Intellicheck Inc (IDN) 2010 Q3 法說會逐字稿

(call in progress) -- 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, Mr. James Carbonara, investor relations group for Intellicheck Mobilisa. You may now begin.

Good morning. Welcome everyone. Thank you for joining us today for our 2010 third-quarter conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending September 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 to introduce other members of the Intellicheck Mobilisa 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 statement. Certain statements made in this conference call constitute forward-looking statements within the meaning of that Private Securities Litigation Reform Act of 1995 as amended. When (technical difficulty) 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 current projections 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 within 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 issued this morning for a further definition of and context for the use of this term.

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

Thank you. Well, welcome shareholders. We're doing something a little different today. We are actually going live with video. We are having the conference call on the speakerphone as we normally do. We also have slides that are being presented. So I would like to thank the staff particularly for setting that up. If this is a good format, if investors like that, we will try to continue that at other venues. I think this gives us an opportunity to be all around the country, to be able to dial in, to see us, to be able to get better information, and actually see everyone, such as James wearing a Seattle Seahawks tie. So I appreciate him doing that for us.

We just concluded our annual shareholder meeting. As you know, a typical shareholder meeting, it's short, to the point. For those that were not physically present here, we did reelect the directors and we did reappoint Isar-Amper as our accounting audit firm. They used to be called Amper Mattia (inaudible), and they have emerged, and so it's essentially the same and bigger firm, so nothing significantly changed, but thank shareholders for reelecting us as directors and their audit firm.

So we'll go to the next slide. We're going to go through a few slides here. Obviously, the Safe Harbor statement that was already read. What I would like to do today is show you a little bit about the Company. You're always welcome to attend shareholders meetings. It's a very good opportunity. We are here in our Long Island, New York offices. These are new offices, and we have several people here that will be actually demonstrating equipment afterwards, so you can see it live. For the people that are dialing in, and online, we will do our best to describe it.

So we'll talk about our company, what we accomplished this year, why it's worthwhile investing in this Company. 349 companies today are doing their earnings call, and we're the best one, in my opinion. I'd like to explain why. So any questions that you have, we'll do our best to answer them.

We are a Homeland Security company. We do identity. We check who you are. We check if an ID is fake. We do some collecting information and do something useful for it. We also do this for port security and wireless. It all comes together providing security. A lot has changed since 2001. Here in New York, people of this area lived it, it's very important. We've had recent events. The Times Square bomber recently tried to blow up a van in Times Square and then run away to JFK, an airport not very far from here. A company with this technology of reading ID cards right here locally could've helped catch that guy. That's what we are doing, and that's the theme of our company.

We have all of our Board of Directors here today. John Paxton is our Chairman. John has been a mentor to me. He has been CEO of Litton, CEO of many major companies, two of which I would like to mention -- Intermec and Telxon. If you do mobile computing, John is a leader in that area. I still remember looking at (inaudible) CEO Magazine, the very first issue that ever came out. They had to choose between Bill Gates and John Paxton; they chose John Paxton. It said the Barcode King. And John was on that. Thank you, John, for helping us with our company. I truly appreciate that.

John helped recruit someone who helped him at Telxon, Woody McGee. Woody McGee is CEO of FleetPride. It's one of the major trucking companies across the country. While at Telxon, Telxon was failing. John Paxton took it over as CEO, and he asked Woody McGee to be The Chief Financial Officer. Those two gentlemen grew that company. You may remember a thing called Aironet. These guys were my heroes 10 years ago. They sold Aironet to Cisco and it started out around a $300 million deal. By the time it closed, it got $1.2 billion for their shareholders.

General Buck Bedard is a Marine's Marine. I would like to thank the General for being here today. He has to leave right after this. He is heading out -- tomorrow is the Marine Corps birthday, so happy birthday General. Then of course, on November 11, the day after is Veterans Day. We have several people in our company that are veterans, and several members of our Board are veterans, but no better representative of that than General Buck Bedard.

Guy Smith has been a rock solid pillar of our Board. He came from the original TeleCheck Group. He's from Diageo. It is one of the largest alcohol distributors in the country. He understands marketing; he understands business; he understands politics. He has worked for former White House. He is a senior director. I cannot tell you, Guy, how much I appreciate your support on the Board. You've given me counsel many times at the right moment, and I really appreciate your approach and support of this company.

Then my wife, Bonnie, Bonnie is one of those people that can give counsel, that can sum it up very succinctly and truthful and can help me re-see things a little more clearly when I need to, and has been there through every little bit. One of the number one ways if you're an investor to tell whether you should invest in a startup or not is whether the spouse supports the leader of that company. Well, I couldn't have better support than from my wife. Thank you.

We'll go to the next slide. We have the management team. Steve Williams is our Chief Operating Officer; Steve is here. I have never worked with someone who is more business-savvy. It's very easy we think very often alike. I never have to worry about when we are making decisions that we will be out of sync because we think very similarly. Steve was also a retired Air Force officer, like I am, and his last job he actually worked Capitol Hill. He was a liaison to Congress for the Air Force. He understands Capitol Hill, he understands business, and he is a PhD candidate at the University of Maryland.

Peter Mundy is our Chief Financial Officer. Pete is a seasoned CFO at publicly traded companies. If you've seen those radio tags that go on clothing when someone tries to steal something out of a retail store, and you say wait a minute, it went through a device and it sets off an alarm, a company called Knogo. Pete was the Chief Financial Officer of that company.

Russ Embry is our Chief Technical Officer. Russ has his name on our patents. Russ has been at the Company since 1999. He has been there since the beginning of this. This was before most drivers licenses even had machine readable information. What's very important about this is the barcodes, the magnetic stripes that our patents cover. Wyoming was the last state to put that on -- 2004. If you're a Wal-Mart and you're going to implement some big system, you would think to yourself probably I don't want to do it unless it makes sense for all of the drivers licenses, or at least most of them. 2004, Wyoming was the last one to do it, and then it takes a while for all those drivers licenses to roll out, until the public have them. So really this technology really couldn't be fully applicable probably until 2008, 2009. We are just getting started, and Russ Embry leads the technology team and he is the guy that's been here through that whole process.

I'd like to introduce three new people that have joined our company and that we've recruited. Dr. Bill Roof. Bill Roof and I have been in three different companies before and have successfully grown these companies. They are high-tech companies, companies that symbol Microsoft, others companies have invested in. Bill is an academy graduate from West Point. He also received his PhD from the Naval Post-Graduate school. He runs our wireless team. We have a demonstration. We have a small replica of one of the security buoys that we are placing across the United States.

Scott Jacobs is a friend of mine who was a senior person at Naval Criminal Investigative Service. Scott was the Deputy Under-Secretary of Defense for Intelligence. So all of the bad guy lists, the no-fly lists included in other intelligence lists, he coordinated them for the Defense Department. So what I like to call Mr. No-Fly List now works for our company, I'm very glad that Scott joined us and he is helping us lead the government identity systems.

Cliff Link also was a Naval Criminal Investigative Service person. When he left the government service, he worked for Deloitte. Deloitte did two major things at Homeland Security -- the TWIC card that we've talked about before, transportation worker identity card. That's the card that's at the ports. That card had to be implemented. It had to be accepted first. You just couldn't roll out a new card. It's the largest rollout of cards in the government's history. He was the program manager that helped that implementation and get that program accepted. Then he was the program manager of a program called Secure Flight. Secure Flight is the one that checks if you're on a bad guy list. The system that did catch that Times Square bomber, although it caught him at the last second, that was Secure Flight. Cliff Link was one of the program managers that helped implement that.

So we've just got the Secure Flight guy and the no-fly list guy recently just joined us in the last few months. I'm very pleased about that.

So let's talk briefly about the Company. We are a small company, we were founded in 1994. We were ahead of the power curve on thinking ahead that identity cards might be something that should be scanned and could be useful in helping people have secure and better lives. The Company went IPO in 1999. We merged with the company that I founded in 2008, in March. Then last year, we did another acquisition of a company that was doing drivers licenses out of Minnesota. Their founding members are consultants for us and their employees joined us as well in 2009.

We are a little over 50 full-time employees. We are headquartered in Washington state, but we have centers of gravity in the Washington DC area, which is the head of the government, and here on Long Island, where the technical team and our financial team is in these offices.

We are running around $12 million of trailing 12 months, so essentially we quadrupled the revenue in three years. We started at about $3 million; we are up to $12 million. We really are recognized as the drivers license reading experts. When other states invent a new drivers license, we offer a service for them to evaluate that new drivers license, to see how safe it is, how readable it is, what are the security features, and we help those states do that. We have the world's largest library of identity cards.

Some of our customers -- let's talk about the ones on the right side -- US Army, the Navy, all of the military groups, NASA, Homeland Security. We are at Air Force One. There's a picture out in the lobby where our system -- if you go into Andrew's Air Force Base, they'll scan your ID card. That's a card -- that was a system invented by Intellicheck Mobilisa. It's at West Point. It's at 80 other secure installations, including Quantico Marine Corps base, which is home to the FBI training center. What's very impressive at that location, they just recently caught three of the world's -- US worst gang members through our system -- were trying to get onto that base. I have no idea whether those guys would try that, but thank God the Marines and the FBI had the Intellicheck Mobilisa system, and they caught three of those guys.

The largest group for our company is -- the largest fastest growing group is the commercial side. We are very pleased that companies like Wal-Mart use our system. Payless Shoes, the same scanner that scans the shoebox, you can scan your drivers license, and safely apply for a credit card. AT&T to help you get your iPhone quicker. We are at dozens and dozens of all the major brand locations. The cool part is we're just starting out, so we've got a lot of room to grow.

So let's talk about the commercial area. A few years ago, for the long-term investors in Intellicheck, they focused on age verification. Is somebody really 21 in a bar? What you may find it's not possibly the best market. It's an okay market but it is probably not the best market of trying to grow a company. Bars have a tight price point, and often you go in and you say "Hey, I know how to lower your revenue if you buy my product." It's not really a good sales line.

So we've shifted the Company off of focusing on a single bar, but we've grown it to capture the data that's on that card and do something useful quickly and safely with it. Number one, how to get you a credit card. Most places, if you walk in today, they actually say "Fill out a form, put your social on it, hand it to a clerk you don't know." The person retypes it in, might make a mistake, might send your credit card to the wrong location, or make a copy and give it to their friends. It's just fraught with problems, and responsible companies over and over again are switching to the new way of doing it, which is to scan your ID and do it online. We did it at every L.L. Bean. We set up kiosks, and underwriters such as Barclays, Chase, GE Consumer Finance, Alliance Data Systems, all those companies we work with to help you get a credit card safer.

The military area -- 80 different federal locations. I talked about some of them. What's very cool about this system and we can demonstrate it for you today -- we can scan your ID. It'll do a background check on the spot. There may be some other companies that say "Hey, pay me to do a background check. I'll issue a proprietary card and then I can let you onto the base." The problem with that is how do you get that card adopted? The most popular card in the United States is a drivers license, in North America 230 million drivers licenses. It's already in your wallet. If you're not a driver, you can still get an identity card. It is the de facto ID standard. Whoever has the intellectual property and the applications on that is probably the most ubiquitous, most popular application that you could think out.

When you're in the software world, you try to invent the killer app. I can't think of a better killer app than one that works with a drivers license. That's what this company does.

We are also doing seaports. Port of Houston just installed some of our equipment. Probably the one that I am most pleased with, the Port Authority of New York/New Jersey selected our mobile readers as the one that scan the truck drivers as they enter the ports.

We'll go to the next slide. We are also doing some wireless work. At first, you might say how come is this wireless? How does that fit in with identity? It has to do with security. It's the Port Authority of New York that scans those ID cards when you come onto the seaport. The same set of guys are also worrying about the security out at the water. What we are doing is pushing the protection zone further and further out.

There is another company that puts in a scanner for a dirty bomb and it's actually in the crane, so when you're lifting up the rail car or sea car and you're dropping it onto the cart, you can evaluate and see if there is a bomb inside. Well, that's a little late for the citizen's of (inaudible) New Jersey, or Long Beach, California. It's a little too late if it explodes then. Wouldn't it be a better idea to evaluate that at the shipping lanes, and just like walking through a metal sector, have that cargo ship go through a dirty bomb sensor.

Well, I'm very pleased to tell you that we just installed one in the Potomac region just this weekend to protect the nation's capital. We'll show you a picture of that at the end.

We'll go to the next slide. The Company has been growing. You'll see out in the lobby two recent plaques, and there are several on the wall back there. Five years in a row either as a private company as Mobilisa or as a public company, the last three years in a row, we have been among the fastest growing companies. You'll see in this one, three years ago, we were ranked number 44 of the fastest growing public companies. Last year, we were ranked number six that are headquartered in the Pacific Northwest. This year, we were the second fastest growing company. It's pretty hard to maintain that rate. One of our attorneys had said the last company they saw that was on that list five times in a row was Microsoft. That's a pretty good list to be on every year to keep growing at this rate. We're going to keep trying to do that.

Deloitte the last two years we've been ranked in the Fast 500 of fastest growing companies. Steve Williams just accepted that award in Seattle I think just a couple of weeks ago.

I'll go to the next slide. So let's talk about the stock. Sometimes I think it doesn't always match the performance of the Company. But that's why a keen investor who looks into this might be able to take advantage of that, because I think this is a very good company. Yesterday, we closed at $1.25. The market cap is around $35 million. We have high insider ownership, a little over 46% institutional ownership. There's about 4.5%, and the short position is amazingly low.

I was at a dinner with the NASDAQ key economist, and we probably had 50 companies in the room. He had each of us stand up and say what our short position was. I won a bottle of wine for the company that had the smallest short position. So on a rare occasion (inaudible) someone says hey, those shorts are killing us. Well, it's a pretty small position. I wouldn't have -- see any reason why someone would want to short this company.

So let's talk about investor relations. We want to communicate with the investors; we want to be able to give you the information you need. So we hired a professional investor relations group. One of the rules I wanted is it had to be in Manhattan. New York is the financial center. They are located there. Many of our investors, if you look at the [noble] lists, are located here in the New York area. Well, they're in Manhattan. I interviewed numerous companies. We hired them last year. At the time we hired them, the day that we hired them, we had a zero volume trade day on this stock. When I met with Dr. Dian Griesel, the head of IRG, I said "That's the issue I want you to help me with. The share price will go over in different locations, but I want to get the volume up." This is a good company, and this stock should be traded. I want investors to be able to get in and get out of stock when it makes sense to them. Volume is a good thing.

Well, several things have happened this year. We had an underwear bomber at Christmas. We had a Times Square bomber after that. Sen. Schumer came to our offices a few months ago and said "This technology makes sense. We should use this at airports." He identified a $50 million program that has been yet to be put on contract that could be applied to this. I think the common person is saying, hey, I am tired of being able to go to the airport. They shine a little light on an ID card, and they are not really doing anything with it.

The Zogby poll came out, 90% of the American public want their ID to be scanned to be checked against the no-fly list at the TSA checkpoint. We'll keep the pressure up; things will eventually change. But each of these events, the stock doubled, tripled and one time quadrupled in just a very short time. I think that is indicative of how -- the potential of this company, and the potential of this stock.

Because of that, at December 31, our stock grew rapidly, and we ended up closing that year and were the Russell Microcap top performing stock for all of 2009. Our company was the number one performing stock, Microcap.

So let's look at the volume. In 2008, the average volume for the whole year was less than 4 million shares (inaudible). The next year, 15,000, and to date, we're already over 28 million shares traded with -- that means the average volume is 132,000 a day if you average it out for the year. It's up 750% approximately. Okay, starting in the right direction; that's good news to me.

We'll go to the next slide. So let's just talk about the last year, since our last shareholders meeting that we did in Manhattan. We won an award basically a few days after that for the best new promising harbor security technology. It was issued by Adm. Cohen. Adm. Cohen used to be the head of the office of Naval Research, then later he was the head of science and technology for all Homeland Security. He issued that award for our wireless buoys as the most promising new technology for protecting ports.

We then hired Dr. Bill Roof to lead our Wireless program.

On December 1, we were notified that a company was going to sue us claiming we had violated antitrust, and we announced that we were going to vigorously defend that, that we viewed it was an unfounded lawsuit and we would defend ourselves. Right after that, we won the security contract for the Port Authority of New York for our mobile TWIC readers.

Then at Christmas time, the underwear bomber attacks a plane. TSA buys one of our units to evaluate it. Steve Williams and I were on several news. He was on Fox news; I was on Street.com. Also, the Air Force gave us approval that they approved their product -- our product, Defense ID, for Air Force wide use. We added more commercial sales. A national fireworks chain bought our product to read ID cards. The price on December 31 rose to $4.83 at one point, and had a 10 million share day, and the head of the New York Stock Exchange/AMEX gave me a call and congratulated me and said "Hey, here is my phone number. This company is really performing, and we wanted to thank you."

So there was a lot more news that came out of that. One of the ones was the Wall Street Journal evaluating different technologies, and said this is a very affordable technology. If you look at some of those other ones, like a full body scanner, those things cost a lot. This thing does not cost that much to be affordable and could be implemented right away. Take a look at that January 17 Wall Street Journal article. It talks all about that.

We've added new equipment at Fort Stuart. A commercial group called Rooms To Go, a furniture company, bought our ID checking system. Alliance Data Systems started pilot testing our ID checking system. That was probably one of, to me, one of the highest potential press releases we put out. It might've been a little hard to understand. But this is a company that is the financial underwriters for 90-plus major retailers. We want to provide our technology to those retailers to safely apply a credit card. This is the company that will help us do that.

Later that month, Russell announced that we were the top performing Microcap for 2009. Marine Corps -- the Army in Arizona bought our defense ID system. Now our TWIC readers, here's the deal. The seaports already have badges; they already -- the truck drivers come onto it. The government issues a federal card to get you on. Well, does that card allow you to every seaport, to every airport? Maybe that's not a good idea. So the local ports and the federal government got together and said "You know what? We should use our federal card, but at the same time it would be nice if it tied into your existing security system."

AMAG, Lenel, probably two of the world's largest security systems companies already have badging systems, so we integrated our system into the AMAG system. Then we integrated our system into Lenel and got certified Lenel for the one at the Port Authority of New York. That helped us win that Port Authority of New York contract.

Then we joined a group called [Fixus] a few years before that and we were able to live-scan a military ID card to the guys that issue it. Now, what does that mean? You can scan an ID card and see if it's fake, but if you could actually wirelessly send it to the guy that issued the card -- say is it lost? Is it stolen? Did the person recently pass away? Was it revoked? That's about the most secure way you could do it, right to the source of the card. Maybe even better yet, let's get the original photo, and we will send the photo back to the computer and I can look at the photo and see if that's the person standing in front of me. That's pretty cool, and that's what we did with the military ID cards. We're the first and the only one to date that have done that, and we did that through the [Fixus] group and with the cooperation of the -- guidance of the Pentagon to do that, and we did.

The Navy wrote up a very good case for our wireless-over-water technology in saying this is the right way to do it. Michael [Bauman] wrote that article. Michael Bauman has a strong background in Navy technology, and it was a very good article about our company. It's online if you want to read that.

The Times Square bomber does his thing. We ended up on NBC National News. We were on CBS New York news. We were on nine minutes on the Canadian Business News Network. At that time, then Woody McGee joined our Board of Directors. Then Scott Jacobs, the former Deputy Undersecretary of Defense, who I call Mr. No-Fly List guy, he joins our company.

We then set up a demonstration of how we could have stopped that guy's Connecticut driver's license when he went into the JFK airport. We built a demonstration of how it would work. Senator Schumer held a press conference in our offices here on Long Island. We demonstrated that. There were six different news agencies, television agencies, several others on top of that. Then we announced that we were for the fifth straight year on the fastest growing company -- second fastest in the Pacific Northwest region.

We want to get into public safety. We are already being able to do an FBI check to be able to read that ID card and actually not just the publicly [available data] but tie it in to things like the no-fly list, the FBI, essentially any different list. A very good product would be to help save the law enforcement lives so they don't get attacked at an inopportune moment where they're trying to look at a computer back into their car or something and see if this guy is wanted or not. They need that information quickly, accurately, and at the location where they want to do it. If they want to do at the car, they want to do it standing in front of your vehicle, where ever they need to have that ability. So we created a mobile reader, the Fugitive Finder, to do that. We want to make sure we get this right. So we were very fortunate. Four of the nation's leaders joined the board of advisors for us and created a public safety advisory board.

Ronnie Carter was the former Director of Alcohol Tobacco and Firearms. Mr. Carter is an outstanding -- knows this field probably better than anyone, and has been a big supporter for us. Major General Jack Davis is a retired Marine general, but also he helped serve on North Carolina's Bureau of Investigation. He's very strong in law enforcement, also was a naval criminal investigative service federal agent. He knows this field very well.

Dan Linehan from the state New Hampshire -- several different positions in law enforcement and ultimately a long career as the Sheriff of a Rockingham County in New Hampshire, a sheriff who understands law enforcement and can give a perspective that we need. Then Shelly Greenberg, who is the dean at the Public Safety division at Johns Hopkins University. These four gentlemen are helping us lead a product to go to the right direction to create a product for law enforcement.

Let me just go back one sec -- and we successfully launched this product. We demonstrated it recently at two conferences. This does a live check to the FBI's database, very, very cool. You've got to be a bona fide law enforcement or Federal Agent to use it. We are the guys that are providing that product. This is going to be a new initiative for us.

We sold to several other bases. Fort A.P. Hill is an interesting base. It is in Virginia. They hold the national Boy Scout Jamboree every year there. They are always concerned about that for security. They bought our system. One of the reasons they quoted for buying our system was that jamboree. Then we are fortunate to have Mr. Cliff Link join us, the guy that was from Deloitte, to help us with the Homeland Security business development. The Marines bought our system out in California, in the desert. Army, Fort Leonard Wood, that is the Army's police -- military police training school, is at that location. They bought our system.

Camp Atterbury is one of the country's largest guard bases where they train personnel before sending them overseas. They bought our system. We were named as the top three finalists for Ernst & Young as an Entrepreneur of the Year for technology.

We moved to these new offices in New York. I'm very pleased. These are beautiful offices. They look good. Let me tell shareholders we did it for -- we were able to spend less money, get more office space, and get better office space. It was a no-brainer decision; it was a win-win-win for us.

We recently added another $0.5 million to our Wireless work. We sold a few more bases, TWIC readers at Houston. The bottom line there is a company called MICROS. MICROS is out of Maryland, and MICROS is headquartered there. They are the leaders in point-of-sale for hospitality and property management systems for hotels. When you check into a hotel, what are the two things they always ask to see? A credit card and a driver's license. Well, they already have a credit card reader. The drivers license has to be entered somehow, and name and address and all that information. If I could scan that with one box and do both, that would be very cool. We have already started testing that, and I mentioned that on a previous few calls. What we've now done is partnered with a large company, MICROS, the number one company in this field, to be able to add our new technology to their existing products. That's something we just started with them.

So let me just recap. We have 230 million drivers licenses in North America. If I sat down and tried to think of a killer app, it would be long and hard to find one that's better than the applications that are driven from a drivers license. Our company owns the drivers license reading patent. We acquired one (technical difficulty) competitors. We have no debt. We have sufficient capital. We have many safe contracts, many of them are government contracts. Our trading volume has been increasing. Just last year, we were ranked as the top performing microcap just in several events just this last year that demonstrate the potential of this company. We are the leader in military; we are the leader in retail. We're expanding to other markets like ports, hospitality, banking, law enforcement. We've been increasing our sales force. You can see we are starting to partner with other big companies to help us get into those markets.

So what I'd like to do is hand it over to Pete Mundy. Pete is going to talk about some of the specifics on the financials for Q3, and then I will -- then we'll go to these slides. I will save the last three slides, show you a couple things pictures of things that we're doing here that you'll find interesting. Pete?

Thank you Nelson. I'd like to -- good morning. I'd like to discuss some of the financial information that was contained in our press release for the quarter ending September 30, 2010, which we put out this morning. Our complete quarterly report on Form 10-Q will be filed with the SEC this afternoon.

Revenues for the third quarter ending September 30, 2010 decreased 5% to $3.567 million compared to $3.755 million for the previous year. There was an increase in identity system revenues of 3% which was offset by a decrease in Wireless R&D revenues.

We did not enter into any enterprise licenses during the third quarter of 2010 or 2009. Total booked orders were approximately $3.9 million in both the third quarters of 2010 and 2009. As of September 30, 2010, our backlog was approximately $4.8 million compared to $7.2 million at September 30, 2009. Previously, the Company recorded in our backlog certain Wireless R&D revenues that, when the award was announced, are included in the Congressional budget with the Company named as the requester.

In the second quarter of 2010, management reduced the stated backlog by $3.3 million. This was done because Congress announced that the ear marks awarded to public companies in fiscal year 2010 are now subject to competition even when the government would've determined that a sole source justification was the best method of contract award. Therefore, we continue to compete for the 2010 ear mark funding for the littoral sensor grid.

As we routinely stated in the past, we are not afraid of the competition. We're a world leader in this type of research and development. As the $3.3 million that we backed out of our current backlog was initially included in the $7.2 million backlog at September 30, 2009, the real backlog on a comparative basis was $3.9 million at September 30, 2009. The current $4.8 million backlog is expected to be realized over the next 12 to 15 months.

We still continue to maintain high gross profit margins. Our gross profit as a percentage of revenues was 62.8% for the three months ended September 30, 2010, which is just slightly lower than the 63.8% for the three months ended September 30, 2009. The change is due to an increase in merger-related amortization costs in 2010, as well as changes in our product mix.

In terms of expenses, our operating expenses, which consist of general, selling and administrative, research and development expenses, increased 20% to $2.741 million for the three months ended September 30, 2010 from $2.287 million for the three months ended September 30, 2009. The increase in 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 and litigation, and additional board and consulting fees.

In the third quarter, the Company also incurred moving expenses related to lease termination costs for its Woodbury, New York office. Our new lease here for Jericho, as Nelson mentioned, allowed us to expand our floor space by 30% at no additional cost, and certainly more beautiful office space.

We are continuing to monitor our cost structure, but as Nelson has stated in previous conference calls, management's plan for the 2010 includes some increases in operating costs to create and support additional revenues generation. These additional costs included the addition of two senior management positions hired to pursue government and Homeland Security sectors.

Interest income was negligible during the quarter. The interest expense of $7000 in the third quarter represents interest and amortization on the deferred debt to the discounted notes on the former principles of positive access. We have not recorded a tax provision due to the expected utilization of our net operating loss carry forwards. We still have net operating loss carry forwards of approximately $38.7 million.

Adjusted EBITDA for the quarter ended September 30, 2010 was negative $74,000 compared to a positive amount of $518,000 in the quarter ending September 30, 2009.

Our net loss was $509,000, or $0.02 per diluted share, for the three months ended September 30, 2010, compared to net income of $110,000 or $0.00 per share for the three months ended September 30, 2009. Revenues decreased by 6% to $9.245 million for the nine months ended September 30, 2010, from $9.838 million for the nine months ended September 30, 2009. Now, that decrease is primarily related to lower wireless R&D revenues.

Identity Systems revenue increased in 2010 despite no single major contract win. 2009 revenues included an enterprise license to a large telecommunications company, which went right to the bottom line. In the first nine months of 2010 and 2009, adjusted EBITDA was negative. I'm sorry -- in 2010 adjusted EBITDA was negative $54,000 compared to -- I'm sorry, a positive $54,000 in the prior year.

In 2010, the proceeds from the exercise of stock options was $252,000, higher than in 2009, and scheduled payments of $400,000 were made to the positive access principals as part of the acquisition. Of the $1.9 million in cash used in the first nine months of 2010, approximately $1.3 million in cash outlays were of a non-repeating nature.

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

We currently have effective a universal shelf registration statement under Form S-3 with the Securities and Exchange Commission. Under that shelf registration statement, the Company may offer and sell from time to time in future in one or more public offerings, its common stock, preferred stock, warrants and units. The aggregate initial offering price of all securities sold by the Company will not exceed $25 million. Pursuant to SEC rules, the Company may only sell up to one-third of that market cap held by non-affiliate stockholders in any 12-month period.

Thank you. I'll turn it back over to Nelson.

So why don't we go to next slide. We will do a couple of slides and then we will answer questions. This is kind of a dark picture to see, but in the Maryland area, it's a crew lifting one of our security buoys with a crane. We will go to the next slide; it's a little easier to see. There it is floating in the Potomac River near a power plant, and near a military base that's at the mouth of the river that actually protects the nation's capitol region. This is one of the first buoys of that area. So there was a permitting process. There were several things that had to go into place [to getting this] one of our new buoys. It has a dirty bomb sensor on it and other advanced features. So this is the first of this new line.

So although Pete mentioned that the Wireless revenue was down some -- I think it was because we are getting this right before we start launching several new buoys.

Let's go to one last slide. You guys have heard of Clear, which is a card that gets you through the airport quicker. That company is re-launching, and this is one of their advanced prototypes that they have placed in some airports that they are about to start using. If you can look closely, one of the readers, which is right there, is an Intellicheck Mobilisa drivers license reader, which I think is very cool. Those are two things that, if you read the press releases or you might not have known about -- I want to be able to tell you about the buoy that was just placed in the water in the Clear ID reading station.

So we'll take whatever questions people have. This is going to be a little different because the line here -- and the shareholders meeting is live. I may try to help you restate the question so that the other listeners [if you need]. Please state your name, your organization and (inaudible) question, and we have several people here. Pete Mundy, our CFO, Steve Williams, our Chief Operating Officer, and John Paxton, our Chairman, and I will all do our best to answer whatever questions you have.

(Operator Instructions).

We have a few questions here in the shareholders meeting as well.

Excellent. John Bendall, JBC Partners.

Thank you. Good morning. I must tell you that it sounds a lot like last meeting last year. This is the exact same meeting. My question really, Nelson, goes -- and I hope he will address it to Mr. Williams. A lot of us are very confused and upset. We think there is nothing wrong with exercising stock options, and I think that's a very good program that you implemented a number of years ago. But what no one can understand and certainly I, for a COO, to exercise $0.40 options and then sell those at $1 or less, around $1, maybe close to 100,000 shares or whatever, it doesn't put a lot of confidence in -- for seven years I've been on these calls and been at the annual meeting and have met you, been a big supporter -- have not seen any support. I know you cited a lot of statistics as far as stock, but the fact of the matter is when you are real, you look at the stock and it's down today, it's down almost every day. But I think the S-3 was a mistake, but I think for Mr. Williams to sell his stock -- now, I've heard that he wants to pay taxes, which we all have to do, and he has to pay for it. But most people, I could see it if it was $5 or $8, God bless. I, again, think it was smart for you all to implement that program. But to sell stock for $0.40, $0.50 profit, I'd like for him to explain that, if he would, to a lot of people. But I'll listen for this answer.

How about I say something first, and then Steve, you can say something. Let me first address the S-3 being a mistake. What that is, this is a shelf registration. What it is, for the shareholders, it's a registration if we want to sell some shares. The Company has done this in the past through other mechanisms, pipes, things like that. But this is letting shareholders know how it would work, what could happen. We didn't immediately do it, but what we have told people is that we could. It's, I think, irresponsible not to have one in place.

I could agree with you (multiple speakers)

(multiple speakers) and I know -- John and I have spoke before a few times. I know he doesn't like the S-3 registration. But let me comment on two things. First of all, it doesn't really drop the price significantly. If you look at the price when we filed it on July 19, it was $1.43. I checked earlier today. We are at upper $1.20s. It's not a significant change to the price.

Second of all, there could be situations where Homeland Security wants to move quickly. I want our company to be able to move just as quickly. If they want to put readers across the United States, I want to be able to have our company in place to do that.

I applaud you --

If you're a large company, you have the funds to do that. We need to be able to have the ability and the shareholders to have the ability to help us be able to roll that out across the country. So what this is is a registration that's in place just to do it.

John, just to address the question about Steve Williams, what I don't like about it is it makes an assumption. The assumption is that a member of the Company thinks the Company is going nowhere and says "Oh, I'm going to be selling a bunch of shares to get out because I don't believe in it." That's the assumption that is being made with that comment. I don't buy that for a second. I know Steve. I don't believe that Steve Williams thinks the Company is going nowhere, and that's what his motivation. Just on Friday, Steve Ballmer sold $1.3 billion worth of Microsoft stock, and he did it for the purpose of rebalancing his portfolio and for tax purposes. If someone is selling a few shares that are lower, it isn't even 100,000 shares, I don't believe that's changing anything and I don't believe for a second that our Chief Operating Officer doesn't believe in this company.

There are no further questions by phone.

Let me comment. Hopefully you can still hear me. I just echo Nelson's regard. I think you'll see in the SEC filing (inaudible) expiring call rights and a significant position with those call rights. So it has nothing to do with the health and wellness of the Company. It has everything to do with diversification and maintenance of my portfolio.

One thing I want to thank Pete for doing is, when you do a startup, and I've done several of these, the key factor to me is somebody that's invested in it that has skin in the game that is on the team that makes it happen. Steve is one of those guys. He puts his own money in. He's selling a few of his shares he can to buy more shares, and he is totally, his time and energies are invested in the Company. That's what you want in a COO; that's what you want as a member. So yes, although there's a few shares sold, if you look at the big picture, and that's the cool part about it, that's what the advantage of these calls are -- you can understand the real purpose behind it. We're both big believers in this company.

Operator, we have a question here in the audience.

[Howard Shannon]. I'm a stockholder (technical difficulty) one person. I'm wondering if you could tell me the net sales of stock by the management and the Board, whether it be positive or negative to the last quarter.

The question was from Howard Shannon, who is a shareholder. He asked, he said a similar question. He wants to know what the net sales for the management team were for the quarter. I would guess that, for the last quarter, that there were some sales that were on the Form [4s]. The cool part is every one of ours are available via Form [4s], so I would say it is. But let's look at the prior period to that.

Since the merger which -- and we announced this in 2007, no one on the management team or the Board of Directors sold any shares, and they all bought shares. As you know, my wife and I are heavily invested in and have a large amount, and we also bought some shares. So again, the old adage that if you try to say let's look what insiders are doing, if they are selling, there must be something wrong in the company -- I don't believe that for a second.

There may be a few times where someone is trying to do, as Steve Ballmer did, readjust something for his portfolio. But I don't believe Steve Ballmer thinks Microsoft is going under, and we don't think that as well.

Just give it some time. I want to make sure we get any questions. This is a good opportunity, and I really want to thank the people that traveled here today, because you get the opportunity to meet the team, you get to meet management, you get to see the products. We're very proud of our products.

We have two questions by phone. [Ernest Capone], private investor.

Good afternoon. I think the thing that you must look at in this situation is perception of the investment community. Whether it be right or wrong, I think that was the point they were trying to bring out about the sales of stock. It's the perception at the particular point in time.

Secondly, I was just wondering if you could address revenues, what your plans are that you could pinpoint in a more specific manner over the next 12 to 18 months to get sales to a comfortable level where we can get breakeven. The question is how about a blog? Would it be appropriate for the Company to create a blog where, if these situations do come about, you can add to the comments or make comments in an appropriate manner in a blog fashion, which would get to everybody at the same time so that you can put to bed these maybe misperceptions by the investment community or public shareholders?

How are you doing?

Good. I wish I could say the stock was $4 and we are doing better, but you are laying the foundation that just continues to keep growing and growing and one day, I guess the world will wake up and realize that we are more than a $1.25 stock.

We are laying the foundation. Let me address a couple of things. One of them is about break even. We are essentially running the Company, and I said this before when we were profitable, I said yes, but it's very minor profitability. The same, when [it] is lost, it's the same thing. I'm trying to run this company at a near breakeven. The reason we're trying to do this is I want to grow this company. I want to keep the Company at a $12 million level; I want to grow it. To do that we need to invest the dollars that we have into new technology, new people, and grow it. I think that's what you want out of the CEO, I think that's what you want out of the management team, that's what I want as an investor, is to grow this. I don't want to squeeze 2% more out of EBITDA. I want to grow the Company at significant levels.

That's what we're trying to do. I think you've seen that we've hired some senior people. (inaudible) Undersecretary of Defense, the guy that ran the no-fly list for the Defense Department. The guy at Deloitte that did Homeland Security. We brought in other key people; we're bringing in new products, so a board of advisors. Maybe you could say that isn't important, but those are the foundation pieces that help you grow. So we are doing that.

Regarding a blog, I'll just tell you what. I'm not too keen on that. I'm more than happy to answer any question you have, but I can tell you what. If you go online and you read a message board, you can almost guarantee they got it completely wrong. There's crazy stuff on those boards. To try to address each and everything particularly by a guy that doesn't even have the courage to put his own name behind it isn't worth answering. If you do read it, again, if you want to guess at whether it's true or not, you can almost usually guess it's false. The problem is it's a hotbed for people that want to short a stock to make up junk to try to drive it one way or the other.

What I said last year at the shareholders meeting, if volume increases, that junk tends to filter out. The more volume, if one guy is trying to manipulate it or play some games, the more volume kind of smoothes and makes that junk go away. Luckily, our volume is up 750%. I want to keep that going in that direction. I don't really want to encourage people (inaudible) you know what? Let's try to find out ways to increase communication through the investor relations firm through public press releases and through shareholder meetings. We'll do that as much as possible, but I guess we could talk about it more, but I'm personally not in favor of a blog.

John Bendall, JBC Partners.

Nelson, we never did get to the point which I'm getting a lot of e-mails on, to try and just explain to us. As I said, I'm not, I think, trying to compare what Mr. Williams sold to Ballmer, so a big difference (multiple speakers).

Way less, way, way less.

It's a big difference. The stock has been around a long time. It has some liquidity. But what I don't understand, and I would appreciate it if you and he would appreciate it. Listen. If the stock was $3, $4, $5, and he exercised those options, God bless. That's what you're there for, to do it. But just to be able to make $0.80, or $0.60, $0.80, why not either do one of two things -- either extend the options that you all have granted, taking them for another year or two, or wait until the stock, if he is optimistic, until it's $3 or $4, and then be able to sell. But to put pressure on something that was being pressured already, it just doesn't seem right. I can see if he was going to make himself $1 million, but with a $0.40, $0.50 difference, I can't figure it out. I would really welcome you to explain that to me, or to us, the people that have asked me to ask that question.

What I can add, let's say, since (inaudible) I would've already said, is extending the options, one, it's not a board option. It's a personal option when we're a private company trying to grow this company, and I am a big believer in having certain people be part of the team. That's why this call right is in place.

Second, no matter when you pick a time, because this happened three years ago is the date, I would imagine some shareholder would say, I don't like that time. So whatever time we pick wouldn't be a good one.

I think this is a small amount that is not affecting it either way. What I want to focus on, rather than worrying about the stock price and whether someone sells and moves it a few cents one way or the other is to grow the Company. Is to get those bigger contracts, to get us into Homeland Security. That's where the Company needs to go. That's why I am invested. The patents are highly of value. The contracts that we are doing are getting us new places. We're at Andrews Air Force Base. I want to get to other [more] locations. That will take care of all this noise and get us all -- raise the tide and all our boats will be much higher and we will all succeed from that. I think we have another question.

[Gus Allen], GA Financial.

Good morning Nelson. The George Washington Bridge prevented me from getting there this morning, unfortunately. But I have a couple of questions. You mentioned, or Pete mentioned the decline in Wireless R&D revenues. I'm wondering what does that mean for Wireless going forward? Are there going to be more Wireless R&D revenues coming forward, or are the technologies developed enough to whereby now we've got to persuade the U.S. Navy and others to use these technologies we've developed?

Good questions. Wireless revenue is down 25% for Q3 of this one to Q3 of last year. It's kind of like slicing baseball up where you say a left-handed hitter against a night game versus -- if you do it too much, you almost lose sight of winning the game and you get into the details. When you have a smaller company with smaller revenues, you break it into too many little things. so let's put it in perspective. 25% drop was 1100 -- I'm doing this off the top of my head -- 1102 K doubts about 832 K-ish. What that means is we dropped about 300 K. One of the reasons [is they] have a subcontractor at University of Washington that was slower to roll out of certain items than they normally would. That's probably almost most of that funding.

Then also we were trying to get this buoy right. It was the new buoy of a new generation at a new location. After they see that, there will be more to roll out. I expect this to go back to normal revenue recognition that we've done in the past on the Wireless.

Again, the goal there is the last thing you said, though, I do want to echo. Yes, we do want to convince the Navy and Homeland Security to use this and use it at other ports. This is an R&D program; it's an R&D success. What we have to do is get the government then to say you know what, I want the same thing in the Potomac, I want it in Norfolk, San Diego, (inaudible) New Jersey. That's the key that we've got to do, and yes we have to do that.

Ernest Capone, private investor.

Getting back on the Wireless, can we address this a little further, especially now with these potential bombings on these air flights the last couple of weeks? When you're putting out this buoy, is there a certain amount of mileage that you want to put it out to sea, or are you putting it right in the canal? How many buoys do you have to put in a port? In your discussions with the government, now that they've try to blow up airplanes on UPS planes and things like that, what's really stopping anybody from putting a nuclear bomb on a boat? Right now, what kind of protections do they have out there in the marketplace where anybody can take any kind of boat, put a bomb on it and sail it up a river?

You are right on. Our seaports are vulnerable. It's not a secret. It is a problem that the government has. At one time, there was a program where they wanted to essentially scan, look at 100% of all the cargo coming in. The fact is we don't do that. It's closer to 5%. So it is a vulnerable spot. So the government needs to look at it. It's -- at one point, there was more new discretionary funding in Homeland Security, because most of it is a fixed bucket. You've got to pay the Coast Guard, TSA agent. There isn't much change in the budget. But for more discretionary dollars where they have ability to move them around from one area was going to seaport security than any other where in Homeland Security.

But what of the new Congress coming in? Have you had discussions with King? In this program, what would it really take for the government to really protect itself in this kind of manner? What kind of investment would they have to make?

To our knowledge, we're the first ones to put this on a buoy platform with a dirty bomb sensor. I do want to specifically thank Representative Peter King. Our offices are in his district. His office was helpful in us moving here. We have met with his staff before. We also want to thank Senator Schumer who came out and visited us as well. Both sides (inaudible) they've been very helpful to us. This is an area, Republican or Democrat, it doesn't matter which party you are with, Homeland Security matters. In the state of New York, it matters. It matters across the country. Every congressional person, Congressman Dicks that we've worked with, they've all been very, very helpful. They all understand the importance of it. I can't thank them enough for how much they've done this.

We're working on complex things. We are working with the federal government. There's a lot of agencies. It takes time, as we all know. I'm not going to give up on it; we keep pushing on it. That's why we have an office in Washington DC. That's why this new buoy is in the Washington DC area. That wasn't by accident. That's where the decisions are made. That's the right place to place this first buoy, so the decision-makers can go on a boat, go see it live themselves, and then those decision-makers are going to put them in their home districts.

Our last and final question comes from Gus Allen, GA Financial.

The second question I had -- there's an article in today's New York Times on happiness of air travelers. Within the article, there was a paragraph or so about a fella by the name of Giovanni -- I can't even read my writing -- who is Chief Executive of the International Air Transport association, who recommends greater focus on finding bad people than finding bombs or whatnot that are going to be placed on airplanes. Now, does this guy have any real power in getting his opinions paid attention to at Homeland Security, TSA, or whatnot?

I (technical difficulty) Giovanni's last name, but let me just tell you about our discussions with Homeland Security. They do realize the importance of checking the identity as well. In the past, it's not any secret, is other nations such as Israel spent a lot of energy on catching the bomber. The United States uses a lot of technology to catch the bomb.

The Times Square bomber was probably one of the best cases of that. Here's a guy; he is the bomber. He just set off a bomb in Times Square. He gets on airplane and there were other people on TV arguing that he didn't have a bomb. Yes, at that second. But he is the bomber. I still don't want that guy on a plane. We should have caught that guy. Our system could've caught him. So the right solution obviously is a blended solution. Technology -- the full body scanners to see if you're carrying a bomb, and also an identity scanner to see if you are a bomber or if you're on the [tide] list like that Christmas bomber was. The guy's father told the CIA "I think the guy my blow up a plane." What more is it going to take? That information should be used. It's responsible to use both. Obviously, we have got to do both.

Other companies like OSI Systems, they do a very good job building those full body scanners. The right approach is to use that plus ours. The Wall Street Journal said ours is a very affordable technology, particularly compared to those -- what is the cost of security? I think it is very worthwhile.

What Homeland Security is doing is just last week or maybe ten days ago issued a request for proposal for a program called Credentialing Authentication Technology to look at catching fake IDs and to matching the boarding passes. Homeland Security is making some steps forward, and we're working with them and other companies to get our technology in there. We've got to keep the pressure up; we've got to keep doing the right thing. Sometimes we have to help them get there. But we've got the right product, and -- someone was talking to me before the shareholders meeting. Underwear bombers and Times Square bombers aren't going away; they just aren't, and they will be there again. You've seen what it's done to the stock price. Unfortunately, sometimes it's an event like that than causes the next steps for security to change. We're going to keep being there, from the beginning all the way to the end, to help this process. That part is not going away, and we are going to keep our efforts up to help make America safer. We have a question here in the audience.

My name is [Phil Glickman]. I'm a private investor. I'm sitting here listening to your presentation. I'm not an analyst. I'm very impressed with what you've accomplished up to now. But the point I'm trying to figure out is with the stock selling at this price, there are a lot of small-cap money managers, fund managers (technical difficulty) new ideas (inaudible) companies. Have you made any effort to contact these people, invite them to come up here, and sell your company, (inaudible) sell the idea sell the idea of investing in your company to these people? I'm sure they're sitting on a lot of capital, and they're looking for a new Microsoft, a new Intel. Have you contacted anybody in reference to the (inaudible)?

Mr. Phil Glickman, who is a shareholder here in the audience, and he said that he is not an analyst, that he thought we've done a good job of growing the Company up to this point. The question he has is there's many small-cap managers, and have we pitched our company to those small-cap managers so that they would be interested?

One of the reasons I hired an investor relations group is so that we do meet with them. We had meetings as little towns as Yakima, Washington with 50 high net worth investors showing up to luncheons in New York City, to San Diego, to Los Angeles, to -- having meetings with lots of different advisors -- recently presented at the RAW financial conference call, Steve Williams presented at the Morgan Keegan financial conference. I think we've probably met with, since the last shareholders meeting, probably 20 to 25 investment firms, [whether] they be micro-cap, small-cap type. I think this is a very compelling story. Thank you for the comment.

Any other questions here? Operator, any questions on the line?

There are no questions by phone at this time.

I want to thank shareholders for attending. I welcome the opportunity to do that. We're going to try to do a few more of these investor presentations -- earnings conference calls online. I like meeting with shareholders. I want to thank the Board for being here so that you could meet with them. I want to thank the people who called. If you're an investor and you go to a conference call and you ask questions, you are a lot smarter than an investor who is the typical investor. I appreciate all you guys doing that. I'm very jazzed that we are a public company because we have the ability to show what we are doing. We have the ability to show the financials, to show the contracts, to show the people what are working on. We're very proud of it.

For the people here, we've got a couple more demonstrations. If you'd like to see one-on-one, like identity scanners, we have a replica of the buoy that we have in the Potomac. We have the ability to (inaudible) again, thank you all shareholders for being on the call. You are what drives this company. I appreciate it. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. We thank you all for your participation. Good day.