Intellicheck Inc (IDN) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Intellicheck Mobilisa second-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, Adam Holdsworth, Investor Relations for Intellicheck Mobilisa. Thank you. You may begin.

Good morning, and welcome, everyone. Thank you for joining us today for our 2011 second-quarter conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ended June 30, 2011, and to discuss other business developments. In a moment, I will call upon our Chief Executive Officer, Steve Williams, to lead today's call and introduce the 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 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, encouraged, and similar expressions as they relate to the Company or its management, as well as the 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 date that changes, new information, subsequent events or otherwise.

Additional information concerning forward-looking statements is contained under the heading of Risks and 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 Steve Williams, Intellicheck Mobilisa's Chief Executive Officer. Steve Williams?

Thanks, Adam. And thank you all, our shareholders and investment professionals, for joining the call today. Let me start by introducing members of our team on the call. First, Dr. Nelson Ludlow, Chairman of our Board; Miss Bonnie Ludlow, Director; Admiral Mike Malone, Director; Mr. Guy Smith, Director; and Pete Mundy, our CFO. Let's begin with the results. We are profitable for the first time in several years. We are profitable.

The second-quarter revenue is approximately $3.2 million, up 5% compared to the second quarter of last year. 6-month revenue is approximately $6 million, an increase of 6%, compared to the first 6 months of last year. Let me also introduce our CTO, Russ Embry, on the call today. I'll let Peter Mundy, our CFO, provide the details of this quarter's financials. Peter?

Thank you, Steve. Good day. I'd like to discuss some of the financial information that was contained in our press release for the second quarter and 6 months ending June 30, 2011, which we put out this morning.

We anticipate that our complete quarterly report on Form 10-Q will be filed with the SEC this afternoon, depending upon the receipt of our final XBRL version of the financials. For the second quarter, revenues for the second quarter ended June 30, 2011, increased 5% to $3,165,000 compared to $3,003,000 for the previous year. Identity system revenues increased 19% to $2,535,000, compared to $2,127,000 last year. The increase was principally the result of a large access control sale to a systems integrator. We did not sell any enterprise software licenses in either of the periods presented.

Wireless R&D revenues decreased 28% to $630,000 from $876,000 as we came to the end of our current funding under the FAN buoy contract as of the end of the second quarter. We've submitted a bid for the continuation of this R&D contract and we're awaiting the results of the bidding process. We have high expectations that the contract will be awarded to the Company. Total booked orders were approximately $2.2 million in the second quarter of 2011 compared to $2 million in 2010, a 10% increase. As of June 30, 2011, our backlog was approximately $800,000 compared to $4.9 million as of June 30, 2010. However, it's important to realize that the majority of the Company's 2010 backlog was related to the wireless FAN buoy R&D contract, which was invoiced over the last 12 months.

We still continue to maintain high gross profit margins. Our gross profit as a percentage of revenues increased to 67.9% for the 3 months ending June 30, 2011, compared to 66.6% for the 3 months ending June 30, 2010. The change is due to our change in product mix. Operating expenses, which consist of selling, general and administrative and research and development expenses decreased 22% to $2,021,000 for the 3 months ending June 30, 2011, from $2,595,000 for the 3 months ending June 30, 2010.

As we mentioned in our last conference call, at the end of the first quarter, we made certain operating cost reductions, which totaled approximately $2 million on an annualized basis. We began to see the impact of these reductions in our reported results in the second quarter. A decrease in 2011 expenses include lower legal fees, a reduction in consulting fees, and an overall staff reduction. In addition, during the second quarter of 2011, we recognized the reversal of $104,000 of previously booked non-cash compensation expense from contingent options.

We do not anticipate that these operating cost reductions will impact our expected revenue growth. Interest income was negligible during the periods. The interest expense of $3,000 and $8,000 in the second quarters of 2011 and 2010 represent the interest and amortization of deferred debt discount on the notes payable to the former principals of positive access. We have not recorded a tax provision due to the expected utilization of net operating loss carryforwards, and we still have net operating loss carryforwards of approximately $39 million.

Adjusted EBITDA for the quarter ended June 30, 2011, was positive $337,000, compared to negative $197,000 in the quarter ending June 30, 2010. As a result of the items explained above, I'm happy to report that we have net income of $125,000 rounded to $0.00 per diluted shares for the 3 months ended June 30, 2011, compared to a net loss of $602,000 or negative $0.02 per diluted share for the 3 months ended June 30, 2010. For the 6-month period ended June 30, 2011, revenues increased by 6% to $6,021,000 from $5,678,000 for the 6 months ending June 30, 2010. Identity systems increased 1% to $4,037,000 compared to $4,010,000 last year. Wireless revenues increased 19% to $1,984,000 from $1,668,000, principally as a result of the deployment of an additional buoy as well as new sensors that were added to the existing buoys in the first quarter of 2011.

Our recurring revenue stream remains strong and represents a 25% of the total revenues in 2011 and 26% in 2010. For the first 6 months of 2011, booked orders were $3.5 million compared to $3.1 million in the same period of 2010. For the 6-month period, our gross profit percentage was 64.5% in 2011, and 66% in 2010. Total operating expenses decreased 13% to $4,462,000 in 2011, compared to $5,157,000 in 2010. In the first 6 months of 2011, our adjusted EBITDA was negative $19,000 compared to negative $611,000 in the first 6 months of 2010. And our net loss was $583,000 or negative $0.02 per share in 2011 compared to a net loss of $1,422,000 or $0.05 negative per share in 2010.

Going to the balance sheet, I'd like to focus on the Company's liquidity and capital resources. As of June 30, 2011, the Company had cash and cash equivalents of $1,475,000. Working capital, defined as current assets minus current liabilities, of $887,000, total assets of $22,883,000, and stockholders' equity of $19,227,000. During the first 6 months of 2011, the Company decreased its use of net cash to $14,000 from $731,000 use of cash in the first 6 months of 2010.

Cash used in operating activities was $13,000 in 2011, compared to $743,000 in 2010, and that decrease is primarily driven by a lower net loss. We used cash of $33,000 in investing activities in 2011, compared to $136,000 in 2010, due to lower capital expenditures. Cash provided by financing activities was $32,000 in 2011, compared to $148,000 in 2010, due to lower proceeds from the exercise of stock options in 2011.

In accordance with the merger agreement on August 31, 2011, we'll be making our final scheduled payment of $200,000 to former positive access principals as part of the original purchase price. We currently anticipate that our available cash and cash equivalents, as well as the expected cash from operations, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However, as mentioned previously, we always keep the option open to raise additional funds to respond to business contingencies. There can be no assurance that the Company will be able to secure these additional funds when needed or obtain on such terms satisfactory to the Company, if at all.

We currently have effective a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission. Under the 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 initial 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 stockholders in any 12 month period. I'll now turn it back over to Steve.

Thanks, Peter. In Q2, we were issued another US patent. The patent strengthens and expands IDN's commanding and 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 and its technology and variety of uses it provides. Intellicheck Mobilisa's patent portfolio now contains 9 US patents, 2 Canadian patents, and 1 European patent, each focused on the technologies behind driver's license scanning and authentication.

We announced the second contract for our ID Risk Check product with FIS, a leading financial services corporation which permits incorporations for over 14,000 retailers point-of-sale systems. Under the terms of the agreement, Intellicheck Mobilisa's patented ID check driver's license scanning technology is incorporated and distributed as an integral component of ID Risk Check. The product will be available to all divisions of the financial services corporation for use and sale in their numerous financial risk management applications.

Intellicheck Mobilisa also became 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 existing customers as well as provide a broader product offering to attract new business. Through this partnership, Intellicheck Mobilisa will offer payment processing and fraud/risk management technology to businesses, which will consist of ID validation services, ID authentication services, risks, and Velocity controls as well as other proprietary analytical models that will assist with fraud detection.

As we move the Company to this new transactional model, products like ID Risk Check will show a strong return on investment. By bundling our software with our partners' 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 customers' needs. We now have 4 more clients who have signed up for ID Risk Check. In addition to the 2 previously announced, those contracts were closed by partners or IDN, which augment our in-house sales force. IDN will be recognizing recurring revenue on the software.

We signed a new partnership with Workspeed. Workspeed is the leader in building management and security systems. With a wide range of products offered over 2,000 buildings they manage throughout the US. This partnership will [forward Workspeed] with increased security and improved ease-of-use, while providing us with increased revenue from a market we have not previously entered. This is a great opportunity for both our companies. Since 9/11, there has been an increased focus at office buildings on security and access control. In a low-tech, inefficient way, IDs used to be taken and keyed into a computer, or simply written down on the visitor log. This is slow, error prone, and fails to authenticate the ID.

The exact product solutions to this problem, which are providing the Workspeed's buildings, is something we refer internally as a toaster. While it's a fraction of the size of an actual toaster and instead of a heated coil, you have scanning equipment. The [process] idea is the same -- a driver's license goes into the device, the magnetic stripe or bar code is read and authenticated, and then handed back to the visitor. A building credential or name tag prints to indicate access is granted to the credential holder, if the scan passes 2 tests. In order for the credential -- excuse me, in order for the credential to print, one, the ID must pass our patented authentication process and, two, the visitor must have been placed on an approved guest list for that day by a building occupant. This is a nice revenue for IDN and also puts our product in buildings across the United States. It increases brand awareness and general awareness as to the efficiency and possibility of the IDN scanning.

In Q2, we also announced the sale of our identity systems product, valued at approximately $800,000, to a system integrator for access control equipment and services. This contract is a significant step for our identity systems group. A contract of this magnitude is key to continued growth of our identity systems group, especially with regard to access control systems.

Mr. Mike Malone, Vice Admiral, United States Navy, Retired, was appointed to our Board of Directors, effective July 1. As a point of background, from November 2004 to February 2011, Admiral Malone was the President of Skarven Enterprises, a designer and developer of analytical approaches and technology applications, specializing in real-time/streaming data fusion and analysis for a variety of applications in government, financial services, auditing, and industry competitive intelligence. During his time at Skarven Enterprises, he led the company through a significant period of reorganization and growth, dramatically improving the company's research and development efforts, production and field support capabilities, while dramatically cutting costs and increasing revenue five-fold. As a result of his efforts, Skarven Enterprises was acquired by the Boeing Company in December 2008.

Admiral Malone remained President of the company, as part of the acquisition agreement, until February 2011. Since leaving the military, Admiral Malone also served as a technical advisor and consultant to Pequot Capital, a venture capital firm, and Environmental Tectonics Corporation, a high-technology simulation and manufacturing company. Mr. Malone has immense insight in the military and financial spheres, as well as complexities of security technology. We expect to take advantage of his professional acumen and experience as we work to accelerate the introduction of our technology nationwide.

Right after we closed Q2 on July 1, the Massachusetts Port Authority, Massport, began an official pilot test using our IM2700 TWIC devices. Massport owns and operates Boston Logan International Airport, 2 other airports, and the public container and cruise terminals in the port of Boston. Pilot testing of Intellicheck Mobilisa's TWIC device has begun at Massport's Conley Container Terminal. The pilot will evaluate the device's portability, reliability, and how it withstands day-to-day use. As many of you know, the Transportation Worker Identity Credential, or TWIC Program, is a Transportation Security Administration and US Coast Guard initiative to provide tamper-resistant biometric identification cards to port facility workers.

TWIC cards have become a mandatory requirement for access to all US ports as of April 15, 2009. The Intellicheck Mobilisa TWIC reader handheld device is used to validate TWIC credentials. The Company believes such a universal reader will ultimately be needed at each of the more than 175 seaports in the United States. Readers are still not mandated by law to be purchased by seaports.

However, if the seaport chooses to purchase a reader on its own, there are regulations that are being finalized that govern what readers are acceptable at ports. The final rule or the law is expected in 2012 and will define what a reader has to be or sustain or what it must process. So, all ports that have pilot tested our product to date, we consider on the early adopter side. We expect that when the final rule comes out next year, there will be increased interest at that time.

IDN continues to receive awards for its growth. Once again, we rank among the fastest-growing public companies in Washington State. According to a report published by the Puget Sound Business Journal, this marks the sixth consecutive year the Company has made this prestigious list. Ranking 19th overall, Intellicheck Mobilisa's growth exceeded other well-known Washington State companies such as Microsoft, Starbucks, and Alaska Airlines. This was a welcome announcement for the Company, as it confirms what we have been working towards the past year. Every single person in the Company has contributed to our growth, and we are proud of this accomplishment. It's a true testament to the commitment we all have in seeing the Company continue to succeed and grow.

Investors should know that, at any time, we always have real proposals that can be potential breakouts and push the P&L way to the right. Since Mobilisa and Intellicheck merged, the focus has moved away from small companies, for example, and it has shifted a longer lead sales cycle, yet our contracts have become much, much bigger and we have grown as a Company as a result. It is easier to sell small deals to a liquor store than to a major IT infrastructure company. But the latter can be $1 million deal. We have learned over time that it takes the sales force a little while to close these contracts. Investors have said it, and Management agrees, that Intellicheck Mobilisa has solid products.

The focus is now on increased effort into sales and marketing, both to sell products and to create an awareness in the investment community. IDN's products are in more places than it has ever been before. We have received more media attention, more investor attention than ever before; and yet, there is still tremendous growth opportunity in both areas. We know that, we focus on that, we are growing, and our continued efforts in those areas will serve to compound that growth. We would now like to answer any questions you might have.

Thank you. We will now conduct the question-and-answer session.

(Operator Instructions)

Walter Schenker with MAZ Partners.

Well first, congratulations on getting the cost to a level where we're making a profit. Clearly, a major accomplishment given where the Company was. More significantly, going forward, obviously the key is to drive revenues. You mentioned some of the things, Steve. Could you give us a little more granularity on the agreements you have or better details with some major retailers on how that will create revenue for the Company, since that's a pretty high margin business?

Absolutely. Thank you, Walter, and thanks for being on the call.

A couple of things that we mentioned in the script. We talk about Radio Shack, which I know many of you have asked before, the interesting thing and the good news story of Radio Shack, it slipped to the right on our pilot, so it actually didn't start until a couple weeks ago. So none of the revenues that we recognize today are actually a result of what we think is the future of our transactional models. So going forward, we'll continue to focus on our Tier 1 retailers, those are the retailers we put at the $1 billion or more level, and as I mentioned, we also signed -- our partners have signed up some of their small to mid-tier banks which they already had as clients, as well as Kroger and others.

So the initial test is going well. It actually, we think it went better than they -- than we expected. The loss prevention guys knew they had a problem and frankly, in their early days of the pilot testing, their problem is much bigger than I think they first realized. So in that space, is big. Going forward on revenues, obviously this next quarter is our government end-of-year fiscal quarter, so it's one of -- our government sales team obviously is focused on right now because there -- this is their time to shine and the pressure is on for them.

For the commercial -- the transactional model, ID Risk Check, that's still very much something we're very aware of. The other one is the third business unit, the wireless buoy system. We have received a lot of media attention on that recently and we've stated before, we are moving that from research and development to commercialization and are discussing a lot of application both environmental and security for the system.

Going back to Radio Shack in that model, as I understand it, you will get paid, at least your expectation is you will get paid if a person goes into Radio Shack and they do a credit check either because I'm writing a check, I am signing up for a new cell phone contract, or getting a credit card. Are those thee 3 activities which should generate a fee for you?

The initial part will be for cell phone activation and 51% of Radio Shack's revenue is off of cell phone activation so that's a significant part of the business. That's the initial deployment. After that, they'll move into other loss prevention and credit card issuance areas.

John Bernal with JCB partners.

Also, it was a nice quarter. It seems like these quarterly calls have been going for a decade. And although I applaud the progress you've made, each quarter, the things that most everyone's called today is to see how the investment they made is going to appreciate.

And in the last two quarters, IDN has made new loads, so I'd like to ask two questions. One is and mainly to the Admiral, has IDN been approached by a potential buyer? And number two, would you all consider putting the Company up for sale with the fact that the parts are worth more than where you are right now. Given the patents and the carryforwards, it seems to us that you certainly have at least a $2, maybe $2.25 value. Comment on that?

Thanks, John. I'm going to ask Nelson, if he would answer that, please?

Well, yes, you're right. It's been -- you've been an investor for, as you said, a decade. I've been an investor since 2007. So we're focusing on improving the Company, as you said, quarter by quarter, and that's our plan.

I think your -- the two questions that I wrote down was, one, have we ever been approached by a buyer? The answer is yes, we have. There have been companies that have interest in us. I think that would be obvious.

We have a strong patent portfolio. We have a piece to the puzzle that other people don't. We can read drivers' licenses, the back of them, we do it quickly and safely. That's something other companies don't have.

So I expect as we have in the past and then you said would we consider that? The answer is yes, we always consider it. Every offer that we receive, we give to the Board. We consider it. And if one made sense, then we would let the shareholders and the Board know and move forward. But mainly what we're focusing on is growing our Company, and so that's what we're going to continue to do.

Just one last question if you would, guys, I thought the article in the Post -- Washington Post was a fantastic article. It's one that I had been looking to receive (technical difficulty) but for me, the wire services -- now, I understand from the PR fella that you don't want to put out every single announcement. But given the fact that, that was such a positive report, don't you think that perhaps everyone instead of just the mailing list would have been able to see that?

John, this is Steve. Let me try and address your questions. We tried to do the things that result in the best for the Company at the least -- with the least expense. And that particular article, we actually got -- we don't know sometimes when the article is coming out. And that particular article, most of us found out it got published or was going to be released, it actually had been scheduled for release weeks earlier, through Google alerts.

So we evaluate every one of those lists with the help of IR firm as to when to publish. For instance, we did one with the buoys because we've had multiple interviews with the buoys, and then we try to make it a determination, if you will. Sometimes we don't get it right, I agree. But we try to publish as much as we can, as often as we can, in the most efficient manner and most cost effective. But thank you for your input. We appreciate it.

It was (technical difficulty) called to congratulate -- the reason I say I thought it was so important because someone that never knew what IDN did for a living would read that and hopefully, the stock price would really result in new business. It's, certainly the way the article was written, would have that effect. But thank you guys very much.

Eric [Barbour].

First off, congratulations on the profitability. First off, I was just wondering if you could provide any color on potential margins you might expect, as you begin to commercialize your buoy project -- or product?

Great question, thank you, Eric. As we've advertised, we're in the mid-60% on our margins. We would anticipate and hope to see those same types of margins. A lot of people doubted us when we started selling hardware to some of our bigger commercial clients. But we intend to raise our margins, since it's research and development on what they call cost-plus, fixed contract with the government. We're limited on our margins, under the previous contract. But now we're in commercialization, obviously my target will be the margins that we see in the RO divisions.

Okay, great. And also I believe in the last quarter, you commented that even though there were some, obviously, cuts in spending to defense in general, that the type of products that you are working with has actually seen an increased demand. I'm just wondering if you still feel that way.

We do. And I think in our script, we mentioned in our discussion today that the Defense ID, actually Fugitive Finder, that's our government identity system is up, so we do -- we still feel that way. The discussions about the reductions in budgets, we don't think that's affecting us.

William Kirksey.

Going back to the article, and understanding that you are looking for the large retailers for obvious reasons as initial clients. But it occurred to me that although bars and restaurants and others are small retailers, that you might in effect create a gross sale by lobbying state liquor authorities to specify a check as part of the license requirement and of course, you being the only one able to fulfill this specification.

Thank you for your question. We've been in that space since its inception. The Company was founded on the age verification and liquor sales. Positive Access, a company we bought a couple years ago, had made the same conclusion that we had made. It's a hard place to make a lot of money and realize the margins that we realized in a lot of our other places. We sell that product line and we'll continue and as a result of that, we did get several calls but as I mentioned in my earlier comments, it's not a high volume space.

We have and are aware of people that lobby states to have the mandated requirement. A lot of airports now, even if you're having a taco at the airport, they're still going to card you but they're probably not doing it electronically. It's just a very hard space, one, to sell to and, two, to make margins. So we will continue to have that component of our Company but it has really not represented a lot of revenues over the years.

(Operator Instructions)

Ernest Caponegro.

Congratulations on your quarter. I think it's been already spoken about but I'd like to go back and look at it again. It's been, we're celebrating -- I don't say celebrating but it's going to be 10 years with September 11.

Can you really address what the government is doing about that type of problem and if they are -- delaying it or is it something that's still in the focus or is it going to be tossed by the wayside with budget cuts? And secondly, will you be offering the buoy systems to any outside governments? And what do you think is going to happen with our government as far as using this as a deterrence factor for smart bombs or anything of that nature?

Thanks, Ernie. The first question, do I think in the wake of the anniversary of 9/11, is there increased emphasis? Yes. And we have tasked our IR firm to put together a pitch letter, if you will, to reach out to media outlets to make us available to comment on what's yet to be accomplished and could be accomplished relatively easily with IDN's technology to address those.

And most recently, I met with Homeland Security Committee staff on Capitol Hill and they, too, shared the frustrations with the lack of action on the Executive Branch to move forward on technology that already exists to help make people more secure. So yes, we're keenly aware of it and we're going to work hard to continue to push on the message that we have the technology that can make a lot -- people a lot more safe.

On your second question on the buoy, yes, we are looking outside the US for other potential locations. We just recently, I finished an interview last week with Voice of America that was broadcast in Pakistan, and I -- so we are looking for international opportunities for the buoys and well as here in the US in littorals or post-lines so just about anywhere you can imagine that you need to either detect the weather or security environment or an environmental condition. We're trying to develop the market for and scalability for the buoy system.

Does the buoy system have any real benefits to existing shipping tracking systems, or alternatives to that? Would it be more cost effective than current satellite systems that they're using?

Yes, absolutely. If you look at the satellite component, depending if you're in deep water or littorals but in the recent NPR interview, one of the gentlemen that they interviewed was a former Maryland Natural Resources Captain there in the East Coast, and the more people experienced the buoys, understand the buoy. The more they see the applicability of the buoy system and its autonomous capability, that they use satellite, cellular, 802.11 to the shore. So we're still again developing the market and trying to get that product out there.

And one last question, being the fact that we've -- some of us on this call have been around for 10 years, so selling out the Company right now at very inexpensive prices, would be a disappointment. But what do you really have to do to gain substantial revenue growth as far as your contracts? Your focus, where can you go after where you can really show improvements where you could literally double the revenues? Is that potential still there for us to achieve those numbers? And I just wanted to find out again what Nelson's cost basis are -- was because he does own, what, 50% of the Company?

Right. Well, I'll let Nelson answer it in a second, but let me go back to your previous question first. Our most recent application of the buoy system, and this is, again, we're developing the market, so we're putting it out there. If you go to the National Buoy Data Center, you will see our buoys live transmitting through NOAA's website. During that application, the weather folks study thunderstorms for wind shear.

This isn't something we had previously explored so in front of and behind thunderstorms, there's a wind shear that affects -- that particular buoy happens to be on the approach to Reagan National Airport. And they can now model when to divert aircraft based on the information from that buoy and it's also by very high bridge, so they stopped traffic on the bridge now when the buoy detects high wind and preventing loss of life. So the buoys are starting to develop in both the environmental for oil spill as well as other applications we've yet to determine.

For your other question about doubling revenue and ownership, I'll let Nelson responded

I think Bonnie Ludlow and my ownership is in the low 40%, not quite 50%. But to get to your question about the revenue, absolutely, I think we can double our revenue. If you look at the Radio Shack deal, some of the other deals that we're working on, we're shifting to larger customers, larger different business models like the transaction model. It's just a few deals can get us there.

What we did is -- and I believe that before, we made change last quarter where we took a few cuts, as Pete said, about $2 million in cuts but we did it as you saw without hurting revenue, and to Admiral Mike Malone, who's on the call, he's a pilot and I was a pilot, when you pull back on the stick, it has -- raises the plane. But if you pull back too far, you can actually start to stall the plane and that's actually a situation where we decided to restructure a little bit, and I think it was the right thing and that's what shifted us into profitability. But we're focusing on growing top line and I think there's lots of applications out there.

You asked about government revenue. Let me just say two things. Netanyahu, the leader of Israel, was interviewed recently. And they said -- look, you guys know how to do airport security. And we're in the wake of a 10 year anniversary of a major disaster. What advice do you have for our country? And he said -- technology. We have the technology, use the technology to make airplanes safe.

And so et me get one more quote, Deepak Chopra, who's the CEO/Chairman of Rapiscan, makes those full body scanners, he and I were having a chat and he said -- government revenue is choppy. And I think it's true. So the TWIC program hasn't happened yet, but it's supposed to happen. We may get some good bumps out of but it will be choppy.

But you see our Company is focusing on growing the commercial side. We didn't just rely on the government. So just the commercial side alone with what we've got going on, I'm very, very bullish on our outlook.

So then you could literally double the Company's revenues by just going after the big-box retailers and other retailers to cut down their losses on credit cards and check fraud?

Absolutely.

And that is a story that you're trying to get out there, so eventually, somebody's going to say it, $1.25, this is a steal? It's incredible. Thank you.

This is a good time to get in. It's hard to comment on what happened 10 years ago.

My view is stock price is what's going to happen from this day forward. Everything else is almost meaningless to what happened before. So this Radio Shack deal, I'm excited about it. I think we're helping them and we're looking at the data and as Steve said, it's (technical difficulties)

Are you precluded from discussing that data with other potential buyers of the product? The results at Radio Shack is getting -- can you tell the people how they're doing?

This is Steve. Absolutely. We do ROI calculations all the time and there's a case study out there that we did for Rooms To Go. They had anticipated an 18 month ROI, they got an ROI, I think, in 6 months to 8 months, maybe 12 months. So yes, we work hard to get the retailers to do case studies, or press releases with us so we can share that data.

David Rich.

It's Richardson, not Rich, but that's okay. I've sat here. I'm a broker. I have maybe 50 customers that are on this stock. They call me everyday and say -- Dave, how come we stay on this stock? It never trades out of $1.25, down to $0.87 back to $1.25. We have no eyes following this on the research side, no brokers are following us on the research side, so might it be a great idea if somebody really approached you?

Why not let the public know that? That might at least get some eyes. I'm not saying you're going to accept it or you could care less about it, but say -- we've been approached, or we're looking at it, or whatever.

Something to get this stock out of $1.25, because people, all I do is get -- David, let's just sell that, let's raise some cash, the market's terrible, let's sell IDN. And people are selling this stock every single day. There are sellers, sellers, sellers, and no buyers.

Thanks, Dave. I think they're both sellers and buyers, but let me comment on your earlier point. I met this last quarter with 41 investors one-on-one, Whether it through Benchmark Capital, Nelson's been to ROTH, Morgan Keegan's next week. I'm on another road show --

We don't know any of this, Nelson. That's what I'm saying, we don't know any of this. Go out and say we're going to meet with them, we're going to do this, we're going to do this, we're going to do this.

Mike, I've got to have something to say to these people who's got a couple of hundred thousand shares and so it's saying -- David, just sell it. We're tired of it, they do nothing. I think you must understand me.

Absolutely. This is Steve. Let me just --

I'm sorry, Steve.

But we put out press releases on all those events I just mentioned. And we sent it out on our blasts as well. And I will follow-up with IR to make sure that you are included on those, so we are very active on getting our message out, and we'll continue to do so. And the IR firm has carte blanche to schedule me to meet with investors, wherever, whenever they need me.

What did you think about my suggestion that perhaps if you really did have an approach, to say, you been approached. I'm not saying you have to put a price on it. Just if you really have been approached, say -- somebody's interested.

That might -- I'm not saying don't lie about it. I'm sure you wouldn't but if somebody really cares and apparently they do, let us know about it. Maybe that would at least get some eyes on this stock.

Absolutely, David. We meet with brokers and I'll be very direct. We meet with brokers and researchers all the time. One of the challenges with a micro cap is market cap. The large end researchers are not going to cover you where we are, so our focus is, one, to get research and the way I'm going to get that is to get the stock price up and that's why I'm meeting with investors.

Okay. Well, you've got my drift about all this. I just -- every quarter we come back on the air and it's $1.25, or it's $1.12 or whatever. We get time to time, we get it up to $1.35, somebody starts a false rumor, but I'm in your hands and my customers are in your hands. They got a great Company here, let's get it moving.

Absolutely. We couldn't agree more.

Joe Brunini.

Well, congratulations on your quarter. Profitability, it's phenomenal.

Thanks, Joe.

Great job. I applaud your business model, transactional. I wish you and the Company the very best going forward. I just have a couple quick questions if you don't mind.

One of them being the finance retailer, I think had 14,000 locations and the Radio Shack deal that went into effect, recently, I'm sure that you expected it to show in the last quarter. Obviously, the revenue is showing this quarter going forward and part of that would be on your $2 million annual savings. What percentage of that was achieved in the last quarter? Thank you.

This is Steve. I don't know -- Pete, do you know what percentage of the $2 million estimate was achieved in this quarter?

It wasn't quite 25%, as we had mentioned. The cuts that were made on an annualized basis will be approximately $2 million, and we have certain of the cuts will contribute towards the third quarter a little bit more. So I would think probably between 20% or so of the $2 million was recognized in this quarter?

So roughly a 25%. Let me answer your other two questions. The 14,000 are retailers -- that's our partner that already has the client. That's FIS, Fidelity Information,

And Radio Shack, yes, we had hoped to be in the transactional model out of the pilot. There is a transactional component in the pilot. It's limited on the number of scans they're allowed to do. We'll start to see some that revenue recognition, Q3, but you're correct. We had hoped in Q2 to have seen that recognition.

One other -- being an IPO original stockholder and still acquiring stock, I do have a lot of confidence in you and your team. The only issue is getting the word out there, and congratulations again on a great quarter.

Thank you very much.

Yes. Thanks, Joe. This is Nelson. And I would like to thank our IR firm. Sometimes they get beat up a little bit but I really could do -- our product is what got us there, but it's our IR firm that got us into the Washington Post not once or twice but three times in the last month including just last, within a week ago, on the front page.

And so you're right, we've got to get the word out there. I think if anybody reviews us, this is a good story. It makes sense and we're making progress. So I -- all of your help as well. And Dave Richardson, with your 50 investors, we'll just keep working with them and they can let other people know -- this is a good Company, this is a good story, and evidence, as you all said, we were just on the front page of the Washington Post within a week.

Could I ask just one other question, I'm sorry, just came to mind?

Yes, absolutely.

Did you ever consider going into the gaming industry for cash transaction reportings with identification/verification, not only for the credit card transactions but for completing cash transaction reports? The automated process is out there, I don't know if you are in the field or not but with that growing field between Native American and other jurisdictions that had gaming, it might be a unique opportunity as well as if online gaming legislation is passed. I know you had a reading device that can probably complement that, for one of the age verification requirements.

Absolutely. Thanks for the question. We actually operate in a lot -- a significant number of hotels in Atlantic City -- excuse me, casinos and hotels in Atlantic City, and Las Vegas. They've been a long-term client of ours, as well as a lot of the tribal casinos as well, so we're looking to expand that market on age verification at the tables. So yes, we have always been in the casino space and we'll continue to try and grow that.

Again, congratulations and thank you.

Ernest Caponegro.

Nelson, Pete and Steve, just a follow-up question, maybe you can do a hypothetical for us. Obviously, this call is still focusing like we have for the last 10 years on the price of the stock but ultimately the price of the stock is going to go up because of revenues and obviously, profits.

So if you take a hypothetical big-box retailer with 1,000 locations, can you discuss if you could sign that up with your typical product, what the sales amount could be, and what your profit margin could be? You've identified over 14,000 retailers. If you get a 10% penetration in that marketplace, how many units could you sell? And what your profit margins with that could be? So we could get some focus of how really big the market is and why anything less than $5 a share would be foolish in the long term?

Sure. Thanks, Ernie. Let me try and answer it based on our business model.

Our goal is always to try and sell an enterprise license and we've said in previous calls, that's usually between one-half and three-quarters of $1 million. Our new model on top of that is to do a transactional model that gives a per transaction swipe. So the total size of the deal will be somewhat dependent on the throughput at the retailer.

In addition, we also always try to upsell or be the provider of hardware as well as the integrator in a non-recurring expense. So to try and quantify each deal is very unique and very different. The 14,000 people that I mentioned with FIS, they're about 250 Tier 1 retailers of which we have -- right now so our focus is going to be on those Tier 1 retailers (technical difficulty) sale of the transactional model as well as (technical difficulty).

Thank you. There are no further questions at this time. I'll turn the conference back over to Management for closing remarks.

Thank you, operator. Thank you everyone for calling today and your questions. We look forward to responding to any other questions you might have. Thank you.

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