Intellicheck Inc (IDN) 2006 Q3 法說會逐字稿

Good day, and welcome to the Intelli-Check 2006 earnings conference call. This call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Stephen Axelrod with Wolfe Axelrod Weinberger Associates. Please go ahead.

Thank you, operator. And excuse us for the delay. We had some short term problems in getting everybody connected. But thank you once again and good afternoon. Before I turn the call over to Frank Mandelbaum, Chairman and CEO, of Intelli-Check, I would like to take a few minutes to read the forward looking statement.

Certain statements in this conference call constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When using this press release, words such as will, believe, expect, anticipate, encourage and similar expressions as they relate to the Company or its Management, as well as assumptions made by and information currently available to the Company's Management identify forward looking statements. Actual results may differ materially from the information presented here.

There's no assurance that the use of ID-CCHECK technology by our potential customers and partners or government efforts to enhance security or curtail the sale of age restricted products to underaged buyers, will lead to additional sales of ID-CCHECK technology. Additional information concerned-- concerning forward looking statements is contained under the heading of risk factors listed from time to time in the Company's filing with the Securities and Exchange Commission. We do not assume any obligation to update the forward looking information. And having dispensed with that, I'd like to now introduce our host Mr. Frank Mandelbaum. Frank?

Thank you Stephen. Good afternoon ladies and gentlemen. Thank you for joining us for the conference call. With me today on the call are Ed Winiarz, our Senior Executive VP, CFO, Todd Liebman, Senior VP of Marketing and Operations, and Russ Embry, our Senior VP and Chief Technical Officer.

The presentation-- Ed will give you a rundown of the highlights of the quarter followed by Todd who will give you the update on our current sales and marketing initiatives, and then we will open the call up for questions. Both Todd, Ed, Russ and myself will be more than pleased to take any questions. With that, I'll turn the call over to Ed.

Thank you, Frank, good afternoon, everyone. I'd like to discuss some of the pertinent financial information that is contained in our 10Q for the third quarter ended September 30th, 2006, which we filed earlier today. Reported revenues for the third quarter 2006 increased 79.4% to approximately 772,000 compared to approximately 430,000 in 2005. Actual sales bookings or total shipments for 2006 also increased to approximately 546,000 from last year's third quarter sales bookings of 486,000. During the nine months of 2006, the total of our new noncancellable orders that were either shipped or included in our backlog was approximately $2.8 million.

As a result, at the end of the third quarter 2006 our backlog, which represents products and services of noncancellable sales orders not yet shipped increased to approximately 1.2 million. As you can see, our revenues and total shipments have all increased as compared to the prior year periods, primarily resulting from acceptance of our new and existing products and the retail and financial services vertical markets. Todd will walk you through some of the details of our current pipelines and sales opportunities and successes, and why we remained extremely optimistic about our expected future sales growth, and where we stand meeting our previously announced book-to-order projections for the 2006 year later in the presentation.

Our gross profit percentage decreased to 64.9% for the 9 months 2006, compared to 77.1% for 2005. In 2005, the gross profit percentage was favorably impacted by the large software only sales to the significant retailer. Even though we not have this large software only sales in 2006, the gross profit percentage for 2006 was still quite strong. It is to be noted that as a result of our increasing licensing revenues, we are experiencing increasing sales of our upgraded maintenance programs as well as fees for software development which are at very high margins.

Total operating expenses amounted to approximately 1.2 million for the third quarter 2006 compared to approximately 1.1 million for 2005. This increase of approximately $100,000 was primarily related to an increase of our booked legal fees of approximately 200,000 and 100,000 of noncare stock options based compensation expense primarily related to the change in the accounting rules, and recording the expense of granting stock options to employees and Directors, which were partially offset by a decrease of certain nonrecurring costs related to equity raising activities incurred in 2005 of approximately 200,000.

If you exclude all noncash expenses total operating expense was approximately $1 million for the third quarter 2006, which remained unchanged compared to the same quarter last year. For the reasons prior stated we reported a net loss for the third quarter 2006 of approximately 651,000 or $0.05 per share, which included noncash expenses of approximately 167,000 compared with the net loss of approximately 765,000 or $0.07 per share for 2005, which included noncash expenses of approximately $20,000.

At this point I'd like to review the Company's liquidity and capital resources, net cash including equivalent -- cash equivalents and short term marketable securities and investments, decreased for the nine months ended September 2006, by approximately 1.450 million, primarily as a result of the net cash used in operating activities of 1.8 million, resulting mostly from the net cash loss of approximately 1.9 million for the period partially offset by an increase in deferred revenues of approximately $100,000 from shipments of our products not recognized under our revenue recognition policy.

As of November 10th 2006 we had approximately 4.26 million in cash, cash equivalents, and marketable securities. Our cash is invested in high grade government securities and bonds. Therefore, our ratio of current assets to current liabilities as of the third quarter ended September 30th, 2006 remains strong at 3.6 to 1. Our cash expense burden rate for the third quarter of 2006, which excludes any margin on the sales and the resulting commissions due on for sales, and excluding capital expenditures on average was approximately 340,000 per month. Including the expense related to our patent infringement suit.

Do not expect our cash expense burn rate for the remainder of 2006 to increase to approximately 380,000 per month. Caused by the increase in staffing and the related expenses due to the anticipated growth of our business. We anticipate that our current available cash on hand, cash resources from expected revenues from the sale of our products, including the sale of our units in inventory, and licensing of our technology will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However we may need to raise additional funds to finance more rapid expansion will require complimentary businesses or technologies.

As Todd will explain, we have been actively marketing our products and technology for licensing and integration into other complimentary systems and technologies as well as in stand alone 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'm very encouraged by the continuing success we've seen in the commercial marketplace, and the expected near term opportunities in the government space. As Ed pointed out, we continue to grow very nicely year-over-year and expect this trend to continue well into the future. We continue to see a strong mix of sales from a variety of commercial customers, which proves the success and momentum we are seeing in the commercial market place for our products.

However, before I provide details for our optimism, let me assure you that the lack of press releases during the quarter does not mean that we have not-- that we have been inactive or without our wins. As I will show you, we have actively been pursuing and closing significant new partnerships and accounts. The fact that most of these initiatives are with Fortune 500 companies, adds to the level of approvals needed and delays the time before we can release any news pertaining to these initiatives.

The Company's previously supplied guidance as to what it believed would be its booked orders for fiscal 2006. The Company carefully monitors it's orders and opportunity pipeline. At this time the Company does not have sufficient information to determine whether any change to its guidance is warranted. Most importantly, the Company is not lost any material orders that were expected to be placed in 2006. Should the Company make a determination that a material change to its guidance is necessary, the Company will promptly provide it.

Now, let me take this opportunity to bring you up to speed on the sales and marketing activities that have taken place over the past few months. I'll start with a quick update to our sales force. I am very pleased to announce that we have brought on a new member to work closely with Senior Management for the vertical government market. This individual has quite a bit of experience in the Federal space in dealing with solution type sales. In addition, this individual has a background in the healthcare vertical. He is currently spending approximately 1/4 of his time on his key new vertical commercial vertical market.

We believe that the healthcare vertical will yield significant opportunities for us over the next 12 months. There are many synergies between the government side and the healthcare, so it was a natural fit for our sales force. As the healthcare vertical matures, we will look to hire another sales person to take this vertical over on a full time basis.

From the product development side I would like to provide you with a quick update. We continue to see terrific success with our ID-CCHECK BHO product. As many of you recall from our last call, it is a browser helper object that allows us to integrate our core ID-CCHECK technology into a browser-based application without any integration efforts on the part of the software developers who develop the application.

As a follow-on development project, we have recently begun working on an executable-based form filler product that will allow our customers to integrate our core ID-CCHECK technology into nonbrowser-based applications without the need for software developers. In fact we have recently filed for patent protection for this key technology. Our legal council is optimistic that we will be granted a patent on this new unique process which will undoubtedly provide us with significant competitive advantage in the marketplace.

Our ID-CCHECK portal continues to gain traction in the financial services arena. It's a browser based product that runs an internet explorer, that first allows for a swipe of the driver's license to verify the authenticity of the encoded media. Assuming the DL passes our patented process, it will then populate the form on the screen. At this point the customer can add two additional layers of in person proofing, the first being a detailed report that attempts to match the address, telephone number, date of birth and driver's license number from over 400 public databases. It also checks the office of foreign assets control, better known as the OFAC watch list, to see if there's a match

The second phase allows for use of our question generator, that will ask up to five questions about the individual and attempt to further prove their claimed identity. Both the detailed report and question generator are transactional-based so they will provide an ongoing revenue stream for Intelli-Check.

We are also broadening our product line to enhance our offering for document authentication by finishing up partnership agreements with two separate companies. One of which is a sure tech who specialize in the authenticating of the front side of the driver's license. This technology coupled with our verification of the encoded media on the back of the driver's license will provide a true document authentication product for those customers who is require this very high level of authentication.

In addition, the comparison of the information printed on the front of the encoded media with the -- excuse me, the comparison of the information printed on the front to the encoded media on the back of the driver's license is a patented process that is covered by one of Intelli-Check's patents. Well provide additional details about these partnerships in the very near future.

I would like to report back that our paid key word marketing campaigns on Google, Yahoo and MSN have been very successful to date. Our lead generation via the web is up over 50% year-over-year. We are currently looking to invest a greater percentage of our marketing dollars in to this campaign. It is very evident that a high percentage of our customer base is utilizing the web as a first line of research when looking for driver's license verification technology. I will personally continue to oversee this critical marketing effort as we move forward.

I want to the switch gears for a moment and bring you up to speed on the various markets and initiatives we are currently working on. We continue to make excellent progress with our multiple financial service customers, as well as bring on additional Fortune 500 financial service companies to our customer mix. We expect to be able to announce a major win with another Tier 1 retailer for the use of our technology for instant credit at the point of sale using a combination of our browser helper object in software development kit products. Unlike the length of the sales cycle on the significant retailer we announced last year, this sale cycle was less than four months from start to finish.

These wins continue to establish Intelli-Check as the market leader in our space, and provide us with terrific credibility as we move further into the retail vertical, as well as other commercial verticals. We continue to make excellent progress with our three other key financial service customers, each one of them continues to roll out the Intelli-Check technology in various forms, primarily handhelds and kiosks due to the speed at which they can be implemented to retailers for grand openings and special events. We anticipate large scale mass rollouts in 2007 for some of these retailers.

One of the more challenging aspects that we've had to contend with is the information technology certification requirements for each retailer. In addition, the requirements have to fit within our financial services partners IT configuration. So in essence it's a two-step process, typically involving not one, but two Fortune 500 companies. This specific issue has slowed down the process this year, and is one of the reasons we have not seen a large scale rollout to date. With each retailer that we work with, we become more experienced with the requirements which will allow us to speed up the process in the future.

I'm very excited to say the results to date for the implementation have been excellent, and our customers are very encouraged for what lies ahead for our technology in 2007. In fact, this week alone, we have two key retailers, one in the furniture business and the other in the media business, launching our technology using handheld and table top kiosks.

We have also submitted a variety of proposals with other key players in this industry who are looking for driver's license verification technology based on the inroads we have made in the market. I am optimistic about one in particular. It is for the largest issuers of Visa, Master Card, and American Express credit cards in the U.S., for the use of our technology for onsite marketing events. Our goal is to do a variety of pilot events with them in the first quarter of '07. After which we believe, based on the results of similar pilots, will lead to a rollout later in the year.

On the access control side of the business we are continuing to sell our products through the channel. We currently have three key partners in this channel, each one of them is actively promoting our solution as part of their offering for their visitor management solutions for office building and campus environments. We have a variety of other larger and smaller players in the market we are working with. We also continue to market to high risk targets such as oil refineries and power plants. We expect this line of business to continue to grow as customers improve their access control security.

On the financial services side of the business, we continue to pick up momentum. Our recently announced strategic partnership with FSCC, a leading provider of shared branching services for the credit union market place, is providing a number of solid leads in the credit union space for our ID-CCHECK portal solution. We have been hosting multiple webinars every week, the feedback has been very good, and multiple credit unions are budgeting for our solution in 2007. We expect to book a handful of these credit unions toward at the end of 2006, and see the trend continuing well into 2007.

We are also beginning to work with some of the key banking core processors and data service providers who are interested in integrating our technology, namely our ID-CCHECK BHO product, which as I mentioned earlier, does not require any programming resources. There is one key core processor we are work-- beginning to work with, which who we expect to begin to offer our technology to their customer base in 2007. They have over 10,000 workstations for us to target with our BHO solution.

On the VeriFone side, we have signed up multiple ISOs who are beginning to actively market our solution. As a result, we are starting to receive orders from this channel. We now expect this to pick up significantly in the coming months. However, with the Christmas holiday selling season quickly approaching, many retailers who would utilize our VeriFone solution stop implementing new products during this busy season for them. Therefore it may not be until early 2007 that we can expect to see significant pick up in this business.

I am also very pleased to announce we have been selected by one of the largest processors in the world to use our ID-CCHECK solution on their proprietary payment terminals. The solution will be for the enrollment of loyalty programs for multiple retailers beginning in the supermarket arena. This will be a transactional-based revenue stream for Intelli-Check that will launch in the first quarter of 2007. This solution is currently up and running today. We were successful at beating out our competitors and winning this business based on our superior technology, support and our intellectual property. We expect to be able to announce more details about this in the next few months as we move closer to the launch. I can't stress enough how key this win will be for Intelli-Check and the continued momentum it provides us in the space.

We continue to sell our products for age verification to bars and nightclubs, however, we are slowly de-emphasizing our marketing efforts in this vertical as the sales are not growing nearly as quickly as some of our other key vertical markets. As we move closer to 2007, we will be reallocating these resources to provide better returns for our shareholders. As we have mentioned in the past, if legislation is passed, mandating the use of age verification technology, not scanning technology sales for this market will spike, and we will act accordingly to capitalize on the opportunity.

As I have mentioned in the past, the travel vertical is a market we are beginning to target. I am pleased to announce that we have landed a key account in the auto rental industry. We have already shipped over 130 units for the initial rollout and expect that number to triple very quickly with the potential for several thousand units over the next few years as this customer expands the use of our technology in multiple areas. We are targeting other auto rental companies as well as a variety of airlines for the use of our technology.

We are also very pleased with the continued relationships with sports loyalty systems, which we first announced at our annual shareholders conference earlier this year. We continue to expand our relationship with sports loyalty system during the third quarter, for additional uses of our technology, and plan to grow with them next year as they expand their customer base in major league baseball beyond the Los Angeles Dodgers and Arizona Diamondbacks, two stadiums currently using our technology for the enrollment of sports loyalty system accounts.

We are also working with a variety of Fortune 500 companies on commercial projects where the key emphasis continues to be productivity enhancement. We continue to see a lot of interest in the shipping and logistics sectors. We have two key opportunities in this market, that deal with combating the unknown shipper issue that these companies must face. One of the opportunities has gone through a very successful 30 day pilot at multiple locations throughout the U.S. The results have been very favorable and we expect to book a large piece of business either late this year or early '07 depending on their budgeting cycle.

We are-- we were pleased to recently announce the order we received from the Pentagon Force Protection Agency, part of the Department of Defense for our software to run on handhelds to comply with HSPD 12 [5201] requirements. This was a key win for Intelli-Check and positions us very nicely for further business in the space. We expect to see a follow on order that has the potential for up to as many as 400 more software licenses from this customer. What you should know, is not only was the order placed for our technology to be embedded on each unit, but that multiple years of software upgrades were also purchased for each software license. We believe that the placing of this order proves the potential value of our technology in the government space which has been further confirmed by the recent success-- successful test of our technology at three airports by the agencies in charge.

We are still actively pursuing two other government key opportunities before us. The first one is the First Responders program, which is being administered by the DHS. This is one program-- this is the program that will involve handheld devices, running our software as additional-- as well as additional applications. We are still working closely with the government and various partners on this opportunity particularly Intermec. We expect we will see some revenues from this opportunity later this quarter with much more coming in 2007 after the fiscal 2007 budget is allocated.

The second initiative deals with the requirements of FIPS 201, which evolved from the mandate of HSPD 12, the program that calls for all government employees and contractors to be issued new interoperable credentials that will allow them access to any government facility. There are approximately 90 million new ID's that are required to be issued beginning on October 27th this year to all government employees and contractors. We continue to work with a handful of major integrators including Anteon, now a part of General Dynamics, Northrup Grumman, as well as a recently-- as well as a recently signed key integrator we hope to be able to announce in the very near future. We will provide all of them with our technology for the front end credentialing part of their solutions.

We also have a number of smaller initiatives on the state level that deal with healthcare and licensing and permitting that are just getting underway and we believe will translate into revenue later this year or early 2007. We are also expecting an order from the state's motor cycle authority to utilize our technology as part of it's compliance with the requirement of Real ID Act. In light of these developments we expect the momentum we have built up over the last nine months to continue and we remain very optimistic about the future.

The pipeline on the commercial side has never been as strong. A few of our key initiatives with our major financial service customers appear to have been pushed out to 2007, due to some of the info security requirements I mentioned earlier. But it is important for me to point out that we have not lost a single current key account nor has any major pipeline opportunity we are currently targeting been lost. Because of the past announced wins and the potential revenue that we can evolve from the business models associated with each one, together with the ever growing new agreements, sales and new pipeline opportunities in the government initiatives, in which our technology is proposed as an important component, we'll remain optimistic about the future of Intelli-Check. I would now like to turn the call back over to Frank.

Thank you, Todd. Before I open the discussion -- or the conclusion to questions and answers, let me give two updates to the people who are on the call. One is the litigation update. Litigation has been very quiet over the last couple months and the reason for that is even though Intelli-Check has requested a quick trial date we have not been successful in getting that trial date. Currently pending are several motions that haven't been ruled upon. One is the motion for sanctions against TRIACOM and their council for certain things that they did within the pending litigation. And that appeal has been pending with no decision for approximately nine months.

We also move to disqualify council for the plaintiffs -- I'm sorry, for the defendant in this case, TRIACOM, under a conflict of interest because one of the people who worked for [Gibbons Deldeo] worked for a company, [Kelly Drive] that was acquired by [Collier Shannon] and under the rules we believe they now have a conflict. That motion is also pending and we have to wait for that decision.

The third thing we're waiting on is TRIACOM made a motion for a markman hearing on allegedly disputed claim construction terms. We oppose on the basis that the defendants did not timely dispute the claimed construction. Both parties brief their respective claim construction terms so that if the court decides claims and instruction is necessary, no additional briefing will be necessary, we also wait for a decision on that motion which is pending. So we have been very, very quiet on the litigation side, waiting for these several decisions to come out of the court and we will keep you informed as developments take place.

The other thing I would like to address before we open to questions, is an issue that I'm sure a lot of you have heard rumors and whatever, or saw a video clip on CBS. Well the Company's received many calls in reference to that, discussing which discuss the use of fake ID's to gain entrance to clubs that sell alcoholic beverage. Let me set the record straight. I was asked as an expert on driver license and coding to look at a California driver license that was handed to me [inaudible]. I was interviewed for quite some time. And the sound bite that appeared does not show pertinent parts of the interview.

After I looked at the license I told the reporter that it was an obvious fake because the license did not look anything like a California license. The color was wrong, the size of the picture was absolutely ludicrous. And the entire structure of the front was bad. She explained to me that it was used by an underaged person to successfully gain entry to a club selling alcohol where it was read and passed as valid. Let me make it perfectly clear, the club was not using ID-CCHECK technology. The reporter asked me if the license could pass scanner technology? Key word. I then proceeded to read the information and inform the reporter that it would pass scanner technology, I was not asked to verify the document, nor did I attempt to do so since it was such an obvious fake.

Verification is a process that involves looking at the document, parsing the information and then comparing the verified information to what is printed on the front. During my interview, I also showed the reporter a fake Virginia license that had valid encoding because they had copied a valid bar code on to the fake from a state other than Virginia. But the information, while validly encoded did not match the printed information.

This is exactly why Intelli-Check has stated that any proposed legislation that we would support must state that each bar and other establishments selling age restricted products, must have a device that can electronically verify the validity of the information on the driver license. A scanner we've said it before, we do not have patents on reading a driver's license. So a scanner can read the information that is encoded. However scanning alone is never enough, as I demonstrated.

Another step is required. Such as linking the information to the person presenting the license by comparing the data on the license, with databases that can determine whether the information is correct or forensically comparing the front to the known format. Our ID 10090 portal products are designed to do just that. As fakes have evolved, so have we. We are ahead of the curve. Let me state in the strongest terms that Intelli-Check has the technology to determine whether a document is valid or fake. Having said that, operator, you can now open the conference to questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from Laura Engle with Stonegate Securities.

Good afternoon, how are you?

Terrific, how are you, Laura.

Good. I was scanning down your file and I came across discussion of the concentration of revenues among customers, and I wondered with what was just reported and I see the subsequent collections but going forward with all this news that we've had, all the new wins, all the new contracts, what do you expect that to look like going forward? And will this, I guess it's 43% of revenues were from I guess two customers for the first nine months. What do you--how do you expect that to evolve going forward? Are these two customers still a large part of your business right now or with these collections have-- have those projects been finished?

As we've stated, we have some large Fortune 500 companies. You are only talking about the collection side, not the true business side of the business. We do receive some fair amount of business from some of these Fortune 500 financial service verticals, they pay their bills fairly respectably in time. But we are getting more and more business from larger and larger companies and so as we go forward, and I'll let Todd answer this also, you're going to see, as the sales ramp up, the concentration probably start to become not as great as it's been because of the diversified customer base we're starting to have. Todd, do you want to comment on that?

Yes, I think that's a very fair comment. I mean, we certainly are in a growth stage and have some very big Fortune 25 customers, and they're ramping up very quickly, but I think it'll start to even out over the next 12 months where we really have all these customers contributing nicely to the revenue stream. But a lot of times we bring on new customers and there's a lot of quick projects they want done and it generates a fair amount of revenue for us. So you may see it time to time, but I truly think it will start to even out over the next six to 12 months.

Okay. And then if I could get one more question. As far as the true risk of not having at-- like critical access, I guess access to critical data that is provided by the government, what is the risk of that to your business?

Laura, I don't quite understand what you mean by that?

Well, as far as the reference data or -- I guess maybe I'm not using the correct technical terms, the encoding information. The way you translate the-- bar codes translate the encryption, et cetera, et cetera.

Okay. The Company has been since 1999 the official testing lab for the American Association of Motor Vehicle Administrators, and they just last month renewed that for another two years. Because of our position in the Amber community both U.S. and Canada, we receive many many samples. Now, they've gotten more careful, particularly because of Real ID, and they've said to some of the states, hey, we go out and see our samples laying around at trade shows, and they don't like it.

But we had recently in the summer, they had an Amber convention right here on Long Island and they all came here and when they saw how carefully we take care of all these samples, we have probably the largest document library in North America, even more than the Secret Service forensic lab that uses our technology, they renewed the agreement with us for another two years. So because of that at this particular point, we don't see any problem because when we run into a situation where one of the -- our customers say, hey I have a problem reading this in the field because they see thousands, we have the ability to immediately go right back to that Motor Vehicle Administrator at the highest levels of need be, and find out if they made a change they're not aware of, or if they didn't make a change and what caused that to happen. So near term, having had the agreement with Amber renewed for two more years, we do not see that as any near term problem.

Okay. Okay. Well, I appreciate your time. Thank you.

Thank you.

We'll take our next question from [Daniel Morris] from RF Lafferty.

Yes, good afternoon, gentlemen. First of all, Todd, I'm going to have to replay the call just to get through all the initiatives you that mentioned. It looks like you had quite a busy quarter. I did want to ask one question in regards to the VeriFone, there's been rumors out on the marketplace that TRIACOM has been taking away business from Intelli-Check, could you possibly comment on that?

Sure, I mean we've heard it, we've seen some press releases that they put out. Based on our understanding, they purchased an SDK just like anyone else can purchase an SDK from VeriFone, they're not a value add provider, we are a VAP. And I can't really comment other than we haven't lost any business to them that we know of. We've signed up the largest ISOs that are out there, all who want to do business with us. All I can tell you is that, yes they-- from what we know, they did purchase the SDK, they've integrated the product. I think you'll see that they're probably copying our lead because it made a lot of sense to do. Based on our research of the market, it's a phenomenal terminal and makes a lot of sense. So they're kind of following our lead on what we're doing, and we can't prevent people from following our lead, that's just part of business.

And I don't really see there's a major risk or major threat on that side of the business. We continue to prove ourselves for the ISOs, and I will see the VP that I hired to head up this market has the best contact in the ISO community. We've been able to walk into every ISO, pitch our story, and sign up a hand-- many of them. So I don't know if that answers your question, but I don't see if as a major risk.

I think it has, and thanks a lot, and keep up the good work.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from [Richard Carp] from GunnAllen Financial.

Good afternoon gentlemen.

Hi Rich, how are you?

Fantastic. I got to tell you, for a quarter of looking for news, looking for news and not seeing anything, you guys really have actually done a lot this quarter and I commend you for that. I have a couple of questions. One is your press release on -- with the DOD. Obviously I didn't see anything from their side on it, any statements from them. Also, this initial order, never said what size. Can you give us an idea? That's one question.

The second one you mentioned that you have signed a car rental business?

Yes.

Can you give us an idea of what size that is? What kind of sales they do? How big they are? Are they publicly traded?

Frank, you want to handle the government. Frank, do you want to go first and then you let me go?

No, you're talking, you might as well go and then I'll--

Okay on the auto rental company, it came up on our last call a lot of people were batting around names. We are optimistic that in the next week or so, or next couple weeks, we should be able to announce more details publicly about it, they're one of the largest auto rental companies in the world. They have a couple different brands out there, and they selected our technologies, we said it's been 100 plus units it should grow to well over 300 very quickly, and then has the potential to be well over 1,000 units. I --

If you don't mind me asking--

What's that?

Which units?

Which-- what do you mean, which procust of ours?

Yes what are they buying?

They're buying-- they've taken our software developers kit and integrated our software developers kit and their buying a bundled solution, our reader that is coupled with a software seat license and it's going into kiosks, so every kiosk will have one of our readers on, with our software embedded in their application. So it's basically-- you'll be able to walk up, and when you need to rent your car, instead of having to go to the counter, you can walk up to a kiosk, swipe your driver's license and begin the process.

I mean when all is said and done this account should be, we would expect it to be, over the next year, well in excess of $0.5 million if not higher, just over the next six to 12 months.

That gives me a better idea. Thank you.

All right now I'll answer your question on the Pentagon Force Protection Agency. Quite frankly we receive that order, it was leftover funds from the '06 budget. And so you'd had to be placed before October 1, which it was. We have partners in this initiative, some private, some public. Some of them, the largest company, one of the largest companies in the government procurement space. So we had taken that and given it to one of the players with us to put out a joint release that not only had we won it, that we partnered. It got bogged down in the Pentagon Force Protection Agency, because we were looking for a quote from them for the potential size and why they picked it.

Well, several weeks went by, and as Todd explained in his call, we are dealing with large companies and very large government agencies and it isn't that easy to get approval for a press release. So I finally called up the Pentagon myself and the Force Protection Agency and asked them, could we put out a press release and they said, if you don't want to wait -- because they needed an assistant secretary to sign off, if we didn't want to wait, they would give us permission to put it out and I elected to put it out.

The reason we haven't identified the size, and it's not one, it's not two, and it's not five and it's not 50, it's more than that. But until we put out the joint release with the other partners, who are a lot -- some are a lot bigger than we are, and they said they were going to, but I don't know they're timing, I would just say that this proves the efficacy of Intelli-Check's technology in the government's face. We are very optimistic, because they said, hey Frank when you put out this release, other government agents are going to look to us as an incubator why we picked your technology. So it's -- I'll say it's more than 75, but I won't tell you how many more, because I don't want to be that specific.

It was not a test. It was not a baiter, it was an order and there will be according to what they say follow-ons to this order from that. Now in all of the things we figured, The Department of Defense even though all the government agencies know our technology and have tested it, as Todd pointed out, we completed a successful test at multiple airports, fairly recently, and this test will continue at another big northeast airport. It could even start as early as the end of this week or next week, and we believe that will be the end of the testing.

And it's interesting to note that the only testing of any technology that was done at any of these airports for driver license verification technology was Intelli-Check's. So I don't want to be specific until our partners all put out the joint release with us, but it was not a one , and it wasn't a two, it was a very nice order, and as Todd said, which was even more significant, they've also poured several years of upgrading at the same time.

Well since it's an initial, one of the questions I asked, which I mean you answered everything except for this one basic -- what is the potential dollar value of this initial order and ongoing orders from here from them?

The potential from the Pentagon could run into the seven figure level. They have lots of areas where they can use it, this was money that was not allocated yet. It was leftover dollars in the '06 budget. '07, even though some of it's been passed it has to be -- get down to the level where it can be spent.

All right. Very good, thank you.

Thank you.

Thank you.

We'll take our next question from [John Van Wei] with -- he's a shareholder.

Good evening, Frank.

Hey, Jack, how are you?

Good. Thank you. I've been following the government computer news and market watch, and I've noticed a flurry of articles indicating companies like [Barium Point] has been awarded a government contract for seven different federal agencies that subsequently is using the company called [Censure]. I've also noted that the [inaudible] and Identic are getting into the government game and there's many many others that IBM and -- has partnered with Lockheed and is part of the interior department, can you comment on those and also, when you do that, can you comment on the recent impact of the elections relative to our champions in Washington and whether or not they got knocked out of the box, or whether it creates any delays-- unanticipated delays and --?

Sure. All right, on the side of champions in Washington we don't really have champions, our technology is our champion. We have in multiple tests at multiple agencies prove the efficacy, so we don't believe it's going to change. Now, most of the funding requests and I highly doubt if they're going to get cancelled, is already in place. And even though the Senate has changed hands, the budget for DHS and the budget for DOD has been already passed, just hasn't come down yet. So since the administration is still going to control all the Cabinet Departments that operate the agencies, we don't see anything different.

The only thing we have seen a little different is on the HSPD 12 FIPS 201 side. Originally, the legislation called for everybody to be compliant beginning on October 27th. Well, they did not want that, whether it was for political reasons or anything else, I don't know. But they were not going to allow that date to slip. So currently, a federal department or agency will deem to have met the imposed deadline, if it issues one smart card that contains the required biometric data, even if the organization has not installed any equipment necessary to read the card. Alternatively, a department or agency could have met the October 27th deadline simply by signing a contract with a commercial vendor known as a shared services provider, which agrees to handle the HSPD 12 implementation in the future but has not yet issued any smart card.

So in other words, the government is relaxed it's definition of compliance in order to make it easier for government organizations to comply. In all of that, they still must be totally compliant by '08. And that's why on prior calls and some -- the initiatives, we're talking about potentially millions of handhelds and whatever over the next two years, that hasn't slipped. But the requirements to be compliant of how you are-- could slip.

Now, when you mention some of these people, I don't want to say which ones, but I will tell you that we have been contacted by several of the people that have been chosen because all they have to do is sign up with them. And then they look to go out and find the technology to be compliant. So either directly or through partners of ours and a lot of these areas we are covered, but until we're in a position to announce which one, as Todd said, we have another major integrator besides the ones we've announced like General Dynamics, Northrup Grumman also very big, we haven't announced it yet, because we can't.

So as they develop the participation within these programs, either directly to us or some of our licensees or partners, such as beside it's not L1. They have used our technology for their registered travel program. If you were to go down to the Orlando airport, you will see the Intelli-Check capture device at the top of the kiosk, and our software is running in there. But we got into that program through [inaudible] their now L1, 'cause they merged with Identic.

So we don't believe that all of these things that people are rushing around and saying, hey where's Intelli-Check, we're in a lot of them and some of them, by the way, Jack, we don't find out we're in until after the fact because they don't want us to go directly, 'cause they have the opportunity as rightfully so as our licensee to mark up our technology.

Okay. Thank you very much and it sounds like you're on track for the 6 million at the end of the year, so we look forward to it.

Okay.

Take care.

We'll take our next question from Robert Lambert from RLR Capital.

Hi, everyone. As it looks like success is right around the corner, is there a -- sort of a list of some companies that you might be interested in that we should merge with or partner with as far as looking out in 2007 and beyond?

Well, the only comment I'll make is you heard what Ed said. And as part of Ed's statement, when we talked about liquidity. The guidance that we've given is that we have sufficient capital so as at least the year, unless it's to fund more rapid expansion or for acquisitions should they come along. Company has had a mergers and acquisitions committee for several years, but we will not go out and buy companies that want public market prices for private companies. And we see opportunities all the time, should one come along that would make business sense, Management and the Board of the Company would look at every opportunity. Beyond that I will not comment.

Nice. And Todd, I just want to say congratulations, you're really a tremendous asset to Intelli-Check.

Thank you very much. But I got a good team behind me, so it's a lot of fun.

Great. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from [Victor Castlemon] from [Castlemon Incorporated].

Good afternoon, Frank and everyone. Congratulations.

Thanks Vic.

Quick question. Which sector of the healthcare industry are you targeting? If I may ask.

We're actually going-- right now we're going after the insurance side of the business where there's a tremendous amount of insurance fraud, and we're trying to utilize our technology to help stem some of the insurance fraud when enrolling patients at hospitals or doctor's offices. So we've got actually a couple key insurance providers, we're actually in discussions with right now, we've given them demonstrations of our technology which have all been very favorable and they're kind of making their way up the chain of command. So that's really the platform we're targeting.

And further more we're going after companies that can utilize our browser helper object, our BHO technology, so-- who have browser based applications, so we can try to stay away from the lengthy integration process that may be required by having to use our SDK. So we've kind of got a pretty targeted plan that we're going after, and my new sales person has some good contacts in this arena, as I said, we actually have two key companies that we're actually actively talking to.

Are these regional insurance companies in your area or national?

One of them is regional, one of them is national.

Okay.

Yes, one of each.

Okay. And --

We'd love it if any of our investors have any good suggestions, we're open to anything.

Well I mean they're getting ready to enroll some new folks and make their new cards, that might take a while to implement or to interface the driver's license technology on the back of their insurance cards.

Well, no, what we're saying is, when you enroll to be able to swipe the driver's license and prefill in the screens and verify that it's a good driver's license, we can also take it one step further and add the insurance card as another jurisdiction to our software. So if you want to be able to swipe the drivers license-- excuse me, swipe the insurance card and take information off that, you can do that as well. So we're giving them multiple options on how to use our technology.

Okay. That was one question. If I may reiterate -- I believe some-- another caller just came in. The guidance is still on for the -- '06, is that correct?

We have not changed our guidance for '06.

Okay. So that's-- I'd say about 3.8, 3.9 mill that you need to hit for this quarter, and you'll feel certainly confident that that's moving in that direction?

No, we have, as I mentioned, about 2.8.

2.8, so the 3.2--

As of December 30th.

So that's 3.2.

Yes, but Todd has mentioned some of the wins we have that are included in that number. So --

Okay.

You're not that far off, but you're off, Vic.

I'm sorry?

I said you're not that far off --

I'm not far off, okay.

We haven't said what the sales have been since the end of the quarter.

Right. Okay. Well, thank you and again congratulations.

Thank you, Vic.

All right.

[OPERATOR INSTRUCTIONS] We have no further questions at this time. I'll turn it back to the moderators for closing remarks.

Well that concludes the presentation of the Company. We hope to continue to bring you news that will excite our shareholders, everybody. Both myself, Ed, Russ and Todd, we work pretty diligently to increase shareholder value, and I think you can see, I mean we get many calls where our press release is. What we don't-- unfortunately we can't live and die on press releases, but don't think the lack of news from the Company means the Company is not moving ahead and moving ahead very strongly. With that, we look forward to seeing you and hearing from you on the next conference call. And we thank you all for participating with us today. That concludes the meeting.