Intellicheck Inc (IDN) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Melody. I will be your conference operator today. Welcome to Intelli-Check's 2004 year-end earnings conference call. Following remarks from the Company there will be a questions and answer session. If you have a question please press the star key followed by the number one on your telephone keypad and your line will be unmuted in the order received. We would like to ask that questions be brief so that all telephone participants will have the opportunity to ask questions. If you have additional questions you are certainly invited to press star one again. This call is being recorded and is copyrighted. Therefore, it cannot be recorded, transcribed or re-broadcast without Intelli-Check's permission. Your participation implies consent to our recording this call and placing it on our Web site. If you do not agree to these terms simply drop off the line. Before I turn the call over to Intelli-Check I'd like to read the forward-looking language. Certain statements on this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When used on this conference call words such as expect, believe, intend, will 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 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. We do not assume any obligation to update the forward-looking information. With that aside I'll turn the call over to Mr. Mandelbaum.

Thank you, operator. Good Morning everybody and welcome to Intelli-Check's year-end teleconference. Present with me on the call today are Ed Winiarz our Executive SVP and CFO, Todd Liebman our Senior Vice President Marketing and Operations, Russ Embry our Senior Vice President and Chief Technology Officer and I'm pleased to say additionally on the call with us today are John Hatsopoulos, our Director, and Ashok Rao, our Vice Chairman and Director. At the end of the formal presentation we will all be available to take questions from anybody. Ed Winiarz will begin the presentation by highlighting the financial results, which we released today, followed by Todd Liebman who will give you an overview on our sales and the opportunities facing the Company for the future. I am pleased at this time to turn the call over to Ed.

Thank you, Frank. Good morning everyone. I'd like to discuss some of the pertinent financial information that is contained in our 10K for the year ended December 31st, 2004, which we will be filing later today. Reported revenues decreased in 2004 by 115,000 to 1,119,000 from the prior year of 1,236,000. However, actual sales or shipments in 2004 increased by approximately 261,000 or 22.3% to 1,433,000 from last year's reported 1,172,000. I've received some calls about the confusion between sales and revenues. To reiterate revenues are reported based on accounting rules for revenue recognition that we disclose in our filings. Sales are defined as bookings or shipments or booked orders for product and services. Even though our reported revenues are down our sales bookings are up as compared to last year. Todd will walk you though some of the details of our current sales initiatives and why we are extremely optimistic about our expected future sales growth later in the presentation.

During 2004 we wrote down an additional $357,000 in inventory, primarily due to the reduced sales level of our ID-Check units, which has negatively impacted our gross profit. The remaining value of our ID-Check inventory is immaterial and we do not expect any further inventory write down. Our gross profit excluding the inventory write down of 357,000 in 2004 and 990,000 in 2003 as a percentage of revenues increased to 64.8% in 2004 compared to 63.3% in 2003. Our gross profit percentage was positively impacted by an increase in revenues from licensing our patented technology at higher gross margins.

Total operating expenses increased by approximately $2 million from that of the prior year to 7,385,000 for 2004. Our legal fees increased by over $1.6 million in 2004 compared to the prior year primarily as a result of the active nature of the Tri-Com Patent [ph] litigation. In 2004 our legal expenses for the patent litigation was approximately $1.3 million compared to only 81,000 in 2003. Non-cash expenses for 2004 was approximately 2.2 million, which included 1.35 million of non-cash stock based compensation expense, compared to 2.3 million in 2003.

In the fourth quarter of 2004 we implemented certain cost-cutting measures, including cutting employee head count by approximately 20 percent of non-sales staff. Including our estimated legal expenses for our patent suit over the next year, estimated to be no greater than 550,000 to conclude the Tri-Com litigation, we expect our cash expense burn rate, which excludes any sales and the resulting commissions due such sales and excluding capital expenditures on average to be approximately 410,000 per month. As Todd will present to you, this Company's cash position would be positively impacted by gross profit margins on projected sales less expected commissions on such sales.

For the reasons prior stated we reported a net loss for the year ended December 31st, 2004 of 6,922,000 or 79 cents per share, compared with a net loss of 6,450,000 or 74 cents per share for the year ended December 31st, 2003.

At this point I'd like to review the Company's liquidity and capital resources. Net cash, including cash equivalents and short-term marketable securities and investments decreased for the year ended December 31st, 2004 by $3.7 million. The principal reason for the decrease resulted from the net cash loss of 4.7 million offset by the net proceeds received from the issuance of stock of approximately $430,000 and increases in accounts payable of approximately $667,000 primarily from legal fees due on the patent litigation. As of March 1st, 2005 we had approximately $4 million in cash, cash equivalents and marketable securities. Our cash is in invested in short-term, high-grade commercial papers, CD's and bonds. Our ratio of current assets, current liabilities for 2004 remains strong at 3 to 1. We anticipate that our current available cash in hand, cash resources from expected revenues from the sale of our products, including the sale of our units in inventory and licensing our technology will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However, during the fourth quarter of 2004 we entered into an exclusive agreement with an investment banking firm for the purpose of investigating the opportunities to raise additional capital on acceptable terms to the Company. There can be no assurances that we will be successful in raising such additional capital. On February 25th of this year our convertible redeemable preferred stock was converted into 454,000 shares of our common stock, at a conversion price of 6.60 per share. This not only eliminated our required dividend payout of 240,000 per year, but it additionally strengthened their balance sheet and increased our stockholders equity.

As Todd will explain, we have been very actively marketing our newly announced products and technologies for licensing and integration into complementary systems and technologies, as well as, in standalone applications. Potential opportunities in these markets could result in additional cash flow for the Company. I will now turn the discussion over to Todd, our Senior VP of Marketing and Operations.

Thanks, Ed. I know for most of you this is the first time you've been able to meet me, albeit telephonically, but eagerly awaited the chance to tell you how excited I am about the opportunities that are in the pipeline for Intelli-Check and quite candidly I would not have taken the job if I had thought otherwise. Upon joining Intelli-Check in mid-December I quickly analyzed the sales force and saw that some immediate changes were needed. First, we needed to have a stronger focus on commercial sales. As you all know Intelli-Check has been working on many promising government initiatives over the last several years. We also know that the timetable for the government is quite unpredictable. I am as confident as anyone that the government orders will hit. It's not a question of if, but rather when. However, we need to put a stronger emphasis today on the commercial side of the business. Therefore, we began by realigning the sales force via vertical markets, rather than via the historical method of geographical territories. I also felt that we needed to add a sense of focus to the sales force on the commercial side, as the team was chasing too many different opportunities each week. The team had a hard time staying focused quite candidly. So as a team and I really emphasize that word, we chose the most promising four vertical markets on the commercial side. I felt it was critical to create market experts rather than generalists.

The four vertical markets we chose were the financial vertical, the retail sector, age verification and access control. We also have a full, still a full, dedicated full time member who focuses exclusively on the government initiatives including state and federal. I also took a look at the overall strategic direction of the Company with the other senior members of Intelli-Check's team. As a team, we quickly decided we needed to try and broaden our product offering from historical document verification focus to an overall identity management platform and what I mean by that is that we need to begin to offer a layered approach to the technology we sell. I'm not going to go into great detail on this now, but quite simply we will offer customers the ability to add layers of security technology depending on the level of identity management they need. For example, a bank who is opening a new account may want to be able to hit a database to see if the drivers license number of the license verified by our technology is contained in the given state's database. They may also want to go one step further and create a list of out of wallet questions specific to the individual applying for the account to see if they really are who they claim to be such as, which of the addresses has ever been associated with you? Intelli-Check has the partnerships and capabilities in place to offer this layered approach to our customers immediately. That being said, I would like to bring you all up to speed on many of the key sales initiatives at this time. The pipeline continues to grow each day and am pleased about the opportunities that lie ahead of us. Please keep in mind that on many of these opportunities due to confidentiality, I cannot reveal the names of the accounts, but will try to speak in general about the opportunities and the vertical markets.

The first vertical market I'd like to speak about is the retail opportunities. Intelli-Check has created a tremendous amount of traction in the retail vertical market. We continue to test with on of the nations largest mass merchandisers and are undergoing a pilot with a major US cellular company at a handful of their retail locations. Both of these opportunities present significant revenue opportunities for Intelli-Check beginning as soon as the second quarter, but could stretch out into the third quarter and beyond depending on the rollout if selected. Intelli-Check is also actively speaking with a number of large retailers about a variety of our applications.

On the financial vertical, this is actually a brand new vertical that Intelli-Check is just beginning to pursue aggressively. We believe that there are many opportunities across this vertical for our products. We have segmented this market very carefully and believe we know where the sweet spot is for our product offering. Intelli-Check is working with several financial institutions, both large and small, in terms of branch numbers and assets under management. Intelli-Check expects to have of its systems up and running in the financial community in the next 60 days. We would anticipate revenues from this vertical by sometime in the third quarter.

On the age verification side, this has historically been the core of Intelli-Check's sales. We still are pursuing this market very diligently and have several very large opportunities on the plate, in the C store market as well and the traditional bar and nightclub segment. Intelli-Check has partnered with some very large players on the distribution side to try and market our product to this vertical. In fact, we have actually recently begun to see quite a bit of movement in this space. As always, legislation mandating the use of age of verification technology will help drive this market. There are a number of legislative initiatives out there that Intelli-Check is actively involved in. On the access control front we continue to push forward in this market. We work closely with many channel partners to sell our solution. We continue to make sales in this area. However, typical sales like age verification are on the smaller side due to the fact that buildings that house thousands of people would only require a few systems. We continue to pursue this market and see opportunities outside the traditional multi-tenant buildings, such as hospitals and corporate campuses. We also continue to make good progress on the badging side of the business. We have many facilities using our technology to credential employees or vendors prior to allowing them access to the facility.

On the government side, the final vertical market we really target, we have seen quite a bit of movement on the homeland security front, particularly for the first responders' initiative. We have sold systems to the government market and are working closely with partners to provide end-to-end solution that will contain Intelli-Check's document verification technology. Many of these programs are centered around HSPD12, Homeland Security Presidential Directive Initiative for all government employees to be issued new identity cards after being properly credentialed. Intelli-Check plans to sell its technology for both the front-end credentialing for this initiative as well as for field solutions that will be used by first responders, such as hand held devises, mobile command stations, etcetera. Intelli-Check is also working on a number of legislative initiatives at both the state and federal level. These initiatives will call for electronic age verification technology. As with any legislative initiatives timing is unknown, Intelli-Check expects several of these initiatives will come to fruition by the fourth quarter of this year.

A few of the opportunities that I can speak of by name to provide a quick update on include Certegy and Integrated Solutions. We have generated sound revenue from both of these customers at the end of last year and into the first quarter of this year. We are excited about the prospects of Certegy due their large transaction volume of check authorization. Certegy authorizes more than 350 million checks annually, they have also begun to use our technology in other vertical markets within their business that Intelli-Check has already generated revenue from. Integrated Solutions recently purchased another block of licenses from Intelli-Check and continues to roll out their solution. We expect both of these customers to continue to purchase additional licenses in 2005 and beyond.

Based on the opportunities mentioned above as well as other opportunities we cannot discuss due to confidentiality provisions, we expect that sales will at least double from year-end 2004 to 2005. If any of the government opportunities come to fruition quicker Intelli-Check sales could expand even greater. I am very optimistic about the future of Intelli-Check and my first 90 days on the job have truly confirmed the lengthy due diligence I performed prior to joining Intelli-Check. I am excited and I'll look forward to any questions you may have. Thank you for your time and I would like to turn the meeting back over to Frank.

Thank you, Todd. This concludes the formal presentation of the Company. We would now be pleased to answer any questions that you many have.

[Operator Instructions] Trey Snow with Priority Capital.

Did I hear you guys right and say that you wrote off 350,000 in inventory in the fourth quarter or over the entire year?

Over 2004 it was the third quarter and fourth quarter.

Okay, so how much to you have in inventory at this point then at the end of the fourth quarter I guess?

Total inventory?

Yes.

We have $211,000 in inventory.

Okay so I've asked this question the past two quarters about whether or not you think you could sell that margin and both times you've said yes but then you keep writing it off. What's changing that is causing you guys to not to be able to sell this inventory?

We've been writing the inventory down based on projected or really current sales. Even though we feel we can sell a lot of that inventory, based on our current sales levels and our accounting policies it is warranted to write it down because of the uncertainty of the future sales of the products.

And is the current inventory purged of the sort of legacy devises?

Of the 211,000 the balance of the 1,400 units is very, very small.

Okay and then on the capital side clearly it looks like you guys will have to be raising some capital towards year-end. Have you-- or first of all, what banking firm did you sign an agreement with?

We have not disclosed the name of the firm at this point, Trey, but it is Big Board firm.

Okay and is it too early to ask you know what types capital you're considering, debt equity, converts, preferreds?

We are looking at-- we're investigating the opportunity for roll of the above provided that it would not be major dilution to our current share holders and fair and equitable to the Company. So we're open on what we would do. We're in the process of investigating what to do here because as you say the accountants have opined and we agree that we have sufficient capital at this point to last through March 31st of 2006, so we're not going to rush into anything and that's not fair to the stockholders.

Right, okay and last question very quick, last quarter you guys talked about having a $200,000 purchase order in hand for, I believe it was software licenses. Did that all hit in the fourth quarter?

Again that was bookings of sales and you know then we have to apply our revenue recognition policy, so it wasn't all in revenues, but it was in bookings.

Right, I remembered someone saying that it was primarily license so that it would-- you know the bulk of that would be recorded in the fourth quarter. I'm just wondering how much of it actually was?

Not a large piece in the fourth quarter.

Okay, thanks.

Dan Morris with R.F. Lafferty.

Good morning gentlemen. Frank, I guess I'll put this question to you. I see that you had a million three due to patent litigation and an additional 500,000 you're projecting for this year. Could you possibly discuss how it's going and what your thoughts are on the Tri-Com patent litigation?

Certainly, Dan. The Company has elected and has stated in every one of it cases an exception that it will aggressively defend its patent or proprietary technology. We initiated the suit against Tri-Com a year ago. We believe strongly they violate our patent. This is progressive in court, we believe the outcome will be favorable to Intelli-Check and it will confirm the validity of our patents and the fact going forward, so even though it was a large expenditure we protect our patents for two reasons. If we didn't defend the patent we'd have everybody and his brother coming out of the woodwork because we believe the size of the market is in the billions at this particular point. The strength of our patents once confirmed by the court will auger very well for all of our shareholders, so we're optimistic of the outcome of that suit. We expect it to resolve within the next quarter and we expect a favorable outcome.

Thank You.

Mort Langer with Langer Partners.

Good morning. This question is for John Hatsopoulos. I just wonder that based on your background as a former President of Thermo Electron and given the immense success of that multi-billion dollar company, its huge financial rewards that you obviously obtained from it, you have this great reputation as a top flight executive, a money maker for investors. Why would you join the Board of a small company like IDN given the difficulty of being a Director in this era of Sarbanes Oxley?

Mort, I don't know if I'm on an open line. Can you hear me?

Yes I can.

Mort, I'll tell you. Last year, a little over two years ago I decided that I wasn't going to be on any public boards anymore and, as a matter of fact, I resigned from any public boards that I was, just because of Sarbanes Oxley and somehow my son persuaded me to meet with Frank and hear their story. And I did it as a courtesy to my son, rather than anything else because I had no intention of going to any board. After I met with Frank I was extremely impressed with what he said and I still wasn't sure that I wanted to be a member of the Board, so I took the old team from Thermo Electron, because as you might remember Thermo Electron was very active with passports and bomb detectors and so forth, so we had a very strong team addressing the government. And I took the team, the technology gentlemen, our banker who was a partner, a banker at Lehman Brothers and a fellow called Nikos Couries [ph], who was in charge of our government relations at Thermo Electron and I expected they'll tell me, "Well you know this is not-- it's fine but nothing there." At the end of the meeting all three of them asked my permission to buy the stock and my answer is, "No you can't buy the stock because you have inside information because I'm going to be a Director of this Company." I think that if we play our cards right we have an unbelievable home run and I saw in Intelli-Check what a lot of people saw in Thermo Electron 50 years ago when we started the company with very little revenues, actually much less than what Intelli-Check will have this year. So that's why I joined the Board and I felt that the Company with such a potential needs some management depth and the two people I had worked on at Thermo very successfully managing the technology group of Thermo was Ashok Rao whose name I always mispronounce and Todd Liebman, so I petitioned to Frank and the Board to see if they can join the team. Both of them were willing to come and listen to the story. At the end of their meetings and their due diligence they all volunteered to join the company, so I think we have now the technology, but we also have the people to take us to the next level. I hope that answers your question, Mort.

Yes is does. Thank you.

Richard Carp with Gund Allen Financial.

Good morning, gentlemen. First time you've had a conference call during market hours. Made it a little bit difficult but I'm glad to be on the line with you guys this morning, especially since we have some Directors on the line today. I've got a couple of questions. In the Press Release with the earnings it was stated by you, Frank, that 49 states and the District of Columbia now encoded driver license formats. Out of those 49 plus Columbia how many DMV states are actually using Intelli-Check?

We currently have probably 10, pretty close to 10, using it and more inquiring every day.

Okay and then we've had some Press Releases obviously that Todd has touched on and, Todd, welcome aboard. Nice to have you on and I think you've gotten a lot accomplished since you joined in December. The Press Releases that you put out on Integrated Solutions you announced have more than 1,300 software licenses have now been out. There is nothing discussed as far as finances discussed as far as finances there. What were you getting per license plus in this conversation today you said there was another block. Is that on top of the 1,300 or is that included on the 1,300?

That was included in the 1,300.

Okay and as far as the dollar per license.

We don't tip-- due to confidentiality we can't discuss the revenue side. Frank, I don't know if you want to address that.

One comment, when we sell our licenses to an integrator or somebody that's utilizing it in a end solution we do not disclose what they're paying because we do not know what they're selling the solution for and we don't want to put any of our customers in the position of having their customer come back and say, "Wait a minute. You bought it for X and you're selling it to us for Y. How come?" And so we will not disclose and we do that for everybody who asks us not to.

Okay let's put it in different terms then for shareholders as the shareholders do have some sort of rights here to know what we're looking at. What would you estimate as the potential revenues from Integrated Solutions?

Well, it's very difficult to estimate the revenues. Let us just say we've already announced that we sold them 1,300 seats and the revenue is well over $.25 million and I'll go no further than that.

Okay so then I'll want to go to the next Press Release that you had prior to that with Certegy where you talk about a long-term contract based on transactional sales. Okay, it's a major company. Anybody who read the Press Release you could see it's huge but the question is what is the potential to Gund Allen on something like that? Is it 10 million, 25 million, 100-- and what kind of money are we talking about potentially?

Well they do several hundred million transactions a year on check authorization at well over 100,000 retail locations in the United States. The term of the contract is very, very long. It's not a one or two year contract and their goal is to roll this out across their entire check authorization platform. Not discussing any specifics this absolutely over the course of the next several years has the opportunity to be a 7 figure annual type of contract once they get this rolling out. Again, no guarantees. We're perfecting all the technology. We're selling them all kinds of revenues. Now on ancillary products in getting the backbone going but with 350 million check authorizations a year it has some very significant revenue opportunities.

Okay so as far as 7 figures per year is the potential?

Is the potential. Now I'm not saying that's going to happen tomorrow or next week. There's going to be a ramp up and it's going to take some time but that is the potential if they are able to successfully roll this out and do what we think they can do with it.

All right. This last one is more on a little different term only because of the question that was asked by Langer Capital. I've had the pleasure of speaking to a bunch of Directors at different times and, Todd, when you joined the Board I definitely got in contact with you and congratulated you for coming aboard and trying to feel you out and see what you were about and I've never had the opp-- and I've spoken to Mr. Hatsopoulos before. I've never had the pleasure of speaking with Ashok Rao. Your resume is very impressive as well so I'll just ask the same question Morton Langer did. Obviously with your resume you can pretty much do whatever you want. Why Intelli-Check? Why put yourself at risk? Board Members today are at risk and it has become a lot-- putting a Board together has become a lot more of a hard thing to do than it was in the past and people are exposed a lot more. Mr. Rao, why did you join Intelli-Check and as far as you seem to be based on the Press Release looking to take an active role in Intelli-Check?

Yes, thanks. Good morning, everyone, and it's a pleasure to be on this conference call for the first time. My reason for joining Intelli-Check was a lot like John's. John contacted me and asked me to take a look and, of course, I've had a terrific working relationship with John in the company at Thermo. We sort of pulled a rabbit out of the hat so I did my due diligence. I also did it in conjunction with Todd and what I saw was some tremendous upside potential in this Company and also most specifically I thought that their major issue was top line growth and they had the products or the products for getting to the point where top line growth was easy or certainly a lot easier than it had been in the past. And one of the things that from my background you've seen that most of the companies that I've been involved that we've been able to grow the top line at a very rapid rate so I thought I could maybe help them a little bit and yes, you're right. I am taking a little bit more of an active role as a result of Frank asking me to do so certainly in terms of some of the sales opportunities as well as in the area of strategy but I am very pleased to be on the Board and I feel that the opportunities far outweigh the risks.

The last question I have is specifically towards the last conference call. Companies that report up in conversations by people on the phone asking questions. Somebody had mentioned they had seen products at Target which obviously couldn't be denied. This testing obviously has been going on for a long time. Is that testing still going? Is the testing over? The other was a grocer retailer, which anybody who listens on the conference calls again a company was mentioned, not by management, but by questions of 7-11. Are we still testing with them? What is the status of both companies?

Well, Rich, let me answer the question. Due to confidentiality and whatever. We will only state that we are in a major test with a major mass merchandiser. We work with others. What people have seen in the field I won't say is not true but the Company is not free to comment any further than what I just said based upon agreements with the companies.

I thank everybody and have a great day.

[operator instructions] Ross Demont [ph], Analyst.

In response to someone else's earlier question on the bank who you've hired to help raise money, did you say that that's a Bolge Bracket [ph] firm or Big Board? And can you just provide a little more clarity on that?

We'll only say because we haven't yet announced who it is that it is a member of the New York Stock Exchange with whom we signed the agreement.

A New York Stock Exchange Member, okay great. And then you mentioned that in 2005 revenues you would expect to more than double so that would put you up I guess around the 2.25 million range. Can you talk a little bit about what that composition of revenues would look like? Is that almost entirely license revenues?

Well, I think one, we said that sales would double, not revenue.

Okay so sales is this non-GAAP number?

Correct. That was the million four something.

Million two three five-- or sorry, million four rather?

Correct, expected the sales to at least double.

Okay, in this case this notion of sales versus revenues would you expect just as a suggestion you guys might want to pick a word other than sales because sales typically has a GAAP definition with it as well but does sales typically lead revenues here?

Yes, to clarify orders booked might be an easier term.

Right, that would probably be a good way to express it in here. So orders booked typically leads revenue recognition here?

Yes, correct.

So you expect orders booked to more than double so that would be 1.4 so that might push you up toward 3 million of orders booked?

Correct.

Okay and that, the competence [ph] composition of that would be primarily license or there's still some product sales in there or there are consulting services?

It will be a combination of both software site license, seat licenses, site licenses as well as bundled solutions that include hardware and software. I think from the pipeline and what we see right now my guess or what I expect is that a good portion of that will be on the commercial side. As I said in my formal remarks we've got a lot of great government initiatives going on. Some of them do actually have the potential to hit and could blow that number out this year but that's not what we're projecting right now but I'd say a good portion of it is going to come on the commercial side and it will be a combination of pure software site-- seat and site licenses as well as bundled solutions.

Okay and so I mean the contribution margin in revenue like that should be relatively high presumably?

Yes.

So I mean what's the other-- if you're selling a license I mean there's literally no cost of the product sold other than that you need to pay your sales people some commission?

Pretty much true.

Okay, okay. Thanks for taking my questions.

Robert Lempert [ph], a private investor.

Frank, I guess this is addressed to you. Could you get us-- I know we've done this before and I know it's sort of a guestimate because you never know when the government is going to give us some kind of contract. Could you get us organized in where you think let's say over the next 6 months we could see a government contract as far as some of the initiatives we've been working on and then give us sort of an overview of what our best opportunities are now?

I'd be delighted to give you and share with you to the extent that I can. We are as we've said in the past embedded in the DCIN [ph] program. That's the Defense Cross Credentialing Initiative. It has not rolled out as yet but in that one we're part of the initiative with Lockheed and Northrop and the Department of Defense and Antion [ph] and Bearing Point [ph] etcetera and there are government brochures that have been put out and you will see if you look at the back how we are embedded in that program. To date we've only seen probably 150,000 in revenue over the last year and a half but they've now expanded that program. They call it the DCIS [ph] FIXS. That's the Federal Identity Management. We also will be embedded in that. Homeland Security Presidential Directive 12 that Todd alluded to is wending its way through the National Institute of Standards. They gave out what they believe to be the final-- it's always subject to change-- what you have to do to credential somebody. It calls for electronic verification. It calls for automated verification of the breeded [ph] documents. Well, in the United States the driver license is better than 95 percent, probably even much higher, the breed of document that you use to get other documents from. The real ID Act that has passed the House and is now in Senate, that literally has taken what we have called the driver license the de facto national ID and is making it literally the official ID.

We believe our patent position is strong enough that when it's going to call for age-- not age-- it's called for document credentialing through verification, that we have an excellent chance of participating in that very, very strongly. There are other initiatives coming out of the government as Todd alluded to and said specifically we are involved in a program with the Department of Homeland Security called the First Responders. We've already sold them systems. We're in discussions with them. We expect a phased rollout. They told us don't call it a pilot. Call it a rollout. I can't predict. They could get very aggressive or they could slow it up but we do expect some substantial revenue coming out of that over the next year and a half or so. But specifically I can't put a date on it but there other initiatives going on right now where we expect a Bill to be dropped in the House that calls for electronic verification for under age drinking. The market has not matured as yet because in my opinion as I said this before, it's not the greatest business model in the United States that you spend money to reduce your sales because once our technology goes in you're not selling the under age. So basically there are quite a few initiatives in the government that we're involved with and we're involved more or less in quite a few of the very good ones and we're also involved in some of them with our partners. We have partners that we've licensed our technology with that are working with some of the major companies that are involved in US visit Trusted Traveler etcetera so we expect that to happen. Most of those things have not been funded strongly to date but we do expect as the year progresses to see funding for all of them start to be released. So it's very difficult for me to tell you whether it's going to hit tomorrow. It may. It may not but whether it's going to hit six months from now it may or may not but as Todd said, it's not a case of if we're going to participate. It's just a case of when we're going to participate and some of the these are quite dynamic and could have a very, very positive impact on the top and bottom lines very quickly.

Jonathan Ross [ph], a private investor.

Yes, can you tell us a little bit why-- what would have to happen so you wouldn't have to be issuing any more stock? I mean is there a possibility that sales could increase dramatically before year-end that you could toss away this idea about dilution? That's exactly what the shorts would like.

Well, we have stated earlier as Ed did then and I answered that question. We're investigating the possibility. If we can raise capital to improve the balance sheet we have enough cash to last looking to the government on some of these major, major initiatives. The first thing you're going to look at you have great technology. Will you be here two years from now? And so the Company has evaluated all of its options and will make a decision that it believes is in the best interest of the shareholders.

Could that possibly be a private placement? I mean we have a very broad Board of Directors but we haven't seen any insider buying. What is holding that up and could one of those people be a private investor in a private placement to take care of that problem?

I will not comment as to who will participate in any investment. I didn't say whether it's going to be an offering or private placement. All we have stated is that we're investigating the opportunity to raise capital and I'll go no further than that.

Can you talk about why insiders haven't bought the stock then?

I just told you. I gave you my entire comment as to what we've done. The Company has a policy where it has a very closed window as who can buy when based upon knowledge that we will have at all times which is greater than the investment community has and, therefore, I will comment no further on that question.

All right one last question then, sir. Can you expand on why you think Gryphon decided to exercise their convertible offering and take the stock at this particular time when the stock was trading at a lower price than your execution price?

I really don't want to get inside their head. I have my own theories to why they did it. It was very positive for the Company to have somebody buy at our exit highs and convert that to equity, particularly when it was over a dollar above the market. I think that question can best be answered by Gryphon and it would only be pure speculation on my part and I'm not prepared to speculate on this call. It is a very positive thing for the Company though.

Trey Snow from Priority Capital.

Obviously in your efforts to cut costs you've done some good work on the employee side. Are there other areas where you think you could be able to pull back on expenses?

Yes, there are but obviously we're going to be monitoring that in conjunction with the growth of our sales so we are prudent and very careful with how we monitor and maintain our expenses and we're focusing on the areas that are important to the Company obviously.

Do you think that you could achieve significant revenue and I'm going to use that word very clearly, revenue growth, in '05 without significant expense increase?

Yes.

Okay, great.

There are no further questions at this time. Please continue.

Operator, is that the end of the questions?

Yes, there are no further questions at this time.

Okay, thank you, operator. That concludes the year-end presentation for Intelli-Check. We thank you all for attending. We look forward to speaking with you in the future. Thank you.

Ladies and gentlemen, thank you for your participation in the conference call. At this time you may all disconnect.

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