Intellicheck Inc (IDN) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the 2006 year-end earnings conference call. Today's call is being recorded.

Now for opening remarks and introductions, I would like to turn the call over to Mr. Steve Axelrod. Please go ahead, sir.

Thank you very much, and good morning, all and thank you for joining us this morning. First, before I transfer the call over to Frank Mandelbaum, the CEO and Chairman of Intelli-Check, let me just take a moment 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 used in this conference call, 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. Our actual results may differ materially from the information presented here. There's no assurance that the use of Id-Check technology by our potential customers and partners or government efforts to enhance security or curtail the sale of age-restricted products to underage buyers will lead to additional sales of Id-Check technology. 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. Having dispensed with that, Frank, would you please take over the call?

Thank you, Steve. Good morning, ladies and gentlemen, and welcome to Intelli-Check's year-end conference call. On behalf of our senior management, thank you for joining us this morning. With me on the call this morning are Todd Liebman, our Senior VP of Marketing and COO; Russ Embry, our Senior VP Information Technology and Chief Technology Officer; and Peter Mundy, our Vice President and CFO. He is the newest member of our management team and we're pleased to have Pete join us as part of our group.

Before I go any further, I wanted to state publicly that we released our K on Friday night. This was an effort, you're all aware that our prior CFO had been with us quite a while, Ed Winiarz had left the Company, but this was an effort to get it out of all of the management team, particularly Ed, who is no longer a member. He came in on nights and weekends and helped and Peter, who's been with us a week has done a yeoman job and it was really baptism under fire. You will get to hear Pete in a little bit. I just want to thank everybody, including our Controller, Regina Auletta. To get this thing out without having a full-time CFO, I was the acting CFO in this period, was quite a task, and we're pretty proud that we got this document out in time and it's something we're proud of. Having said that, I'd like to turn the call over to Peter and Peter will go through the highlights of the operations for the year end and all the results and then after that Todd will give you an update on where we stand as far as our initiatives for the year. Peter?

Thank you, Frank. Good morning, everyone. Let me take this opportunity to introduce myself and provide a brief summary of my background and experience. I have spent over 24 years in the electronic security industry with Century Technology Corporation and its predecessors, which was a publicly-held company that sold advanced CCTV systems and anti-shoplifting equipment. For the last 12 years, I held the position of Vice President and Chief Financial Officer for them and prior to that held various other accounting positions at that company. I started my career with Ernst and Winnie, a predecessor firm to Ernst and Young which is one of the big four public accounting firms and I'm a certified public accountant.

I have a solid background in domestic and international finance, GAAP accounting, and SEC reporting. My experience includes mergers and acquisitions, debt and equity financing, financial restructuring, and strategic planning. I'm excited to join the management team here at Intelli-Check and look forward to the challenges and opportunities that lie ahead.

Before I start with the financials, I would like to address some confusion regarding the terminology we used to describe our business activity, particularly as it relates to revenues and other non-GAAP terminology including sales bookings, booked orders, and backlog. Revenues as reported in the financial statements reflect GAAP accounting. This includes the sales value of products shipped and the value of contracted services and fees earned during a period. It does not include a portion of the contract value that has been deferred in accordance with our revenue recognition policy as described in our SEC filings, since it will be recognized in future periods.

Sales bookings represents the shipments of products and contracted services within the reporting period and includes revenues that are deferred under cap accounting. Therefore, sales bookings really is equal to the value of shipments. Booked orders represents the total value of all new noncancellable orders for products, services, and fees received from our customers and our distributors during their period reported. Any portion of noncancellable booked orders received during the period that were not shipped become backlog. Backlog at any particular period represents the value of noncancellable orders that are not yet shipped, as well as the value of unearned service and fees that will be earned in the future.

We were asked to explain our statement in January that booked orders for 2006 were approximately $4 million. If you take the sales bookings number for 2006 of $3.4 million and add it to the increase in the backlog of over $500,000, you can see the accuracy of the prior statement. I trust this clears up any confusion you may have had.

Now I would like to discuss some of the pertinent financial information that's contained in the 10-K for the year ending December 31, 2006, which we filed last Friday as Frank mentioned. Revenues for the year ended 2006 increased 32.7% to $3.162 million, compared to $2.384 million for the previous year. Sales bookings, which represent shipments of products in contracted service, including revenues that are deferred in accordance with GAAP increased by 36% to $3.4 million in 2006 from $2.5 million in the prior year. At the end of 2006, our total backlog of noncancellable orders nearly doubled to approximately $1 million as compared to the backlog of approximately $0.5 million in the prior year.

As you can see, our total revenues, total shipments, and backlog have all increased as compared to the prior year period, primarily resulting from the acceptance of our new and existing products in the vertical markets that we sell to. Bob will walk you through some of the details of our current pipeline of sales opportunities and successes and why we remain extremely optimistic about our expected future sales growth and where we stand with regard to our previously-announced booked order projections for our 2007 year later in the presentation.

Our gross profit percentage remained robust. It decreased slightly to 67.2% for 2006 compared to 68.8% for 2005. In 2005 the gross profit percentage was favorably impacted by the large software-only sale to a significant retailer. Even though we did not have this large software-only sale in 2006, the gross profit percentage for 2006 was still quite strong. It's to be noted that as a result of our increased licensing revenues we're experiencing increased sales of our upgrade and maintenance programs, as well as increased fees for software development which generate higher margins than bundled sales of hardware and software.

Operating expenses increased 4% to $5.227 million for 2006 compared to $5.024 million for 2005. This increase was primarily related to an increase in salaries due to the hiring of additional sales personnel and the non-cash stock compensation expense for employees and directors as a result of our adoption of FAS 123R. These expenses were partially offset by a decrease in legal expense due to the inactivity in our patent litigation expense against Tricom Card Technologies. If you exclude all of the non-cash expenses, total operating expenses actually decreased to $4.3 million for 2006 as compared to $4.6 million in 2005.

Our interest income increased by $77,000 to $223,000 in 2006 compared to $146,000 in 2005, principally as a result of a combination of higher average invested funds and higher interest rates in 2006. For the reasons prior stated, our net loss attributable to shareholders for 2006 decreased by 11% to $2.880 million, or $0.24 per share, which included non-cash expenses of approximately $940,000 compared with a net loss attributable to shareholders of $3.437 million, or $0.31 a share for 2005. Which included non-cash expenses of approximately $431,000.

At this point I would like to review the Company's liquidity and capital resources. Net cash and cash equivalents and marketable securities and short-term investments decreased for the year ended December 31, 2006, by approximately $1.5 million. Net cash used in operating activities was approximately $2 million, principally due to the net loss of approximately $2.9 million for the year, offset by the non-cash stock-based compensation expense of approximately $900,000. This amount was offset by cash provided by financing activities of approximately $0.5 million related from the exercise of stock options.

At year-end 2006, we had approximately $4.3 million in cash and cash equivalents and marketable securities and short-term investments, our cash is invested in short-term investment-grade CDs, government securities, and bonds. We had total assets of $5.7 million and working capital of $3.9 million. Our ratio of current assets to current liabilities for the year ended December 31, 2006, remains strong at 3.4 to 1. Our cash expense burn rate for 2006 was approximately $125,000 per month after the contribution from margin on revenues and the proceeds received from the exercise of stock options and warrants. We expect that it will remain stable at approximately $120,000 per month in 2007 after the contribution from margin on revenue, but before any contribution from the proceeds, which could be generated from the exercise of stock options and warrants during the year. Included in our 2000 projections are the expenses for the expected staffing increases and the related expenses due to the anticipated growth of our business.

We anticipate that our current cash available in investments, as well as the cash flows generated from operating activities will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may be required to raise additional funds to finance more rapid business expansion or for future acquisitions of complementary businesses or technologies. As Todd will now explain, we have been actively marketing our new products in technology for licensing and integration into other complementary systems and technologies as well as stand-alone applications. The potential opportunities in these markets could result in additional cash flows for the Company. I'll now turn over the discussion to Todd, our Senior VP of Marketing and COO. Todd?

Thanks, Pete. I just want to welcome you aboard as well and tell you we're happy and that we're looking forward to working with you. I continue to be very encouraged by the continuing success we've seen in the commercial marketplace and the expected 2007 opportunities in the government space. As Peter pointed out, we grew very nicely year over year in all areas, including revenue, sales bookings, and backlog. 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 marketplace for our products.

I also want to reiterate one more time before I provide details for our optimism that the lack of press releases during the quarter does not mean that we have been inactive or without wins. As I will continue to show you from our last call, 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 the levels of approvals needed and delays the time before we can release any news pertaining to these initiatives.

Although the focus of this call is for the year ending December 31, 2006, I know everyone on the call is eagerly awaiting to hear how our results were for the first quarter of 2007. We had a major seven-figure deal that we expected to close during the first quarter in the shipping and logistics arena. When went discussed the opportunity on our last call, we believed the opportunity was a low seven-figure deal. However, the opportunity quickly became a much larger opportunity for the entire enterprise for this particular customer. In fact, the potential opportunity could be a midseven-figure sale, which when all said and done, depending on -- excuse me, in fact, the potential opportunity could be a midseven-figure deal when all is said and done depending on the mix of hardware versus software.

Because of the increase in scope and size and the many additional layers of approval a deal of this size requires, the opportunity has slipped down to 2007. It also did not help that this particular customer had a soft earnings release, which also led to a slight slowdown in CapEx spending. We expect this opportunity to continue to move ahead and we are working this opportunity very closely. The company has previously opportunity very closely. The Company has previously supplied guidance as to what it believed would be its booked orders for fiscal 2007, $8 million of which $6.5 million will be in the commercial sector and the remaining $1.5 million will be from government sales. Should the Company make a determination that a material change to its guidance is necessary in either direction, the Company will promptly provide it. However, at this time based upon all information available to the Company, we are leaving our yearly guidance intact. 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 will start with a quick update on the product development side. We continue to see tremendous growth with our browser helper object product. I have discussed this product a few times on previous calls. As we continue to see the web become more prevalent with our customers' products, this product continues to take on significant importance as it allows our customers to use our Id-Check technology with no integration needed from their development staff. We also hope to be able to launch our executable pumper, which is for nonbrowser-based products sometime during the second quarter that will allow the use of our Id-Check technology on certain programs with no integration required.

We are very excited about our recent partnership that we announced with 3RD Ring. This partnership truly strengthens our position in the document verification space. Our combined technology allows for not only verification of the machine readable zone on the driver's license, but also the holograms on driver's licenses as well as verification on many other breeder documents including birth certificates and Social Security cards. They also have the capability to provide their technology in the credit card space, which broadens the market we can jointly go after.

3RD Ring has already integrated our technology into their platform and we are jointly bidding on a number of government initiatives that we expect to begin to hit over the next few quarters. With the recent announcement of our partnership with AssureTec, we now have a document verification product that can simultaneously scan both sides of the document and compare the human recognizable text on the front of the document to the information encoded on the back with the machine readable zone. It also has the capability to read the magnetic stripe at the same time as scanning the front of the document. We have been actively marketing this product in conjunction with AssureTec to the government market.

We also see some applications for this product in the commercial sector, which we started to explore. By partnering with a multitude of companies, such as General Dynamics, Northrop Grumman, EDS, SCI Consulting, AssureTec, and 3RD Ring, we believe we have positioned the Company to be successful in the government market regardless of our customer's requires, whether it is a true document authentication or simply needed for a productivity enhancement tool or anywhere in between.

On the marketing side, we continue to see a lot of success in our web initiatives. Our paid key word searches through Google and Yahoo! have yielded many great leads that have resulted in sales for the Company. We are also continuing to invest in the web in a myriad of products such as search engine optimization as well as online sales tools. We believe that our marketing dollars are best spent continuing to invest in our website. We are also looking at various enhancements to our site, such as redesigning key pages based on a variety of web tools we use daily that provide excellent feedback.

I want to switch gears for a moment and bring you up to speed on the various marketing and sales initiatives we are currently working on. Our sweet spot in the commercial side continues to be a combination of the retail market and the major financial service providers who provide the private label and cobranded credit cards to the retailers. The technology is seen as a key productivity enhancement tool, as well as a technology that can deter fraud through our patented Id-Check technology. As we mentioned in our last release, Toys "R" Us licensed our technology last year and the results have been very good to date.

Although we continue to make great strides in this arena, the recent collapse of the subprime mortgage market has slowed down some initiatives as our financial services partner senior executives have been sidetracked on this issue. In particular, we had one deal we believe to be a midsix figure deal to low seven-figure deal that has slipped into the second quarter. We expect it to be a very small delay and anticipate these opportunities to be back on track during the second quarter. I'm happy to say all of the customers continue to give us new business during the first quarter, but as I just mentioned, a few of the larger commitments have been slightly delayed. We are aggressively targeting the retailers themselves, but as I have mentioned multiple times during our past calls, our strategy has been to tag team the retailers with their credit card issuer. That being said, we have a string of opportunities with current retailers ranging from those in the wholesale club business to major grocery chains to department stores to pharmacies as well as the cellular industry. We expect to close business with multiple retailers during the second quarter.

On the banking side of the business, I am very happy to announce we have been selected by the largest core processor in the United States as their choice to provide driver's license technology to their customer base. This was a key win for Intelli-Check as it validates the effects of the last year of trying to penetrate this market. We expect to have a signed contract with this partner shortly and demonstrate the technology at the worldwide partners' meeting during the second quarter with a full product launch shortly thereafter. We expect to be able to formally announce this partnership in the very near future.

On the payment term outside of the business, we have been making slow but steady progress. We have approximately 18 signed contracts with various ISOs throughout the country. In addition, we recently signed two deals with committed volumes from two of our ISO partners. From a revenue standpoint, they are not material, approximately $85,000, but it clearly demonstrates we are moving in the right direction and expect this trend to continue. Also, we continue to work with the largest processor -- payment processor in the world for integration of our product into one of their loyalty programs. We have been officially selected by the Company and expect to have a signed contract by the end of the second quarter with a rollout beginning in that time frame as well. This is a transactional-based pricing model which continues the trend of diversifying our revenue stream from just that of a one-time sale.

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 solution, for office buildings, and campus environments. In fact, one of our partners is about to begin development using a handheld as part of the visitor management system in which the Id-Check technology will be used to scan driver's licenses. We have a variety of other larger and smaller players in this 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.

We continue to sell our products for age verifications to bars and night clubs. However, we continue de-emphasizing our direct marketing efforts in this vertical and reallocating our efforts, as the sales are not growing nearly as quickly as some of our other key vertical markets. As we have mentioned in the past, if legislation is passed mandating the use of age verification technology, not scanning technology, sales to this market will spike and we will act accordingly to capitalize on this opportunity.

As I've mentioned in the past, the travel vertical is a market we are attempting to move into as quickly as possible. I am pleased to announce that we have shipped over 300 units to Vanguard, National, and Alamo car rental as they continue their roll-out of kiosks for self-service check-in throughout the United States. In addition, we are in detailed discussions with one of the major self-service providers to the travel and hospitality space in the U.S. Our goal is to form a license agreement with these types of providers who can integrate the Id-Check technology into their product offerings and act as a springboard for Intelli-Check into this market.

An additional market, we are beginning to target our professional sports teams, such as those in the NHL, NFL, and major league Baseball. We are in advanced contract discussions with two such teams that we expect to close sometime early in the second quarter. With these two wins, we feel we will have the credibility in this market to make a larger-scale push to these teams. These clients plan to use our technology on a combination of handhelds, laptops, and box office systems. We are also looking at forming a strategic alliance with one or more companies who already provide technology services to these major league sports teams.

From a pure strategic side, we continue to work very closely with our scanner partners. We have been brought into key accounts specifically on the retail side with many of these partners. They see Intelli-Check as a value add that can assist them in expediting their sales process. We are actively looking at a few opportunities that would include a much deeper partnership for one of the scanner manufacturers. We are evaluating this type of partnership to see if it makes sense for the long-term opportunities that exist within the retail market. We are still actively pursuing two key government opportunities before us.

The first one is the first responders' program, which is being administered by the Department of Homeland Security. This is the program that will involve handhelds running our software, as well as additional applications. We are still working closely with the government and various partners in this opportunity, particularly Intermec. Our software is a requirement in these specifications o we are confident that once the orders begin to flow, we will see revenues from this opportunity in 2007.

The second initiative deals with requirements of FIPS 201, which evolved from the mandate of HSPD 12. This program calls for all government employees and contractors to be issued new interoperable credentials that will allow them access to any government facilities. There are approximately 90 million new IDs that are required to be issued beginning last October 27, to all government employees and contractors. The GSA has issued an RFI for 250 units for this product. We are working with a variety of partners on this initiative and we believe we will be part of the order once the selection is made due to the fact that the RFI calls for the comparison of the information on the front of the driver's license to the machine readable information on the back which is an Intelli-Check patented process.

In addition, we successfully completed multiple tests with the TSA using Id-Check technology for passenger screening at the end of 2006. The tests included Id-Check as a stand-alone product, as well as integrated with two of our partners. We are waiting for the final results of the test and expect to work with the TSA on a long-term solution sometime in 2007. It is important to mention that all three tests included Intelli-Check technology, which puts us in a great portion regardless of which company the TSA ultimately chooses to roll-out a solution. In light of these developments, we expect the momentum we have built up over the last year to continue and we will remain very optimistic about the future. The pipeline on the commercial side has never been as strong and continues to grow every single quarter.

A few of our key initiatives with one of our major financial services customers and a logistics carrier appear to have been pushed out into 2007 due to market conditions, as I mentioned earlier, that were completely out of our control. It is important to reemphasize that we have not lost a single opportunity to a competitor. In most case, the opportunities has been delayed for internal reasons by our customer. Because of the past announced wins and the potential revenues that can evolve from the business models associated with each one together with the ever growing new agreement, sales, and pipeline opportunities and government initiatives in which our technology, is is proposes an important component remain optimistic about the future of Intelli-Check. I would now like to turn the call back over to Frank.

Thank you, Todd. That completes the formal presentation for the quarter. Operator, we would be pleased to take any calls that the listeners may have.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from David Sterman.

Good morning, guys. How are you?

Good morning, David.

It sounds a little bit -- looking at the ramp you've had, 2006 was fairly linear in terms of revenues building throughout the year. Then it sounds like Q1 here in '07, I know you don't give guidance, but we shouldn't have much expectations on Q1 and even with everything that was just outlined in terms of the pipeline, Q2 either. So would it be fair to say that you think that the second half of the year is when a lot of these things hit the P&L?

I would hope that we have at least one major win in the second quarter. So we're pretty close on a couple of them. I do expect some good things in the second quarter and I don't think we're going to be waiting until completely the second half of the year.

I would like to add to that by saying that we believe the second quarter will be quite good, but the year end should be when everything starts to hit. What was not mentioned by Todd, on the government side there are two companies that have been accepted for the technology on the hardware side, at this point, by the government in handhelds. That's where a major opportunity comes in on the first responder. Our partner Intermec, and if you look at their filings you'll see it, was delayed in bringing to market this new product, but it is available or it will be within the week or so and we're going to start to see -- we have quotes out right now into the government space with that. So we do expect to see a ramp-up on the government side and Todd outlined the commercial side for you, so I don't think you have to look that far out into the future to start to see results begin to happen, David.

Okay. It was mentioned earlier in the call, but I think I may have missed the detail that there was a little bit of an add to head count planned. Where are you adding to head count?

We're primarily adding to head count on the sales and marketing side at this point. With the expected ramp-up, we will certainly beef up our financial department, but Pete, who just joined us, is going to take a good hard look at that and tell us what he believes will be the requirements going forward.

Okay.

We plan to add an additional salesperson in the second quarter. We have someone very close that we're looking at right now in one of the key verticals that I mentioned. That's a new one for us during our call. So we're trying to find someone with some good industry expertise and we think we have some pretty close to bringing onboard. It's not guaranteed, but we've got some good opportunities.

Okay. My last question, this might be an overstatement of the obvious, but you talked about an expected monthly burn rate, but considering something what looks like might be something of a lumpy year, from in terms of a quarterly recognition perspective, it sounds like your cash burn rate here in the first half of the year might be a little bit higher than what you're talking about and perhaps lower in the second half of the year. Is it fair to look at it that way?

Well, you may be right on that particular point, but we've managed to keep our expense well in-line with our expectations, but we do have quite a bit of warrants and options in the money, some of which are going to expire over the, let's say intermediate term. It's obvious to us that these things will be exercised. So we are in a very good position cash flow. If we only burnt in the last quarter, which we pointed out before, we only burnt less than $200,000 from the nine-month report, and yet we paid down payables by over $200,000. So we were almost cash flow positive -- well, you could say we were except for the paydown in the fourth quarter. So our cash position is very, very manageable. We watch our expenses very carefully and that will continue into Pete's guidance.

Okay. All right. I will step back in the queue. Thank you.

Thank you. We'll take our next question from Dr. [Robert Lippert] of IRR Capital.

Good morning. Some of my question was answered, but I don't know if you can expand upon AssureTec and 3RD Ring as far as the government space. And as you know, we all -- many of us on the call who have been shareholders for years have been waiting for the government to get these programs out, especially first responders. Do you think that we'll actually start to see rollouts here in May, June, and July?

Well, there are currently -- Todd pointed out there is an RFI right now for the GSA-shared services, that's 250 systems. We believe for that particular requirement, AssureTec and ourselves are the only ones that can meet that requirement. So we have multiple partners of our bidding on that business with that particular device. On the FIPS 201 requirement, we have multiple partners bidding with multiple technologies of which we're partnered with right now, if you go to the first responders, one of our key partners in that is Intermec has been and will always continue to be Intermec had a handheld device that was supposed to be available with a new clip-on that had RFID, GPRS, contact, and contact card, fingerprint capability, mag stripe all in one ruggedized clip-on. That was supposed to be available last October. It slipped six months, it's available now. That delayed orders on the government side. They're waiting for it because it's quite a nifty device. It is now available and it will be starting to ramp up on the production hard wired right now, as we speak over the next week or so. And so there are quotes out right now where we're part of the solution that are going. So yes, we do expect the government market to start to move. It's been a long time coming, but we do see a lot of initiatives happening on the government side now.

Is that Bob?

Yes.

Hey, Bob, it's Todd. One of the things I always try to do is triangulate our information so we're not drinking our own whisky so to speak. One of the things I was very pleased to hear just in the very recent time frame, over the last couple weeks, another one of our major margins other than Intermec on the hardware side, they have projections of about 100,000 handhelds for the entire market in the next few years is a yearly consumption and that actually made me feel pretty good. This is the, in my opinion, the 10,000 pound gorilla in the government space from the supplier. Not necessarily for first responders, but they're actively going after it. Trying to triangulate the information, when I start to see other major players are seeing this as a six-figure opportunity from a handheld perspective, it gives me a lot of comfort that the orders will start coming to date and really just has been an issue that the required hardware has not been available and once that required hardware is available, I think you'll start to see the flood gates open and some decent volume start to hit.

Great. And then on the--.

Let me add something to that, Bob. When this other major partner of ours confirmed to us that they see the opportunity, well in that particular case, between a licensing fee and the upgrades, that alone from their perspective could be about $50 million a year right to the bottom line for Intelli-Check, just from what they're saying. Forget about what the government is saying on the first responder side. We're pretty encouraged by the Intelligence we've gotten on our own, what we've gotten from Intermec and what we've gotten from this other major player who's also a partner of ours. We haven't announced the name as yet, but as Todd put the 800-pound gorilla in this space.

Well, again, I don't think it's a secret, it's a part of our strength. It's part of we're an OEM partner of theirs, it's Motorola through their acquisition of Symbol. So we work with all of our partners, that's not a secret, we're an OEM partner of theirs and they really truly are the 800-pound gorilla in the federal and state local government space.

That would be great.

They had two major recent shows, Todd. You may want to expand on it.

Yes. We were with them at the [Inaudible] show, which is a major government show last week and then the NRF, which is the national retail federation show in their booth as their only DL parsing partner and we just had phenomenal results and feedbacks from that. That's where a lot of our great leads are coming from and we've just been on a number of key sales calls over the last six weeks since those shows and we start to think some of those will really translate into some revenues over the next quarter or so, as three guys get ready for the Christmas season, which obviously is on the forefront of their mind even now so the technology has to be rolled out plenty of time in advance.

One other thing, Bob. There have been constant rumors and I get calls that Motorola is a competitor, they give it away. That is pure nonsense. They are a partner of ours, they recognize the value add. Todd, am I understating that? Of our technology and what it can mean to sales they are not a competitor of ours?

No, no.

They are a key partner of ours.

They are a key partner. There could be some great opportunities in the future for some strengthening of the partnerships with those kinds of companies that we're very excited about it and those are the things we're focusing on on a daily basis on the commercial side, which also translates into the government side for companies like Motorola for us.

Well, it sounds like our opportunity is finally arrived and it sounds like the government really means business. We've heard government, government, government for three years and I think what you're saying is that they're coming up to the plate now to hit the ball?

I think they are and I think that we need to be positioned correctly with the right partners because we're one piece of the solution. I think we've effectively done that. Again, the most important thing to reiterate, is that we haven't lost a single opportunity to a competitor, really none of the opportunities have gone away. It's just a question of timing, especially on the commercial side and the government side, we all firmly believe is coming, just a matter of when and what the date is going to be.

All right, thank you.

If you take a look, Bob, at the budget, that's been approved for the first time ever. Specifically under DHS, there's $3.4 billion for first responders. That doesn't mean that identification management will get $3.4 billion. They buy gas masks, they buy fire engines, they buy other kind of equipment. But just a little bit of that, less than 1% is a significant revenue to Intelli-Check.

Sounds good to me. Thank you.

You're welcome.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our next question from [Tom Kelly], private investor.

Yes, gentlemen. Great year. I have two questions for you. The first one is, can you give us a little bit more information about 3RD Ring. There doesn't seem to be a whole lot of information available through research, i.e. the web, asking around. Can you tell us a little bit about who they are or what they do? That's the first question. The second question I'll give you and then I'm going to get off and listen, is you had mentioned in a previous call a deal you're working on close to the end of fiscal 2006 right around new year's. Can you give us a little more information about what that deal was about, what revenue may have been from that deal, who that deal was with?

I'll address the second question first, Tom. We already addressed that. If you missed it in the early part of the call, Todd went over that. I'll let Todd just quickly re-explain it. As far as 3RD Ring. 3RD Ring is a company that has some pretty unique technology that we were introduced to by a key government agency that they have contracts from the TSA, Secret Service, et al, to do certain development work for them. Their technology comes out of these agencies, it's paid for by them. They have the ability to forensically verify documents such as birth certificates, Social Security cards, holograms, which is a very fascinating, if you see it in person, and we do the electronic verification so we've married the two technologies, as have we done that with AssureTec.

On that side, the reason it is very difficult to get information on them. They fall under a category, I could be wrong in the nomenclature. I believe it's something like DB254, I could be off, which they operate under top secret or whatever clearances. So there isn't that much you can get on them. But let me tell you, their technology is well-respected by all government agencies and the combined technology we've shown it to some of the major government departments with great reception to date. So it's difficult to find out who they are. Todd, if you just want to give a very quick hop down, because we already discussed this.

Yes. Really there's three big deals we're working on. We mentioned one or two of them at the end of the last year. One was with the shipping and logistics company, one was in a -- two are with financial service company, both of the financial service companies are both actively partners with us with signed agreements spending dollars with us literally every single day.

What we're trying to do is with one of them is enter into a much larger addendum to the master agreement for a committed amount of volume over the next year, two years where we can continue to ramp up and provide the resources. We hope to have that done the end of the year into the first quarter, but because of some unforeseen events with the subprime collapse, unfortunately they continue to do business with us under master agreements, so there's no urgency that they have to sign these longer term deals with us, because they're permitted to buy anything they want. We're trying to entice them with a larger scale deal to provide them some unique opportunities which I really can't go into it. Some price breaks. So that's really where we are with them. We're expecting at least one of them to happen sometime in the early part of the second quarter. As I said, the shipping and logistics company just for some unforeseen reasons with the softening in their earnings and then the larger scope of the entire project has been delayed into 2007. We're confident that we're going to get some business out of them and we're confident it's going to happen. We just don't know exactly when.

The third regional service parter, a major partner of ours is about, we believe is about to land two major retailers onto their credit card portfolio, which we will be part of the product offerings when they launch their instant credit programs. So again, it's more of a timing issue. One thing I was going to do for the entire investment community, I did do it, I apologize, but I was going to go during this average the market cap sizes of the companies that I made my Board presentation to earlier in the week, and it's in the billions and billions of dollars. Unfortunately, we're dealing with these behemoths and a 30, 60, 90-day slippage with these guys is just unfortunately part of the game. We're leasing dataware right now sitting in at probably a Fortune 10 conference or a company secure. These are the kind of companies we are dealing with on a daily basis who are interested and want our technology. So unfortunately we ask you to be patient. It's going to happen on the commercial side, as well as the government side. It's just taking a little bit longer than we had expected.

Okay. Well, have a great year and good luck and all the best, obviously.

Thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from private investor [John Manley].

Good morning, Frank.

Good morning, John. How are you?

Good, thanks. Just a quick one. There has been -- I don't recall any discussion on the status of legal issues. Can you give a little update as to whether or not we're still dealing with any infringement lawsuits or anything along that line?

Well, the answer is it came in Pete's initial where he said we have been like in a status quo. What it appears in the K is exactly what's going on. We are waiting. We had asked the judge last year for an early trial on the TRIACOM. She said she would not get to it until the spring. Well, here we are in the spring and there are several motions out there that she has not yet ruled on. So until those motions get ruled upon by her, we're just in a series of waiting. However, we do actively look at everything that's going on in the industry. If anybody's infringing on our patents or whatever and as Todd can point out, the value of the patents is very, very strong when it comes to major companies.

After what happened to Blackberry with the threatened potential injunction, the bigger companies are very cognizant of our patent position. And even though some of our alleged competitors come in and underbid us by hundreds of thousands of dollars, I'm not aware -- and Todd, correct me if I'm wrong -- of any loss to any major company to anybody else on price alone. One, we have the best technology, and two, the patents are something that they take into consideration. Todd, am I correct on that?

Yes, absolutely. We really have not lost a single major deal to a competitor that we've been actively involved in. I'm sure there's opportunities we didn't know that we've lost, we just don't have a big enough sales force. But anything we've gone head to head on, I don't know of a single opportunity that the we've lost to a competitor in the document verification space. Certainly age verification I don't count that onesies and twosies, but on the the larger scale deals like the Toys "R" Us's of the world, the major financial services companies, the major retailers, we've gone head to head with competitors and never lost. I can't guarantee that will always happen, but we've been successful at date based on a variety of issues including our patents, our products, and the way we sell and price our products.

Okay, thank you.

Thank you.

You're welcome.

Thank you. We'll hear from [Paul Seiler] from [Andrew Garrett].

Hello? Operator, you still there.

Mr. Seiler has removed himself from the queue. There are no further questions at this time.

Okay. If there are no further questions, that will conclude the formal part of our presentation. We appreciate your getting up, particularly those people on the West Coast this early in the morning to hear the presentation. If anybody who is on the call has any questions that they think of after the call, please feel free to call the Company and let me personally apologize to many of you who called me over the last two weeks, one, I was away on personal business during this time and then we were very hung up on getting the K out with Pete only starting a week ago. And I think he's done a yeoman job in the one week he's been there. We're more than tickled to have him part of the team as we grow from where we are today.

We look forward to giving you information again as Todd stated earlier. Don't relate the fact that we have not put out any news with the fact that there is no activity. There is lots of activity. Todd told you he's in Wilmington, Delaware, on this call in a major Fortune, better than a Fortune 50, way up there, probably a Fortune 10 who wanted to see us. He had to be down there but he made himself available for the call. There is lots of activity going on, both in the commercial and government space and we hope to be able to give you the information when we're permitted to do so. Many of our contracts have in it no publicity clauses. And therefore we cannot talk about it until they give us specific information. I'll give you an example, that SCI consulting where we're part of the EAGLE program, we signed that agreement probably nine or ten weeks ago and it took them that long to get the approval for us to put out the release. So you have to take a look at what is happening, that activity was there. We just couldn't release it. And having said that, I thank you all for attending. We look forward to speaking with you all in the future. Operator?

This concludes today's call. We thank you for your participation and have a wonderful day.