Intellicheck Inc (IDN) 2007 Q2 法說會逐字稿

Good day, everyone. Welcome to the Q&A 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. Jeff Levy. Please go ahead, sir.

Good morning, everyone, and welcome to Intelli-Check's second-quarter conference call. This is our first conference call since the tragic passing of Frank Mandelbaum, our former Chairman and CEO. And I think it appropriate to begin by reassuring you that everyone in Intelli-Check remains fully committed to fulfilling Frank's vision for the Company.

The Company is weathering Frank's passing. Our technology is solid and improving, our sales pipeline is more robust than ever and we are committed to delivering performance. If there is any change it is that going forward we are determined to under promise and over deliver.

With me today on the call are Pete Mundy, our Vice President of Finance and Chief Financial Officer; Rick Outland, our VP for Government Affairs, and two other special guests who I will subsequently introduce.

To start, Pete, will you cover the results of operations for the second quarter which we released yesterday as well as discuss the balance sheet for the period? I will then bring you up to date on recent and current sales initiatives in the commercial sector. Rick will discuss our government initiatives and I will finally talk about our strategy going forward. At the conclusion of the formal presentation, we will open the floor to any questions that you may have. Pete?

Thank you, Jeff. 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 revenues and other non-GAAP terminology, including 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. Booked orders represents 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.

In the past, we also disclosed a term called sales bookings, which we defined as shipments of products and contracted services within a billing period. We realize that this term was being confused with booked orders and decided that going forward we will no longer be reporting sales bookings.

I would like to discuss some of the pertinent financial information that was contained in our press release for the quarter ending June 30th, which we put out this morning. The complete quarterly report on Form 10-Q will be filed shortly with the SEC, hopefully by this afternoon.

Revenues for the quarter ending June 30th, 2007 increased 3% to $739,000 compared to $718,000 for the previous year. Total booked orders increased 110% in the second quarter of 2007 to a record $2,258,000 from $1,077,000 in the second quarter of 2006. We remain optimistic that revenues will continue to increase since our sales opportunities are substantial and growing particularly in the commercial sector. While we continue to believe that the government sector will ultimately be a significant market segment, we have been disappointed that there have been no significant government revenues to date.

At the end of the second quarter of 2007, our total backlog of noncancelable orders increased substantially to $2.4 million as compared to the backlog of approximately $835,000 as of the second quarter of 2006 and $1.1 million at the end of calendar 2006. The increase in the quarter is principally a result of a $1 million contract signed with a financial institution in June of 2007. We expect that our backlog will continue to increase as we shift our revenue model towards pursuing more subscription-based contracts rather than product sales for a onetime fee. While this may initially result in lower current period revenues, our total revenue stream over the period of the contract will be greater as we increase the proportion of these contracts to the total orders booked. In addition, this shift will build a more predictable long-term revenue model for the Company. Jeff will walk you through some of the details of our current sales opportunities and successes and why we still remain optimistic about expected future sales growth and where we stand with regard to our previously announced booked order projection for the 2007 year later in the presentation.

Our gross profit percentage of revenues amounted to 66% for the three months ended June 30th, 2007 compared to 69% for the three months ended Jean 30th, 2006. Our gross profit percentage was lower than in the prior period as a result of a higher mix of bundled sales of hardware and software products, including laptops which we have purchased on behalf of larger customers, with lower margins over licensing products, which have a higher gross profit margin.

Operating expenses increased by $101,000 or 7% to $1,591,000 for the second quarter of 2007 compared to $1,490,000 for the second quarter of 2006. Selling expenses increased by $26,000; general administrative expenses increased by $26,000; and research and development increased by $39,000. These increases were principally a result of the recording of a death benefit payable to the family of Frank Mandelbaum of approximately $152,000, higher accounting and consulting fees of $78,000, increases in payroll and personnel costs of $35,000 an increase in the FAS 123R non-cash based compensation expense for employees and directors of $72,000, offset by a decrease in legal expenses of $236,000 due to the inactivity in our patent litigation case against TriCom Card Technologies. Interest income decreased by $13,000 from $56,000 in 2006 compared to $43,000 in 2007, principally as a result of lower average invested funds offset by higher interest rates.

For these reasons, our net loss for the second quarter of 2007 increased 13% to $1,058,000 or $0.09 per share, which included non-cash expenses of approximately $341,000 compared with a net loss of $938,000 or $0.08 per share of the second quarter of 2006, which included non-cash expenses of approximately $264,000.

Revenues for the six months of 2007 increased 14% to $1,426,000 compared to $1,253,000 for the previous year. Total booked orders increased 44% in the first half of 2007 to $2,902,000 $2,012,000 in the first half of 2006. Our gross profit percentage as a percentage of revenues amounted to 66% in the first six months of 2007 compared to 68% for the first six months of 2006.

Operating expenses decreased by $130,000 or 5% from $2,846,000 for the first half of 2006 to $2,716,000 for the first half of 2007, principally as a result of lower legal expenses again offset somewhat by the death benefit that we mentioned previously.

Our net loss for the first six months of 2007 decreased by $202,000 to $1,681,000 or $0.14 per share, which included non-cash expenses of approximately $395,000 compared with the net loss of $1,883,000 or $0.16 per share for the first six months of 2006, which included non-cash expenses of approximately $504,000.

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 first six months of 2006 by approximately $1,017,000. Net cash used in operating activities was approximately $1,229,000, principally due to the net loss of approximately $1,681,000 for the period and a reduction in deferred revenues. Those losses were funded through the net redemption of our marketable securities of the $1,017,000 and by cash provided by the financing activities of approximately $232,000, resulting from the exercise of stock options. At June 30th, 2007, we had approximately $3.3 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 $4.7 million and working capital, defined as current assets less current liabilities, of $2.8 million. Our current ratio of current assets to current liabilities as of the quarter ending June 30, 2007, remains strong at 2.6 to 1. Our cash burn rate for the second quarter of 2007 was approximately $130,000 per month after the contribution for margin on revenues and the proceeds received from the exercise of options and warrants. This is a reduction from the burn rate of $209,000 per month for the first quarter of 2007. We still anticipate that as the remainder of the year progresses, and revenues increase, that the cash burn rate will continue to decrease from the level of $130,000 per month we currently have.

We anticipate that our current available cash 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 the future acquisitions of complementary businesses or technologies.

I'll now turn the discussion over to Jeff to discuss our current and future marketing opportunities.

Thank you, Peter. As you have heard from Pete, the second quarter was a record quarter for Intelli-Check in terms of booked sales. Our booked sales grew approximately 110% for the same period in 2006. We're able to close a number of key orders including the seven-figure deal as disclosed in the prior 8-K filing, which is posted on our website. Pipeline and backlog at Intelli-Check has never been as robust as it is today. As Peter mentioned, due to the shift in our sales model, moving from that of a one-time sale to a subscription-based revenue stream, reported revenues for the second quarter were only up slightly over last year's same period, as I'm sure all of our investors will understand, this shift in our revenue model is building a more sustainable, long-term business and we believe it is in the best interests of our shareholders. Had we simply sold all of the products for a onetime fee in the short-term our revenue would have increased, but we do not believe it would have been as advantageous in the long run of our business.

We have launched a number of new products this quarter. I'm happy to announce that we have finished our new executable helper object. As many of you may remember, we launched our browser helper object about a year ago. The BHO allows you to integrate the ID-CHECK technology into an Internet Explorer application without any programming expertise. We have now done the same with our new executable helper object for non browser based applications. One major huddle we have had in the past is that the integration of our product could take several months from start to finish when using our software developers kit. By developing a series of products such as the BHO and EHO, we are taking the integration hurdle out of the equation. We have seen customers purchase our BHO and literally be up and running in the field in a matter of a day or two. We are excited about the new EHO and plan to market it to the existing as well as new customers.

We have recently launched a new product called Logistical Service for our client base. This product is geared toward our clients in the event marketing channel. For a monthly fee per terminal such as a laptop, handheld or a tablet, we will provide logistical services where we will inventory the unit at Intelli-Check while not in use, load the proper software before it is shipped to an event and then receive it back after the event and make sure it is in working order. We will coordinate any repairs to the units that are required as well. To date, we have signed up three of our largest customers for this service.

We have also developed an employee card program where we are creating employee cards that can be swiped into our software for tracking of employees when using the ID-CHECK software for applications such as credit card enrollment. We have created specific software to be able to create these cards and have begun selling these cards to our customers.

Also of note, we have seen activity on our website increase dramatically as well as the leads we have received into our marketing e-mail box. As a result, we are continuing to include improvements to our website as a part of our marketing strategy.

I would like to switch gears now and bring you up to speed regarding our markets and customers. Instant credit and instant decisioning for credit cards in the retail and event space continue to be our largest commercial market. We have seen a fundamental shift from paper applications to electronic applications occurring in the entire credit card event market space. Paper applications can be problematic in the field as they contain very sensitive information. If the paper applications end up in the wrong hands, they can lead to multiple cases of identity fraud, which is the fastest growing crime in America and very costly to our users. With the use of our technology, paper applications are no longer used and the risk of identity fraud from the enrollment process is greatly reduced.

I would like to look at this market as a three-leg strategy. At the top of the triangle, you have the retailers themselves, who we actively market to and have made some large enterprise sales to. At the bottom corners of the triangle, you have the credit card issuers and the event marketing companies and in the middle is Intelli-Check, who attacks all three corners.

As we have mentioned in the past, we have most of the largest credit card issuers as clients of Intelli-Check who are actively selling our solution to the retail and event channel partners. The event channel is a new vertical that Intelli-Check is actively going after. We have worked indirectly with many of the event companies through our relationships with the credit card issuers as they hire them for events in the field, so it is a natural fit for Intelli-Check to partner with them to expand our reach in the market.

From a customer specific view point, we continue to roll out our product with Barclays for their retail and event channel. They have been our longest customer in the space and clearly understand the technology and the multiple benefits that it brings. We are working with them on a number of new initiatives including a project where our technology will be used at the retailers' locations in stationary and mobile products.

We're also very excited about the continuing relationship we have with GE Money. We are continuing to work with them on a number of fronts as it relates to their retail credit card portfolio and the many uses of the ID-CHECK technology. As many of you know, they have the Who's Who list of retail partners, so we are very excited and optimistic about what lies ahead with them.

We're also making progress with the largest issuer in the event space and have recently rolled out 25 systems for them. This client's stated goal, as is the same with all of our other clients, is to eliminate all paper applications from the event channel by the end of the year. Intelli-Check has the technology to do this and we will be able to deliver for this market. We are also working with a major grocery store chain for loyalty card enrollment, a major warehouse club chain for membership enrollment and a variety of other retailers that include a major home improvement chain, cellular provider, and major furniture retailer who are all in the mid to late stage discussion with Intelli-Check about deploying our technology. All of these are very exciting opportunities and continue to expand Intelli-Check's reach into the retail sector.

On the financial services side, we are working with a number of very large super ISOs regarding distribution of our ID-CHECK software on a variety of credit card platforms. We're also working with the largest transactional processing company in the world, who has integrated our ID-CHECK software into their loyalty application. This partner has spent the last eight months integrating, testing and piloting our solution, all very successfully.

We're also nearing the completion of integration with Fiserv on the banking side. We believe that this partnership will jump start our push into the banking industry. We're also actively pursuing at least two other major initiatives on the banking side, where ID-CHECK technology appears to be a good overall fit for our potential partners' products.

We continue to make slow but steady progress in our smaller vertical markets, age verification and access control. We have mentioned numerous times in the past until there is legislation passed mandating the use of electronic verification technology, this will not be a very large market for Intelli-Check. We continue to receive the one's and two's orders daily, but we have only a handful of clients who have ever rolled out a product nationally. We continue to monitor this market closely and will react accordingly.

Now I would like to ask Rick Outland to bring you up to date on the government market. Rick?

Thank you, Jeff. Last Friday, President Bush signed into law the long-awaited Homeland Security Bill. This bill will create significant opportunities for Intelli-Check in several identity management programs over the next several years, including the First Responder program. Intelli-Check has been meeting with DHS on these programs for several years and we are well-positioned. We continue to see progress in this market for the major initiatives we are working on, namely First Responders, HSPD-12 and with the TSA for passenger screening. I will provide a brief overview on all three programs. I'll begin with First Responders.

A few weeks back, Homeland Security held their Summer Breeze exercise in multiple locations throughout the United States. We attended the Washington D.C. location. Every participant who entered any of the sites had their drivers license or First Responders authentication credential scanned using a handheld device running the ID-CHECK software. All of the info was downloaded into a central Web portal, where anyone who accessed could be seen as First Responders and other participants who had logged in. This would allow the government to know who has entered a specific area in the time of crisis. The test proved to be very successful by DHS and we anticipate that they will continue with the procurement of handheld units for First Responders.

We continue to see progress in the FIPS 201 arena through our partnership, AssureTec. In conjunction with AssureTec, we have sold 225 units, of which approximately 50 have been shipped. This program will continue to gain momentum as more and more agencies tap into the GSA shared services contract to provide their employees and contractors with new HSPD-12 client identification cards.

Intelli-Check management recently met with the new DHS real ID policy team, briefing them on the need for testing facilities for state's Real ID drivers licenses and ID cards, and informing them at Intelli-Check's testing lab for existing drivers licenses. We continue to monitor Real ID very closely and will continue to update the investment community as new developments occur.

We have worked with the TSA on a number of occasions for passenger screening. In conjunction with our partner Third Ring, we are working with the TSA to provide them with a true document authentication solution. The combined Third Ring Intelli-Check product is a very powerful authentication tool as it provides Intelli-Check's machine readable technology, with Third Ring's genuine document library to product and verify all of the key features found on a driver's license, passports and other documents. We continue to monitor this situation very carefully and will react to the government's needs as required. Now I will turn it back over to Jeff.

Thank you, Rick. In conclusion, the productivity enhancement aspect of our technology is the driver for our commercial success. We have introduced several new products, such as the BHO and now EHO. We have diversified our revenue model as can be seen with the shift towards subscription and transactional revenue models and building of our backlog. We've established a full-time presence in the federal government space to ensure that Intelli-Check's products are involved as many as possible of the emergent government programs that have an identity management component. And finally, we have signed up lighthouse accounts such as Barclays, GE and others in the credit card spaces in the likes of file serving the banking industry.

The pipeline on the commercial side has never been as strong and continues to grow every quarter. We continue to believe that we are in a position to achieve our previously stated goal for booked orders this year of $6.5 million on the commercial side. Our government business has been hampered by the government's indecision regarding the handheld unit that will be deployed for the First Responders program. Our software has already been integrated with various types of handheld units. We have been very involved in successful testing programs. We cannot ultimately control the timing of the anticipated revenues from this program.

While we continue to believe that the government sector will ultimately be a significant market segment, we have been disappointed that there have been an insignificant amount of government bookings to date. We are, therefore, revising our guidance for government sector bookings in 2007 from $1.5 million to near zero.

I'm now going to describe the Board's strategy for calendar year 2008. This quarter has been one where the Board is focused on two things. Number one, continuity of operations in the wake of Frank's death; and number two, identifying the shortest path possible to making Intelli-Check a profitable, growing concern. Operations have continued, but as we've shown you this morning, progress has been slow and will remain unpredictable for the foreseeable future. On our current course, we do not expect revenues to exceed expenses for quite some time to come. In light of these circumstances and having lost our visionary leader, the Board has worked hard to provide the leadership needed to bring Frank's vision to reality. We believe that we have identified an exciting near-term path to making Intelli-Check a profitable growing concern.

Intelli-Check Board of Directors is very pleased to propose a merger with a company called Mobilisa Inc., a profitable, privately held corporation headquarters in Washington State. Each company brings to the relationship core strengths that are fully complementary to the other. Once combined under the name Intelli-Check Mobilisa Inc., we believe that the value of the Company will be greater than the sum of the parts. This is a merger of equals. Both companies bring equivalent value to the table. Therefore the two companies will each have 50% ownership in the combined company. This merger will be achieved through exchange of equity only. No cash is necessary to consummate the deal.

The merger will be structured as a tax-free reorganization under Section 368 of the IRS code of 1986. The transaction will require shareholder approval of the dilution that will result from the merger. Our critical path timeline is as follows -- we expect the entire process to take between four to five months. We have already begun to conduct the full due diligence, which must be completed before a definitive agreement is signed. As a part of that process, Mobilisa must have the prior three years of their financial statements audited. They have already begun that process. We hope to publish the preliminary proxy statement by the end of September. The SEC will then have 30 days for review. We anticipate another two weeks to respond to their comments and finalize the proxy setting, setting the meeting date and mail to shareholders. The stockholders will then have 60 days for review and approval. Our shareholder meeting to approve the merger we hope will begin on or about the 1st of January 2008.

Because of the 50-50 equity only nature of this transaction, there is a great incentive for both parties to start working cooperatively now. Therefore, Intelli-Check and Mobilisa will start working together immediately to leverage existing assets and jointly pursue new business opportunities.

With respect to management, Mobilisa's CEO will become the CEO of the merged company. Mobilisa will provide several other key personnel, such as the controller, government contracts, defense contract audit agency contract expert, senior vice president for business development and government procurement expert, in-house corporate counsel and in-house corporate communications director. Intelli-Check will provide the chief financial officer, the chief technical officer an AAMVA-DMV liaison and our government identity document expert along with other key personnel. You can see that the combination of these two companies provides a powerful management team. The organizations fit together like pieces of a jigsaw puzzle.

With respect to governance, Intelli-Check will provide five directors, including the Chairman. Mobilisa will provide four directors, including the Vice Chairman, who will also serve as the audit committee chair.

At this time I would like to introduce you to our special guests that we have with us today -- the leadership of Mobilisa. Dr. Nelson Ludlow is Mobilisa's Founder and Chief Executive Officer. Dr. Ludlow is a retired air force officer who has served as a pilot, intelligence officer, and scientist and has a Ph.D. in artificial intelligence from the University of Edinburgh, Scotland, and completed his postdoctoral in computer science at Cambridge, England. Dr. Ludlow was an adjunct professor at the naval postgraduate school and dozens of his masters and Ph.D. students are now senior leaders in the U.S. military.

Mr. John Paxton is Mobilisa's Chairman and has, over the last 30 years, he has over 30 years of senior management experience, including, he was the Chairman, President, and CEO of Intermec. While there, Forbes magazine listed Intermec in its ranking of the 200 best managed companies in America and Business Week listed Intermec as one of the 30 fastest-growing companies in America. He was the Chief Operating Officer of Litton. He was the CEO of Telxon Corporation, restoring the company to financial strength, brought shareholders a 300% increase in value resulting in the sale of the Company to Symbol. He was the president of Zebra Technologies Bar Code Unit, reversing the downward revenue trend to create record earnings in 2003. He is currently chairman and CEO of Pro Mach, a leading provider of integrated packaging products and solutions. He is also a partner at Odyssey Investment Partners.

I will now ask Nelson Ludlow to brief you on Mobilisa's line of businesses and provide their view of this merger. Good morning, Nelson.

Good morning. I think you will find that Mobilisa in some ways is very similar to Intelli-Check with just a few key differences. Mobilisa was founded in 2001 as a C-corp headquartered in Washington state and we also have offices in Alexandria, Virginia and Dayton, Ohio. We have over 30 employees, mostly technical and many military veterans and our technical and support staff are located in Washington state while our marketing, sales and business development is strategically located in the Washington D.C. area.

We have two business units -- wireless and identity systems. Now our wireless unit has made us truly a world's leader in Wireless Over Water technology by providing high-speed bandwidth of passenger ferry ships and the U.S. military. And just a few of their accomplishments include developing the world's first Wi-Fi system on a passenger ferry, installing high-speed data communications for the U.S. largest ferry system and then later, Canada's largest ferry system. We have developed a tool called the AIRchitect, which is a wireless network engineer expert system which takes a blueprint drawing of an office building, a warehouse, an airport or even a ship and then designs the optimal wireless network.

We have also won a U.S. Navy multimillion dollar contract to develop a floating area network that improves the current data rates of naval battleships by over a factor of 100 and also removes the delay that's associated with satellite links. We have won three small business innovative research contract awards from the federal government.

Mobilisa has an outdoor wireless test range with leaseholder rights and equipment antennae rights for multiple locations and also a 30-foot research vessel outfitted with wireless equipment.

Now our identity systems business unit is very complementary to the good work at Intelli-Check. We focus primarily on the military, federal law enforcement, the government side. We have a complete product line for a total product offering in access control, and we have an installed base at several of the government's most secure locations, including some that are classified because of their nature and others to include Andrew's Air Force Base, Homed Air Force 1, Peterson Base, which is headquarters to northern or NORAD command, U.S. military academy at West Point, New York, Naval Banger submarine base, [Yuma] Marine Corps station and dozens and dozens of other military and federal locations. Our systems and products can read a driver's license, military IDs, passports, and in about a second, check that ID against over 100 plus databases of bad guys terrorist list. The system has been credited with over 22,000 stops to date. And you can read more about this on our website at Mobilisa.com about several news articles about this product in real use, including a page 3 news story in USA Today, news clips from Canadian CDC news or Fox National News and many others.

We sell the products and services to include being paid for to conduct site surveys, product installation, training, support, and we also have a reoccurring revenue stream for subscriptions and support services and offer an extended product warranty service as well. Both of these units are profitable and growing. Each produced approximately half of our 2006 revenue and were split closely in equal proportions between product sales, government R&D research programs and commercial sales.

Our last 12 months or LTM revenue for the period ending 31 July, 2007, our unaudited revenues were over $5 million while, and the net income was just over $1 million. Our backlog in contracts is currently over $7 million. We focus on the government military federal sector and we are a small business administration certified hub zone or historically under utilized business zone, which offers distinct advantages in contract vehicles very similar to the government [88] program or a minority owned business, making it much easier to get funding on contracts. Our intent is to have a merged structure that will allow that certification to continue.

We announced yesterday the award of our general service agency, GSA, schedule, again making it significantly easier for our customers to be able to buy our products. We've won awards for the 10 best companies to work for in Washington state for two years and I'm confident that we will be providing a top-flight team. Our management and team includes people such as our Senior Vice President, Steve Williams, who heads our D.C. operations and leads our defense identity systems unit. He is a retired air force officer and was a government contracting officer in his last job for the air force. He was their legislative liaison for Congress.

Bonnie Ludlow, my wife, runs our finance department and she is former air force as well. She successfully navigated us to a defense contractor audit agency or DCAA accreditation right from the beginning and successful audits each following year. She and Steve are the ones that received our GSA schedule and resulted in our company also with a top-secret facility clearance, which less than 1% of small businesses have.

Curt Sneddon heads our Wireless business unit. He is a senior officer in the Navy Reserves with technical degrees and a certified program manager. He is even a certified Microsoft System Engineer.

Craig Bleile is our chief scientist and he was the Navy's top civilian scientist for all of Navy's fifth fleet.

Dr. Bill Roof supports our Wireless team and has a Ph.D. in software engineering and he did his Ph.D. dissertation on Wireless communication.

Johann Thaheld is our General Counsel and in addition to being a member of the bar, he is also a CPA.

Terry Thiele is our Director of Sales and has done sales for three other technical companies before joining Mobilisa and has a master's from Rutgers.

Claudia Munroe holds an M.B.A. in Engineering Management from Washington State University and is our company's operations manager, who closely tracks and manages the funding and spending of all of our contracts so that we are profitable and complete our projects on time, on budget.

Finally I'll mention Michelin Mendelssohn. She is our Director of Communications and in her last position she was the communications person for the Canadian Embassy in United States. She has a strong background in border issues, particularly with respect to driver's licenses, including the Western Hemisphere Travel Initiative and the Real ID Act.

There's many more key people but what I do want to mention is Mobilisa does not have a CFO for a publicly traded company. We do not have a key technical officer. We do have a CEO, a senior business development person, experts in DCA and general counsel and communications director.

I think those two things fit very well together. We are strong -- Mobilisa is strong in the government side and Intelli-Check is strong in the commercial side. So I believe that these two companies really fit together like two puzzle pieces -- this is a very good fit in my opinion. I would like to introduce John Paxton, who is the Chairman of Mobilisa.

Thank you very much, Nelson, and good morning, everyone, and thank you for coming on to this conference call. We at, as Nelson said, at Mobilisa, are very excited about this merger because it is a merger of equals, and we are very complementary and seldom do you see mergers of this nature being as close a fit as we see it today. We believe that we have a strong management team in place at Mobilisa that will complement the ID-CHECK Intelli-Check Corporation, as well as being able to leverage both products into both the military and commercial market segments. We are very focused from the standpoint of strategic operations and plan and then converting those plans to operational tactics and executing and measuring that execution and implementation.

As we move forward, from an overall standpoint, we're looking and working together currently with Jeff Levy and his staff. We will continue to do that and as both Nelson and Jeff have stated, we will work together as two separate companies, but approaching the marketplace with our individual strengths so that we can leverage those immediately out of the shoot.

So overall, I believe from my experience and my understanding of our markets and being in the auto ID market for many, many years, that this is a very complementary merger and it does add up to more than two from the standpoint of looking at the advantages that we present to the marketplace. And thirdly, I think we have probably one of the strongest IP portfolios in the industry as it relates to ID technology and tracking. With that I would like to turn it back to Jeff and thank you very much.

Thank you very much, John. I would like now to turn the call back over to the moderator and open up this for questions.

(OPERATOR INSTRUCTIONS). Dan Morris, R.F. Lafferty.

Good morning, everyone. I just want to say what a wonderful, wonderful deal that you guys have all put together and I want to thank Jeff for his diligent work over this period of time since Frank's passing, and I'm sure wherever Frank is, he is looking down and very happy about what's going on.

Just a couple questions if I may. Going forward, does this mean that say going to 2008 that you would have a backlog of over $10 million and would that take you then to some sort of profitability on a combined basis?

Good morning, Danny. I believe so. Our back -- let me have Peter talk a little bit about our backlog and then have Nelson talk about his backlog.

Our backlog at Intelli-Check is about $2.4 million and is growing certainly as new contracts are coming in. And that backlog that we have is a backlog that pretty much is going to be recognized over a 12 month period. About $1 million of the contract -- of the backlog extends slightly past one year but with the remainder of it coming in in the next 12 months. And the $1 million does relate to a contract that could be accelerated and be brought in realistically within probably a 12-month period also. That being so, increase in new revenues that we're anticipating, we anticipate our backlog to grow.

And with Mobilisa, this is Nelson Ludlow. We have over $7 million in backlog. It varies between zero to 30 months, many of them in government, research and development programs.

Okay. What I'm trying to get to is do you think that the combined entity going forward into 2008 would at some point reach profitability?

I think we're going to start out there. I think our budget for 2008 will show profitability right in the budget.

Okay, great. One last question. Could you just sort of touch on some of the -- how you can leverage Intelli-Check's technology in the stuff that you do with the government?

I'll start it and then I'll turn it over to my new technologist, Nelson here. Essentially, right now, we have got the system that verifies the validity of the identity document. They, then, take that valid document and compare it to every bad guy list that is known and it's updated and it's completely self-contained. It makes a tremendous match. But Nelson, you can probably talk to it in more of a technical.

Yes, Mobilisa's product is called DEFENSE ID. It's used in Washington, D.C. area, for example. (technical difficulty) to a military installation, they will read their ID and they match it to a bad guy list. That's what Mobilisa does well.

Okay, great. Sounds like a wonderful meshing technology. And once again, congratulations and I wish you all well. Thank you very much.

Robert [Lanford].

Good morning. Again, congratulations. It sounds like a wonderful combination. I want to address I guess this question to Rick Outland. With the combination of the two companies, is -- does the combination now have a GSA approval, where we can sell our combination of maybe buying mobile devices let's say from Motorola or Intermec and put our technology in it and just sell directly to the government or do we still need third parties?

Good morning. It's Jeff. Let me cut off Rick on this thing because he just learned about this last night. We have kept this very, very close hold. There were only a very few number of us until last night until we briefed our employees. the GSA schedule that has been awarded to Mobilisa, we will put our products on it. There's no -- our products and our services -- and we will sell them directly in there. All the negotiation is done. It's basically a matter then of cutting the purchase orders.

Oh, great. So that's a big advantage.

Yes. Every bit of this is a big advantage. It's almost an amazing jigsaw puzzle fit. In so many cases where something that we don't have, they have.

I will mention another one, too, Bob. The Defense Contract Audit Agency, if you are going to do business with the government, you've got to be DCAA certified. We are not. We therefore wind up as subs to everyone else. We just give our products to everyone else and they put the big markups on them. Mobilisa is DCAA audited, cleared, certified and they get that audit every year and they've been clean every year that they had that. We can now serve as a prime with DCAA and actually be up on front on these things and make the money that previously others have been making.

Wow. So that really is a tremendous advantage for us then.

Every bit of this -- as we see it, every bit of this is a tremendous advantage.

Well, again, congratulations and really appreciate your hard work.

Thank you, Bob.

David Steirman.

I agree with the other callers that this really looks like a very nice move.

My concern does stem from, I guess, this morning's trading action and I'm wondering if there's any sort of colors on the deal that might raise concerns of you being able to consummate it pending share price levels.

Oh, there are no share price level restrictions on this. The way we have structured this, David, neither side really cares about the price level in order to consummate the deal because with the 50-50 split, we both profit. And so immediately, we start to help each other. Nelson is sitting here; he's got part of his staff sitting here right now and we're going to be doing the same for them. So we're going forward from this point forth because if the stock goes up, they make more and we make more. This is completely accretive.

Okay, great. And did I understand that Nelson is to be the CEO when the deal is complete? Was that what you had cited?

Absolutely.

Okay. Running through Nelson's company experience I happen to follow all of those companies and those are very strong quality operations. So obviously great places to groom.

Moving over just quickly with the P&L, a question for Pete. The big drop in gross margins because of hardware, just trying to get a sense in the backlog you have put in. Is there still going to be a hardware skew there that's going to pressure margins or do you think they have a shot at returning back to where they've been in recent quarters?

We had put together our formal projections. We had anticipated some slight decreases in margins, particularly as it relates to us stocking computers on behalf of some of our financial services companies. So I would anticipate that the gross margin levels will probably remain close to where they are.

On -- when we sell a laptop, basically we're buying it on behalf of the customer, but we can't mark it up the same way we do our software. If there's some pieces of hardware that are proprietary to us, obviously you can add a margin to it, but with the laptop, just about everybody knows what the cost of a laptop is. You can get some profitability on your ability to load the software and handle it and doing the purchasing, but you can't really get those same markups as the software. So I would anticipate going forward more similar to the margins we're seeing now.

Okay, good. And just to confirm, that's about 66%. I'm sorry. I had my math wrong. I thought your margins were a lot lower, but now that I look at it, it's about 66%.

I guess looking at the timing of the deal, so you are talking about year end it closing and I guess if you could, give us a sense is there any opportunity to expedite that or what are the risks? What are the hurdles you have to get over in terms of shareholder vote, any SEC or DoJ issues or anything along those lines?

We need to complete the due diligence, the three-year financial audits, and that should not be that difficult. Mobilisa currently uses Grant Thornton. They have had DCAA clean audits for the last three years. And so upgrading is DCAA clean audits to actual auditor audits, we don't see that as being a major obstacle.

We are into the process now of doing the formal and we are getting started to do the formal due diligence. That's going to require a fair amount of work and to put together the book. We hope to do that in the next month. We hope to finish that book and get it out by the end of September.

The SEC then has, as I understand it, up to 30 days to make comments and we have to correct it and so on and so forth and then we go out and announce the special shareholder meeting and there is a 60-day period in there, so that takes us basically to about the end of the year.

The important thing here is that we are not waiting. Anything that Mobilisa can help us with right now or that we could help Mobilisa with is to both of our benefits right now. The change in the share price does not change the ratio whatsoever. So starting right now we're working together in order to grow the companies.

So you begin on cross selling and training the respective sales forces, etc. and all that even before the deal is done. Any sense if you are going to be on Long Island or if you're going to move closer to D.C.?

Let me put it this way. No one is moving physically anywhere. Their headquarters remains out in Washington. They have a small facility at Wright Patterson Air Force Base. They have a very lovely set of offices in Alexandria, Virginia, and then we've got our operation here. If anything, we're going to be expanding in all those areas, number one, but we'll probably shift the focus of attention, if you will, shift where we will meet a lot of times to the Washington area because we now see -- this is Frank's dream. We now see our ability to get in there and start moving this government business with someone that is already doing it successfully and to grow it very rapidly. So you will probably see us a lot. However, in the immediate future -- in the next couple of weeks I think you're going to see Nelson and I connected at the hip here up here in Woodbury. So we're spending a bunch of time up here and we're going to make this thing work.

Great. Well I look forward to digging deeper. And just as a final comment to Jeff, I really appreciate the posture of under promise and over deliver and I think that's a very welcome positive for the share price. It's somewhat of a different approach and I think that to the extent that you guys are able to set a level of expectations and then exceed them I think is -- would be very helpful. So good merger again. I look forward to catching up with you guys again soon. Thanks.

Jon Gruber.

My question is on the Company, you had said $5 million of revenue, $1 million of -- is that operating income? And that's for what period?

This is Nelson. That is for the last 12 months, LTM revenue, ending 31 July, 2007. So essentially our most --

So just the last -- and that's up from what, the previous year?

Our 2006 revenues were approximately $3.8 million.

And do you think that kind of growth rate is what you'll see in the new year here?

Our company has had a compounded annual growth rate of over 100% each and every year.

Yes, well it didn't last year, but it had a growth rate of -- (multiple speakers)

Well, if you run the CAGR over the six years, it is --

Yes, but that's from small numbers. What do you think the growth rate would be in the next two, three years, top line?

We have not yet done our joint pro forma, but we will be doing as part of our September book.

Okay. My real question is, this sounds great on the defense side; I think it seems like a great merger. On the other hand, it creates a monster void on the commercial side with Todd's departure. How was that going to be handled? And given that Intelli-Check is 100% on that and he was the guy getting the orders, how are you going handle that?

We're moving very quickly. When Frank died, we started the process of looking at the whole thing and we interviewed a couple of people and one of them, for instance, is sitting here right now this morning and so we're trying to move forward very quickly to find a senior vice president for sales and marketing to take Todd's place. In the interim though, we're bringing to bear on those issues and we are in a crisis management mode now to get complete continuity on every opportunity and we're basically going to be using Mobilisa's expertise to help us so that as we go forward now, we're not planning to lose a minute.

Mobilisa doesn't have any competence in this area. So that's not going to help you a lot.

Jon, I think Mobilisa has got --

It's been non-defensive, okay?

I think they've got some -- well they go further than that. They do about 30% or 20% -- 30% of their business on the commercial side. But basically they have the ability to help us where we've got to go out with the technical side on the sales. On the sales side, our sales team is completely -- other than Todd, is completely stationary plus we're going to add what we think to be an outstanding senior VP for sales and marketing to lead that effort. We are on top of that and we think we're going to stay on top of that, Jon. I think it's the best I can do and just give us a chance to demonstrate that.

Also, let me make a comment on that, Jeff. This John Paxton. I think one of the things that Nelson is focused on, which is really essential and my past experience has been focused as well on this, is these kinds of sales are really technical sales. We have a technical sales or what we call sales engineers and that's what's really helped our sales and shorten the sales cycle. We'll bring that expertise to Intelli-Check and I think complemented with their people and their contacts that they currently have, we can shorten the sales cycles and certainly broaden their exposure with our segment of this commercial business.

Thank you, Jon. Can I just add one more comment? I want to give you an example. Probably our largest potential opportunity -- the question is up, where are we with regard to Todd and how are we going to replace them. Our plan right now is that Nelson, I, the right people are going to go -- we're going to bring in people and we're going to go see that client in person and show them that we not only can do what we were doing before, but we can actually enhance it and do more.

Okay, thank you.

(OPERATOR INSTRUCTIONS). James Bernstein, Newsday.

Good morning, gentlemen. One of my questions was answered and that related to where people were going to be physically. If Nelson is going to be CEO, what title will you have, Jeff? What is going to be your title at this point?

Well, for the interim, for legal purposes and so on and so forth, I am the interim CEO and chairman at Intelli-Check. As soon as we can transition this thing, I will revert to being a Board member. Our Board will then -- five members of our Board that go over to the new organization will elect a chairman. But at that point, Nelson will become the CEO and I will revert to just being a director or being the chairman; it depends on how the election goes.

Maybe you -- you maintain the title of interim CEO at Intel. When the transition is complete, you will be a Board member and Nelson will be the CEO?

Absolutely.

And Mr. Paxton will remain as Chairman?

No. John Paxton -- the chairmanship will stay with one of the five directors Intelli-Check will nominate.

Okay.

John Paxton has agreed to remain on, thank you very much, but he has agreed to remain on. He will be the Vice Chairman and he will also be the chairman of our audit committee.

Okay. One other question too, Jeff, if I may. How many employees does Intelli-Check have at this point? And you also mentioned growth ahead. Would you be able to speculate on what the employee level might be in the future?

I don't think I can speculate because we haven't thought that through. It will come out after we've worked this whole thing a little bit more. But right now we have 24 employees. I will speculate that I hope that within the very, very near future that we have 25 employees.

Thank you very much.

And I will make that -- we will make that announcement when we do.

Thank you.

John Vandell.

Good morning, guys. Most of my questions were already answered and asked by Jon Gruber were the majority of my questions. I came in sort of late and I didn't hear one thing I wanted to know -- if you are running the merged company, the new company right now probably -- you're on a fiscal or calendar year?

We both are on the same calendar year, fiscal year.

Well I know Intelli-Check. Okay.

We both have the same year.

Both January to December.

Right. You obviously, before this deal ever started had some projections out there it sounds like with $5 million and $1 million bottom line that you would not have had any trouble a year from now the way you're growing to become a public company. Probably with a bigger multiple and a bigger price than you have now. So the combination must work and dovetail very good for you guys. I guess what I'm trying to think -- let's say you had not have merged, could you give us some internal projections -- and I know they are just projections -- of what you guys were looking at over the next two years internally?

Are you talking to Intelli-Check or are you talking to Mobilisa?

Mobilisa. sorry. I beg your pardon. Mobilisa. Being private.

Do you want me to answer that, Nelson?

I beg your pardon?

Nelson, do you want me to answer that question?

Go ahead and then I can answer it.

Yes, Nelson I will are both taking this question. First of all, we don't project earnings or forecast at this point. What we do project is that the actual backlog that we have earned relative to government contracts, which is real the revenue that will fall into fiscal year '08 sometimes fiscal year '09. But our history has it that we're a very strong company. We have no debt. We are profitable. We will continue to be profitable because the government contracts that we have won and are going forward on are with proven products that already have been proven in the marketplace. We have over 28 military bases under contract today. And it's growing.

The GSA contract we were just awarded we have already received two orders on that contract already. So we see that we have a very strong growth in the future and will continue to manage very frugally as we have in the past. And we see this merger as being very positive and very strong for both companies. And the answer -- somebody asked the question could you go public a year or two from now. You could always have that question pop up and we're not predicting that we could or couldn't, but we know that we're strong. We have always been strong and certainly we see this as an opportunity to propel two companies that have very complementary technologies and in different markets faster than either one of us would be able to do alone.

I think that was my point, knowing that you were profitable and your growth was like this, you must have done a lot of work and must have had other opportunities I would think to have been bought. But there must be a lot of dovetailing that works with Intelli-Check for you guys to do this. So I wish you well.

Thank you.

Robert [Edmond].

Good morning. Congratulations, gentlemen. Perhaps you can answer a couple of quick questions. With the structure of the deal, 50% owned by Intelli-Check shareholders and 50% owned by Mobilisa shareholders, what kind of lockup provisions are on the new equity that the Mobilisa people will be receiving? They will own effectively 50% of the outstanding stock of the Company. Will that stock be restricted? And are Mobilisa individuals board members, etc., etc., are precluded from buying the stock in the market right now or is there any lockup positions? Is there any delay? And obviously, give us a sense of confidence. Somebody is throwing out 100,000 shares out the window today. I have an inkling I think who is doing it. I think our professional shorts are trying to grab their last [grasp] here. But maybe you guys could give us a vision of where you want to be in five years without going overboard.

No --

I mean if you were dreaming, if you were going to set up a map tomorrow, where would you want to be? Nobody could hold you to that. This is just an idea of where do you think these two companies can be? Where do you want to be?

Robert, let me put it this way. We have taken up a mantra since Frank's death that we're not going to over promise --

You are not promising anything.

I understand. We've just -- we are basically now -- we want to come back each time and over deliver. We want to report our performance. And so we are trying to get away from --

Forget the numbers. Where do you want to be in the marketplace?

What I'm saying to you is that we are very excited. Our entire Board of Directors right now is extremely excited about this because we see this as totally accretive. We're sitting there right now and we look at Mobilisa as being a tremendous buy. Mobilisa looks at us as being a tremendous buy. We're sitting there saying if we are 100, we see them as 200. They're looking at us, if they are 100, they're looking at us as 200. We've got 100 plus 100 equals 300 here and all we can do is move forward on that premise saying there's tremendous synergies here. There's a tremendous fit. It's like a jigsaw puzzle that comes. So where are we heading? We're heading straight up. That's all we -- that's as far as I'm wanting to go on that.

And as far as the Mobilisa owning 50% of the Company, is that restricted stock and are they precluded from doing anything about that?

It's not a restricted stock and the definitive agreement is to follow and that will be shortly when we issue the book by the --

But the people from Mobilisa well effectively own 50% of the outstanding stock of the company. Am I incorrect there?

That's true. That's correct.

So and one other thing. There's been a lot of discussions in bogus boards all over the place of Mr. Mandelbaum's estate liquidating all their stock. Is there any discussion about that, that you can --?

Robert, many people have asked whether the Mandelbaum family is selling Frank's stock. As a close personal friend of Frank, I have stayed in close contact with Frank's family since his passing and I have offered assistance -- personal assistance -- wherever I can provide it. Frank's family, including his executor, has repeatedly asked that we do everything possible to fulfill Frank's vision for Intelli-Check.

Their primary interest is to make Intelli-Check's success Frank's legacy. They have also indicated that as shareholders they believe in the long-term potential of the stock, therefore intend on retaining as much of Frank's stock as they can. Beyond this, I'd ask that we respect Frank's family's right to privacy in their grief and I will therefore not answer other questions related to Frank's estate or the disposition of his shares.

Thank you.

John Van Wyk.

Most of my questions have been answered. I was disturbed by Todd's departure because he has been extremely effective as the Vice President of Marketing and I was also a little disturbed by Mr. [Oshka] -- I'm not sure -- Mr. Rao's departure as well because both of them sound like they are a statement regarding the current suggestions or the current merger.

But in conjunction with Mobilisa, I haven't been able to find some of the references on your web site that you referred to, but can you tell me what the retained earnings are for the Company at this point?

Well, we're a private company and -- but in the joint press release that was released this morning, our last 12-month revenue ending very recently -- 31 --

Right, but how much -- what is your shareholders' equity I guess? Do you have negative retained earnings? Do you have a deficit? I know you've made money and so on but I mean --

No, there's no deficit, no debt.

Okay. So you do have positive retained earnings?

Right.

John, it's Jeff Levy. If I could address the first part. We are extremely thankful for Todd's creativity, his energy. He has done a tremendous amount for Intelli-Check over the last two years. I find it very unfortunate that Todd basically was unwilling to stay unless he could be the CEO and just did not complement. Essentially, two months ago, myself and the Board we were charged with getting out of this mode of continuing to look forward and basically were told we need to produce now and we wanted to focus Todd's efforts totally on that production now. And so we wanted to retain Todd in that mode of leading our sales and marketing operation and to relieve him of the other things that were basically diverting his attention. Todd was just not willing to do that and as a result, Todd chose to resign.

Right. The obvious concern there is you have read a statement that I presume was basically written by Todd. And the question is who will execute the goals and objectives that are in that statement. But the other question I do have is, how long has this merger of equals been in the works?

I can tell you this much -- that Frank and Nelson had spoke several times.

We spoke several times.

And we got serious about it sometime ago. And Nelson and I have been somewhat connected at the hip for quite some time now while we've been working on this. At this point -- (multiple speakers)

So is that six months or is that three years or two years or --?

No, no. We're talking far less than that. Obviously two months ago, we had hoped to be able to -- be able to hope to produce far more results in the last two months. I know that our shareholders have been -- I've heard for everyone about the fact that we haven't made an announcement in two months because we really haven't had anything to announce. That's very perturbing that in two months we haven't seen a significant closing.

On the other hand, we've been working together because we know that we have to produce at this point. This Company has been around long enough now that we should be revenue positive. We should be income positive. We should be cash flow positive. It's time to produce the results that Frank dreamed about. And so that's why we're doing this and we're going to work together to make it happen.

Okay. I am, on a final note, I'm very pleased to hear that you have at least from this moment forward, going with some sort of what I will label a cross-license arrangement where the two of you work for the benefit of each other as you move forward without having to wait until you consummate a deal.

John, I can tell you that Mobilisa, I may be speaking for Nelson, but Mobilisa was already scheduled next week to participate in a show on security and equipment and we're now participating with them. We will have our products in their booth with them and we're going forward together.

Okay. One last question. You dropped your guidance on government contracts by $1.5 million approximately, which brings you in below the $8 million forecast that you had up until now. With Mobilisa's inroads, it would almost -- why would you -- what causes you the concern to drop $1.5 million if they already are tied into the system and able to bring us into some early contracts immediately?

John, basically, the funding for the government programs isn't there and many of these things that are unfunded requirements, there are a lot of -- there's a lot of talk and a lot of plans in Washington, but until you go through the budget process and put money against the projects and then you've got to go through that whole contracting process, there is time. And at this point in time, we don't see it for this year. There would have been RFIs, RFPs out on the street at this point. We know the year-end money -- I think just last week they pretty well divvied up the year-end money. We're not into any of that money. So we pretty well know that what we've got is about what we're going to get from the government right now.

That puts us back to what we had projected on the commercial side as far as sales, bookings, and we're holding fast with what we projected on that commercial side.

Okay, thank you very much.

Todd [Ehart].

Congratulations on the merger. It sounds like there's a lot of synergies. I'm just trying to get a better look at what the balance sheet of Mobilisa looks like. I know you talked about sales and profitability. No debt. What is the cash balance?

Cash balance is low. We run the company at a slight profitability; it has been profitable the last three years. We have no debt, but we run it at a small balance.

Okay, thank you.

David Steirman.

Just a quick follow-up on that sales order backlog figure. Reducing the government number and obviously I guess you had been at $8 million earlier in the year, is there a specific number we should be looking at or is it just $6.5 million at this point? Hello?

That's for Intelli-Check, correct?

I'm sorry. Go ahead. Yes, for Intelli-Check. I had been using the figure 8 million earlier in the year, just for Intelli-Check for this year, and I'm assuming 6.5 million is a number or are you just pulling the number completely?

No, we're at $6.5 million is still our guidance with regard to booked sales for 2007.

Okay. That was just my quick follow-up. That does it for me. Thank you.

Bart Blout.

Yes, congratulations. This is a fantastic thing, I believe for both parties, especially for IDN because it's a first-class company you're dealing with. I wonder if they could enumerate what IDN brings to them and in particular, when you are dealing with the government, for the last question that was asked, because of the expedite and the GSA and stuff and the way you get your money in fast, you don't have to run out receivables for a long time typically. So I wonder if you could just address the technology that IDN has and what it brings to you and how it's going to complement your side of the Company to even bother to go into this relationship.

Thank you. This is Nelson Ludlow. Intelli-Check brings several things to the table that we're very excited about. First of all, they have a very strong IP patent portfolio. When it comes to validation and verification of IDs, they are the leader. They are it. And in fact, what we do with our systems, we do not validate and verify the I'd, but we read the information and run it against bad guys. We would very much like to complement that other piece. Let me give you one other specific example. Intelli-Check has an extremely strong relationship with AAMVA and the DMV. We are able to do 49 of the states. We're not able to do Georgia. And that's obviously a missing puzzle piece and if you don't have the complete picture, you're not all the way there. Intelli-Check puts that puzzle piece in there, so Georgia will be added.

They bring a very strong CFO and chief technical officer to this and that's what we need to be able to move forward.

I'll just give you one other example. There is a $34 million net operating loss that can be carried forward to reduce paying taxes. If you are profitable and you can couple with a company that has an NOL that can carry forward, that's an outstanding thing. So we're going to be able to make money and not have to pay taxes.

Now the way that you would be able to recoup that is you would go by the law that allows you to use that full amount of the NOL?

Well, in the merger, there's obviously kind of a complicated story of how much of the material of one party brings to the other, how much of that NOL can carry forward, but obviously at least some part of that NOL will carry forward. And I don't think it's been determined yet.

No.

To find out exactly what that number is.

Bart, the lawyers have had a lot of discussions about that and we're at a point now where we don't know how much can carry forward, but we do know that a substantial amount will carry forward, but that will have to come out from the due diligence process and let the lawyers and the auditors and the accountants get together and sort that out.

Okay, and then just one more, Jeff. So for years, Intelli-Check has been abused by some parties for whatever reason and it would seem to me with your company's background, with all of the -- from Litton to about Intermec, everything, it would just seem that you must have done your homework and that this technology is rather unique or you wouldn't even be seeking it.

That's -- I think both Nelson and I are going to both together say yes.

We had other opportunities and this is the one we wanted to pursue.

Yes. Thank you very much.

Robert Edmond.

Yes, gentlemen, as this call goes on, I've done some, a little research here, the deal sounds even better than I thought; but I've got one question on upfront. Obviously, Mobilisa must know about our patent litigation with our nemesis. And can they comment on what they think about that? Obviously that's part of the due diligence.

And a little clarification. There was discussion about the government business where Intelli-Check said it was going to reduce the amount by $1 million for this year. But on the other side, once you combine the companies in January, our government contracts obviously rise significantly, so can we get a little clarification on it again? I think that point is a little nebulous.

We're talking about in the projections that we made relative to the $1.5 million prior bookings that we were planning on --

For Intelli-Check.

For Intelli-Check. Those really were related to First Responders and some of the other programs that we're in by ourselves. We're not talking about anything that's combined and so on and so forth. We're at a point in the year now that we know what funding is going to be available, what RFPs have been issued and so on and so forth. And with regard to the programs that we were talking about, they're not going to hit this year. We are comfortable to say that maybe unless lightning struck, generally speaking, we don't think that those programs are going to get funded and get actual orders in until next year.

Right but --

Let me say one thing with regard to TriCom and then let Nelson add what he sees as far as his view of it. I have heard and I read about the speculation mostly on the Internet about our TriCom lawsuit. TriCom lawsuit remains exactly where it was before Frank's death. Several motions are pending the judge's ruling. They are still pending the judge's ruling. Otherwise, Frank's depositions were complete. Are a matter of record and are not subject to cross-examination. We believe our case is just as strong today as it was before Frank's death. We will continue to vigorously defend our patents just as we did when Frank was here.

Okay, so as far as the government side goes, while we were down, Mobilisa is up. So if this Company were to combine and merge today, that decline wouldn't be relevant.

That's right. Absolutely. You're right.

Right, and Nelson's call on the litigation?

We are very aware of that litigation. In fact, in the filing of our three patents that are pending, we watched and looked at this and know about your patents. There are several aspects to your patents that are very valuable that are not even being challenged.

So as far as you are concerned we got all the bases covered and with this 50-50 arrangement, it's a win-win?

Absolutely.

It sounds like one plus one equals four here.

My goal is that we're going to dominate the driver's license market.

Thank you very much, gentlemen.

John Vandell.

One last question. You said I think you had 25 people, about to have 26. Do we take that that you have someone sitting there that is about to replace Todd?

I don't want to speculate, John. But we had 24 that I think we will have 25. I have someone sitting here that will replace Todd. Tough question to ask right now, so I will just leave it that. I won't say no, I won't say yes.

Okay. The other thing is when do you guys think that you will be able to sit down with Wall Street, whether it's money managers or research people so that they can put something together here?

That's a great idea, John. What time today would you like us in your office?

You all have been very good about that, so I'm not worried about seeing you, but I just --

We've got the presentation; we're ready to go.

Sounds good. Thank you very much.

Gentlemen, at this time, there are no further questions in the queue.

In that case, let me say thank you very much. I do have to wind this up with an apology.

Many of you have been trying to get a hold of us and me for the last couple of days and we were determined to keep this thing absolutely close hold and so I have not returned messages. Interesting enough, my phone was turned off and so I will try to get back to those as I'm able to get those messages, but part of it was that we basically disconnected phones and so on and so forth. So if you want to talk to me, please call and leave another message because most everything was wiped out. I really appreciate your participation in the call today and we really look forward to increasing shareholder value, which is why we are here. Thank you.

That does conclude today's presentation. We thank you for joining. Have a wonderful day.