Intellicheck Inc (IDN) 2007 Q1 法說會逐字稿

Good day, everyone. Welcome to the first-quarter 2007 earnings conference call. Today's call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Steve Axelrod. Please go ahead, sir.

Thank you, operator, and thank you all for joining us this morning. Before I ask Frank Mandelbaum, the CEO and Chairman of Intelli-Check, to host the call, as we usually do let me repeat 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, encouraged 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 headings 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.

As usual, having dispensed with those requirements, Frank, would you please take over the call?

Thank you very much, Steve. Good morning, everyone, and welcome to Intelli-Check's first-quarter conference call. With me today on the call are Peter Mundy, our Vice President of Finance and Chief Financial Officer; Todd Liebman, our Senior Vice President of Marketing and Chief Operating Officer; and Rick Outland, our VP, Government Affairs, the newest member of the Intelli-Check family.

To start, Pete will go over the salient points of the results of operations for the quarter that we released yesterday, as well as discuss the balance sheet for the period. Todd will then bring you up to date on our current sales initiatives in the commercial sector, and then Rick will discuss our government initiatives. At the conclusion of the formal presentation, we will open the floor to any questions that you may have, and we will all be available for such purpose. Pete?

Thank you, Frank. Good morning, everyone. Before I start with the financials, I would like to readdress the terminology we use to describe our business activity, particularly as it relates to the revenues and other non-GAAP terminology, including sales bookings, booked orders and backlog.

Revenues as reported in the financial statements reflect GAAP accounting. It includes the sales value of products shipped and the value of contracted services and fees earned during a period. It does not include the 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 shipments of products and contracted services within the reporting period and includes revenues that are deferred under GAAP accounting -- represents billings for the period.

Booked orders represent the total value of all new noncancelable orders for products, services and fees received from our customers and distributors during the period reported. Any portion of noncancelable booked orders received during the period that were not shipped become backlog.

Backlog at any particular period represents the value of noncancelable orders that are not yet shipped, as well as the value of unearned service and fees that will be earned in the future.

I would like to discuss some of the pertinent financial information that was contained in our press release for the quarter ending March 31, 2007, which was put out last night. The complete Quarterly Report on 10-Q will be filed with the SEC later today.

Revenues for the quarter ending March 31, 2007, increased 28% to $685,000 compared to $536,000 for the previous year. Sales bookings, which represents the shipments of products and contracted services, including the revenues that are deferred in accordance with GAAP, increased by 20.6% to $585,000 in 2007 from $736,000 in the prior year.

Total booked orders decreased 25% in the first quarter of 2007 to $644,000 from $863,000 in the first quarter of 2006. We are disappointed that we did not reach our goal of record booked orders in the first quarter of 2007 as several of the orders we expected to receive have been delayed. However, we remain optimistic that revenues will continue to increase since our pipeline of sales opportunities is substantial and growing in both the commercial and government sectors. We continue to believe that some of these large opportunities will convert to sales over the remainder of the year as a result of the recent successful introduction of several new products, including ID-Check BHO and ID-Check Mobile.

At the end of the first quarter of 2007, our total backlog as compared to the backlog was approximately $1.1 million as compared to the backlog of approximately $614,000 as of the end of the first quarter of 2006 and $1.1 million as of the end of 2006.

Todd will walk you through some of the details of our current sales opportunities and successes and why we still remain optimistic about our expected future sales growth and where we stand with regard to our previously announced booked order projections for the 2000 [sic] year later in the presentation.

Our gross profit percentage decreased slightly to 65.4% for the first quarter of 2007 compared to 66.2% in the first quarter of 2006. The gross profit percentage decrease in 2007 was a result of a higher mix of bundled sales from hardware and software products over our licensed products, which have a higher gross profit percentage. In addition, our royalty [risk] was lower in the 2007 period.

Operating expenses decreased by $231,000 or 17% to $1,125,000 for the first quarter of 2007 compared to $1,356,000 for the first quarter of 2006. Selling expenses decreased by $15,000, general and administrative expenses decreased by $214,000, and research and development decreased by $2000. These decreases were primarily a result of a reduction in the FAS 123R noncash stock-based compensation expense for employees and directors of $186,000, as well as a decrease in legal expense of $46,000 due to the inactivity of our patent litigation case against TriCom Card Technologies. If you exclude all the noncash expenses, total operating expenses were $1,071,000 for 2007 as compared to $1,116,000 in 2006.

Interest income decreased by $1000 to $55,000 in 2007 compared to $56,000 in 2006, principally as a result of lower average invested funds offset by higher interest rates. For these reasons, our net loss for the first quarter of 2007 decreased by 34% to $622,000 or $0.05 loss per share, which included noncash expenses of approximately $54,000 compared with a net loss of $945,000 or a loss of $0.08 per share for the first quarter of 2006, which included noncash expenses of approximately $240,000.

At this point, I would like to review the Company's liquidity and capital resources. Net cash, cash equivalents and marketable securities and short-term investments decreased in the quarter ending March 31, 2007, by approximately $626,000. Net cash used in operating activities was approximately $788,000, principally due to the net loss of approximately $622,000 for the quarter and a reduction in deferred revenues.

The losses were funded through net redemptions in our marketable securities of $787,000 and by cash provided by financing activities of approximately $161,000 resulting from the exercise of stock options and warrants.

Our balance sheet remains strong. At March 31, 2007, we had approximately $3.7 million in cash, 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 million and working capital, defined as current assets less current liabilities, of $3.5 million. Our ratio of current assets to current liabilities as of the quarter ending March 31, 2007, remains strong at 3.6 to 1.

Our cash burn rate for the first quarter of 2007 was approximately $209,000 per month after the contribution from margin on revenues and the proceeds received from the exercise of stock options and warrants. We still anticipate as the remainder of the year progresses and revenues increase that the cash burn rate will decrease and we'll average out to approximately $120,000 per month in 2007 after the contribution from margin on revenues, but before any contribution from the proceeds which would be generated from the exercise of options and warrants during the year.

Included in our 2007 projections are expenses expected for staffing increases and the related expenses due to the anticipated growth of our business. We anticipate that our current available cash and 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.

I will now turn over the discussion to Todd, our Senior VP of Marketing and Chief Operating Officer, to discuss our current and future marketing opportunities.

Thanks, Pete. Good morning, everyone. I have some very good news to share with you. Although the booking numbers were lower than we expected in the first quarter, I received an email confirmation that one of the seven-figure agreements that we have been waiting for has been approved and is in legal for final review. Based on this fact, plus sales bookings and other opportunities in the pipeline, we remain optimistic that we will hit our targeted booked orders number for the year.

In fact, our pipeline has never been as robust and we are confident the additional larger opportunities we have been working on for the past several months will begin to close in the very near future. Therefore, I have great confidence in my belief that the second quarter will indeed be a record-breaking quarter for booked orders for Intelli-Check.

As I have stated in the past, our client base has shifted dramatically since I joined the Company two-plus years ago from that of bars and nightclubs purchasing off-the-shelf products for less than $1500 per unit to multiple Fortune 500 customers, where orders can be in the six and seven figures and require months of integration just to pilot our technology. Unfortunately, the sales cycle for many of these large organizations has stretched on longer than anticipated.

The positive side to this is that most of the customers we are awaiting orders from are existing Intelli-Check clients who continue to give us business each and every quarter. Let me say it loud and clear -- we have not lost a single opportunity in the pipeline to a competitor. Competition in this space is not a problem. The only problems are those that arise when a customer or a potential customer decides to delay an expected implementation for its own reasons, which disappoints us, and I'm sure you, our shareholders, as well.

I would like to switch gears for a moment and take this opportunity to welcome Rick Outland to Intelli-Check. Rick recently joined us as our new VP of Government Affairs. Rick's primary focus will be to work on existing opportunities in the government pipeline, as well as leverage his experience to bring new opportunities within the federal, state and local space based on his impressive background with the Secret Service for the last 20-plus years. The integration of 3RD Ring in the AssureTec technology with Intelli-Check's has provided Rick with a suite of document verification products to sell. Rick will provide you with a brief overview of his background, as well as an update on our government initiatives, later in the presentation.

We continue to pursue a handful of large opportunities that we expect to close over the coming weeks. We had expected that we would have one of these major opportunities close in the first quarter, but as I stated earlier, the contract is in final legal review with our customer, a Fortune 50 company. In addition to this major opportunity, we have several additional large contracts in the works. I would like to take a few minutes to bring you up to speed on some of the other major opportunities we're working on.

The retail sector continues to be very strong for us. We are seeing tremendous interest for our product in a variety of places within retailers' operations. These include instant credit enrollment, loyalty card registration, elimination of return exchange fraud, pseudoephedrine compliance, age verification and for check authorization. The ID-Check software product is truly a horizontal play for these retailers, where they can benefit from multiple ROIs from a single investment.

In the last quarter, we brought online one major retailer as a customer. The retailer purchased a small quantity of units for a rollout at a new store opening next week. We anticipate a larger nationwide rollout this year. In addition, one of our other retail partners, which we signed at the end of last year, recently rolled out the IDN BHO solution across its enterprise. We remain optimistic that we will be able to provide more details about this win in the near future.

In addition, we are in late-stage direct discussions with three other Tier 1 retailers for the utilization of our technology. They include a major grocery chain, a specialty retailer and a mass merchandiser. This does not take into account our financial service partners, who have many other initiatives ongoing outside of our direct sales efforts. Their customers include some of the largest retailers in the world. This handful of retailers alone represents the potential for several million dollars in bookings to Intelli-Check.

We continue to make excellent progress in the travel sector. Our installed base with Vanguard, National and Alamo car rental continues to grow. We are also looking at additional applications with them for our technology outside of self-service.

In addition, we are in late-stage contract negotiations with the industry leader for self-service in the travel sector to complete a licensing deal in which the ID-Check technology will be placed on thousands of self-service terminals throughout North America over the next few years. We are excited about our prospects in the travel sector due to the fact that presenting one's driver's license is a very common occurrence for virtually all passengers traveling by air, renting cars or checking in for hotels.

I'm excited to report that we're making excellent progress in the professional sports sector. We have signed up one NFL team for loyalty enrollment and are waiting for a signed agreement from an NHL team. This agreement is expected any day now. We are also attempting to complete two key partnerships with established sports marketing firms who are very interested in integrating the ID-Check technology into their offerings.

We are additionally working with these potential partners to provide a subscription-based product in which professional sports teams can rent the bundled solution, the hardware and software, for game-day events. These proposed partnerships will be in addition to Intelli-Check's direct sales efforts in the space.

On the financial services side, I'm happy to announce we have signed an agreement with Fiserv, the largest bank core processor in the United States, to resell Intelli-Check's bundled solution to their customer base. We expect Fiserv to begin to roll out the solution sometime during the third quarter.

We are very excited about the relationship with Fiserv, as we believe it will catapult us into the banking arena overnight. We are also in final contract discussions with the largest credit card transactional processor in the world. As I have mentioned previously, they have already integrated our technology successfully into their platform and expect to begin rolling it out in the third quarter. This is a transactional-based revenue model that will provide a nice recurring revenue stream well into the future.

As we have demonstrated in the past, credit card enrollment is a key business line for Intelli-Check. We have generated significant revenue from our financial service partners over the past year or so. We have been targeting a variety of issuers, many of which we have successfully signed up as Intelli-Check customers.

We are in late-stage discussions with one of the largest issuers to extend our reach dramatically into the space. This company has been a target we have been pursuing for the last year or so, and I'm pleased to say we have made significant progress and hope to pilot our solution on a relatively large scale with them this summer at a major pro sporting event. Our ultimate goal is to sign a deal to roll out our technology for their 2008 event season.

I am also pleased to announce that we're seeing some movement in the age verification space and now have three solid opportunities there. All three of these customers have a brand to protect and are looking to see if Intelli-Check's solutions will help them meet their corporate mandates.

One of the opportunities is with an existing large Intelli-Check client who is looking to update their equipment as our legacy 1400 units are being discontinued as of June 30 of this year. The other two current opportunities are with non-Intelli-Check customers in the sporting arena and amphitheatre and restaurant markets. Although there is no guarantee that any of these three opportunities will close this year, I am optimistic that we have a very good chance to close at least one of them sometime in 2007.

From a strategic point of view, we're investing in a new vertical market -- the event marketing space. We believe that there are many great opportunities for our technology in this space, specifically our BHO and handheld products. There are many mobile applications that lend themselves very nicely to our technology. We have proved this with many of our financial service partners, that there is a big market for our products in the event channel.

As a kickoff to this strategy, we are exhibiting next week at one of the premier tradeshows in this space. We have already seen positive feedback from preshow marketing activities. We plan to staff our salesforce accordingly to handle this new market and enhance our current product offering to meet the demands of this market.

On the marketing side, we continue to witness the importance of the Internet as a great sales tool from both keyword searches as well as search engine optimization. We have seen our Web leads continue to improve each and every month and we plan on investing considerably in this area over the next few months to enhance our reach on the Web. There is no doubt that the first place major companies go when they want to research a product is Google or Yahoo! and type in a handful of keywords. We need to make sure that we are positioned near the top of the results to capitalize on this great marketing tool.

In light of these developments, we expect the momentum we have built up over the last year to continue and we remain very optimistic about the future. The pipeline on our commercial side has never been as strong and continues to grow every quarter. As I stated earlier, we continue to believe we're in excellent position to achieve our previously stated 2007 booked orders goal of $6.5 million on the commercial side and $1.5 million on the government side.

A few of our key initiatives with a handful of our major customers have taken longer to close than we expected. It is important to reemphasize that we have not lost a single one of these opportunities. In most cases, these opportunities have been delayed for internal reasons by our customers. Because of the past announced wins and the potential revenue that can evolve from the business models associated with each one, together with our ever-growing new agreements, sales and new pipeline opportunities, and the government initiatives in which our technology is proposed as an important component, we remain as optimistic as ever about the future of Intelli-Check.

I would now like to turn the call over to Rick Outland, who will walk you through some of our key government initiatives. Rick?

Thank you, Todd, and good morning, everyone. I would like to echo Todd's optimism as I too feel strongly about Intelli-Check's ability to penetrate the government markets. I would like to provide a brief background of myself and then highlight some opportunities that Intelli-Check will pursue in the near future.

Prior to joining the Intelli-Check family, I was employed by the U.S. Secret Service in their forensic laboratory as a counterfeit expert, where I conducted examinations on questioned financial and identity documents. The purpose of examining these documents was to determine their authenticity, determine the methods used to produce these documents, and if counterfeit, determine if the document is a previous record in a Secret Service investigation.

I was also called upon to testify to casework of my findings in a federal, state, or in some cases, foreign courts of law. The types of documents that were submitted to the laboratory ranged from U.S. and foreign currencies, payment cards, travelers' checks on the financial side, to driver's licenses, state identifications, Social Security cards and birth records on the identity document end.

During my career, I was charged with providing training courses to U.S. and foreign law enforcement, the banking industry and the private sector on the features of these genuine documents and how to detect the counterfeits. I provided this instruction to international audiences in over 40 countries worldwide.

During my final five years with the Secret Service, I served as its Assistant Chief in the forensic laboratory, where I supervised a group of forensic document examiners. Currently, I am a member of the International Association of Financial Crimes Investigators, and I am the Vice President and Co-Founder of the Document Security Alliance.

As my tenure at the Secret Service was winding down and I began looking for my next career, it was important for me to stay in the document security arena. There were opportunities at other federal and state laboratories, but I focused my search on the private sector. I was committed to gaining employment with a company whose mission paralleled the work that I had been doing throughout my career.

Over the years, I have worked with employees of Intelli-Check. I have always appreciated their commitment to document security, their relationships with law enforcement and the American Association of Motor Vehicle Administrators, and their sense of loyalty to the Company. With Intelli-Check, I felt I could offer my extensive document security background, the growing sensitivity by governments around the world to the critical importance of document security and point of authentication document inspection, and my extensive international, federal and state government relationships to grow their business and market presence.

These are very important times for document security within the federal and state governments. Within the federal government, the adaptation of HSPD-12 and the promulgation of FIPS 201 have raised the awareness of our technology. Soon, the federal government will begin the arduous task of personal identity verification for all federal employees and contractors. Our stand-alone products or our technology coupled with that of our partners will offer a compliance solution to this need. This has already become apparent through the selection of our technology combined with that of our partner, AssureTec, in the recent GSA award to EDS.

We are currently in a negotiated rule-making period of the Real ID Act. This is the requirement on all U.S. states to comply with new federal standards for the issuance of driver's license and nondriver identification cards. It is the intention of this legislation that if a state wants its documents recognized and deemed acceptable for federal purposes such as gaining access to a federal facility or boarding aircraft, it will make adjustments necessary to meet the new minimum standards. The new date for compliance has been set for December 31, 2009.

I should also add that one state, Maryland, has recently upgraded their systems from our legacy 1400 to the DCM/2 and software application. I see a great opportunity to assist the states in becoming compliant with the act. The incredible relationships that Intelli-Check has with the states will open these opportunities. Further, we will continue to maintain the largest collection of genuine standards, continuing to make ID-Check solution a sought-after product.

The Transportation Security Administration has investigated the potential of providing their personnel with the ability to verify the authenticity of government credentials offered as proof of identity by individuals wishing to pass through passenger screening and eventually boarding aircraft. These employees range from travel document checkers, or TDCs, the transportation security officers, TSOs, and the employees currently working in the surveillance of passengers through observation techniques called SPOT. These employees are responsible for preventing and/or deterring anyone from gaining access to the passenger areas of the airport and boarding aircraft with the intention of harming innocent civilians.

Throughout the last year, pilot programs at multiple airports involving Intelli-Check's ID-Check technology, coupled with 3RD Ring's Genuine Document System, have experienced considerable success. Porting the Intelli-Check technology and that of 3RD Ring to a mobile device that enables the user to read, verify, parse, display and store the machine-readable data encoded on government-issued IDs such as driver's license, identification cards and military IDs, should open up several potential government opportunities for Intelli-Check and its partner.

After verifying the encoded format, the user has the option to then explore images of a guaranteed genuine sample of the suspect document. By comparing subtle security features of the genuine standard to the document in their possession, the inspector is better prepared to make an authenticity determination.

These in-person applications are a tremendous deterrent as well. It has been shown that individuals will avoid these inspections to a point of leaving the premises altogether rather than risk the chance of being discovered with their fraudulent document. Further, by having a genuine library at their disposal, the user has a self-training system that will enable them to become more aware of the documents used in normal transit. As you know, no two airports are alike, so having the functionality and portability of these handheld devices became a very attractive feature to TSA employees.

The First Responders Initiative, swiftly and accurately identifying and tracking the whereabouts of trained personnel responding to disasters and law enforcement emergencies, as well as people exiting a disaster area, is critical. The Company has partnered with Intermec, a well-recognized provider of rugged handheld computers in the government space. The technology has been integrated into their devices and is one of the two currently approved devices for this market, since it meets the credentialing requirements of FIPS 2001, which requires identity verification of federal employees and contractors.

Intelli-Check's technology is also embedded on the other approved handheld device for this initiative. The U.S. government has mandated that all first responders to national emergencies such as the National Guard, military and medical personnel, carry common identification cards encoded with vital information, such as the carriers' certifications and security clearances. Intelli-Check software running on an Intermec mobile computer can read and verify the carrier identity of these and many other types of ID cards.

Intelli-Check's software allows immediate on-the-spot personnel identification across jurisdictional boundaries. The Intermec rugged mobile verification handheld can read a magnetic stripe, barcode and smartcard technologies within one device. This allows responders to read and verify the data encoded on U.S. and Canadian driver's licenses, state and provincial nondriver IDs, as well as military IDs.

Intelli-Check's proprietary technology allows it to parse and verify a wide variety of government-issued IDs to help ensure that users such as government and law enforcement agencies can identify, verify and place emergency workers immediately upon their arrival at the site. Intermec currently has provided quotations for its handheld computers running Intelli-Check software for multiple government initiatives. All indications are that over the next two years there will be tens of thousands of these devices deployed on the local, state and federal levels, all having Intelli-Check technology embedded therein.

Intelli-Check and AssureTec have worked together to integrate Intelli-Check's patented authentication system for driver's licenses, which verifies the encoded format on the identity card's media, such as barcode or magnetic stripe, the AssureTec's patented automated document forensic reader technology, which has resulted in the AssureTec i-Dentify Reader/Authenticators. These new Reader/Authenticators have the capability in a single operation to simultaneously read and authenticate both the front and the back of identity cards, resulting in a FIPS 201-compliant solution.

The integrated technology complies with the government enrollment requirements for automatically registering and assessing authenticity of individuals' existing identity documents and provides what companies believe to be the only solution currently available to meet the latest procurement requirements of GSA and HSPD-12. The companies believe that this GSA program, as well as other current and proposed government programs, may lead to a significant future opportunity for the combined technology.

3RD Ring is a supplier of an advanced forensic solutions to federal government agencies and specializes in applications that perform validations of identity, travel and financial instruments. 3RD Ring's technologies determines if a document is genuine or fraudulent by performing step-by-step forensic verification for driver's licenses, federal- and state-issued ID cards, travel documents, birth records, Social Security cards, travelers' checks and credit cards.

Intelli-Check and 3RD Ring entered into an agreement to integrate their technologies and jointly market this powerful enhanced document verification system to government agencies, law enforcement departments and the private sector. Combining Intelli-Check's ID technology with 3RD Ring's Genuine Document System creates a system that provides users with little or no document examination experience with a single secure and cost-effective means of verifying the authenticity of documents used to prove one's identity.

I would like to thank you all for the opportunity to allow me to speak with you today. I am the newest member to the Intelli-Check family. The opportunities in the government sector on the local, state and federal levels in the Intelli-Check solution and identity management is large and growing, and I'm committed in my position as the VP of Government Affairs to help make Intelli-Check technology the standard, either as a stand-alone solution or in combination with technology of its partners, and will work unremittingly to increase our customer base in federal, state and local initiatives and to continue to educate all levels of law enforcement of the capabilities of our current and future products.

Now I would like to turn it back over to Frank.

Thank you, Rick. Ladies and gentlemen, that concludes the formal part of our presentation. Operator, we would be pleased to take any questions that anybody may have.

(OPERATOR INSTRUCTIONS). David Sterman, Jesup & Lamont.

I am wondering, just trying to connect the sales pipeline, the booked orders target that you are sticking by with, I guess, some of the push-outs and the sales cycle extensions that are endemic to this business, and just trying to figure out in the specific industry vertical that you are pursuing, whether it is retail, financial, government, etc., is there any in particular that we should be really looking for, say, even in the next two, three months, where you do think you will have an ability to close some deals, get them through the end zone and then give us, I guess, a little bit more confidence on getting to that $8 million booked order figure?

It is Todd. We definitely think that over the next two to three months, without a doubt, really it is going to be the commercial space where the bulk of the orders come from, and we're really looking at the retail sector, is retail/financial services. But when we say financial services, we're really talking about the credit card issuers. So it is either a combination of person-to-person marketing for enrollment for credit cards or instant credit in the retail environment.

So a lot of it centers around the whole retail play, with credit cards, as well as I mentioned in my presentation, other applications in retail such as pseudoephedrine compliance, return exchange, check authorization -- loyalty card enrollment has become very big for us overnight. So that is really where we see the bulk -- we believe the bulk of the booked orders will come from.

So looking specifically at that vertical, and obviously some of these relationships you have been pursuing for several quarters and then have been able to scope out what they might look like for a while, but obviously it is up to the customer to go ahead and sign on the bottom line. What can you share with us about what is taking place there in the dialogue that you think has led to those delays? And I guess what gives you the confidence that they are getting ready to move forward in the near term?

They are just, unfortunately, large Fortune 500 companies that have lots of levels of layers of approval. And I will tell you something that really -- I will give you a good example real quickly, was I was up with a major grocery retailer about 10 days ago, who I'm -- I would have very high confidence they are going to move forward with us. But the original application was for loyalty card enrollment for their customers when they walk in from a loyalty perspective.

But when I went up there and pitched to a local tradeshow they have internally, all of a sudden the wheels started going in their head that, listen, this is just not for loyalty card enrollment, but there is a horizontal play -- they have pharmacies, so for pseudoephedrine compliance. They sell age-restricted products, so they could use the technology for age verification, as I said, loyalty card enrollment. They are doing a delivery service where they can use the driver's license to take down people's address for the delivery side. So there's four or five different applications.

So all of a sudden, it goes from them maybe buying 80 units to start with over a 24-month period -- that is a pretty significant order for us, very lucrative -- to, gees, maybe we should buy an enterprise-wide license for the entire enterprise, which takes on a new level of type of approvals and getting people involved, which slows the process down.

I need to do what is best for my customer. I need to lay out what makes the most business sense for them. So I'm not going to try to ram down an 80-unit order, which could be a $200,000, $300,000 order for us, overnight, if I think a better play for the customer is an enterprise-wide license that could turn into a $400,000, $500,000, $600,000 order for us with hardware and software. But that is kind of what we're seeing, is a good example of why sometimes the sales cycles get a little longer and stretch out a little longer than we hope.

Sam Bergman, Bayberry Capital Management.

A couple questions. First of all, can you give us an update right now on TSA, exactly where it stands?

Well, the only thing we can say on TSA is that we have, as Rick pointed out, demoed our unit. We have had some pilots going with them. It is in their court. We do believe that they will be moving toward passenger verification rather than just looking at it. But I cannot put a timeline on it. I will say that the technology -- I do have a copy of the report -- it is confidential as to how successful we were in these tests. So beyond saying that we had successful tests within the TSA and believing strongly that at some point they will go to verification technology, I can't put a timeline on it.

In terms of the pipeline, it seems to be pretty -- the prospects seem very good, seem very robust. But is there any way you can quantify one quarter -- this quarter versus last year's quarter? Is there $10 million more in the pipeline? Is there $5 million more in the pipeline that you're bidding on? Can you give us an idea?

I would say from the commercial sector from a year ago, there is at least, I would say $3, $4 million more in the pipeline today than there was last year, hands down -- no questions about it. So there is significant more activity in the pipeline. We do, obviously, pipeline analysis all the time and present at our Board meetings, and we have several millions of dollars in the pipeline on top of this seven-figure deal that I mentioned during the call that we expect to close any day now in the pipeline that could potentially close over the next three to four months. No issue at all with that. The potential is there. The opportunities are there. A lot of retailers, financial service partners -- just the whole host of customers who are out there where we have significant orders laying out there. And I would say these orders range anywhere from the orders we're talking about, $200,000 to $250,000 upwards to $400,000, $500,000, $600,000 -- those are the type of orders that we're really -- we have a cluster of them out there.

Robert Lempert, RLR Capital.

I know we hear a lot about the government and what they're doing. I guess the real question is, is there money earmarked for these programs, and have any of these programs -- have they started paying for any of these programs yet? Is there anything that they are actually doing right this moment?

I will just comment that in the budget is $3.4 billion for first responders. I have said that before. They didn't take the money away. It does not mean that it will all be for credentialing equipment. It could go for fire engines, gas masks, etc. However, just from what we have seen from our partner Intermec and what just happened with EDS with our partner AssureTec, we have started to see some movement where the credentialing is becoming a very important component of what is going forward.

So yes, there is money out there. Has it been totally expended? No. We are in several programs. We do expect them to roll out. Recent meetings that were had in D.C. encourage us to be quite optimistic as to the future of Intelli-Check's technology within the government space.

Rick, would you want to add anything to that?

Just the credentialing and verification are obviously the two areas that were really focused on. In the credentialing with FIPS 201, there's a tremendous amount of federal employees that are going to be credentialed, and the verification of their reader documents is going to have to take place prior to that credentialing. And certainly, our technology alone or combined would certainly be a great solution.

The verification in the earlier question regarding TSA, there are a few BAAs that are out for document validators. It is very clear that TSA has earmarked their finances towards providing their employees with the availability of this verification technology. And again, I feel strongly that Intelli-Check is going to be pivotal in that market.

David Rich. (OPERATOR INSTRUCTIONS).

I have been involved with you for a long time, Frank, six years now. The stock was $12, and I remember those days.

I had a couple of quick questions for you -- not quick, but a couple of questions. First of all, the new guy had an awful lot to say, and a lot of people couldn't hear him. I don't know whether that is the hook-up problem or what have you, but he's very impressive, and to have this guy aboard, which brings up the second question, is I sure think we could have put out a lot more press about this guy and talked about what he had to say, and what he just said should have been on some kind of press release somewhere. I have talked to the press people and they say, oh, we get it on the Dow and that is it. There are a lot of news services, a lot of papers out there. I think we should address this.

Secondly, every time we start a conference call, we hear about what is happening -- right now, we have just signed a contract; we're ready to go; this one is worth 8 zillion -- we never know who it is with, and then it kind of dies. We are going crazy with it. If you really have a Fortune top 50 contract worth what you just said was mega-bucks, Jesus, tell us what it is. Every time -- oh, we can't tell you. It's on the other side. We can't tell you. And then, Todd, and I've had a call from a couple of other people from your firm, saying, we've got lots of other things to announce. Where are they? Tell us who you are talking to. We are not blowing anybody's cover. Where's the EDS story? I mean, please!

And then finally, I've gotten three calls this week saying, you know, they got that new guy. I think someone's going to go buy the Company. In fact, I think there have been some overtures to buy the Company. Well, there are three or four questions you can mince up there, Frank. Good luck. But you can understand my frustration. After all these years, from $12 to $4 and back to $7, and then, whack yesterday, on another disappointing quarter -- you've got it. The ball is yours.

Let me answer your question as far as publicity. When we deal, as Todd pointed out with you, with major Fortune companies, Fortune 10s to 20s to 50s, etc., in every one of these, they have no publicity clauses. We would rather have the business. We have said it many time in the past and I will repeat it right here. The fact that we did not put out a press release, as Todd pointed out, does not mean that we are not very active and things aren't happening.

As far as utilizing the name, when the orders become that significant, we will put the name out -- maybe not in a press release, but maybe in an 8-K filing, because it becomes significant. I understand the frustration of our shareholders. We are as frustrated. We have lots of good things to say, but our hands are tied. When you look and you are dealing with these major, major companies -- and I mean major -- it is impossible for us to put a gun to their head and say, hey, we would like to put out a press release because it will help our investment, loyal shareholders, etc. It just doesn't happen, Dave.

Everything that we have said has come to pass. We put that press release out yesterday, and then lo and behold, we said we're disappointed, and suddenly Todd gets notified that this seven-figure order has been approved. We cannot predict the timing. We try to. We look at our things very, very carefully. Because we didn't say anything does not necessarily mean that nothing has happened. We apologize to our shareholders. We understand your frustration. I am the largest shareholders in the Company. I'm always exercising options and keeping the stock. And so it is frustrating to me as well that our hands are tied.

Doesn't mean that nothing is happening -- you heard pretty much from Todd and from Rick as to what is taking place on the commercial and government side. And every one of these things is quite positive and augurs very well for the Company going forward. I can't say anything more beyond that but things are happening, believe me. Todd has pointed that out. Rick has told you where we have been positioned.

I'm sorry that you had difficulty hearing Rick. Rick's background is, as you've all heard, quite impressive. He brings to us a new dimension in the government space. And I highly doubt that we would have attracted someone of Rick's caliber to the Company if he were not cognizant of what is taking place in the government side from having been on the other side for quite a while.

We will take the next question.

[Richard Fried].

Can I ask a follow-up on a deal that you have gone over in many of the conference calls? With VeriFone, and I know it is a two-year-old deal that took a lot of time to get started, and I think in the last conference call Todd had mentioned you had signed up 18 ISOs. Is revenue coming in from that transaction? What are your expectations? Because we were sort of led to believe that with 10 million machines in the marketplace and 1 million placed per year that there was tremendous upside in that. So if you could provide any update, I would appreciate it.

Sure. We have signed up a number of ISOs. We continue to sign up ISOs and have a lot of interest in it. It is certainly an age verification play, and our goal is if we could have a lot of feet on the street from the age verification side, we would be able to penetrate that market and even if we had a small penetration, it would be successful.

I can tell you that, again, we keep signing up new ISOs every single quarter. It definitely has gone slower than we had anticipated. We have signed a couple nice deals -- $50,000 deal here, 70 -- $60,000 deal here. Nothing huge, nothing that is going to move the needle significantly, but the deals are starting to trickle in. Again, it is taking a little longer than we had expected. But again, it is kind of my thought pattern of the law of large numbers -- if we have enough feet on the street through the ISO channel, we can make a dent that will be significant to Intelli-Check's numbers.

And that is where we are. I am a little disappointed it has not taken off faster. It was a market initiative that I went very hard after and was very upbeat about. But it has turned out a little more challenging than we had expected. I want to be up front with everyone -- say it is a little more challenging. But we still believe in it. We have an employee who has tremendous background in the marketplace and has got us into all the right channels. So it's just a question of executing, which we are trying to do.

So the long and short of it is we probably have about 19 or 20 contracts signed now with ISOs. I don't have an exact number off the top of my head. But they all are generating small amounts of revenues for us and starting to pick up some momentum. It is something we are going to monitor very carefully over the next several months and see where it takes us. But it is still out there. We're not giving up on it. And we still have some pretty good expectations for it in the coming year.

Robert Parker.

Unfortunately, Mr. Outland was -- I couldn't hear much of what he said this morning. I've got a couple of questions. I wouldn't mind if he would reiterate why he came to Intelli-Check, and did he have any other possibilities out there in the marketplace?

Secondly, can you tell us with some kind of level of certainty what you need to produce in total revenue, depending on your market mix, to break even?

And third, can you give us an idea of when that can happen, assuming all the stars are aligned in a perfect world, if that were to happen, when you think it could happen?

And I can understand the frustration out there, being an investor myself the last seven years. The more the Company doesn't say, the more credibility the Company lacks in the marketplace, or a perceived lack of credibility, because you can't divulge this information, but until we start to see the hockey-stick formation of revenues, I guess everyone is going to have their doubts.

Robert, this is Rick. I will answer the first part of the question. I apologize for not being heard better. But when I was leaving the Secret Service, I did have opportunities to continue on at other federal laboratories or state laboratories. I chose the private sector for a number of reasons, and of those were flexibility of my family, and we have some extended family who will require us to be a little bit closer to them in the coming future. And as a forensic examiner for the U.S. Secret Service, I was not going to be given an opportunity to move to another location in the country. So that is primarily what started my looking around.

Now, I was committed to gaining employment with a company whose mission paralleled the work that I had been doing, because I feel strongly in document verification. And the reason I chose Intelli-Check was just the relationships that I had with their employees. I've met them at many American Association of Motor Vehicle Administration meetings. We have developed friendships over the years. We looked at the documents in a similar fashion. I have learned from them, they have learned from me, and I really appreciated their sense of loyalty to the Company.

So I looked at it as an opportunity to bring what I have as far as my background, as far as my relationships in the state and federal government, to an area where not only they could benefit, but also I could benefit from.

And I would like to touch on the second half about the frustration of the shareholders, and trust me, we are well aware of it and very cognizant of it. But at the end of the day, it is our report card, our quarterly earnings that are going to speak loud and clear. It is not the press releases; it is not the 8-Ks we put out. It is going to be that score card. And we are confident that these opportunities are out there. They are taking a little longer than we had expected.

I know it is a credibility issue. It is my credibility more than anyone else because these are commercial opportunities that have slipped. But trust me, we are working on them as diligently as possible. And until I stop believing in the opportunities in Intelli-Check is as long as I am going to be here. And I firmly believe in it, and I believe in what is happening. Again, it is frustrating, but when you've got these companies, they feel that our technology is a mission-critical part of their applications, which is great for Intelli-Check, and we are able to generate a lot of revenues and command nice margins for our products because of that.

But at the same token, they believe it is a competitive advantage and they are not interested in having the whole world know about what they are doing on their back-end systems, whether it's for loyalty enrollment, instant credit enrollment, return/exchange fraud. To the commoner it is, what's the big deal if you know what you are doing? But on the flip side, if you feel it is mission-critical to your bottom line as a retailer, you're not going to divulge what you are doing in the background.

Now, it goes to say when everyone has it in the marketplace, it doesn't become a competitive advantage per se. We have not hit that mass penetration yet, as we all know. We're moving towards that. And these are just some of the issues we have to deal with. But as I think you see, we are able to announce the likes of guys like Pfizer. We'll put out an 8-K filing, assuming when our deal closes, if it is a material deal, which we expect it to be. So you'll start to see some news come out I would think over the next several weeks, months, with some of this information that hopefully will alleviate some of your concerns and show you what we have been saying is factual and we're not trying to blow smoke to anyone.

On the other side, I will answer the question as to where we hit profitability. As we stated before, let's just say our overhead of everything is running between $4.5 and $5 million. If we were to sell $5 million of software only, we would be profitable. If we were to sell a bundled mix and our margins are holding in the mid-60s, we would have to sell $8 million to hit profitability. So the markets are huge. They're in the potential billions of dollars for this kind of technology, the total marketplace. It's not where we have to penetrate the market, huge numbers, to be profitable. An infinitesimal amount of the business makes us very, very profitable.

We will take two other questions, if we can, if there are any more.

(OPERATOR INSTRUCTIONS). Richard Goldstein, Global Crown Capital.

Frank, just a quick question. In your -- before the question, just first of all, a compliment in your addition to Rick on the team. I think it's a great thing that he has joined the Company and expanding your management team.

In your news release, Frank, you mention that an extension was granted to the rights holders. I was wondering if you can help and give me some background as to what the consideration is or why this was done and how many rights have actually been extended?

I will be happy to do that. Several years ago, we did a rights offering which gave long-term holders a benefit of for every 10 shares they had, they had a call on the stock, I believe, at $8.50. We had exercised -- there were about 900,000 outstanding at the time -- I think it was 978,000 or pretty close to that number. We had nearly 300,000 of them exercised, but since this was given to shareholders for their loyalty of being long-term shareholders and we have been close and obviously more than the Company believes that there is a very good chance, based upon things we're doing internally, that at some point these could be valuable to the holder, we extended those.

Right now, we believe there is a maximum of probably 600,000 still available to be exercised, all held by shareholders. We have some funds that have been in the stock for years. One in particular I know had 55,000. They asked me about it just a couple weeks ago when I met with them. And so we extended these rights, which gives a person the opportunity -- it is a free underwriting to the Company, it is no expense to the Company, and it is not something where the, let's say, officers and directors have a great participation in. This is strictly long-term shareholders that have that benefit. And therefore, we continued the benefit for the shareholders who still have the underlying shares that have held it that long, that should the stock rise above the strike price of the right, they would get an additional benefit and a capital gain. That is why we did it.

Robert Parker.

I just wanted to know what you guys were doing to generate some interest in the Company. Are you planning on doing any shows? Are you talking to any analysts? Are you really looking forward to spreading your name out there a little further? It has been pretty quiet and there's been quite a few governmental and security conferences, and you haven't really attended any of them.

Well, we attend the conferences that we believe have value. Some of these, you pay for -- we don't really look to go to the ones we pay for. We do have a conference coming up in New York on May 22 where we have been invited. We haven't put it out yet, but we will be appearing at the Morgan Keegan conference, I believe it is May 22. Steve, is that the correct date?

I believe that is correct, Frank.

Frank, that is correct.

And we look at these opportunities -- we get invited to lots of them. We weigh whether or not the audience is a proper audience for Intelli-Check. We do go out and meet people individually. I don't think that Intelli-Check is not a well-know entity. We're certainly well known in the government space.

Rick, how would you categorize what the government knows of us and thinks of us from you having been on the other side, part of DHS?

I know within the Secret Service, we are very aware of Intelli-Check. We utilize their technology. The TSA, through the pilots, obviously knows Intelli-Check. And the education as far as joining with our partners 3RD Ring and AssureTec is also well known now through DoD, the Secret Service, and again through other DHS applications.

At this particular point, I think we have made the case of why we're so encouraged about the future opportunities at Intelli-Check, and if there are no further questions, I would at this point end the conference. We thank you all for attending and we look forward to bringing you good news in the future. Thank you all.

That does conclude today's presentation. We thank you for joining, and have a great day.