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Intellicheck Mobilisa (NYSEMKT:IDN)

Q1 2013 Earnings Call

May 09, 2013 1:00 pm ET

Executives

Enrique Briz

Nelson Ludlow - Co-Founder, Chief Executive Officer, President and Director

Billy Joe White - Chief Financial Officer, Principal Accounting Officer, Treasurer and Secretary

Analysts

Walter Schenker

Amy Norflus

Operator

Greetings, and welcome to the Q1 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 first quarter conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending March 31, 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'll 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 like to introduce Dr. Nelson Ludlow, Intellicheck Mobilisa's Chief Executive Officer. Dr. Ludlow?

Nelson Ludlow

Thanks, Enrique. Hello to our shareholders and investors. While we recently had a shareholders called just 6 weeks ago, this allows us to update you and provide an opportunity to speak with all of you directly and answer questions. First, let me introduce who I have with me on the call today. Our Chairman, Admiral Mike Malone, is on the call. Director Guy Smith and Woody McGee are also on the call. And the management team of Bill White, our CFO; Bonnie Ludlow, Senior Vice President; and Russ Embry, our Chief Technology Officer are also joining me.

So the outline for today's call, let's one, present the financials; two, I want to discuss and talk about our new products and then; three, allow an opportunity for your questions.

So let's jump into it. The revenue for Q1 was above $1.6 million, which was below the Q1 of 2012 last year of about $2.7 million. But above about 200% growth from the previous quarter Q4, which is only 528k. So we've reduced the loss on adjusted EBITDA by over $1 million from $1.68 million in Q4 last year to about 648 -- 646k adjusted EBITDA loss in Q1. P&L was about 921k loss or $0.03 EPS compared to $0.07 EPS loss just 1 quarter before.

So in Q1 -- let's talk about the things that happened. In early January, we were awarded a contract by a major U.S. retail chain to deploy our ID-Check verification software, which we put out in the press release. Later in the month, we successfully completed the installation of an enterprise wireless project providing high-speed bandwidth to schools and libraries in the rural Spokane area. We're currently working on a number of wireless enterprise projects that are 3x to 4x larger in scope than that project and expect to complete milestones of that project in late Q2 and early Q3 of this year.

In November of 2012, Department of Homeland Security, they submitted draft guidance called a Notice of Proposed Rulemaking, or NPRM. Now the government also held an Industry Day just recently, April 15, for TWIC readers, developers and manufacturers. There's a lot of information, but let me boil some of it down. There is a group of users called Group A, which is approximately 532 facilities and 38 vessels that must have TWIC readers by 2 years after the law is enacted, which we estimate to be sometime in 2015 or 2016, would be the completion of that 2 years. So there's another group called Group B, another 642 facilities where TWIC readers are highly recommended. So also in November, Department of Homeland Security announced 3 accredited labs for a new certification program called Quality Technology List, or QTL. This quarter, we submitted 2 new TWIC scanners to a TSA-approved testing facility for inclusion on Homeland Security's Quality Technology List.

So to summarize, there's over 2.25 million TWIC cards that are issued and they belong to workers at over 2,700 facilities in over 12,000 vessels. So we've just submitted readers to be on that new QTL list. There's no one on that QTL list, it's a new program. And so we're right into the front of the pack here to do that.

Also this quarter, we sold to -- have sold TWIC readers to 2 new seaport. And even without the QTL list, we're continuing to move forward on that. And another topic, Intellicheck ID-Check FastForm software scanned the driver's license for the elder of the 2 Boston bombing suspects, which linked him to a purchase of mortar kits at a New Hampshire fireworks store. He had purchased these fireworks with $200 in cash. And because of this responsible company had scanned his driver's license using our software, they had recorded that information and then, in turn, provided an important piece of evidence to the government authorities. While we were featured in 4 media outlets just recently for the role that our products have played in helping identify the Boston bombing suspects. If -- those who are on the call today who have not seen those TV interviews, I recommend you go to our website and watch them. The link is on our website under News. It's a great short story, explains what happened, but it also demonstrates the capability of 2 of our new latest products that we're about to launch. You get to see them being used live by these reporters. So what I'm most excited about is that we built 6 new products that we're going to be releasing over the next few months. We have the 2 new TWIC readers that are in for TSA approval. We built 2 new tablet products that can scan an ID card, allowing retailers to capture customer information to improve their customer experience, to buy new products without having to wait in line. And our software will provide a mobile location for new credit card applications, all mobile, all wirelessly. And what you can see demonstrated in that TV news clip is our 2 new smartphone applications, one that allows bartenders or drink servers to scan a customer's ID to validate age and provides the proof to the Liquor Control Board that they acted responsible, thus reducing fines or a loss of a liquor license. And the other cellphone app is for law enforcement, and it allows them to do an FBI check simply by scanning the driver's license right on their own phone. These 2 products, these are very cool. To quote one reporter, "This thing is freaking fast." And the other reporter said, "Why wouldn't law enforcement use these devices at all events similar to a Boston marathon to help protect the public?" These products are aligned with our new focus on reocurring revenue model. So we're now able to lower the entry price for potential customers by reducing those upfront CapEx costs. Shifting to this reoccurring revenue model will serve to stabilize our revenue stream, provide better customer services in the end by using the software as a service model, via cloud computing. I believe this is the right direction for our company. You will see us in the coming quarters provide more energy into these identity products and particularly in the mobile and wireless applications. To me, that's the future. While focusing on these identity products, we're going to be focusing less on our buoy system. The sales cycle for the buoy sales is a long one, and what we want to do is develop and bring to market our mobile applications, to leverage our expertise and our existing intellectual property, and that's what we're going to do going forward.

Before I hand it over to our CFO, let me address a likely question about the SEC investigation. In early December, we notified shareholders that the Securities and Exchange Commission was investigating certain trades and activities concerning our stock. So briefly, we received several subpoenas from the SEC, we're fully cooperating with them, we provide the information they requested. The investigation does not involve any current employees, board members or the company itself. Now my understanding is this process takes several months and since we are not under investigation, we likely may not be notified of any results of their questioning. It is not affecting our day-to-day operations. That's really all I have to say that I can talk about on that topic.

Let's go into our financials. So Bill White, our CFO, will give us more detail on financials for Q1.

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 first quarter ending March 31, 2013, that we released this morning. We anticipate that our quarterly report on Form 10-Q will be filed with the SEC this afternoon.

Revenues for our first quarter ended March 31, 2013, were $1,630,000 compared with $2,710,000 for the previous year. Identity system revenues decreased to $1,360,000 compared to $1,930,000 and wireless revenues decreased to $270,000 compared to $780,000 last year. In the fourth quarter of 2012, the company wrote off a receivable in the amount of $670,000 related to a wireless R&D project with the Navy. Because we received information that made it -- the collection uncertain, the company still believes that it is a valid receivable but we did write it off in Q4. Without taking into account this write-off, revenues for our first quarter ended March 31, 2013, were up $430,000 compared to our fourth quarter ended December 31, 2012. Identity system revenues increased $160,000 and wireless revenues increased $270,000 compared to fourth quarter last year. Booked orders for the 3 months ending March 31, 2013, were up $280,000 to approximately $930,000 compared to $650,000 in the first quarter of 2012. Our gross profit for the quarter was $890,000 or 55% of revenues compared to $1,960,000 or 72% of revenues for the first quarter of 2012. This decrease in percentage is partly due to lower margins on the 2013 wireless revenue and a higher enterprise license sales in 2012, which have very high margins. Operating expenses, which consist of selling, general and administrative; research and development expenses decreased $127,000 to $1,815,000 for the 3 months ending March 31, 2013, or $1,942,000 for the 3 months ending March 31, 2012. Adjusted EBITDA for the quarter ended March 31, 2013 was a negative $650,000 compared to $310,000 in the quarter ended March 31, 2012. The company posted a net loss of $920,000 for the 3 months ending compared to a $50,000 net income for the quarter ending March 31, 2012. As of March 31, 2013, our backlog was approximately $730,000 compared to $1,670,000 for the same period last year. Interest income and expense were negligible, and we have a net operating loss carryforward of approximately $41 million at March 31, 2013.

Now I'd like to focus on the company's liquidity and capital resources. As of the first quarter, March 31, 2013, the company had cash and cash equivalents of approximately $1,077,000; working capital, defined as current assets minus current liabilities of $40,000; total assets at $19,220,000; and stockholders' equity of $16,762,000. The company has not utilized any bank financing in 2013. During the 3 months ended March 31, 2013, the company used net cash of $610,000 compared to generating $1,030,000 for the 3 months ending March 31, 2012. Cash used by operating activities was $600,000 in 2013 compared to a generation of $1,060,000 in 2012. We used cash of $6,000 in investing activities in 2013 compared to $29,000 in 2012. This cash was used or generated by financing activities in either quarter. During 2012, the company entered -- excuse me, 2011, the company entered into a 2-year revolving credit facility with Silicon Valley Bank. The maximum borrowing under this facility is $2 million. Borrowings under the facility are subject to certain limitations based on the percentage of accounts receivable at the time of the agreement and is secured by substantially all of the company's assets. At March 31, 2013, there were no outstanding borrowings and unused availability under the facility was $370,000. We currently anticipate that our available cash as well as expected cash from operations and availability under our revolving credit facility will be sufficient to meet our assets -- anticipated working capital requirements for, at least, the next 12 months. The company is also exploring cost-cutting and other measures to improve liquidity. We currently have effective a universal shelf registration statement or Form S-3 with the Securities and Exchange Commission. Under the shelf registration statement, the company may offer itself 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 stockholders in any 12-month period.

I'll now turn it back over to Nelson.

Nelson Ludlow

Thank you, Bill. As several of you know, we don't give financial projections for upcoming quarters. However, over the next few weeks and months, as we formally launch our new products, you'll see us issue press releases describing the new products, their capabilities and the business models associated with them. Our goal is to build into market products that people will say just as that TV reporter said about our products a couple of weeks ago, "This is awesome, and this could actually save lives."

Okay, let's take questions. We'll do our best to answer any questions that people may have. [Operator Instructions]

So let's begin. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Alex Iver, who's a private investor.

Unknown Attendee

Alex Iver, a private investor. The question is, how far are you in the development process regarding the app, and how do you plan on marketing the app to individuals and small businesses like the bars and security companies and police departments?

Nelson Ludlow

Alex, this is Nelson Ludlow. Thank you, that's a very good question. As you can see, we're launching 6 new products and in reality, I mean, it could be a cool working product, because there's a step obviously, which is what you're rightly pointing out from going from a nice working software to revenue generating product. So let's talk about the 2 iPhone applications. The first one that we intend to launch is our -- a bar application, and that's one of the ones that was demonstrated on the television. The reason that we did not go after this strongly before is here was a model prior to the iPhone. It was -- we would sell a piece of hardware and most bars and restaurants are not in any chain. So you'd have to have direct sales people literally contacting bars, going almost from location to location, location, trying to sell, in reality, a low-dollar product because they probably have some low price point, pick one, $1,000, $500. And so there's not a lot of room and it would be very expensive for someone in reality to market them. But with the change in how applications are working now, most people have smartphones. Our software works on Android, it works on an iPhone. So now we can sell through known channels, such as iTunes or websites, and to market to national organizations such as restaurant owners and bar associations and alcohol distributors and work with them and market with the larger-named groups and then, that doesn't require a salesperson to go at the location to location. It's simply just downloading an app like all of us are used to. The second thing is, it gives us better customer support. Doing software as a service, if we need to do an update because Colorado changes its format, instead of us having to go to locations and update equipment such as we've had to do on some of our military business, we can actually just change it on the server end and then, it will notify you on your cellphone there's an update. It's as simple as just seeing an update. So that helps considerably. And then the best part of it is we're emphasizing a reoccurring revenue stream. And in the past, we would sell equipment, we would sell some software and then, we'd get a much lower reoccurring revenue stream. We're not -- this will be a different approach. It will be a monthly subscription. We're holding off in giving the exact price at this time until we launch. But it will help us forecast better to shareholders where our revenue is at and provide better customer service and it's just a, frankly, easier product to sell in the market.

Operator

Our next question comes from the line of Walter Schenker with MAZ Partners.

Walter Schenker

Whomever, but it's probably Nelson, in some of the prior meetings and calls, you indicated the company is making progress toward actually generating some revenues from some of the business relationships, which were announced last year and which, for whatever reason, had not yet been able to really contribute yet. Where are we now or how are we progressing with some of those opportunities?

Nelson Ludlow

Walter, thank you. This is Nelson. Back in July, we announced via press release, a partnership with a bar code manufacturer -- hardware manufacturer. That has not generated revenue to date, and the issue is that although we have the agreement, ultimately, we have to get our products into their product lines so that they can distribute it. It's the right thing to do. We're somewhat at the mercy of the large distributor, and we're still working that. I think, as I've said in previous calls, I think it will generate some revenue. I don't think it's a huge revenue generator, but it is some and we're continuing to work that and looking at methods to actually generate our own product into their product line.

Operator

Our next question comes from the line of Amy Norflus with Neuberger Berman.

Amy Norflus

Can you expand a little bit more and help us understand the opportunities, the implementation, the competition, the challenges on some of these new products, when they'll actually be released, potential market size? Looking at our hands around it because there are many apps that have 0 revenue and there are many apps that generate a lot of revenue. And are you in touch with the right people at the right location? So -- do you need to go to a specific cop or do you have to go a police force, do you have to LaGuardia Airport if you have go to the TSA? Who are you speaking with to get some of these apps approved and what is the process? Sorry for the long question.

Nelson Ludlow

No, Amy, thank you. This is Nelson. That's an excellent question. There are different markets, so let me address different ones. Let's first start off with the government. Good and bad with the government. The difficulty of the process, of course, is it's 2013, well after 9/11. What we're focusing on is TWIC card readers. The TWIC card, we've had the product out since 2008, and we got into some big-name ports, but the government has yet required TWIC cards for all of the workers, it did not require TWIC card readers. And so it's a gap in security, clearly. It's gone through a lot of discussion, and what I'm very encouraged about is recently, they've made some steps forward. One was that they, in November, sent out this Notice of Proposed Rulemaking. And this is what we and TSA intend to require. It is not voted into law yet, but we've gone to the point of this is actually the details of what we're going to require our chip operators and our ports. So the good news is Group A has 532 facilities in 38 vessels that they're going to require to have a TWIC card reader. They're going to give these guys 2 years to do that. If you do the math, estimating the size, to 10 readers in some of these facilities, that's a fairly big number. Then they have a Group B and C, which is the other ones where they're recommending and not requiring it. There is a budget there. Last year, in Homeland Security grants, ports received over $2 billion of grant money for a variety of things. To date, $151 million has been spent on TWIC card programs given to the ports. Now most of that was for card generation or teaching people how to read them. But it does mean there has been funding there before. For us, we had already built this product in the past, we just have to go through new rounds of testing. So we submitted 2 new products to that. We expect that late this year, early next year, they should be voting on including that. If it doesn't go into law, well then, there's going to be a delay. If it does go into law, we estimate there will be 400 or 500 facilities requiring rather shortly. My view is, people will buy what's already out in some of the other locations. 2 ports already bought this from us this quarter. Okay, let's talk about the bars. The bar is going to be a lower-dollar monthly subscription. There's a lot of independent bar owners. It's going to be hard to predict until you get into it. Going to national associations and marketing is the right way to do that. There's a hospitality HITEC conference; the television industry technology conference, National Association of Restaurants, as well as several associations in the D.C. area that represent alcohol distributors and restaurants. That's the technique that we're planning on doing that. And on law enforcement, there's a couple of key companies that we -- it would be nice if we could partner with. We intend to try to do that. At the same time, we're launching a new product. To do that, we're going to either own our direct sales force, and I have 2 people working on that, that are going to law enforcement groups to start using it. That will demonstrate the use. And while we have a few couple of test locations, we want to actually be able to give our shareholders real numbers and frankly, our partners' real numbers, so as we grow this. There's approximately 3 million law enforcement personnel in the country. And in the past, we've had these larger ruggedized scanners, and I had -- a few years ago, when I was CEO previously, had set up a law enforcement advisory group. And some of that information is still on our website. Remember that, that law enforcement advisory group cautioned us very cool product from a software point of view, not so cool of a product from the form factor. It was big, where does it go on your belt, there's not locations to hold it. Being able to put it on their cellphone, that's the new breakthrough here. It took some pretty serious software improve -- leaps to get there. Plus they have cellphones already. And if you can get it onto that form factor, we believe we can start breaking into that market.

Operator

Our next question comes from the line of Ernest Casanegro, who is a private investor.

Unknown Attendee

Maybe you can explain how we can -- where do you see the greatest opportunity for us to ramp up our sales and get to some kind of a point where we're breakeven, sometime this year? And these new applications that we're making, I guess, mobile and portable, let's say, you have a typical restaurant or bar that might be scanning driver's licenses or even a commercial small store where there are several cash registers. Would they have one centralized account where each person, if they're using their own individual iPhone or their smartphone, would have to log into that system and all that information will be downloaded to a central account system? Is that the way it's working? So that anybody that's working for a particular facility could use their own smartphone to collect this information for the benefit of the owner of that operation? Is that how it's working? And what kind of real revenue stream do we -- are we trying to approach in our first year out? Just to see how this thing is working and how to breakeven as fast as possible?

Nelson Ludlow

Ernie, it's Nelson. Let -- okay, let's -- we'll talk about the restaurant, first of all. That's going to be one of the, probably, lower revenue streams. But what I like about it is it's probably one of the lowest costs from our point of view, of having to put it into sales. We'll work at some trade shows, we'll work with national retail associations, but we do not have to do the expensive, long process of building location to location. When we sell to the retailers, here's how the process works. We get in, we demonstrate some ROI. They're usually somewhat cautious because they're large companies. They want to talk to other people who have used it, and then, they say, "Fine. Let's get our IT department involved. The next step is they usually say, "We'd like to buy X number." They do some internal testing and then they tend to roll out to 30 stores for example. That's usually, again, not a very quick process. On average, the ones I've seen took 6 to 9 months while they're testing it out at these stores. And then, they say, "Okay, we would like to implement this more national-wide." From getting the end of those large retailers, we're talking almost 18 months. It's somewhat predictable because I can see how many we're in pilot stage and where we're at. But it's not quick. The mobile and wireless space, everything's shifting to that. It's quicker, people are used to it, we want to do that. So I think this is -- it will have a quicker sales cycle. But we'll be able to give you more specific revenues as we get into it. So right now it's very difficult to predict revenue of our old reading [ph] business. Here's why. Let's say we're working on a major retailer. Is that major retailer going to close a deal in June or is it going to close in July? We can't predict with certainty. I mean, we think we know how it's going to work out, but something can flood the canoe and that can have a big effect if we shift to this more reoccurring revenue stream and we have existing customers and we do a good job of innovating and making these products, which we're good at; taking care of the customers that we have, which we're good at, our reoccurring revenue stream is a better approach. And then, can give shareholders a better indication of where we are at revenue as we continue to add. And similar to Netflix, as they keep adding more and more clients, they can tell that to shareholders. It's easier to do the math. We're simplifying how to buy the product and we're simplifying the business model around it.

Operator

Our next question comes from the line of Amy Norflus with Neuberger Berman.

Amy Norflus

Nelson, can you give us an idea of what competition is out there and what you're seeing with regard to -- I mean, like, how proprietary is the stuff that you have? I mean, how many other people can read driver's licenses? What makes your product better than everyone else that's out there?

Nelson Ludlow

Good, okay. Okay, yes and I've said before -- sorry, Amy. Okay. so let's talk about that. There's really two, good different ways of reading a driver's license. You can take an image of it and you can try to optical-character read it, and there are other companies that do that. The problem with that is sometimes, it makes mistakes. It thinks it's reading the letter E but really, it's the letter F. And it makes spelling mistakes. It's also difficult because the names can be in lots of different fonts and different formats and locations. And what we do is we read a barcode, we read the magnetic stripe. And inherent into the whole concept of the barcode is error-correcting, accurate information. So if people have seen a crummy barcode that's kind of rubbed off and there's lots of gaps in it, the cool part about that is, there's still enough information to be able to validate that I have the information correct. So when we get it, we get it right the first time. And we can do it until all the back end of it -- we have 13 different patents right now in the U.S., in Europe and in Canada protecting that. So there isn't a lot of legal competitors in that space. Now let's talk about the bar applications, particularly. In the past, we have not focused on bar applications much because it was a market that we didn't think we could get into. Well, now via smartphones applications, we can. So there are a few small people that are probably violating our patents and have made a small amount of revenue to try to sell very low end because that's really all the bars are going to pay instead of equipment. The cool thing about us is we do it through the iPhone, we do it through a smartphone. There's nobody else, to our knowledge, that is on a cellphone that is reading the barcode through the camera, converting it to a barcode and then parsing it as we are pulling the information with it. And that's also what we intend to do for the law enforcement. Same thing, just with a camera on phone, read that barcode and process it. So we don't believe there's anybody doing that approach and that's frankly because of our patent.

Operator

Our next question comes from the line of Joe Bernini, who is a private investor.

Unknown Attendee

I just have a couple of questions. Regarding the firearm background check process. I understand it's somewhat of a manual process, and I don't know if you've had any advances in that area? Also tying that in with the TSA and government databases. And one last question, I noticed you've mentioned last time that you've restricted some of the trading of your insiders until the SEC investigation was finalized or at least at a timeframe, do you have a timeframe before that when that expires?

Nelson Ludlow

Joe, thank you. Okay, let's talk first about the firearm background process. We have actually already developed an in-house demonstration of how to do that. And so we'd fill out -- what you do is you scan the driver's license, it would pull up the government form and electronically format it and be able to roll it up to the Brady Center, at the FBI Alcohol, Tobacco, Firearms, which is a joint group that does that processing for the government. That's not 1 of the 6 products we're launching. We have it technically ready to go, and we're watching what the government is going to do in this direction. We're not trying to get into this argument from either side of it politically, but when the government decides how they want to do this, and do they want go with less background checks and which direction they're going to go, we have technology that quickly, we can just make the demonstration into a working product for them. So we've done the first step and we are waiting to do the second step until they roll out, until they make a decision, rather. In the interim, we're going to go with our other 6 products and start launching them out. Regarding insider, we are still currently -- have our directors and officers in a blackout, and we're discussing removing that at some point because and, obviously, you can't stay in that position forever. And that -- we realized what -- our intention is not to stay in that forever. It doesn't make sense to the shareholders. It doesn't make sense to the directors and officers themselves. We just decided to do that for a period of time, and we have not come out of that yet. But the only guidance, I guess, I'd say on that is we don't intend to stay in it forever.

Operator

Our next question comes from the line of Ernest Casanegro, who is a private investor.

Unknown Attendee

Nelson, I just wanted to follow up, I mean, we've got some great press, we've got some great product. It's just amazing that we can't get the government to get its act together and see that this product can work. What can you do to take the products that we have online that you're creating for the smartphone to go viral because, I mean, it's an app right now and what kind of publicity do you need? What kind of market do you need to get not only retail but government, local government, to find out that we have applications that can identify people as well as check out credit cards. What are you doing about that, and internally, where are we -- are we still in all the ports and airbases and the military bases that we've had over the last couple of years? What are we doing about servicing them? What's going on with that?

Nelson Ludlow

Okay, I'm writing that down. Okay, first of all, we are emphasizing less on the federal government. Now while we mentioned these 2 TWIC card reader, the federal government, they have a difficult task. Their view is they have to get it right before implementing it. I think the previous president said, "Parents only have to get it right once, and we have to get it right all the time." So the view, typically, from the federal government is slow and I think we'd all agree that it is slow. I mean, here we are in 2013 talking about these port readers. Nonetheless, we've already put an investment -- this is a marathon and we're here on the last few miles of it. So I believe that the government contention could really feel the pressure as well. They got to move out and that's why they put out that Rulemaking and we are right there at the front of the pack on this. So we're going to continue that. But we can't wait for that to start bringing in -- getting our products out there. Local governments, local police departments, these products in the retail space and in the bars, they're not required. They're not restricted by that. They do have the potential to go viral, and you got to get it to a tipping point. So we need to continue the publicity. We need to make the product a lower dollar, more reoccurring, less -- easier entry point. In the past, I've been with our salespeople and I've walked in to some retailers and we've said, here, buy this somewhat medium-priced software to enter but they also had to buy some special 2D barcode scanners. They said, we like your software, but that's a large outlay of CapEx cost for us. We're looking at ways where they can lease that. Where they can not have to use that hardware, where they can use a reoccurring revenue stream and software as a service. They get better service in a lower-dollar entry point, and we have a more predictable revenue stream in -- and longer, over term. That's how you go viral. You're not going to go viral at 80 military bases. It's going to be through the publicly owned small business owners, and so we're going to keep pushing down that direction. So you'll see us shift in a new direction. And then, we're going to partner with these associations. These associations are very tight. They represent the restaurant owners, the law enforcement group is very tight, and they tend to buy what other people have. So we're going to pick a few locations and states and emphasize our sales team to go out and do that. But we have to partner with the larger people that are already into that market, and we're going to do that. And the last question, I think, you asked about ports and airbases. Yes, we are using products at several military bases and seaports right now. And we need to do a better job of going back to them and say, here's the new version. I mean, iPhone is already at an iPhone 5, some of our defense ID applications are still in the first and second generation, and we need to offer them the new and improved features that -- some of which was already built, we just need to go back to them and say, here's the new transition model for them.

Operator

Our next question comes from the line of Amy Norflus with Neuberger Berman.

Amy Norflus

Three questions. One, how do we know when you're out of the blackout from the buyback, I don't think that was addressed. Number two, can you talk about the economics of the TWIC reader and if it does pass, what is it that we sell in and how profitable it could become? And third, can you talk about the privacy issues where people are using this software on personal cellphones? Is there a privacy issue, I mean, when it -- now you're capturing sensitive data on somebody's personal hand phone that they're using?

Nelson Ludlow

Okay. Out of the blackout period, I don't think I have a good answer on that. I think what we'll do is the next conference call, we'll notify you and be able to help you. I don't know if we can maybe issue an 8-K. But clearly, you guys deserve to know that, and we have not come out of it, and so we'll have to figure out -- let me consult with counsel and find out a way that we can let you know. But as a shareholder, you have the right to know, I believe, and let's figure out a way we can let you know that. And we'll get that resolved by the next conference call. On this TWIC card reader. It's not going to be a huge list and we're -- we were one of the first on the previous ICE List for the mobile readers, and I think this could be a very profitable program, very similar to our military base we've seen in the past. On the privacy issues, Amy, that's a very good question. Let me -- let's start with the bar application. What we do is we record the name, we record the date and time and information that we scan, we also record an identifying feature of the card to demonstrate that, that card was presented, such as the driver's license identity number. What that allows is that if the Liquor Control Board comes in later and says, "Hey, I don't think you've scanned that person's card over there." This allows the bar owner to say, "No. I did and I have proof of that." What we are not collecting is address. We're not collecting the other information, height, weight and that type of stuff. It's not displayed on the screen, and it's not saved on our system, and for a variety of reasons: it's safer that way, we don't want something go bad where someone stalks someone or a bad incident. So we purposely did not give them that information. They don't need it to validate someone's age. And of course, under the old fashioned way of doing it with your eyeballs, a person could -- and try to memorize information as well. But not in this case, we're just flat out not saving it. In the product, there is a privacy document. We're working with our counsel to make sure we get this right. We're going to take the high road on this, and just flat out not even provide. On the law enforcement, it's the other way around, though. Law enforcement system, although we demo it, few -- 5 of our people at our company have been approved to use it to FBI-check, only on our own ID cards or what they call slugs, which are fake IDs that they give us so they run the hits -- because what we're doing is -- that's a live actual test, and you have to be a bona fide law enforcement agent to actually do a search, a software person is just not allowed to do it. So we're allowed to test on our phone for demonstration and testing and the same with these slugs. And now complementary to what -- and not only do they have to be a law enforcement agent with password protection so you can use the system, the fact that they made that search is also recorded in the databases, who did it. So we're following the existing guidelines that the cops already do. So I think we'll be in good shape on both of them.

Operator

It seems there are no further questions at this time. I'd like to turn the floor back over for any closing comments.

Nelson Ludlow

Well thank you, everyone, for asking questions. They were good questions. We still have work to do, but we're making progress. And I'm very excited about these new products and the new business direction that we're heading. And we'll continue to keep you informed. Look forward to our press releases coming out on these new products, and we'll do a concerted effort to keep you informed of our progress along the way. Thank you for being on the call today.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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