Intellicheck Mobilisa's (IDN) CEO William Roof on Q4 2015 Results - Earnings Call Transcript

| About: Intellicheck Mobilisa, (IDN)
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Intellicheck Mobilisa, Inc. (NYSEMKT:IDN) Q4 2015 Results Earnings Conference Call March 22, 2016 1:00 PM ET


William Roof - Chief Executive Officer

Michael Malone - Chairman

Buck Bedard - Director

Jack Davis - Director

Guy Smith - Director

Bill Georges - Director

Bill White - Chief Financial Officer

Bob Williamsen - Chief Revenue Officer


John Bendall - JBC Partners

Amy Norflus - Neuberger Berman

Dennis Van Zelfden - Brazos Research

Jim Kennedy - Marathon Micro Fund


Good day and welcome everyone. Thank you for joining us today for the 2015 Fourth Quarter and Full Year Conference Call to discuss Intellicheck Mobilisa’s results for the fiscal year ending December 31, 2015. My name is Adam and I will be your operator today.

In a moment, I will call upon Intellicheck’s CEO Dr. Bill Roof who will lead today’s call and introduce the members of the Intellicheck Mobilisa’s management team who will be participating in today’s conference call. Following the management’s prepared remarks we will open the call up for questions.

Before I turn the call over to management, 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, encourage and similar expressions as they relate to the Company or its management, as well as assumptions made by and information currently available to the Company's management, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company undertakes 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 within the Securities and Exchange Commission.

Management will use the financial term adjusted EBITDA in today’s call. Please refer to the Company’s press release issued this morning for further definition of in context for use of this term. I would now like to introduce Dr. Bill Roof, Intellicheck Mobilisa's Chief Executive Officer. Dr. Roof.

William Roof

Thank you. Good day and welcome to the Intellicheck Mobilisa Q4 2015 and fiscal year 2015 earnings call. Today we will present corporate earnings information for the quarter ending December 31, 2015 and the fiscal year ending December 31, 2015. After our prepared remarks, we will answer questions from shareholders.

Intellicheck Mobilisa Directors and Officers present on this call today are Admiral Mike Malone, Chairman, General Buck Bedard, Director, General Jack Davis, Director, Mr. Guy Smith, Director, Mr. Bill Georges Director, Mr. Bill White Chief Financial Officer, Mr. Bob Williamsen, Chief Revenue Officer and myself.

Our Chief Financial Officer, Bill White will now review the quarter ending December 31, 2015 and the fiscal year ending December 31, 2015 financial results. Bill?

Bill White

Thank you, Bill. And a good day to our shareholders, guests and listeners. I would like to discuss some of the financial information that was contained in our press release for the fourth quarter and fiscal year ending December 31, 2015 that we released this morning. We anticipate that our Form 10-K will be filed with the SEC this week.

I’ll begin with our fourth quarter results. Revenue for the fourth quarter ended December 31, 2015 increased 39% to $1.5 million compared to $1.1 million in the same period of last year. The company’s booked orders for the three months ending December 31, 2015 excluding 42,000 in wireless bookings from the prior year comparable period increased 4% to 968,000. Approximately 80% of our bookings were attributable to our commercial products.

Gross profit as a percentage of revenues was 63.6% for the three months ending December 31, 2015 compared to 32.1% for the three months ending December 31, 2014. Operating expenses, which consists of selling, general and administrative and research and development expenses increased 20% to $2.5 million for the three months ending December 31, 2015 from $2.1 million for the three months ending December 31, 2014.

Selling expenses increased $158,000 driven primarily by additional sales people versus the prior year. G&A expenses increased $33,000, research and development expenses increased by $230,000 and were driven by continued development of our SaaS product platform that includes Age ID, Law ID and Defence ID.

Adjusted EBITDA was a loss of $1.1 million for the fourth quarter 2015 compared to a loss of $873,000 for the fourth quarter of 2014. The net loss for the three months ended December 31, 2015 was $1.5 million or $0.16 per diluted share compared to a net loss of $5.96 million or $1.24 per diluted share for the same period of last year.

In the fourth quarter of 2014, the Company took a goodwill impairment charge of $4.2 million. Excluding the goodwill write-down, the comparable net loss for the three months would have been $1.75 million or $0.37 per diluted share.

Now turning to our full year results. Revenue for the full year ended December 31, 2015 increased 6.1% to $7 million compared to $6.6 million in the prior year. As previously mentioned, the Company sold its wireless division in 2015 that accounted for $369,000 in revenue during 2015 and $963,000 in revenue in the prior year. Excluding the revenue generated from the wireless division from both periods, sales were up over 18% for the year.

Gross profit as a percentage of revenue was down slightly to 57.1% for the year ending December 31, 2015 compared to 58.2% for the year ended December 31, 2014.

Operating expenses for fiscal year 2015 which consists of selling, G&A and research and development expenses increased 30% to $9.5 million from $7.3 million for the comparable fiscal year ending December 31, 2014.

Selling expenses increased by $76,000 driven primarily by additional sales people. G&A expenses increased $1.35 million 764,000 principally as a result of an amortization of the covenant not to compete with the former CEO and Senior Vice President of the company whose final payments occurred in December 2015. The non-cash stock-based compensation expense increase of $689,000 and an increase in professional fees.

R&D cost increased by $772,000 driven by the continued development of our SaaS product platform. This expense was partially offset by a decrease in salary and wages related to product development. Adjusted EBITDA was a loss of $3.6 million for 2015 compared to a loss of $2.1 million for fiscal year 2014. The net loss for fiscal year December 31, 2015 was $5.3 million or $0.55 per diluted share compared to a net loss of $7.6 million or $.159 per diluted share for the same period last year.

Turning now to backlog. As of December 31, 2015 the company’s total backlog which represents non-cancellable sales orders for products not yet shipped and services to be performed, decreased 15%, to approximately $197,000.

The commercial business increased approximately 89,000 but is more than offset by government business that decreased by approximately 124,000. I’d like to take a moment to comment on some additional financial metrics.

For fiscal 2015 our interest and other income was $150,000 primarily attributable to the sales of the wireless division. As previously announced, during the third quarter of 2015 the company sold its wireless business units, assets for a total consideration of $350,000 that consisted of an upfront cash payment of $30,000 for the issuance of a promissory note from the buyer of $200,000 and a contingent earn out up to a maximum of $120,000 based on future earnings of the buyers wireless business.

The company recognized a gain on the sale of approximately $109,000 based on the proceeds of a promised totaling $230,000 issued by the buyer plus $120,000 in the assets disclosed that consists of certain trade names and net successes associated with the wireless assets. Any gain on future earn outs will be recognized from the buyer as wireless revenues.

Now, I’d like to focus on the company’s liquidity and capital resources. As of December 31, 2015 the company had cash and cash equivalents of $6 million or $0.60 per share, working capital to find its current assets minus current liabilities of $5.7 million, total assets of $18.4 million and stockholders’ equity of $16.3 million or $1.65 per share.

During the year ended December 31, 2015, the Company generated net cash of approximately $3 million compared to $2.7 million for the twelve months ending December 31, 2014. Cash used in operating activities was $4.4 million in 2015 compared to a use of $2.4 million in 2014.

Net cash used in investing activities was $177 in 2015 compared to $131 in 2014. We generated net cash of $7.6 million from financing activities in 2015 compared to $5.2 million in 2014. On October 5, 2015, the Company entered into a two year revolving credit facility with Silicon Valley Bank secured by collateral accounts. The maximum borrowing under the facility is $2 million.

At March 22, 2015, there were no outstanding borrowings under the facility. We currently anticipate that our available cash as well as the expected cash from operations and available under our revolving credit facility will be sufficient to meet out anticipated working capital and capital expenditure requirements for at least the next 12 months.

At December 31, 2015 the Company had net operating loss carry forwards of approximately $2 million.

I’ll now turn the discussion back over to Dr. William Roof, Chief Executive Officer.

William Roof

Thank you, Bill. 2015 was a busy transition year for the company. We began with a new executive organization in late 2014 that developed a strategic transition plan to position the company for profitability. Understanding that the company would need capital to restructure, develop new products, grow our market share and pivot to sustain profitability, we’ve executed a capital raise early in 2015 to generate the projected funding needed to execute our plan. I would like to share some of the company’s turnaround highlights from 2015.

We restructured the company, added a few -- law suit [ph] and realigned our sales team. We moved our corporate headquarters back to New York, the original Intellicheck corporate headquarters, prior to merging with Mobilisa in 2008.

We’ve divested company of the legacy wireless business to enhance our focus on the core business of threat identification and identification authentication. We rebranded the company including conducting our business with a more simplified and descriptive company name that being simply Intellicheck. We hired a new public relations firm, the results being that we have much greater visibility within our markets and many more opportunities for media events and interviews with the goal of evangelizing our company and products.

We released two major products Law ID, and Age ID, and will soon be announcing the release of additional new products. We migrated many of our products to a subscription revenue model and took that model along with our new products to newer markets and opportunities.

We implemented a new customer resource management system to support our sales strategy and customer support organization. We moved our accounting system from QuickBooks to Great Plains. Great Plains is a fully integrated accounting system that we expect will increase our efficiency significantly.

We planned and began executing our intellectual property protection [ph] strategy by identifying firms willing to work with us to protect our intellectual property on a contingent fee basis.

We filed four new patents. We purchased a significant patent portfolio. We believe that the strategy we planned and began implementing in 2015 is working. We have assumed in a qualitative position in our threat identification and identification authentication markets and we are involving our products in all our vertical markets to add compelling features and provide various entry for potential competitors.

In previous addresses to our shareholders, I focused on five main areas and talked about progress in each area. Resources, markets, products, processes and intellectual property. We already covered much of our progress in these areas when discussing our 2015 progress highlights. We will cover them briefly here, then we’ll go ahead to answer shareholder questions.

Contemplating our strategic turnaround planning we raised capital in early 2015 to support our growth objectives. This was the necessity at the time and we have applied that capital to meet the planned objectives. It was necessary to restructure the company and to right size our headcount with the objective of increasing headcount commensurate with growth in the future.

We added key positions and replaced some existing positions with key individuals that we believe would be instrumental in executing our plan. We realigned our sales team and we’ll go with sales training and with renegotiating our legacy business deals and many that had been in place without change for over 10 years.

As mentioned in our highlights we reassigned our corporate headquarters addressed back to our New York office, the original Intellicheck corporate headquarters prior to merging with Mobilisa in 2008.

Intellicheck has maintained offices in New York since its founding over 20 years ago and Intellicheck Mobilisa the merged company has maintained an office in New York since the Intellicheck and Mobilisa merger in 2008.

We are finalizing our move from the ports, town and office to provide us with easier, faster access to our customers. All employees working at the ports, towns and office will continue their employment with Intellicheck as we move a portion of our employees to virtual offices allowing us to leverage their talents and experience about operating there efficiently and cost effectively.

In the second half of 2015, we sold our wireless division as part of our strategy to focus our efforts on our core business, that being threat identification and identification authentication. All former Intellicheck employees working in the wireless group continue to be gainful and employed maintaining in its falling wireless internet links around the Olympic Peninsula in the Puget Sound region.

As I mentioned earlier we rebranded company, including conducting our business with a more simplified and descriptive company name that being simply Intellicheck. This rebranding included a new website search engine optimization new product and services brochures, 30 new trademarks and much, much more.

We’ve hired a new Public Relations firm, results being that we have much greater visibility within our markets and many more opportunities to engage the media, penetrate target markets with key messages and conduct media events and interviews with the goals of evangelizing our company and products.

Our integrated positioning approach is generating awareness and demand for Intellicheck products and services and to support our goal to become the recognized market leader within our vertical markets.

We believe that our strategic communications initiatives are creating brand value, visibility and market awareness at a level not previously achieved by our company. We have begun to solidify agreements with channel marketing and sales partners.

This strategy will increase our sales presence without a need to hire large sales force. Our white labeling strategy is taking hold with the potential partners and we are extremely optimistic about our potential for each large number to customers through these managed channels, please watch for featured press releases on this subject.

Our digital marketing strategy continues to create awareness and visibility for our company and our solutions. We see significant growth in website visits and then ever increasing number of visitors requesting to become customers on business to business portal.

Our rebranded web presence is a very cost effective way to enhance our markets presence and provide key information to our markets. We are seeing our enhanced online presence increase our sales efficiency and reduce our selling costs.

We believe that our strategic communications initiatives are creating brand value, visibility and market awareness at a level not previously achieved by our company. We have positive media stories in Q4 resulting from our media strategy, press releases and other outrage.

We continue to deliver our key messages to target audiences. We are optimistic about the traction we see from our messaging platform and messaging distribution. Our public relations efforts continue to support partnerships such as American Beverage Licensees and support access to a large base of potential new customers.

Products; we release two new major products, Law ID and Age ID and we’ll soon be announcing release of additional new products. We expect these new products to grow revenues and profits. The critical need to add new products to our offerings required a significant increase in our internal research and development expenses.

As results, we believe we see growing traction with these new products and we expect that traction to increase throughout 2016 and beyond. Additionally, we expect to release information on other new products development throughout 2016.

Intellicheck Law ID enhances an officer situation of awareness by minimizing the loss of visual contact with an unknown person during field contact. Because it is available on mobile devices Law ID ensures the officer has one hand free at all times whether on foot, bicycle, horseback, motorcycle or in a car.

With Law ID, the officer simply scans the contact’s ID barcode and ID instantly authenticated on the officer’s mobile device. Critical data fields that indicate the threat level are highlighted in red, yellow and green and are visible at a glance. Having authenticated the contacts identity the officer can act accordingly, which can immediately de-escalating a potentially tense situation.

Best of all, when the officer returns to the station, Intellicheck makes reporting faster and more accurate by populating standardized form fields from the data retrieved during the ID authentication and from the mobile devices reporting features, including location, date, time and weather information.

Law ID instantly accesses critical authoritative data sources, increases officer and citizen safety, provides the officer with accurate relevant data at a glance and supports faster more accurate reporting.

We install Law ID under our pilot program at our first police department in Illinois in October 2015. This department was our new product test bed, and provided us with critical products feedback. We work with this department to enhance the product and add new capabilities that make Law ID truly a world-class product.

In December 2015, this police department conducted a department wide product rollout to all of our officers. As we begin installing the products at other police departments in other states. We are thankful for the input received from our partner police department in Illinois.

We believe our early adaptor pilot strategy has allowed us to demonstrate the products scalability and applicability to a variety of law enforcement agencies and operational environments.

As Law ID has passed certification requirements for connection to the FBI's Criminal Justice Information System, we continue to move forward in the approval processes for connection to additional state law enforcement methods that will allow us to deploy our products in markets nationwide.

Our Age ID product is gaining traction and producing revenues at increasing rates. Selling Age restricted products like alcohol and tobacco is a compliance challenge, the risks and cost associated with non-compliance are high and rising.

Age ID instantly authenticates identification document such as drivers licenses, so our retailers immediately know if the customers ID is fake. That reduces risks of non-compliance without slowing down the purchase transaction. Age ID works with mobile devices or integrated with existing point of sale solutions.

We developed our Age ID product to curtail underage drinking because proprietors, who serve alcohol are also members of their communities who understand their obligations to the fellow citizens.

Age ID verifies that the individual purchasing restricted goods is using an authentic identification document and is at Legal Age to make the purchase. With the ability to read more than 200 unique barcode formats from all U.S. States, Canadian provinces and many Mexican driver licenses.

In addition to other U.S. document points of identification, Age ID provides the most accurate and up to date solution. Age ID also offers regulatory compliant audit capabilities often needed by proprietors to demonstrate compliance with state regulations or to earn discounts from the liability insurers. Age ID is available as a subscription service or customized solution designs to meet our client’s specific needs.

We now have our Age ID product operational at liquor establishments in several states including North Carolina, Texas, California, Mississippi, and Georgia. More importantly, our product has been well received by law enforcement of state liquor authorities and we are implementing our strategy to work closely with those organizations to expand our Age ID footprint.

Our partnership with ABL continues to generate business for Intellicheck. Our future press releases will describe the advances we have made into the age verification market with this new product. We’re excited about the ease and speed to market of Age ID and look forward with optimism to increase product acceptance quarter-to-quarter.

During 2015, we migrated many of our products to a subscription revenue model and took that model along with our new products, to new markets and opportunities. This initiative also required changes in our software and backend systems to ensure we had the means to collect methods associated with subscription revenue models.

We were also successful and renegotiating number of from our key customer legal contract some of all with ten years to increase our recurring revenue proportionate to the value we bring to the market. Negotiations with other legacy customers will continue in 2016.

Processes; we understood the needs to modernize our infrastructure and business processes. In response to that need we implemented a new customer relationship management system to support our sales strategy and customer support.

This provides organization and customer tracking for our sales personnel as well as sales status and metrics for management. This initiative is critical to our objectives of increasing revenues.

CRM provides us with cost and time efficiencies that previous does not exist in the company. As another key process improvement, we moved our accounting system from QuickBooks to Microsoft Dynamics Great Plains, Great Plains is a fully integrated accounting system that we expect will increase our efficiency significantly.

Great Plains provides financial management and accounting, inventory management and operations, sales and service reports, business intelligence reporting and human resources and payroll function. Our growing business with growing revenues and expanding customer base needs an enterprise resources planning system like this to manage operations.

Intellectual property; because we are now moving ahead with our intellectual property protection strategy I will keep comments pertaining to this initiative brief. We planned and began executing our intellectual property protection strategy by identifying firms willing to work with us to protect our intellectual property on a contingent fee basis.

In 2015, we engaged an experienced a very reputable firm to represent us and we are currently in the process of contracting with an additional law firm again under contingent fee agreement.

In executing our strategy we filed patent infringement lawsuit against which systems doing business with ID Scan, Dotnet and against Honeywell International Incorporate. We are in the process of finalizing other filings against organizations we believe our infringing on our intellectual property.

We filed four new patents that we believe will extend and modernize our technology and products to address our host of threats based in our nation. We also purchased a significant patent portfolio with some patents already issued and others pending to support our moves into biometrics identification markets.

In general, we continue to implement our strategy defined by our previously identified five pillars, those being to operate as efficiently and effectively as possible, to focus on developing our key competencies into world-class products, to manage our product offerings with the goal of focusing on value and scalability to our customer base, to establish the position of market recognition and leadership based upon our core competencies in world-class products, and to define, implement and nurture a culture that supports this transformation.

We’re excited and optimistic about the progress we’re making during this turnaround. 2015 was a transitional year for Intellicheck and we believe that our strategy and plan execution will bring the increased shareholder value as we all expect.

Customers need and appreciate our products and services. We believe our investments in our five key areas are starting to generate the returns we expected in terms of top and bottom line growth.

In summary, thank you for your attention today. We look forward with great optimism and excitement to executing our strategy as we continue to gaining the market awareness and momentum needed to drive the company forward.

I will now turn the call over to the operator, who will take questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question comes from the line of John Bendel from JBC Partners. Please go ahead.

John Bendel

Yes. Thank you very much. First of all, I want to applaud you for buying back a $1 million shares, the overhang of that stock at the time it was a premium with I thought was a very small premium to be able to clean that up, I think that was terrific. The other thing I wanted to mention, I can see and we’ve had people look at some of the liquor and beer stores, the one in Atlanta [ph] has, I guess they have somewhere 300 when we last check, identifying people on the Age whether that say it from getting a tremendous line on losing a license, I don’t know, but it’s certainly seems to be working.

What I wanted to ask you on sadder note, right near that particular store, have you all thought of gun dealer, now the big gun deal is do big time checks with the FBI, but small gun dealers don’t really have that, they ask for your driver’s license. Two weeks ago a 16 year old boy went not far from the facility that you all have your system in to check of underage alcohol buyers. And he brought -- with a license he bought ammunition which required someone to be 21 years old. He then proceeds to go home and commit suicide.

It seems to me that, that is as important if not more than the alcohol stores. I don’t know what was result in the lawsuit, when all we says, well, we ask for identification, but a 16 year old is not many of them look 21, so I’m not sure that someone doesn’t look the other way and just expect the drivers license, if they wouldn’t had Intellicheck, I suspect the boy would have done a lot today, so if you could comment on that I would appreciate.

The other thing is the Honeywell lawsuit. I know you can’t comment much on that but the serious law firm as far as patent attorney, so it must be a serious suite, and doing and what I’d like to know exactly if you can explain a little bit of what the violation is with Honeywell.

And lastly, I wanted to ask Bill White, did you Bill, 2 million in carry forward that was – I thought it was a lot more than that?

Bill White

Yes. This is Bill White. The company conducted a -- that’s called Section 382 tax study that would evaluate the net operating loss carry forward that were available to us. And given the change in ownership of stock, the limitations of that net operating loss carry forward was limited to 3 million and that study was just completed here this last week. With respect to the Honeywell Lawsuit, we have really not liberty to talk about that, but as we make progress, as we can talk about it we will let it everybody know.

Bob Williamsen

This is Bob Williamsen. So the response to one of your question cost sales, great question. We agree, what I can tell you we’ve had some conversation and continue to look at market obviously retail is a key market for us and we believe that there’s an opportunity to leverage our ID authentication solutions in that space to verify and help exploit process for background checks and like. So we’re early in that process and we can probably speak more to that in the months ahead.


Thank you. Our next question comes from the line of Amy Norflus from Neuberger Berman. Please go ahead.

Amy Norflus

Hi, guys, you’re doing a great job turning around and rebuilding the company. Can you give us some numbers to quantify either the law market and Age market is, what it means, how big it can be, what – you just kind of put some numbers around the wonderful things that you’re doing?

Bill White

Bob, do you want to take that?

Bob Williamsen

Yes, sure. Hi, Amy, I’ll address. I think at a high level, so appreciate your question. We think the law market is potentially very, very large, depending on what data you look at in the U.S. between a million plus sworn officers in the United States along why they has applicability, a great majority of those. So our objectives right now is continuing to identify those law enforcement agencies who are moving toward mobile solutions and there are number of those, and who see and understands the value of having instance information, clear information that we can provide in the fingertip for that officer in the field.

So our ID authentication solutions that are been around for years is now refocused and packaged in the Law ID and then connecting through various states and their switches to provide -- allows us to provide instance information to an officer in field to give them what we call full situation awareness when they encountered somebody. So, we think and what we’ve heard is that very important, our current customer of North Illinois and their officers and detective using a solution have confirmed and this is very important tool to help them quickly discern who they’re engaging in the field and the important thing we think particularly in today’s climate is that not only does that make the officer safer, but this engagement with the community is ultimately going to enhance dramatically because as Bill mentioned earlier, we can really deescalate situation before potentially it’s become problematic.

So, we see big opportunity here, the market is quite large, our objective is to penetrate those law department, again who are moving toward to mobile solutions, either at the local, state or federal level. And also we see a lot of channel partners in this particular space who already are engaged and working with law enforcement agencies where we can actually embed and package our solution with them. So, I hope that answers your question about Law ID.

Amy Norflus

Right. And of these 1 million officers how do you create revenue. Is it a per scan? Do you sell them a complete product? Just kind of give us the understanding of what would could contain revenue?

Bill White

Yes. Sure. Again, specific to this Law ID products?

Amy Norflus

Well, yes, and then I just want to touch the same thing on the Age ID, just so that we can understand the potential of it?

Bob Williamsen

Yes. We are happy too. On Law ID and quite frankly on Age ID, but let me start with Law ID first. We really -- it’s a subscription based model as Bill mentioned earlier as we kind of pivoted the business in the direction. And with Law ID we see a couple of different scenarios, a license type model based on the number of users in the department, for example that are using Law ID, so if they have a certain number of sworn officers that have leveraged Law ID, they would pay us a monthly subscription based on those number of users.

And there are several different ways that we can structure that, that particular subscription with those departments and then obviously we can apply other terms relative to the volume and scope and the like. But really think of it in terms of the monthly subscription per user. And on the Age ID side, and which by the way, kind of parallels in some ways in retail market as well. There, our objective as we get a monthly subscription based model, but it’s built around a per store per location model that has a predefine number of licenses already assigned to it.

So, I‘ll give you a quick example, a lot of stores will have two to three points of sales, in fact, I think John Bendall referenced the Atlanta story that was been a couple of weeks ago. Here they have two or three different points of access where they’re checking out people. And what we’ve done is try to package Age ID on a monthly subscription, so very affordable them where they can flat fee and they can have up to three different licenses to operate that store using Age ID.

And then, for the larger stores, they can add incremental licenses, and we just charge them on a per license per user basis for that afterwards. And that very similar to what we do in Retail ID market as well. We can go into a particular retail store. We can size it based on the type of store, department store versus non-development sore models, certain number of points to sales that are bundled or packaged in and then traditional licenses as they need them.

So, it gives us the flexibility to prices that commensurate with the need that the client has and obviously certainly prices it in a way that’s affordable in the marketplace that still works very well for us and for the client, so, different models for those three different verticals but similar and all based around monthly description. Does that answer your question, Amy?


Thank you. Our next question comes from the line of Dennis Van Zelfden from Brazos Research. Please go ahead.

Dennis Van Zelfden

Thank you. Good afternoon, everyone. Bill I was wondering if you could give us a little bit more color on the status of the police pilots. I know you said that one in Illinois was pretty much implemented in December of 2015. What has been their feedback and what about the status of the other parts?

Bill White

Yes. Hi, Denis, how are you.

Dennis Van Zelfden

I’m good.

Bill White

The Law ID process has been very, very controlled mostly by the government. And so for example we went into Northern Illinois Police Department in October, and that was a first time a police officer had this product in their hands and the interesting thing is we can see how the products work in the field. We’re not allowed to see that here at the company.

So, we have to rely upon reports from police users as to whether or not they like the way the screen is laid out, whether or not they need more information are passed down to them, et cetera. Only a sworn officer can use the system. And we can setup fake databases with fake people and so forth, but really in the field we don’t have any visibility into how the product was and that’s because of the privacy issues, and our inability to as a company to access criminal databases.

So, we were able to get a couple of turns on the software. So we went in with Version 3. We came out with two new versions after the October install, based on upon lots of meetings with the officers and their feedback. And we put out Version 3 in December and that’s when they rolled it out. It’s really difficult not being able to test your own product in a real environment to really get up right and you get it dialed in correctly. And I’ll give you an example.

We were ask that if we could have a reverse screen at night time, so when the officer is looking at the smartphone, his face is illuminated, making a target. That type of things, that type of pictures that we made to the system, actually about our police partner there. So, the rollout is starting to happen now. We’ll have contract signs in other states. We’re in the process of connecting to the state law enforcement networks in those states. And we also had some really nice channel partners that were in negotiations with right now. We’ll be able to sale our products for us and to a large wide variety of law enforcement agencies. Does that answer your question, Denis.

Dennis Van Zelfden

Can you give us an example of like what is a channel partner in this particular channel, who would that be or what kind of a firm would that be?

Bill White

Well, that channel partner might be a company that builds a police records management system, or an automated dispatcher, and can be a computer automated dispatch system. They already, the already had footprints in the policy departments. There are systems are already been used by police officers on the streets, and to add a mobile capabilities, smartphone capabilities is a natural extension.

Dennis Van Zelfden

So the idea there is to – this would allow you to get into more police departments quicker than you ordinarily would. Is that the whole idea?

Bill White

Yes. It would. It would speed up.

Dennis Van Zelfden

I’m sorry you cut out, say it that again?

Bill White

Yes. It would speed [Indiscernible] by getting our system distributed by channel partners instead of trying to grow a sales here and do it one by one.

Dennis Van Zelfden

Okay. And then, just one question if you could on the strategy of defending your IP. When you discovery someone who is – who you think is violating it. Do you first attempt to contact them to kind of tell him that you think your – they’re infringing on you patents and talk to them first or if the strategy just to go ahead and sue them. Can you just talk about the strategy in general?

Bill White

Yes. Denis I’d loved to be able to do that, but our attorney’s [Indiscernible] not to discuss our strategy with anyone. That is pretty close hold right now. We have a number of different strategies depending on who the infringer is and where they’re located and that’s tough [ph].


Thank you. Our next question comes from the line of Tom Mcguire [ph], a Private Investor. Please go ahead.

Unidentified Analyst

Okay. Good day gentlemen. Thanks for taking my question. First one just a little clarification on your bookings, Bill, I think you said that 80% are attributable to commercial products. And is that all like Retail ID, Law ID, Age ID, is that your commercial products that we’re talking about, or is there more in that in terms of some old hardware also, and secondly what’s the other 20%?

William Roof

The other 20% Denis, would be recurring revenue from our legacy Defence ID business, school support, that type of revenue

Unidentified Analyst

And then the 80%, would that be the retail ID, Law ID Age ID products?

William Roof

That’s correct, yes.

Unidentified Analyst

Okay. Thank you. Now how many sales people do you have currently and is that number, what you want to stick with or do you want to add more or what?

William Roof

Bob, why don’t you go ahead and answer that.

Bob Williamsen

Yes this is Bob Williamsen. Currently we have at the moment five different people on the sales team. We are intending to add additional, actually we have a couple of opening fill as we speak, as we are expanding and growing in the market place. As we have mentioned previously in fact I think Bill just a moment ago on the channel partner discussion, we fundamentally believe however though that key channel partners in some of these verticals whether it’s the retail space, law enforcement space and others our smarter more cost effective way to go to market.

So the purpose of the sales force is to help us to be opportunistic where we can be and at the same time to help us develop and grow these channel partner relationships, but certainly to leverage those large -- already in these vertical markets that can basically -- technology and solutions and we think that is a smarter way to go.


Thank you. Our next question comes from the line of Jim Kennedy from Marathon Micro Fund. Please go ahead.

Jim Kennedy

Hi guys.

William Roof

Good afternoon, Jim. How are you?

Jim Kennedy

Good. First of all, when investor communications going forward, what I’m think I’m hearing is on the last call you talked about some trials that were occurring and I believe the only thing that was announced between the last call and this call was the closing of a account in Atlanta for a liquor store contract.

And what I think I’m hearing is that over the last three months, we have secured various police departments as well as various liquor stores as well as various channel partners and from my perspective that is very useful and valuable information for investors to be aware of and obviously you don’t want to put out a press release when you close one liquor store, I think you are demonstrating enough progress, I’m hearing enough progress on this call to say, gosh, it’s almost as we closed one liquor store in three months according to your communications and now it turns out you’ve done a lot of things in the hop rental, a lot of things closed that no one was aware of.

William Roof

Yes thanks, Jim. Very good points and I appreciate your input on that. We do have a lot thing going on right now and so we are walking the tight rope between customers who were in pilot who we assure will convert, retain customers versus customers who may not.

And so, we are in pilot all over the country right now, just with Age ID. And the -- we are having great success with it, what we saw at Max and Atlanta, ex duplicated throughout the country right now we are having great success. So, we are anticipating those converting and some of them are converting to pay customers and we had a -- [Indiscernible] and we convert them to pay customers. And channel partners and Age ID will can be a state liquor control board in the states where the state actually owns the liquor stores, that’s a great way for us to go and we are working with these types of states right now. So we are going to be making the announcements shortly, but we just decided that while our customer was in pilot, we aren’t going to say much about it.

Jim Kennedy

Okay. Thank you. But I would certainly encourage you once the contract is signed that, that’s news probably. I also wanted to ask you about the patents that you purchased. Can you talk a little bit about what they cover, why you bought them?

William Roof

Certainly. These patents are, these patents are biometrically based which and by that I mean finger prints. And I’ll give you the key, the key reason we purchased the patents. One of these patents essentially is the underlying technology behind the government’s PIV part. And what the patent published is the PIV currently has a chip in it and that chip is encrypted, embedded an image of the owners fingerprint.

And one way to gain access with this card through a government facility is to show up the card is read by a mobile card reader that also had a finger print scanner on it and the person trying to gain access to the facility puts a thumb print on there and it matches it with the encrypted image on the chip and so this is the authentic owner of the card.

That patents, are patents that we purchased covers that. So that card was a member of government ID cards including the common access cards used by military and the TWIC, the Transportation Workers Identity Credential. And ofcourse the PIV. So we thought that this was going to be very big for us, we thought it was a way to extend our barcode and magnetic stripe technology into biometrics and we were able to negotiate what I think was an excellent deal on this and move forward to purchasing the other patent portfolio.

Jim Kennedy

Okay. Very good. And then last question for you, in lay man’s terms, could you describe what your broader patents around drivers licenses actually cover. So in other words, is if I use a drivers like high scan or make sure I have drivers license and I use that for what, verification or to access data bases you know in lay man’s terms give me a broad description of what your patents cover?

William Roof

Certainly, out key patents around are reading identity documents and by identity documents I mean perhaps a driver license or a military ID card. They, the patents cover the scanning, the reading of the barcode whether you read it, whether laser scanner or an image -- on another imaging device like a smartphone camera. And the check-in to see if that is a valid authentic barcode format and then the extraction of the data from the barcode to be used for a variety of different things, and our retail stores that date is extracted, and it may be used to fill out the credit card application form. Or it may be used to identify someone who is returning merchandise in the pharmacy it can be used to identify people who are buying pseudoephedrines which the DEA requires everyone who is buying the ingredients of not presently to be logged into the pharmacy when they purchase that.

So the main patent covers that type of work flow. Interestingly enough, we had built over 20 years a library of barcode formats that are valid and authentic in our states and in Canada and in some of the Mexican that actually have barcode on their licenses, they don’t or have that.

And we also received a number of fakes, where we can decide how they are trying to do the fake and we can put counter makers in place in our library that we check against to make sure that we are completely up to speed on the latest fake techniques. So that’s kind of what we do with our work flows.


Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing remarks.

William Roof

Thank you very much for joining us today for our earnings call. And we look forward to a real world exciting 2016 and we look forward also to meeting our investors and around the world as often as we can. Thank you again.


Thank you, ladies and gentlemen. This does conclude the teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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