TWST: What is IncentOne?

Mr. Dermer: IncentOne provides integrated reward, recognition and incentive solutions, what we call RRI solutions, to help companies achieve specific business objectives. Those business objectives generally fall into one of two categories- cost savings or revenue growth. Our RRI solutions are tools that can be used by companies to drive their specific business objectives. Looking at that from another perspective, our RRI solutions are really a type of business process outsourcing (BPO). Companies are generally spending 1% to 2% of compensation on their RRI programs, so there's real spending and a real need there, especially by Fortune 1000 companies. Like many services that are right for outsourcing, in this case Human Resource Outsourcing (HRO), when it eventually gets on a company's radar screen, not only do they not know where to find these RRI solutions, they are not even aware that companies like ours existed! So it becomes a search and rescue effort for us. We search and rescue companies with this need by providing integrated RRI solutions that deliver their specific goals.

TWST: What does the customer space look like today? How is that space itself changing or evolving from your perspective?

Mr. Dermer: It's interesting because the customer space is quite fragmented. Unlike something like, let's say payroll services where there are a variety of different services in the BPO and HRO space, these particular services are generally managed in disparate ways throughout an organization. You might have individual HR managers, sales managers, and folks running different programs. The competitive landscape of who they might turn to is really the wild, wild, west. They might turn to their local marketing firm. They might turn to a promotions firm. They might turn to an enterprise software vendor. This is really somewhat of a unique space and we look at ourselves as taking a leadership position of defining the value, and the market, for the customer- whether it is for a branch office, a business unit, or the entire enterprise. We make it easier for them to buy, and also provide an easy way for them to outsource the solution.

TWST: Has the person sitting across the table from you are the persons changed as far as who's at the table when you meet with your customers?

Mr. Dermer: It's a great question. A little bit, I think it's more of a function of the HR community being a little bit more accountable and a little bit more results oriented than perhaps they were 10 years ago. The pressures of the HR community as a cost center have come to bear against the backdrop of the economy, outsourcing and other cost cutting, and fun things like the Internet. I think the HR community has come to realize that instead of this 1% to 2% of payroll cost being spent throughout the organization without hard metrics or measurement, that this is spending that many organizations need to be committed to as part of overall employee benefits with an equal commitment to insuring accountability. It needs to be used as a measurable strategic tool to deliver return on investment, however a client defines that now. So, I think the transformation of the HR community to being increasingly metrics and results oriented is the most critical change. What we do in RRI is meant to support that initiative.

TWST: What's the competitive landscape look like today? How is that undergoing changes? Is there consolidation? Is it pretty much of a standalone niche area?

Mr. Dermer: We look at our business as a segment of HR outsourcing. Back in the dotcom era there were folks that were, and a decent amount of venture investment in, trying to turn this into a software market. At the end of the day, like a lot of software applications, it really is a package of integrated services. There are companies in the space that treat this as providing incentives, such as merchandise or trophies. There are companies in the space that treat this as software. There are companies in the space that take a more change management approach and I think you would put them in the consulting area. But really, the ability to deliver a completely integrated solution is the ability to integrate the consultative nature with technology elements and other service elements in a bundled package. The way we describe it is that of the 100% of competitors that are out there, 70% of the folks in our space provide the reward or incentive piece of our solutions, about 20% of the competitors provide the technology elements whether they'd be software or ASP-based models, and about 10% provide the consultative change management, performance management elements of reward, recognition and incentive. We believe that we are one of the few companies, if not the only company, that really integrates all three of those together. And I think a part of that is a function of how those companies grew up, what their histories were. You might go to one of the large consulting firms such as Accenture, who would provide you with change management, but might not necessarily be able to deliver the reward or incentive piece of a solution. I think the competitive landscape is really amongst those three segments, the knowledge consulting piece, the technology piece, and the reward or incentive piece. And we'd like to think that we are the leader in terms of integrating those three pieces together. And that's really why we believe we provide what we call an integrated solution.

TWST: What has been the funding history with IncentOne? Do you have the resources on hand for what you consider the longer-term picture?

Mr. Dermer: We do. Fortunately for us, I am former mergers and acquisitions and venture capital lawyer. So, because of my past life, I am very well aware of the positives and negatives that come with the investment partnerships that you make. In the dotcom era, a lot of folks, I think pursued the traditional software model. And you know, once that train leaves the station, it's hard to turn back. We've been funded completely privately without a significant amount of venture investment. We've been able to dictate our strategy based on two core principles. We believe that it is important to deliver value for the customer and it is critical to be innovative. We've stayed focused on that without some of the influences of early-stage venture investment. At the same time, we are close with our private investment partners to have the resources and the capital to, over the course of time since our founding, have the resources necessary to build these sophisticated integrated solutions.

TWST: At this point, what's the agenda? What would make the next 12 months a success? What are the priority items for that time frame?

Mr. Dermer: I believe the biggest challenge in our marketplace is, when you are establishing the market, education. If you called a Senior VP of Compensation for a Fortune 1000 company, they might not even be aware that solutions like the ones IncentOne provides, exists. So, our focus is, once those individuals are aware that solutions like ours exist, educating them of the benefits of using us as a strategic tool. Our focus is, number one, to inform the customer that they have options available that can help them drive specific business objectives. Secondly, it is not a one-size-fits-all type of solution. A Fortune 1000 company might want to put in place an enterprise solution that helps them reduce employee turnover, whereas an 1,100-person company might want something that's a little more segmented by business unit or division. Therefore, it's providing integrated self-service, easy-to- use, cost-effective solutions for each of those market segments. If somebody wanted to set up an RRI solution in ten minutes on their own through self-service in the Web, we can do that. We also handle the six- month change management initiative supported by overall realigning of compensation strategy as well as a reward, recognition and incentive program. The ability to provide segmented solutions to each of those different segments to help them accomplish their business objectives.

TWST: If you could step outside of your company for a minute and as an investor, what would you be looking for in a company, what would you be looking for in this market, in this space? What are the value points, what are the right strategies for a company to pursue, what makes the company valuable?

Mr. Dermer: I think the ability to have a recurring predictable revenue that takes this integrated solution and provides a predictable revenue stream that the investment community can understand. They also can model forward across a mix of different segments of customers, as in my example of the 1,100-person company and the 50,000-person company, to see the significant potential. So, I think one of the challenges from the investment community perspective, in what was traditionally the space occupied by the logoed golf ball industry. Our space has always been a little bit like marketing services. There are lots of advertising agencies and marketing services companies that don't garner the attention from, or evaluations from, the investment community because that revenue stream and profitability can't be modeled and predicted. I think that what we are trying to do is to take that integrated solution, which combines many, many different things and to bundle together in such a way that the metrics for a specific value proposition for a customer or a product or a solution is predictable, is able to be modeled forward, and is a blended mix of traditional profitable business services and ASP revenue. For the investment community, the easy to understand models are one of the reasons why people love software companies. It's simply a function of things like software licenses and training and implementation and that's easy to model forward. The challenge of companies in our industry is that we should be serving the investment community by not only creating value for the customer, but also creating predictable, modelable recurring revenue streams for RRI programs that the venture and investment groups can value going forward and understand how those enterprises are valued.

TWST: What should be overweighted? Are there business models or strategies that you'd feel are dead-ends?

Mr. Dermer: I think I mentioned it a little bit earlier and I think that there are. Many folks in our segment fall in love with the model first and think about the customer second. And so, folks may say, `We want to be a software company` when, as I talked about before, the customer may not look for software, they are looking for an integrated solution. I think it's really important to stick to deliver value to the customer and innovate. It is an understanding that the customer dictates what the solutions are that you provide, not saying, `Okay, I am going to be a software company`, or `I am going to be a marketing services company because that's how I want the investment community to value us`. I think that there are many examples of folks in enterprise software and other IT services and other software segments that decided the types of multiples that they wanted first and then decided how that fit in the customer need second. As long as the customer's needs dictate the solutions, you can take components of Enterprise Resource Planning (ERP) and software and business process outsourcing models. Our integrated solutions are critical to accomplishing both goals, providing the customer with value and secondly, providing the investment community with an enterprise that grows in value over time to reward investors.

TWST: Finally, introduce us to your top-level management team, a few of the key principles as well as your assessment of the bench strengths and skill sets that you do have on hand and how you might be looking to augment those if the future requirements are to be met?

Mr. Dermer: It's a great question. Our management team consists of a variety of people that, much like our solutions, bring an integrated skill set. Our Director of Technology, Abhishek Jain comes from a long history of working with Enterprise Resource Planning (ERP) systems, large organizations, understanding how their HR systems and integration processes work. That allows us to build the types of integrated solutions that are very flexible for the environments in an ASP model solution. Raymond Johnson, our VP of Sales and Marketing has extensive experience previously with JD Power and Associates of building nation- wide sales organization that serves a variety of different market segments. Cicilia Stern, our Director of Finance is your Big Five, I guess Big Four these days, Director of Finance, that brings all of the experience that comes with working with large organizations with a prior history. Adam Berenson, our Director of Operations, had a long history running a large $250 million segment of a shipping operation for a company called Direct Container Line, a large international shipping with logistics as its focus. As a private company, we look to take folks that have had diverse experiences that blend nuts and bolts management with the ability to think into the future. One of the things that our management team is challenged to do every day is to define this market and we are looking to lead that effort. So, we've really tried as a matter of course, to bring people in from very diverse industries, whether they be software, ERP, the shipping industry, or whatever it may be to bring different perspectives and skill sets to the table.

TWST: Maybe final comments, is there a role for mergers and acquisitions activity as you look at the growth path for IncentOne?

Mr. Dermer: I think that there is. I think that the funding and the merger and acquisition activity is really the ability to establish a financial model that the investment community can understand, and I think it's related to that kind of integrated package of value that we talked about in a predictable model. I think that people will embrace that. There is recent M&A activity in the HRO space with the Exult transaction and other things of that nature. Once people get their arms around the models that are available, they see the synergies that come from not just adding to customer base, because each of us, could do M&A activity to gain more critical mass and more scale. But it's the ability for that critical mass and scale to come from transactions that have models that are understandable and predictable for the investment community. The investment community evaluates much, much more complex models than the ones that exist in our space, but those models need to be defined as the metrics against which financial performance and investor performance are measured. Once that gets flushed out a little bit more, which we hope that we are leading the charge in, the investment community can really get involved in a meaningful way. I think even in HRO, to a certain extent, people are looking out for the value proposition from the investment side of M&A, because it's still an evolving space. Once that gets more solidified, I don't think there's any question that there is an opportunity to develop some real robust players in this marketplace.

TWST: Thank you.

MICHAEL DERMER President and CEO IncentOne 400 Paterson Plank Road Carlstadt, NJ 07072 (201) 372.9250 x233 (201) 2.9555 - fax

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