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Edited Transcript of IWSY earnings conference call or presentation 14-Aug-19 8:30pm GMT

Q2 2019 ImageWare Systems Inc Earnings Call

San Diego Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Imageware Systems Inc earnings conference call or presentation Wednesday, August 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Harding

ImageWare Systems, Inc. - Senior VP & CTO

* S. James Miller

ImageWare Systems, Inc. - CEO & Chairman of the Board

* Wayne G. Wetherell

ImageWare Systems, Inc. - Senior VP of Administration, CFO, Secretary & Treasurer

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Conference Call Participants

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* Harvey Kohn;HRK Strategic Advisory

* Jeffrey Link;Invemed Associates LLC

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Presentation

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Operator [1]

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Good afternoon, everyone, and thank you for participating in ImageWare Systems' Q2 financial results and corporate update call to highlight the company's progress since its last quarterly update on May 9, 2019.

Joining us today are ImageWare Systems' Chairman and CEO, Mr. Jim Miller; and the company's CFO, Mr. Wayne Wetherell. Also joining our call today will be Mr. David Harding, Chief Technology Officer. Following those remarks, we'll open the call for your questions.

Any statements made on this call 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. 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, please see Risk Factors in the ImageWare's annual report on Form 10-K for the fiscal year ended December 31, 2018, its quarterly report on Form 10-Q for the quarter ended June 30, 2019, and other reports filed with the Securities and Exchange Commission under the Securities 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 date on which they are made.

I would like to remind everyone that this call will be available for replay through August 21, 2019, starting at 7:30 p.m. Eastern Time tonight. A webcast replay will also be available for 90 days on the company's website at www.iwsinc.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of ImageWare Systems, Inc. is strictly prohibited.

Now I'd like to turn the call over to Mr. Wayne Wetherell, CFO of ImageWare Systems. Please go ahead, sir.

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Wayne G. Wetherell, ImageWare Systems, Inc. - Senior VP of Administration, CFO, Secretary & Treasurer [2]

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Thank you, operator, and welcome to those of you joining our call today. Our financial results are available in the recently republished news release and on Form 10-Q. For context on today's call, I'll provide a brief summary of those results.

Revenue for the quarter ended June 30, 2019, totaled $812,000, down from $1.9 million for the same quarter of 2018. The second quarter revenue for both years primarily reflected our legacy business. The revenue for the second quarter of 2018 included approximately $1.1 million in onetime nonrecurring orders from government agencies. Gross profit for the second quarter totaled $672,000 compared with $1.6 million for the same quarter 2018. Gross margins for the quarter were 83% compared to 84% in 2018.

The second quarter net loss from continuing operations was $2.5 million compared to $2.3 million for the same quarter of 2018. We ended the quarter with $6.7 million in cash. In late April, we've closed a registered direct offering of common stock with gross proceeds of $6.55 million.

This concludes my financial summary. I'll now turn the call over to Jim for the progress update on our business strategy. Jim?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [3]

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Thank you, Wayne. We're pleased to have the opportunity to speak with you all today.

Results for the quarter were less than we expected, and we're not at all happy about it. We had expected to close several deals, which would have improved the results significantly. But for varying reasons, that did not happen.

None of those anticipated dealers have gone away. They are still very active, and we are engaged in an all-hands-on-deck effort to close them. These deals range from a financial services related project with CDW to direct sales in the government space. An example of which is a deal we are scheduled to close at King County, Washington, where -- who is a longtime valued customer, and we will be moving their biometric authentication needs to the cloud on a multiyear subscription fee basis in a deal valued at approximately $590,000. We believe we will see more of these deals in the second half of 2019.

We are seeing very significant interest on the part of our existing government customers, from large cities to entire states, to make this move to the cloud for their biometric needs to improve performance, improve security and in the long run, save money. These city and state situations are each financially material to our company.

Clearly, timing remains an issue for us. Far and away, most of that timing risk is inherent in our go-to-market model. We work largely through and with partners for the sale and distribution of our products, particularly in the private sector. And when they hit a delay or move their schedule for their own internal reasons, we get delayed, and in most cases, we have little or no ability to influence or alter the time line. With respect to the world of government, well, I don't think we need to say much about timing where government is involved.

A very relevant case in point is our agreement to provide biometric authentication for the electronic visit verification requirements of the 21st Century Cures Act for which we filed an 8-K in February. The act is federally mandated regulation that requires all states who provide home care and personal services to folks on Medicare to put in place a plan to authenticate caregiver's home visits to patients using biometrics.

Under this law, all of the 50 United States must put a plan for this biometric authentication in place by year-end or face the penalty of having their Medicare reimbursements cut by the federal government 1% for first year noncompliance and 2% for year 2 noncompliance, a very large sum in the context of Medicare reimbursement for an entire state and a sum large enough that no state is going to let that happen. This is not an option. It's a federal mandate.

Our partner, who is providing a health care product for state compliance with this requirement, holds contracts to do so in several states. The first date where we are jointly collaborating was scheduled to commence rollout in May of this year, which has now slipped to the second half of this quarter. The slip in timing was not related to our product. This is an amazing opportunity for our GoVerifyID mobile product and is being licensed on a per person, per year basis. Additionally, we know from our discussions with our partner that new and larger population states are being planned for a joint collaboration.

So to those of you who have, from time to time, wondered why sales are not going faster, you have the most significant reason. In fact, in many of the cases, we actually have made the sale and are under contract and now we must be patient on the timing as our only 2 choices are to do so or to disengage, which would be beyond foolish in the face of such an amazing and game-changing prospect.

One of our institutional investors said to me recently that he would feel a lot better and be more inclined to add to his position if he could see a revenue path to $10 million. His thesis was that if we could chart the path to $10 million of revenues, he would be willing to bet we could get to $50 million and beyond. Our answer was simple. We have created that path and it's right in front of you because you see, we have created that path to revenue, which is why we remain confident and optimistic in our eventual success while being just as frustrated as you are about the timing, which we cannot control.

Let's walk down that path we're referring to. In our first quarter this year, we filed 8-Ks to announce 2 deals via our partners. We did so because we believe these are material events for our company. One was the electronic visit verification health care project we just spoke of. The second, which we can now tell you, involves the global mobile giant MTN, is one in which we and our partner will provide our products initially to 30 million of their customers.

I can also tell you that our partner has been advised that our customer will increase the service area to add one new country, which will add several million more users with the ultimate plan of providing all the customers with the same service. Based on their current expectations, we expect revenues to begin in Q4. The rollout has already begun, but the inclusion of biometrics is not scheduled to begin until Q4.

That partner has advised us of his expectation that he will add our biometric authentication to his product to be deployed in both a major retailer in their part of the world as well as a border-crossing project. Our partner is awaiting a go on implementation on these projects. This will involve several million more identities expected to go live in the fourth quarter and into the first quarter of next year.

With our partners at Fujitsu, as a result of their recent global restructuring, we will restart our effort as partners on their Biometrics-as-a-Service product. Both we and they agree that the initial efforts were not as well targeted and focused and certainly not at all as successful as we jointly thought they would be.

Tomorrow, Fujitsu is scheduled to announce the selection by them of the IWS IoT DNA product, whereby they can provide biometric authentication to the billions of IoT devices currently in the field that are either not secured at all or are secured by PINs and passwords, 2 defective methods we don't need to discuss any further in this forum. Additionally, together, we have targeted a more focused geographic effort with a new marketing and sales approach and leadership that we begin -- that we and they believe will yield results this year.

We are making progress with our partners in the identity management space, and several of these have shown serious interests in becoming resellers or OEM users of our product. These partners have hundreds of millions of current users between them. So you can easily see why we're highly motivated to conclude arrangements with these folks, and we expect that to happen with at least 1 or 2 of them during this year.

On July 31, we announced our new liveness detection product, Biointellic, which introduces a completely frictionless way to determine the liveness or realness of a person presenting themselves for facial recognition authentication. That's a groundbreaking effort. And we can tell you, as experts in the field, the lack of that frictionless product has caused a number of planned deployments to delay through either customer dissatisfaction or inability to use as well as the security issues inherent on being able to use, for example, a photograph or a mask to trick facial recognition algorithms into thinking it's you when it's not.

We have talked before about the importance of making sure, particularly in remote enrollment situations, that you are enrolling from your home or on your cell phone that the enrollee is really, no kidding, who it's supposed to be and not some fraudster intent on stealing both your identity and your money.

We're pretty excited about this new product. And so today, I've asked our Chief Technology Officer, Dave Harding, to join us on today's call and spend a few minutes with you explaining this new IWS product. David?

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [4]

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Thank you, Jim. The field of biometric identity authentication and management is starting to grow and pick up speed, as Jim has talked about. In the past, matching accuracy and matching speed were first and foremost in the minds of those looking to use biometrics for identity and user authentication. The missing piece was to be able to confirm the veracity of the biometric, namely was it a presentation attack or a spoof. In our industry, this is commonly known as the check for liveness or anti-spoofing.

This is an especially important issue now that face has become the biometric of choice over fingerprint for many users. Until recently, it's been very easy to trick a biometric authentication system using an image of a face or a video. There are videos on the Internet and examples as recently as last week at the hacker conference DEF CON showing just how easy it is to spoof most face authentication solutions in use today. In fact, today, it was reported that a data breach of Suprema's BioStar 2 security platform exposed the face images of more than 1 million identities, facial images that can be easily used to spoof biometric physical access systems as well as biometrically secured computers and networks.

The ability to easily spoof popular biometrics without having any technical skills has been an impediment to the adoption of biometrics as the preferred way to identity authentication. At ImageWare, I'm pleased to say that we solved this difficult problem with a new product we call Biointellic Intelligent Anti-spoofing System.

Biointellic is the latest addition to our Software-as-a-Service identity management platform. It's designed to support multiple biometric types and stop presentation attacks in their tracks. The first biometric modality we support is face, and voice is soon to follow.

Until now, confirming the veracity of a facial image versus a presentation attack was not only difficult from a technology perspective, but it also required unnatural interactions from the user. Some of these include forced head movements, blinking, smiling and in extreme cases, moving a device like a smartphone farther away than closer or using strobing lights. All of these techniques add friction and lead to an extremely poor user experience. And as is typical, a bad user experience leads to slow adoption, if not abandonment.

Biointellic solves this problem by using powerful artificial intelligence networks to catch presentation attacks using a single facial image. It stops high-resolution photographs, videos, even detailed 3D masks from being used to spoof an authentication. And it's as easy as taking a selfie. There's no added friction, just a seamless and simple user experience.

We're excited to tell you that our Biointellic Intelligent Anti-spoofing System is already well underway to iBeta certification, and iBeta is the industry standard for independent biometrics testing and certification. Also, Biointellic has been integrated into our GoVerifyID platform, which means it's already included in our GoVerifyID mobile applications as well as our entire line of GoVerifyID enterprise suite products.

Biointellic is the latest innovation from ImageWare Systems. In addition to having the most robust, secure due to our anonymous matching, scalable, flexible and patented authentication platform, we now have the most effective and seamless liveness checking. I encourage you to visit our website to learn more at iwsinc.com.

Thank you, Jim, for the opportunity to talk about Biointellic, and I'll hand the call back to you.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [5]

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Thanks, David. You can see pretty easily why we're excited and why this new technology of ours will make a difference and why we're already seeing great interest from large enterprises and those looking to provide the strongest possible authentication with the least amount of friction for their employees and their customers.

Since we last spoke with you, in anticipation of several pending projects going live, we have added several new key hires. We've added and created an active marketing team and effort led by Michael Sanger, who has been charged with raising brand awareness, supporting sales efforts, managing our websites, social media, public relations and lead generation efforts. We've also added an experienced veteran of the security software industry, Avi Legmann, to head our global business development effort.

Finally, before we take some questions, let me say a few words about our largest single enemy, timing. Now we've been biometric pioneers since this industry began. But the rest of the world, especially that part of the world now considering the move to biometric authentication in mass numbers, has only been exposed to these kinds of products very recently. So before we see any revenues, we must provide extended training for these new and different products, and we must change the way customer service works with these new products. And then with customer adoption, we will see meaningful recurring revenue.

And we should all keep in mind that this involves the introduction of new products and new technologies, in some instances, such as the global mobile carrier, an unprecedented number of users of that new technology. No one has done these kinds of large rollouts in the private sector, so there's no guidebook or history from which we or they can learn or estimate rollout timing. As we've said, sometimes our partners expect to move quicker than they actually do. In the interest of transparency, which we believe in, we share those real-time expectations with you with the knowledge that if they change or get delayed, you'll be unhappy with us.

Despite those risks, we continue to think it's the right thing to do. And we think it's a far better course than one taken by some other public companies in the space where they simply don't host any conference calls or take questions at all. So we will continue to share with you how we see it at any given point in time and be willing, when appropriate, to update you if there are changes.

We've talked about timing before, but it bears repeating. Everyday devices we use without thinking, the microwave, the cell phone, the laptop, iPad, computers, even those awesome big screen TVs, did not become huge consumer successes overnight or at all quickly, although we often forget that. It took time.

But we strongly suggest to you that you should consider that the glass is half full, not half empty. Why? Because we're starting to receive meaningful contracts for millions of identities, and that's how success is borne in this business. At the beginning of this year, we had none of these things.

As a way to provide some further visibility into the activity of our sales and marketing process, on future calls, we'll provide you with the number of projects we have underway in both the early stage, mid stage and in late stage. And we'll continue to update that metric for you in each quarter. These projects will be included because we have a level of confidence that they will be completed. This pipeline represents a range of 5 million to 15 million new identities during 2019 and over 50 million identities during 2020.

Because we have carved out the path and we have agreements in place, which when rolled out, will cover tens of millions of identities with a further upside of making those tens of millions into hundreds of millions, that part of the journey has been successful. Now we will continue our efforts to create more revenue opportunities and are sure to spread the timing risk and get the credit in the form of meaningful revenues.

Speaking of anticipated revenues, we believe, based solely on current projects under contract without the benefit of any new revenue sources, we have sufficient cash to carry us into 2020. And finally, as we said we would, we will file notice and hold our annual meeting late in the fall. You will be seeing the formal notification of the exact time and place of that meeting, so please be looking for it.

And now I'll turn the call over to our operator for some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Elliot Knight] of [Knight Advisors].

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Unidentified Analyst, [2]

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Would you mind going back over the announcement expected tomorrow from Fujitsu about the Internet of Things? You went through it rapidly. It sounds important, and any additional detail would be very welcome, please.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [3]

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Okay. Thank you for the question. And I didn't -- it wasn't intentional to go over it quickly so as not to provide more data. But it will be a...

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Unidentified Analyst, [4]

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No. I'm just a little slow.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [5]

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It will be Fujitsu release, Elliot, and so I'm going to -- I'm not going to try to steal any of their thunder. As I said, it is scheduled for release tomorrow.

We have basically built a product, and we've talked about it briefly in the past. It's called IoT DNA. And essentially, what we are doing is we're putting biometric authentication to be available for high-security IoT devices. Now these are the billions of sensors, far more devices in the field than people on the planet, that were sent out into the field. And the experts all confirmed this with virtually no security, and at best, the security is PINs and passwords. And as I said, we've talked about that at length. They don't work and plenty of statistics to support that.

So what we're doing is we're providing the ability for these folks to biometrically secure these individual IoT devices. So we can use our biometric authentication platform to not only house and match the biometric authentications, which would open or deny, as appropriate, access to these devices, but we can also hold the identity of the device.

By that, I mean each of these devices has a singular address. So we can house the address on our platform, coupled with the biometrics of those folks authorized to access it and that way, ensure that -- for example, a railroad switch in the middle of the desert that is controlled by a sensor isn't just changed randomly by some hacker.

So we believe that it's an important product. There's interest in the market. Fujitsu is interested and has seen some interest enough to put their muscle behind this. And there's a lot of these devices, aviation, oil and gas, mining, transportation, where the devices that have been deployed have virtually no security, and folks are interested in adding this security. So essentially, that's what the product does. Those are the use cases for it. We're excited to get it out there. And as I say, tomorrow is the scheduled pickup date for that.

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Unidentified Analyst, [6]

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And as a follow-up on that, what -- it sounds as though this is very early days for this product before it's going to be revenue-producing and we shouldn't have high expectations. Is that fair?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [7]

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Well, it's early days, for sure. And I think candidly, we don't know. We've had -- we've built a product because a number of our partners said there was interest in it. Before we've released it, we've actually visited in person with some of the large companies that do IoT devices, manufacture them and deploy them and sell them in the market. And based on that, we were -- we came away with a very strong conclusion that in these what I'll call high-value areas, transportation, oil, gas, mining, particularly where public safety is at risk, that there was interest in looking at these things on a fairly immediate basis.

As far as we know, there's no product like this out there. But I think that you stated correctly. It's early going and certainly too early for us to put a projection or an expected projection on it.

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Operator [8]

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The next question comes from Harvey Kohn of HRK Strategic Advisory.

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Harvey Kohn;HRK Strategic Advisory, [9]

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Things sound pretty exciting. I'd like to just narrow -- I have a number of questions, but narrow it down to a question on the second filing that you did last quarter with the large multimodal telecommunications company.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [10]

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Yes. Sure.

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Harvey Kohn;HRK Strategic Advisory, [11]

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In last quarter's release, you talked about -- and I don't know if the name is out there, if it's public, but -- that the -- I want to ask 3 questions about this. Number one, the implementation, do you still expect that to happen in the second half of this year, which would be any time now going forward?

And two, this question is -- do you -- let me just spit all these questions out. Part two is you said the expected face is 30 million people, and I want to know if that's still onboard. They have 30 million customers. And thirdly, is the implementation mandatory to their customers, for all existing customers?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [12]

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Good questions, all of them. Yes, we still anticipate, as I said in my prior remarks today, that the rollout will commence in Q4 for biometrics. The rollout has already started. They've already started to create the digital identities of these folks. And on our part of the implementation, we don't see revenue until actual biometric authentication has commenced.

So therefore, you have to have the identities in place digitally before you can do biometric authentication. That's just the natural part of the process. And by the way, for all the rest of our listeners, that'll be the process in every single one of these implementations. There will be no exceptions to that.

30 million is still the number. The carrier has a plan of making it mandatory. Sometimes these implementations also dovetail with government plans in the area to create the so-called digital citizen concept, which allows people access to government goods, services via a digital identity, which will be biometrically authenticated. So that's also part of what's being considered here in the rollout.

It's proceeding. We're excited. We've received notification that we're now going to be talking about adding at least one additional country. That's a big deal. And so this is how this starts. And their intention is to cover as much of their service area in the world as possible. So to be part of that is an enormous opportunity. And as I said, it's unprecedented in a sense that there's -- other than government, this is the first of big private sector rollouts. So it's a significant opportunity for this company, yes.

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Operator [13]

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The next question comes from [Jay Kim] of Alpine Global.

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Unidentified Analyst, [14]

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I have just a few questions here. I mean the first is -- I mean you won't be the first software company, regardless of size, to kind of get pushed around a little bit with revenue recognition, especially with governments. So I just want to clarify that this is just -- the deals are still there, and it's just getting the final sign-offs that's just been elusive for you.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [15]

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100%. That's absolutely correct statement, yes.

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Unidentified Analyst, [16]

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Okay. Now I want to go deeper into a couple of things, and you can cut me off if I'm taking too much time. But countries like Sweden love to talk about being on the forefront of electronic banking, e-payment with things like Swish. But in reality, Africa has far more people doing banking on mobile devices, just to share a number.

And if we look at the MTN agreement and the whole know your customer, is the mandate for the know your customer related to -- you have to authenticate the user at some point because that cell phone, they don't have the luxury of laptops and 2-factor authentication and tokens, like they do in other countries. So the onboarding of a mobile customer is onboarding to a complete lifestyle, right, and banking, services, payments, et cetera. So I mean is this just the tip of the iceberg with this MTN deal with more countries and essentially an entire continent?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [17]

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Yes. Yes. We believe it is. Africa, by the way, was a country that we consciously thought about when we actually built these products and made the move to mobile and cloud-based authentication a couple of years ago simply because, as you point out, there's big spaces, there's lots of people, there's a lack of brick and mortar. And so virtually all of the transactions are, in some form or fashion, conducted using a smart mobile device because there's no other choice.

And of course, the carriers are cognizant of that, of the fraud that is potentially there, of government mandates for the so-called -- what we refer to as the digital citizen initiatives where whole governments in entire countries are just simply saying that we're going to make a digital record of our citizen. And then once it's made, how to authenticate that you match that record, and the easy choice is biometrics. So that's -- those are all part of the rationale that come together for a decision by a carrier such as this to go ahead and begin this process.

And yes, it's incredibly exciting. I mean this was -- this is an enormous milestone thing for this company, to be selected, to be part of the implementation on something that is scheduled to go way beyond the initial country picked to deploy it. So yes, it's a big opportunity, big deal. And as I've said before, the power of a reference, which is something that, in this particular piece, we have been lacking.

To be able to say that you're part of that implementation is absolutely huge for us. But the question that won't surprise anybody, we get asked, "Where have you done this before?" And the difference between -- well, it's brand-new, we don't really have any and yes, we're working with the deal with 30 million people, you can't compare the 2 statements. So yes, it's a very big -- very, very, very big, meaningful opportunity, yes.

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Operator [18]

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The next question comes from [Stan Kaplan] of -- a private investor.

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Unidentified Participant, [19]

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First, I do appreciate your continuing to do the quarterly calls, particularly in light of the last several quarters. And I'm just going to quote your statement today, "Although results for the quarter are less than we expected, we remain optimistic on key deals and partnership opportunities." And so as a shareholder, we have been hearing this for the last several quarters and even some predictions that cash flow breakeven was just around the corner.

So I guess what I would appreciate you trying to clarify, if we would have gotten 1 deal even earlier, that would've helped with our revenue. But it seems like every deal we're working on has been delayed and suffered what you referred to as slip in timing.

So how do we really know how much time these deals are going to take? Maybe it's going to take another 2, 3, 4, 5, 6 quarters in which the company may have to raise additional financings and dilute shareholders and see lower stock prices. So I am optimistic about the future, but I would like the future to be now and not later. So please tell us what's causing the slip in timing across the board.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [20]

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Well, I think we'd all say amen to your comment about the future being now and not later, we'd say it very loudly here and we might add some words before and after it. It is a critical problem, and that's why we go to pains to point it out. It is -- and I honestly -- Stan, I don't know how to solve it. As the prior questioner said, we're not the first company in the history of software to be moved around by partners and timing. We supply a piece to a larger puzzle.

And as we have seen in virtually all of the projects or private sector businesses, that they end up -- even when you have a sale, and that's why I made the comments as specifically as I did. It's not that we haven't made the sale in some of these cases. We've signed agreements. But once you have a signed agreement and the person that is going to deploy your products takes their time for whatever the reason to deploy it, we don't really have an answer for that because we can't force them to do something other than the timeframes they have them on.

And there are 2 choices. Realistically, our 2 choices are to say, "Hey, we're done waiting around. We're going to go onto something else." Or as I said, be patient and work through the process with them. Believe me, we've tried all kinds of things, incentives and different terms in order to incent a quicker rollout. But I think what you're seeing, and again, why I commented specifically on it, is you're introducing new products into new areas and it's just the inherent in being new. No one's done it before, no road map, no guidebook, no history. And there are a number of things where, for example, I mean just in our recent experiences with partners, getting the customer service desk up and running took longer than they thought. We get it. We understand it. We're frustrated by the delay, believe me.

But then the question you really have is why does it -- why can't we make it go faster? And I just don't -- we just don't know any way to do that except to get more and more of these opportunities, get the products deployed in multiple places and then not be so reliant on the first or second one of these large ones, have a dozen of them and they all run out over different time frames, maybe. But you've sort of effectively spread the risk of that out.

But I think it's just inherent in what we're doing. We're introducing a consumer product. And the rollout and when -- on top of that, we're dependent upon a partner to do it. And if the partner goes slow, again, I would -- I'd welcome suggestions, believe me. We've all, as a management team, tried to figure a way to make this go quicker than it has.

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Unidentified Participant, [21]

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If we had -- yes. If we had unlimited resources, I mean then could you do any more, throw teams at them, give them better support? I mean is there -- is it a question of money and resources?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [22]

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In terms of the pace of rollout and making someone go quicker, no. In terms of this idea that more resources, sales and marketing, for example, would allow you to have more opportunity out there, so multiple -- more projects underway in deployment at any one time, yes, that's a cause and effect, for sure. You add more people on the street, you generate more opportunities and therefore, wouldn't be so dependent on the rollout schedules of these first large ones.

But in terms of would more money or resources make these 2 projects we're talking about on our cycle quicker, no. No, they wouldn't. As I said, we're virtually done. We've delivered product. We are now waiting for the people we delivered to, to put it in the field, and that's what triggers revenue. And that's what you and we and all of us have been waiting for. If we could find a way to speed it up, believe me, we would.

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Operator [23]

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The next question comes from [Paul Denby] of [Denby Enterprise Inc.]

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Unidentified Analyst, [24]

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In the big perspective right now, the company, because of the contracts we have with the operation in Africa and also the operation we have with the EVVs, the company of ImageWare is in the best shape it's probably ever been. It's pretty exciting. It's true revenue. And as you and I have spoken about, it's basically revenue that's go -- start come again in 2020. So -- and this will be serious revenue.

But I was just curious -- I've got a couple of questions, one to David Harding also. But do you have any other large revenue or any other revenue from any other wells that may be coming in, in 2019, some other deals that may extend our cash position and keep this train rolling?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [25]

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Yes. The short answer is yes, and I -- you won't be surprised that I'm not able to or will comment on the specifics of that because there are discussions that are very much in progress. But yes, we do. It's another reason -- that's another reason for our optimism and our confidence in going forward. These aren't the only couple of deals we have, so yes.

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Unidentified Analyst, [26]

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Yes. I mean obviously, the obvious question is everybody looks at the cash flow with the cash position and so on. So that's the question on everybody's mind on this call, I'm sure. So that's why I was asking if you had, not giving specifics, but you actually have some other customers and other deals that you're working on where you think you'll go end up getting some revenue in the next period of time.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [27]

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Yes, sir. Absolutely, yes.

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Unidentified Analyst, [28]

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Terrific. And then on -- if I could ask David Harding a question. I'm not sure if he's still here, but it sounds like...

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [29]

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I am, Paul.

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Unidentified Analyst, [30]

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It sounds like you have the -- terrific. It sounds like that you and your team have written one of the -- what I understand the best in class of this facial recognition, this Biointelligent (sic) [Biointellic]. I guess that's a name you've assigned to it.

Do you foresee customers out there that we're not even looking at or talking to that are already using facial recognition? I know my broker uses it and my bank's using it now and so on. And quite frankly, it doesn't -- worth a damn, most of the time. They don't recognize my face or whatever. So do you -- are people calling you now and go on -- or calling the company at this point? Is this product that good where people will likely either upgrade it or change their existing facial recognition product?

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [31]

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Well, that's a great question, Paul. The fact of the matter is the product has just been released. It's also being extended to include other biometric modalities like voice. We're going to the process of protecting it, of course, as we typically do with intellectual property.

Do I believe it's a game changer? I believe -- yes, I do, and I'll tell you -- and as I said, I think the key here is that the initial discussions of biometric matching really were around the accuracy of the match. Now I'm not going to test to which biometric matching you're having difficulty with. Face is a very popular one. It's become more popular because it doesn't require, for example, touching a sensor like fingerprint. And it's also very easy. People are used to taking pictures of their face. We use NIST-certified algorithms, which are exceptionally accurate. That's never been the problem for us or for a number of biometric providers who actually know what they're doing.

The reality is that spoofing is very easy, and it always has been. So the fact that we have built this product that it is very sophisticated and very good -- I'm biased. But I've used all the different anti-spoofing technologies out there. We've evaluated. We even incorporated some for a period of time, and they were just lousy. They didn't -- they provided a bad user experience.

If someone doesn't have a good user experience with a piece of technology, they throw it over their shoulder and move on. They don't bother with it. That has been an impediment to a lot of adoption is bad user experience. What you just described from a matching perspective is bad user experience. And obviously, based on what you said, you're not very happy with it and rightfully so. We believe that we have a friction-free solution that is the best in breed and best on the market.

We are now going to market with it. We already incorporated it into all of our products. So customers that are actually utilizing our products today were able to get it immediately without any delay. So we feel that this is a game changer. It gives us a highly competitive advantage, and it will continue to do so as we add even more biometrics and anti-spoofing technology to it.

And it does get better over time as well because it is based on AI and it is based on -- it does have the ability to enrich over periods of time and get better. So you're going to see not just face, but you're going to see voice in different modalities come online into the Biointellic system. And again, that gives us a highly competitive advantage.

Did that answer your question, Paul? Still there, Paul?

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Operator [32]

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The next question, sir, comes from [Jerry Novak] of [Janco Business Advisors].

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Unidentified Analyst, [33]

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What is the investor relations efforts that are going on to generate interest in the company and the company's stock? The company claims it has patents and other biometric items that are one of a kind. Where are the magazine articles? Where are the interviews? Where is the TV interviews? So that leads to that investor interest can be generated so that should the company need to raise money because of this never-ending delays in execution, it can raise money with a flawless dilution.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [34]

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Well, Jerry, we, in fact, do have those patents you referred to, and they're pretty easily verified. They're in a open forum on the Patent and Trademark Office sites, and they are exactly as we state that they are. We have an active investor relations effort. It's headed up by the Bibicoff firm. They not only answer shareholder questions, but they circulate information on the company to new and prospective shareholders to generate interest in that.

Now as I said in my comments, we have hired and really have, for the first time, have a real marketing effort underway here headed by a very skilled professional and with a team of folks to do exactly what you're suggesting. And we agree, that's what we need to do. We have been a secret in this space, and yet we have amazing technology and products that are ready to go.

So to address that concern, which by the way, again, we share it with you. That's what we've done. So their charter, as I just in my remarks, is to increase the profile of the company, get some public relations as opposed to just investor relations, some real PR, which I think is really what you're talking about. And you will see the results of those efforts, I think, shortly.

I mean we're making -- they've just got the team really in place in the last literally few weeks. And given just a bit of a chance here, I think you'll see some -- a whole lot raise in the profile of this company. But we agree with you. We need -- that's something we hadn't done before. We need to do it now, and we're doing it now.

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Unidentified Analyst, [35]

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So we'll see some measurable -- either interviews or magazine articles or publicity by the time we have the next call in 90 days?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [36]

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I think so. And I will tell you, I think if you -- and I'd be very happy to send them your way. We've had some already. We've had some great interviews. I -- personally, I've done a couple, but we've had some terrific interviews with Dave Harding. And if you haven't seen them, again, we'd be very happy to send them to you. And they're worth your time to read because they explain what we're doing, how we're doing it, why you should care. And we've gotten great reaction from putting those things out there. As I said, one of the things, and I think I've said it a number of times on this call, that we've really lacked in the past year is a highly professional skilled marketing effort. We have that now, and I think you're going to see some great results from it.

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Operator [37]

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The next question comes from Jeffrey Link of Invemed.

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Jeffrey Link;Invemed Associates LLC, [38]

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Question just on the -- I suppose the deal structures going forward were -- I understand is going to be an emphasis on trying to get some upfront payments as well as the obvious recurring revenue. And I was just wondering, since you talked about some of these agreements having been signed but not implemented, with the deals we are trying to get an upfront payment, is it something where once the deal is signed, you'll get the payment? Or is it the same thing where you can sign an agreement and then you're still going to wait until they begin to implement, and at that point, you begin to get the upfront payments?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [39]

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Well, sort of just [haven't]. So in the agreements that we have under contract today, those are traditional Software-as-a-Service agreements. So what that means is you pay for things that you use. So until you use them, you don't pay for them. That's the SaaS model. It's not specific to ImageWare. That's the way it works across the board.

What we have done in certain cases where we have the ability to do it is in negotiations that are like -- for example, a couple that are currently underway. We have restructured agreements to allow for some or all upfront payments. So we have that ability to do that. And of course, we're doing that very specifically to address the cash flow requirements. And we've got the ability to do both, so we're doing it.

The -- in terms of the SaaS agreements, it's -- you don't see many of those that have big upfront payments. As I said, that's the -- that is -- that's just inherent in the model. But where we can and going forward, you will see deals where we can get upfront payments and we will.

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Jeffrey Link;Invemed Associates LLC, [40]

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And then -- and just again to clarify. So in the example where you sign the agreement and they choose not to implement right away, in the situation where you're restructuring the deal so it's mostly an upfront payment, does it still wait for their implementation before the payments sort of kick in? Or was that once the deal was signed?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [41]

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No. That's the difference, Jeff. No, upfront means upfront. You sign, net 30, you pay. It's not a deal where you wait for implementation.

In the 2 examples we used today of EVV and the mobile carrier, those were true SaaS models, which you pay for use. And as I said, what you have in there is -- the delay, by the way, is entirely reasonable. I know none of us like it, right, least of all, management here. But as I was attempting to explain, you have to set up customer service, you have to set up training, you have to set up support and you have to have all those things working because you're introducing to millions of people a consumer product. And they are going to have questions, and they're going to call a support desk. And they're going to have to be walked through any issue or problem they perceive they have with the product. So all that takes time.

And as I said, we know we run the risk when -- we share with you what our partners tell us. There's a fair argument to say we shouldn't do it. But we do and we run the risk that we have to report to you delays. And we run the risk that, that reflects back on us and you're unhappy about it. And we're unhappy about it, too. But again, I think net-net, we've all decided as a team here that we're going to tell you what we know when we know it and run the risk that we might be wrong about it.

But our partners tell us that, I think Stan Kaplan asked in earlier question, if our partners tell us, "Hey, we're going to close the deal at this time and place," and it will generate cash enough to make the cash flow positive, we have shared that with you. If that doesn't happen, that statement then ends up being something we have to update and change.

So again, we've always thought on that one, so it's best to just put the cards out and let you see what we see and run that risk. I can point to other examples that doesn't matter because they're other companies, but -- where they just don't do that at all. And for that reason -- because they -- that way, they'd never have to explain why the information ended up having to be delayed or implementation was solved for whatever reasons.

But as I said, one of the things that we can do to change that is to restructure or structure new contracts with a provision for upfront funding. So we see the revenue and the cash immediately and there are ways to do that. We're underway with that. So that's one of our responses to the -- to try to combat the problem.

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Operator [42]

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The next question comes from [Tom Nigh], a private investor.

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Unidentified Participant, [43]

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I wanted to go back to MTN in Africa because I've done some reading about what's going on in that market space with MTN. And I've seen some comments from them that they're very much pursuing basic phone users rather than perhaps true smartphone users for identity authentication and transactional use cases. I just wanted to confirm that ImageWare sees the license revenue even for someone that would be implemented for just basic phone service rather than a true smartphone. So is that included in the $30 million -- or 30 million user number?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [44]

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No. The -- if I understand your question right, Tom, you're referring to what we would call the flip phone population, by the way, a very declining population. Smartphones are by far -- far more prevalent. And depending on the market areas you look in -- I mean when I say far more prevalent, I mean 90%, 95% market penetration versus the flip phone population that is largely dwindling and going away. And of course, the problem with the flip phone is it doesn't accommodate biometrics. It accommodates a PIN or a password, which is the technology available to it when it was built.

So this is Software-as-a-Service. So you are looking at devices where biometric authentication is allowed, and those devices, you get paid on. If you're not doing biometric authentication, you don't get paid because our software isn't resident on your device.

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Unidentified Participant, [45]

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So you're suggesting that the 30 million users of MTN in the country that you're referencing are all smartphone users then.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [46]

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No. No. No. I'm not suggesting that at all because that's not the case. I don't know the exact percentage. I know there is a flip phone population. I know it is a vast minority. And as I said, there's no place for our technology, the biometric authentication piece to reside there, so there's no way we could claim the ability to charge for that.

And by the way, that minority of flip phone users is in every country in the world. There are still folks who hang on to them and use them and probably always will. And those -- while we could do 2-factor authentication for those folks, that's not what we're being asked to do in this particular case.

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Unidentified Participant, [47]

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Okay. Well, there have been some articles just in the last few days that reference they're going after the basic phone user market space in Africa. So I think that's worth checking out.

The follow-up question that I have for you is with reference to ServiceNow. That was one of the major opportunities that you mentioned previously. Is that still an active opportunity for ImageWare?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [48]

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Yes. It still is. That was a deal that was brought to us by our partners at Fujitsu. And as I said, there's been quite a bit of restructuring in the Fujitsu international group. And so we're going to go back at it again and see what we can generate there because the use case, which was helpdesk authentication, is too powerful and too obvious to ignore. And so we're hopeful that with this new redoubled effort with our partners at Fujitsu, we can make something happen there. But yes, it's still -- we have been in contact with, obviously, Fujitsu and also directly with ServiceNow now on that, yes.

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Operator [49]

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The next question comes from [Jay Kim] of Alpine Global.

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Unidentified Analyst, [50]

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In the due diligence that we performed, I mean one of the things that stood out wasn't so much the financial model or the projections, but it was the patent portfolio, and the one specifically dealt with PII, personally identifying information. And I bring this up because of what happened with BioStar 2 today. I know Dave referenced it. But I mean basically, millions of users got hacked. Their personal information was revealed along with their biometric information. And you can't reset a face, right? You can reset a password, but you can't reset a face. You can't reset a fingerprint.

And so the patent I'm thinking about was that you, years ago, patented the process of disaggregating biometric data with an actual user. And so even if somebody got access to the biometric database, it's just 1s and 0s anyways. So if BioStar 2 is a what-the-heck moment in the biometric industry and you have a patented process of disassociating PII from biometrics, I mean isn't this -- I mean I hope it wouldn't come to this. But it just feels like the puck just got passed over to you guys.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [51]

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Well, we think it's -- we -- yes, right on. We absolutely agree, and we think it's an amazing opportunity. By the way, we have 3 patents on anonymous matching. And I'm going to ask, I have one of the world's great experts in biometrics that I work with every day. Dave, have you got any comment on that?

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [52]

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No. Jay, you're spot on. I -- to really kind of drill down on BioStar 2, it's really a tale on what never to do at multiple levels. I mean they didn't disaggregate the information. They also stored raw images with -- of the biometric data, and they did it all unencrypted and exposed the database to the Internet. I mean they -- it was -- as I've sat this morning reading the articles and they were numerous, from Forbes and several others, I had to shake my head.

The fact of the matter is they're probably not an isolated event. In fact, we've already seen similar breaches in the U.S. government. We saw the Office of Personnel Management did the exact same thing years ago that you have a lot of people who -- all their background check information for getting security clearances and their raw images of their fingerprints were put into the wild. That was a long time ago, millions of users, even more than the BioStar one.

So it is a cautionary tale. We saw that very early on, as Jim pointed out, we have -- we filed for and were awarded 3 patents around what we call anonymous biometric verification, authentication -- or verification, identification and enrollment. We're very, very proud of those patents, obviously, and we think it is a game changer. And we also think it's an opportunity to really go out there and just shout the message from the rooftops that we have the most secure biometric identity management platform in the world and we have the patents to prove it.

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Unidentified Analyst, [53]

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Yes. And this goes along with the Biointellic because -- I mean the flaws with the Apple facial rec, I mean that goes back to 2017 of people using masks. And I mean you couple that with what just happened with BioStar, it just -- it feels like the strength of the patent portfolio is kind of illuminated here. And if -- we just love to follow up with you afterwards maybe to see how you can -- I don't want to say capitalize, but just let the world know what you have.

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [54]

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Also capitalize, that's a good word.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [55]

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Yes. Yes, we agree on that one.

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [56]

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Well, it's definitely something -- yes, absolutely. No, if you look at the entire patent portfolio, you look at really the -- what I consider to be the crown gems of the patent portfolio. We've had -- for a number of years, it is really around the scalable platform that supports multiple modalities.

You add Biointellic on top of it and it just closes the circle. It brings together the true anti-spoofing, which solves the problem of being able to do presentation attacks. You bring the NIST-certified biometric matching in place. And you do it in a way that's not only highly scalable, but it's also multi-tenant in a SaaS model.

So customers can get started using it immediately through products like our enterprise suite, where they can attach to their active directory network in minutes or Linux through things like TAM or with ForgeRock or any of these products in the enterprise suite that we have built around that patent portfolio as well as the capabilities that, that platform provides that no one else does.

So we really do feel we're in a very unique and powerful position, as Jim has pointed out over and over and over on this call. We're ready to go. In fact, we have these contracts and agreements signed. It's not an issue of the products. It's an issue of their rollout. And so to stress again, we're poised. We're ready to go, we're in the starting gate. Someone else has got the hand on the firing trigger, but that's okay. We know it's coming. So we are optimistic, we do believe it.

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Unidentified Analyst, [57]

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Great. And just -- do you feel that the strength of the patent portfolio -- if what happened to BioStar kind of forces the other competitors to retool and come back at the market differently that you have strong enough defense that, "Hey, you want to disaggregate PII from biometrics, either buy from us or pay a toll"?

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [58]

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Yes. That's pretty much the choice, I think. Yes, we agree with that.

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David Harding, ImageWare Systems, Inc. - Senior VP & CTO [59]

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Yes.

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Operator [60]

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We have no more questions. I would now like to turn the conference back over to Mr. Jim Miller for any closing remarks.

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S. James Miller, ImageWare Systems, Inc. - CEO & Chairman of the Board [61]

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Thanks. We believe that one of the important messages that you should take away from this call and the biometric industry news that you see virtually every day is that the market for biometrics is alive, it's well and finally, it's now here. In the past, businesses were curious about biometrics, but there was no real active market.

We see the difference now in the way that new potential customers are approaching it. We see it in the need for us to hire sales and marketing professionals to create and follow-up interests. We see it in the negotiations we are having with companies and we have been having discussions with for some time and companies who are coming to us for the first time.

One of the drivers is that you are seeing companies such as Equifax and today, BioStar 2, who are now, for the first time, receiving significant fines and penalties as a result of their failure to properly secure data, which results in a security breach. Equifax was recently assessed a fine for $700 million, which sets up a very compelling value proposition for products such as ImageWare's, where you can pay as per person, per month or per year of relatively minor amount in comparison or face the prospect of paying the government in fines or civil litigants in court cases and damages.

These fines will grow as it becomes apparent that the theft of personal data, ranging from Social Security to your mother's maiden names, your work and education histories, threatens to destroy the basis of how we've secured that data historically. That data is now in the hands of the bad guys. It's been compromised, which is -- when it's used, how do we know it's you or someone pretending to be you. And there's only one way really, by biometric authentication.

Because of the length of time that many of you have been investors in IWS because of the many head fakes in the market, the pressure to see deals close and product rolled out is intense. All of us at ImageWare feel exactly the same way as you. But let me say this in closing and with no hesitation. There is no longer a maybe to the question of our success. The path has been created, and that maybe is gone.

As always, we appreciate your support as well as your taking your time for today's call, and we look forward to speaking with you on our next call. Thanks to all of you. Have a good afternoon and evening.

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Operator [62]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.