Intellicheck Inc (IDN) 2011 Q3 法說會逐字稿

Greetings and welcome to the Intelli-Check Mobilisa third quarter 2011 results. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Adam Holdsworth, Investor Relations Group for Intelli-Check Mobilisa. Thank you Mr. Holdsworth. You may begin.

Thank you and good morning and welcome everyone. Thank you for joining us today for our 2011 quarter conference call to discuss Intelli-Check Mobilisa's results for the fiscal quarter ended September 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 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 using 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 assumptions made by, and information currently available to the company's management, identified 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 well as any projectable forecast that are inherently susceptible to uncertainty and changes in circumstances.

And the company is under 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 risk and factors listed from time to time in the company's filings with the Securities and Exchange Commission.

Management will use to define financial term adjusted EBITDA on today's call. Please refer to the company's press release issued this morning for further definition of in context for use of this term. I would now like to introduce Steve Williams Intelli-Check Mobilisa's Chief Executive Officer.

Thank you everyone and welcome to the Q3 conference call. For the folks that are on the line, we just completed our annual shareholder meeting here in New York City so we will have a little bit of a logistics work through at the end. We will have plenty of time for Q&A so the format will be I will give you an overview of the company, kind of what we do with some highlights from Q3.

And at the end we will give you all plenty of time to address myself or other members of the team with questions. So, with that, the Safe Harbor statement as Adam just read, we are a tech company. We do driver's licenses, we do wireless, so, our focus is to be experts in those space. And we will go in depth on the divisions.

The company overview, it was founded in 1994 in Long Island. We have about 50 employees. We're headquartered in Port Townsend, a beautiful city out on the Olympic Peninsula. It's about two hours west of Seattle. The New York office is probably our second largest, and we have also an office in Washington, D.C.

For those of you who don't know we're publicly traded on the New York Stock Exchange AMEX under IDN and we are recognized in our patent for reading driver's licenses. Let me introduce, again, Nelson, identified earlier, and for those along the line, this presentation that we're providing is also available on our website at www.icmobil.com.

And here's some pictures for those of you online they can't see our folks here in New York, Dr. Nelson Ludlow our Chairman. And the rest of the members of the board in alphabetical order, Buck Bedard -- General Buck Bedard, as better known. Bonnie Ludlow, also one of our Senior Vice Presidents, Admiral Mike Malone, Mr. Woody Magee, and Mr. Guy Smith.

The members of the management team, myself, Steve Williams, the CEO, Russ Embry, our Chief Technology Officer, Mr. Pete Mundy, our Chief Financial Officer, and Miss Bonnie Ludlow our Senior Vice President. In addition before expanding on the company, we have several other people that support our company. Bruce Gomberg from Eisner Amper, our accounting firm was just reconfirmed. As well as members of team IRG, and Adam kicked off the meeting this morning. But Chris Cunningham from Tailgates, and is hosting our shareholder meeting for us today, thanks Chris.

Product offerings are several. But we tend to focus on identity systems and we will go in depth on both the commercial and government side. We also do wireless, specifically wireless over water.

So, we have specific intellectual property and knowledge that we do on the wireless space over water, and we completely -- sell complete solutions. So, we sell a solution, not just a piece of software, not just a piece of hardware, but a total solution.

Let's talk about a company and our markets. In the financial space and banking space, you will see our solution many places. GE, JPMorgan, Chase Bank, those are all our clients. Retails, other guys might know, Wal-Mart, Target, Toys "R" Us as well. Hospitality and one of the announcements we just made in Motel 6 and we will go in depth on that.

Pharmacy, controlled substances, pseudo ephedrine, things like that we can integrate into their point of sale systems to make sure they are not dispensing things too quickly or too often. Access control, which is our government identity space, and age verification, which is where we began.

In the wireless markets, our buoy system, which we will talk about a little bit more in a minute, but we do port security. We do wireless planning tools. We can tell you how to install wireless network somewhere in the building, a ship or any facility where we can import a CAD drawing.

We do ship to ship communications. Anybody can do it off a satellite, but it is very, very expensive. What we've focused on, and what we've designed, much of what the buoy is designed around is 802-11 networking. So, very cost effective for the Navy or other clients. Oil spill monitoring, or other environmental situations, and our trademark, wireless over water.

Talking about strategic growth initiatives. Three and half years ago, Intelli-Check merged with Mobilisa. We saw a significant growth curve. And that rounded out our company in a lot of reasons. It brought a government perspective to an otherwise commercial company.

We also acquired one of our leading competitors, Positive Acess, in 2009. Again a company that when we acquired them brought us Walmart and Verizon as customers. And future strategic growth, as we said in previous conference calls, we design and intend to look for other MNA opportunities. We're going to look for complementary acquisitions that will grow us in revenue and intellectual property.

Our technologies, as I mentioned is driver's licenses. We have 9 US patents, 2 Canadian patents and 1 UK patent. We sell predominately to commercial space, something that we call an enterprise license. That integrates to their point of sale.

You may not see us, but in Wal-Mart or Target for instance, we are doing their credit card applications for them. And again, our technology is reading and validating and authenticating driver's licenses.

Customer market and overview, this is a little bit of change from about 3.5 years ago. The three divisions each represented about a third of the revenue at the merge with Mobilisa.

Now in our 10-Q that we filed at the end of last year the commercial space represents 50%, and the government identity space a quarter, and the wireless space the other quarter of the company. It is a little bit of a change. So, instead of a third we are a 50/50 commercial government. So, they tend to balance each other.

Here's the results from Q3 to those that haven't seen the press release. So, second quarter in a row we are profitable. We're --our revenue in $3.6 million, just up 1%, but significantly, identity systems are up 25%.

What's important to note there, is though there is a delay in the government funding or awarding of the contract for a GSR wireless buoy system, we were able to grow the identity space to more than offset that, and for the 9-month revenue-to- date we're at $9.6 million, or up 4% for the year.

So, let's go little deeper into the 3 groups. Commercial identity systems are predominantly integrated and the most profitable for us when they are integrated with a point of sale. So, Wal-Mart, Target, Toys "R" Us -- Target is one of our long term clients. When you're checking out at Target, they are going to ask you, hey would you like to save 10% today by signing up for a Target card?

They are going to ask you for your driver's license. That's us. We've integrated into that, it is a great growth curve. We've have identified about 250 of what we call Tier 1 retailers. A Tier 1 retailer is somebody that is $1 billion or more a year in revenue. So, that's our focus.

At the merger, we had one, maybe two of those, Target, Toys "R" Us. We've now grown that to about 12 and we will continue down a growth path. We also do something called standalone kiosk. Kind of what's pictured there on the right. L.L. Bean was one of our big launches for that, but our banks use this as well.

And It is just like the point of sale system, except for we sell them the hardware, the software and the support services for each of those systems. Portable wireless device is much what Mobilisa did, but we've now taken what we did in the government space and we've moved it to the commercial space. So, we actually do credit card applications at Universal Studios for one of our banks. So, you can enroll and get a credit card at the gate literally as you go in to the park.

As I mentioned earlier, complete solution offering. What we departed from 3.5 years ago was selling software. We're just not doing that. It is not profitable long-term based on the way we are structured. And it didn't make sense. We like to be if you call for anything -- we want to be able to say yes, and sell them whatever the solution is.

The most recent announcement in hospitality space in the commercial space was a ACCOR. You may not be as familiar with the word a ACCOR as you are with some of their name brands. Sofitel is their flagship, most importantly to us are Motel 6 and Studio Motel 6. So, imagine if you're, obviously, Sofitel, they want to interact with you and make sure that you're in their honors program or whatever.

But at Motel 6 imagine that you're in a bus with a bunch of kids that don't have reservations, it takes a long time to process those kids in to the hotel. With our system they have our devices, they literally put the driver's license in the device and they can check in a bus load of kids in less than 30 minutes. That's where we are moving, hospitality is our newest move for commercial identity systems.

Government identity systems. Access control. So, literally everyday that someone comes through a gate at a military base, and we currently operate over 100, to include the US Mints, we do a bad guy check. Sometimes it is using public available data, sometimes it is using data that's local law enforcement data, so it's a variety and sometimes it is just a pre-vetted good person data.

We've continued to operate in that space as you saw in our recent announcement. We just did about $2 million, it is the largest quarter since Intelli-Check Mobilisa has had in the government identity space. And it is because we have added a couple capabilities. That law-enforcement capability no one else has. We can now do local law-enforcement check in all 50 states.

You saw here in New York, we recently sold additional TWIC readers. So, that's 10 more facilities that are protected with our transportation worker identification credential readers. And lastly, Massport. Massport's in Boston, for those of you who don't know. We did a pilot there. We were very successful. We caught a lot of bad TWIC cards.

The challenge with the TWIC program is, the law doesn't go into effect until 2012. So, let me tell it a bit of our strategy. We were one of the first certified devices to be on the TWIC list. That wasn't by chance, Dr. Ludlow the CEO did that. We invested in to that, and we are ready for that when the law goes to effect next year. If you talk to anybody include this part of New York and Newark New Jersey, they are going to identify us as one of the leaders, if not the leader, in the TWIC market we'll be ready when the law goes into effect.

The wireless system, most recently Aegias.

I started with the Washington State Ferry Systems in Washington state. This is before anyone had an air card or a cell phone hot spot or Starbucks, when they did it with T-Mobile. This was the beginning of that concept, so that we could light up the Puget Sound. You could log onto your laptop. And remember this is years ago, and do you're work on the transit to and from Seattle.

So we moved up to something for the Navy called Floating Area Network. Before mesh networking became real, we would have the ability to talk back and forth between these ships with the Floating Area Network.

And then we created what we call today Aegias, our buoy system. It is much more than a buoy, it is actually part of a network. The network identifies things on the water, communicates, monitors radiation or other sensors and then reports so that I have to respond accordingly. So, those are all capabilities.

Most recently we just won a $3 million contract from the US Navy. So, that's new for us in that it is really time for integration to commercialization. You guys have heard me talk about commercialization, that device could be sold here in the Port of New York. It could be sold to another country. It could be sold to monitor oil spills or interenvironmental, any of those types of things.

So the wireless buoy system this quarter, new contract. But I mentioned, it took the government a long time to award it, but now it is about a 12 to 18 months contract for about $3 million.

These are some of our sample clients is a much before. Chase, GE and Barclays, most recently ACCOR. We've been in hotels before, but this was really our first launch for this. Retail with L.L. Bean, Target, Wal-Mart and Telecomm. AT&T continues to one of our largest clients. Then all the military services, as well as several other government agencies.

Growth initiatives. So, let's talk about that a little bit. We've mentioned before a new cloud computing initiative. What that means is state and local law enforcement's have a challenge getting capital expenditure like at a military base.

Spend $250,000 to get our system. Well, how does the state and local person or the local sheriff, he doesn't have $250,000, or she doesn't have $250,000. So, what we did was create a model that they would buy the software, at less expensive, but pay us on the transaction. So that's new model for us.

The transactional model is also being applied to the commercial space. So, we can do something called velocity checking. If you're activating your phone. Or you are making too many purchases within a reasonable period then it can identify that, but again that's the transactional model basis. ID risk check was launched to combat identity theft. But it's quickly moving into credit card fraud, as well as loyalty.

In law enforcement, I mentioned, that what we call the NCIC check on mobile phones or hand held. In this particular case, we're moving into what some of our Partners -- the ability -- if you got pulled over speeding, and I know no one on this call ever did that, but if you got pulled over for speeding, for instance, rather than go back to the cruiser, type in the information, come back to the individual, if it was a bad guy he is trying to figure out how to defeat you.

Well with our system you can stand right there, watch them -- I'm sorry I'm looking at you, the CPO, watch them, take a picture of the ID, run the bad guy check in about 3 seconds. So, there's an advantage to law-enforcement. And we're going to use the transactional model to help them pay for the equipment.

And then Aegias, which I just mentioned, we're going to commercialization. This next $3 million by the Navy is designed for us to integrate with other systems and to deploy and find its long term home. So, those are kind of some of our growth initiatives. With that I will let Mr. Pete Mundy, our CFO, give you a more detailed overview of the financials for the quarter.

Okay, yes thank you Steve. And now the most dynamic portion of the presentation here that I'm glad everybody's here to listen to. (laughter) I'd like to discuss some of the financial information that was contained in the press release that we issued for the third quarter and the 9-month period that ended September 30, 2011, which we put out this morning. We anticipate that the complete quarterly report on form 10-Q will be filed with the SEC this afternoon. And we heard that the receipt of our final XBRL version has been completed, so we will file today.

For the third quarter, revenues for a third quarter ending September 30, 2011, increased 1%, to $3.595 million, compared to $3.567 million for the previous year. Identity systems increased 25%, to $3.421 million, compared to $2.744 million last year. While there are increases in both commercial and government sectors, the increase is primarily a result of increased sales of Fugitive Finder and Defense ID product sales to military bases.

The wireless revenues decreased 79%, to $174,000 from $823,000. Our previous funding on the FAN buoy contract expired, as of June 30. 2011. And the new funding was not awarded to us until the middle of September, which was the principal reason for the revenue reduction.

We anticipate going forward that our quarterly wireless R&D revenues will approximate $500,000 to $700,000 per quarter. Total booked orders were $6.2 million in the third quarter of 2011, compared to $3.9 million in 2010, a 59% increase. At September 30, our backlog was approximately $3.3 million, compared to $4.8 million at September 30, 2010, but it is up substantially from where we were at the end of June.

We still continue to maintain high gross profit margins. Our gross profit percentage as a percentage of revenues increased to 64.5% for the 3 months ended September 30, 2011, compared to 62.8% for the 3 months ending September 30, 2010. That change was particularly represented due to a change in our product mix.

Operating expenses which consist of selling, general administrative, and research and development expenses, decreased 27%, to $2.01 million for the 3 months ended September 30, 2011, from $2.741 million for the 3 months ended September 30, 2010. As we've mentioned in the 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 and third quarters. The decreases in 2011 expenses also includes lower legal fees, a reduction of consulting fees, and an overall staff reduction. We do not anticipate that these operating cost reductions will impact the expected growth.

Interest income was negligible. Interest expense of $4000 and $7000 in the third 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. There was no debt outstanding, so no interest paid on debt.

We have not recorded a tax provision, due to the expected utilization of net loss carry forwards, and we still have net loss carry forwards of approximately $39 million. Our adjusted EBITDA for the quarter ending September 30, 2011 was positive $610,000 compared to negative $74,000 in the quarter ended September 30, 2010.

As a result of the items explained above, I'm happy to report that we have our second consecutive quarterly profit. Our net income was $306,000, rounded to $0.01 per share, for the 3 months ended September 30, 2011, compared to a net loss of $509,000 or $0.02 loss per diluted share for the 3 months ended September 30, 2010.

Now is a relates to the 9-month period for the 9 months ended September 30, 2011, revenues increased 4% to $9.616 million, from $9.245 million for the 9 months ended 2010. Identity systems revenues increased 10% to $7.458 million compared to $6.745 million last year.

Wireless R&D revenues decreased 13%, to $2.158 million from $2.491 million, principally as a result of that gap in the funding that we previously mentioned. Our recurring revenue remains strong and represented 23% of total revenues and both 2011 and 2010.

For the first 9 months of 2011, booked orders were $9.6 million, as compared to $8.2 million in the same period of 2010. Our gross profit percentage was 64.5% in 2011, 64. 8% in 2010. Total operating expenses decreased 18% to $6.472 million in 2011 compared to $7.898 million in 2010.

In addition, during the first 9 months of 2011, we were able to recognize the reversal of $104,000 of previously booked non-cash compensation expense from contingent stock options from people who are no longer with the company. In the first 9 months of 2011 adjusted EBITDA was positive $591,000, compared to negative $685,000 in the first 9 months of 2010. And our net loss was reduced to $277,000, or $0.01 per diluted share, compared to a net loss of $1.931 million or $0.07 per diluted share in 2010.

Now I'd like to focus on the company's liquidity and capital resources. As of September 30, 2011, the company had cash and cash equivalents of $1.515 million, working capital defined as current assets minus current liabilities of $1.640 million, total assets of $23.685 million, and stockholders equity of $19.747 million.

During the first 9 months of 2011, the company generated net cash of $27,000 compared to a net use of $1.874 million in the first 9 months of 2010. Cash generated from operating activities was $45,000 compared to a net use of cash of $1.548 million in 2010. And that decrease was primarily a result of -- driven by a lowered net loss.

We used cash of $46,000 in vesting activities compared to $232,000 in 2010, due to lower capital expenditures. Cash provided by financing activities was $26,000 compared to a net use of $94,000 in 2010.

And in accordance with the merger agreement, the final payment of $200,000 was made to the former principals of Positive Access Corporation in August 2011, compared to $400,000 in August, 2010. Which was offset somewhat by a reduction in the amount of stock option exercises in the current period.

On August 17, 2011, the company entered into a 2-year revolving credit facility with Silicon National Bank -- I'm sorry, Silicon Valley Bank. The maximum borrowing under the facility is $2 million. And the borrowings under the facility are subject to certain limitations, based upon a percentage of accounts receivable, as defined in the agreement and are secured by substantially all of the assets of the company.

At September 30, there were no outstanding borrowings and unused availability under the facility was about $1.1 million. We currently anticipate that the available cash as well as the expected cash from operations and availability under the revolving credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.

We currently have in effect a universal shelf registration statement on Form S-3 with the Securities 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, or 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 1/3 of the market cap held by non-affiliated stockholders within any 12 month ago. At this point I will turn back over to Steve.

Thank you Peter. Next slide is just an overview of the current market situation as of the close of yesterday. Our market cap and our daily volume at 17-point -- or 17,000 shares. At this point we're going to open it up to questions and answers. I would ask those people in attendance here in New York City to please wait for the folks that are on the line to ask their questions first.

Then we will open up to the folks here in New York. For those of you on the line, please state your name and who you represent. For the folks here in New York City please state your name, your present and stand when doing so I make sure I knowledge you. I will repeat your question for the benefit of the folks on the phone. And we will give you plenty of time to answer questions so with that, Operator, we would like to open the line for questions.

Thank you. (Operator instructions) One moment please while we poll for questions.

Well maybe we will change the logistics a little bit. With that, we will open it for questions here in New York. Yes ma'am.

Diane Burcell. Can you please elaborate on the TWIC law?

Yes ma'am absolutely. The TWIC law is some (inaudible) prints the final rule. Anytime the government -- well most of the time when the government changes a rule in procurements or access any of that kind of it goes through a rule process. And there will be public hearings that will allow industry and individuals that will be effected to comment on the upcoming law. So the rule, the TWIC rule, as I referred to it, is coming out in 2012. They've been through several hearings already. They will have public comment and then the law will be published. In that law it is going to state the reader you use to read that card must do X, Y and Z. So the rule will then be published next year and will be positioned with whatever that requirements are. Because clearly we've been involved from the beginning. We advise. We tell them where their problems are. We made -- in the beginning days we actually got ports before ports were buying systems. We were giving our systems to the ports to understand the market. So the rule will be the law that finally goes into effect that all port operators will have to comply with when buying a reader. Yes, sir?

Hal McCannon. Obviously in any company, especially this company the personnel are the most valuable asset you have. However, you have a group of patents which I'm sure have some value. Are there other companies who would like to have those patents and did any company ever make or offer for them?

Absolutely, great question. For those on the line and help me if I don't get it exactly right, the assets of the company are its people but also its patents. And particularly our patents. And the question is has everyone attempted to acquire those patents or do other people value those patents? Is that correct, sir?

Yes.

The answer is yes in all cases. All the people are very, very valuable to the company. And the patents are equally valuable. As you will see, and those people that try to compete with me in hardware sales understand that we defend those patents aggressively. We're very proud of those patents and we will continue to do so. From a financial perspective, our CFO would say obviously the patents have a value on the books. But do I believe that those patents are very valuable to this company? Absolutely. Do I believe that other people assign value? Absolutely. As anytime with any publicly traded company or privately held entity, from time to time people would bring forward an offer to an acquired company. And obviously we would have a responsibility to take this to the board and open the board to shareholders. Do we currently have that situation? We absolutely do not. But do I believe people value us? I absolutely do. Yes sir?

John Bendall, JBC Partners. I think probably I'd been a longer shareholder than anyone in this room so I'm pretty familiar with it. On the last conference call I asked Nelson, my dear friend, has anyone made a overture about buying the company? And I hope he will correct me if I'm wrong. He said that he had, had inquiries. Now we all know how big of a deal in business that an inquiry is not an offer. But if it is a serious inquirer, is the board responsibility to at least let the public shareholders know about this? Now my -- I'm not saying to take it, I've been around long enough in this that I deserve more than what I think the company is selling for or even 100% of where it is selling for right now. But it just might be the calling card for others to say we better take a look at this or get some interest in the stock. And I'd like for perhaps if Nelson would comment on this, or the board about any inquiries of a somewhat serious nature. I understand the arms length transaction between us and the board and whatever, but I think you know where I'm coming from.

Absolutely.

The second thing is, since we've had no volume really to speak of, and I must applaud you and think today's numbers were exceptionally good. Each quarter there's a lot of progress and as much as I complain and bitch to all of you, I've been around because I happen to believe that this technology is a serious technology and is worth a lot more to someone than what it is selling for right now. But the hard thing is and we have not had a research report and a lot of funds, certainly the mutual funds, cannot buy this until a research report is written. If it goes to 100, that's fine, it goes to zero, someone is going to have to responsible. We need that research. Now the reason I ask trying to get a model made going forward of projected earnings and sales and whatever, seem to be difficult when I try and say look, I think that's great with Target, Kmart, certainly in the motel side, and there was one other, the Radio Shack. But most of the time I met with we cannot reveal. Now I know certain government contracts are not going to be able to even mention who they are much less what the scope of the sales are, but in order to get a report written, an analyst or someone has got to have some benchmarks to be able to make a model to see where we are going from today to next year or the year after.

Absolutely. Okay, thank you. I will respond so the first question I believe is serious inquiries or attempts on an acquisition of the company. The answer is if we did we would fulfill our obligation. In other words, if we had a legitimate letter of intent or an offer or an acquisition offered, obviously it would be brought to the board and shareholders. That's our responsibility. So if that hasn't occurred, that means we don't have a serious inquiry that warrants at that level of attention. The second question I believe is regarding research reports and I can share with you that in the last quarter I met with approximately 48 one-on-one meetings, thanks to IRG. The previous quarter I did the same number. And we attempted to do exactly what you've said. To meet with analysts, to find coverage, to create models for investors like yourself that would be able to answer a lot of the questions. It is a complex situation. But remember we're a micro cap company that is trying to grow to that next level. So I have to as the CEO, the team has to grow the company to the point that the market cap is at a level that other analysts will cover us. We've talked to all the big names, we've met, we've presented, Nelson's done that, I've done that. We will continue to do that to get the interest level and eventually will get an analyst to cover us. There's also the option of paid research. And there's a mixed decision on that, I see you shaking you're head no and the person next to me is maybe shaking their head yes. But there's a challenge and it is something -- the reason I offer that is, David shaking his head yes. I offer that -- (Multiple speakers). I understand the two different positions on that situation. However, I offer that up because I want to show you that we're evaluating every opportunity to put every resource we can on trying to get analyst coverage.

Thank you.

You're welcome.

I wasn't trying to go against this. (laughter).

Yes, sir?

I am Gus Sound. I have a couple of questions. First one, it is obviously the fact is that identity systems by the fastest-growing part of the company at least in the last three months, six months, nine months, whatever. The other divisions, very slow, and I'm not sure what the new contract for wireless does to this growth as such. But what I'm wondering is can identity systems continue to grow at a rate such as we saw in the last year? And number two, what about these other two divisions? How likely is it that these can begin to grow and at what sort of a pace? And I have another question specifically on cloud computing. Why don't we do this first questions first and I'll come back to the cloud computing.

Okay.

(inaudible)

Absolutely.

Okay, and when we're talking about the TWIC law and identity and reading cards and then we talked about your patent portfolio. How does you're patent portfolio position get to have better than competition or the same as competition with these changes?

So the first question is growth in the identity space. You saw identity space grew -- that's very normal for this part -- this time of year for the government identity space. You saw our press release that we signed about $2 million in contracts for the last quarter. That's normal. It's the end of the government's fiscal year. What we try to do is create new products to keep growing that division. So at any one time you will see those growths. If we know enterprised licenses this quarter those are big revenue generators and high margins because it's software that we've already developed. So do I think you can grow both of those divisions? Absolutely.

Let me address the third division-the wireless group and give you a little bit of history. Government identity systems as you know -- or as we it know today was built exactly the same way as [Egea's] the wireless buoy system was. We took several years of research and development. Developing clients, bringing it to the market and now we're the leader with the Department of Defense without a doubt. There's not going to be Commander in the military that doesn't know of Defense ID or the Mobilisa. We are doing exactly the same thing with Egea's. There's almost $15 million in research and development that was paid for by the Navy. A lot of the intellectual property that we've put in their will be ours, is ours. So this next $3 million really is the go to market strategy. It's the integration to that system to become like the government identity system or like the commercial entity system which took several years ago to the market. 3.5 years ago on the merger, we changed that model. We said we're not going to sell you a software license for $100 or go to Sam's Liquor and sell you an age verification device. We had to figure out, with the resources we had we be targeted our client base. Do I think all three of those can recognize the revenue group? Absolutely. We don't provide projections but we have a good track record. We've built the pipeline, we are a well-known, well-established name in the commercial space. So I think you will see significant growth in that space as well.

To Diane's point, the TWIC card, the TWIC rule as we mentioned earlier, the specifications for the card are out there. Anybody can go build a reader, try to do the reader, whatever. We know that. We understand that. It is just another card. But if I took a poll on the line or here in the audience how many people have a TWIC card, I know I do, probably the sales guy he would one. Nelson does, probably is a sales guy. But the reality is you don't have one, but I'll bet most people in here have a drivers license. So the way we differentiate ourselves, at least say not only do we do that TWIC card that you want to go buy for whatever the PF and BH is, I will do a bad guy check on that and you're drivers license and we can do a credit check or whatever you wanted to do. So that's our expertise. How do we take existing systems, take our patent portfolio and create a market? That's how we differentiate from competitors. And what was your second question?

Second question is on cloud computing. How for along this trail have you progressed? Have you been talking with people who will run the system for you? I'm invested in a couple of companies that are into the cloud computing that's going very successfully. Is it likely to be only the law enforcement area that will be covered with this kind of a system or are there other areas that would be covered in the cloud computing area on which you've got pay per click kind of revenue?

Great question. First of all, we are the guys that run the cloud so we have our own cloud. That doesn't mean from a business sense that if we do an evaluation and it is better to have a third party provide that service to me because their infrastructure is cheaper? Obviously we would look at that. So -- and beyond law enforcement, we would go wherever it made sense. So we have all the banks that already do it so they have hardware. Their concern is if they lose that hardware or the capital expenditure and even though banks have money, they don't like to put it in a CapEx so it can be applied anywhere. So using the patent portfolio just like we've done in a mobile hand held, just like we've done on tethered skinners at Target, we're going to use that cloud computing if it makes sense to use existing infrastructure, you're cell phone, to be able to parse and do whatever service they need provided in the backend. Let me, if there are any questions here, let me hold for now and go back to the folks online I understand there's some questions.

Eric Barbour, Private Investor.

Hello, guys, first of all congratulations on another well executed quarter. I just had a couple quick questions. There's been a lot of discussion in some of the presidential nomination debates about a eVerify initiative for border security. And I was just wondering if you guys saw yourselves playing a role in that type of future?

We obviously would be open to eVerify. It has been in existence a long time. Several years ago we actually participated with that program at one of our Navy bases. But the program has some challenges as well so do I think that's a capability? Absolutely. We could build the front-end, interface to a eVerify for an employer, if you will, a large employer, to integrate with eVerify, but it is an opportunity, but not one we are actively pursuing at this moment.

Okay. And most of my other questions have been addressed. Just one other quick question. I know that you cut costs pretty effectively, but given the demand for your product portfolio at this point, and the sort of avoidance to GV or seal out a patent, I was wondering if there was any plan to sort of expand the sales team to more aggressively market this technology in the very short-term?

Absolutely, great question. It is that when you do cost cutting everybody gets worried. Well they are in trouble. Absolutely not the case. Our situation was we took a hard look at our infrastructure and that support that we had. Predominantly we're a software company. So what Target bought, what Wal-Mart bought, what AT&T bought. That was already developed. If I sell to 10 or 15 more retailers it takes no more resources. To your point on sales we hear that message loud and clear from our investors all the time. We have solid products in all three divisions. I have to increase my sales force. But we've done that. I added a salesperson on the West Coast as recently as in the last 30 days. I added a Director of Business Development to address government identity as well as the wireless space. So your absolutely right and we will continue to do what I call organic and inorganic sales growth. We will continue to look for more sales people to put in the company and we will start to exploit our Partners -- our hardware guys specifically and use their sales channels to take our solutions to market.

Okay, great, thanks for taking my call.

Thank you.

Thank you. Vladimir Spiro, private investor.

I would like to ask you about a year ago (inaudible) was having a conference with you and you were talking about airline security and then I got enthused about the company and I bought a lot of shares. But nothing materialized from that yet. Can you elaborate on this issue?

Absolutely. Thank you first for buying the shares. But we continue to move on in the airport segment but understand that there is multiple ways to sell to the government. It was our best government quarter since the merger 3.5 years ago. The airports as well as seaports continue to be an opportunity for us. We are actively marketing that. We obviously in that case that was the Senator Schumer's decision to move on -- do a press conference. We will continue to find those opportunities in airports, seaports and look to make announcements and have some wins in that area in the very near future.

Thank you.

Thank you. Arnus Coponegro a private investor.

Yes, good afternoon gentlemen and congratulations on the second quarter in a row. A couple of questions. First of all, can you give us an idea maybe add some color to this, if you didn't do another dollar of new business for the next 12 months, what you're base would be? And secondly, on the TWIC's card, do you know how many TWIC's cards are actually out there in the marketplace issued that are retained by employees or employers of different agencies? And how many competitors are really out there providing the level of services that you guys would be doing and how do they stand against our patents? And then the third other question is what do you guys really have to do as far as obviously selling more business but to get this company to a recognizable double-digit growth level that could wakeup the street and pay attention to our stock without research?

Okay, let me try, I got about eight there Arnus so let me give it a shot. The first one is the base -- we cut costs significantly, I have the Q in front of me so obviously when we made that announcement last conference call we talked about -- we took about $2 million out in costs and I think the number was about $4 million in EBITDA over 12 months. I think that was the number we used. So I obviously, but understand that was at that moment. We will continue to look for process improvements and cost cutting measures. Regarding TWIC, I don't have in front of me --

Steve, before you go on about that, so right now at the level of growth the company is at now we are at about a $12 million annual revenues? Is that correct?

Correct. Between $12 million and $13 million. That's if we remain flat for the year. (Multiple speakers).

But if we're at $12 million or $13 million flat for the year and you're able to increase revenues by 25% or 30%, that should just flow right down to the bottom line, is that correct?

Correct. Well and then understand there's cost of goods sold. Yes let me address that a little deeper. So three things, the three divisions. So in the commercial space if your selling to a hardware, just software, that's top and bottom line. If for instance -- however it's a large hardware sale though our margins are better than most because we leverage our software, obviously that will affect. So using our margins at 64% roughly, that's what you can expect so I wouldn't say because you got to make the assumption. There are some cost of goods sold to pass through on hardware. But, let's say we sold a lot of buoys. Obviously there's going to be some expenditures there for raw material. So in theory, obviously we're much better off, but I wouldn't say it is all top and bottom-line.

But all your business the way it stands right now has a residual flow through every year.

Correct. About -- we always say 20% deferred revenue across the board.

So the way our base is working now, if God forbid we didn't do $1 one for the next year, we'd be making enough money to pay the bills, keep the lights on and obviously the cash in the bank.

Yes I'd like to think it is a little better than $1. We'd probably go to the negative there Arnus.

I'm trying to point out the fact that the attitude towards the stock is just way overboard and way under pessimistic about what the company is actually doing.

Well we thank you for that position.

All right, and can you address the other two questions? Thank you very much for making that clearer.

I've got it. On the TWIC card Arnus, there are several million out there. The question you asked though is employers -- I think that the question is if an employee leaves, that's where we start to really become beneficial because there are people out there that left an employer and should have turned in their TWIC card. And the employer hopefully did the right thing and turned the card off. So now it is on this lost list or revoked list. If you don't have a reader and now there are millions of these cards out there, if you don't have a reader you are not going to be able to visibly determine that card is no good. That is a significant security risk and a huge opportunity for our readers.

And who is really making that reader right now how do we stand up -- stack up next to them?

Absolutely. We by far are the leader in the TWIC space, but unfortunately the market's not quite as big as it could be. When we get to the TWIC rule next year in 2012, you will see a demand because currently the Coast Guard allows you to do something called a flash pass. You hold the card up, they look at it and you go through. So now I would tell you we have been head-to-head in competition in many situations lately and we are becoming a leader just like in DOD on how we are going to do the reader. We are platform agnostic on the reader. So there are-- before there were eight companies that were out there, we know of maybe two that remain in the space. So I'm not going to say that we are the only company, but we are very competitive and I won't be beat in price and ad space.

All right so there's several million cards out there floating around. I mean my son's got a card, he's had it for three years. Not once has he ever been asked to scan it through a system.

Exactly right.

So all these cards are out there, the government hasn't gotten its act together about who they want to use as a reader. And that's supposed to get turned on next year, is that what you are saying?

I wouldn't badmouth my client, the government, but I will be happy when the rule goes into effect.

Okay.

Let's see, what's the next one, Ernie?

I think you covered everything. The only other thing obviously is what we have to do to ramp up revenue to get the street to wake up and see our shares earned $0.10 or $0.15 a share in a quarter.

We're going to keep on doing what we've done in the last couple of quarters.

All right. See you guys next year.

Operator, let me take a call here -- Jim I'm sorry I missed a call.

Jim Hart, Dominic & Dominic. Following up the question regarding the Schumer visit a year ago June. He had sent simultaneously a letter to Napolitano at DHS, do we know if she responded to him or to anyone?

We do know -- I would refer you to Schumer's office, the comment on the position, however, their response was we're in the middle of acquisitions and we will have no comment for some time.

Because it was a quote unquote pool of $50 million that had been set aside?

Correct.

And that pool has now been --

Congress de-obligated that funding from DHS for not spending the money.

Thank you.

Yes sir?

I wasn't knocking about having a research report (inaudible). In fact let me get the stock question out. I'm going to hire and airplane to write in the air. IBM (inaudible). Just a thought here. I've been thinking about the technical part of the stock price, everything sounds wonderful except the fact that it sits there like a dead rabbit. Have we thought about maybe going to NASDAQ, where at least we will see more than 100 shares traded every two minutes? I followed the stocks for 50 years. I never seen a stock trade like this. 100 shares, 20 minutes later, another 100 shares on the offering, - and then if you buy -- (Inaudible) buy 500 shares of stock executed at $0.93, the minute I bought it, some guy turned around and sold it for $0.91. Wouldn't that -- I don't know if you ever looked at this, but there is a little more maybe give and take and maybe more interest if we were to get off the American which has long been the Home of Horrors for years. Have you looked at it? Maybe you can't get on. Maybe you're not eligible.

There are certain requirements to get to NASDAQ. But let me go beyond that if I can talk -- we continually look for one, to help the shareholders or address that issue, liquidity and price. We understand that. We constantly look for is this are we on the right market exchange? So we will continue to that but we bring that to the board, the board also brings it up from time to time. IRG, our investment relation firm, we use them as counsel to say what you guys think? What do we do? And we do a lot of analysis on that on a continual basis so yes. Is it something that we look at all the time? Absolutely.

Are we not qualify to move there now? Is that one of the stip --.

I don't remember all the rules off the top of my head -- but I currently do not believe we fulfill -- meet the need -- or the requirement for the NASDAQ. I know it is $5 in market cap and some other things. I think without giving specifics I know we look at --

Well $5.00 (Inaudible) to go on the bulletin board.

Exactly. We agree.

We don't meet the criteria currently for listing on the NASDAQ. We had looked into this previously. Most of the traits that we have currently on the company are electronic trades, approximately 80% of the trading is not going through the AMEX anyway. It's coming from the NASDAQ. It's coming from the other third-party markets as well as electronic trading.

As you noticed, IRG and the CFO started huddling, and the chairman (inaudible), while I was talking. That goes to my point. We look at this continually. I recently went to an event and heard someone do a presentation on this very issue. Does it this really matter any longer in today's electronic age what board, what exchange you're on? I don't know, that's a great question.

You had been around longer than I am. You know the NASDAQ has their trade is different than AMEX exactly. Than AMEX or the New York Stock Exchange so an exchange counts a trade is going through once. NASDAQ counts it as the buy and the sell. You've got double the volume on any given day. (inaudible)

And for those of you on the line of that was Diane Grizelle our CEO of IRGR Investment Relations. Yes, sir?

Steve, someone mentioned Senator Schumer. I've never in my career seen a United States senator as he did when Diane brought him or whoever did, had written him a letter, out to the company. And when I heard that I thought, you know, he is such a TV want to be that he will be on every nightly broadcast. Now that was great for the stock. If he came out the way he talked about it. But what I think it really does, would do -- it alerts throughout the country, all those people that have no idea what Intelli-Check does, and so you know something, I'm the chairman of a power company we better put this in the nuclear plants that we have people going in, but the business that it would carry. Is there any way outside of a generous campaign contribution that Schumer might come to Jesus (laughter) if he had to come to do it?

Well let me represent IDN's position we a company do not make political contributions so I will leave that to the individual. But that was Senator Schumer on his own. So he recognized our technology, he came to visit us. We continue to do that. We believe we have a strong company with a great product. We think you will continue to see that level of interest. We are going to be the great micro cap story that we have a significant level of interest. I'll let my board member Mr. Guy Smith address your question.

(inaudible) to your question about political contributions, corporations cannot give at federal level. It has to be through an employed political action committee.

I was being a little funny about that. (laughter)

I thought you were trying to get me fired. (multiple speakers) Statements made by board members does not reflect the position of the company. Yes sir?

Phillip Lickman, Investor. Last year at your meeting you mentioned that the short position on the American exchange or IBM was over 1 million shares. Or close to it. How is that position now? Because of the volume?

This morning I actually looked that up. And you raised earlier today actually. Pete just told me about [250,000]. I just checked it about an hour ago it was about [240,000]. Nelson went to an event in D.C. not too long ago and he actually got an award for -- our short position was so low and that was back what you remember. A short position now is even less.

That's good.

No it's bad. (laughter)

Yes I don't believe it was over 1 million at that time. Any other questions here in New York City?

In regard to Mr. [Bengal's] question, Senator Schumer did make a very good press conference. But in addition, Senator Patty Murray who is the Co-chair of the Debt Committee, Senator [Monovich] who is on the Homeland Security Committee, and Senator Maria Cantwell who is very much a high-tech Senator, used to be a Senior Vice President (inaudible) -- all four senators wrote Secretary Napolitano a letter saying look at this technology. So many Senators are advocating a similar approach that it's time to look at new technology,

So the free dinner has go to Napolitano then. Yes sir?

So yesterday your mentioned that you were working with the Port of Authority about installing your product on the buoy's on the ships coming in through the harbor. Now I see -- back up. I live out in the on the island and when I go down to Long Beach or Jones Beach they are all lined up, all the freighters and the tankers and whatever in a row you can see them for miles and miles waiting to come into the harbor. How far have you gone with this idea? Have you been able to get anywhere with it? I know you're on the Potomac. You installed one on the buoy in D.C. But I was just curious how doing with New York?

We're doing great. As I mentioned, we just got $3 million to do the integration, as the government is calling it. In other words, where is this going to live? Is going to be here in New York owned by the Coast Guard? Is going to be in Delaware? We have interest both state local there as well. So yes, that gap period that we had, the 2.5 months to get that contract online, that slowed us down a little bit. But one of the other IRG member, Enrique, that distinguished gentleman in the white jacket, it is not my pretty face that got me on TV it is Enrique. So that's what we're doing. We focused IRG to launch a us with Adam Landers investors, Enrique handles PR and what they do is try and get the story out. So that's what you saw on TV. If you look on our website, those clips, that's intentional marketing. That's not by chance, that's by design. Now we have this money to complete the research and development and move into commercialization so where very happy where we're positioned with the buoy system.

Thank you. Can I make the following comment. Shortly after 9/11 there were a number of different studies that were done on about how do we best protect the homeland. And one of the things that came out of the study is we should probably start as far out on both the East Coast and the West Coast with a series of channels, the channels built by buoys, where in fact ships have to pass through before they continue their entrance on either to the West Coast or the East Coast. And so I think this aspect of the buoy's and where we are going with it is certainly very, very positive in that direction of our (inaudible) that was looked at a long time ago by how do we implement? It is through a buoy system that will be used.

Well I was told that there's a certain lane that the ships have to use when they come into the -- before they get into the harbor. I owned a boat for many years and they say don't go near this particular area. You can only go out certain far. And don't hang around within those lanes because those ships can't stop.

Let me -- for the folks on the line, the gentleman that was just answering the other gentleman's question is General Buck Bedard, one of my board members. So he has a little bit of experience in the Marine Core and the buoy world. But to answer your question on the channel, yes, that's what you're referring to is the channel. If you look in -- you have to make sure not in the way of the ship obviously, but our system has the capability to reach far beyond the channels. So we don't need to be in the channel, but we can light up the channel.

Well it makes it a lot simpler if you know where to put them. Because then they all come through right on the --

Absolutely. And you can do several miles. So let me wrap it up with one last question, the caller on the line. Operator, this will be our last question, go ahead please.

Richard Carr, private investor.

Hello, thank you for taking my call. Can you tell me the potential size of these three segments of your business? If you got -- what's the potential or the size of these businesses?

Thank you for your question. We don't really provide projection or size or growth capability. Obviously, there's some things we can do to increase the number. We don't really have it scoped out to say this could go to a gazillion dollar business. We just don't provide those numbers. Obviously we'd like to be very optimistic and provide really big numbers, but I will be here next year and you will be very mad at me if I don't make those numbers. So we really don't provide projections, but if I do a good enough job helping you understand the capability hopefully you can identify how big the market can be.

With that, I would like to thank everyone attending here in New York. Thanks to callers for calling in, great questions. And we will be with you on the next conference call next quarter or actually it will be at the beginning of the year so thank you, everybody. Have a great afternoon.

This does complete our conference call for today. You may disconnect your lines at this time.