Intellicheck Inc (IDN) 2003 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Charlene and I will be your conference facilitator today. Welcome to the Intelli-Check second quarter 2003 earnings conference call. Following remarks from the company there will be a question and answer session. If you have a question press the "*" key followed by the number 1 on your telephone keypad and your line will be taken in the order it is received. We would like to ask that the questions be brief so that all telephone participants will have an opportunity to ask question. If you have additional questions, you are certainly invited to press "*1" again. Copies of the press release have been faxed or e-mailed to you. If you have not received a copy please call Gillian Angstadt at Abernathy Macgregor Group at (212) 371-5999. This call is being recorded and is copyrighted. Therefore, please note that this cannot be recorded, transcribed, or rebroadcast without Intelli-Check's permission. Your participation implies consent to our recording of this call and posting it in our Web site. If you do not agree to these terms please disconnect. I would now like to turn the call over to Frank Mandelbaum, Chairman and CEO for Intelli-Check. Please go ahead sir.

Thank you everyone, for joining us once again. We apologize that we could not complete our call, but obviously it was beyond our control. With me on the call today are Ed Winiarz, our SEVP and CFO, Bob Holloway, SEVP Sales and Marketing, and Ernie Locker, our Director of Corporate and Government Sales.

Ed will begin the presentation by discussing the results and our recently announced financing after which Bob and Ernie will both discuss recent sales initiatives. When we complete the call, we will then take questions and answers. But before I begin, I will caution you that the conference call will contain forward-looking statements. When using these conference words such as believe, intend, potentially, and current, encourage, significant, expect 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. Actual results could differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements as contained under the heading of risk factors listed from time to time in the company's filings with the Securities & Exchange Commission. We do not assume any obligation to update the forward-looking information. With that, I would like to turn the call over to Ed Winiarz. Ed?

Thank you, Frank. Good afternoon, everyone. Today we filed a Form F2 registration statement with the SEC under which we propose to offer 1 million shares of our common stock to the public through the Shemano Group. We feel very confident that we will be successful in completing this offering within the next 45 days, which will put the company in a strong capital position. I would like to discuss some of the financial information that is contained in our 10-Q, which we also filed today.

Revenues increased by about $55,000 from the prior year's quarter. Even though we have been making great progress in introducing our products and technologies to new markets, sales have been limited to date due to the longer-than-expected sale cycle, extended test period and poor economic conditions. We are pleased about some of the agreements we have recently signed with important players in the security field such as Bioscrypt, Ultra-Scan, E Certify and Northrop Grumman, which have begun integrating and/or marketing our technology. We feel confident based on the results of certain tests with one of the largest mass merchandisers in the U.S. and large quasi-government department and legislative efforts from the government to enhance security that these events should result in increased sales opportunities. Bob and Ernie will discuss the sales initiatives later in this presentation. Included in revenues for the second quarter, was royalty fees of about $25,000 from a three-year royalty license we signed with CarCom technology which became effective March 2003. Gross profit was negatively impacted by a non-cash inventory reserve of $800,000, which we recorded in the second quarter of 2003. The current terminal is fully capable of running our patented software, as it utilizes a state-of-the-art images scanner and magnetic stripe reader. However, since our policy is to periodically evaluate our inventory, we have determined that an inventory reserve of 800,000 should be taken at this time based on our accounting policies.

Total operating expenses decreased by $51000 from the second quarter of 2002 to $1,465,000 for the second quarter ended 2003. This decrease results primarily from the reduction in expenses incurred for consultants. Of this amount, approximately $220,000 was from non-cash expenses from the granting of options recorded in the second quarter of 2003. For the reasons that we just stated, we reported a net loss for the first quarter ended June 30, 2003, of $2,049,000 or 24 cents per share which includes the inventory reserve of $800,000 or nine cents per share and a non-cash expense of $312,000 compared with a net loss of 15 cents per share or $1,332,000 for the second quarter ended June 2002, which included non-cash expenses of $160,000.

At this point I would like to review the company's liquidity and capital results. Net cash increased for the six months ended June 2003 by $277,000. The principal reason for this increase is the net proceeds we received from the $3 million financing close on March 27 from Griffin partners, which was offset for the net cash loss from operations. After setting aside approximately $1 million for the 'early bird' award as previously announced, which we have challenged in New York's Supreme Court and are awaiting a ruling on our motion to set aside the award, we currently have about $1.8 million in cash invested in secure short-term securities. We anticipate that our current available cash in hand, cash resources from expected revenues from the sales of our units in inventory, along with the sales from our ancillary products such as ceiling and warranty programs, licensing of our technology, combined with the cash expected from the exercise of options and warrants and rights, and the projected proceeds from our proposed public offering, will be sufficient to meet our anticipated working capital and capital expense requirements for at least the next 18 months. Should we be unsuccessful in completing the proposed public offering, we would be required to raise additional capital during the next 12 months. As Bob and Ernie will explain, we have been actively marketing our technology, the licensing and integration into other complementary systems and technologies. These potential markets will result in additional cash flow for the company. I will now turn the discussion over to Bob Holloway, our SVP of sales and marketing.

Thank you, Ed. At the annual meeting a month ago, none of the detailed description of our failed opportunities (inaudible) will address some of the updates (inaudible). Last month, I talked about our strategic alliance with the (inaudible). An update is that they will be placing an ad of their design in the Credit Union Magazine, August issue, with a circulation of 40,000. We will also be sending a clever direct mail piece to all association members with an incentive to purchase within the following 60 days. We provide a special bundled price that includes the IDC. 1400 in ceiling. This mail piece will arrive at all 11,000 member credit unions by mid-September. We are now getting inquiries from our listing on our Web site in advance of this, and we are making sales over the phone.

In the Mothers Against Drunk Driving initiative, we have been invited by the Executive Directors of Florida, Massachusetts, and California to be speakers at our quarterly meetings attended by all Chapter Presidents. They are also helping us by contacting the Department of Public Safety in the state where the encoding is presently unreadable, to encourage the Department of Public Safety to ensure the encoding on the planned new licenses will be usable for stopping underage access to alcohol. We have confirmed back that the new licenses will be readable by our equipment. This opens up new opportunities for us.

We are now international. As I reported in July, they had completed the integration of the IDC. 1400 output into the on-guard access control system. They are now developing a training plan and marketing guidance for the sales representatives and business partners. At the annual meeting we also talked about partnerships with several fingerprint companies. Now we are engaged in discussions with another major company that provides an access control system based on an altogether different form of biometric or personal identifier. Their interest in our technology as a front-end enrollment process is high. Now I will turn the presentation over to Ernie Locker to describe our initiatives with the federal government and other industries.

Thank you, Bob. I would like to update you on two initiatives that we are working on, one governmental and the other for private industry. As Bob shared with you at the annual meeting, we received our first purchase order from the Defense Department on the (inaudible) project. The project proposes to use our software in a government system to provide positive identification and validation of the individual's identity to ensure that only screened military employees and contractors have access to military installations. It will also provide screening of military personnel who travel to defense contractors. The ultimate objective is to provide a dramatically increased level of security at all these installations and Intelli-Check system will be used for enrollment and validations at each location. Ultimately the enrollment could include 10 million military personnel in addition to thousands of defense contractors and subcontractors.

In the private sector, we have completed the logistics and writing of the warranty and contract from a major retailer and we anticipate a purchase order for the installation of our systems at approximately 25 locations of their more than 1,000 locations as a proof of concept. The purpose is to use our system not only to validate the identification of individuals applying for credit, but also to parse the machine readable encoding on the backs of driver licenses and use this data to populate the fields of instant credit applications, which lead to the issuance of credit cards. Through the use of our system, the retailer will be able to speed up the application process and provide a more favorable experience to both the applicant and the employee. The time savings, the increased efficiency and the accuracy of recording and processing the data will provide huge dollar savings for the retailer. We are excited about the application as is the retailer, and it can open major markets for us.

To understand the market recognition that our technology is receiving, in the past two weeks we have either had meetings or requests for meetings with some of the largest companies in the United States as well as from government departments. We continue to have ongoing discussions with other leading integrators, government agencies, major corporations and retailers for the use of our technology for some other initiatives in the public and private sectors. Thank you, Frank.

Thank you, Ernie, thank you, Bob. Before I turn the meeting over to questions and answers, I just wanted to make a comment on several calls and e-mails that I received today, where people thought that perhaps we did not comply with the rules and the regs as far as filing our Q. The SEC gave everybody who was so situated as we were that the phone lines went down and the Q did not get filed electronically, until today legally to file our filing. Therefore, if any of you are going to ask that question, the company continues to comply with all regulations pertaining to the filing of our documents. Having said that, Charlene, I would be more than pleased to open the call to any questions and answers.

Thank you, gentlemen. Today's question and answer session will be conducted electronically. If you have a question, signal by pressing the "*" key followed by the number 1 on your touchtone phone. Once again, that is "*1" for questions. Once again, ladies and gentlemen, as a reminder, that is "*1" for questions. Our first question comes from Dan Johnson (ph) , private investor. Please state your question.

Hello, Frank. I would like to know how many of the 850 special rights options were exercised this quarter so far, just to get an update on the cash position.

Well, I believe we gave you the cash position and since we have not -- are you talking in the quarter ended June?

The current, the current quarter.

We can't comment on that. We haven't reported.

Okay. I have another question. I was reading through the registration for the SPO and it says that there's a 2.5% expense fee. Is this a non-refundable fee in case the SPO doesn't go through and also is there a maximum discount that can be applied to the market price -- the price of these shares compared to the market price of the stock?

One, to answer the question, we filed a registration. The price will be determined at the price pertaining on the day it is declared effective. As Ed said, we expect the registration to be effective in approximately, within 45 days. So there will be no discount to the market prevailing on the day it is declared effective.

Okay. Is it 2.5% expense fee refundable in case the filing doesn't go through?

The 2.5 -

In case the offer doesn't go through? That mentions that there was a $15,000 deposit paid up front, another 15,000 due when the registration becomes effective, and the balance to be done on the close of offering. I'm wondering if -

Well, if you heard your question, if it states the balance due on the close of offering, that's when it will be paid. If it doesn't close, obviously other conditions take place.

Okay. All right. That answers my question. Thank you very much.

You're very welcome.

Our next question comes from John Stefan (ph) (inaudible) Partners. Please state your question.

Yeah, I'm just curious. Does management or any of the board plan to participate in the offering? Thank you.

When you say participate, do we plan to sell any stock in the offering?

No, no, no. Do you plan to buy?

Well, the offering at this particular point will be placed -- I can't comment who is going to be buying and selling. That will be determined at the time and the place. You're moving ahead and we can't comment on what is going to take place in the future.

I'm just asking you if the intent of management is to buy part of the offering.

I just told you, we can't comment on that at this point.

Okay, thank you.

And your next question comes from Richard Holder (ph), stockholder. Please state your question.

Hi, Frank, how are you?

Okay.

I have a question. Why do you feel the need to offer Griffin, who loaned you $3 million, a completely floorless convertible in --essentially you guys can print shares as the price drops, which it probably will. And then -

Whoa, whoa, whoa, I think you're making an assumption. It is not a floorless convertible. Obviously you're short the stock and you have your own agenda. If you would read--

No, I don't have an agenda.

Obviously you do.

I'm trying to find out.

It is not a floorless convertible. It never was a floorless convertible. So for you to characterize it as such-

(inaudible) short 240,000 shares of the company stock, if they are not like -- if they feel that you guys are going to go to the moon?

I can't comment on why Griffin did anything. All I would say is that Griffin made an investment. It turned out to be very, very good for them. As far as their return on investment. And you would have to ask Griffin that question.

Well we can't find them because they are in the Bahamas.

They are not in the Bahamas.

They are Bahamian company.

They are not in the Bahamas. They are a US Company.

Well they have a New York office, but they are Bahamian Company.

Operator, can I have-- obviously, what you are looking to do is make claims and statements that are erroneous.

Well, I don't think so.

I think so. Have you read the offering, there's no way you would state that it was a floorless convertible. Ed stated if we did a financing in the future, at a price lower than 660, they would have an adjustment. So if we did an offering at 650, they would have gotten 6- or 7,000 more shares. Since the stock has risen dramatically since we did it, there is no floorless convertible. Can we have the next call, operator?

The next question comes from Owen Mccloskey (ph) from Equity Value Ventures. Please state your question.

Hi, have you made the decision to select a new hardware platform versus accepting the remainder of the hand held purchase order?

What we are doing is we are evaluating all of the potentials that are out there at this point and we are still looking. As to what -- you have to remember that we are primarily, first and for most, a software company. We do not need the platform for our software. The reason we originally built a hardware platform is that nobody had the kind of readers both hardware-wise, the scanners, and mag stripe readers that were capable of parsing all of the data so that our proprietary software can do the verification. Since we have our own capture device where you can run it and our activix (ph) DLL, the need for hardware, except for smaller players, is not as prevalent as it was when we first built it. We are looking at that very actively as to what we will use.

You are saying there may not be a decision to choose a new hardware supplier?

No, I just said we have not decided on what hardware platform we would use for those instances where hardware is necessary.

All right. And when would you be making that decision?

We are actively looking at it right now.

Okay. So this quarter, is that a reasonable time frame?

I would expect so, yes.

Okay. And do you have supplier or suppliers identified who could make a new model on the -- I take it it's a touch screen model that you need?

We have, we are in discussions with more than one supplier.

Okay and just a balance sheet question. On the $3 million preferred convertible preferred, why is it carried on the balance sheet at $1.7 million?

Ed?

There are certain costs that were incurred in raising that capital that under accounting principles, it gets offset against the debt, and thrown into paid in capital and it gets accredited back. It's a five-year redeemable preferred.

So other costs -

It is accredited back over time - over the five year period. You will see that number go up every quarter until the five years, if the shares are not redeemed or converted at the time. It goes back to the $3 million.

Okay. But it is , an 8% cash dividend on the $3 million?

Correct.

Which is liquidation value and it's redeemable in five years?

Yes.

Thank you.

You're welcome.

Our next question comes from John Davenport (ph) from Priority Capital. Please state your question.

Yeah, I had a couple of questions regarding your business development activities. The one -- first one regard your comments on the credit union affiliation and the advertisements that are up coming as well as the direct mail piece and that is, do you have any expectations or can you provide any parameters around what you might expect from these initiatives?

Bob?

Well, the Credit Union National organization has 11,000 members. They claim to have had a very high success rate in previous alliances that they have had. Right now I have a posting on their Web site which has not been advertised or whatever, and we are already getting calls in. We made sales over the phone. Now they are aggressively promoting this alliance with a direct mailing and an advertising in the magazine they publish 12 times a year. They are, they feel that this is an important initiative for them and we feel very optimistic that this is going to be a positive for us.

Bob? Perhaps you can share what on other items that they have done, what they did with us, and their success rate.

They have a strategic alliance group which is charged with generating funds for the Credit Union National Association. In previous alliances, they have had between a 40 and 70% success rate in marketing the products that they have endorsed to their member credit unions.

Okay. And so are you saying today you have had some success with them? Have you had some placement just through, for instance, this posting on the Web site with some of their members?

Yes, it has been modest so far but it's a recent posting. Really, it hasn't had the advertising push that is going to occur in August and September. So we expect that there will be substantial up tick in this.

Okay. And then regarding the retailer you mentioned where you have 25 placements in I guess a pilot related to credit applications and the ability to more efficiently fill in the personal information on the application forms. Have you had similar such arrangements where you had people interested in it for that purpose?

Yes, as a matter of fact, one of the initiatives I talked about last month at Lanell International, in addition to verifying the authenticity of an identification document, they have an electronic form that gets filled out before a person is enrolled in their access control systems. So it extracts the data output from the IDC. 1400. It actually fills in the form, accurately extracting information before the person is considered for further enrollment in the on-guard-access-control system.

And with regards to other competing products that might do the same thing, is there something unique to Intelli-Check's technology? I know as reading through some of your information, you talked about the ability to authenticate. Is that different from verifying? I'm not an expert in this field.

Yes, it is quite different. As we explained at the annual meetings, we have people out there who can read documents. Reading a document is very different from authenticating it. In fact, our patent is on the process that we go through in terms of looking at the information, analyzing it and putting it in the proper positions and comparing it to the perfect format. So we go a substantial step further than anybody else who claims to be able to read a document. Reading it and authenticating it are quite different.

And you're saying your technology is the only one out on the marketplace that does authentication? Is that what you are saying?

We are the only ones doing what we claim to do. It has been upheld with our patent litigation with card.com and we feel very strongly that we have a process there that is patentable, protected and does what we claim it does.

Okay and my final question is, and I'm not sure to what degree you can comment on this, but to the extent that the markets are unpredictable, if for some unfortunate reason the offering is not successful, it seems like there will be a pretty immediate need to raise additional capital. Do you, have you identified those other alternatives?

Well, let me comment on that one for you. One, we are very confident that the Shemano Group will be more than capable of placing this particular offering and if not Shemano, and we went with Shemano because we felt that they could do an outstanding job for us by placing the stock strictly with institutions and high net worth individuals. By doing that, we are confident and they are, I believe also, that they will be successful. But even if they weren't successful, we do have alternative opportunities that we would investigate. We do not believe that it will ever come to that.

Okay. Best of luck.

Thank you.

Our next question comes from Ernie Caponegro (ph). Please state your question.

Gentlemen, can you tell us a little more about the Shemano Group, who are they, where they come from and secondly at the annual meeting you had discussed some of the things that Northrop Grumman was doing, can you tell us what's going on there and what is going on with the quasi-government agency and the other retail outfits? Do you have any plans to have any information released with in the next 30 to 60 days?

I'll answer the first part and I'll let Ernie answer the part about Northrop et cetera. As far as Shemano, Shemano is company. They are based in San Francisco. They have been very successful. We believe that based upon our information and our due diligence, that they are more than capable of placing these securities. We are very pleased to be working with them and anybody, I guess, they must have a Web site -- I know they have a Web site -- who wants to know more about them can certainly go look. At that point, Ernie, if you want to talk a little bit more, if you could, about the Northrop and what we are doing with the quasi-government? If you don't want, I will be happy to do that.

Well, from the perspective of our involvement with Northrop, our software and system is integrated with the Northrop system to provide the solution for the defense department. Frank, I'll let you talk about the quasi government

Could I get a follow-up on that?

What is that, Ernie?

Could I ask a follow-up question? While you talk about Northrop Grumman, there's another discussion that General Dynamics is involved and I2P2 Technology is -- what is the situation now and is anyone else doing what Northrop Grumman and Intelli-Check are planning on doing?

For the DOD we are providing the solution that they are looking for. As far as the I2P2, that is a process that Northrop Grumman has. I am not aware that anybody else has it. It's a state-of-the-art, as anything out there right now. We believe that the combined technologies is a very powerful solution to the needs for proper verification and authentication of documents.

So you mean General Dynamics to the best of your knowledge is -

I know nothing. We have no relationship at this point with General Dynamics. So I can't comment on what General Dynamics has. I will only repeat what Ernie said, that the initiative with the DOD is between Intelli-Check and Northrop Grumman.

And anything about the quasi government agency or anything with the retail outfits? Anything on -

I think Ernie had mentioned that we are ready to begin a paid for pilot with a very large mass merchandiser and we have initiatives going on at all times with other people in the retail and other industries in the U.S. However, we also have what was mentioned at the annual meeting, we did not want to rehash that which we said at the annual meeting, but just to say that our initiatives with this very large quasi government agency are proceeding. They are very interested. They completed their test on our technology. And -

Can you tell us how big that test was?

What is that?

Could you tell us how big that test was?

How big the size of the test was?

Yes.

You 19 -- what do you mean by big?

You said that the government, the quasi government agency had a test. Was it for one unit, three units, five units? I mean you know-

It involved a test where not only did they utilize the units that we gave them, they not only did that, they attempted to defeat the system. And the report that we had, they could not do that. That's all I'll comment on that test. It was very successful.

Thank you.

Okay.

Once again, ladies and gentlemen, as a reminder, should you have a question, please press "*1" at this time. Our next question comes from Ira Nathan (ph) from Nathan Financial. Please state your question.

Yes, Frank. The 25 locations for the major retailer that you had mentioned, would that be capital intensive?

Explain what you mean, capital intensive, for who?

Capital intensive for IntelliCheck, to put in the necessary --

No, it would not. Definitely not.

And the same question would apply if you received the orders for the quasi-governmental organizations for whatever they perhaps would order? Would that be capital intensive?

No, that would not be capital intensive. Not at least on our part.

That's what I'm referring to. Thank you.

You're welcome.

Once again, ladies and gentlemen, as a reminder, should you have a question, please press "*1" at this time. As a reminder, ladies and gentlemen, should you have a question, please press "*1" at this time. We do have a follow-up coming from Ernie Caponegro (ph) . Please state your follow-up.

One more thing about the Shemano Group. Were you planning on any other participants in this? Or is this strictly a 100% effort by the Shemano group at all?

At this point, the sole underwriter as the Shemano group. However, it's up to Shemano as to whether or not there will be additional underwriters or syndicate in it. That's for them to decide.

Was there a green shoe on that as well?

Yes.

How big is the green shoe.

The offer is 1 million. And the green shoe is 150,000.

So you are talking about 1.15 million shares of stock potentially. Was there any reason why any of the management in the last 6-9 months haven't exercised any outstanding warrants and fully diluted, what is the amount of shares outstanding now?

I'll answer the first and I'll let Ed tell what the current fully diluted is. Management makes their decisions based upon very small windows of opportunity because everybody is constantly in possession of material information. What management decides to do is irrelevant to what is being done within the company. And those are all personal decisions for each particular member of management and, for that matter, for the Board of Directors. We fully expect, as once before, that every one of our money options and rights, et cetera, at the right time will be exercised, but I can't give you the timing of it.

Can I also ask you -- Mr. Messina -- is he still a 10% owner of the stock.

As far as we know, Mr. Messina has no stock left.

On most Web sites it's reported that he has 300,000 shares, I thought.

He has -- to the best of my -- Ed, am I correct on that.

That's correct.

He has no stock. If you know anybody who looks on a Web site that has nothing required to be updated or is influenced even by what I have been told appears on chat boards, should really not be investing. They should look for the facts, not an agenda. Whether it be a long or a short, to tell somebody what they should be doing based upon a chat board. We're telling you the facts.

Well, I was actually looking at FreeEDGAR and I saw that he is still --.

They have no obligation to update.

What we are talking about is all the stock he had originally and all the option that is all gone. Whether he purchased more on the other market, we wouldn't know.

He has no other warrants or anything outstanding that you know of?

No, none.

He has no stock that -

Not that we know of.

All right, thank you very much, gentlemen.

Okay.

Our next question comes from Robert Lambert (ph) from RLR Capital.

Hi, Frank.

Hi, Bob.

Could you comment, I know you mentioned it before at the annual meeting. One comment about the -- I mean, the annual meeting was really an eye opener for me. I was glad I attended it. Can you mention a little bit about what you were talking about, you say, you know, that the Visa cards don't really have a problem with fraud. That it ends up in the bank's hands. Can you comment where we are with any of the major banks as far as using our technology?

Well, Bob, the company continues to make presentations to those people that we believe have major interest in this kind of solution. The problem in a lot of places is that if you are a credit card issuer like Visa and Visa gives you a code for an approval of a purchase, it is the bank that is processing that eats that loss, not Visa. Visa per se does not have the losses. It falls on the bank that is doing it. And there are many banks, some much bigger than others that do this kind of processing and we have been in discussions with most of them. Bob, is that fair?

Correct.

Okay.

Okay.

Our next question comes from Don Nu (ph) from VN Capital Management(ph). Please state your question.

Hi Frank, I have just a couple quick questions for you all. First of all, with the Shemano Group offer, I want to make sure about that. Is there an underwritten deal by the Shemano Group or is that a best efforts deal?

It's an underwritten group by the Shemano.

So they will be purchasing the shares regardless of if they find buyers for them or not?

When the offering closes, they will buy the stock from the company.

Okay. And then second question I have for you, can you just give me sort of a rough approximation of the breakdown of your business between private and public sector?

Well, I don't think we made that sort of disclosure. I mean, both of the markets are very, very large, Okay? The reason that in-- with the state of the economy, that the private sector that subjugated to those places that had money, like the Department of Defense et cetera, a lot of things -- and the initiative got slowed up because of the freeze on budgets, et cetera. But we are starting to see some movement on that end. Now that the economy supposedly is stabilized, but as you know, not only us but quite a few companies, particularly a company that you are introducing a new technology, as Ernie stated on his presentation, some of the largest companies in the world are coming to us and we're in discussions in the last two weeks because of the fact that these frauds are becoming just a very, very big detriment to business. And they see our technology as being a means of helping to reduce that. So we are very encouraged by the kind of companies that are now coming to us. As far as breaking it down, since some of it is licensing, some of it is royalty, it's really difficult at the size we are today, to break it down. We probably expect in the future -- oh, Bob, what would you say, fifty-fifty?

Yeah, I would say so.

Okay, thank you very much.

Okay.

We do have a follow-up coming from Ernie Caponegro (ph). Please state your follow-up.

I'm sorry, I'm sorry, but somebody raised an interesting point. I just want to make sure I understand what you're saying. The Shenano group has agreed to purchase the I million shares from you not on a best efforts basis but as an underwriter, correct?

Should the underwriting close, it will be purchased, it's not the best efforts.

So that means that once the paperwork goes to Washington, D.C., you're effectively done?

Frank Mandelbaum That's not correct, Ernie.

Then how would they -

Frank Mandelbaum It's not where they have to buy. They can only buy best efforts, that if they place 200,000, which sound 200,000-- them 200,000. They -

It's not a best effort, though.

I said it's not.

They already agreed to purchase 1 million shares, then.

Subject to the completion of the underwriting agreement, et cetera. We expect -

Right.

Expect this to be a very successful offering.

One other point, then. You had talked, I believe, at the annual meeting about, was it Choice Point or Choice something or other?

We demonstrated Choice Point Technology.

Can you discuss what is going on with that right now?

Just to say that the meetings and the discussions, I did mention at the annual meeting that I would be going down to meet with their senior management, which I've done and we are in continuing discussions with Choice Point.

Okay, thanks a lot.

Ladies and gentlemen, if there are no further questions, I will now turn the conference back to Fred Mandelbaum.

I thank you all for attending. Again, we apologize it had to take place in two parts and we hope to speak with you again at our next conference call. Thank you all for being with us today.

Ladies and gentlemen, if you wish to access the replays of this call, you may do so by dialing 1-800-428-6051 or (973) 709-2089 with an ID number of 304344. This concludes the conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.