Intellicheck Inc (IDN) 2010 Q2 法說會逐字稿

Greetings, and welcome to the Intelli-Check Mobilisa second quarter 2010 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, James Carbonara, Investor Relations Group for Intelli-Check Mobilisa. Thank you, Mr. Carbonara. You may begin.

Thank you. Good day, and welcome to Intelli-Check Mobilisa's 2010 second quarter conference call. Today's conference is being recorded.

Good morning, and welcome everyone. Second quarter conference call to discuss Intelli-Check Mobilisa's results for fiscal quarter ending June 30, 2010, and to discuss other business developments. In a moment, I will call upon our CEO, Dr. Nelson Ludlow, to lead today's call and introduce the other members of Intelli-Check Mobilisa's management team, who will be participating in today's conference call.

Before I do that, I will take a few minutes to read the forward-looking statements. Certain statements made in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. When used in this conference call, words such as "will," "believe," "expect," "anticipate," "encourage," and similar expressions as they relate to the Company or its Management as well as assumptions made by and information currently available to the Company's Management identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's cannot expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of such changes, new information, subsequent events, or otherwise.

Additional information concerning forward-looking statements is contained under the heading of Risk Factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Management will use the defined financial term "adjusted EBITDA" in today's call. Please refer to the Company's press release issue this morning for further definition of and context for use of this term.

I would now like to introduce Dr. Nelson Ludlow, Intelli-Check Mobilisa's Chief Executive Officer to preside over today's call. Nelson?

Thanks. James. Hello everyone.

On the call with me today is Steve Williams, our Chief Operating Officer; Pete Mundy, our Chief Financial Officer; and John Paxton, our Chairman. Our second quarter revenue was just about $3 million, $3.0 million. Because Q2 of 2009 was our best quarter in the history of the Company, which was about $3.9 million in revenue partially due to a large singular contract win, on our last conference call we did disclose an expectation not to beat that previous Q2 in a year-over-year comparison. However, in a quarter-over-quarter, we're up 11% over Q1 in 2010, which was up over quarter-over-quarter from Q4 2009. So, the recent quarter revenue is also in the top four quarters for revenue in the Company's history.

Our losses are down from Q1, which is particularly noteworthy because, as you all know, we are increasing some cost as we're hiring. We're taking steps to grow the Company, and we have significantly increased our pipeline to $48 million in identified opportunities. Our results are similar to other identity systems companies. For example, L1, which also reported their Q2 revenue to be down from a previous Q2 last year, but up over their year's Q1.

So, this revenue was achieved without any specific large win. What I like about that is this shows as good sign that we have increased our base revenue by making numerous smaller-value sales to customers, many repeat customers, and selling additional software or hardware to those existing commercial clients, such as AT&T and Rooms To Go. Also, our banking area as well. Now, because of that, there hasn't been a tremendous amount of press releases this quarter, so this gives us a good opportunity to talk to you in detail what we're doing, for you to be able to ask questions. So, again, I'm very happy that it's several large smaller ones, so you can see where our base is of what we've done with the Company.

Now, the government has said that they expect formal requirements for TWIC readers [their] country's sea port sometime in late 2011. So, in the TWIC program, this quarter concluded a successful pilot of our TWIC readers at the Port Authority of New York and New Jersey. If you also do a Google search, you'll find that another port has secured funding to be able to give us another port that should be coming online soon.

Now, we continue to add to our military base sales. We announced Yuma Proving Ground, and we also made sales of new equipment to Fort Jackson in South Carolina, Fort AP Hill in Virginia, and added additional equipment and services to Fort Polk in Louisiana and the Air Force Academy in Colorado. We have several other noteworthy accomplishments and really have strengthened the Company with some key hires. And particularly increased business development efforts that I want to talk about.

But, at this stage, I'll let Peter Mundy, our Chief Financial Officer, provide the specifics on the quarter's financials, and then I'll go back into the business and business development aspects that we've done. Pete?

Thank you, Nelson. Good day to all.

I would like to discuss some of the financial information that was contained in the press release for the quarter ending June 30, 2010, which we put out this morning. The complete quarterly report on form 10-Q will be filed with the SEC this afternoon right after the call.

Revenues for the second quarter ended June 30 decreased 24% to $3.3 million compared to $3.939 million for the previous year. The decrease is primarily related to lower identity system revenues previously reported as the commercial ID and government ID product lines. 2009 revenues included approximately $1.1 million in sales to a large telecommunications company, including an enterprise-wide license and hardware sales. We did not enter into enterprise licenses during the second quarter of 2010.

Total booked orders were approximately $2 million in the second quarter of 2010 compared to approximately $2.7 million in the second quarter of 2009, including that large telecommunications sale. As of June 30, 2010, our backlog was approximately $4.9 million compared to $7.3 million at June 30, 2009. Previously, the Company recorded in our backlog certain wireless R&D contracts. When the award is announced, we're included in the Congressional budget with the Company named as the requester. As of June 30, 2010, management reduced the current period stated backlog by $3.3 million.

This is done because Congress announced that earmarks awarded to public companies in fiscal year 2010, are now subject to competition, even when the government would have determined that a sole source justification was the best method of contract award. Therefore, we will be competing for the fiscal year 2010 earmark funding for the Littoral Sensor Grid. As we've routinely stated, we're not afraid of competition. We're a world leader in this type of research and development. A $4.9 million of backlog is expected to be realized over the next 12 to 18 months.

We still continue to maintain high gross profit margins. Our gross profit as a percentage of revenues was 66.6% for the three months ended June 30, 2010, approximately the same as the 66.7% for the three months ended June 30, 2009. There was an increase in merger-related amortization cost in 2010, which was partially offset by changes in our product mix.

Operating expenses, which consist of selling, general administrative, and research and development expenses, increased 21% to $2.592 million for the three months ended June 30, 2010, from $2.153 million for the three months ended June 30, 2009. The increase in the 2010 expenses is primarily related to new hires, increased payroll and related costs, contracted consulting fees to the former Positive Access principals, legal fees related to contract review, litigation and shelf registration statements, and additional Board and consulting fees. We're continuing to monitor our cost structure, but as Nelson previously stated, our plan includes the addition of some operating expenses to support our expected revenue growth, including the hiring of additional salespersons, and an increase in marketing costs. In the second quarter of 2010 alone, we added three software engineers and a Senior VP of Identity Systems.

Interest expense was negligible. The interest expense of $7,500 in the second quarter of 2010 represents the amortization of the deferred debt discount recorded on the notes payable related to the Positive Access acquisition. We have not recorded any tax provisions due to the expected utilization of net operating loss carry forwards, and we still have net loss carry forwards of approximately $38.2 million.

Adjusted EBITDA for the quarter ending June 30, 2010, was negative $197,000 compared to a positive amount of $854,000 in the quarter ended June 30, 2009. Our net loss was $602,000 or $0.02 per diluted share for the three months ended June 30, 2010, compared to net income of $473,000 or $0.02 per diluted share for the three months ended June 30, 2009. Revenues decreased 7% to $5.678 million for the six months ended June 30, 2010, from $6.083 million for the six months ended June 30, 2009. Adjusted EBITDA was negative $611,000 compared to positive $656,000, and our net loss was $1.422 million or $0.05 per share compared to a net loss of $62,000 or $0.00 per share in the previous year.

Now, I'd like to focus on the Company's liquidity and capital resources. As of June 30, 2010, the Company had cash and short-term investments of $2.248 million, working capital, defined as current assets minus current liabilities, of $1.445 million. Total assets of $24.564 million, and stockholders equity of $20.534 million. The Company has not utilized any bank financing during the first six months of 2010. During the six months ended June 30, 2010, the Company used net cash of $743,000 in operating activities compared to $836,000 during the six months ended June 30, 2009. This decrease is primarily result of higher net loss for the first half of 2010, partially offset by higher noncash charges and changes in working capital.

Cash used in investing activities was $136,000 in the first half of 2010 compared to $107,000 in the same period last year. The use of cash for the 2010 period reflects capital expenditures principally related to equipment purchases and leasehold improvements. Cash provided by financing activities was $148,000 in the period ended June 30, 2010, compared to $16,000 in the same period last year. The increase in 2010 is a result of the higher proceeds from the exercise of stock options.

We currently anticipate that our available cash and short-term investments, as well as cash from operations, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we always keep the option open to raise additional funds to respond to business contingencies, which may include the need to fund more rapid expansion, fund additional markets expenditures, develop new applications for our technology, enhance our operating infrastructure, respond to competitive pressures, or to acquire complementary businesses or necessary technologies. There can be no our assurance that the Company will be able to secure the additional funds when needed or obtain such on terms satisfactory to the Company at all.

On May 27, 2010, the Company filed a universal shelf registration statement on form S3 with the Securities and Exchange Commission. Under the shelf registration statement, which was declared effective by the SEC on July 19, the Company may offer and sell from time to time in the future in one or more public offerings its common stock, preferred stock, warrants, and/or units. The aggregate initial offering price of all securities sold by the Company will not exceed $25 million. And pursuant in the SEC rules, the Company may only sell up to one third of the market cap held by nonaffiliate stockholders in any one 12-month period.

I'll now turn the conversation back over to Nelson.

Thanks Steve.

Okay. I'd like to take a moment to discuss our applications of our products at airports. There's been a lot of interest in this in the last few months. Recent terrorist such as Underwear and Times Square Bombers being able to board planes have increased the public's attention on the Department of Homeland Security to find an ID card scanning security solution, which may prevent these acts, and we fully support that. In fact, we've held several meeting with the Department of Homeland Security personnel at various levels in efforts to help make this happen. However, the note of caution. Investors, we should not expect some immediate large-value TSA contract just days after an event. Rather, DHS process is a methodical one, perhaps a slow one, but it is progressing.

I'm sure we can all agree that terrorists aren't going away any time soon. Therefore, the government continues its needs for products and services like ours. It's the mission of Intelli-Check Mobilisa to make our country's airports safe, to save lives. In Q2, we took several steps in that goal to provide our products to DHS and TSA. This quarter, we responded to a TSA Request For Information about our products that can validate ID cards and compare that information to boarding passes. This has been a program that TSA has been working on prior to the Underwear and Times Square Bombers, but it's been recently more invigorated, and we did formally respond to their Request For Information.

On June 1, we appointed Scott Jacobs, Senior Vice President overseeing the business development opportunities for the Company's government identity systems products. Now, Mr. Jacobs, he served as an Acting Director for US Department of Defense Counterintelligence Field Activity, or CIFA. Scott oversaw staff of 900 people, and he was a principal advisor to the Under Secretary of Defense for Intelligence. Scott managed CIFA's counterintelligence efforts in addition to directing day-to-day operations, which included coordinating the terrorist lists within the Defense Department, such as the No-Fly list. Scott is going to focus on our government [systems], to the military, to the TWIC at the sea ports, and particularly our products at airports.

We expect to hire other key personnel, other people, as full-time employees and consultants with backgrounds and expertise in Homeland Security. We're doing that, and as shareholders you should expect that we are going to do more of that. On June 28, New York Senior Senator Charles Schumer held a press conference at our offices in Long Island to discuss possible Department of Homeland Security funding for increasing security measures in the New York City area airports. He identified $50 million in funding that has already been appropriated for a pilot program to incorporate new scanning devices at airports, and he's urged DHS to consider technology such as our defense ID system. And he would like to a product test in a New York airport, such as JFK Airport, before another terrorist boards a plane. Now, let me point out, that $50 million in funding is different funding than the TSA program I previously mentioned. The airports are a logical focus for our Company's products, and it's an opportunity that we are doing a full court press on.

However, we also continue to grow the nonairport segments for identity systems, and we're developing enhanced products to broaden those opportunities, so let's talk about those. Let's first talk about military bases. As a reminder, our Company -- our products have a thing called "Authorities To Operate." That's approval from the government saying, "Yes it meets all the security regulations. Your products have been tested." We have that from the Army. We have it from the Navy, Air Force and the Marines. We have all four services are using our products and have been approved. We announced a contract from Yuma We announced a contract from Yuma Army Proving Ground in Arizona to provide them with Defense ID access control system. The value of that contract was about $175,000.

We also added Fort Jackson, South Carolina, and Fort AP Hill in Virginia. And Fort AP Hill accelerated the purchase of their equipment, stating they were going to host the Boy Scott National Jamboree with thousands of our nation's Boy Scouts and their families. And both of those contracts combined were of a value of about $300,000. We've also added new equipment to existing customers in Fort Polk, Louisiana. Also, the Air Force Academy in Colorado.

Now, we did a press release and we talked about adding a layer of security by validating a thing called the Federation for Identity and Cross Credentialing Systems, or FICCS. Now, it enhances our Defense ID system to read and authenticate these FICCS certified credentials. FICCS certified credentials are cards that are issued to individuals who have undergone a thorough background check. So, these cards could be identical for used for vendor checks.

But let me explain why this is a big deal. The federation is sponsored by several government groups, and we're excited to be a part of this group. We believe it to be the most effective way to issue these vendor cards and definitely improve base security. Now, although Defense ID always been able to wirelessly authenticate ID cards, this capability adds the access to military database of their ID cards via a portal that ultimately connects our system to the defense manpower data center to validate these military ID cards. It's a very cool system. You can scan the card. It tells you if this card is authenticate, if it's lost, if it's stolen. And it even returns a picture, a photograph of the person that is on file with that data center.

Okay. Let's talk about our TWIC products, the TWIC. Now, we've received a factory certification from Lenel. Again, we did a press release on that, and some of the comments, I think, from a few of our shareholders -- I don't think they understand the value of why this, again, is a big deal. Lenel OnGuard Access security software and Intelli-Check Mobilisa is now a member of Lenel Open Access Alliance Program. This certification allows for Intelli-Check to further support other ports and facilities that currently use Lenel OnGuard, which is 18,000 system installations in more than 93 countries worldwide. This new integration Intelli-Check's Mobile TWIC reader, is one of our products. It can interface their Lenel OnGuard System. Therefore, increasing user efficiency, speeding up the visitor process. Lenel is one of the industry leaders, and we're excited at this new opportunity to provide even a stronger TWIC product.

And it's important because most sea ports in our country, they already have an existing card reading system, right. They already have some visitor system. But what it doesn't do is, it doesn't read the TWIC card. So, just because a person has a TWIC card, is that person allowed onto that port? Or they allowed in that location of the port? You see the problem. If you can't just flash a TWIC card and say, "I can get on every port."

So, our TWIC card reader system integrates with Lenel. It also integrates with another company called AMAG and other card reading systems, making our TWC reader the logical choice as the port doesn't need to change out its existing card reading system. So, think about that. If you were going to purchase this and you already bought some other card reading system, the government then comes along and requires TWIC, what do you do? Throw away your old system? So, we've made it so that we integrate into the world's largest card reading systems, and we integrate with those. So, I view that as a very good step.

Now let's talk public safety. We're launching into a new area, which is public safety, particularly law enforcement, which I think is ideally suited to identity cards. That's what our Company does, is we make software applications around identity cards. If you think about when do you have to show a driver's license. One of the most logical places to think about that is in a law enforcement situation. So, kicking off our third quarter, we established a Public Safety and Security Advisory Board for our newest product, which is called Fugitive Finder. The Board members including Major General Jack Davis, a retired Marine Corps General; Dan Linehan, former Sheriff of Rockingham County, New Hampshire; Professor Sheldon Greenberg, Associate Dean at Johns Hopkins University; and Mr. Ronny Carter, former Deputy Director and Acting Director of the Alcohol, Tobacco, and Firearms, or ATF.

Now, our Fugitive Finder product builds on our patented ID reading technology that's already deployed in the nation, approximately 80 federal facilities and military bases, which can quickly scan various forms of ID, such as a driver's license, military IDs, passports, and instantly compares that to a database that's made up of over 100 bad guy lists. Now, comparing this Fugitive Finder to our defense ID product, it has several enhancements. And a key distinction is that some of the accessible data is so sensitive that, in order to use the Fugitive Finder, you have to be a bonafide law enforcement agent. So, example, a police officer or federal agent.

So, some of the enhancements to this new product includes a thing called FIPS 201. It's a federal ID certification standard that our product makes. The ability to search NCIC. That is the law-enforcement-only accessible and FBI managed gold standard type of database of bad guys. Third, the capability of a biometrics validation to read fingerprints and match that to the card when applicable. Also, the ability to do a military credentials live check, which we talked about earlier, and also the ability to read these long-term vetted vendor cards so that you know who the vendors are coming onto your installation.

So, we're also adding the integration of our TWIC reader capability into that system. So, for police officers, when they pull over a vehicle, probably the most dangerous period is when they take that driver's ID, they have to walk back to their police cruiser and run a background check or a check with their state's criminal investigative check or the FBI's one. This gives the driver in question, unfortunately, when the cops goes back to his car, or their passengers time to reach for weapons. Or to think about running way, or whatever they're going to do, knowing that the office is going to come back and make an arrest. So, if instead the officers were able to do that check wirelessly after coming up to the vehicle, never having to return back to the cruiser, to be able to keep the eyes on the people and do the ID check right there. That's what our Fugitive Finder product is going to able to do. We've completed several successful tests of the Fugitive Finder at US courthouses, at sheriffs' offices, and even military tests have been performed on this product.

Let's talk about the market. There's 2.4 million law enforcement personnel in various positions in this country. This make for a very good customer segment. This is a significant opportunity for IDN across the entire United States, and perhaps even overseas as well. Now, we want to launch into this new sector in a thoughtful, well-managed approach. And therefore the Public Safety Advisory Board is critical. So, touching on the breadth of the experience of Advisory Board, let me briefly talk about these four men as well.

Again, Major General Jack Davis has got about nearly 40 years experience in the military, law enforcement, and business. His last Marine Corps assignment was Vice Commander for the Marine Corps Forces Atlantic, and he was the Deputy Commander of Marine Corps Forces Europe, where he received the distinguished service medal. He was a former Naval Criminal Investigative Service, NCIS, agent.

Mr. Dan Linehan, he's an alumni of the New Hampshire State Police with over 23 years of service. He also served as a Lieutenant of the Commanding Officer of the Training Recruitment Group and Commanding Officer of the Aviation Unit, and Assistant Troop Commander. So, in addition to the New Hampshire State Police, he also served as Sheriff of Rockingham County in New Hampshire.

Also joining us is professor Shelly Greenberg. He's the Associate Dean of the School of Education of the Division of Public Safety Leadership and an Associate Professor of Management at Johns Hopkins University. So, in this capacity, he directs the Johns Hopkins Police Executive Leadership Program, US Secret Service Executive Development Program, and the Intelligence Analysis Program.

And then Mr. Ronny Carter. He has over 32 years of law enforcement experience, having spent over 29 years as an agent with the Bureau of ATF. Also, in the Justice Department agency, he rose through the ranks starting as an agent and serving over 2.5 years as the Deputy Director and as the Acting Director of ATF. He has led a group over 5,000 federal law enforcement personnel with a budget over $1 billion.

Those are four impressive people that are helping us, and I am truly pleased that these four national leaders in public safety agreed to serve on our Board of Advisors. Their combined years of experience in law enforcement ensures that our program in public safety, and our Fugitive Finder product in particular, will be the best product possible and will find a wide customer base.

Let's talk about our fastest growing area, the commercial sector. We continue to focus on tier-one retailers, grocers, and financial institutions. And we're seeing an increased penetration at banks. Those orders are in smaller numbers, sub $100,000 contracts, but have added up to be a nice revenue source, and Q2 saw our greatest increase in our bank-related products to date. On June 22 of last year, we issued a press release about an ID IQ contract installing ID card reading equipment and software for AT&T, a major telecom. Our products help the customers get to purchase a new iPhone quicker, or to verify your identity when getting a new cell phone account. This is an ongoing contract, and Intelli-Check-branded products are currently at about 30-something percent at national stores, and we continue that rollout.

Talk about another one we did a press release on recently. An agreement with Alliance Data Systems. This might be within the most significant agreements in the Company's history, and this project is going well and we expect to start realizing the full potential of that contract in the next few months. As a reminder of that agreement, Alliance Data was to pilot our ID-Check FastForm technology for potential applications in delivery of its credit card programs provided to their retailers. Now. Alliance Data currently manages nearly 90 branded credit card and marketing programs for many of today's leading retail stores. This is a big move forward for our two companies, and Alliance Data will be able to offer our patented technology to their approximately 90 retail chains, proving the speed, the security, the accuracy of their credit card application process. There are pilots sites right now being tested, and we expect to do a systemwide rollout scheduled later in 2010.

Some of our regular customers, they continue to be repeat customers. L1, Cross Match, TSQ, Fidelity National Information Services, now called FIS, and many other financial institutions. We continue to grow and support these customers while launching new pilots with other tier-one partners.

We have several pilot projects with credit card applications processes, and we're adding new ones. Successful completion of these projects result in rollouts to national retailers across the country. Now, let me just add, this is a little bit of a methodical process. Its not immediately overnight. It takes several quarters, or two or three quarters, from when a company says, "This is cool technology," til they test it with their information technology group, til they do rollouts and pilots studies at several of their stores across their country, and then they give us agreement to roll it out national wide. We typically do not do a press release on that until it reaches the rolling it out nationwide.

So, again, we have several retailers in the process of doing active pilot studies across the country. So, you actually may see some of our equipment in certain stores testing this right now. We continue to work with Barclays, GE Money and GE Capital, and JPMorgan Chase to support their partners for credit card applications. I'm very pleased, and this is huge about our Company, with the pipeline we're developing. We have many pilots being conducted, and frankly they just were not in place a few quarters ago, and they are now.

Let's talk about wireless. Our Littoral Sensor Grid Project is transitioning from what I would call a pure research and development project into a commercialized product. That's the direction we're going with this. The R&D completed to date has resulted in designs for next generation buoy system, a new electronics package, and an integration of a suite of sensors both on-shore and afloat, and these sensors includes radiation detection, particularly what people call dirty bomb sensors. We also have chemical and biological sensing devices. And when these sensors are mounted on a buoy, are integrated other mission-critical components, the result is to provide a protective perimeter that is part of an integrated plan to protect our citizens and our property from terrorist attacks. Intelli-Check Mobilisa's research and development work helps provide that early warning mechanism that identifies potential terrorist activities and allows time for US agencies to intercept those terrorists before they reach their targets for our ports of our country.

Now, potential customers who we've already met with have expressed interest support in this next phase includes the Department of Homeland Security, the Coast Guard, the United States Navy, the Director of National Intelligence or DNI's office, the National Maritime Awareness Center, and the Defense Nuclear Detection Office, and the US Custom and Border Patrol. It's quite a list. This is a cool project, and its making very good progress.

Obviously, the company's growth -- growing the company is our number one focus. Growing the talents, the jobs, the useful products that saves lives, and increase the revenue, that's how we get graded as a Company. However, let me briefly mention a few awards which base their performance of those awards on those exact same parameters, which we received this quarter.

In June, we were named as a top-three finalist for Entrepreneur of the Year for a technology company by Ernst and Young. In May, we were ranked as the second-fastest-growing public company in Washington state, according to the Puget Sound Business Journal. And we had approximately 255% growth over their two-year period of 2007 to 2009. Of all the companies that are in the Pacific Northwest region, we were number two, missing out number one just by less than a percent and far ahead of the number three company. Now, this is the fifth consecutive year that Intelli-Check Mobilisa has made the Business Journal's Fastest Growing list. In both 2006 and 2007, prior to the merger with Intelli-Check, Mobilisa was listed amongst the fastest-growing private companies. And subsequently, the merged company of Intelli-Check Mobilisa has made the Fastest Growing Public Companies list in 2008, 2009, and now in 2010.

Let's talk about the Board of Directors. I am very pleased to announce, and we did previously in a press release, but to mention it on this call, that we appointed Mr. Woody McGee to our Board of Directors. Mr. McGee is currently the President and CEO of Fleet Prize, Inc. It's the nation's largest independent after-market distributor of heavy-duty truck and trailer parts. He brings 40 years of management and Board experience in wireless mobile computing, manufacturing, electronics. He's served on both public and private Boards of Directors in the position of Chairman as well as he will be the Chairman of our Audit Committee. Woody was the Chief Financial Officer of Telxon. He did a very successful turnaround of that Company, selling off a group of their wireless Aeronet to Cisco, and ultimately growing that company and being [purchased] by Symbol, which is now owned by Motorola. So, we're very pleased to have him on the Board and to be the Chairman with his extremely strong background in finance of our Audit Committee.

Okay. Let's recap, and then we'll get to the questions. We've increased the revenue quarter-over-quarter by 11%. We were down 24% from last year. We probably had our strongest quarter to date without a big win. So, our base sales are increasing.

We're pursuing multiple ID opportunities at TSA. We successfully completed our pilot test of our equipment of our TWIC readers at the Port Authority of New York and New Jersey. We've secured more defense ID contracts. We added Lenel capability to our TWIC. We added FICCS authorizations to our Defense ID product. We've created a Public Safety and Security Advisory Board to ensure success of our newest product, Fugitive Finder. We've been named on the fastest growing list now for five years in a row. We've added a strong Board member with both CFO and CEO experience, Woody McGee. And we remain committed to breaking into these new developing sectors while continuing to grow our current business area.

So, at this time, I would like to address any questions that you have. Please clearly state your name and your organization that you're with, and try to succinctly state your comment or question. And out of respect for the other listens, we won't take numerous follow-on questions. But if you want to ask additional questions, please do so, but just re-enter the question queue, and we'll be glad to do that. So, thank you.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session.

(Operator Instructions)

Our first question comes from the line of Scott Goldstein, who's a private investor. Please proceed with your question.

Yes, good afternoon. I've been following the Company for a while. And I know you touched briefly on airport security. And I've been following a couple of other security companies. And Bob LaPenta from L1 mentioned in the last week a program. Which basically I found the program here. It's called the Credential Authentication Technology Boarding Pass Scanning System, CAT-BPSS This is basically stating everything that you guys do. The only question I have for you is, are you guy working on anything like this? Are you familiar with that program?

Yes. Mr. Goldstein, yes, we are aware of it. It's called Credential and Authentication Technology, or Boarding Pass Security System, CAT-BPSS. Yes, we are aware of it, and here's what's cool about that program. It's a formal program by TSA to scan ID card, to scan the boarding pass, to check if the ID is authentic, and to match that to the boarding pass. Yes, we're aware of it. I'm very happy that TSA is moving forward with that. We had a formal Request For Information. We responded to it. And in the last couple days, we were announced that we made their down select process, so we're one of the finalists.

All right. So, basically we are involved in this program?

Yes, we're involved, and we made the cutoff.

Okay. Thank you very much.

Our next question come from the line of Robert McCabe from EWM Investments. Please proceed with your question.

Can you comment on the litigation the Company is involved in?

Mr. McCabe, who do you work for? EWM?

EWM Investments. It's a private investment company.

Yes. I feel very strong about the case. I feel that we're in very good shape. As you may know, as an early step in the litigation, ICM brought a motion to dismiss with prejudice the case brought by Eid Passport. If that had been successful, the motion would have ended the case right then and there at an early stage. IDN would have avoided the rest of the trial. The judge denied that motion, however he noted that it was a close call. So, thus the case moves forward. And Intelli-Check Mobilisa views this that still it's as a frivolous lawsuit. We're in a very strong position. We're going to continue to defend ourselves vigorously.

Okay. How soon -- you're spending over a million dollars more this year than you spent in the past and all this development. How do you expect to be able to develop some success from all of the money you're spending?

Well, I think we're starting to see some of that right now. We, as I just said --

You expect this will show up in the current calendar year?

Absolutely. And we're already starting -- we have significantly more things in the pipeline than we had before. We have more people that are working on this TSA, getting us into Homeland Security, and I believe that's the right thing to do. My view is we're an early-stage growth company, and as an investor in the Company myself, what I've stated on previous calls is, we need to not just ring out a couple more percent of EBITDA and say, "Look, we're a little bit profitable." My goal is to grow the Company significantly top-line because we have that good of a product. We have that good of future. So, we are spending money to do that, and we are hiring the new key people. And, as a result, TSA just sent us a letter a couple days ago saying we made the down select for reading ID cards in the airports.

Our next question comes from the line of [Robert Edmund] from Cherokee Capital. Please proceed with your question.

Yes, gentlemen, can you answer a couple of quick questions? Number one, there's been discussions in some other places that insiders have been net sellers of the stock. I don't see it, but there's a constant rumor about it. Wondered why insiders haven't been a net buyer. And number two. Obviously, we've been following the company for years. Sales haven't exploded as fast as we all thought. It seems that the United States government was able to put a man on the moon faster than they were able to decide to secure our borders as well as secure our airports. What kind of hoops do you guys have to continuously jump through to get this done? And if the TSA does decide that they want to product in the airport, et cetera, potentially what kind of size contract could you be looking at?

Okay, let me write this down. Size of contract. Okay. First question. Insider net sellers, I don't believe that's the case. We'd have to file a form four. There isn't any to my knowledge of that. Since we've done the merger, I don't know any of the Management people that sold even one share. My wife and I are significant investors in this Company. I haven't sold any. We did file the shelf registration, and in that it announces that we have the ability to sell some shares. But what I might point out is there's already an active S3 right after the merger. We could have sold all our shares. And so, we've actually lowered the amount of shares that we're saying we could. And --

Why would you have filed that shelf, then?

There's several reasons. I'm going to keep that option open. It's just extending it. I know there's a lot of rumors about that. But, I could have sold share all along. I've now been with the Company for well over two years, and I haven't sold a single share. In fact, I've only bought shares. So, that rumor doesn't make any sense whatsoever.

So, okay, regarding TSA. In Homeland Security -- sure, it's a slow process. But I don't want to throw rocks at DHS. They got a tough job, and I'm very happy that they are taking steps forward. And so, that CAT-BPSS program is a program that they've gone through formal steps. They've evaluated companies. They've asked us a ton of questions. We've had several meetings with them. It's a formal program that's out there. And they did a down select, and we made the finalist list. So, my view is they are making some progress. In fact, this is probably the most best news that I've seen anybody's had in a long time, that here TSA is issuing a formal program to read ID cards at the the TSA checkpoint and check them against boarding passes. That's good news, and I think our products are ideally suited to that. And as I answered on that first question, we did make the finalist list for them.

Our next question comes from the line of [Elliott Knot] from [Knot Adviser].

It's [Elliot Knight] at [Knight Advisors]. I need a little bit of help with trying to figure out the potential size of the Fugitive Finder market. Do you have a size in mind? Let's start with that.

Yes, Mr. Knight. Yes. 2.4 million law enforcement personnel in the United States and 18,500 different law enforcement organizations.

All right. Then, let's say, how many of those 2.4 million will be equipped with the unit, and what would they have to pay per unit?

Well, we're still looking at a price point for it. My favorite book is Crossing the Chasm by Geoffrey Moore, and he says, and I agree with this 100%, "I'm never one that says if you just got 3% of that market, you get blah blah blah." It doesn't work like that. There's different parts of the market. You got to get the innovators, which is a stage we're in right now, and then try to shift to the early adopters and early majorities. And there's a different type of market.

We're looking at partners to launch this out because we're a small company, and I'm not fully jazzed to think that a small sales direct force is going to be able to touch all 18,500 law enforcement agencies. That's not realistic. But we do have the absolute best ability to start that product. So, the product, we're look at several different form factors. The software, it's working great. We have it, and we've tested it in different form factors. But the product is -- we sell to our military bases for approximately $7,000 a unit and the same with our sea ports. It's roughly the same. The law enforcement product would have to be somewhat less than that, but above $1,000 price point.

Okay. Above $1,000, less than $7,000?

Yes.

Okay. Could you discuss what you see as being the timeline for the development of this product? Looking out -- leading up to when revenues might show up?

Well, we've actually made a little bit of revenues on it, but it's very small. My experience with these things -- and for example, last year we launched a product with the hospitality industry. And we had some initial tests and things, but until it really starts going, it typically takes 12 to 18 months from when you start launching a product and doing some tests until you get some real serious revenue and you start getting enough reference accounts that you shift out of the innovator stage into that early adopter to early majority stage.

Our next question comes from the line of David Richards, who's a private investor. Please proceed with your question.

[Richardson]. How are you?

Hi.

Can you hear me? All right. I send you e-mail every day, and every week, and every month. You're very kind to come back. And I think you guys are killing yourselves to get there. You've answered about every question I had. Very concerned about that lawsuit. You seem to think we're okay there. The shelf, I think, was a mistake to do it that way because you certainly could have done it maybe after the stock had moved up. But that's over. There's a saying on Broadway. There's a show on Broadway, Nelson, that's called Promises Promises. And I'm praying and hoping that you guys will deliver on just about everything you said this morning, which all sounds great.

Thanks David. Let me just comment a little bit. I'm writing some stuff down here. Okay, I'm not worried about the lawsuit. I feel very confident about it. The claims are ridiculous and frivolous, and we're in a very good shape.

The shelf registration. I have heard from a few people that it's been a mistake. I've heard from many others that it was a very good idea. Here's why I think it's a good idea. It's a place holder. That's exactly why the previous guy said, "Well, why did you put that in there?" We already have an S3 before. The shelf registration allows the Company, if there's an opportunity to come up, we have that in place. It takes some time to put all of this stuff in place. You can't just do it overnight. It's the responsible thing to do. We need this in place. I do not have a plan in front of me that I'm going to be selling shares. That's not what we have in our mind right now. But we definitely, as our CFO said, we definitely reserve the option. If we need to raise funds, absolutely we're going to do it. And you know what, all companies have that option. All we did is, instead of walking around with a weapon that isn't loaded, we have a weapon that is loaded, but there's still a safety on it, and you still get to determine if and when to pull the trigger. So, that's all we've done. It shouldn't be overly read into something.

But what if and when TSA gives us a contract to do all of those airports. Maybe then we need to raise some funding, probably raise the stock price. Who knows. But, it would put us in a different position. Then, people would say, "Well, what do you mean you didn't have anything set up to be able to meet that?" So, all we did was to put that in place. Dozens and dozens of companies do this. It's a responsible thing to do to have the ability if the Board of Directors and the Management team say that all the conditions are right and it make sense, then we would do it.

Let me talk about some of the previous press releases that I just don't think people tracked on because maybe this is a complex field somewhat. AT&T, we got a bump last year because we did sell an enterprise license. We did some initial work with them. Given it's the best quarter we've ever had in our history, which is the one a year ago that we're comparing ourselves to. That was an ID IQ contract, so we've got more work to do with them as we're rolling out in stores. As I pointed out, we're at 30-some percent. That means there's still 60-some percent left to go. That's already in place. We still get revenue from that contract. They're an existing customer. It's doing well for us.

Rooms To Go is one we put out there. Same deal. We're continuing to work with our partners to roll more out equipment. We've had more equipment sold to banks this quarter than ever. That's not promises. Those are all real things that are growing.

And, as you all know, we're pushing hard on TSA. But I'm a little worried that sometimes an event comes out or press conference and someone says, "Wow, look at this. We're going to get into TSA," and the expectation is that it happens in a week. Highly unlikely is the government doing go issue an contract within a week because of the Times Square Bomber. But what they do recognize is there's a problem out there. They are methodically going through it. They issued the CAT-BPSS program. They asked for us to send in information, and we got selected as a finalist. To me, that's a big deal. That's real. And we don't know exactly who the others are, but there's probably a handful of these. So, I'm very optimistic. We're doing exactly the right things, and we're continuing to grow.

(Operator Instructions)

Our next question comes from the line of Gus Allen from Georgia Financial. Please proceed with your question.

Good morning, and good afternoon to you all. It's Gus Allen at GA Financial. Nelson, a simple question and perhaps you don't know the answer. But Senator Schumer sent a letter to Janet Napolitano, and I'm curious if there's been any notion of what the response from her was?

Yes, Gus. Thank you for your call. We've actually had four Senators write different letters. Voinovich, Murray, Cantwell, and Schumer, at different times, have written letters recently to Secretary Napolitano as well as Congressman Dicks.

We have logical products that can clearly make our country safer. They are going through steps to do that, and that CAT-BPSS program is one of them. Senator Schumer's one is slightly different because he's identified a different set of funding outside of the CAT program. And I don't want to say exactly which set of funding it is so that other companies that are trying to hoard in on that funding think they may have one. And I have had several big defense contractors contact us and want to dive in on that and partner with us because they see it as something of value. We're working the process through them, and so, to me, there's multiple paths the DHS is doing. We've had meetings with them. They are active. They have RFPs out there. So, that's been there answer, and I agree with it that they are taking steps forward.

Another question. It's been noted in New York papers that local airports are now using or have ordered body scanners. That would seem to me to be aiming at a bit of a different target. And I think I've heard you say that that's the wrong target, that your security system, IDN security system, is much more apropos to the issues.

Yes. Let me say a couple things. January 17, the Wall Street Journal evaluated several different technologies, said that we were the most affordable. We are obviously a lot cheaper than those full-body scanners. An article came out today about the some the security problems of the body scanners. They had claimed that they were not going to record the images of the naked bodies that are being scanned, and they found several tens of thousands actually were recorded. But, aside from the privacy issue, here's why you need both systems. So, I'm not saying there's a bad approach. It's you need both systems. Their system finds the bomb. Our systems finds the bomber. And the US has previously been a bit more focused on finding the bomb. Countries, for example such as Israel, tend to put more emphasis on the other side of the equation of finding the bomber.

A blended approach is probably the best way to go. OSI Systems is one of the companies that makes those full body scanners, and, by the way, they also did a shelf registration. So, its certainly not unique that we filed a shelf. We have a very affordable approach. It makes sense, and I highly believe -- in fact, TSA has already stated that they're looking for systems to read ID cards and have issued formal RFIs and plan to issue an RFP to actually do that. So, no. TSA is going to do both.

Our next come from the line of Robert Edmund of Cherokee Capital. Please proceed with your question.

(inaudible) Dr. Ludlow, before I asked you, and maybe you just forgot. But I asked you in a roundabout way. Potentially all of these contracts, if you were looking at them. If the TSA is going to do this job effectively, put some kind of system in a majority of the airports as well as the TWIC program, et cetera, what do you think the potential size of these markets are in a rough number? We're not going to hold you to it. I'm just trying to grasp the size of this market.

TSA's initial one is 2,300 unit purchased, which would make it the largest one. I don't want to give the exact dollar, what we are going to bid on, for competitive reasons, obviously. But 2,300 units.

2,300. That would be in what? How many airports?

We would have to ask TSA that, but I would imagine that would probably cover most of them. There are 700 TSA check lanes in the continental United States.

So, but, if you're talking about an airport, you're going to screen people as they're walking in. Wouldn't you have to have more than one unit in every airport? How many counters do you have?

Correct. There's 700 check areas in the continental United States for TSA check zones, and they're asking for 2,300 units. So, that's approximately three plus units per check zone. And then these zones vary tremendously from some big ones to some smaller ones.

And who do you really view as your competition in this field?

Well, I'll leave that up to you guys to do. But let me point one thing out, though. We license our driver's license reading technology to dozens and dozens of other companies including L1 and others. So, if someone else is going to be doing this, there's an extremely high likelihood that they're using our software to read the ID cards. And let me add to that. We believe that we are the best positioned company to not just give the ID reading capability, but also the product and the integration of being able to put that and deliver those 2,300 units to TSA.

Our next question comes from the line of John Bendall from JBC Partners. Please proceed with your question.

Yes. Hi, Nelson. A couple of follow-up questions. One is --

Hello John.

How are you. Whether it was me or not, as you well know, I wrote a letter to Senator Schumer. Whether it was anything to do with me coming out there. But I've never heard a United States Senator going to a publicly held, except for Boeing, company and endorsing their product. In fact, I was very amazed that he would make the trip out there. But there was no follow-up. Normally, Schumer gets on anything, the least little thing he'll get coverage on one of the local stations here in New York, if not the national station. Nothing came about. I think there was a little blurb in one of the Long Island papers. I didn't see it, but I was told that it was. I would have thought this was a monumental happening when I heard he was out there, and yet nothing followed up. The second part, if I may, unless you like to answer that first?

Yes. How about I answer that one first, and then we'll go to the second one. Yes. Well, thank you for writing a letter to Senator Schumer. Appreciate that. Appreciate any other shareholders. We've got good products, we save lives, and any help that we can get to have people recognize the value of that. The number one thing we usually get at a sales meeting is they go, "This is amazing. This thing works so easy. It works great. How come this isn't everywhere?" And so, getting the word out is the number one thing.

I'm not completely amazed that Senator Schumer did it, because this is technology that was developed in New York state. And our Long Island office is a critical and extremely important office. I spend a lot of my time there. New York City has lived 9/11. They understand it better than anyone. They have a different perspective of it. And so, Homeland Security isn't just a word to them. So, I completely understand why Senator Schumer said, "Here's a New-York-based company that has the technology to help protect our New York airports." And it was right after the Times Square Bomber incident, and that guy was on the No-Fly list. And I was interviewed by the Canadian Business Network News for nine minutes on their segment. And they asked a question. They were like, "Well, how could this have happened? The guy got all the way in the airplane."

Well, there's a lot of different layers of security. And if you make it to the first layer of security, which is a up to the airline, in this case a foreign airline. The job is to determine if you're on No-Fly list. The guy bought cash last minute, and he got around that. There isn't another layer of security that's going to stop that guy until he actually gets onto the airplane and then they run the actual passenger name records against the No-Fly list. And Customs Border, CBP, was the guys that actually found out that airplane was already cleared for take-off, taxi now, and they called it back. What Senator Schumer's saying, what we're saying, is, "Wait a minute." With a change on that, if TSA had scanned the ID card, check whether it fake, all that stuff. But in addition to that check, if you're on the No-Fly list. And that's a new thing that we're still pushing on, trying to get them to do. But if they did, they could have stopped that guy at that TSA checkpoint long before he boarded on the plane with everybody else. Or, much worse, actually taxied out.

So, to me, it was very logical what Senator Schumer did. He's pointing out a change that need to be made. It's good for jobs in New York, its good for the security of our country, and that Times Square Bomber got on JFK Airport. So, here it is just a few miles away from our office here in Long Island, and that guy was doing it. To me, all that made sense. At that press conference, I believe there were six television stations, several newspaper ones. The Senator himself did a press conference.

But my main goal out of this is not necessarily to get press to move a stock price or anything. It's to get the contract. And the good news out of that is TSA has issued an RFI. We have had meetings with them. They have bought some of our test equipment. They have tested us. They have had several things. They have picked us as a finalist in this, that our product meets the specs to be able to compete on the next part. And he did send a letter to Napolitano. So, to me, those are actions that are more important than [another] part.

Yes. Well, not mentioning -- Let's forget about the stock for a second. That will follow any big contract. We know that. First of all, do you think there's a chance that he will get some type of press even going forward? Something has picked up on it. Because the great thing about that is that someone that is not aware of Intelli-Check, whether it happens to be a nuclear plant, or whether it happens to be a large office building or whatever, sees that press conference and uses the products, orders the product. Or more voters or people for Schumer are applauding him, saying, "I understand he got a lot of calls," and it helps him at the polls trying to protect America. So, I'm surprised that he didn't get out there on television the way he did on the news reel. And say, "Look, this is something here that I'm going to save your life." So, it was just a little puzzling.

Well, I stood right next to him and my recollection was the Senator did say --

Yes, but he didn't get picked up by the national --

(inaudible - multiple speakers) is needed, and we should do it. I think all congressional help or citizens or companies or newspapers that say -- it's one of these no-brainers. Once you really get into it and you start pulling it apart, the system works. It's easy to use. It makes sense. It doesn't break. It's reliable. It does the job, and it's super cost-effective. That's what the Wall Street Journal said. We're the most cost-effective one. And it makes sense. So,I think -- more press is always good, but our main Company focus is that the right key people at TSA understand it.

Right. Just quickly on the last part, if you would, Nelson. On the S1. I'm one of the ones that somewhat disagree with you on that. But I guess what I'd like to hear you say is, in following it, because in my studies that companies have never had more than a few weeks to get it done on balance. When you did that in the last conference call, were you probably more anticipating an event that would have propelled the stock to a price where -- that's what you are there for, to sell some stock or to raise some money. Number one.

And number two, would you care to say, as people have said before, because we know we have a lot of negative comments from investors and short sellers about the S1 being done at a price that is not very appetizing to us. And you could say, "Well, I'm not going to sell any at X or Y." I don't know how we put a price on that, but at $1.40 or $1.50 or $1.80. After all of things you all have done and hopefully about to be done, that you would even think about selling any stock at $2 or so, could you make a comment on that?

Yes. Absolutely. Okay. Regarding prediction to the stock, I don't really do that because who knows. Stock market is volatile. Sometimes we put out a press release that we partnered with a company that's representing 90 retailers. Or we won a ID IQ contract that's probably the biggest dollar value one in the Company's history. And it moves it only a few cents. So, I honestly don't try to game it or think about what it may or may not do.

We did announce on a previous call that we intended to file a shelf. It had nothing to do with regard to the price. I think you mean S3, not S1. If I am wrong, let me know. But when we file the shelf registration, we actually have to specify how many dollars can be raised under it, somewhat irrespective of what the current stock price is. Lots of companies file shelf registration, which doesn't mean they're going to do. It means we put it in place. Really, it's business decisions that I want to have the ability that, if we find a company that we want to acquire, we have the opportunity to at least consider it. If we win a big contract and we want the ability to raise capital to be able to increase our cash flow so that we can the best ones to meet that. I want to have that ability. This is about opportunities, not about a specific thing.

And last thing, let me just say, is there was an S3 in place for myself and my wife on our shares that we could have sold 100% of them. And I had a couple or a few shareholders or people call the IR firm and say, "Oh my gosh, they're going to be dumping their shares." All that, obviously, turned out not to happen. So, rather than look at the path, the number of shares that I have sold is zero. And I've actually bought shares since then, and I think everybody would admit I have a rather large investment into this Company.

So, it doesn't mean that we're immediately going to do anything. It's an opportunity. But let me add, I also reserve the right that, if something makes sense business-wise, that the Management team is on board, that the Board of Directors agrees, then we want to have the ability to be able to do it. So, it isn't going to be some knee-jerk reaction that doesn't make sense if and when do exercise the shelf.

There are no further questions in the queue. I'd like to hand the call back over to Management for closing comments.

Okay. I just want to give it a minute to make sure, if you don't mind, because we have had in the past in couple times someone tried to get back in and ask a question. And I'll just wait here for a few seconds to make sure. If anyone else has a question, we would be glad to answer any and all questions. Yes, operator, I don't see any other questions in the queue.

There are no other questions in the queue, sir.

Okay. Well, investors and shareholders and analysts that are on the call, I appreciate your time. What I'm excited about is, I look at the potential of this Company. I think you've seen that terrorists aren't going away, that we do have a solution. And I believe that we have a lot of opportunity, and we're going to keep being in the position. Because it doesn't happen by luck. It goes to those companies that are prepared, and that's what we are going to do. We're preparing to grow and be the Company that provides these very important necessary products. Thank you for your time.

Ladies and gentlemen, this does concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.