Jim Miller - Chairman and Chief Executive Officer Wayne Wetherell - Chief Financial Officer

Robert Stone - Cowen and Company Harvey Kohn - HRK Strategic Advisory Inc. Robert London - London Family Trust

Well thank you, Vicky, and good afternoon to everyone. As you saw at the close of the market today, we reported financial results for the second quarter ended June 30, 2017.

I would like to begin today's call by speaking first about some specific financial results for the quarter, and afterwards walk you through some recent developments. In the second quarter of 2017, total revenues were up 6% to $1.1 million compared to $1 million in the second quarter of the prior year.

Gross margin in the second quarter was up 400 basis points to 76.4% from 72.4% in the same quarter a year ago, which the increase is primarily due to greater high margin software licensing revenue in the quarter. Net loss in the second quarter of 2017 was 2.7 million or negative $0.03 per share, compared to a loss of 2.1 or negative $0.02 per share last year.

At June 30, 2017, cash and cash equivalents totaled $0.1 million compared to $1.6 million at December 31, 2016. As of June 30 2017 we carried $6 million in debt compared to $2.5 million at December 31st 2016 and we had no additional borrowing capacity remaining on the line of credit.

We remain highly focused on expanding our business into non-government sectors while continuing our mission to integrate our patented biometric engine into the cloud and mobile markets principally our GoVerifyID product. Our strategy continues to be straight forward and correct.

We rely heavily on long term engagements with large organizations that will partner with us as a small Company and bring our products to the world. This strategy takes time to generate revenue, however we believe that our successful partnership expansions during the second and early in the third quarters are clear evidence that we are trending in the right direction.

First, we transitioned our long running partnership with Fujitsu via a multiyear agreement for marketing and sales covering Europe, the Middle East, Africa, India and the Americas. Our new agreement enhances Fujitsu's biometric security solutions portfolio and allows their customers to deploy the ImageWare system's GoVerifyID family of products to quickly and easily upgrade their security processes via the Fujitsu Biometrics as a Service, Identity as a Service and smart origination solution.

We view this partnership expansion as an extremely important development on our path to profitability. As Fujitsu will now license and actively market and sell the IWS suite of product under the Fujitsu brand.

So we have now transitioned from simply being a technology partner and waiting for a roll out by Fujitsu to now actually supporting Fujitsu's marketing and sales efforts in a roll out. It is a very important milestone.

As we have discussed before the biometric market has been a little slower than projected in its roll out to consumer adoption. Market analysts who predicted critical mass and time periods such as 2015 to 2016 have now moved their projection to a time period that is now started in parts of the world and for the rest of the world in late 2017 and early 2018.

Now this kind of market evolution is not new. Should think literally of any new technology that becomes a product from color TV to cable TV, from the PC itself to the cell phone, they have all took time to roll out.

There were no immediate hits. And while frustrating for investors and your management are also investors please keep in mind two things, one take a breath, the slower than expected projected roll out in the consumer market has impacted all players in the space IWS and all others without exception.

The good news is that the roll out is definitely under way now. Second many potential customers spent the time planning and studying what is required to successfully deploy large scale systems and now smarter and wiser about their own requirements and how best to successfully navigate to get their employees or customers using what is still new technology and evolving products, are moving to the sale of those products.

At ImageWare, we think this bodes well for us particularly, for now they understand that the infrastructure we have built are patented powerful scalable agnostic and secure biometric engine, coupled with our GoVerifyID for enterprise and commercial consumer, integrates to provide the industry's only turnkey biometric authentication system, capable of scaling into the tens and hundreds of millions. As an industry executive said last week, there are many-many options for collecting biometric data at the front end, but only one product that provides the infrastructure in a timely fashion at the backend and that is the IWS platform.

We remain not only optimistic, but downright confident in our future. As many of you saw from the press release, Fujitsu put out on July 19, we have converted our technology partnership to a full blown sales and marketing partnership in the Americas, Europe, Middle East, Africa and India.

We will shortly sign similar agreement covering the Asia Pacific region where we have already deployed our multitenant algorithm agnostic biometric system in full support of Fujitsu sales efforts ahead of the formal partner paperwork partnership. In the EMEA region Fujitsu is now fully trained and has aggressive sales efforts in high gear with some very excited opportunities and in active sales discussions with customers.

In the Americas we just do we announced the new phase of our partnership in the last three weeks, and in that time we have conducted product training and are pleased to report that due to the potential in the market Fujitsu is already expanding its sales force in the Americas region. We are particularly excited about Fujitsu’s announcement of the Federated Identity system to be delivered to several large corporations scheduled for initial delivery late in this current quarter.

These companies who are leaders in the Telco and financial services space will provide their customers with biometric, authenticated identity management, using Fujitsu’s Biometrics as a Service product which is anchored by the IWS biometric engine, and the GoVerifyID product in a project that will involve millions of users. On other fronts, our partners at IBM have advised us that our patented biometric engine will be included in the next version of IBM ISAM one of the premier identity management products in the world and one used by a number of global 50 companies such as AT&T.

This means that when an ISAM customer desires biometric they can use the IWS biometric engine and GoVerifyID to become biometrically enable using their choice of biometric modalities. And they will also be able to change those biometrics at will, as their needs change going forward.

At HP our partners have advised that they are in the closing stages on the first sale of our product, this to a commercial customer in the Asia Pacific region who will commence operations with 100,000 users and ramp up to 1.5 million users total. Also at HP there are several other very exciting initiatives in the planning process involving GoVerifyID product both with HP Aruba and with HP Enterprise.

With our partners at SAP we are working on finalizing the marketing materials for a campaign geared to their top customers that will kick off in the early fall. At FEMSA we are now working to move enrollment to retail employees that represent a larger portion of their corporate workforce.

So as you can see there is a lot underway. And there is a lot underway because the industry is now hitting inflection.

It's been a long journey, but we are nearing the destination. During to quarter, we partnered with Info X Distribution, a global distributor of storage and networking solutions, to market and resell our GoVerifyID Enterprise Suite and SaaS solution.

This partner runs our reach to 1000s of additional retailers as Info X will actively market our GoVerifyID suite of product throughout North America with special emphasis on small and medium size businesses. During the quarter, we finished our final beta testing of our FDA approved telephone product.

And IWS application that combines medical adherence and information while secured by biometric. This very successful test conducted with a world renowned asthma clinic has cleared the way for launch later this month with a quality reference customer in place.

We are also proud to announce that we have finalized the integration of our identity management and credentialing software into five Alaskan airports. As you may recall from our last update, this was the third agreement in which an airport has entrusted our multimodal biometric authentication software to confirm the identity and background of their employees.

More importantly this engagement further validates the strong position of the ImageWare brand in the biometric landscape. Further speaking to our position during the quarter we were honored to be recognized by CIO Applications the Technology Print Magazine as a top 25 cyber security Company for 2017 based on the GoVerifyID enterprise suite offering.

I would like to remind our listeners that the GoVerifyID enterprise suite is the first ever end-to-end biometric platform that seamlessly integrates with an enterprise as existing Microsoft authentication ecosystem. It offers businesses that turnkey solution for quick deployment and provides organizations with the wide choice of biometrics.

Our successful implementation and partnership expansions of these last few months are a strong reflection of the momentum we are beginning to see in the business and as we said many times on these calls the process we take with each partner is unique to that specific partner. It's thoughtful, deliberate, cautious and cannot be short cut.

As we have also said often it's not a light switch that you turn on with immediate results. Mounting a global or regional sales campaign is not a casual endeavor and each of our partners has their own process to navigate prior to going to market.

We also remind our listeners that all of the GoVerifyID and CloudID transactions are done on a Software as a Service space. This means that ImageWare will receive monthly revenues for each and every identity under management of our product.

We think our partners' strategy is the correct one and that more than ever we are in the right place at the right time with the right product. We remain extremely confident based on our discussions with our partners and our understanding of the companies our partners are speaking to regarding the use of the product and that these partnerships are now on the very cusp of paying significant dividend.

And with that we will open the floor for questions.

Hi, I wanted to ask first about what do you anticipate the turning to revenue might be for some of these early engagements that you just described?

Sure Rob, it's a really good question. It's going to vary depending on the region let's just start with Fujitsu.

The EMEA region so Europe, Middle East, India, Africa is out a bit in front of the Americas just timing wise we did the marketing and sales deal with the European groups earlier, so they got off to a faster start, trained quicker in the market faster. Certain things in Europe requiring some accelerated implementation of security measures particularly in banking and healthcare situations, so we would expect of things like Fujitsu you will see revenues start first in Europe.

We believe based on our conversations with our partner they will start this year, in the fourth quarter. The Americas just behind it but no less powerful in the potential.

In fact, the Americas of course I referred to the Federated Identity system, which is the original vision of this Company and while we built product such as the biometric engine the idea that one identity could be used across multiple different companies for security and ease of use by customer is now coming to reality. And as Fujitsu said not ImageWare, Fujitsu said in their press release delivery is scheduled for the initial product in this current quarter.

so I think what that means is realistically revenue in Q4 or beyond. So we expect Fujitsu to start up this year with the revenues.

Other partners like as I referred to in the remarks just now HP is closing in on their first deal in Asia. We believe we will see that this quarter actually based on again advised from our partners.

IBM a little tougher to predict the revenue at this point because the product is just finishing certification, it’s going to go out to the market later in late august early September timeframe. There are a number of other initiatives that are out there from the cell phone to just our own sales efforts with GoVerifyID that are in various stages of finishing things up.

But we have a number of things that are right on the edge of going to contract and therefore to revenue. So we are expecting to see revenue from that over the next couple of months and in this year as well.

Good. So in the meantime, you noted that the level of cash on the balance sheet is quite low and you have tapped out your current borrowing facility.

So what are your plans to manage liquidity and operating funds in the meantime?

Yes, a couple of different things that we are pursuing. We are taking a look at doing what I'll refer to as a tactical financing.

By that I mean a smaller financing that we believe will get us from here to the place for revenue generates in a positive way inside the Company and we can fund our requirements through the sales of product. In the meantime we have also been in discussions with strategic partners about investments.

And we have had several existing shareholders that have stepped up fund the Company in the short-term as it needs capital.

So do you feel that the - based on your dialogue with customers at this point is the stated balance sheet something that may complicate closing these pending deals or are they are comfortable with the situation here and your cash needs in the short-term.

So far comfortable and we will not complicate closing the deal that I just spoke of.

Great. Thanks.

You bet. Thank you.

Hey Jim, hey Wayne. Okay, it’s going to be short because I had four questions and you answered really all four of them.

I know this is going to be a little repetitive, but I have to say you know what seems to me to be the obvious. If you think you have answered it all that's okay, but you know we have heard things like this the forefront [indiscernible] Fujitsu and yet you know have not resulted in any revenues but I'm just curious why you're so comfortable at this stage, or what do you think the difference is.

Well thank you, it's a fair question, but I would respectfully disagree. We have never heard this from Fujitsu before.

That seems to be a misimpression in the investor group at ImageWare. What you have seen before from Fujitsu is agreements to be technological partners.

To work with the products, to see if there you know some situational ability to move them into market, but to learn whether or not you know we are going to be good partners going forward. That process is now fully completed, products are fully integrated and for the first time ever Fujitsu is going to market in a big broad consistent way with a product Biometrics as a Service and another product Identity as a Service that at the very core of which is knitted into is the biometric engine and the GoVerifyID products.

So we have never before had a Company that is willing to put their brand name and I want to stress that, I think that's a very, very, very key point. By the way, I don't think you can find another Company out there either that's had that happen to them.

That is an OEM or the ability of a product to be taken by a Company and sold under its brand name. That's different than just the casual reseller agreement or even a technological partner agreement.

This is a Company that has plenty of options in the world they considered them. They built the marketing and sales plan, they assessed the situation and felt the market was right.

They assessed the return on investment and felt it was handsome and profitable enough to proceed spending their money to market essentially our product. And they are in the process of doing that.

So I again, respectfully dissent. I just, this is a first for this Company and it's an enormously big and powerful milestone.

This is why we targeted a partner like Fujitsu, they are big they are reputable, they are formidable, they know how to do these things and they are now throwing the entire weight of their corporation in a number of regions around the world behind our products. So we believe that you know good things will occur here in the very short-term from that.

That's a great response I appreciate it and I'm not offended by your previous comment.

Any other way but respectfully.

No problem, and the rest of the call sounds like you were right there, you know at the inclination point of the Company so keep it going. Thanks Jim.

You bet Harvey.

Yes thank you. What they think sort of what their budgeting or what the forecasts are for EMEA and for the Americas and as I understand that they will also be launching in Japan next month.

There is different regions, the Asia Pacific is broken up into different regions, so it’s more of a serial, it's a serial move through a number of regions that end in the Japan market. There are a number of factors most of which actually don’t involve immature.

That is the rollout of the K5 cloud and some other products that they are selling along with this effort. So those things have to all fall in the place in the regions and that triggers the rollout of the products.

You will be in all five regions so is that what your plan.

The Company has advised us that they are preceding to a global launch.

I understand that EMEA is twice the size of the U.S. and Japan is like six times of size of the U.S.

I think that’s more or less correct, but keep in mind that that’s a market with a lot of different products in it, not biometrics solely. So I think Japan is in amazingly high potential market of course but the Americas is a huge opportunity and the Europe Middle East India Africa market again for a reasons that are unique to those areas there are some security regulations and rule that are causing people to accelerate their adoption which we and Fujitsu think will accelerate sales.

Okay. As Fujitsu shared with you update of beginning some budget or some ideas or any kind of indication of what they can do?

Yes, they believe the market is extremely high sales, highly profitable market other than that specific numbers they have not released to the public, so I'm not in the position to release them. They are too a public Company so we have to respect that.

But look they are pretty fired up about this marketplace. So we are pretty fired up about this marketplace.

And they are putting their money where their mouth is by the way. Any of our listeners who have operated a business note that starting and prosecuting a global sales efforts is not an inexpensive endeavor.

All right, have they told you how many salesmen do they have that they would be selling biometric as a service?

I believe in the Americas they now have 24 and they are going to increase to 30. And you know Bob I'm not certain that number or bigger number in the Europe, Middle East, India, Africa market its larger geographical region, so that just makes sense.

But there is a lot of folks and that of course those folks are supportive, those are just a sales people. There is a marketing effort, there is a customer support effort, a sales in marketing support effort, it’s a big effort, really big.

Right and just one more question, Jim could you talk a little bit more about the Federated Identity project. It sounds like they stated in their press release several [indiscernible] could you give us any kind of color on that any kind of idea of numbers of pricing or can you tell us about that.

The federated identity system simply put the concept of taking one vetted enrolled biometric entity and using it across the variety of other tenants or other companies. So if I have your biometric identity enrolled I can as the Company you are doing business with, with your permission of course use it to for other partners, who might also want to use biometric authentication for your ease of use in security.

So in that way you get a tremendous acceleration of identities managed and of course you are paid for each of those by each of those companies. So it's also a pretty big expansion of the sales pool as well.

It was as I said earlier today the original vision of this Company, so we are you know really excited and proud that it's being rolled out pretty much in the fashion that we imagined that it would be. And of course the biometric engine platform being built for this use is the perfect choice to anchor it, which it is going to.

Beyond that Fujitsu and we have agreed to just characterize it as a major Telco at this point along with a major financial services Company. Those folks might be joined by other people as this goes along and all this is we are scheduled to make initial delivery this quarter as Fujitsu said in their release and we are on-track to do that.

So all these identities these folks will be revealed. I don't think Bob that anybody has published the pricing on this that we are anticipating yet.

So again I'm not going to go somewhere that our agreements with all the parties here prohibit us from going to. But you know it is a 50/50 revenue split with our partners at Fujitsu and folks should think in that $0.40 to $0.50 range that we have talked about often before.

A month, $0.40 to $0.50 a month.

That is correct.

How about the number of identities? Can we share that or is that still…

No. Right now, you know the partners are comfortable with saying it’s millions of identities that are projected, that's it.

Okay. thank you.

It’s a big number.

Thank you Vicky. And we have often talked about the process of technology adoption and how it cannot be short cut and while we all think it should somehow go faster.

Replacing a 50 year protocol known as pins and passwords which in turn represents 50 years of behavior and system design is a process that's just not easy. Whether it's our personal lives or our efforts at building a business change is stubborn.

But the unmistakable signs of it are always there for the astute observer. They can see it, and they realize it's afoot.

Our partner companies see it too and that's why they've selected the IWS product and solutions to go to market now. They selected our products because they are the best-in-class and they respond to the reason for change.

They are going to market because they see that the market is ready for adoption of this new more secure an easier to use method of security. But make no mistake, at the end of the day they go to market with IWS for only one real reason, they believe it’s an enormous opportunity and the time to go after its revenue is now.

More than ever in our history we [indiscernible] agree and we encourage all investors, current and prospective to think about that as they consider the options in this industry and with respect to IWS as every day it becomes clear that biometric authentication of our identity is a big visible market whose time has come and is here to stay and that our products will play a foundational role as it proceeds. As always we would like to thank everyone for joining and appreciate your time and ongoing support.

We are looking forward to speaking to you along the way and in our next quarterly call. Thank you and we bid a good afternoon to all of you.