Jim Miller - Chairman & CEO Wayne Wetherell - CFO

Harvey Kohn - HRK Strategic Advisory

Thank you, operator, and welcome to those of you joining our call today. Our quarterly financial results are available in the recently published news release and on Form 10-Q.

Revenue for the second quarter of 2018 totaled $1.9 million, up 78% from $1.1 million in the same quarter of 2017. The increase was due to increased product revenue from the Veterans Administration and several of our law enforcement customers.

As we have stated in the past, our government revenue is subject to significant swings due to the nature of the government project business. Gross profit for the quarter was $1.6 million as compared with $810,000 in the second quarter of 2017.

Gross margins increased to 84% in the second quarter compared to 76% in 2017. Higher software license revenue, which generally carries higher margins, contributed to the increase in profit margins.

The second quarter net loss from continuing operation was $2.3 million compared to $2.5 million in the same quarter of 2017. Net loss per share for the quarter was $0.02 compared to $0.03 in 2017.

We ended the quarter with cash of $2.2 million. This concludes my financial review.

I will now turn the call over to Jim for the progress update on our business strategy.

Thanks Wayne. Good afternoon everybody.

As always happy to have the opportunity to speak with you all today and give you an update on the sales and marketing efforts of ours and those of our partners. For those of you who like to access our biometrics technology overview and learn more about what our game-changing, patented, multimodal biometric technology does how it's different from and superior to other competing technologies and why it's needed I invite you to visit our website at iwsinc.com or contact our IR team directly to discuss.

Last quarter, we talked about how several of ImageWare's partners, including Fujitsu, CDW, and IBM, had initiated their respective sales and marketing programs and that ImageWare and several of our partners were now out selling. I’d like to begin this update today by bringing you current on the projects we previously mentioned.

First in July we announced the VA awarded our partner, Four Points Technology, a $3.6 million multiyear task order for services and licenses in connection with the biometric authentication system we created and deployed at the VA. In June, we received via our partnership with Fujitsu an order from a Canadian financial institutions while these orders start as small pieces of business, it's the first purchase order with Fujitsu from an unrelated entity and the first to be entered into in the financial sector in Canada.

Thirdly, the Fujitsu ServiceNow help desk project has completed integration and is only awaiting certification from ServiceNow in order for the project to be announced and marketing and sales to start. We understand that the Fujitsu and ServiceNow customers -- excuse me we understand that Fujitsu and ServiceNow who supply help desk services to multi hundreds of users will be able to offer their services with our technology embedded in their offering which will allow a higher and more secured quality of help desk services at a price less than what help desk operators are currently paying.

Fourth, CDW executed two additional sales in the quarter and advises us that their backlog of business is increasing and additional sales projected throughout the remainder of the year. Fifth, we continue to work with one of IBM’s largest ISAM customers and we continue in discussions on how that customer can authenticate its employees.

We are now at the point where we are discussing price. Sixth, in March, Fujitsu announced it has expanded our sales and marketing agreement and was bringing their MedClick platform into the market.

MedClick is an OEM version of our FDA approved pillphone product for biometrically secure patient engagement, medical adherence. and authentication of e-prescription ordering and clinical trial.

Since then, we and Fujitsu have successfully integrated MedClick into the Epic electronic healthcare application. The Epic electronic record solution for healthcare provides records for over 200 million patients.

So we're very excited [indiscernible] commenced its marketing and sales activities around the product and will soon be adding resellers who will target this specific areas of chronic disease management with the product. As we’ve discussed on prior updates, the healthcare market is expected to support a higher per person, per month pricepoint.

Seventh, in our last call, we mentioned that we were working to enter a new market, the Internet of Things, a group of standalone devices controls or monitor from a remote location which appear to be the target to appear to be larger than any of the individual markets we have been selling into. Our partners including Fujitsu are having material discussions and negotiations with several companies in the market and we are comfortable that this will result in this year business.

In July of 2017, Fujitsu announced that it was working on a federated identity management opportunity which provides various companies with the ability to use a biometric enrolment for subsequent authentications of transaction, data service or any kinds of access to a network with multiple other companies. There’s been no real movement on this project and it seems to us from the outside looking in as a little mired in deployment indecision.

And finally with Fujitsu’s help and lead, we have now completed our upgrade for SAP and Biometrics-as-a-Service is now available for sales via the SAP and Fujitsu partnership. You can see that product is now listed on the SAP Global website.

As I'm 74 it's important for me to remind all of you that the process we take with each and every partner is unique to that specific partner. Each partner has its own set of objectives, market forces and processes that need to be navigated internally prior to going to market.

Sometimes those processes especially those that involve very large company move at a glacial pace. But I also need to remind you that they are all in fact moving and moving towards very, very large market.

I'd also like to note that throughout the year-to-date, we've increased our sales with partners. In the first half of the year just ended we closed the 11 new deals for our GoVerifyID product in addition to significant new orders of our CloudID and law enforcement products.

GoVerify the orders were zero starting in this quarter one, so progress is being made and as we've said so often the adoption curve is not a light switch, that goes stratospheric with the snap of a finger, rather it’s a gradual curve that most importantly needs to start somewhere and start it has with more to follow as you will see. The issue of financing has been raised by several investors, we have several plans in place which will solve that problem quickly and relatively painlessly, when we conclude the time is right.

And now, I'd like to turn our call over to Ben, our operator to begin the Q&A session. Ben?

First of all, big congratulations on the -- when you've been a long-term investor like I have and I look back over the years and I understand that as of January 30 -- as of December 31, 2017, you actually had no paying customers in the GoVerifyID area and your rundown of the new paying customers right now is just very remarkable. And I know that the beauty of that model, revenue model is that it doesn't go backwards it only goes forward so they keep adding on each time.

My question really is that when you mentioned names like MedClick and the help desk of Fujitsu, I mean the numbers on these things are just mind blogging, when you know how many customers they have. But given the current security climate in the country my question why does it take so long to close these major deals.

Yes, it's a great question and a fair one and I know on everybody's mind and I would -- we at management would be not truthful if we told you that if we don't ask ourselves that several times every day. Because it is, it has been are obviously a long process.

Well, I think the answer to it is a couple of things number one it’s education, people need to understand that biometrics is really simple and easy to use and the only way to do that is to just to have test, test marketing groups that are focused groups to get to use the product and tell people and companies or people who are looking at rolling out for consumers, how really simple and frankly I'll say fun, the product is to use. The second part is and I've said this before but it's really true and I think if you relate it to just your personal life and completely divorce it from biometrics, it's a fact that any habit that we have particularly one that goes on for 50 or 60 years and I speak now of specifically appends and password which have been the full work and the primary security method we've used to safeguard information stored I've been around 50 to 60 years.

If you use that you're incredibly comfortable with it and like a lot of habits that we all have, particularly if they're not particularly good ones you can look at things and say yes, I can go with this a little further along the line even though I know I should do some about it. Change is never easy, particularly when it's significant fundamental change which moving off of a pin and password system is.

Even when the security climate as you rightly point out is crying out for that. The area is just is right for a change and we see every day that 80% of the data breaches in the world are our pin and passwords related according to Verizon’s most recent security report about 82% of the data breaches but it's a big step and as we've all learned on the journey that ImageWare has taken it’s not one taken lightly or quickly.

So you'd have seen in this space, people take an intermediate step which is the so-called two factor approach, so short of pins and passwords completely the ability to just get a yes or no, the ability to get an instant password that changes. That approach has been a comfortable telling the water an intermediary step I’ll suggest that people take on the long journey to biometric authentication.

And using the IWS platform we to do two factor authentication as well as biometrics authentication. We have been an enthusiastic evangels of biometrics it’s clearly superior than two factor method.

But that said if someone wanted to go in the intermediary step we're positioning ourselves now to take a little more advantage of the two factor capability. We've long had in this company, so what I mean is we’re setting it up so that you can buy the biometric platform from ImageWare start with two factor and via one vendor which would be up seamlessly integrate up the chain to biometric authentication.

And so we're trying to take some positive steps and proactive steps to make the journey for our customers easier and put another step in the middle which will be revenue generating of course. I think probably all of us on the call saw this a company called Duo was acquired by Cisco for $2.3 billion last week.

Duo is a two factor authentication company with no biometrics at all so surely a market for this for this stuff, so I think the combination Harvey of education showing people that if they don't want to go to biometrics all one time there's an intermediary step that can be taken and know that you have the upgrade path. People are every day learning more and more about how biometrics work and I don't mean just consumers, partners, resellers it's still in the hands of while it's been around as a science and technology and product in the government market is still relatively new in the enterprise and consumer marketplace and we're -- we remain as confident as excited as ever but I and I appreciate that sort of a long answer to your question but it is just a long answer to the question because it’s a complex situation and there isn't a quick sound bite I can give you that will answer it.

It's a combination of a lot of things, we think we're addressing them all at this point now and we think you'll see the results from our addressing those factors in the form of sales and additional GoVerifyID customers.

Okay, great very thanks and just nice to see those sales coming in every quarter looks like that's something that will just continue so congratulations and thanks.

Thank you. We like and I appreciate your comments on the growth of the GoVerifyID product customers as I said we started at zero, so and while 11 is just a very quick stopping point by, the market is enormous.

Every analyst that you can see in the market is predicting an enormous market that is, is coming to us, so we're looking forward to a pretty explosive growth on that number as well.

Thanks, Ben. First let me thank you for your continued support through what is sometimes been slow progress is difficult for the IWS team as well I can assure you.

But the reason we remain confident is because we know, we have tremendous technology. We know we have a huge and growing market and we know, we have major partners who will ultimately bring on the sales.

We know this because we see the progress on these fronts every single day. One of the things which allows us to keep our sanity is recognizing the reality of our evolution from a technology company to a marketing and sales ever.

Now it's about four years ago that we began to realize that the companies we were approaching to license our technology were major companies and at the end of our discussions and demonstrations with each and every one of them it was going to be difficult or impossible for them to take such a major move with our very small company. So we decided to try to bring in major companies as our sales partners and we succeeded.

The first of them joined us about four years ago and they went through their due diligence process as well as their own evaluation of the market and how they would execute a marketing and sales plan. It was only earlier this year when Fujitsu commenced the marketing and sales efforts of our product under their label in Ernst.

Several other partners went to market on a similar timeframe and after a similar process. The point I'm making is the fact that our partners have only been marketing are or their products for months not years.

They're targeting large enterprise users which as you can imagine is its own process. And the progress that they have been making is good progress and that will become obvious as transactions are completed and revenues were up.

With that, we thank you again for your attention today and for your continuing belief in our technology and our market, that believe will pay dividend. Thank you all and a good afternoon to everyone.