Intellicheck Inc (IDN) 2011 Q1 法說會逐字稿

Good afternoon and welcome to the Intelli-Check Mobilisa's first-quarter 2011 results. 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. Please go ahead, sir.

Good morning, and welcome everyone. Thank you for joining us today for our 2011 first quarter conference call to discuss Intelli-Check Mobilisa's results for the fiscal quarter ending March 31, 2011, and to discuss other business developments.

In a moment, I will call upon our Chairman, Dr. Nelson Ludlow, to lead today's call and introduce the members of the Intelli-Check Mobilisa management team who will be participating in today's conference call. Before I do that, I will take a few moments to read the forward-looking statement. Certain statements 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 current 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 issued this morning for further definition of and context for the use of this term.

I would now like to introduce Dr. Nelson Ludlow, Intelli-Check Mobilisa's Chairman of the Board.

Thanks, James. I appreciate this call as an opportunity to describe some of the strategic changes we've made to our Company and to answer shareholders' questions. First, the Board of Directors has changed somewhat. They've selected me as the new Chairman, replacing John Paxton. I will be a working, involved Chairman, but legally in a non-officer role. And as Chairman I'll be on this and future conference calls to answer any of the questions that shareholders may have. Let me add that John Paxton believes that we are a healthy, strong Company with a bright future and he left for personal reasons which are unrelated to our Company. I want to personally thank John for his service to Intelli-Check Board for these last 3 years, and to Mobilisa's Board for the 5 years prior to that. The entire Board of Directors and the Company will miss John Paxton's service to our Company.

Next, our Board of Directors unanimously selected Steve Williams as our new Chief Executive Officer. He' has been our long-standing Chief Operating Officer or our Number 2 position at Intelli-Check and Mobilisa for the past 5 years. He is a Ph.D. candidate at the University of Maryland. He'd intimately familiar with our products, with our customers, and is the clear and logical choice to carry us to the next level.

Now the last major point before I hand it over to Steve Williams is that we've made some strategic changes at the close of 2010. We did a hard review of the costs of the personnel and we made some very real changes to the Company, making us leaner without adversely affecting revenue. These changes that were made essentially all in Q1 have gained us $1.98 million, or essentially $2 million, in annualized savings. Now, you won't see much of these cost savings in Q1, but you will see them in Q2 and all of those cost savings should reflect by third quarter.

Now let me reemphasize that this is not affecting revenue growth. We've hired several business development key people or consultants or started some initiatives and all of those initiatives to grow revenue. Well, frankly, some of them worked out, and some of them didn't. So we cut the ones that didn't contribute to revenue.

Last year, for the fiscal 2010, total revenue was essentially flat. That was because the wireless revenue was down nearly 25%, which was the result of the Wireless Buoy funding being delayed or pushed to the right. We still think we're in a very strong position to win that funding. In fact, that RFP has not been issued yet and when it does we believe that we're in a very strong position to win that.

But the good news is, is the government identity work for fiscal year 2010 was up and the commercial identity revenue was up 18%, 19%. That accounted for nearly half of the Company's overall revenue. It's our fastest-growing business sector. That's primarily what our Company focus is on, and to me that's a good sign.

You'll see some other good signs on this conference call. For the first quarter of 2011 revenues continue to grow. We did not burn cash. We made real cuts in expenses, as you heard nearly $2 million in annualized expense cuts. We did this without letting any of our salespeople go and right now we have the biggest sales pipeline the Company has ever had. So, we'll be holding our Q2 conference call on August 3. We're going to be holding our annual shareholders' meeting in New York City on November 3.

At this time let me introduce our new CEO, Mr. Steve Williams, to lead our Q1 conference call.

Thank you, Nelson. I would like to take a moment on this call to thank the Board for their vote of confidence and trust they have placed me as the new CEO. This is a tremendous opportunity for both Nelson and I, and I look forward to the challenges of the new position. Our products, I believe, are the best in class and our people top notch. I'm excited for the changes taking place and look forward to continuing our market advancement.

Moving to our results. First quarter revenue, which is approximately $2.9 million, was up 7% compared to the first quarter of last year. Costs are down. Recent sales have been made under a new revenue model which will offer many benefits that I will discuss in greater detail in today's call.

First, I'll let Pete Mundy, our CFO, provide the quarter's financials. Pete?

Thank you, Steve. Good day, and I'd like to discuss some of the financial information that was contained in our press release for the first quarter ended March 31, which we put out earlier this morning.

Our complete quarterly report on Form 10-Q will be filed with the SEC this afternoon. Revenues for the first quarter ending March 31, 2011 increased 7% to $2.855 million, compared to $2.675 million for the previous year. Identity system revenues decreased 20%, to $1,501 million compared to $1.844 million last year. The decrease is principally a result of fewer defense ID installations at military bases and ports and lower engineering fees. Wireless R&D revenues increased 71%, to $1.354 million, from $791,000 in the prior year, principally as a result of the deployment of an additional Buoy as well as new senses that were added to the existing Buoys.

Total booked orders were approximately $1.3 million in the first quarter of 2011, compared to $1.1 million in 2010. As of March 31, 2011, our backlog was approximately $1.4 million, compared to $5.4 million at March 31, 2010. The majority of the Company's backlog is related to multi-year Wireless FAN Buoy R&D contract. The current backlog is expected to be realized over the next 12 months.

Gross profits. We still continue to maintain high gross profit margins. Our gross profit as a percentage of revenues was 61% for the 3 months ending March 31, 2011, compared with 65% for the 3 months ended March 31, 2010. The change is due to an increase in equipment purchases on the R&D wireless contracts.

Expenses. Operating expenses, which consist of selling, general administrative and research and development expenses, decreased 5%, to $2.441 million for 2011, from $2.562 million for the 3 months ending March 31, 2010. The decrease in the 2011 expenses can be principally attributed to lower legal fees and the elimination of contracted consulting fees. We continue to evaluate our cost structure, and during the first quarter we have made operating cost reductions, which are approximately $2 million on an annualized basis. We don't anticipate that these changes will impact our expected revenue growth.

Interest income for the period was negligible. The interest expense of $3,000 and $8,000 in the first quarters of 2011 and 2010 represent the interest and amortization on deferred debt discount on the notes payable to the former principals of Positive Access. We have not recorded a tax provision due to the net taxable losses in both periods, but we still have net operating loss carry-forwards of approximately $39.6 million.

Adjusted EBITDA for the quarter ending March 31, 2011, was negative $356,000, compared to negative $441,000 in the quarter ending March 31, 2010. Our net loss was $708,000, or $0.3 per diluted share, for the 3 months ended March 31, 2011, compared to a net loss of $820,000, or $0.3 per diluted share, for the 3 months ending March 31, 2010.

Now, I would like to discuss the Company's liquidity and capital resources as of March 31, 2011. The Company had cash and cash equivalents of $1.744 million, working capital of $691,000, total assets of $23.135 million, and stockholder's equity of $19.171 million. The Company did not utilize any bank financing during the first quarter of 2011, nor has it at any point in time in the last several years. The Company generated net cash of $241,000 in operating activities in the first quarter of 2011, compared to a net use of $604,000 in the same period last year. The increase in the 2011 period is primarily a result of strong collections in accounts receivable from year end.

Cash used by investing activities was $14,000 in the first quarter of 2011, compared to $67,000 in the same period last year, due to lower capital expenditures. Cash provided by financing activities was $28,000 for the period ending 2011, compared to $63,000 in the period ending last year -- in the same period last year. And that decrease is due to a result of lower proceeds from stock option exercises. We currently anticipate that our available cash and cash equivalents, as well as the expected cash from the 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 marketing expenditures, develop new applications for technology, enhance the operating infrastructure, respond to competitive pressures or to acquire complementary businesses or necessary technologies. As we've spoken before, we still have outstanding and effective universal shelf registration on 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 the future in one or more public offerings its common stock, preferred stock, warrants and units. The aggregate offering price of all securities sold by the Company will not exceed $25 million, and pursuant to SEC rules the Company may only sell up to one-third of the market cap held by non-affiliated shareholders in any 12-month period.

I'll now turn it back to Steve.

Thank you, Pete. We closed 2010 signing an enterprise license agreement with Alliance Data, a leading loyalty and marketing solutions provider, and began 2011 the same way. The new enterprise license agreement announced on February 15 was contracted with Radio Shack, a leader in wireless and mobile solutions with more than 6,500 locations worldwide. This agreement provides the retailer with Intelli-Check Mobilisa's patented and proven ID-Check software to be utilized in processing of mobile and wireless phone activations. This is delivered with velocity checking through a pay-per-swipe contract model.

In addition to an enterprise license with Intelli-Check Mobilisa, the software solution will help stream line the cell phone activation process for their customers, while also reducing fraudulent transactions. Radio Shack recognized the benefit of our software and we are excited to add them to our growing list of customers. Importantly, this also marks a new revenue model I alluded to earlier and also a new product, ID Risk Check. We announced the second contract for this product last week with FIS, a leading financial services corporation which permits incorporation into over 14,000 retailers' point-of-sale systems.

ID Risk Check was developed specifically to meet the needs of fraud and loss prevention in retail applications. Identity theft, credit card and check cashing fraud are on the increase. And recent studies have shown that identity theft alone is up 11% over 2009. With the increase in identity theft and fraud, retailers are paying particular attention to emerging technologies aimed at strengthening fraud prevention. We are on the cusp of this new frontier and ID Risk Check is aimed at combating these latest forms of fraud and identity theft. Intelli-Check Mobilisa will also become a licensed distributor and integrator for the product line of fraud risk management and velocity application tools. This extended product offering will be offered to all of our existing customers as well as provide a broader offering to attract new business.

As we move this Company to this new transactional model, products like ID Risk Check will show a stronger return on investment. By bundling our software with our partner's products we are able to offer our solutions to a wider customer audience, improving our bottom line while providing our partners increased benefits to meet their customer needs. Through this partnership, Intelli-Check Mobilisa will offer payment processing, fraud and risk management technology to businesses, which will consist of ID validation services, ID authentication services, risk and velocity control as well as other proprietary models that can assist with fraud protection.

Our Wireless Buoy security system was featured on San Diego's KFMB-TV on March 3, illustrating our Buoy's abilities to detect materials for dirty bombs in marine environments, including San Diego's waterways. Our smart buoys are essentially floating bomb detectors that can alert the US Coast Guard about potential dirty bombs hidden in boats in the water.

We are issued a US patent. The patent strengthens and expands IDN's commanding exclusive lead in technology related to the authentication of driver's licenses. IDN's exclusive technology began with its first patent issued in 1999. The new patent reinforces IDN's innovation in technology and variety of uses it provides. The patent allows for verifying and authenticating the encoded information on driver's licenses of all 50 states and other North American driver's licenses, and allows the information to be electronically transferred in a secure environment to a local or remote jurisdiction for any verification, organ donor or criminal activity checks critical in fighting both crime and terrorism.

Intelli-Check Mobilisa's patent portfolio now contains 9 US patents, 2 Canadian patents and 1 European patent. Each focus on the technologies behind driver's license scanning and authentication. The Company's proprietary technology is utilized in its mobile devices that are capable of reading bar codes, magnetic stripes, RFID and OCR codes printed on current forms of ID cards. This latest patent issuance reinforces our position as a leader in ID reading technology. Our patent portfolio is a key value driver for the Company and this latest patent solidifies our position as a forerunner in ID scanning and authentication.

We also have the world's largest ID document library. We are at over 80 federal installation and military bases with our government ID access control system. We sell instant credit card approval from scanning a driver's license at retailers. We sell hotel quick checks in the form of a driver's license. We are selling a bank product to automate new account openings from a driver's license. We sell age-verification products. And we also sell a quick reader that's currently at the Port of New York/New Jersey, purchased to protect that port.

Our primary focus in driving shareholder value is through sales. We have a formidable pedigree of clientele working with Army, Navy, Marines, Air Force and many tier-one retailers. These are some of the best early adopters you could possibly have as clients, and the best part, from a shareholder's perspective, of being in that early adopter phase is that the growth opportunity lies ahead of us.

While we cut general, administrative and operational expenses, which will positively impact the bottom line in coming quarters, the only spending increase we made was in our sales force. And we will continue to invest in the selling of our products into the hands of bankers, retailers, hotels and security officials that you come into contact every day to ensure your transactions are performed accurately, safely and quickly.

In 2011 the rule is still that you're handed a pen to complete a form at the point of sale for a membership, credit or rewards card. That is a tremendous opportunity for IDN to grow and our salespeople are out there developing our biggest pipeline to date. What's more important, we introduced for the first time on this call is the increasing focus on identity theft at the point of sale that our new ID Risk Check product is combating. Our commercial identity products are our fastest-growing segment and I'm very optimistic for our future.

At this time I would like to open up the call up for questions and answers. For the benefit of our listeners, please state your name and organization and your comment or question.

Thank you.

(Operator Instructions)

Our first question comes from [John Benall] with JCB Partners. Please state your question.

Good afternoon, Nelson. I was hoping you would expand a little bit on one of the most troubling things I saw in the last quarter. That was the Officer's selling stock. Why you could not have just extended those options a little bit longer, rather than sell right on the -- basically on the low for no money. And especially disturbing I think when all of us saw Mr. Paxton sell his stock rather than just have a vote of confidence and keep it. And I think this really needs to be addressed.

Okay. Hi, John.

Hey, Nelson.

I will be glad to answer that. Steve sold some but I think you'll look he did it to leverage up. He has well over 400,000 shares, so he's invested in this. And I think we all understood why that was happening.

Your second question extending the options. We did look at that, but here's the problem with it. These Call Writes turned out to be very problematic in the sense that when they were due there was some activity around them. People were selling or whatever to purchase them. If we extended them even longer, all we would have had is this problem would have even drug out even further. Most of the shareholders I spoke to, although they didn't like the situation, this luckily is all behind us now. This is not an issue. If I had to do it over again, we would -- remember, these were options for Mobilisa days prior to a merger that we announced in 2007 and some of these options were granted in '05 and '06. So, this is something, frankly, I didn't want to drag out any further. I'm glad it's over with. We can move that behind us and look forward.

Regarding Mr. Paxton, I know the adage is, if you see somebody on the Board selling their stock they must think this Company is going under. And I understand that. I think you'll see that I haven't sold any shares. I believe in this Company and John Paxton believes in this Company, too. I know the Press Release says for personal reason and all of us on this call are wise enough to know that sometimes that might be code for something else. In this case it's not. It truly is personal reasons. He does believe in our Company. He's also on the Board of FRPT, and if you noticed he also sold shares he had in FRPT. I think on the exact same day, if not within days of when he sold our shares. John's helped us. He's not on the Board going forward, but he's helped us in the Company. I wish he hadn't sold his shares. But he did it for personal reasons. He does believe in our Company.

Okay, well that's fine. The other thing. I guess what you are saying is, as of right now you don't foresee anyone, Officers or Directors, selling any stock as of right now?

Well, Directors and Officers -- I can't control exactly what they do, but the Call Writes expired March 14. The last Call Write that was exercised was on March 9 by John Paxton. So those are all completed or expired or -- anyway, done. And we -- I can't say with definitive but I can tell what we believe in this Company and we're invested into this. I've got a lot of shares in this game, too, and I want to grow this investment.

Okay, thanks and good luck going forward.

Thank you, John.

Our next question comes from Gus Allen with JF Financial. Please state your question.

Good afternoon, gentlemen. I'm very interested in the Risk Check product and I'm trying to get a handle on it in my own mind as to how big of a product this can be?

Okay. This is Steve. Thanks for the question. We're very excited about the product as well. This has been a long time coming. We've been working to get this partnership in place for a while. Let me try to scope the requirement for you.

We will do an enterprise solution like in a Radio Shack base. Radio Shack bought an enterprise license. And what we've said before is, enterprise licenses ranges, depending on the number of seats, from a half to three-quarters of a million dollars, with a 20% recurring revenue tail associated with that. That's always been our space, and that's, frankly, where we added salespeople initially to capture business. We looked at how do we increase recurring revenue model in existing clients and broaden our portfolio of offerings to the tier one retailers. Those are the companies that represent more than $1 billion a year in revenue.

So, we came up with the ID Risk Check. Basically, it's a rules-based solution. It uses algorithms with us and our partner. And it's transactional. Let me give you an idea on transactions. Radio Shack, for instance, currently -- everybody takes a check. Radio Shack currently uses the same system to do eight million scans a month. So, roughly, we get several pennies on the dollar on every scan and you can do the math. To scope it out. Radio Shack has 5,500 stores. We now going into all the other retailers. We most recently signed a -- actually, FIS signed up one of the major grocery chains. So it's a significant opportunity with little effort on our part because we've already built the integration. All we literally need to do is get it to the market and show it to the customers. And we just started the pilot with Radio Shack, as I mentioned.

That's interesting. Next question, Nelson. You had mentioned in the year-end conference call the potential for developing a cloud computing system for Intellicheck Mobilisa. Where do you stand on that?

The cloud computing system is something that we did develop at the end of the year. And in Q1it's worked well. What you're going to see is this -- integrating that into our new products. And the first step is to build the technology, and here's why this technology is such a good thing. Instead of having to touch each customer and give them an update -- Colorado changes their drivers license, so we have to either give them a website or mail them a CD or some cases get on the phone and help them upgrade their software. Now, they go through a cloud computing situation. We can update it on our servers and they always have the latest version.

Second advantage is fraud. Sometimes there's different license key systems, sometimes people use old software. Sometimes they don't get the updates. Sometimes there's some people trying to illegally use our software. This significantly cuts down on that. They have to have a valid access and if someone didn't pay, although that has not been a problem for us, our customers have paid us, we would be able to cut them off. And they wouldn't be able to still be able to continue to use the product.

And the third thing is, it gives us much more statistics of what our customers are doing and how we can build them better products. How we can give them what they need. And so we'll have more insight into what is going on. There's some customers that we believe, rather than having to make a hardware purchase, they may actually able to go straight to a cloud computing. And so, literally, some of the retailers that liked our product but didn't want to buy $4 million or $5 million worth of bar code scanners as an upgrade, now may not need to do that and go directly with it. So expect to see this start to roll out through our products this coming year.

Very interesting and I thank you.

Thank you, Gus.

Our next question comes from [Ernest Caponegro]. Please state your question.

Good afternoon, gentlemen. I have a couple of questions, so please give me a little time here. Can you talk about the current state of affairs with the federal government as far as your initiatives in that respect, and are you seeing any problems with the government cutting back on any of its programs? And, secondly, I would like to address your recurring revenue. Can you answer that first question?

Absolutely. This is Steve, Ernie. Thanks for the question. We haven't really been impacted. In fact, we actually feel like we're turning the corner now, because with the budget passing and the funding starting to flow we really didn't see a turn -- because timing for us is September, because that's the fiscal year for the federal government. We're actually starting to see a turn for the positive. I'm actually on the west coast today because I flew out here to meet with some clients for our Buoy system. We're seeing an uptick, not a downtick, in federal government spending.

That brings in the second question out of three. As far as the Buoy program goes, if you do get the secured funding for this first phase, potentially, how big do you see this opportunity? Can you see this thing literally creating a barrier around the country on all ports out on the water?

Thanks again for that question. I'll leave the speculation to the investors but I'll tell you what we know. I know that we took this product from research and development are moving to commercialization. You'll hear me say that ,whether you meet with me in New York one-on-one or on this call. We're taking that product commercial. So we have half a dozen here in the Puget Sound. One in the Potomac river. Today, in fact, we're at the Maritime Security Trade Show in Baltimore showing off the buoy. And I can tell you, just like ID Risk Check, I'm as excited about the buoy system or going aegeus. People are getting very excited and it's for a couple of reasons. One, it is something people haven't thought about. It provides both a security feature as well as environmental monitoring capability that didn't exist previously. I don't want to speculate, but I can tell you that we are seeing significant interest and we hope to start commercializing production of the buoy system.

As far as retail goes, what would you say the total amount of retail installations are using our facility as far as point of sale reference points or cash registers? Is that number in excess of 10,000 right now?

Points of sale, absolutely. I'll give you an example. The contract with AT&T is for 15,000 points of sale. That's a single retailer. As far as licenses go, it's into the thousands.

So if we have, let's say, currently we have 20,000 installations or 20,000 points of sale because we don't to have an installation and what would you say is the average usage on a daily basis from one point of sale? Is it possible they could use it three or four times a day? Would that be light?

I would think the number is way higher than that. I used the Radio Shack example just to give you a sense. Think about the last time you wrote a check. The fact that -- I was surprised that Radio Shack is still processing through the same system 8,000 checks a month.

Well, then, if that's the case, if we have -- if we catch to the point where we have 30,000 points of installation or 30,000 facilities using this and we use it an average of three times a day, you're talking about on an annualized basis with your penny risk or two or three cents, you're talking about $3 million to $6 million of potential revenues just using it three times a day at 30,000 installations. Is that a fair assumption?

It is a fair assumption.

And could that be something that could be -- once you start to really roll this out could be on the very, very light side?

You understand why we're excited.

Is it potentially possible that we could have this in over 100,000 actual points of sale? Is that too optimistic?

No, I don't think -- I mean I don't want to get too far out in front of the curve.

But if we have a technology that does what you say it does, we're using it at every retail establishment that takes a credit card or check or every airport -- I mean any facility takes a credit card or a check or any kind of identification and they need to scan something and you're getting a penny or two, the number could be quite substantial.

Well, Ernie, this is Nelson. That's why we're excited about this, because this Radio Shack deal that we announced back in February. This is new for us. This is a different business model than what we've done in the past. We've done enterprise models, and then we get about 20% recurring revenue updates every year for the new drivers licenses.

Are you saying that the cloud is really making this happen more than it could have five years ago?

The cloud's definitely helping us, but -- and we shifted to this new business model that completely fits in with cloud computing. And so this is opening up a new approach for us --.

So the technology, even though we had it four or five years ago, really wasn't at that phase where we could make it economically feasible for the end user to use it.

Well we just didn't deploy it. We didn't have the right business -- go-to-market strategy.

So in this case, this isn't just an idea. Not only do we have the idea and the technology, we have a paying customer, Radio Shack, that just signed us up with this. Let's see how this one works out, and if it works out like we think it is, I think we're all in agreement we'll adapt this and use this as a new business model for our other customers.

How long do you think it will take before you can get a good indication of whether it's working?

I think we have indications already it's working. It's just like all of our other -- we're very conservative when we go to market with a product, but once we go to market we've pretty much proven it before we go to market. I think this product will sell very well.

Thanks a lot, gentlemen.

Thank you, Ernie.

Thank you, our next question comes from Richard Goldstein with Anderson Strudwick. Please state your question.

Good morning, gentlemen. Most of the questions were answered from the previous question, but going back to one clarification on the backlog. The backlog year-over-year went from $5 million down to $1.5 million. Just to make sure I understand, was this related to some of the revenue that was booked last year and the government transition or some other specific development that reduced that number?

Thanks, Rich, for the question. The answer is that backlog is basically associated with our wireless projects. Our wireless projects are funded for multi-years. So like Nelson mentioned earlier, we're gearing up for a new procurement. Should we win that it's going to be millions of dollars. You'll see the opposite in the coming quarters if we're successful you'll see backlog jump back up because it's government contracts that take over a year or two to burn the backlog.

Well, we focus on our inefficiencies on backlog is that simply that something that can capture the revenue now and burn off inventory. This backlog as you're seeing a reduction is simply the burning down if you will of a time and materials contract that takes a year to a year and a half to burn down backlog. So, if we're successful you'll see backlog come back up on the next procurement.

Great. And one follow-up from the previous gentleman. I think we're all looking for an understanding of how your Company and our Company today will grow revenue and I think for the first time I've heard a clear path with these new initiatives. I would only suggest strongly that you provide us as much communication and feedback, more hopefully than quarter to quarter which I think will allow the market and allow us to understand better your achievement here of this potential opportunity. So I welcome that feedback.

Thank you, Richard. I appreciate your comment and I will do my best to make sure I'm communicating everything I can with you all.

Thank you.

Just a reminder, if you would like to ask a question press star one on your telephone keypad. Our next question comes from (inaudible). Please state your question.

Good afternoon. The question I got, I'm looking at your consolidated statements and the current revenue and current -- so basically your quick ratio I am looking at that to be kind of -- is that an area of concern? Are we having trouble generating cash?

This is Pete Mundy. Maybe I can answer that question. What normally happens on our balance sheet is that the end of the year, our fourth quarter, ends up being a rather large and substantial quarter for us. So you build up your receivables. And then we have some seasonal business that has been traditionally found in the Company and the industry. The first quarter being one of the low quarters.

What happens is you end up collecting on your accounts receivable and then you don't replenish them to the same extent to the first quarter of the year. We anticipate as the Company continues to show increased revenues through second and third quarters that you'll start to see that quick ratio be building up. The receivables will start to increase. And that we do anticipate that going into the second quarter, likely hood is you're going to see some dips in the cash going down but because of cost reductions that we've made, we think that even if we had no growth for the year the Company's going to generate some positive EBITDA. And that if we anticipate growing to the extent that we do, we're going to see positive EBITDA of substantial amounts as well as positive net income.

So I think what you're seeing here is primarily a first quarter number that is consistent with what we've done in the past being the lowest quarter of the year.

Okay. I appreciate that Mr. Mundy. And if I can, one follow-up question. Even with that said, is the Company still continuing to invest in research and development at sustained levels, or are we still increasing or taking that into account with reducing costs?

Well, I think we've shown that during the quarter, or at least you'll find that out when we issue our 10-Q, is that the Company's R&D expenses were approximately the same as what they were in the prior year. And as Steve and Nelson both mentioned, most of our expenses that we've reduced or made cost reductions are primarily related to our G&A and some of our business development areas.

I don't think you're going to see a reduction in R&D expenses, although a good portion of our R&D expenses are related to the Wireless Buoy contract that we have. So, if we get additional R&D contracts in you might see that even expanding.

All right, I thank you very much sir. Sorry about the question but I just -- thank you for clarifying.

Thank you very much. We appreciate those questions.

Please ask any questions you want.

The next question comes from [David Rich]. Please state your question.

Hi, there. In can you hear me?

We can.

Great. I had to get off the phone call for a while. I heard in the beginning of this whole conversation that you're going to save $2 million over the course of the next year. Now maybe you've already covered some of this. I just heard Peter talk a little bit. Where are we saving? I would love to hear a few of the places.

Dave, this is Nelson. Let me just be technically correct, it's $2 million -- $1.98 million annualized, of which the cuts were made in Q1. So other than for the calendar year 2011 let's say there be from Q2 forward if that makes sense. About 3% of those cuts is shown up in Q1. You're going to see most of it in Q2, and essentially all of it by Q3. We hired some senior business development people. We tried some business development initiatives. And we've made some changes.

That's a lot of money, Nelson, so I hope you did it. And that can make a huge difference to the bottom line and getting our share price up from the bottoms of despair.

It truly is a real and strategic shift for our Company. Last year what we tried to do is we hired several people. We tried several new initiatives and we pushed hard to try to grow that top line. Wireless was down. Primarily because of that delay in the contract. Although the rest of our revenue was up, in government in particular, in commercial about 18%, 19%. That's a good sign but there were areas that didn't work out. And so we said, you know what, we've got to improve the bottom line. And so Steve and I made some very serious and real cuts in Q1. And so we are a different Company. So we're leaner. But I'm going to emphasize those cuts should not effect our revenue.

Okay, I can't ask for anything better than that. That's great, Nelson. When I hear that kind of money being saved, I start to think maybe we can get a little raise in our stock price, which sure has suffered. And also because of the terrible sales the boys had to do. But, anyway, good luck that I can't wait to see what comes out in Q2.

Thank you, Dave.

Our next question comes from Ernest Caponegro. Please go ahead and ask your question.

Yes, Nelson and Steve, on a follow-up since you're discussing that aspect. With these $2 million annualized cuts coming in, is there a number out there that we could be looking at to say when you hit this type of number we can be profitable?

Well I believe we calculated if we had a -- which we won't -- if we had a flat year in revenue, instead of having the EBITDA lost, which last year was the first time we ever did, and got to remember we had some one-time off costs last year, such as a lawsuit. But we should be -- Pete, what was the number we were at --?

I'm sorry, Nelson, I don't think we're giving projections on EBITDA but --

Not EBITDA just a general --

Not a production. Just--

Something that we can look forward to.

We're going to be over $1 million up in EBITDA if we're flat, and we're not going to be. So, yes, these are serious cuts.

All right, so with all of the cuts and everything effective, if you can improve your revenues in the area of 20% to 25% annualized would that make us profitable?

Yes.

Yes, I think what Nelson said was, if revenues remain flat we'll be profitable.

It just made EBITDA positive, and when you take the non-cash expenses, somewhat up from that.

So we x'd all that stuff out, the one-time items, and if we look at any of the stuff starting to really hit, we're operating on six cylinders, not even eight, if we have a 25% increase in revenue we should be more than on our way to being profitable for the year.

That's why I'm very jazzed to be a shareholder.

All right, thanks very much.

Thanks Ernie.

Our next question comes from Richard Goldstein with Anderson Strudwick. Please state your question.

Just a follow-up on -- Nelson is there any updates, or Steve, on your reader for the airports that you were driving hard this last year? Any progress report?

There is. They had canceled the procurement, they have now reissued the procurement. So we can't go too deep into what our strategy is, but it's out there now. But you've seen and many have seen the TSA with this procurement coming to the street many times. I wouldn't predict where that's going to end up. But, we're obviously pursuing other avenues to secure airports.

Richard, this is Nelson. Let me just add something to what Steve said earlier on the call, and I'll echo it. Is that we did not have a defense budget. We didn't have any budget up until recently when Congress passed that one. That's helped us. New initiatives are often blocked when you're on a continuing resolution. So it just means, just do business the way you were. And so here's the country's shifted in probably one of the latest almost shutdown the government situations that they've had since about 1995. And that effects government contracts. It certainly affects new work. So now that that's been resolved we've seen a lot more customer calls and a lot more interest in quotes and asking for purchases for new equipment. So, that's shifting.

The other, as I've received a couple of e-mail questions about this Osama Bin Laden situation, how is that going to -- well mayor -- Rudy Giuliani was on television the other night and he said, you know in the long run we're going to be safer because this was a bad guy and we're all glad that they caught him. But we need to be vigilant over the next period of time and in the short run it may be less safe. There maybe retaliation. There maybe attacks. And we have seen military bases, other groups, being very vigilant and stepping up security and some of them have contacted us about new equipments and quotes, and even in other areas that don't have any equipment. So, I see both of them as generally a positive sign.

Very helpful. Thank you, Nelson.

Thanks, Richard.

Our next question comes from [Gerald Bruninni]. Please state your question.

First of all, congratulations on your new model on the retail side. But on the Radio Shack scenario, I thought I heard two different numbers on point of sale. Originally I thought I heard eight million transactions a month. Then I thought I heard eight thousand transactions a month.

Sorry about that, Joe if I misspoke. The number is eight million check transactions currently per month.

At all of the Radio Shacks.

Correct. 5,500 stores.

The second time it was eight thousand, am I correct?

Because that totally changed my model.

It's eight million, is the current number.

I understand we cannot predict the future, but just me speaking as a stockholder, eight million times $0.02 times 12 months is $1.9 million-plus.

Correct.

Okay. So it's $0.02 per transaction?

No. I didn't acknowledge the terms and conditions of that, but your math is correct was my point. You can understand why we're very excited. But I will tell you that the number is much higher than $0.02 per transaction.

We can't get into exactly what the price per slice is going to be because we want to do this same model for a bunch of other people. But obviously as investors you're tracking on the model. This is a new model for us, it's a win for them. They have high fraud. Radio Shack sells a lot of cell phones. They sell toys and batteries and a lot of other stuff, but their number one sale is cell phones. And cell phones have fraud. And if they for a few pennies on a dollar can do a check, and make sure that that credit card or that check that's written and that ID that's shown is not fake and is legitimate that's worth it to them. It's a win to them. It's a win to us. And if it goes like we think it is, we'd like to replicate this model.

I congratulate you on that. I think it's a unique market and a great potential because the fraud market, based on the economy has increased. So congratulations.

Thanks, Joe.

Our next question comes from David Rich. Please state your question.

Just a quick question back, and you may have addressed this -- I've had to dive in and off of this call.

We're the most important calls there is. Why --?

A couple of people called me and said, I see a new company out there called MaxID. Looks like they do what we do.

What's going on? Can you give me a quick answer on that?

Yes. Rather than focus on the single vendor -- we know that company very well. They've produced hardware. They recently moved into software. We've partnered with them in the past and they're just like all of the other guys that make hardware and move somewhere into software space or use a software vendor. We partner with them. I had lunch with the president of that company about two week ago. They're just a partner. I don't see them as a competitor and frankly know their business model extremely well and we'll continue to look for partners that make sense.

They work in the TWIC card reader. We have patents on reading drivers licenses. So, in some ways, we're really in different areas in.

If you look at the port handbook for all of the ports about two years ago, you will see Intellicheck Mobilisa's logo in their advertisement.

Thanks very much.

You're welcome.

Thank you, ladies and gentlemen. There are no further questions at this time.

I'll turn the conference back over to management for closing remarks.

Thank you, everyone, for attending this conference call. We look forward to the next one, as well as the shareholders' meeting in New York. So thank you and all the best to you.

Thank you. This concludes today's conference. All parties may now disconnect. Have a great day.