Intellicheck, Inc. (IDN) Q4 2012 Earnings Report, Transcript and Summary

Greetings and welcome to the Intellicheck Mobilisa's Fourth Quarter and 2012 Year End Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Enrique Briz, of Dian Griesel Inc. Thank you, Mr. Briz, you may begin.

Thank you, operator. Hello, and welcome, everyone. Thank you for joining us today for our 2012 fourth quarter and end of year conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending December 31, 2012 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's 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 meanings 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?

Enrique, thank you. Hello to our shareholders and investors. I'm thankful that we have this opportunity to speak to all of you because we've had several changes since the last shareholders' call and I view this and appreciate it as an opportunity to speak with all of you directly. First, let me introduce who I have with me on the call today. Our Chairman, Admiral Mike Malone, is on the call. So is Mr. Guy Smith and Mr. Woody McGee who are directors. On the management team, we have Bill White, our CFO; Bonnie Ludlow, Senior Vice President; Russ Embry, our Chief Technology Officer and the newest addition to our management team, which is Mark Armstrong, Senior Vice President for Sales. So we're all on the call. Now I'd like to break today's call into 3 parts. First, an analysis of quarter 3. Second, Q4, the financials the end of the year, the changes that we have made. And a brief projection and discussion of how things are going near the close of Q1 for 2013. So those are the 3 parts. So let's start with quarter 3. At our last conference call, we reported revenue of about $2.1 million or a loss of about 400k. The adjusted EBITDA was a loss of just over 100k. Now while this might look like a mediocre quarter, the revenue is actually down 42% from the previous Q3 in 2011. Now why is Q3 so important? Our company's revenue historically has a lower Q1 revenue, a decent Q2 and a strong Q3 and then dips again in Q4, usually with some spillover from third quarter. Now this might be because of the end of government's fiscal year which is 30 September coincides with our Q3. Noteworthy is also that commercial sales often follow the same cyclical pattern as well. As I stated in my letter to the shareholders on November 30, concerning to me was the lack of bookings. Bookings for Q3 was about $1.3 million. That was down 78% from the $6.2 million in the third quarter of the year before. That, coupled with the first 9 months of 2012 bookings is being down over $5 million from the 9 months of the year before. This obviously was a fundamental concern. So at the end of the close of Q3, our backlog had dropped to about 300k and for a company that was doing about $12 million a year in revenue to bring in $5 million less in bookings and have the backlog that low, that was especially concerning to me. As you read in this mornings press release about earnings, the company took an adjustment in Q4 of 671k downward. Now Bill White, our CFO, will discuss this more in detail, and I'd be happy to answer questions more on this topic, but it regards to our Navy's buoy contract, this was the previous wireless revenue that was nearly all recorded in Q3. For a variety of reasons, the best decision was to make that adjustment in Q4, effectively removing that revenue from the year 2012. All in all, my analysis is that we had a very poor Q3. Now so let's discuss Q4. Now the lack of deals that were closed or even close to closing in the third quarter effectively resulted in no spillover of revenue into Q4 that we have realized in prior years. New sales of products in October and early November were as bad or actually worse than what we saw in Q3. Now what I've stated so far is the financial snapshot of what happened. But more important to me is what is the plan of how we correct this downward trend and how we set the company in a new direction. For a variety of reasons, and let me emphasize this, for a variety reasons, the board unanimously decided to separate the former CEO on November 13. In late November, I sent a letter to the shareholders not to expect the strong end of year. In early December, we notified shareholders that the Securities and Exchange Commission was investigating certain trades and activities concerning our stock. Briefly, we received several subpoenas from the SEC. We're fully cooperating with them and providing the information they request. The investigation does not involve any current employee, any board members or the company itself. Our understanding is this process takes many months. Given the gravity of the situation, we cannot comment further, and we'll let the SEC conduct its investigation and that's all we can say on the topic at this time. Now with these 2 items, you can see that we communicate bad news, as well as good news to our shareholders. Now let's talk about the way forward. For those of you who don't know me, as a quick background, I was the CEO previously of Intellicheck Mobilisa from March 2008 for 3 years and I was the founder of Mobilisa in 2001. I've worked at several high-tech companies, prior to that, in the mobile and wireless space. I'm a retired Air Force officer, a former college professor. About me, I've a tech focus. I believe in innovation. I've developed the technology and products in other companies, and I have designed and have my fingerprints in essentially all of the IDN current products. So now my plan is to emphasize 3 areas. Number one, to revive innovation and product development. Number two, hire good people, build the right team. And number three, emphasize the partnerships and then follow through with them. From day 1, back as CEO, I revived product development. We have just submitted 2 TWIC card readers for certification with TSA as a future product. This is good timing, coupled with DHS's new guidance on having TWIC electronic readers. We're working on other products and we'll announce them via press releases as they hit the market. But as a preview of coming attractions, you will see that there's an emphasis on mobile [indiscernible] such as cell phone applications. We hired a new Senior Vice President for Sales, Mark Armstrong, to lead that sales team. We've hired 4 people total, since I've returned as CEO, in the sales team and in the wireless group. We're making significant changes in how we approach sales and customer service. In the first few weeks, we met face to face with key customers and our partners. Prior to my reappointment, we had 0 face-to-face meetings with potential buoy customers that were overseas. I don't think you make sales if you don't meet the people face-to-face on deals that are that large. So we're meeting more customers face-to-face now and we've increased emphasis on that. We've reviewed the pricing methods and models. We've increased proposals, both in terms of dollars and in the number of proposals that are being formally submitted. We are formalizing the sales process again and we're tracking accountability. Our company has a very good list of customers but we haven't done a good enough job, in my opinion, of nurturing those relationships. We are completely overhauling our customer service experience and with a focus on organic growth from the existing business relationships. One of the best ways of continued reoccurring revenue is, frankly, to do a good job with the current customers. One of the majors we've implemented was to automate the service ticket process. We've also implemented customer resource management, CRM software, to better assist current customers. Now while we had that with the sales team, we did not have that with the customer service teams. So we've added that. Through CRM we're collecting more data and metrics to provide an even better customer experience. We've competed for and we won 2 wireless enterprise jobs in Q4. I was heavily involved in that. We went out, we went on-site and bid on these jobs. They involve installing wireless broadband capabilities to schools, libraries, hospitals, police, fire, other main community locations across the Pacific Northwest region. The wireless expertise of the Indian Navy buoy contract was transformed into our wireless enterprise group, and we did that purposeful. I did not want to lose the expertise of the buoy team while they're still trying to bring in revenue. The enterprise wireless, though, let me add this, is growing across the country with an increasing demand for more Internet, more bandwidth, thus, they need companies like ours that install enterprise wireless. We will continue business development to grow our wireless group while keeping our security buoy business development moving forward, but within the overall wireless group. While our sales and revenue started to come up in December, the overall Q4 financials were not good particularly speaking, the 671k adjustment downward for revenue previously reported in other quarters. So it's important to look at the trend. We have noticed the bookings are coming back particularly in December and jump-started with those 2 wireless wins. This brought backlog in the right direction and brought it back up to $1.2 million. Now I want to talk more about Q1, that's important to me, and I'll save this discussions for after Bill White, our CFO, give you the finances for Q4 and for the end of the year. So at this time, Bill?

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 fourth quarter ending December 31, 2012, which was released this morning. We anticipate that our annual report on Form 10-K will be filed with the SEC this afternoon. Revenues for the fourth quarter ended December 31, 2012, were $528,000 compared to $2,868,000 for the previous year. Identity System revenues decreased to $1,203,000 compared to $2,162,000 in 2011. During the fourth quarter of 2012, the company received information from the U.S. Navy, which gave rise to uncertainty with respect to the collection of certain accounts receivable related to that contract. The company believes that receivable in the amount of $671,000 is a valid receivable and is currently pursuing collection. As a result of the uncertainty, however, the company has adjusted fourth quarter revenue in the amount of $671,000 downward. After this adjustment, wireless revenues were a negative $675,000 compared to $706,000 in 2011. Booked orders for the quarter were approximately $2 million compared to $2.3 million in 2011. Our gross profit was $46,000 for the quarter or 8.7% as a percentage of revenues. For the 3 months ended December 31, 2011, gross profit was $1,940,000 or 67.6%. The large percentage change is primarily a result of the $671,000 adjustment previously discussed. Notwithstanding this adjustment, gross profit was 59.7% as a percentage of revenues. Operating expenses consisting of selling, general and administrative and research and development expenses increased $50,000 to $2 million for the 3 months ending December 31, 2012, from $1.95 million for the 3 months ending December 31, 2011. Adjusted EBITDA for the quarter ending December 31, 2012, was $1,681,000 negative compared to $284,000 positive in the quarter ending December 31, 2011. The company posted a net loss of $1.955 million for the 3 months 2012 ending December 31, compared to a net loss of $14,000 for the quarter ending December 31, 2011. As of December 31, 2012, our backlog was approximately $1.2 million compared to $2.8 million for the same period last year. On a 12-month summary, our results of -- financial results for the 12 months ending December 31, 2012, and 2011 are as follows: revenue for the 12-month period ending December 31, 2012, was $8,803,000 compared to $12,484,000 last year. EBITDA was a negative $1,114,000 in 2012 compared to $875,000 positive in 2011. Net loss for the year was $2,260,000 versus $291,000 last year. Operating expenses were $8,062,000 in 2012 compared to $8,426,000 in 2011. Interest income and expense for the year was negligible, and we have net operating loss carry-forwards of approximately $40 million. I'd like to turn and focus now on the company's liquidity and capital resources. As of December 31, 2012, the company had cash and cash equivalents of $1,690,000, working capital, which is defined as current assets minus current liabilities of $744,000. Total assets of $20,460,000 and stockholders' equity at $17,680,000. The company has not utilized any banks financing in 2012. During the 12-months ending December 31, 2012, the company generated net cash of $290,000 compared to a net use of cash of $95,000 for the 12 months ending prior year. Cash generated from our operating activities was $350,000 in 2012 compared to a use of cash of $70,000 in 2011. We used cash of $184,000 in investing activities compared to $50,000 in 2011. Cash provided by financing activities in 2012 was $130,000 compared to $27,000 in 2011. During 2011, the company entered into a 2-year revolving credit agreement with Silicon Valley Bank. The maximum borrowing under this facility is $2 million. At December 31, 2012, there were no outstanding borrowings and unused availability under the facility is $0.55 million. We currently anticipate that our available cash, as well as expected cash from operations and the availability under our revolving credit facility, would be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. We currently have effected a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission. Under the shelf registration statement, the company may offer and sell from time to time in the future, in one or more public offerings, its common stock, preferred stock, warrants and units. The aggregate initial offering price of all securities sold by the company will not exceed $25 million. And pursuant to SEC rules, the company may only sell up to 1/3 of the market cap held by non-affiliate shareholders in any 12-month period. I'll now turn it back over to Nelson.

Thanks, Bill. I want to talk about Q1. Now while this current quarter, Q1 in 2013, is not over and as practice the company doesn't normally discuss the current quarter until the earnings call, which should be in early May for Q1. I say this because number one, the quarter is nearly complete; and number two, given the recent situation, I think it's in the best interest of our shareholders to discuss some of the activities in Q1 now. Before I get into that, let me introduce Mark Armstrong, our Senior Vice President for Sales and let him say a few words. So Mark?

Thank you, Nelson. Good day to everyone. I'm glad to be here at Intellicheck Mobilisa and accept the challenge of beefing up the sales team in our company. Nelson, Bill and I are focused on professionalizing the entire sales process, increasing contact with the potential customer, recording metrics of our activity, and bottom line, making it easier for the customer to purchase our products and services. Then after they're a customer of ours, we provide a better customer experience. We have a very strong technology base and the development team builds solid products. There's a lot of work to be done. I see the room for growth. I'm very happy to be on the team. Nelson, I'll turn it back to you. Thank you.

Mark, thank you, and I'm glad you're on the team as well, beefing up the sales team and it's my job as CEO is to build the right team and get the right players, and the sales team needed improvement, and Mark Armstrong is the guy that will help us do that. Let me just tell you some of the things that we've done in Q1. In January, we provided an enterprise-wide license of our ID-Check software to a large national retailer. We put out a press release on that. In Q1, we successfully completed our wireless project for eastern Washington, that's for the schools and libraries out there. We expect most of the second wireless contract, which is the larger of the 2, to be complete, most of it to be complete by Q2 and recognized in Q2. We've been on several other wireless jobs and even won a couple of the small ones in Q1 and did that work. And with Mark's help, with our sales team refocused, they've already improved sales and even rebounded our government sales with 2 ports placing the orders for TWIC readers in Q1. They're tracking, they're reporting the contacts, the new sales leads, the new quotes. We are managing the process better. Now with these changes, we anticipate that our Q1, 2013 revenue will be up significantly from the previous quarter Q4 2012 revenue that we reported today. We expect that we'll still be under the Q1 revenue of 2012, but I like the direction that it's heading. One of the advantages of listening to the call is to gauge management's outlook. Sometimes the current stock price and how a company is doing can be disconnected. So just so the transcript could record this, I'm upbeat. We've got a lot of work to do. But I'm seeing initial positive results to the changes that we've already made. I think I would like to also invite Admiral Mike Malone, our Chairman, to say a few words to the shareholders. So Mike?

Thank you. And thank you for your first report as CEO of Intellicheck Mobilisa. Nelson, you took over as CEO at a challenging time. And I wanted the opportunity to say in front of the shareholders that on behalf of all the directors of Intellicheck Mobilisa, I commend you for the extraordinary efforts you've made in the last 4.5 months. I agree that we have more work to do, and I believe that we're on the right track as well. And I am confident with you in the lead. Thanks, Nelson. Back to you.

Thank you, Admiral. I appreciate that. Okay. Really what I want to do is answer questions that our shareholders have. I expect there may be a very big [ph] number of them. We'll do our best to answer any questions that people may have. I would ask that you please clearly state your name, what organization you represent and who you may be asking the question to, if you don't ask a specific person, then we'll figure out the right person here to answer that question. Please limit your question to 1 or 2 questions so that we can address it and then if you have a follow-on questions, by all means, please rejoin the queue so that others may have an opportunity to ask questions. So at this point, let's begin the questions. Operator?

[Operator Instructions] Our first question comes from Walter Schenker of MAZ Partners.

I'll repeat, Walter Schenker, MAZ Partners. The company had previously indicated it had an agreement/relationship with a large national-type hardware equipment company, which the previous management had indicated should be rolling out here. When this came up previously in discussions, the comment was that there was a failure to interface or interact with this potential customer to start generating revenues and hopefully, that can be resolved. Can you give us some update of whether that relationship actually still exists? And what is being done to actually start to create some meaningful revenues from it?

This is Nelson. Yes, in July 30, we put out a press release that we had signed an agreement with a large hardware manufacturer that makes bar code readers. Our goal is to put our driver's license reading software into their bar code readers. Good idea. But you're absolutely right, there was a false start, let's say, on our end that we didn't do things in my opinion that we could have done more aggressively. There are certain hardware that we needed to receive. We needed to convert our software, put it into a format that those devices could use. We need to work out a relationship, a plan of distribution with that hardware manufacturer of how do we get our software released to these customers. How do we get it released to their existing customers and how do we do updates from our software year after year. None of those things had made traction when we took over, and I thought we could have done better. So Bill White and I, within the first 2 weeks of being the CEO, we flew to that company, met with them and came up with a plan. Second, they gave us hardware to put it on. Third, our software team did make the changes and have it working successfully on that hardware. We're in discussions with them right now of how to get it to their existing customers and how to do updates. So we solved about 3 of the 5 issues are complete and we're literally solving the other 2. We have not received revenue to date on that contract and it's because they haven't shipped our product yet. So we're aggressively pushing that so that they can get it out. Now it's not just us. We have to work with our customers, so it will take a little bit of time. But I can tell you, we have it back on track.

The next question is from Chris Perschwab [ph], a private investor.

I guess my concern is, I'm looking, I didn't know there was a conference until about 10 minutes ago and I was looking at what Yahoo! publishes -- I guess one of my concerns is cash flow with regard to the company and is there enough cash flow to continue on and what is the status of that? So I'm a little late on getting into this conference.

Christopher, okay, I don't think I've met you before. This is Nelson Ludlow. Let me address 2 questions I think you have. I mean Yahoo!, we issued our press release this morning at 7:30 Eastern time. It was picked up by all of the circuits that we know at the time, Google Finance, several business journals have already written articles about it. However, Yahoo! picked up the headline and they had a broken link on their end and did not publish the article for some reason, so it was blank. We, our investor relations firm have contacted Yahoo! to correct that. I checked it about an hour ago, and it was not corrected at that time, it may have been since then, but we'll work with them to correct it. Not good on Yahoo! for doing that. However, it is on all the other, I know of no other place where it did not get picked up appropriately. Regarding cash flow, that's a good question, and it's definitely a concern of ours. As our CFO stated, we believe we have enough cash for the next, which is the standard line to use in the financial world, in the next 12 months of operation. We are managing cash flow very tightly, I'm looking at it every week. I am having a monthly board meeting to give them the results of that as well. I'm not going to sugarcoat it. I'm concerned about it. But it's not at a point where we haven't been able to move forward. We have a cash flow projection as we've already seen some improvements from sales and from the work and we've got our backlog coming back up, and we keep pushing on that in that direction, we'll do okay. But I can assure you that we're managing it very tightly.

[Operator Instructions] The next question is from Amy Norflus of Neuberger Berman.

Yes, a few questions. Can you talk about the potential size of that relationship you have that you were talking about with the large manufacturer to Walter's question? And maybe kind of give us a little bit more understanding of what's in that $1.6 million backlog? How much of that has already run through for the first quarter? Talk about some of the opportunities that you're seeing with Trinidad, I mean, to quantify and put some numbers behind something?

Okay, Amy, this is Nelson. I'm writing these down. Okay, yes, I see 3 questions. First one is the size of the relationship of a large bar code reader company. They obviously do a lot of work. They do not put driver's-license-reading capability in all their bar code readers. So it's a beginning relationship. It's up to us to do a good job and to grow that with them. I see the value of it, though, for 2 reasons: Retailers use bar code readers, and it gives them the opportunity to read driver's licenses. The product that we're putting it in, there's about 200,000 units that are deployed, and I think they deploy about another 70,000 a year. So those are the numbers that we have from them. You said $1.6 million in backlog. I believe, that number, I'm looking at $1.2 million in backlog. We have most of that backlog still in place. We completed a 270k, approximately, wireless contract that was part of that at the end of December and we completed that work in the end of January, which meant, by the way, our wireless team was up in mountaintops, in the snow in winter, deploying stuff, but good on them for doing it. And that job has been complete. So most of the backlog, they're still in place. Let's talk buoys for a second. You asked about Trinidad. We put out a press release. And we have made partnerships with overseas companies because the -- anyone that's done work overseas realizes that you need partners in those locations to help you, one, get the business because, in reality, doing it without them is highly unlikely; and two, once you win, how you're going to do the job most effectively. And they help in that. So we found a very good partner in Trinidad. I saluted Trinidad and our lead salesperson for buoys, Dale Norwood. And we met with them and we've created this partnership. And we put out a press release. We have not made any sales in buoys. So I don't want to over-inflate the buoy opportunity. The hardest one to predict is the first set of sales. After you've made some sales, it's easier to project. This is a new product. It's a product that, I believe, ports in countries like Trinidad, which is 4 miles off the coast of Venezuela, they need protection. And there's oil companies, gas companies. There's other Caribbean countries. And I like the team that's down there in Trinidad. And they're not only representing us in Trinidad, they're representing -- that happens to be where they're located. They're representing us throughout the Caribbean. So we're still actively marketing that, but we've made no sales on buoys. We're equally or maybe more so pushing in areas like our ID-Check, our TWIC card reader, these new cellphone applications. I believe they're going to bring in revenue more likely in the short term, but we're keeping the buoys group inside of our overall wireless team.

The next question is from Nancy Leonard [ph], a private investor.

This is a question for Nelson. I have a broad question for you. Looking at defense spending potentially going down in the future, how is that going to impact some of your defense contracts? And how are you addressing that potential change?

Nancy, that's a very good question. It's not affecting us significantly. It affects us in a minor way, which I'll mention, but the amount of government work that we're doing for big, recent development contracts is small compared to the large government budget. With sequestration going on and the Continuing Resolution Act, or CRA, both those things have had some minor effects, and that sometimes affects some of the timing. So for example, we're talking to the Coast Guard and Navy about purchasing buoys. I'm not saying they're going to buy them, but we are marketing to them. And sometimes, we hear from them, "Yes, I would like to buy one of these buoys or put it here, but right now, because of CRA or because of sequestration, I'm in a more difficult situation." So overall, it doesn't help defense-related companies, period. That's just a fact. But we're doing more and more commercial work. We're taking our buoys, which by the way was an entirely a Navy contract that had -- that went up till mid-2012 when it ended. And now we're going after commercial applications overseas. Those guys will -- aren't affected by that defense requirement. Also, we're going after more commercial application, more retailers. And then third, these new applications that we're building, like our cell phone application, I think, again are being marketed to itself. The answer that I can say is it'll have some but relatively minimal effect.

The next question is from John Bendall [ph] of JPC Holdings.

What I -- I have a couple of questions. I hope you'll let me go through with them. I'm not here to pick, I'm here to see how the people respond. I have the utmost respect for you and Bill, who I met with a little while ago. There are couple of things that really worry me. Perhaps, if you can't answer them now, you'll think about it while I get back in the queue. From where I am, it's difficult. First of all --

Well, John, go ahead and say all the questions. I'll write them down. That way, I can make sure we address all of your questions.

Okay. First of all, we probably traded 500,000, 600,000 shares from $0.70 down. It concerns me and worries me, with the SEC, that someone seem to have known something. I'm not saying they did, I'm just saying it was mammoth volume right before it. I didn't expect to start to rally, but I think a lot of people are surprised with where it is, number one. I'll have that up. Number two, I have always been a critic of the expense that you all have taken and been loyal to your public relations firm. We don't see it, not any of my investors or anyone else. It's been 6 or 7 years. I think there have been 4, 5 people on the account, and there is no result, not with the stock selling at below $0.40. So I think that is an expensive habit where it is not necessary. You mentioned a while ago a third thing that, perhaps, that's a bad news. I guess we want to hear what the good news is. As I said, I have a lot of respect, that's why I've been around, with you at the helm mostly now. We have always said -- or you have always said the theme is to get sales, and that's been on the last 2 or 3 years, and we're going the opposite way. As I said, I don't doubt for a moment about the product, but I do doubt the way or how it's being sold. So without any kind of color going forward, it's very hard for one to really get excited here. The other thing is, I would like to see, I'm sure other holders, the Board of Directors. I'm not saying you, Nelson. You've got your lights working to this thing with that, but I'd like to see management. Unlike the prior CFO who sold his stock at the high, which I always question on that. But I'd like to see the directors buy some substantial stock, not a few thousand. You're not talking about a $10 or $20 stock. You're talking about a stock under $0.50 to buy a half a million. Don't get me wrong, I'm not putting my hand in their pocket, but if they believe, I would think they would buy some instilled money, some substantial stock. We feel that the company, even with the current condition with the patents and with your carry-forward, that the stock is probably worth, on that basis, somewhere between $0.85 and $1. And I've also urged you to think about the possibility, time is going on, about perhaps talking with a larger company with a larger war chest and certainly with a big sales force to go forward. At this price, it's going to be very difficult to encourage new investors without some really good news. But as I said, I would like to see the moneys that are spent every month, which I understand started at over $10,000 5, 6, 7 years ago. For the time being that, that as just eliminated, that could be the salary of 1, 2 good salesmen. They could have been great salesmen yet. So I'm with you, but I am really concerned about the items that I asked. If you want to comment on anything about the massive volume before the earnings came out or public -- or any of those things, I would greatly, greatly appreciate. And I just said, I wish you the best. I think you've got some technology now, how we get it to the marketplace is whole another story.

John, thank you, and thank you for calling overseas to make the call. Appreciate your interest in keeping with us. Okay, let me at the one -- me try to address these questions. Number one, 500,000 to 600,000 shares volume in the last few days. I think it's a little more than that. And if you know of something that -- I'm -- let me rephrase this: I'm trying very hard, and we spend a lot of energy, to make sure that we do things via press releases, that we follow Regulation FD, that we are -- Bill and I are not taking calls from people that the first -- recent weeks right before the conference call. We're spending extra energy to make sure that we're very above board and solid on SEC rules on this. If you have any indication, we've got 0 tolerance for it if somebody's messing about with SEC things. If someone is bucking [ph], I don't care who they are, please notify myself or our Chairman of the Board or our -- Woody McGee, the head of our audit committee. And I'll assure you that they will notify the SEC, and we have 0 tolerance for that. This is our stock. I have my life savings, my wife has her life savings, invested in this. And we have too many valuable shareholders and employees that have put too much energy to let someone mess around with our stock. So if someone is, please let me know, and we'll forward that to the SEC. Okay, changing topics, IR firm and what we pay. It's in our 10-K: We spend $120k a year, at $10,000 a month, for our IR firm. Previously to that, we had given them some warrants. And I asked, when I was Chairman, that -- we were not doing as well financially and would they continue with us without additional warrants, and would they just use that fee. And to their credit, they said yes. Second of all, you've met Dian Grisel and, I think, the world of Dian. She's energetic. She's knowledgeable. She hooks us up with the right people. She gives us good advice. And I'm actually -- yes, I am a fan of theirs, and let me tell you why. We went through a change of a CEO, we had an SEC investigation, and we had a downward trend in Q4. They could've easily said, "I don't want to be involved." When we were doing all of these tough things, that's extra work for the IR team, not less work. And I worked with them and met with them and talked to them several times of how we handle these things the right way. And to their credit, they did -- we have -- Bill White and I, did 2 investor relations presentations that were previously scheduled. I flew to New York and met with several of you that are on the call. Before we announced the difficult thing with the SEC. I wanted to meet with you guys in person. I know you were out of the country for that, but some of your colleagues were there. That's all on them. They did a good job on that. Let me just say one other thing: They've got us into Popular Science magazine, National Press. I would give them high marks on press. And also -- and I thank them for helping us navigate through these difficult waters as we're heading back in the right direction. Okay, number three, get sales, things are going in the wrong direction, good technology. I agree with all of that. You're absolutely right: We've got amazing technology. When you invest in something, you look for a killer app, something that touches almost everyone. If -- we write applications for driver's licenses. 216 million people in North America have a driver's license in their wallet or purse. That is a lot of people. We can do it for law enforcing. We can do it for going into a bar. All the things that you guys have heard of before, the reasons we all believe in this company, is because there are so many applications. It's not just sales. We got to make the product easier to buy. The product's got to be better defined. After they buy the product, they have to have better customer service. And I can assure you, we are focusing on that when I came back. That's -- first thing we did was we hired Mark Armstrong head of sales. I thought that the sales would bottom-up. I was more -- I don't want to say haphazard, but a salesperson would find something and they bring it up. It wasn't a focused type of thing. I'm pushing the company to make a product and sell it thousands of times rather than make lots of one-offs. My favorite book by Geoffrey Moore is called Crossing the Chasm, and everyone here has heard me mention it dozens of times. But it says, if you keep doing one-offs with a tech company, you have a science project company. That's not what you got to be. You have to shift over the chasm into the early adopters and start becoming a company that takes good technology into great products and, yes, the sales team is critical. And that's why both Bill White and I yes, he's the CFO and I'm the CEO, but everyone around here can tell you we're sales guys too, and we go on sales calls and we travel and we're going to push on that. I know it's been -- this seems like a long answer. A lot of questions here. Board to buy substantial stock. We have the board in a blackout period until 2, 3 days after our next conference call, which is sometime in May. Given the things that were going on with the SEC, we didn't want anyone to interpret that we, either with insider information, good or bad or whatever direction, we're doing anything. So just to be extra above board, we self-imposed a blackout period. Second of all, we're at the end of the quarter. And again, do we have knowledge of likely how Q1 is performing? Yes, we do. And so again, we instituted a blackout period amongst ourselves to do that. However, at the end of May -- pardon, sorry, the beginning of May, we should have our conference call. But let me just add one more thing: Every member of the board has been very engaged, very helpful in this process. I'm in daily communications with most of the board members, I am in daily communications with Admiral Malone. We have our monthly board meetings. They all take this very seriously and they all are helping us. Also, 3 of the members have all been with me on sales calls, meeting with customers. I like that. They're engaged. They even deferred their board payment to help get things on track, so I salute all of them. They're very much engaged. And I need them to help us grow the company in the right direction. Okay, you talked about a larger company buying us, was the last question I had at $0.85 to $1.00. If -- we're a public company, we're for sale every day. If a big company came to us, I would be obligated and would definitely do so present that offer to the board, and we would discuss it. And if that happened, then we would -- and we felt that it was a reasonable offer, we would then present that to you, the shareholders. We're not hiding it. I'm not actively seeking one right now. My goal is to rebound the company and to focus on sales. And so that's what we're putting our energy into, but we're not against if someone does come with that. Okay, sorry, that was a long answer, but I wanted to address all your points. So we'll go into the next question.

The next question is from best added from Gus Allen [ph] of GA Financial.

One of the things that I have asked about in the past and an experience that I've had again this morning in going to a hospital and having to sit down for 10 minutes or so while someone fills out the forms. And it seems to me, with the technology we have with the hotel or motel businesses in there, I wonder if there's a market for hospitals to do just the same thing. And I wonder if there's not an organization that is a wonderful marketer to hospitals who might become a partner to help have that take place? It seems to me it's a pretty good market out there.

Gus, yes, absolutely. The hospital vertical, the medical vertical, is not one that we appreciate hardly any revenue in. We do a little bit of work in it, so it's not 0, but it's very small. And we do work with a partner that does the sales on that. You're right, our hospitality product works very well. If people go to look at core hotels and look at a Motel 6, for example, we're in most of the Motel 6s, with a reader that has Intellicheck Mobilisa branded right on it. And it's a small reader that will read the driver's license and credit card, which are the 2 things that you show when you check in. Very cool. It was our first big win in the hospitality space. So we have room to grow there too. You're right. What Mark and I didn't say in the call is we're also seeking other salespeople to help us in those spaces. What we've done is we've realigned the sales so that, instead of each guy doing a whole bunch of stuff, we're having experts in each area. And I agree with you on that, and we're seeking a hospitality person, and we are going to look into the hospital vertical as well. Outstanding idea. Let me just add one quick thing because I received a few emails from some people. There was a rumor that I had medical -- major medical problem, that I was with pancreatic cancer or something such as with Steve Jobs. What happened is, I was traveling, I had a cold, and I flew with a cold. And I got an ear problem, and so I was not -- I had to drive back from the sales call that I made instead of flying back because I hurt my eardrum. It's a minor thing. I'm only not allowed to fly for a couple of a days. The only reason I'm saying that is we intended to have a meeting with some people, and we canceled it due to that. So my health is fine, and I hope yours as well, Gus.

And our final question comes from Joe Bernini [ph], a private investor.

Joe Bernini [ph]. I'm a private investor. Well, I guess most of us, including myself, have been a stockholder for a long period of time. And we are there because we believe it is one of the best-kept secrets, your technology and your ability to grow the company. I just have a couple items I'd like to bring forward. You mentioned about the mobile and the smartphone. I'll give you 3 to 4 topics, and then maybe you could elaborate on them. You're probably at maybe 1 year, 1.5 years behind the curve on that, but I still think there's tremendous potential especially on the mobile app side. The mobile units are growing tremendously in today's market. Second, the previous caller brought up about hospital and the hotels, absolutely a tremendous opportunity, I believe. The keystrokes that they implement in order to put this information into the system. I understand there's various softwares and hardware integration, not necessarily obstacles but opportunities there. And I believe there's tremendous growth in those areas. The other part of it is probably more towards Mark coming on new in the sales area, focusing on some of the new markets. And I brought it up before, which was the online gaming market. One of the major concerns in online gaming is ID verification. And I believe your product may be superior to anything that's out there currently in the market. Obviously, this requires regulatory approval by each state that's opts into online gaming, but it's one of the major topics that came up. And this -- obviously, we're all looking forward to this probably being a federal oversight in the future. Right now, it's a state opportunity in Nevada, New Jersey, Delaware. There's probably 4 or 5 states that either are in the process of implementing it or are implementing it. And the age verification and the ID verification part of that, I think, is critical. Not to take up too much time, but the adjustment on the $671,000 of revenue, I don't know if you could possibly elaborate more of what you think the opportunity is in that area of retrieving it. I think it's all the topics, the [indiscernible] we want you to be successful.

Okay, Joe, thank you. Let's do the 671k part first, and then I'll go into the online gaming question. Okay, that adjustment had to do with our Navy buoy contract. As a background, we were a subcontractor to a prime contractor whose contract was considered a pass-through contract where we did the work and the prime took a fee to manage the contract. Now we had not been paid on this contract since late June. So as the new CEO, I was concerned that there was an issue. So in December, I had several meetings with our prime contractor, with the U.S. Navy, both with the contracting office and the technical program managers. There were 3 issues. Issue number one was that billing was changed from what they call a cost-plus fixed-fee, CPFF, type of contract to a time and materials, a T&M type of contract. Now that change was not approved by the Navy. So the Navy wasn't happy with how we and the prime were then submitting our invoices. So we resubmitted them in early January. The numbers are calculated slightly different, it has to do with, is overtime allowed and several items. But the upshot is it reduced our claim from $671,000 to about $550,000, so that's one thing to note. Issue number two was, some of the money was allocated as labor and some of the other money is other direct costs or ODCs. For example, equipment to build the buoy. So essentially, 2 different pockets of money -- of funding. The company did ask in May for a reallocation of the funding from ODCs to funding to labor, a transfer of it. The Navy did not approve that yet. Did not approve it, but yet we still built it as if it had been approved. So the contracting office said the money could not be reallocated after 30 September because that's their end of the government year and that's when the government funds had expired. So this is an issue that should have been sorted out within -- by September. Issue number three, that there -- on top of that, there was a cost overrun where the company worked and built to a total dollar amount on the contract ceiling but not the actual amount that was funded on the contract. So we, the management team at our end, we met with the prime, we met with the U.S. Navy, and we've asked for a very special exception to pay us anyway, given these issues and that with the work and the Navy likes the work that we did, I might add. They actually gave us the highest rating of -- on their evaluation that they could have. And so we've asked for them to do that. Now in Q1, after communications from the contracting office, we concluded that -- we believe we're less likely than not to receive payment. And because of that, we notified our auditors and we made the adjustment in the Q12 revenue that we believe are less likely than not to be paid. Now despite that, we're still trying to get paid. We're still trying to collect the payment. And if we do receive the payment, I want shareholders to know that it would reflect as revenue in the quarter that we collect it. So that's the background of it, and that gives you some more color on it. But just let me restate, though, at this point, we believe we're likely than not to receive payment. Okay, regarding online gaming. I would like you -- Joe, you and I could talk after the call. That's an area that several casinos use our product. It's, if a person wins, for them filling out their tax forms. Casinos do use our product. Online gaming is a whole area that we could go to. And I -- with any shareholder, I'm very willing to work with you. If you have ideas on how to grow this market, I'm all for it. And then the last thing to say about the mobile and smartphones, you're right: We're about a 1.5 years behind the curve on that. We've started initial development on that. And the day that I took back over CEO, the first thing I did is I signed 2 of our best programmers on that and we have a very cool system working on that. We've already shown technology demonstrations of it to several clients. And as we convert it into products for a bar application and even potentially a law enforcement one, you will see us issue press releases when we release it formally as a product. But we've made a reach progress on that in just the last couple of months, and I'm very happy with the team doing that. So that's it. And it doesn't appear to be any more questions, operator. I just want to thank everyone for being on the call. I try to -- I appreciate you allowing me the opportunity to be blunt when things aren't going well, to say so; and to tell you about the things that are going well. Let me reemphasize that we are giving a projection that Q1's revenue will be significantly above Q4's revenue, although it will be under Q1 from the year before. We are moving things in a better direction. I thank all of you for being on the call.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.