Intellicheck Inc (IDN) 2007 Q3 法說會逐字稿

Good day and welcome to the Intelli-Check conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Steve Axelrod.

Thank you very much, operator. Good morning to all, and thank you for joining us this morning. In a moment I will call upon Jeff Levy, the Interim CEO, to conduct this morning's call and introduce the other members of the Intelli-Check management who will be participating in this conference call. But before I do that, I will take a few minutes to read the forward-looking statement.

Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When 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 is no assurance that the use of ID-CHECK technology by our potential customers and partners, or government efforts to enhance security or curtail the sale of age-restricted products to underage buyers, will lead to additional sales of ID-CHECK technology. Additional information concerning forward-looking statements is contained under the heading 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.

I would now like to ask Jeff Levy, Intelli-Check's Interim CEO, to preside over this morning's call.

Thank you very much, Steve. Good morning, everyone, and welcome to Intelli-Check's third-quarter conference call. This is our first conference call since we announced our intentions to merge with Mobilisa. Let me begin by reassuring you that our merger plans are progressing, our technology remains solid and improving, our sales pipeline continues to grow, and we are committed to delivering performance.

With me today on the call are Pete Mundy, our Vice President of Finance and Chief Financial Officer, and Lou Gryga, our Senior Vice President of Sales. As we have been keeping you abreast of Mobilisa's business activity, Nelson Ludlow, Mobilisa's CEO, and, under the planned merger, our future CEO, is also with us. To start, Pete will cover the results of operations for the third quarter, which we released last week, as well as discuss the balance sheet for the period ended September 30, 2007. Lou will then bring you up to date on our recent and current sales initiatives in the commercial sector. I will provide a summary of ongoing activities in the government sector, and Nelson will then address Mobilisa's recent business activities. I will wrap up with a status report on the merger, and then field your questions. 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 our financial statements reflect GAAP accounting. It includes sales value of products shipped and the value of contracted services and fees earned during a period. It does not include the portion of a contract value that has been deferred in accordance with our revenue recognition policy as described in our SEC filings.

Booked orders represent the total value of all new non-cancelable orders for products, services and fees received from our customers and distributors during any period reported. Any portion of non-cancelable booked orders received during the period that were not shipped become backlog. The backlog at any particular period represents the value of non-cancelable orders that have not yet shipped, as well as the value of unearned service and fees that will be earned in the future.

I'd like to discuss some of the pertinent financial information that was contained in our press release for the quarter ending September 30th, 2007, which we had put out last week. In addition, the complete quarterly report on Form 10-Q was filed with the SEC last week.

Revenues for the quarter ending September 30, 2007 increased by 11% to $857,000, compared to $772,000 for the previous year. The increase in revenues is principally a result of new orders from Barclays and Chase. Revenues increased both through direct sales and distribution channels. We remain optimistic that revenues will continue to increase since the pipeline of sales opportunities is substantial and growing, particularly in the commercial sector.

We expect our recently signed partnerships, together with the success of our technology and tests in both commercial and government sectors, to contribute to this anticipated growth. While we continue to believe that the government sector could ultimately be a significant market segment, we've been disappointed that this has been an insignificant amount of government revenues to date.

We're encouraged by the President's signing of the 9/11 Homeland Security Bill on August 3rd, 2007. However, the timing of the ultimate funding of each of the proposed initiatives is still uncertain at this time. Also, additional legislative efforts to address identity management and to control underage access and age-restricted products could, if enacted, lead to future sales opportunities. Due to the uncertainty regarding the timing and funding of these initiatives, we reduced our internal near-term estimates of government business anticipated.

At year-end -- at the end of the third quarter of 2007, our backlog of non-cancelable orders was approximately 2.6 million, as compared to the backlog of approximately 1.1 million as of the third quarter of 2006 and 1.1 million as of the end of calendar 2006. The increase is principally a result of the $1 million contract signed with a financial institution in June 2007 that may be recognized over a 3.5-year period. 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 total orders booked. In addition, this shift will build a more predictable long-term revenue model for the Company.

Lou will walk you through some of the details of our current sales opportunities and successes, and why we remain optimistic about our expected future sales growth, and where we stand with regard to previously announced booked order projections for 2007, later in the presentation.

Our gross profit percentage of revenues amounted to 54.6% for the three months ended September 30, 2007, compared to 60% for the three months ended September 30, 2006. Our gross profit percentage was lower than in the prior year as a result of a higher mix of bundled sales of hardware and software products, which included laptops purchased on behalf of larger customers, which have lower margins than our licensing products, which have higher gross profit percentages. In addition, royalty revenues were lower in the 2007 period. Based upon the mix of products of orders in the backlog, it's anticipated that near-term margins will continue to be lower as a percentage of revenues than the historically presented period numbers.

Total operating expenses decreased by 59%, or 5%, to 1,113,000 for the third quarter of 2007 compared to 1,172,000 for the third quarter of 2006. Selling expenses, which consist primarily of salaries and related costs for marketing, increased 2%, from 347,000 for the three months ending September 30, 2006 to 355,000 for the three months ending September 30, 2007, primarily due to higher employee and related costs of approximately 27,000 due to an increase in sales headcount and a reduction in non-cash stock-based compensation expense from the granting of stock options totaling approximately $19,000.

General administrative expenses, which consist primarily of salaries and related costs for general corporate functions, including executive, accounting, facilities and fees for legal and professional services, decreased 19.7%, from $595,000 for the three months ended September 30, 2006 to $478,000 for the three months ending September 30, 2007. This is principally a result of a decrease in non-cash-based compensation expense from the granting of stock options totaling approximately $71,000, lower legal fees of approximately $55,000 related to decreased activity on our patent infringement litigation, and a decrease in employee costs and related expenses of approximately $78,000. These are offset by higher directive fees, accounting fees and consulting fees of $88,000.

Research and development expenses, which consist primarily of salaries and related costs for the development of our products, increased 22.5%, from $229,000 for the three months ending September 30, 2006 to $281,000 for the three months ending September 30, 2007, primarily as a result of higher salaries and related costs of approximately $42,000 due to an increase in headcount, and an increase in non-cash stock-based compensation expense from the granting of stock options totaling approximately 15,000, offset by some lower travel costs of approximately $6000.

Interest expense decreased by 19,000 to $38,000 in 2007 compared to 57,000 in 2006, principally as a result of lower average invested funds, offset by higher interest rates. For these reasons, our net loss for the third quarter of 2007 decreased by 7% to $608,000, or $0.05 per share, compared with a net loss of $651,000, or $0.05 per share, for the third quarter of 2006.

Revenues increased 12.6%, or $256,000, to $2,281,000 for the nine months ending September 30, 2007, from $2,025,000 for the nine months ended September 30, 2006. Revenues for the period ended September 30, 2007 consisted of revenue from direct sales to customers of $1,518,000, revenue from distributors of $745,000, and royalty payments of $18,000, compared to $1,214,000, $790,000 and $22,000, respectively, in the period ending September 30, 2006.

Total booked orders during the first nine months of 2007 were $4 million, compared to $2.8 million in the first nine months of 2006. Our gross profit percentage of revenues amounted to 61.6% in the nine months ended September 30, 2007, compared to 64.9% for the nine months ended September 30, 2006, and once again, it would seem, the result of a higher mix of bundled sales of hardware and software products.

Operating expenses, which consist of general, administrative and research and development expenses decreased 4.7%, from $4,018,000 for the nine months ended September 30th to $3,830,000 for the nine months ended September 30, 2007. Selling expenses increased 1.6% from $1,143,000 million for the nine months ending September 30, 2006 to $1,161,000 for the nine months ended September 30, 2007, primarily due to higher employee costs due to an increase in headcount, higher marketing expenses of approximately $109,000, which is offset by a reduction in non-cash stock-based compensation expense from the granting of options totaling approximately $92,000.

General administrative expenses decreased 13.8%, from $2,133,000 for the nine months ended September 30, 2006 to $1,838,000 for the nine months ended September 30, 2007. This primarily results from a reduction of legal fees of approximately $337,000 relating to the decreased activity on the patent infringement litigation, lower non-cash stock-based compensation expense, and from the granting of stock options totaling approximately 138,000, and a decrease in employee costs and related expenses of $156,000. These amounts were offset by higher directives fees, accounting fees and consulting fees, including the Sarbanes-Oxley Section 404 compliance fees, and the death benefit and other payroll costs of $152,000 due to the untimely passing of our Chairman and CEO, Frank Mandelbaum, in June 2007. Also included in the nine-month period of 2006 was a bad debt recovery of approximately $26,000.

Research and development costs, which consist primarily of salaries and related costs for the development of products, increased 12%, to $831,000 for the nine months ended September 30, 2007 from $742,000 for the nine months ended September 30, 2006.

Interest income decreased from 169,000 for the nine months ended September 30, 2006 to 136,000 for the nine months ended September 30, 2007, once again as a result of a decrease in our cash and cash equivalents and marketable securities and short-term investments, partially offset by the higher interest rates received on the investments during the 2007 period. As a result of the factors noted above, our net loss decreased from $2,534,000 for the nine months ended September 30, 2006 to $2,288,000 for the nine months ended September 30, 2007.

At this point I'd like to review the Company's liquidity and capital resources. Net cash used in operating activities during the first nine months of 2007 was approximately $2,196,000, due to, principally, the net loss of $2.3 million and an increase in accounts receivable of $314,000, offset by non-cash charges of approximately $486,000. Our losses were funded through available cash reserves, net redemptions in our marketable securities of 1,734,000, and by cash provided by financing activities of approximately $232,000 resulting from the exercise of stock options and warrants.

At September 30th we had approximately $2.3 million in cash, cash equivalents and short-term investments. Our cash is invested in short-term investment-grade municipal auction rate securities. The Company currently has no bank financing or long-term debt. We have total assets of $4 million and working capital defined as assets less current liabilities -- current assets less current liabilities of $2.3 million. Our ratio of current assets to current liabilities as of the quarter ending September 30, 2007 was 2.4 to 1.

Our cash burn rate for the third quarter of 2007 was approximately $324,000 per month after the contribution from margin on revenues and the proceeds received from the exercise of options and warrants, compared to an average of $170,000 per month for the first six months of 2007. This is much higher than what we had projected at the end of the second quarter.

During the third quarter of 2007, the level of accounts receivable increased by $280,000, resulting from a delay in payment from some of our largest customers. We anticipate full collection from these accounts in the fourth quarter of 2007, and we've already started to make some headway on that.

Also, as a result of the decrease in the common stock price during the third quarter, there were no stock option exercises in the third quarter, compared to the $232,000 in the first six months of 2007. We currently expect the burn rate for the fourth quarter to be approximately $200,000 per month, and so far to date, we've spent about $300,000 for the quarter. 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 Lou to discuss our current and future marketing opportunities.

Thank you, Peter. The third quarter represented a good example of Intelli-Check's forward progress towards executing our strategy to move in the direction of turnkey product solutions as opposed to product software tools. Our primary sales target is the customer who uses our technology and products as a productivity enhancement for a variety of data-gathering applications. Target markets include mass retail chains and financial services for use in applications where individuals are being enrolled in various types of systems, such as instant credit, loyalty card programs, and visitor management systems.

Intelli-Check has developed a line of turnkey products in this space, including kiosks, laptops, and handheld devices. Our product line also consists of an application program interface and API that enables rapid integration into our clients' applications. Our browser helper object, BHO, and executable helper object, EHO, provides end users with a way to integrate the Intelli-Check ID technology into browser and executable applications, but without the need for any programming skills. These two products dramatically shorten the sales cycle for large end users by minimizing the use of their precious in-house IT resources.

We are also providing logistics services and professional software development services to our clients as well. Intelli-Check has nurtured business relationships with the nation's largest credit card companies for several years. The third quarter was representative of a phased product launch in this new exciting market. In the third quarter we received additional orders for our productivity enhancement products from three of the nation's largest corporations in the credit card space. Orders for productivity enhancement products in the third quarter totaled $300,000. Our deployments included the combination of kiosks, laptops and handheld devices. We are now providing logistics services, including the tracking of deployments, customer support, and ongoing maintenance of these turnkey systems. Our third-quarter launch was successful, and we anticipate significant near-term growth opportunities in this market.

We signed a new contract with a Fortune 100 full-service kiosk provider in the third quarter. The client builds kiosks and provides custom software programming services to the travel industry nationwide. The client launched a pilot with one of the nation's largest rental car agencies in the third quarter. This opportunity has the potential to yield over 1000 seats of Intelli-Check software. We have to date received an order for 50 units from this customer.

We also closed an opportunity with a large grocery store chain that utilizes Intelli-Check productivity enhancement software to expedite the processing of loyalty club cards. We have a $450,000 commitment over a five-year period with this customer. This order will yield $22,500 per quarter.

We have recently made great strides developing our business relationship with IBM's largest point-of-sale integrator. They purchased our BHO in the third quarter, and have opened discussions between Intelli-Check and a few of their major clients, and recently introduced Intelli-Check solutions to their entire sales force at their national sales meeting.

We received a commitment from a large oil firm to deploy our software for age verification at their convenience store outlets. We have a firm commitment for 186 units in Q4, and hope to see significant additional orders in 2008.

We are currently working with a large SKU store retailer to roll out [a] 300-unit pilot, making use of Intelli-Check's integration support to incorporate the ID-CHECK API into their software. The ID-CHECK API will be used to add productivity enhancement functionality to their credit card application process, to speed up the sales process, and to eliminate key entry errors across all POS lanes and customer service workstations.

We are also working with a large furniture retailer to add the ID-CHECK software, bundled with a handheld scanner, to their existing instant credit application. This is expected to roll out Q4 through Q1 of next year.

Additionally, we have expanded upon an existing license agreement we have in place with a major toy retailer by enhancing the ID-CHECK API that they're already using in their customer service desk with functionality to support the decryption of the Georgia driver's license. Use of this Georgia DL decryption technology went live this week in stores all over the US. This represents the first chain-wide deployment of the Georgia DL decryption in the industry. With this expansion to POS, to date, Intelli-Check's installed base has grown to approximately 72,000 seats and retail stores across the US.

We are continuing to pursue opportunities in the age verification market through direct sales and reseller channels. Towards this end, we recently signed a contract with a large merchant processor that can assist in our efforts to maintain our leadership position in this market. We will continue to work with third-party resellers that license Intelli-Check software that wish to embed DL reading functionality into the industry-specific applications. For example, our business relationship with Kinetics will enable us to indirectly license our software to clients in the hospitality and travel industry. Also, Fidelity National Information Services, who provides check authorization to retailers and cash management to casinos, has integrated Intelli-Check software into their application software, and continues to enjoy success by adding value to their software with Intelli-Check's ID-CHECK API. These and other licenses leverage their long-term -- licensees leverage their long-term business relationship with the leaders in the vertical markets that they service.

This concludes my formal remarks. I'll now turn the floor back to Jeff Levy.

Thank you, Lou. Before turning this over to Nelson to discuss Mobilisa's recent progress, I'd like to take a few minutes to update everyone regarding the government side of Intelli-Check's business.

Regarding the federal government, we believe the Homeland Security bill signed earlier in the quarter will be a major catalyst for launching our products into the federal and state government markets. With our partners, Intelli-Check is expecting to be a part of the credential and breeder document verification that is crucial to current initiatives. These include the Transportation Worker Identification Credential, TWIC, the First Responders Authentication Card, FRAC, and state driver's license and identifications.

The issuance process for the TWIC began on October 16th in Wilmington, Delaware, with the second port, Corpus Christi, to begin enrollment in the beginning of November 2008. 10 other ports will follow throughout the month of November as the nationwide program expands quickly to vet more than 1 million workers through the rest of 2007 and 2008. Applicants must provide the appropriate documents in order to verify their identity, one of which must be a government-issued photo ID. Issuance centers will need to validate breeder documents, and we believe that our ID-CHECK will be critical toward the success of these operations. We are partnered with AssureTec on this program. While our software was not integrated into the system deployed to the first port, AssureTec has assured us that they are working to integrate our software into the system slated for future deployments.

Intelli-Check is currently partnered with DAP and Intermec, two providers of handheld systems able to authenticate the FRAC card as well as driver's licenses for those First Responders not possessing a FRAC. Other hardware providers are working toward making their product meet the stringent specifications set by the Department of Homeland Security for this initiative, and we are working to ensure that we will be part of each company's solution going forward.

In the state government arena, Intelli-Check recently received a new order for our ID-CHECK technology from L1, a leading provider of identity solutions for US driver's license applications. The 200 units that have been shipped to L1 will primarily be used to satisfy Department of Motor Vehicle [offices] across the State of New York. Intelli-Check's technology addresses the use of driver's licenses as breeder documents for L1's ID Suite, which was recently launched specifically for law enforcement and US driver's license applications. It is expected that other states will deploy similar breeder document authentication solutions. We believe significant orders like this will continue after the release of the Real ID rule.

Nelson, can you give us a rundown on recent activities at Mobilisa?

Thanks, Jeff. Good morning. I'd like to first thank Jeff Levy and Pete Mundy and the entire Intelli-Check team. Over the last few weeks we've really learned a lot about their company, and we've been working closely together and jointly strategizing on how to best go forward.

I'd be happy to report on Mobilisa. In our third quarter, which is on the exact same calendar year and ends 30 September, just like Intelli-Check, we continued to have growth in both revenue and profit, and I'll give you some of the numbers.

Our reviewed financials consistent with GAAP for third quarter ending 30 September -- the results are approximately 2,068,000 in revenue, compared to 854,000 for the period in the previous year, which is an increase of about 142%. And growth was primarily due to the increase of our federal government access control product, Defense ID.

Operating expenses for the quarter were 1,062,000. Cost of goods sold was 426,000, resulting in a profit of about 582,000. Deferred revenue for the quarter reached just under 1 million, 991,000. And then let me give you a snapshot for the last 12 months from November 1, 2006 ending October 31st. We reached in revenue 6.46 million in revenue, with net income of 1.173 million for the last 12 months.

Some of the accomplishments that we've made in the last quarter -- our booked sales were 7.4 million. 3.3 of that was in our wireless work. We have a very innovative project that we're doing with the Navy for port security called the Littoral Sensor Grid program, where we're putting security and advanced communications and sensors aboard buoys and ships, and a wireless grid over the water.

We also did 4.1 million in booked sales for the quarter in our Defense ID sales, and a couple of the places that we installed our system which were quite interesting was in Washington D.C. at the well-known Walter Reed Hospital; also Peterson Air Force Base, which is where NORAD northern command headquarters is located. And also, you may know about Fort Dix that had a recent terrorist scare a few months ago, and we're very pleased that Fort Dix did an analysis and selected our system, and it is currently installed and working very well up in New Jersey.

A couple of the other things. We were the 2007 finalist for Security Product of the Year in Access Control and Security Systems magazine, which is one of the leading magazines for our industry. We were also listed as Washington's fastest-growing companies. We were listed as a finalist for the 2008 hot company finalist by Cygnus Business. We're also a finalist in the International Association of Chiefs of Police security product. And Intelli-Check and Mobilisa jointly have been working together and have gone to several trade shows, including a military one here in the Washington, D.C. area, Chiefs of Police Association, and a leading security program; all three of those, our companies joined forces and went together. We've also been selected to take one of our wireless products in a program called Triton Warrior, where the Navy is going to be testing our Wireless Over Water router and radio live in a program called Triton Warrior this summer.

So, we look forward to bringing more innovation and products and trying to find the best synergies of working together. Back to you, Jeff.

Thank you, Nelson. Regarding the merger, Nelson and I have finalized the negotiations and reached agreement on the definitive agreement. Our boards ratified that agreement last night. Under the definitive agreement, we intend to proceed on the basis of a merger of equals. In return for all the assets, liabilities and equity of Mobilisa, we will be giving Mobilisa shareholders an equivalent number of shares to those held by Intelli-Check's shareholders, and Mobilisa's option holders replacement options for those they now hold. In order to accomplish this, we will be asking our shareholders to approve an increase in the number of shares authorized. We intend to include in this increase sufficient shares so that we may raise a modest amount of working capital if that appears judicious immediately following closing.

Upon merging, Nelson Ludlow will be the Chief Executive Officer of Intelli-Check Mobilisa, Inc., while Peter Monday will remain the Chief Financial Officer, and Russ Embry will remain the Chief Technical Officer of the merged company. The Board of Directors will be composed of four members named by Mobilisa and four members named by Intelli-Check. Intelli-Check will also name the board chairman, while Mobilisa will elect the vice chairman and the audit committee chairman.

As a means to transition, Intelli-Check will be retaining Nelson Ludlow to manage day-to-day operations at Intelli-Check pending closing of his formal -- and his formal designation as CEO. I will retain the role and responsibility of Interim CEO and Chairman pending the merger closing, while delegating authority to Nelson to lead the revenue-generating activities of the company. We will be publishing the merger prospectus as soon as practical. And after allowing the minimum required period for review by the SEC, and consideration by our shareholders, we will schedule a shareholder meeting to approve and then close the merger. Due to the extended period of time it took to complete the definitive agreement, we now anticipate the closing to take place sometime in the first quarter of 2008.

I stand ready to -- we stand ready to respond to your questions.

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

Congratulations on completing the definitive agreement. I just wondered, Jeff, whether you could -- since we've had that forward-looking statement comment prior to the start of the call, if you put the two merged companies together, could you give us some kind of flavor on what we would look going forward into 2008 in regards to sales and profits?

I would really like to do that. At this point we have not yet put together our pro formas and so on and so forth. We will be building that as part of the production of the prospectus. We've looked at it, and we've already announced our backlog and their backlog, but we haven't combined it such that we can actually make a statement with regard to that. I can assure you that your board of directors is extremely pleased to make the announcement of the merger that we made this morning, and we look very much forward to future prospects. But at this point, I think that any numbers that I put out with regard to what we plan to do 2008 would probably be a couple weeks premature.

Thanks a lot and congratulations.

John Van Wyk, private investor.

This is for Lou in particular. Lou, of the government contracts that you have been winning, how much of the technology incorporates Intelli-Check's technology?

Let me take that one because Lou has been working the commercial side, and we've got folks down here in Washington, led by Rick Outland, that work the government side, and they've been working together with me and with the folks at Mobilisa. Our technology -- the game plan has always been to get our technology integrated into as many different systems and with as many partners as we can. We may be shifting that as we move forward with Mobilisa because they have a full solution of their own. So we may be able to compete with Mobilisa as a prime, as opposed to remaining now as a sub to everyone. So this is going to evolve. Either way, we foresee that because it is so essential, the reading, scanning, and integration of the data that's on the driver's license is so integral to all these programs, that either way we see a great future for Intelli-Check's technology. I hope I've kind of addressed what you're talking about, but essentially the answer is we see it in all the programs that we're going forward with in the government.

I understand that. But I guess we're listening, and we keep getting notices about all the success that Mobilisa is having in securing government contracts. And the only value to that is if it includes Intelli-Check's technology and the technologies that are sold as part of those contracts.

We intend to integrate our technology with Mobilisa's technology, so that going forward, where they're selling there's into the military bases for security purposes, those military bases now will have the ability to not only bang the databases off bad guy lists, but to verify the validity of the formats on the identity documents. So it will enhance the product. The joint product that Mobilisa and Intelli-Check will put out will be an enhanced product from that which Mobilisa is putting out right now.

So at the moment, all the results, really, that have been announced have nothing to do with Intelli-Check's technology.

Right. The Mobilisa results have nothing to do with Intelli-Check's technology. Everything else that we're talking about, TWIC and FRAC and all that, keeps getting drawn out and on and on. We're there when the government finally decides what they're going to do. But it's been a long process and very frustrating, I know, to our shareholders, and even more so to those of us that are at the center of it.

That's a very good question. We're always trying to lean forward and come up with new products and to increase the capabilities of our current products. We're at over 50 federal locations right now using the system, and we're already working together very closely. And by bringing in Intelli-Check's technology, let me just give you three quick areas that are going to make the product that we're selling right now even better.

First of all is what Jeff said; we get to validate the ID. Using Intelli-Check's patented validation techniques, we get to do that. Previously that was something we couldn't do. Another thing is Intelli-Check has the ability to pull photos right out of the bar-code, such as on the military ID card. And then, as Lou mentioned earlier, the Georgia technology is something that Intelli-Check has that we very much want to integrate. So those are three things, along with some hardware improvements and new scanning technologies that we're planning, to improve the product. So it's definitely a synergistic thing (technical difficulty)

Apparently the connection has gone sour on me. Thank you very much.

(OPERATOR INSTRUCTIONS). [John Capelli], private investor.

Congratulations. For all intents and purposes, though, Mobilisa and Intelli-Check are, I guess you would say, not on the honeymoon yet but getting close to the altar. The checking accounts just haven't been combined yet. But when Mobilisa signs a deal, that's basically the new merged company's deal. So the gentlemen's last question theoretically is a moot point for the moment. Is that correct?

Every time Intelli-Check brings in a good deal, we couldn't be more thrilled. And I believe Jeff thinks the same thing when we bring in deals. We're in this together.

Mr. Capelli, I think what we're seeing here, though, is as we go forward, Nelson is going to be steering that ship. So we're going to be working together in the transition. We're not waiting for the closure to do as you suggest; we're going to get going now.

As far as the Company goes, once the merger is completed in January, do you folks have any thought about getting on the road and telling your story? Because obviously, the way the Company is growing now, sales are really starting to explode on both avenues. I just wanted to get an idea of color and flavor of where you see the breakdown in the technology as far as the focus of the Company. Is it going to be toward both the ID technology and the wireless technology, or is one going to have a little bit more of a flavor concentrated situation?

Mr. Capelli, I can assure you that there are three business units that we're going forward with. We're not going to focus only on Intelli-Check in the commercial identity world; we're going to be focusing on not only the commercial identity world, but also the government, and also the wireless world, which is a huge world. So we're about to expand radically.

As far as getting around, we really have two getting arounds to do, if you will. Between now and the closing, we need to get to talk to our investors and make sure that they understand all the implications associated with the merger so that we can assure a positive vote to support the merger. Following that, we plan to tell the story, because you're talking about the ability to get in there and be a major player, where in the past we've been supplying tools, if you will, to the major players. Going forward we hope to be a major player under Nelson's leadership, and actually be a prime on these things as opposed to being a supporter.

So the relationships you have with these other major defense contractors, we would be actually in competition with them?

The future will tell.

For the whole suite, correct?

The future will tell. It's very hard to -- it's very hard to see how that's going to flesh out at this point. But any way you work it, it's going to be far better than what it was previously where we were basically just providing the tools.

Good luck, gentlemen, and let's look forward to a fantastic 2008.

(OPERATOR INSTRUCTIONS). At this time we have no further questions coming in. Mr. Levy, I'll hand the conference back to you.

Thank you very much. I really much appreciate all of you being with us today. As I said, I can assure you that your board of directors is extremely pleased to make the announcement that we have, and we're very excited about our future prospects, and very excited also about bringing Nelson aboard. And there will be several additional announcements as we go through this transition, so stand by for lots of good news. Thank you.

That does conclude our conference.