaps give us a little more color on - I’m not quite sure when the major players like Lockheed and CA Technologies go out there and they have now integrated our technology in to their platform. So for example, the Lockheed IDHaystack platform, when they’re going out to their clients, is the ImageWare technology an option or is it part of their - of the platform when they’re going out there?

It’s a great question. I know it’s not an option.

It is built in to - I think of it as being hardwired in to the platform. In the Lockheed case, the license agreement covers their biometric engine.

Lockheed vetted that product over several years in tests and selected it. We are the matching engine for their biometric IDHaystack program.

So it will be sold, of course, there is a Lockheed Martin partner but with ImageWare inside if you will.

One other question and although it is a relatively small contract, given the fact that this is the first contract under the SAS program, I’m curious, you said it’s going well, but Baja California, have we been signing 10000 people a month or 20000 or has there been any hiccups because it’s a great reference?

Yeah. Again and as I said, a surprise, albeit a pleasant one for us because we really didn’t think that government of any country would be so interested in putting a cloud based SaaS service in, but they did, and as I said, it went operational a couple of months back at the beginning of the year and it has performed well.

We are producing just over 21000 licenses a month. That’s a ramp-up Harvey, it stats wells and it grows up.

Baja California is a large - it’s a large land mass, it’s a very rural state outside of a couple of major cities. So it probably goes to at its high in the 30s and that’s where it probably tops out just given the demographics of the state.

But there has been a lot of interest. I am happy to report in the government in that country, about other implementation for cloud based identity management, particularly on the driver’s license side.

So that’s something that working with our prime contractor as you know, we’re not the prime here. We just simply supply the software.

It’s called - the company is called [indiscernible]. They do a lot of work in the Mexican market.

And they’re looking at other opportunities and have asked if we would supply the software to them under license and of course the answer is absolutely, we would.

Okay, great. Thank you very much.

You bet.

Thanks, Sharon. We get asked occasionally by investors that if IWS products are all that, why hasn’t the company hit critical mass sooner and it’s a good and valid question with, I think, an equally good and valid answer.

Steve Jobs once said the change by itself is difficult, but revolutionary change is harder, more stressful and takes longer. And it even occasionally involves he said, going through a period where folks actually believe it won’t happen.

Until of course it does. At ImageWare, we’re leading a revolutionary change in to how the world identifies you and protects your integrity of the things you own, your identity, your data, your financial assets and more.

We’re replacing and/or supplanting a process that’s been in place for over 35 years. The pin and password, some of the world’s largest companies have agreed with our vision and our products and are joining us to market these products under their global brand.

Revolutions is never easy or even pretty, but it is underway and we think it’d be fooling to ignore industry players such as ourselves who’ve established credible and significant beachheads in an exciting and emerging space. As we move ImageWare down the road to success, we look forward to reporting our progress and we will see you at our next formal corporate update in November.

As always, we appreciate your time and your support and wish you all a very good afternoon.