FB

You recently published your second quarter financial report, indicating a 37% top line revenue increase. Has this been a good year so far for the company?

CS

The first half of 2006 has been strong for us on a number of fronts including sales growth. With a quarter-over-quarter sales increase of 37 per cent and year-to-date revenue up 26 per cent, we continue to demonstrate that there is increasing demand for our technology. Further, to support future sales, we have made a number of enhancements to our product and have continued to diversify the range of offerings we can bring to market. To that end, we are particularly pleased with the adoption of the VeriSoft Access Manager software application that is gaining momentum with significant organizations such as Lenel and Hewlett Packard.

FB

Back in May, Bioscrypt was recognized as a certified vendor of finger matching technology to the U.S. government as part of the MINEX test program. That is a very important announcement. Can you elaborate on that for us?

CS

Yes, Bioscrypt considers being one of only six vendors initially certified for both template generation and matching by NIST's MINEX trials to be a landmark achievement for a number of reasons.

Firstly, the qualification positions us very well to participate in the Personal Identity Verification (PIV) program which falls under Federal Information Processing Standard 201 (FIPS 201) in response to Homeland Security Presidential Directive 12, that mandates all US federal employees and contractors will be issued cards containing biometric information to be used for physical and logical access. Clearly this is a large opportunity and one we can address with a variety of our products including our VeriSoft application, which deals with logical access control as well as our Veri-Series line of physical access control readers. Having the matching algorithm qualified up front is of great value to us.

Secondly, this achievement also demonstrated the range of the Bioscrypt algorithm library. Historically, as you may be aware, Bioscrypt established its credibility in the commercial market using a pattern matching technique, and this technology was validated through our wins in the FVC competitions, as well as supported through the release of a couple of standards -- U.S. and International -- in that area. In addition, and in response to government initiatives, we acquired the source code to a minutia matching algorithm and submitted the algorithm to MINEX 04 in March of 2005. So we were extremely pleased to be on the list of certified vendors, not only for minutiae template generation but also for minutiae template matching.

FB

What competitive advantages do you see for your products and solutions?

CS

As I mentioned earlier, we have really moved from a traditional base of fingerprint technology for physical access control and diversified in a couple of different areas. We have extended our range of offerings to include logical access control software - VeriSoft Access Manager, an application that manages access to computers or IT networks. The combination of our physical access control products with our logical access control application creates a door-to-desktop solution that allows a user to move around with a single credential and gain access not only to buildings and facilities but also to their computer applications and digital information. The software also consolidates passwords using single sign-on functionality among a number of other benefits.

In addition, the logical access control technology extends our ability to support a number of authentication mechanisms, such as smart cards, trusted platform modules and also other biometric modalities.

FB

In which vertical markets are you seeing the greatest growth for the company?

CS

We are seeing, growth in the financial and healthcare sectors. We believe this is driven by the fact these industries have regulations that mandate greater security and authentication. We are also seeing general growth across commercial deployments of biometrics as large corporations are now deciding that biometrics is the way to go to protect their facilities and their network. And of course, as we talked about earlier, MINEX 04 is also driving FIPS 201 initiatives and we are starting to see a lot of momentum building in those government applications and we foresee that over the next few years those will be the largest areas of growth in terms of biometrics deployment.

FB

To follow up on that comment Colin, Frost & Sullivan and a lot of the major research companies have recently produced reports indicating that biometrics is expected to really see some tremendous growth over the next 3-4 years -- truly for the first time! These reports have been out there like this for a long time but the feeling is that, based on a number of factors, growth is really now starting to happen in the biometrics industry. Would you agree with that?

CS

There are two things that we see are really driving that. First, on the commercial side, we are seeing significant players coming in, for example Hewlett-Packard and ASUSTeK have both licensed technology from us over the last year and they are shipping that technology for access management. They have branded our software with their own names -- and are bringing that technology to market. There are, of course, a number of other laptop manufacturers now shipping fingerprint sensors as part of their security suite of services on notebooks. So adoption has been driven in that manner by the commercial sector.

On the other side, in the government sector, from our perspective, it is the very recent establishment of standards that are required to support the U.S. Government and other governments around the world that will drive significant growth in the industry. As an example, the MINEX 04 results that were released in February of this year really were the end point of an extended standards creation process. It started back in November of 2001when the U.S. government formed INCITS M1 to help define biometrics standards. Following that was the formation of the ISO sub-committee 37 for international standards. As an example of such standards, the definition of the minutia standards, such as ANSI/INCITS 378, had evolved through dialogue between companies working together to establish an interoperable template that can be used across vendors. MINEX 04 was really the first time that such a template definition was assured as being interoperable. The announcement of those results -- and the fact that there were 6 and 8 vendors on the matching and generation side respectively, showed that there were a number of vendors around the world that could produce biometric technology that would be interoperable and support the FIPS 201 initiative. All of that is coming together to show that biometrics are credible, they can be interoperable and they will support these large government deployments that people have been a little hesitant to deploy in the past, because they hadn't yet seen the level of interoperability required to support them.

FB

That is very well explained and I know that your company and you especially have been heavily involved in the tremendous work done in the standards area. What would you see as the most pressing issues still yet to be resolved in the standards area?

CS

Well I think that MINEX 04 answered a number of key questions. Firstly the question was -- Can biometrics (it was fingerprints that were chosen to be studied) be represented in a compact format and do you need to store the entire fingerprint image or can you store it as a smaller template that is typically 3-400 bytes? The answer to that was that the template was more than acceptable. The second question was -- Can biometrics attain the level of performance that is required to support these programs and can it be adequately measured with a wide scale database to determine that? And the answer to that was "yes". Thirdly, having found particular vendors that not only can produce the right sort of templates but they can also produce the performance that is required - can you take a number of those vendors and demonstrate that they can produce interoperable technology? And again the answer to that was "yes". So those were really three key questions that went into the whole MINEX 04 test and the answer to those was very profound in that it really again added creditability to the technology and demonstrated that it could be deployed across a mass deployment.

FB

In terms of the industry in general, there was a big announcement recently that L1 has acquired another major player, Iridian. Do you see that the acquisition and the merger area in biometrics will continue in this fashion?

CS

Having been in the biometrics industry for more than a dozen years I have seen a great deal of consolidation. We continue to monitor this, and as you have seen, Bioscrypt has made a couple of acquisitions in the past two years. I continue to believe there is a great deal of opportunity in biometrics going forward and whether companies choose to grow organically or through acquisition should really be dependent on where the greatest value can be achieved for those particular organizations.

FB

What is next for Bioscrypt?

CS

We are going to continue to strengthen our position and expand on our door-to-desktop strategy. We are going to continue to produce technologies that support logical and physical access. We also are continuing to work on our core technology, specifically the minutia based technology that is now on the certified list. We believe that those core technologies, along with some enhancements that we will do on the algorithms based on a combination of the different techniques that we now have -- we have a range of algorithms that use pattern and minutia methods of matching -- those improvements we think will continue to hold us in good stead to supply product to both the government and the private sector.

FB

Colin, as always a most informative discussion. Thank you.

CS

My pleasure Peter!

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