Interview with Jim Miller, Chairman and CEO of ImageWare Systems - March 2006

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Interview with Jim Miller, Chairman and CEO of ImageWare Systems
March 2006

At the recent Biometric 2005 Conference in London you demonstrated the core features of your Biometric Engine Platform regarding ICAO, FIPS 201 and LiveScan capabilities. Can you review this for us?

We have laboured long and hard to ensure that our Biometric Engine™ Platform is compliant with really all of the world standards and government initiatives so that biometric verification and authentication could be utilized in these programs. Our aim was really simple; it was to provide our customers and our end users with a single point of contact. That is, ImageWare, as a provider of a tool kit and an application that would allow them to satisfy those requirements.

We are very proud of our achievement and believe it is unique in the industry. Obviously all of those requirements and programs that you mentioned require a good deal of heavy lifting involved in order to attain compliance, but we are very proud of the fact that we have done that and that the users of the product can get, again, from a single source, a ready- to-go tool kit that will enable them to incorporate biometrics into literally any form of credentialing, from a simple ID card to more complex passport or access control type of identity document.

That's a pretty significant differentiator and competitive advantage I think for you!

We think it is Peter and that is of course why the launch of the Biometric Engine was so timely. As people get to know the strengths of ImageWare and the robustness of the Biometric Engine Platform, they will find it worth the wait as it will literally save months of development and enable users to speed time-to-market and deploy a final product/system which will position them ahead of competitors.

Can you describe some of your recent deployments, especially the Mexican contract that relies on 4 biometric identifiers?

Absolutely, we are really proud of this project! The Mexican Government, through the Secretaria de Relaciones Exteriores division of the Foreign Ministry, approached us at the end of 2004 with a very unique puzzle to solve and one that certainly goes to one of the strengths of why biometrics are important and why people should use it and that is -- to help them identify Mexican citizens who have crossed into the United States and find themselves hospitalized, incarcerated or an unfortunate accident which causes them to be deceased -- and this is a problem. It has been chronicled quite a bit in the national press and most recently in a segment of 60 Minutes. There are hundreds of John Does, if you will, who are unidentified. U.S State officials, along with the Mexican Government and its citizens are labouring to try to figure out who they are and of course trying to find out the whereabouts of family members. So, with the Biometric Engine as a foundation, the Mexican Government is able to access an application that has four biometrics running in one integrated solution. In this case, finger, face, signature and DNA throughout all the Mexican Consuls in the United States and in each of the 3l States in Mexico. Very simply what it does, is it allows people to come in with some biometric identifier from a family member and the database is then searched to see whether or not there is a match from the U.S. side of the border or from other places in Mexico where we can then re-unite the families who are seeking to find the loved ones that are missing.

This program is operational, it has been operational since the end of March, and it began the repatriation of individuals from one side of the border to the other. There was an article in the Wall Street Journal back in August 2005 that featured this project. It is a great example of the power of biometrics and how it can be best utilized. It is not only identification and identity management; it's also finding closure for people. You will see more of this, -- from ImageWare and in the industry as we go forward; there is quite a broad range of applications where this would play: Natural disasters, border control, corporate security and even entertainment.

Well it is certainly a unique application with the 4 biometric identifiers, and as you say, it is a very much appreciated and needed service.

Yes. We believe this is the first, if not in fact the only application that has 4 biometrics running totally integrated under one roof if you will. Again, it illustrates quite a few things, not the least of which is the versatility of the Biometric Engine product that we offer.

Well, Jim, we speak with a lot of biometric companies and I, for one, have never heard of one with 4 biometric identifiers. You are very much an International company. Where do you see the greatest growth for ImageWare geographically as you move forward?

We have been pretty active internationally and that will continue. We are very keen on the Latin American and Central American market. From Mexico south there is a tremendous opportunity as many of those countries actually transition to a digital imaging based identity system for the first time. So you are really leapfrogging through a lot of the evolutionary stages that mark, for example, the U.S market and some of the markets in Western Europe. We are excited by that because it allows you basically to put the latest and greatest technology into play to satisfy the requirements of those governments. The initiative that we have embarked on and what we have seen in Mexico will continue as we move into South America and some of the surrounding countries.

We are actually very excited about the U.S. market and I think the emerging market of Biometrics is, indeed, finally emerging. I believe, all in the industry are happy to see that and some significant projects under way in the U.S. both at the state and federal level. So we will see some very satisfying growth in this market in the next few years.

For us, we really are concentrating on the North and South American markets right now and not to say we are not participating in projects Asia-Pacific, Europe, Africa and the Middle East because we are. Our m/o in those markets is to work through partners and system integrators who would lead the projects in those regions and we would then supply our Biometric Engine and/or other pieces of our application suite to support them, but directly we are most active in the North American and South American markets.

Well actually, just to follow up on that, during a recent interview we just conducted with the respected market researcher Frost and Sullivan, they predicted that the North American Biometric market would triple revenues through 2008. I think ImageWare is well positioned to take advantage of that, especially with some of the new products and services that you are offering.

I agree. The roads are finally converging. The product set is ready to go; it is robust, and currently deployed. We are not a company that has small pilots. We have, between projects like Mexico, the State of Arizona, and The New South Wales implemented, our Biometric Engine platform running successfully on millions of records every single day. I believe that the market adoption is actually coming to a place where people are making buying decisions and committing themselves to infrastructures that include technology like the Biometric Engine. People are finally seeing that Biometrics have a place, it is not a concept, it actually works, it works well with large scale enterprises and it is something that is now being deployed fairly quickly and fairly efficiently, and I think as all those things hit, that is going to fuel a tremendous amount of growth. We have been a company under the radar screen for a while, but we are excited by the market growth. I feel confident that we are going to be a big beneficiary of that as we continue to participate.

As part of that growth, looking forward, I think that recently you consolidated some of your product lines to focus more on the software side of your business -- is that correct?

Absolutely! For a number of years ImageWare had almost equal parts of hardware and software, although we certainly characterised ourselves first and foremost as a software company and we are definitely a software company by orientation, and we believe we are a darn good one.

In 2004 we made a decision, and a difficult one, particularly when you are in the public company spotlight, to re-orient the product mix because it involves a conscious decision to take top line and revenues down. Our fear was that if we continued to grow the top line, to the delight of Wall Street and investors, at some point you have to take a look at the product mix. To the extent that it is comprised of third party supplied hardware where you really have no control over future developments or even the continuation of production of that hardware and, at the end of the day, you are a software company. We made the hard decision, and to be frank, a somewhat unpopular decision in terms of watchers of our top line revenue number, to re-orient the company away from hardware sales and to focus on what it does best and that is software. So, we have done that over the last l2-16 months successfully, and we have had a significant increase in the gross margins of our products, reflecting the software orientation. Now we are ready to build the top line back again, as happily, all these factors in the industry converge to fuel growth.

Is there anything else you would like to add about the company -- in summary?

I think we are certainly excited about where the market is, we are absolutely excited about how our products fit into the market. People who watch the market and who watch ImageWare will be in for some pleasant surprises as we move forward.

Thanks for the update Jim.

Jim

My pleasure Peter.

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