Intellicheck, Inc. (IDN) Q2 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Intellicheck Mobilisa Second Quarter 2015 Earnings Announcement. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Sharon Schultz. Thank you. Ms. Schultz, you may now begin.

Thank you, Operator. Good day, and welcome everyone. Thank you for joining us today for our 2015 second quarter conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending June 30, 2015 and to discuss other business developments. In a moment, I will call upon our CEO, Dr. William Roof, to lead today's call and introduce the members of the Intellicheck Mobilisa management team who will be participating in today’s conference call. Before I do that, I will take a few minutes to read the forward-looking statement. Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. When used in this conference call, words such as will, believe, expect, anticipate, 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 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 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 the use of this term. I would now like to introduce Dr. William Roof, Intellicheck Mobilisa’s Chief Executive Officer. Dr. Roof?

Thank you, Sharon. Good day and welcome to the Intellicheck Mobilisa Q2 2015 earnings call. Today we will present corporate earnings information for the quarter ending 30 June 2015. After the call, we will answer questions from shareholders. Intellicheck Mobilisa’s 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 Q2 2015 financial results. Bill?

Thank you, Bill and a good day to our shareholders, guests and listeners. I’d like to discuss some of the financial information that was contained in our press release for the second quarter ending June 30, 2015 which we released this morning. We anticipate that our quarterly report on Form 10-Q will be filed with the SEC this afternoon. Revenues for the second quarter ending June 30, 2015 increased 91.5% to $2,292,000, compared to $1,197,000 for the previous year. Identity system revenue increased 97% to $2,023,000 compared to $1,025,000 and wireless revenues increased 56% to $269,000, compared to 172,000 last year. Booked orders for the three months ending June 30, 2015 were approximately $2,909,000, up 28% compared to $2,267,000 for the second quarter of 2014. Our gross profit was $1,041,000 for the quarter or 45% of revenues compared to $749,000 or 63% of revenues for the second quarter of 2014. There was a decrease in overall margin for the quarter related to a large hardware sale to a global telecommunication provider. This customer has been utilizing our software for several years in their corporate stores and this hardware purchase should expand the program to their dealer network. We expect margins to resume historical ranges going forward. Operating expenses, which consist of selling, general and administrative and research and development expenses, increased 22% or $408,000 to $2,259,000 for the three months ending June 30, 2015 from $1,851,000 for the three months ending June 30, 2014. The increase in operating costs were related to non-recurring consulting agreements for rebranding, website development, and for the payment of legacy consulting agreements, non-cash stock-based compensation expense and higher sales commission on increased sales. Adjusted EBITDA for the quarter ending June 30, 2015 improved 15% over Q2 2014 from a negative $952,000 to a negative $809,000 for the quarter. The company posted a net loss of $1,214,000 for the three months ending June 30, 2015 compared to a net loss of $1.1 million for the quarter ending June 30, 2014. As of June 30, 2015 our backlog, which represents non-cancellable sales orders for products not yet shipped and services to be performed, was approximately $1,046,000, decreasing 17% from $1,263,000 at June 30, 2014 and increasing 97% from $530,000 at December 31, 2014. I’d like to focus on the company's liquidity and capital resources at this point. As of June 30, 2015 the company had cash and cash equivalents of $7.5 million; working capital defined as current assets minus current liabilities of $7.5 million, total assets of $21.4 million and stockholders’ equity of $18.5 million. During the first six months ending June 30, 2015 the company generated net cash of $4,937,000 compared to $3,541,000 generated for the first six months of last year. Cash used by operating activities was $2,494,000 compared to $1,643,000 in 2014. We used cash of $197,000 in investment activities compared to $63,000 in 2014 and we generated net cash of $7,628,000 from financing activities in 2015 compared to $5,247,000 in 2014. During 2011 the company entered into a two year revolving credit facility with Silicon Valley Bank. In 2014, the company extended this line to October 15, 2015. Maximum borrowing under the facility is 2 million and are subject to certain limitations based on a percentage of accounts receivable as defined in the agreement and are secured by substantially all of the company's assets. At June 30, 2015 there were no outstanding borrowings and unused availability under the facility was $358,000. We currently anticipate our available cash as well as expected cash from operations and available under the credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. I will now turn it back to Dr. Roof.

Thank you, Bill. We are excited about our progress and our solid second-quarter. The entire Intellicheck team is eagerly anticipating a bright future for the company. Looking back, in Q4 2014 we set the company's strategic goal of market leadership with world-class products and sustainable profitability. We developed a strategic plan and are implementing that plan each and every day. We are particularly pleased that our reengineered products are quickly gaining customer traction and we expect to see greater account growth with existing clients as well as significant numbers of new customers. The pillars of our business are evolving with product innovation into a rapidly growing identity authentication market, our services pricing model that fits all retailers and other customers and the new management team that is implementing this vision. As with previous addresses to our shareholders, I will focus this presentation on five main areas and talk about progress in each area. Those areas are: resources, markets, products, processes and intellectual property. Resources. Our company is well-capitalized and we are moving ahead in executing our strategic plan. I believe that we have the capital we need to execute the plan and we’ve implemented new financial models that focus on high-margin recurring revenue business. Our management team continues to refine our processes for maximizing value and effectiveness as we move ahead with the plan. Our new company culture provides the foundation for growth and we are extremely optimistic about our future. We are leveraging expertise both from within and from outside the company to execute the strategic plan and vision. Markets. We have completed phase 1 of our rebranding plan and I invite you to visit our website at intellicheck.com to see the initial results of our efforts in achieving the stated goal. We believe this new branding is the beginning of the product and marketing positioning our company needs to grow and flourish. When you visit intellicheck.com, you will find all new positioning and messaging, product naming and trademarks logo and corporate ID and taglines that we will use as a key part of our brand identification as we move forward. As a result of these rebranding efforts, we fully expect to see a new and previously unseen level of market awareness about our company and our products. As we move forward with our marketing strategy, we will focus on digital marketing, meaning that we will use our new website and rebranded materials to build market awareness and to keep refreshing our contacts with prospects and customers resulting in expanded business. This is very cost-effective in providing interactive communications pathway for our customers. We expect our digital online presence to increase our sales efficiency and reduce our selling costs. A few words about our strategic communications initiatives. These efforts are focused on creating brand value, visibility and market awareness as critical first steps in the sales process. In addition, these efforts address the vital needs of building investor confidence utilizing mainstream media, trade press and social media coupled with our new digital online presence. Our new public relations firm has arranged interviews that reach millions of listeners and viewers. For example, our interviews ran on the Jim Bohannon Morning in America show that reaches 190 million weekly listeners around 449 radio stations and 94 US markets, and the American urban radio network that reaches more than 20 million weekly listeners who tune into more than 300 radio stations nationwide. We've also been featured by Military.com, an online publication that serves over 10 million Military.com members and over 5.7 million unique monthly visitors. Our efforts in Q2 have led to positive media stories in addition to a flow of affirmative news through press releases. Interviews have allowed us to deliver key messages to our target audiences with a focus on new product innovations that become benefits driving customer acquisition as referenced by our marquee accounts. In addition to the support for marketing and sales initiatives, public relations efforts supporting partnership such as with American Beverage Licensees and SkyTouch Technologies open new channels to communicate with potential customers while supporting current customers with mutually beneficial media efforts. Products. We will speak about advancements with our products during Q3. Law ID. First, some information about this new product. Intellicheck Law ID enhances an officer situational awareness by minimizing loss of visual contact with an unknown person during a 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 any car. With Law ID, the officer simply scans the contacts ID barcode and it is instantly authenticated on the officer’s mobile device. Critical data fields that indicate the threat level are highlighted in red, yellow and green and visible at a glance. Having authenticated the contacts identity the officer can act accordingly, 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 automatically populating standardized form fields from the data retrieved during the ID authentication and from the mobile devices reporting features, including location 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’ve begun penetrating our target markets with our new Law ID product. We recently published a press release announcing that we are beginning pilot evaluations with three police departments in three different states to undertake pilot programs using our Law ID product. We are excited that these agencies include a major Metropolitan Police Department, a police apartment on the outskirts of one of our nation's largest cities and a sprawling largely rural department. We believe that these pilot programs demonstrate the product scalability and applicability to a variety of law enforcement agencies in operational environments. We are also excited to announce that our Law ID product has been approved for connection to the FBI's Criminal Justice Information System also known as CJIS. At this time we are working closely with law enforcement visionaries and innovators recognized as leaders who like to engage and help advance new products and solutions that bring value to their local communities, law enforcement departments and respective officers and staff. We have a compelling product that delivers compelling value and we have many agencies interested in utilizing this important new tool. We will learn and create leverage from these early innovators to move this product quickly through the new product adoption stages with the goal of shortening the time it takes us to reach the early and late majorities that comprise approximately 70% of the available market estimated at approximately $300 million in annual revenues. Age ID. Selling age restricted products like alcohol and tobacco is a compliance challenge. The risks and costs associated with noncompliance are high and rising .We believe that Intellicheck Age ID is the answer. Age ID instantly authenticates identification documents such as driver's licenses. So our retailers immediately know if the customer’s ID is fake. That reduces risks of noncompliance without slowing down the purchase transaction. Best of all, Age ID works with mobile devices or integrated with existing point-of-sale solutions. We develop our Age ID product to curtail underage drinking because proprietors who serve alcohol are also members of their communities who understand their obligations to their fellow citizens. Our Age ID product increases their awareness of fraudulent credentials by instantly and accurately authenticating customer identification . Age ID also verifies that the individual purchasing restricted goods is using an authentic identification document and is old enough to make the purchase. With the ability to read more than 200 unique barcode formats from all US states and Canadian provinces along with other US government forms of identification, Age ID provides the most accurate and up-to-date solution. Age ID also offers regulatory compliance audit capabilities often needed by proprietors to demonstrate compliance with state regulations or to earn discounts from their liability insurers. Age ID is available as a subscription service or customized solution designed to meet our clients’ specific needs. Let’s talk for a moment about our partnership with ABL, the American Beverage Licensees organization. American Beverage Licensees is the preeminent national trade association for independent retail beverage alcohol license holders across the United States. ABL’s members who number nearly 20,000 are comprised of on-premise bars, taverns, restaurants and casinos and off-premise package stores retailers. It is important to note that an ABL member may represent more than one retail location, in some instances a member may represent many retail locations. Our partnership with ABL has begun to generate business for Intellicheck. We ask that you watch for future press releases that will describe the advances we've made into the age verification market with this new product and hope that you will be as excited about our momentum as are we. Processes. This quarter we focused mainly on our sales and product development processes. Having validated our products and markets, we added two new sales professionals to the team. These sales professionals are proven performers known personally to Bob Williamsen and myself who are already making a significant impact and closing new business. Additionally we're excited about our bench of sales pros standing by to join the team as we move ahead. We are improving our product development processes and now have two outsource partners with whom we work to accelerate the development of new products and offerings. Time to market is critical and we now have the capability and increased capacity to quickly implement key features and functionality that will result in faster growth. Our outsource development partners provide the surge we need to get work done quickly, efficiently and with top-notch quality. Intellectual property. We continue to work with law firms potentially interested in taking our infringement cases on a contingent basis. We have filed one patent infringement case and this case is working its way through the courts. We are moving ahead with our continued defense of our intellectual property. Generally speaking we continue to implement our strategy defined by our previously identified five pillars. Those being: one, to operate as efficiently and effectively as possible; two, to focus on developing our key competencies into world-class products; three, to manage our product offerings with the goal of focusing on value and scalability to our customer base; four, to establish a position with market recognition and leadership based upon our core competencies and world-class products, and five, to define, implement and nurture a culture that supports this transformation. We are transforming our organization to support our objective of market leadership with long-term and sustainable profitability. We have begun launching products and services that our customers need and appreciate. We are excited and optimistic and believe the investments in resources and products as noted above have positioned us to deliver world-class solutions to our customers with sustainable top and bottom line growth to our shareholders. In summary, thank you for your attention today. We look forward with great optimism and excitement to executing our strategy as we move the company forward. Sharon, we will now begin our conversations with shareholders.

Thank you gentlemen. You will proceed.

We will start with Alex Silverman.

So wondering, I apologize, you went through the mix of revenue faster than I could jot it down. Can you just repeat the mix of revs again and where the growth came from?

Yes, Alex, Bill White. Identity system revenues $2,023,000 compared to $1,025,000. Wireless revenues were $2,69,000 compared to $172,000.

And then you mentioned the reason behind the lower margins was a large hardware sale to a telco service provider who is expanding. Can you give us a little more detail on that?

Sure, this is William. This is a customer we’ve had for long time. We are out working with our customers trying to get them to expand, number one and number two, to try to get them on to our SaaS model, and we are having some worth with that, and some are happy with where they are as far as having more like an enterprise model in place and we are find with that, because that’s generating good cash for us. While we do have a large hardware sale like this, obviously we sell our hardware at lower margins than we do with our software. We are going to have those type of thing happening with our legacy customers. We are trying to get it into a place where it’s predictable and we can schedule their hardware refreshes so that it kind of evens out our revenues and in most cases the margins will come down but the cash is generating while we are doing our company turnaround and transition is really good for us and the fact that these customers are sticking with us and they are trying to buy more of our products and services is really good news. So I think you can expect to see this type of thing in the future as well.

Does it come with any recurring on the back end?

There is some recurring on the back end, yes and as we move forward and we start to is important we start to sunset our products and bring in new or improved products, we will be seeing our – we expect to see our recurring increase.

And was this order completed in the quarter or will it bleed over into the third quarter?

We don't like to get – but I will just say that – I will go ahead and say that it was not completed in Q2.

And can you give us a sense of how much of the revenue in the quarter – it was represented by this telco customer?

I don’t think we want to do that right now, else because it’s going to mean forward looking information into the Q and once we get the turnaround complete and more predictable in our revenues, then we have discussed, as we are going to start looking at giving guidance at that point.

Our next question is from the line of Tom Mcguire.

And congratulations on the transitioning of the business and the rebranding and the introduction of new products and services. My question is in the prepared remarks you made the statement somewhat to the effect that you offer compelling products which offer compelling value. My question is, when you go into an existing customer and try and change from the enterprise model to the SaaS model, or you go into a new customer, what is the reluctance or hesitancy in signing some customers up? I mean I'm coming from the idea that I would think that the value proposition is compelling, and so what’s the hangup if there is a hangup, is it just working with really large bureaucratic managements or what, why don’t you just kind of get fill me on some color there?

Sure, Tom. I am going to ask Bob Williamsen. Bob, you’re on the line. You're very very close to this as we all are obviously but Bob, would you go ahead and articulate that? Looks like we may have lost Bob, so I will go ahead and start with that.

No, I am still here. Can you hear me okay?

Yes, now we can hear you.

Sorry about that. Yes, I think it’s a good question. In essence we do offer not only compelling products that have significant value to these companies in these various verticals that Bill spoke to. I think the key thing that we see though is if like anything is where is that organization, particularly the larger organizations in terms of their priorities and making sure that we become part of those priorities. There's a lot of movement in the retail sector right now toward EMV standards coming this October 1. Many of our current customers and many customers that we’re speaking to currently in terms of new business are also on the throes of reevaluating point-of-sale systems or upgrading their point-of-sale systems. And so, from a priority and timing perspective, we have to navigate through that on a case-by-case basis. So the good news is – in fact, I was just on a call earlier today with another prospective retailer that sees tremendous value in the products. We’re working with them on their timing and their roadmap so that we can talk about how we can position our solutions to meet their needs and roll out with them. And we’re having those conversations with companies around the country to do just that. So it's a process that takes some time. We said at the beginning of the year that as we move forward with these new products and the new team, that 2015 is a year of transition, we will be trying to get us positioned and create awareness in the market of the solutions that we do offer and get positioned and prioritized with these organizations, so as they are ready to move and expand, we are ready along with them. So hope that helps answer your questions.

Our next question comes from Ron Shire, a private investor.

Bill Roof, this is Ronny. I was very pleased to see the results of that quarter, I’d hope you keep up. Law ID, are we getting paid for these pilots that are going on?

The pilots are – We’re not getting paid for those, when they convert after the pilot that will be on our SaaS model.

And how long are the pilots expected to last?

No longer than 90 days.

And have we explored the possibility of using a technology for background checks for gun purchases and that type of thing and can we add in to our background checks into people that might have psychological disorders, the kind of things that are very currently in the news today?

Yes, that’s a great question, and I think it’s on a lot of people's minds, Ronny. We can add that type of information, we can add those queries into our system and as long as that information is available to law enforcement and that they see those responses – related systems that are very very focused on privacy issues. So the way we designed the system, keeps us from seeing that data but you're absolutely right. We have a lot of different ways we can use the system not only in the law enforcement officer’s hand but for gun purchases and so forth. We’re investigating all of those right now. We're seeing some real movement in interest in that. So you are right, you get out of that Ronny, that’s something that we believe is a feature set that we can add to the overall system.

And the current people that we have that are interested, are we approaching – where do you start? Do you go all over them, small subdivision that has law enforcement or do we go to the states or do we do it at the federal level or all of the above, how do you approach this because it’s a huge market? Can you give us a little idea of what you’re going now?

I think it’s all of the above, Ronny. If you remember, we mentioned that we’re going to do direct sales and we’re going to use channel partners and we’ve been using that as part of our strategy as we move forward. And we’ve used both and what that’s done for us is we know a lot of people who are tied into the law enforcement world. They are making some wonderful introduction source, including our board members, that’s really fabulous. And we also have our own private contacts and we’ve got into channels now of organizations and so forth that help us. So we’re hitting it from 360 degrees, we’re finding some really good traction there and to be honest with you, at this point, the new product, we’re focusing on the product innovators, if you remember the product lifecycle you start with your innovators and you got your early adopters and you had your big chunk in the middle where you’ve got about 70% of your sales and when it kind of goes down, on the downside of the product lifecycle. We’re right in that innovator stage right now and we’re finding the innovators, the people who are willing to move forward with new technology, were not having any trouble finding those people and that's really good for us. So you’ve hit it, we’re hitting this from all angles, we are not depending on just our sales force about their internal barracks, that wouldn’t be efficient. So we’ve got a plan in place and it appears to be working.

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

Hi guys, congratulations on coming up with the plan and starting to deliver and the enthusiasm in your voice, it seems like you are starting to get traction. Can you tell us a little bit more insight into revenues and how we should understand them, should we understand it as a SaaS model, should we understand it as getting the hardware and then getting the recurring and with American Beverage how do try to understand how that helps the revenue, I mean we have a hotel platform, we have Law ID, kind of bring it all together for us little bit and then you alluded that, that in margins will go back up once, going forward how should we understand the margin structure?

We are evolving. We have traditional customers and traditional products where we bundle hardware, so we sell both hardware and software, a great example of that is defense ID. So we go to a military installation, we sell hardware and our software and we also sell services that need about three, four years. The software and services are recurring, our hardware is a one-time deal but then we have what we just saw this quarter, we have these customers coming back to us, they have plans in place and say, we’re going to do a hardware refresh, we’re going to replace our hardware after three years, pick a number, it’s typically three years as what we see standard and then they come back to us and say, okay, we are ready, we want to replace our hardware with the latest equipment and against a quote on the front. So those are lower margins, we wind up with a blended margin when we do that type of work. On the SaaS model, which is our Age ID mostly and our Law ID we’re going to see high margins and there will be monthly subscriptions. So you’re going to see a blend in there, Amy, as long as we have the capability to sell bundled systems like Defense ID, and some of the systems we are selling under retail, and that’s going to -- depending on when people do their hardware refreshes, you might see some margins go up somewhat because we’ve got a larger blend of hardware than we do software. But you'll see, that we hope to see and we are planning decisions in our plan that the margins would increase as we increase our SaaS business, and that’s a lagging business. So for example, if we sign up 100 stores right now and got X dollars, we get 1/12th of that X, next month, we will get 2/4th of that, or the following month – and we build up until we are at a year, and then we start getting our annual revenues out of that. So when you are starting a SaaS model and the ramp up and then that will level out. So that’s where we are.

And we are just ramping. The Law ID, you said it was a $300 million addressable market, what realistic – I mean what should we realistically assume that you can capture the market and are they using their own devices or are they using another third party device, how is that working when they are capturing their data?

We have some numbers in here that we – assumptions that we’ve made on market share we can capture. If I were to release that now, that’s really – and that’s almost like giving guidance. So we’ve had some investors say well, we are going to assume you’re going to get X to signage. So we ought to go with your assumption on that, Amy. As far as –

Well, is there competition right now, so is it safe to say that you are the only game in town for this product?

We are finding competitors, we don’t believe that they have the same feature set, we don’t believe that, they can use our IP, our IP is built into this, and so we think we’ve got a headstart on this, we’re very very excited about this product, the fact that we released it in June and we've already got deals in place really excites us, we’ve got a lot of interest in it. And we are sure that once it’s out of street, we will be more interested in the type of deal we are putting in places, we are asking our innovators to participate in joint marketing with us and to do things like allow us to go on right along, and take videos of our product being used, actually use in the field, and we will be able to show the investors act, once we do that, I think that’s going to generate a lot more interest in the product.

This is Guy Smith, the board member. If I could just amplify a little bit on the Age ID for example and this is relevant to all of our products but an element of our product that does not exist in what competitors that are is the following. They are one of our products on the market out there that will read the barcode and tell you what the barcode says. So therefore it’s the same words on the front, there is a barcode on the back but what that does not do is validate the data with the DMV data, and our product does, nobody else can do that. So that is a point of distinction that is very important particularly on the alcohol and tobacco verification data.

Can you touch upon – I am sorry, the hotel platform, and how big that – without giving guidance but just kind of qualitatively talk about, how excited you are over to the vision you are most excited about?

Sure, we will happy to do that. I am going to ask Bob. Bob is working on that every day and you might see that we just recently signed an agreement with SkyTouch, that is a company that develops property management systems and we’re doing an integration with them. Bob, do you want to address any on that?

Sure, sure, Amy, it’s good to hear from you and thanks for listening in today. We think – in fact, we were just recently at HITEC which is the hospitality information technology show which was earlier this summer back in mid June in Austin, Texas. And we launched a relationship with SkyTouch there. SkyTouch is a real strong and growing company that develops property management solutions that are used by about 6000, 7000 properties around the world and they were affiliated and were born out of hotels. And so kind of that’s for your background. So we see some great opportunities to network through the industry and because of our relationship with SkyTouch we’ve already integrated into their property management system network that’s already done. We demoed that at the show, we’ve already got interest, we have customers starting to reach out proactively to us and talk to us about the solution and in fact, we’re just kicking off now our more aggressive market awareness and sales strategy campaign with SkyTouch for example and will continue to do that with other channel partners, so that’s just one example. We see that the hospitality space is an important space in terms of probably the top four, or five, hospitality is probably ultimately more around number four, number five in terms of opportunity. So we’re trying to stay very focused and close business where we can and look for those quick sales cycles. Some other markets, for example, retail ID, the opportunities are much larger but the sales cycle slower because of the reasons I mentioned before, things like EMV standards and point of sale integration, so that’s sort of thing and having to work into their priorities. So our objective is to make sure that whether it’s guest ID, which is the new name for the hospitality product or Law ID, Bill was just talking about our Age ID that – or retail ID and we have enough traction in all those markets so we can continue to grow each market and ramp up accordingly . And so hospitality looks to be pretty interesting. We think Age ID is going to – very exciting as Guy Smith just spoke to, our relationship with ABL is already to bear fruit, we’re actually live in a few a handful of accounts from, our conference that we attended with Republican, their annual conference just earlier in June in Washington DC but there is a great deal of interest there because it's incumbent upon these retailers to make sure that an age restricted purchase and their compliance and it varies by market by market, the various compliance regulations and potential issues that can impact your business and these retailers are very mindful of that. And they want to be very responsible with the way they go to market and sell these products so they have embraced us, very nicely, we see a great deal of opportunity there were 20,000 members, we think we can get a lot of traction over the next year throughout partnership. So you will see - him about those things as we go forward but I wouldn't say there is one market right now that we just curious – where the all new business was to come from, but just to follow on the hardware sales and other things you mentioned to, everything we’re doing right now is to grow and drive and position this company for recurring high-margin predictable revenue growth through the SaaS model, and Age ID and guest ID and law ID and retail ID, are other products that will help us get there.

The association with the ABL, ultimately what you will use is their sales people like, I guess to sell your product because once you are on their platform approved they will start directing customers to you and then it becomes a snowball effect?

So I do want to qualify that in the sense that they are a wonderful organization to work with and they have been very helpful to us so far. They are a small organization, so they don’t have a footprint of sales people out in the marketplace. And what they do is they market very smartly and we’re working very closely with their teams to get our information through their electronic newsletters and the like out to all their members. So we think that’s very efficient, we’re going to leverage that as effectively as we can because again there is a lot of value in it for their members and ABL wants to make sure their members have awareness about Age ID. And so we’re launching some new programs with them, we’re working very closely with their team and through our PR department to make sure that we get the message out and as Bill mentioned earlier in this call, now that we have phase 1 of the branding done, Amy, you’re going to see and hear much more about our efforts to proactively push out digital marketing and digital messaging to create the awareness that we need, we’re going to do that with ABL, through the relationship there we will do it with other partners as well, and that’s going to be the thing that will start getting the phones ringing, getting inbound calls coming to us which will help us continue to build the pipeline.

Amy, Guy Smith again. In addition to what Bob just said, there are activities that will help. The other day the state of Louisiana does an annual basically sting operation for all of the retail alcohol operations in the state. And about 4500, 4700, when they did that, about 1500 of them failed, that is they sold alcohol to someone who was underage, that's 1500 retail operations that suddenly have a particularly good interest in our product and we will be communicating directly with them because there is a list and we will be communicating to them and of course through the ABL as well.

This sounds very exciting and it’s been a long time coming, and I guess the new sales people that you have added will only help to the cause?

Yes, absolutely, Amy. We're excited. We’re very excited, and very enthusiastic, getting great feedback on the products and solutions that we’ve talked about, the two new sales folks that Bill mentioned earlier, are doing a great job and we've got bench as Bill mentioned that as we continue to ramp, Amy, what we will do is we will look at when is the next time to bring more folks on board, we want to make sure that we don't ahead of that curve, but as we get out there and we’re gaining traction and building that pipeline, now the other thing that in the process side of this that we've implemented over the course of Q2 is our new CRM tool, our customer relationship management tool. So for the first time in the history of this company we’ve got everything detailed -- into a very detailed pipeline tool that allows us to really track and have visibility to where all of our deals are and if they are pending and that helps us to be more efficient smarter as we go to market .And so we will continue to leverage those tools, leverage the new team and grow the team as we grow the products out in the field. So obviously again we’re very excited, there will be more information to come as we get together again in the fall. But we like where we are headed so far.

The next question is from the line of Dennis Van Zelfden with Brazos Research.

Can you tell me roughly how many different law enforcement agencies you have talked to about the Law ID product?

We don’t have those numbers in front of us, Dennis. We’re talking to new agencies every day and since we are not product vertical with our sales force, all the salespeople are working on selling all the products. So we could have discussions this morning, but we are not aware if they have been entered into the CRM tool, so I really don’t have that number for you.

But it kind of leads into my main question is, when any one or all three of these pilot actually sign a contract, what will that do to anyone else out there sitting on the fence, would it lend credibility to it, will it be like dominoes after that, or will it still be a long process to convince X, Y, Z police department to adopt Law ID?

That’s a great question, Dennis. We believe it will be a domino process and the long-haul intent for this is getting a connection to the state switch and we’re in the process of that right now with these three. The first long haul is getting CJIS certified, the FBI system certified which we just did and very very happy about that. Once we get established in one department in one state that – and we had a connection to that state law enforcement network, then it makes it really easy for the other departments and agencies in that state to come on board. So we’ve looked at and we envision it as more of a domino effect after we are in our first department in each state.

What is a state switch? I don’t understand that term.

There is a gatekeeper for the law enforcement network in each state. Typically it's just at the state police or state patrol level and to be able to connect to the law enforcement network and run queries on DMV for drivers license information whether it’s suspended, revoked et cetera, that meant to run into the state law enforcement data sources, which will tell you things that won't exist or may not exist at the federal level such as restraining -- restraining orders and so forth. You have to go through that switch for that and that switch also pushes your queries out to the federal system, the federal law enforcement, we talk about NCIC, the National Crime Information Center, that’s the FBI's center that has the most wanted – it will have terror information, so forth. You have to go through a single point in each state for that and getting into that point is a long-haul in the state and once you’re in, in any other organizations in the state can take on to that.

Our next question is from the line of [Mitch Rio with H Capital].

Hi gentlemen, I will echo the sentiments, it really is a – this is really a transformational quarter that you guys just established, so congratulations there. I'm particularly interested in the patent lawsuit that you mentioned. Are you at liberty to mention the name of the company that you’re suing?

No, we’re really not Mitch at this point because we are in a process where we have to be quiet about this. But we are moving ahead with this. We've also notified a number of other companies that we intend to bring action against them and we’re getting some pretty good responses from there. Some of them have asked us to settle, some of them have actually shut down, so we’re starting to get responses, I’d love to be able to tell you who this is and hopefully we can get a little bit later.

I would imagine it’s probably good some form of public information, if a case has been filed, is it just conversations between two companies, then that would be a different story. Have you thought about hiring – doing an independent analysis of what the patents might be worth? It seems like that that's a real big hidden asset in a company that has a market valuation of about $14 million.

Yes, we have thought about that and what we started with this was taking a look at most companies who we believe that they are infringing for a number of years and been able get enough information to understand how many units they have sold that have our software embedded, and we haven’t been getting royalties and we start by looking at damages there. As far as the value of the patent portfolio, we have talked to some companies about that and we’re in the middle of conversations right now with them and we’re trying to get a good feeling for what that’s worth.

Just last question, has the board initiated any kind of a share buyback, that I have missed?

At this point, Mitch, we have not initiated the share buyback but we are looking at lots of approaches to stabilizing the stock and that has been discussed, but we haven’t initiated anything yet. End of Q&A

Thank you. At this time I would like to turn the floor back over to management for further comments.

Well, we want to thank everyone today for joining the earnings call and for your questions. We certainly appreciate all our shareholders and we hope that you share our enthusiasm for what we see ahead and that you continue to support us in wonderful fashion as you have been, as we transition the company and get our new product out in the market and get some wonderful traction. So once again on behalf of the entire executive team and our Board of Directors thank you very much.

This concludes today’s teleconference. Thank you for your participation. You may now disconnect your lines at this time.