To All:
Here's Mr. G's reponse to QQTTC:
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Subject: Quarterly questions to the CEO
Thanks for the questions; I can assure you that most of these are quite similar to the regular set of questions that come in via many phone calls every day of the week, so I appreciate the opportunity to respond in a broader manner. We intend to place this information on our website as well. It has been a difficult year in many respects; on the other hand, revenues are increasing, reduced scope of strategy and concentration of resources have brought expenses down to the lowest level in 15 months, five sets of hardware and software products are in place, the value of contracts to be delivered is growing, and there are more solid prospects than ever for NRI's biometric identification and authentication products for networks of all types.
Q #1 from Bob Jordon:
Why should I be a shareholder in NRID? That is to say, what steps are
you taking to RAISE the stock price?? I hope it is not a reverse stock
split.
The only reason one should be a shareholder in NRID is if one thinks that a return on investment can be generated that is compatible with your financial goals and objectives over some time period. With that premise agreed, then the question must revolve around the outlook for NRI's financial performance over some time period. An overview of the overall position of the company is provided in the answer to question 5. Generation of orders and revenue in the selected markets is the primary objective. Normally stock prices reflect some measure of financial performance of a company; however, this becomes less numerical and objective when dealing with emerging technologies.
Q #2 from Sheldon C:
Lets say NRI costs $1.5M bare minimum to run a Qtr. And lets say we
make $200 a unit. NRI has to sell 7500 scanners/units per Qtr to break
even. (ignoring service income). When do you estimate that this Qtr.
will come, and how will the Cogent payments impact (are they the ones
we pay royalties to?) on this number?
Operating expenses for a quarter are currently running a little less than posed in the question (approximately $450K) and the revenues from services do cover some percentage of labor expense so that with the current staffing level a break-even position can be achieved if we ship and bill approximately 5,000 units in a quarter. Until we have the contracts in hand and have agreement from the customers as to scheduled shipping dates, we do not plan on predicting when the break-even quarter will occur. As soon as we achieve a break-even quarter and can see some regularity in the generation of revenues, we intend to provide quarterly outlooks. NRI does pay Cogent $500,000 per year in two installments (April and October).
Q #3 from +srs:
What incentive does the top management have in raising the price of
stock, if any?
First and foremost, NRI employees are professionals who are committed to performing well even under adverse circumstances. In fact, the software and hardware development staff, along with the business development directors all see the opportunity to create a market leadership position in the biometric segment of the information technology industry. Such an accomplishment is a valuable capability in itself. From a financial point of view, all employees in the company have stock options. The options granted to executive management are a matter of public record. Since no one is "in the money" we are all motivated to do the right thing in order to grow the business. The market determines the value of the stock.
Q#4 from Jaffo:
Many of us who follow N closely is convinced that this qtr will not be
the turn around qtr envisioned by you and that therefore more financing
will be needed very soon. Are we correct and if so have we started to
look for financing to avoid another "Encore conversion/dilution"?
Also, to what extent will the financing dilute the Company. If we
don't breakeven, will revenues be over $1 million this QTR.
Lest I be misquoted, I do not recall ever stating that 4Q97 would be the "turnaround quarter". Given our current list of prospects, there are several that could make the decision to implement NRI products throughout their enterprise and thus generate enough revenue to achieve break-even. It is still not clear when that will happen.
The management of the company is always identifying, evaluating, and pursuing ways to cause additional capital to come into the company. The management is committed to selecting the optimum alternative depending upon the situation.
Q#5 (optional from Jaffo)
In light of the horrendous beating we are taking, would you take this
opportunity to give us a "State of Corporation" briefing indicating the
pro's and con's of NRID both long and short term?
Automated Fingerprint Identification Systems (AFIS) have been in the law enforcement market for many years at very high prices. Starting in about 1990, AFIS systems began to be used in Social Services systems, national ID cards, and voter registration systems throughout the world but still in very small volumes. Market estimates as to the size of the industry are probably low at $150M. Our research tells us that the 1997 revenues generated worldwide for AFIS related products and services are approximately $300M without counting system integrators. In fact, the market leaders for AFIS are Morpho, Printrak, NEC, Cogent, and Identicator. There are a few other companies that provide hardware primarily to this market such as, Identix and Digital Biometrics. If one adds in the system integrators that operate in this market such as Lockheed-Martin, EDS, Unisys, TRW, and Siemens the list is now at least 12 companies. Since NRI was number 13 in this list in 1995 and due to the Cogent license restriction that excludes NRI from the law enforcement field of use, NRID decided two years ago to focus its resources primarily on the commercial markets including financial services, healthcare, and network security across all markets.
On the technology front, the company is exploring the availability of other algoirthms. The Cogent algorithm is both one-to-one and one-to-many. There are some marketplaces that only require one-to-one, NRI continues to develop its relationship with several one-to-one algorithm suppliers. The company has further expanded its relationship with KeyTronic to be the agent for NRI packaged products through distributors in the U.S. and with a small number of distributors in Europe. Both KeyTronic and NRI expect to utilize the distributor channel to reach the more than 100,000 resellers currently purchasing information technology products through this channel.
During the last year, NRI has established itself as the market leader in healthcare as evidenced by the several Value Added Reseller agreements that are now in place and by the contracts for pilots and initial systems in major healthcare organizations such as Mayo Clinic, Scott and White, THINC, Sarasota Memorial and others. Full scale implementations are now beginning to be scheduled. The sales and marketing activity in healthcare continues to expand at an accelerating rate. There is a definite emerging trend in this market segment to consider and implement biometric identification and authentication to protect the privacy and confidentiality of patient medical records.
The installations at Purdue Credit Union with Real Time Data and the recent contract with Unisys at Western Bank coupled with the many pilots at several leading financial institutions demonstrate that NRI is positioned to become the leader in finger image authentication in financial services markets in the next year. The primary areas of concentration include biometric authentication for wire transfer, cash management, securities trading, and network servers of all types.
The opportunity to sell and market SAF for Computer Associates Unicenter TNG Single Signon module continues to expand. The first implementation is underway at Scott and White, a major healthcare clinic in Temple, Texas. There are several prospects for SAF/TNG at Fortune 100 enterprises in the commercial market. SAF/TNG takes the risk out of single sign-on by providing strong authentication for the client/server sign-on environment. NRI just recently completed the installation of the SAF/TNG demonstration capabilities at 10 CA Virtual Enterprise Centers (large demonstration locations) around the country. And the product has already been introduced to at least 75 CA sales people. NRI plans to continue the implementation of this joint marketing activity throughout the first quarter of 1998.
The recent announcement of the next product in the Secure Authentication Facility line of packaged biometric applications offered by NRI is another milestone in the plan to become the market leader in biometric authentication for intranets, extranets, and the internet. SAF/IIS complements NRI's SAF for Windows NT product by using the same basic authentication server software but extending the functionality to provide finger image authentication for HTML pages on any Microsoft Internet Information Server. SAF/IIS is the industry's first biometric authentication product for intranets, extranets, and the internet. In fact the functionality of the SAF product line provides biometric authentication for all of Microsoft Back Office. By the way, according to the "Netcraft monthly survey" there are more than 280,000 IIS servers on the internet today. SAF/IIS can provide finger image authentication for secure areas of those servers. NRI's software is integrated into Microsoft Internet Explorer and interacts in a seamless manner with Windows NT, Internet Information Server, and other Windows NT compatible products. In fact, SAF/IIS takes the risk out of providing secure data on network servers using Micorsoft IIS.
It is difficult to bring emerging technologies into completely new markets. The following example may help to understand the situation: ethernet operates at 10mbps, FDDI operates at 100mpbs, bringing FDDI into the marketplace was not easy, but it was made easier because it was simply a new kind of wire that moved data ten times faster. Passwords come in a variety of formats and sizes and do not require any special hardware; finger imaging can replace passwords as an authentication mechanism but does require special hardware, the costs appear to be higher but the benefits are greater. This situation requires significant evangelism, education, and acceptance to enter the marketplace.
NRI's 1996 revenue of $2.1M was derived almost completely from government id systems. In 1997, the revenue mix is now 50% government id system related and 50% from the NRIdentity series of finger image authentication products. We expect this mix to increase to at least 70% product-based in 1998. At the end of 1996, the value of contracts to be delivered in 1997 was about $400,000 (all from government id systems). At the end of 1997, the value of contracts to be delivered in 1998 should be approximately $1,200,000 with about $400,000 in government id systems and $800,000 from NRIdentity products and services.
NRI management continues to execute the strategy that is intended to result in market leadership in the commercial markets for biometric authentication. Instead of being number 13 in government id systems, NRI's goal is to become the market leader for biometric identification and authentication for intranets, extranets, the internet, and electronic commerce. As contracts are signed, products shipped and installed, revenues booked, and cash collected, the investment community will be able to measure results and the market will determine price. Obviously, growth in the networked biometric authentication market will require time to gain momentum, but at some point could easily exceed the growth rates in the government id systems markets. NRI is planning to be positioned capitalize on the accelerating growth of networks of all types by providing the best solution in the marketplace for biometric identification and authentication.
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Thank you Mr. G.
Jaffo |
