Intellicheck, Inc.
Q2 2013 Earnings Call Transcript

Published: 6 Aug 2013

[Operator:]

Greetings, and welcome to the Q2 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Enrique Briz, DGI for Intellicheck Mobilisa. Thank you, Mr. Briz. You may begin.

[Enrique Briz:]

Thank you, operator. Good morning, and welcome, everyone. Thank you for joining us today for our 2013 second quarter conference call to discuss Intellicheck Mobilisa's results for the quarter ending June 30, 2013 and to discuss other business developments. In a moment, I will call upon our CEO, Dr. Nelson Ludlow, to lead today's call and introduce the members of the Intellicheck Mobilisa management team, who will be participating in today's conference call. Before I do that, I will take a few minutes to read the forward-looking statement. Certain statements 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 assumptions made by and information currently available to the company's management, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the company is under no obligation to -- and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the heading of Risk Factors listed from time to time in the company's filings with the Securities and Exchange Commission. Management will use the defined financial term adjusted EBITDA in today's call. Please refer to the company's press release issued this morning for further definition of, and context, for the use of this term. I would now like to introduce Dr. Nelson Ludlow, Intellicheck Mobilisa's Chief Executive Officer. Dr. Ludlow?

[Nelson Ludlow:]

Good morning, shareholders and investors, and good afternoon to our East Coast listeners. Let me introduce who we have on the call with us today. Our chairman, Admiral Mike Malone; and Director Woody McGee, are on the call. Also, our management team of Bill White, our CFO; Bonnie Ludlow, Senior Vice President and Director; Russ Embry, our Chief Technology Officer; and Mark Armstrong, our Senior Vice President for Sales, are joining me as well. The outline for today's call is to present the Q2 financials, to discuss our products and business plans for Q3 and the rest of 2013, and to allow an opportunity for the shareholders, for you to ask questions. Revenue for Q2 was about $1.72 million, which is well below Q2 for 2012, but above 5% growth from the previous quarter, Q1 of 2013. You may remember, 2012 was generally poor in revenue for the year as a whole, with the exception of a large TWIC program purchased by the Port of Hawaii, which was credited in Q2 of last year. We posted a loss on adjusted EBITDA of about $647k, and P&L was about $919k loss or $0.03 EPS loss, which was essentially identical and bottom line to Q1. So while the bottom line was flat and revenues were slightly up, the good news is that backlog was $1.14 million, which is up from the $782k the previous quarter, so up 46% over Q1. Even better news is that new bookings, and new bookings to me is one of the best indicators of future direction of the company, was $2.165 million, which was up from the $928k in Q1. So new bookings were up over 133%. Now some of you can see this company changing, so let me elaborate. First, the company is shifting focus away from the wireless space to focus on our strength, which is our identity systems. We will continue to do our enterprise wireless work, but we've shifted resources away from the previous Navy buoy program. I had projected this in a previous conference call, but we've enacted it. The security buoys, they have a long sales cycle. They often require foreign military sales. It's expensive to support a live working demo system. Now that the Navy contract has ended in 2012, we shifted our resources away from that program. While we still retain the intellectual property and the ability to manufacture buoys for future sales, management has purposefully focused its resources on the identity systems. Further, we've also cut costs. We closed our office in Washington, D.C. and reduced labor at all of our locations by nearly $1.0 million annualized. Most of this labor savings was started in late Q1 and during Q2. So the savings from that are expected to really show in Q3. We did not sacrifice sales and we did not sacrifice software development, but we did reduce costs. Further to aid cash flow, I want to mention that the Board of Directors deferred their board fees in Q1 and again in Q2. I deferred all of my salary as CEO in Q2 as well. When I returned as CEO late last year, I predicted that as we rebuild the pipeline and build revenue, that our cash flow would be the most difficult in the midsummer 2013 time frame. Therefore, the directors and management took steps to responsibly act and to repair when the board decided in early January to defer their board fees. I want to thank them for doing that. In accordance with accounting rules, the P&L, EBITDA and accounts payable showed these correctly as cost, as if the CEO salary and director fees were paid. And so, really, what it was is to help the cash flow. So while we're transitioning, we monitor cash closely. I looked at the cash position of the company just this morning and it is already above where we closed Q2. So it just takes some time to turn around a company, and in terms of sales, we had a better May than April and we had a better June than May. An indication to Q3 already showed that it's been likely better than Q2. However, we have to keep the effort up. We will continue to push on innovation, new products and strong customer support. Now this worked well for us as a company before and we emphasized these basic tenets now to grow and to keep that revenue. Most important is our new focus on recurring revenue stream, particularly Software as a Service or SaaS. Now we offer this service to our new customers, and over time, we'll be shifting our existing customers to this model as well. Customers pay a monthly or an annual fee to the services they use. So starting in July 1 of this year, we began offering this new Software as a Service or cloud computing for $99 a year per point or per device. We offered some discounts for high-volume purchasers. They get better services. Their applications interact directly with our servers. They always get the latest version of our software. We emphasize software over hardware, which gives us better margins. And this "pay as you go" method means an easier initial entry for customers, particularly if they purchase it via an OpEx expenditure instead of a CapEx. Not only is this a win-win for our customers and the company, but shareholders who'll find it provides a more predictable revenue model. I'd be happy to address any of our many products in Q&A, but let's talk about a few specific ones right now. Let's talk about the status of our wireless project, the new TWIC readers and our new release of our barZapp product. Then after that, let's discuss what the new products are in beta test right now and expected to be released later in 2013. This includes 2 new tablets, our law enforcement app, and a new product, and a completely, new market by adding Mexican driver's licenses. So let's talk wireless. The wireless team successfully completed this large wireless infrastructure himself in Western Washington on July 31. They worked hard, they did a good job and they're already working on 2 new wireless projects in Eastern Washington that we expect to be completed by the end of September. In the wireless market, it's a good transition work for the previous buoy team. There are several forecasting groups who said enterprise wireless in North America to grow at nearly 20% CAGR. So let's talk about identity systems, now TWIC. Just about a week ago, TSA announced their first sanction [ph] products by publishing the TSA Quality Technology List or what they call QTL. To receive the certification, a company must submit its product to an approved, independent third-party lab to conduct 140 rigorous tests required by TSA. I'm pleased that 2 of our products, both mobile TWIC readers, successfully passed all these tests and were published on the QTL list reports to purchase. As of today, we're the only mobile TWIC reader approved by Homeland Security. Just a couple of days ago, they added a TWIC reader by another company. We're the only -- the 3 of our products are the only ones on there. We're confident that we have a great product for several reasons

[Billy Joe White:]

Thank you, Nelson, and a good day to our shareholders, guests and listeners. I'd like to discuss some of the financial information that was contained in our press release for the second quarter ending June 30, 2013, which we released this morning. We anticipate that our quarterly report on Form 10-Q will be filed with SEC this afternoon. Revenues for our second quarter ending June 30, 2013, were $1.72 million compared to $3.44 million for the previous year. Identity Systems revenues decreased to $1.32 million compared to $2.84 million; and wireless revenues decreased $400,000 compared to $600,000 last year. Revenues for our second quarter ending June 30, 2013, were up 5% or $90,000 compared to our first quarter ended March 31, 2013. Identity System revenues decreased $30,000 and wireless revenues increased a $120,000 compared to last quarter. Booked orders for the 3 months ending June 30, 2013, were approximately $2.17 million, down 26% compared to $2.95 million in the second quarter of 2012 and up 133% from $930,000 booked in Q1 of 2013. Our gross profit was $960,000 for the quarter or 56% of revenues compared to $2.23 million or 65% of revenues for the second quarter of 2012. A decrease in GDP is primarily due to lower margins on the 2013 wireless revenue due to a large equivalent component to that project. Operating expenses, which consists of selling, general and administrative, and research and development expenses decreased 13% or $290,000 to $1.88 million for the 3 months ending June 30, 2013, to $2.17 million from the Q2 of 2012. Adjusted EBITDA for the quarter ending June 30, 2013, was a negative $640,000 compared to $350,000 in the quarter ending June 30, 2012. The company posted a net loss of $920,000 for Q2 compared to a net income of $60,000 for Q2 2012. As of June 30, 2013, our backlog, which represents noncancelable sales orders for products not yet shipped and services to be performed, was approximately $1.1 million, increasing 45% over the $0.8 million at March 31, 2013, and 21% over the $0.9 million at June 30, 2012. Interest income and interest expense were negligible and we have a net operating loss carryforward at $42 million. Now I'd like to focus on the company's liquidity and cash resources. As of June 30, 2013, the company has cash and cash equivalents of $595,000. Working capital, defined as current assets minus credit liability, is negative $645,000 and total assets of $19,140,000 and stockholders equity of $15,930,000. Our cash and receivables exceed our current payables by $490,000 and the company has not used any bank financing in 2013. During the 3 months ending June 30, 2013, the company used that cash of $480,000 compared to using $830,000 for the 3 months ending June 30, 2012. Cash used by operating activities was $520,000 compared to $820,000 in 2012. We used $34,000 of cash in investing activity in 2013 compared to $28,000 in 2012 and generated cash at $70,000 for financing activities in 2013 compared to $12,000 in 2012. During 2011, the company entered into a 2-year revolving credit facility with Silicon Valley Bank. The maximum borrowing under the facility is $2 million. Borrowings under the facility are subject to certain limitations based on a percentage of accounts receivable as defined in the agreement and are secured by substantially all of the assets of the company. At June 30, 2013, there were no outstanding borrowings, and unused availability under the facility was $930,000. The company is currently in the process of renewing this facility. We currently anticipate that the available cash, as well as 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. As Nelson said, we've recently applied for a renewal of our universal shelf registration statement 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 1/3 of the market cap held by non-affiliate shareholders in any 12-month period. Before I turn it back over to Nelson, I think it's important to note that when he took back over as CEO of our the company, our backlog was essentially zero, our bookings were anemic, and we have stopped innovating as a company. Since his returned, we have launched 3 new products and have had several others in development. Our new bookings and backlog have taken a positive turn. And as previously noted, we've revamped our business model to a software-as-a-service recurring revenue model and have reenergized our sales force. Nelson and I are both directly involved in increasing sales and bringing new and relevant products to market. I'll now turn it back over to Nelson.

[Nelson Ludlow:]

Thank you, Bill. Appreciate that. Yes, we have a whole company focused on sales, and that's what it's all about. And you're right, Bill and I travel a lot in the sales and that's what we're focusing on. So thank you, Bill. As several of you know, the company policy is that we don't give out financial projections. However, you can see we've made several changes to our structure, our business model and we've added several products that are already launched and several more on the way. So let's take questions. We'll do our best to answer any question anyone has. [Operator Instructions] So at this point, let's begin. Operator?

[Operator:]

[Operator Instructions] Our first question comes from Amy Norflus with Neuberger.

[Amy Norflus:]

Can you -- a few questions and I guess, then I'll get back into queue. My first question is on the new listings. Can you kind of tell us a little bit what's in the new bookings and what of that is part of the January 14 announcement of the new retailer that was declined ID verification? Is that the same utility that you referenced in the script or is that a new relationship with the retailer?

[Nelson Ludlow:]

Okay, yes, Amy. First of all, thank you and yes, definitely, it's a team effort and that's -- we have less people than we had before, but I think I'll quote somebody else in the company that said, "Yes, but we're all working twice as hard." So it is a team effort. The new bookings, we're pleased to see that come up. Actually, it wasn't one -- just one area, it came across all across the board. We had some wireless bookings that came in, we had 5 different TWIC ports had purchased the product and we also had commercial sales come up. May was better than April and June was significantly better than May. And we're starting off bids for Q3, but I don't want to say it's a trend yet, but we are trying to make it a trend, and so that's for sure.

[Amy Norflus:]

How long does it take for those new bookings to turn into revenue?

[Nelson Ludlow:]

Okay. Well, they're all kind of all over the map on that. There's a few small ones that actually go out over a 2-year period, but most of them are recognizable in Q3 and some in Q4. So mostly it's right away.

[Amy Norflus:]

And are the new books -- so the new -- and then what about the backlogs? For the backlog, do I add the new bookings plus the backlog?

[Nelson Ludlow:]

The new bookings go into the backlog that we haven't recognized as revenue yet.

[Amy Norflus:]

So revenue will be backlog plus new bookings? So for the -- new revenue is going to be backlog plus bookings?

[Nelson Ludlow:]

As we start chipping away at the backlog, we'll convert that into revenue. And so a portion of that -- I mean, really -- and that's the right way to do it. The right way is to get Q3 revenue, we need to already have stuff in backlog and already in the hopper, so yes.

[Amy Norflus:]

So basically I can look that we have -- say it's about $3.3 million of business that should be recognized over some time frame?

[Nelson Ludlow:]

Over some time frame, correct. We're not making projections for Q3. But to get Q3 revenue, yes, we -- in reality, you need to have it already in backlog. And you can see, our backlog was up 40-some percent and our bookings up 133%. That wasn't by accident, that was by direct effort by our salespeople.

[Nelson Ludlow:]

And let me comment on the new retailer. The new retailer that we announced in January, we did some additional work for them and received another payment that credited into Q2. And what I really like about this new retailer is that it's a new bank for us as well. Most of these retailers have a bank behind them that underwrites your credit card. This is a new bank for us and in the past, when I was CEO before, one of the ways we were successful is we do a really good job at taking care of the customer. The bank notice that and actually, they led us to other customers and other retailers because they also want more people to get their credit cards. So it's a win for the bank, it's a win for the retailer and it's a win for us. So it's a good sales approach to do and our goal is to keep that customer as absolutely happy as we can and they got -- they did some more work with us in July -- or in June, rather, so we're very pleased with that.

[Amy Norflus:]

And this is a different retailer from what you talked about on your script. So there are 2 retailers?

[Nelson Ludlow:]

That's a different retailer. The retailer that I spoke about in my script is starting a pilot test, let's say, of 20 stores. But here's what's cool about it. There's another way we shifted the company. In the past, we would sell, and this is important, we would sell a big enterprise license for across all their stores. So they have to pay upfront. They got to do a CapEx, they got to bite off a lot up upfront. Now if I were them, and this is how it works, they would say, "Well, you know what, before we write you this big check, I want proof that this is going to work." So they test it out in their IT department and they'd say, "Well, let's go try it out in 20 stores." And then they say, "Cool, I like it. Now let's roll it out storewide." That's when we get paid. This is a mature product. This thing works. It's what I would call a shrinkwrap product. Our technology works, our softwares is good. So under this new $99 a year per point, per point-of-sale, per device, per lane, however they have it set up, and we do give discounts when it -- it's a big store buying a lot. They -- instead of doing a test, they will buy 20 stores. So if they're, let's say, trying hand devices out per 20 stores, so that's 200 devices, they will purchase 200 devices from us to test. And then if they grow, they will buy more and more and roll out. That's better for us because we get revenue right upfront rather than doing all this work for a test, we get paid because they're buying it. And it's credit for them because they'll just roll it out over time as they roll out throughout the rest of the stores. So our customers seem very pleased about it already and we're pleased with it, too. And let me add one more thing, that's probably the most important -- sorry I'm hitting on all these things, you can tell I'm kind of excited by it, is it's not pay upfront and then we would try to get a little bit as a reoccurring revenue every year, it's $99 per point per year. Why? Because we're providing a service and every year they pay us a very reasonable fee. We've explained to them how -- for just a few pennies a day, that they can actually put driver's license reading right into the point-of-sale. And so people can apply for a credit card right as they check out. So instead of just paying one big check upfront, we'll get paid every year as we update the state's driver's licenses and shareholders would be -- should be happy because now, we have a much more steady revenue. When I took back over as CEO, the thing was in a downward direction of bringing in new business. And the problem with that is, well, good, we made a few sales before, but now what do we have? We need to emphasize recurring revenue streams. That's what's so cool about software-as-a-service.

[Operator:]

Our next question will be from Steve Rudd with USIP.

[Unknown Analyst:]

One -- just, first, one observation and I think it's important. Obviously, you're selling, but I think you have an easier way to get to the market, which is to go through the State Liquor Authorities. State Liquor can mandate that where possible, those who are selling liquor are required to -- or where available, those selling liquor are required to have [indiscernible] and you can state that where you may be the only product in the town that does that and so that would naturally drive the customer to you and the liquor commissioner, once they put that out, everybody has to buy your product. So you can contact them directly and further, you can even for free, reach out to MAD and they have a very good network of people in each of those states and certainly have an interest -- mothers against drunk driving, certainly have an interest in underage sale. So sometimes it's easier to sell from the bottom up. So I would like to suggest that. The second thing is, just to be clear, that product basically has no -- very minimal revenue to the moment, is that correct?

[Nelson Ludlow:]

Yes. Steve, this is Nelson. Yes, it's low revenue, very low revenue right now. As we start converting it, it would go to what I would say a modest -- I've never claimed it's a super large generator. However, you do see that is a large potential total available market and all of the things that you've mentioned are exactly the right way to do this. We're contacting large, alcohol-related national organizations. We've already spoke at a few of them. We're looking at value-added resellers, but looks like MAD and particularly the Liquor Control Board -- now all 50 states do it differently, so that's okay. We're used to having all 50 states doing it differently. That's one of the reasons we're in business because we look like software for handling all those driver's licenses and each state does do it differently. So that's the right approach, is to work with those organizations. You know what? What's the cost of reducing teenage drinking? Bill White and I were looking at things just yesterday, where it said 32% of all college kids by their sophomore year have a fake ID. Somewhere in the neighborhood of 60% of high school kids who drank alcohol within the last month. So it's a problem and we are trying to do this in a responsible way. This is not an item that's a Big Brother item or state will hold on to information. They don't even save the address, where the bar can't send out junk mail. People can't stalk them. So we're just providing the right information to protect the restaurant, and at the same time, to protect kids.

[Unknown Analyst:]

Okay. So by the way, you can -- as you enter this political season [indiscernible] for an issue that is basically noncontroversial and they can seize on something like that and [indiscernible] But I'll [indiscernible] has to do with the issue rule [ph] on your set? Additionally, just for banks, I'm not quite sure I understand the bank products, but I -- to me, there seems to be a tremendous applicability to decide [indiscernible] and on the local branch, I've had 2 friends who were victims of identity theft. One an Asian person and a non-Asian person went into her bank with a fake ID and withdrew money. And the reader in banks, which has certainly has deep pockets is a tremendous loss saver. So there's a further idea. But let me ask you this, you have this shelf registration, you've amended it. What [indiscernible] are you issuing additional securities? Have you sounded out a market for pricing? Where are you really headed on that?

[Nelson Ludlow:]

Okay. Steve, you cut out a little bit, but I think I heard most of it. But at least in our end, it was cutting in and out. The first item about trying to work noncontroversial items with legislation in Congress, I think that it is a potential and as this starts rolling out, that's an opportunity. For us, it's worth that. The banking industry that you talked about and fake identity, the only thing easier to make than a fake ID is probably a fake check, and in fact, there's software you can go to places and just get it online and write your own check. It's a really difficult problem for people with banks for sub $200, $250 checks and people want to cash them. It's really a problem for them and it's something that we need to go after. I don't quite know the perfect product yet for that, but we're working on it. And also online identity is also the perfect -- the big thing. So I've outlined in my call today what the next set of products are coming out over the next quarters. But the really holy grail on all this, obviously, is online identity and solving that problem with the banks. Huge numbers of dollars, problems in that area. Let me just say one more thing. Although it's not a huge moneymaker yet on barZapp, it is really cool in having people being able to take this product and be able to show someone else and we have someone take it and then show his boss and she was able to look at it and say, "Hey, what a cool thing. I see instantly what this technology is. I don't need to see a PowerPoint. I don't need to see information about it. I instantly understand what Intellicheck Mobilisa does." And having that app out there for someone to download for $1.99 and put on their phone so that we can make more retail sales and government sales, that's a good thing. The last you comment was the shelf registration. This shelf registration has been in place since July 2010. It's essentially -- it's identical to the one before. I want to have it in place to be responsible that if and when a company needs to raise cash, we'll do it. I'm not going to say we'll never raise cash, I'm not saying that we're going to do it tomorrow, but I do want to have it in place. And I have it reserved on previous calls that if it makes sense to do it, we will do it. I know a couple of shareholders have asked me to make a claim that we'll never do it, and I'm not going to say that. The right thing to do, particularly with a company that's managing tax very tightly, is have a thing in place if it makes sense. Sometimes, when launching new products, we need to have an increase of expenditure to support that new product launch through marketing, through PR, through increased sales activities. And so it only makes sense to do that. Also, if acquisitions make sense in an organic growth, you'll have that in place. Mainly, the way I look at this is it's a responsible thing to do to have it already lined up, so that's what we did. Thanks for your questions.

[Operator:]

Our next question comes from Victor Castellan with Genvis.

[Unknown Analyst:]

My question is, and it may be a little bit premature to discuss this or to predict this, you started out with the with the #3 most paid for application on the Apple iTunes Store or application store. Now, those are converted over to a subscription, is that correct? Subscription service? In 30 days or beginning August 1? Is that a cut off date or do they...

[Nelson Ludlow:]

No. The product -- the $1.99 app, they can just use for as long as they want. It's a demo. It's a limited product and isn't time limited. In fact, under Apple's rules, you're not allowed the time limit any the app. But you are allowed to limit it by features. And so it's limited in features and it's limited to only 10 scans a day.

[Unknown Analyst:]

Okay. How many -- I don't know, but how many subscriptions have we -- like I said, it might be premature, we're -- and we're only in the first week of August, but has there been any subscriptions to a larger platform? Did they have...

[Nelson Ludlow:]

There have been, and we had some people already convert to annual subscriptions within a single digit percentile of transfer over, which is not unexpected for an initial launch and not unexpected for -- when you first launch a product, you get a lot of people going, "Wow, what is this? I want to see what it is." We had different groups download it and as we start working with their the national organizations, that's when I would expect we would get a better conversion rate of people finding us through subscriptions. And we're going to use with direct sales to go after national restaurant chains and these national alcohol reselling groups. But the market's big, 6.2 million people do something with alcohol that need to look an ID. So it's not a trivial sized market.

[Operator:]

Our next question is a follow-up from Amy Norflus with Neuberger.

[Amy Norflus:]

Yes. Nelson, can you talk a little bit about who your proprietary technology or proprietary patent -- I mean, the type of competition and a little bit about your advantage in the marketplace with all the stuff that you're having, with all these products that you have?

[Nelson Ludlow:]

Yes, Amy, good question. Yes, we have 14 patents. We have -- let me get the numbers right on this, we have 11 U.S., 2 Canadian, and 1 U.K. patent. We had 10 more pending and I've been working on a couple more that we intend to file over time. Of course, it doesn't mean they're going to be granted and all that. But 14 of them aren't [indiscernible] granted. And there's some good patents on this. One of them is, is that we have the jurisdiction capabilities and knowing that it's in Nebraska and knowing that Nebraska does it differently than Ohio and certain features that are embedded in it. And actually, states make mistakes from the published format that they already proposed that they were going to do. And we use that for validation that it is [indiscernible]. I know it's kind of odd, but we look for those almost like fingerprint-like items, buried inside the barcode and the formatting of how they stored it. So that's all in our regional patent. We have another patent that talks about using the American Association of Motor Vehicle Administrators that [indiscernible] has issued a format of how states should do it, and reading that format and parsing information and doing something with it is also part of our patent. Age-related products

[Operator:]

Our next question comes from Joe Bernini, a private investor.

[Unknown Attendee:]

Nelson, I look at the backlog, there's really a significant advancement, and congratulations on that. As far as the barZapp, I absolutely agree. I think it's one of your greatest marketing tools you have available on the Apple Store because it creates dialogue, people exchange it, and you're allowing the other people to market it for you, so congratulations. The one question I have is on the TSA for the TWIC readers. What is the -- could you repeat the time line again for the recommended time frame for the initial implementation in the number of ports and the second time frame? Because I truly believe that's a unique opportunity.

[Nelson Ludlow:]

Yes. Joe, thank you and thank you, Joe. In the past, you've given me some good help and advice on the gaming industry as a potential market and the things that we're discussing to figure out how to go into that market as well. To address your first comment, I appreciate that. I do believe it's a good marketing tool. We ended up in USA TODAY because of that marketing tool. And so barZapp, I think people realize, "Well I didn't know I could just use a camera and take a photo of it, scan it and see how it quick it works." So it's really getting the word out to the masses now, to the public of how our technology works. On the TWIC program, the TWIC program was stalled a couple of times, as the shareholders on this call probably realize. There's been a revitalization of it. In 2009 -- in April 2009, they required all the workers there to have the cards. So this has been quite some time going on. To me, that was the hard part. They already did that tough part of telling workers to take time off from work, go to this registration center, pay $132. The whole bunch of groups were unhappy with that. They had to do background checks, and then they have to carry this card. That's tough. 2.1 million people already have this card. So they've already crossed that hurdle. The hurdle of requiring ports to buy some readers is less in dollars, it's less in cost. It's a much more achievable step. So I really think -- that I'm glad they were finally getting in their. Here's the thing. There's a thing called NPRM. You can -- people can Google that, perhaps we could actually just post that on our website, if you'd like. It's a Notice of Proposed Rulemaking. It was TSA and Coast Guard guidance to the port, saying this is what we expect to become federal law. It's not yet a federal law, but it is their guidance. There is some discussion on whether it has to be a law or not because the executive branch is allowed to issue guidance requiring -- there's already laws in place that will allow them to enact it. There's still some discussion going on with that. Under this NPRM, they've identified 532 facilities, 38 vessels used in big like ferry systems and pay ships and then another group of 642 facilities. So that group is -- and they're supposed to do that from 2 years of the rulemaking. So this could go out into 2015, perhaps as late as 2016. It's not an overnight type of thing, but the ports know it's coming. And that's why we've had 5 ports already buy our products this year before we even came out on the list. And to me that means, they know it's coming. And now that we're out on the list -- my favorite book Crossing the Chasm by Geoffrey Moore, that talked about early adopters and early adopters by standard. They don't pick on cost and they're not trying to be the most innovative guy on the block. They want to know what's been approved. In this case, TSA has already came out with a list and said Intellicheck Mobilisa has 2 mobile readers that are approved. So if you're a port and you're about ready to buy, you're going to buy from somebody on that list. That's the way not to get in trouble. It's the right way. No one will throw a rock at you for being -- making that decision. So good on us for the hard work we did on our development team and the guys that -- and we had to pay money and lean out and do this. But we -- the hard work for us has been accomplished, we got on that list. So -- but the answer -- maybe the long answer, the timing on that is from now throughout 2015, 2016.

[Operator:]

Our next question comes from David Rich, a private investor.

[Unknown Attendee:]

Nelson, I've been on this call now for about 28 quarters, and this is the first time I've really been happy. I think you guys have done a great job. And I'm sure hoping that when you guys decide and maybe your own stock is worth buying, a step-up of $0.75. I get one question almost every day, in fact twice, when I've been on this call, and I'm not beating up on this. But apparently, we're still paying a PR firm a tremendous amount of money. People keep telling me it's $11,000 to $15,000 a month. I have no idea what it is nor do I care. But I really feel and they feel that we're not getting exposure to places we should get exposure to. There's never anything on Seeking Alpha, Fly on the Wall, Briefing.com, Motley Fool, Wall Street Journal. We just don't seem to get there. I just wanted your comment on that.

[Nelson Ludlow:]

Okay. Dave, thank you. Yes, on the PR front, we pay $10K a month is what we do, and that's for both investor relations and for PR. So it's not just for PR. So in helping us file things, in helping us so that there's always a person to speak to with shareholders, the investor relations firm does that. We have presented in the past to some conferences, maybe some of you have seen that. We also probably -- Bill White and I have done some presentations to shareholders around the country. And I think I was at one a few months ago with you in New York City. So I welcome that. I like speaking with shareholders. I want to have those opportunities to mate this with that. Also they do press, and when I first became CEO, after combining the company, we had a different PR firm. And I think you and one of your colleagues was not too enamored with that PR firm, and I shared that view. And then for a short time, we had none. And I think you guys -- you asked about that either. And I agree with that as well. I do like DGI. They got us in U.S. News and World Report. They got us into the College edition of USA TODAY, MSNBC, Investor Daily News. We're not always getting to all the locations that we like, but this is momentum building. It's not just a one-day thing. When you do a product launch, in my opinion, it's not just the press release you put out in 1 day and how many hits you get the very next day. It's a concerted effort to push more and more and more. I have almost daily been on an interview with some -- somebody, press asking us to do it. And because of that, we got more barZapp downloads. So really, they helped us with a whole marketing program and even are working on video for us. And so to me, they're a valuable group. Yes, we do pay them something. But let me add, we also receive some warrants. When we first signed up, quite a while ago, and they have not sold any of those, they just like that. They invested in us and in it for the long haul. So I'm appreciative of that. And we're just continuing to do more and more press that -- in the group. I'm very pleased with how they're doing, and we all have to do more. We have to make more products. We have to do better as a company, and we have to do more press. So we're just going to keep heading in the same direction. But with all that said, if any shareholders or you Dave have a link and say, "I know somebody who wants to do a story." Let us know, and we'll go after that. Because as we shift from business-to-business to business-to-consumer type approaches, press is important. And we're going to keep going on -- and we need to rely on that. So thanks for that comment.

[Operator:]

Our next question comes from Ernest Caponigro [ph], a private investor.

[Unknown Attendee:]

Nelson, we've had a technology portfolio that is quite extensive, and I would think that in this environment that we're in right now, well, our phones should be ringing off the hook. But there's been discussions in several areas where people say that our technology is passé, that other people have patents and other people have scanners and readers. Can you address really what's very unique about our product and why the other barcode readers out there and the other scanners and the other companies with tweak products out there, may be inferior to us? And if someone else is using our patent, what you're doing about it to protect our patent and go after those people who might be fraudulently using our patents, and what the potential of that might be?

[Nelson Ludlow:]

Yes, let me thank you for that update, and I wrote these questions down. So let's talk about the patent. So the patents work for reading a driver's license. If you're looking at that barcode and how you decode it and how you parse it, it doesn't matter whether you do it on a desktop, on a Macintosh, on a cell phone, on a Motorola barcode scanner or however you do it. It's the software of that parsing and decoding process, that's what our patent is about. So when people claim that no, our patent doesn't cover that, they're wrong. It does cover the meaning of that barcode of the driver's license. It does not matter what hardware platform it's on. So let's talk about what we're doing to protect those patents. There was a small company that was also trying to sell a reader on Apple. They also wanted to go after alcohol-related areas. We recently sent them a cease-and-desist letter. We're going to protect our patents, and we're serious about this. This is -- the intellectual property is one of the most important parts of a company. We're a technology company, and our IP was developed by a lot of hard work a long time ago. And our attorneys, our employees and our shareholders have invested a lot in it and we have to protect it. TWIC reader, let's talk about that for a second. The TWIC reader itself, a TWIC card -- this is odd and a lot of shareholders or just general public don't understand this salient point, which is a passport and a TWIC is a government issued ID, even a military card for that matter. And how you read that is not necessarily patentable because it's an open standard that they want everyone to read it. Drivers' licenses are all over the map, and we spend a lot of hard work to read all of the ones in United States, Canada and as you see, we're adding in Mexico. How we read those has a lot of work, and it's not a common message. And so we patented the approaches of how to do that, where TWIC card itself is open and the government wants to encourage other people to do it, and there will be others. So we welcome competition in it. And really the reason is we're on the list. We've already been TSA sanctioned and approved products. There's others out there who want to be, maybe even trying to be and maybe even will get there at some point, but that's the first step. The second is we do all the TWIC cards, plus we do drivers' licenses. It's TWIC Plus. So that's our leg-up over anybody else. Now if a port wants to be able to do a driver's license and TWIC, well, we're their guys. On top of it, we've realized right upfront, if you're a big port like when we won the Port Authority of New York work a few years ago, they already have a badging system. And they're like, "Okay, the government is telling me to put a new card. What do I do with my old card? And I already got the system. I don't want to throw it away. I'm willing to add a new card into the mix, but I want it all to work together." So that was not a Homeland Security requirement. That's not part of TSA's requirement to do it. But we realized from a sales point of view, it was a requirement. And so we did. We're integrated with Lenel, we're integrated with AMAG, we're integrated to a couple other smaller systems. We put out those press releases a few years ago saying hey, we announced this new certification, maybe people didn't understand the upside of it. The upside is that if a port going to buy TWIC and they already have a Lenel badging system, they want to buy one that integrates with it, and we do. And we're getting pumped -- competitive on pricing. So -- and this is a case I'm more than happy to have competition in this. And I still think with all of that, we're the logical and best choice for TWIC.

[Operator:]

Our next question comes from Amy Norflus with Neuberger.

[Amy Norflus:]

Sorry, for the questions, but -- sorry, for keeping -- going. The restaurant that you guys signed, the restaurant chain, does that mean -- does that continue -- when you say that's a modest source of revenue, does that change the dynamics of the revenue stream?

[Nelson Ludlow:]

Okay, maybe I misspoken, and I'm glad you asked that follow-up question, Amy. No, we haven't signed up a restaurant chain. We're -- we've only been in the first month of barZapp. So we have not signed up a restaurant chain. We are speaking -- sales guys are speaking to restaurant chains and that's a good sales stream to go into. But I've not signed up a restaurant chain. I think what I meant to say on your last question is did we sign up a new retailer, which is different. And yes, we are doing a test in August of a retailer using our tablet system, where they hold up an iPad or a ET1 by Motorola and they can just scan the drivers's licenses to that.

[Operator:]

Our next question comes from Joe Bernini [ph], a private investor.

[Unknown Attendee:]

Nelson, please excuse, I just -- I had one other question that I forgot to ask it. Since you become TSA sanctioned, does this possibly open up an opportunity into the future for airport security, since you have the access to central database and you've been approved?

[Nelson Ludlow:]

Yes. Okay, great, great question, Joe. Okay. TSA has a lot of responsibilities. And so this product is for protecting ports. There is some overlap with the thing called hazardous materials for truck drivers that carry certain things for other ports or some locations in airports. It's that section where they're using this certificate -- the TWIC reader, the transportation worker ID card, and that's what it's for. It's good in that it proves that we know how to write software. It proves that we know what we're doing and it proves that our product has passed all these tests from TSA. So from that point of view, Joe, absolutely. So let's talk about the part you're talking about. Scanning a driver license in the airport. Homeland Security, 3 times has tried to launch a program where they're going to read a driver's license and that was called Credential Authentication Technology, CAT, and then the boarding pass system. And it was kind of linked, the 2 together. We were one of the first-round finalists for that. They've done some testing, lots of the big guys were involved, lots of it had to do with kiosks and the format of how it's supposed to go -- I mean the hardware end of it, like what battery you put in, what screen. Why? Because the public has to use it, and TSA has got to use it. We keep monitoring that program. We submitted to that. We recently were asked by TSA as, I don't want say a finalist, but they've asked for request for information and we responded to that and we're successful. And they asked us to present to them just a couple of weeks ago, which we did. That program had 3 starts and 3 false starts, and it doesn't mean that the government isn't going to do it. We keep monitoring it. I know there's been some people speculating on boards and places as if the program was already launched, but they really view the research -- it keeps starting and stopping. The government is looking at other things as well, like pre-check, which has been successful and is launching in areas. But the long answer, we're monitoring it. We're aware of it. And we're one of the -- we're a contender, I guess I'd say. We're still in the mix. But in -- to answer your first question, does this help us? Yes. Because it proves we're successful -- if we're successful in TWIC, it only just demonstrates to the customer, TSA, that we're a responsible, serious company that provides the right technology.

[Operator:]

Our next question comes from Erik Barbara [ph], a private investor.

[Unknown Attendee:]

A couple questions. One on the TWIC readers, I think you mentioned that you had a couple dozen ports contact you since you received 140 point approval. But do you view those as sort of short-term coming sales? Or are those ports preparing for the inevitable mandate over the next 2-year period, so it's just something that they're getting out in front of? And then the other thing is you mentioned online transaction is sort of the holy grail of what you're trying to do with the ID service. I was wondering if mobile payment transactions were also a part of that plan? If you listen to someone like Jeff Dorsey [ph] talk about Square, he said the hardest part for him is just getting -- storing data from door for various retailers. And if you go to any major city, a lot of retailers will ID even simple credit card transactions for customers. Is there some way -- or is there some kind of incorporating your ID verification software with some type of mobile payment processing, either with upfront pays or just with local retailers?

[Nelson Ludlow:]

Erik, very good questions. Okay, let me take just the simple one first. The TWIC sales and the timing of them. Since we've announced that TSA has put us on their list just 8 days ago. Yes, we've ramped up TWIC sale -- our effort into that, because many ports were waiting to see who's going to be on the list. I mean, if I were a port, that's what I would do. I wouldn't buy and tell people to start coming out in the list. I mean, so the fact that we did it, now it gives them opportunity. We have a significant ramp-up of interest in TWIC sales -- of TWIC ports. We've already had several of our salespeople visit ports just in the last week. And we have 3 different people that are all not in the office right now because they are all presenting to ports on our TWIC program. So my expectation is from short-term to get it. I'm going to wait until the last millisecond that I have to do it, and then I'll do it reluctantly. Well, there's always some in the technology life cycle putting energy into this, making it happen, and we're right there. So my view is it's sale soon, all the way throughout that 2 and 2.5 years cycle. The online transaction, online proof of who you are is the holy grail. It is something we're working on. The groups that you're talking about with the financial transactions, we're talking to the various groups in it, and I won't name specific company names and specific to what we're doing. But in the long haul, believe me, it's something we're aware of. Our company's strength is innovation and new products. And I understand #1 -- the #1 goal of the company would be able to prove who you are. And more and more people are shifting to mobile apps and more and more people are shifting to online apps. And we're aware of that. That's why, when I came back, the first thing I did is shifted us to this barZapp product that you can imagine hundreds of other opportunities. We have people that want -- that have fixed readers right now in hotels, for example. They don't want to have a fixed reader anymore. Why? Because someone spills a drink into it, the hardware breaks, something happens, someone steals it, who knows. They don't want a hardware. They want to shift to a bring-your-own-device type of a situation. Imagine an app that they can download and give to customers or particular group. They download it right to their iPhone, and now that's their device. They scan the ID, they send it to a server, which is our server. We process it and then send it to that company's server and then they can do something with it. This cloud computing method could open up a whole host of new things -- lower hardware CapEx layout from the customer. You need shifting towards a personal kind of computing, your mobile device. So we're suddenly [ph] involved in it. We're aware of it, and that's the future of the company and as we continue to grow, we have to make success in the things we already outlined -- I've outlined to you the things that we're doing in Q3 and Q4, but what we're talking about right now is things for 2014 and on.

[Operator:]

Thank you. At this time, I would like to turn the call back over to management for closing comments.

[Nelson Ludlow:]

Well, appreciate the shareholders being on the call. I especially appreciate the questions. As you can see, we're innovating. We're bringing out new products, and we're making progress slowly, but surely. And we're going to keep heading in that direction. We will say more, as products begin to launch. And we're going to push on our Software-as-a-Service for recurring revenue stream. Again, thank you, all, and appreciate your questions. Have a good day.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines At this time, and thank you for your participation.