Intellicheck Inc (IDN) 2007 Q4 法說會逐字稿

Good day and welcome to the Intelli-Check-Mobilisa 2007 year-end earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Adam Lowensteiner. Please go ahead, sir.

Thank you very much, James. Welcome, everyone. Thank you for joining us today to discuss Intelli-Check-Mobilisa's financial results for the fiscal year ended December 31, 2007, and other business developments. In a moment, I'll call upon Dr. Nelson Ludlow, CEO, to conduct today's call and introduce the other members of the Intelli-Check-Mobilisa management team who will be participating in this conference call.

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, encourage, and similar expressions as they relate to the Company or its management, as well as assumptions made by and information currently available to the Company's management, identify forward-looking statements. Our actual results may differ materially from the information presented here. There's no assurance that the use of ID-Check technology by our potential customers and partners or government efforts to enhance security or curtail the sale of age-restricted products to underage buyers will lead to additional sales of ID-Check technology. Additional information concerning forward-looking statements is contained under the heading of "Risk Factors" listed from time to time in the Company's filings with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking information.

With that out of the way, I would now like to introduce Dr. Nelson Ludlow, Intelli-Check-Mobilisa's Chief Executive Officer, to preside over today's call. Nelson, please proceed.

Thank you very much, Adam. Good afternoon and good morning to our West Coast listeners. We welcome you to Intelli-Check-Mobilisa's fourth-quarter and end of year conference call. This is our first conference call with the new management team and since we completed the merger of the two companies.

With me today on the call and also presenting are Pete Mundy, our Chief Financial Officer, and Steve Williams, our Chief Operating Officer. Also, we have Mr. Jeffrey Levy, Intelli-Check-Mobilisa's Chairman. We are all calling in from our Washington, DC area office located in Alexandria, Virginia.

As most of you already know, on Friday, March 14, the shareholders overwhelmingly approved all five items of the proxy. Approximately 99% of the shareholders approved the terms of the merger. After the shareholders vote, we filed the necessary documents for the new incorporated, formally completing the merger at 11:59 PM that day. Immediately after the shareholders meeting, the new combined Board of Directors met and they elected Jeffrey Levy as Chairman, and Mr. John Paxton as Vice Chairman, and then selected the new committee assignments and roles.

Prior to the merger completion, we did take the steps necessary to incorporate the two companies into one fully integrated team. We've done a lot of work. We restructured the sales team; we've made some personnel changes. We combined product lines; we renamed or (inaudible) certain products and began the full integration of the technologies into each other's products. And very importantly, we started new product development.

Following the merger, we also formally appointed and announced Steve Williams as the Chief Operating Officer. Steve was Mobilisa's Senior Vice President, head of Washington D.C. Operations, and will make an excellent COO of our combined company. He is a retired Air Force Officer and he's held several positions, including working in the Pentagon, a liaison officer to the Air Force to Congress, and also as a certified government contracting officer. Steve and I have worked closely at Mobilisa for the last two years, and he was instrumental, along with several others, in continuing Mobilisa's rapid growth.

Now, further, we structured the merger so that Mobilisa would be a wholly-owned subsidiary under the parent of Intelli-Check-Mobilisa Inc. so that existing government contracts would not have to be (inaudible) to a new name, keeping the government contract items such as the tax ID numbers, the cage code, contract vehicles, such as (inaudible) and our government facility security clearances all intact. That was important to simplify the process and to ensure that the new government contracts are easily awarded.

We moved the headquarters of the new company to Port Townsend, Washington state. While not moving any employees, by placing the headquarters in Washington state, this allowed for certain advantages to include having a public company with a hub zone or historically underutilized business zone status, which allows for several government contract advantages, pretty similar to being a minority-owned business. Essentially, we've more than doubled the personnel in the Company, tripled the size of technical staff of engineers and technicians, and quadrupling the size of the customer support services.

Now, you're going to see an increased emphasis in Intelli-Check-Mobilisa on customer service. In terms of marketing, the Company can compete best on price, on best features, or best in customer service. Intelli-Check-Mobilisa will be emphasizing customer service. We intend to provide our customers with first-rate installation, training and follow-on support, and to increase our product line to have a total product offering. This will allow our customers to view us as one-stop shopping for identity and wireless security services.

We have structured the Company into three business units. One is the commercial identity systems unit, which is the traditional Woodbury Group. The second is the government identity systems unit, which will handle our Defense ID and projects like the TWIC program. The third group is our wireless programs group.

I'm very excited about the merger. Having completed the formal process, we can now truly focus on business. We have one goal -- and we are unified in that goal. That goal is to grow the Company to become cash flow positive and then profitable as quickly as possible. That's our one goal.

Now, to achieve that, we're going to emphasize three areas. First, we are going to have an increased emphasis on growing revenue by restructuring sales and bidding as a prime contractor on projects as well as the focus from the new management team that's in place. Second, we're changing the business model from selling software development kits to where we are going to develop our own applications, provide full support as a complete systems integrator. Then third, we must cut some costs, and we've already put into place some new cost control measures and looking for an additional cost savings by combining functions between the two companies. So these are in the order of priority -- number one, increase revenue; two, change the business model; and third, to cut costs.

Well, let's look at the last quarter and end-of-year results. Today, you will learn, in terms of revenue, Intelli-Check had a record-setting, best-ever quarter for fourth quarter 2007 and best year ever for the year ending in 2007. Equally, Mobilisa also had similar results, having the best ever quarter and best every year for revenue as well, so very good news in that category.

While the main goal of today's call is to present Intelli-Check's results and financials, we'll also present Mobilisa financial results later in the call. To start, Pete Mundy will cover the results of Intelli-Check operations for the fourth quarter, which were released this morning in a press release, as well as to discuss the balance sheet for the period ending December 31, 2007. Then Steve Williams will bring you up-to-date on our recent and current sales activities, and I will provide a summary of the combined company, and all of us, including Jeff Levy, are available to answer any questions.

Pete?

Thank you, Nelson. Good morning, everyone. I'd like to discuss some of pertinent financial information that was contained in our press release for the fourth quarter and the year ended December 31, 2007, which we put out this morning. The complete annual report on Form 10-K was filed with the SEC last night. I would like to point out that the information I'm going to address, as well as the reported results in the financial tables in the press release and in the annual report, are for Intelli-Check on a stand-alone basis since the merger with Mobilisa was completed after year-end.

First, I will address our year-end results. For the year ended December 31, 2007, revenues increased by 11% or $350,000 to $3.512 million from $3.162 million for the year ended December 31, 2006. Revenues for the year ending December 31, 2007 consisted of revenues from direct sales to customers of $2.448 million, revenues from distributors of $1.042 million, and royalty payments of $22,000, compared to $2.075 million, $1.058 million and $29,000, respectively, in the year ending December 31, 2006. We are optimistic that revenues will continue to increase, particularly in the commercial sector. We expect our partnerships, together with the success of our technology in tests in both the 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 there have been insignificant government revenues to date for Intelli-Check. We are encouraged by the President's signing of the 9/11 Homeland Security Bill on August 3, 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 to age-restricted products could, if enacted, lead to future sales opportunities.

We anticipate the acquisition of Mobilisa will significantly increase our business in the government sector, beginning in the second quarter of 2008. Period-to-period comparisons may not be indicative of future operating results, since we still face long sales cycles, particularly in the government sector. Therefore, we cannot predict with certainty at this time which period the opportunities currently in the pipeline will develop into sales, or if they will develop at all.

Total booked orders during 2007 were $4.6 million, compared to $4 million in 2006. As of December 31, 2007, our backlog, which represents noncancelable sales orders for products and services not yet shipped or performed, was approximately $1.9 million, an increase of 73% over the backlog of $1.1 million at December 31, 2006. Approximately $1 million of the 2007 backlog could be recognized over one to four years, depending upon the release dates by the customer.

We expect that the backlog will continue to increase as we shift our revenue model towards pushing more subscription-based and transaction-based contracts, rather than product sales for one-time fees. 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 types of contracts for the total orders booked.

Our gross profit percentage of revenues amounted to 60.4% for the year ending December 31, 2007, compared to 67.2% for the year ending December 31, 2006. Our gross profit percentage was lower than in the prior period as a result of a higher mix of our bundled sales of hardware and software products, including currently laptops, printers or kiosks purchased on behalf of larger customers, which have lower margins than our licensing products, which have a higher gross profit percentage. In addition, royalty revenues were lower in the 2007 period. Based upon the mix of products included in the orders in our backlog, it is anticipated that near-term margins will continue to be at a lower percentage of revenues than has been historically shown.

Operating expenses, which consist of selling, general, administrative and research and development expenses, decreased 5.2% from $5.227 million for the year ending December 31, 2006 to $4.956 million for the year ending December 31, 2007. Selling expenses, which consist primarily of salaries and related costs for marketing, decreased 1.9% from $1.565 million for the year ending December 31, 2006 to $1.530 million for the year ending December 31, 2007 -- primarily due to higher employee costs of approximately $92,000, due to an increase in the sales headcount, and higher marketing expenses, including Web site development fees of $60,000, which was offset by reductions in sales consulting fees of $22,000, recruiting fees of $18,000, travel, $14,000, sales support costs of $12,000, and non-cash stock-based compensation expense from the granting of stock options totaling approximately $116,000.

General and 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 12.7% from $2.665 million for the year ending December 31, 2006 to $2.333 million for the year ending December 31, 2007. It's primarily a result of a reduction in legal fees of approximately $255,000 related to the decreased activity on our patent-infringement litigation, lower non-cash stock-based compensation expense from the granting of stock options totaling $311,000, a decrease in employee costs and related expenses of $232,000, and decreases in other office-related expenses of $6000. These amounts were offset by the death benefit and other payroll costs of $152,000 resulting from the untimely death of our former Chairman and CEO, Frank Mandelbaum in June, 2007, higher director fees of $154,000, and increased accounting and consulting fees of $142,000, including our Sarbanes-Oxley Section 404 compliance fees. Also included in the year ending December 31, 2006 was a bad debt recovery of approximately $26,000.

Research and development expenses, which consist primarily of salaries and related costs for development of our products, increased 9.1% to $1.088 million for the year ending December 31, 2007 from $998,000 for the year ending December 31, 2006, primarily as a result of higher project management and employee-related expenses of approximately $82,000 and an increase in non-cash stock-based compensation from the granting of stock options of $48,000. These were partially offset by reductions in travel and convention expenses of $22,000, lower prototype and office expenses of $18,000. As the Company experiences sales growth, we expect that we will incur additional operating expenses to support this growth. Research and development expenses may also increase as we integrate our additional products and technologies with our patented ID technology, as well as the integration of technology with Mobilisa products.

Our interest income decreased from $223,000 for the year ending December 31, 2006 to $162,000 for the year ending December 31, 2007, which was a result of a decrease in our cash and cash equivalents, marketable securities and short-term investments, partially offset by higher interest rates perceived on the investments during 2007.

We've incurred net losses to date and therefore we paid nominal income taxes. As a result of these factors noted above, our net loss decreased 7.2%, from $2.880 million for the year ending December 31, 2006 to $2.673 million for the year ending December 31, 2007.

Now, I will address the fourth-quarter results. Revenues increased by 8% to $1.230 million for the fourth quarter ended December 31, 2007 from $1.135 million for the fourth quarter ending December 31, 2006. Revenues for the quarter ending December 31, 2007 consisted of revenues from direct sales to customers of $930,000, revenues from distributors of $297,000, and royalty payments of $4,000, compared to $861,000, and $267,000, and $7,000 respectively in the fourth quarter ended December 31, 2006.

Our booked orders, which represent the total value of new noncancelable orders for products, services and fees, were approximately $600,000 in the fourth quarter of 2007, as compared to $1.2 million for the fourth quarter of 2006. Our gross profit as a percentage of revenues decreased 13.2% to 58.2% in the fourth quarter of 2007, compared to 71.4% reported in the fourth quarter of 2006. As I previously stated, the gross profit percentage is lower in the current period, again as a result of a higher mix of our bundled sales and hardware and software products over licensed products. The fourth quarter of 2006 also had a large software-only sale, which contributed to the significant difference in the gross profit percentages.

Total operating expenses decreased 83% or 7% to $1.126 million for the fourth quarter of 2007 compared to $1.209 million for the fourth quarter of 2006. Selling expenses decreased 11% to $374,000 from $422,000 in the three-month period ended December 31, 2006.

General and administrative expenses decreased 7% to $495,000 for the three months ended December 31, 2007 from $532,000 for the three months ended December 31, 2006.

Research and development expenses increased 1% to $257,000 for the three months ended December 31, 2007 from $255,000 for the three months ended December 31, 2006.

Interest income decreased by $27,000 to $26,000 in 2007 compared to $53,000 in 2006.

For these reasons, our net loss in the fourth quarter actually increased by 11% to $385,000 or $0.03 per share, compared with the net loss of $346,000, again which was a loss of $0.03 per share for the fourth quarter of 2006.

At this point, I'd like to review Intelli-Check's liquidity and capital resources.

Cash used in the operating activities for the year ended December 31, 2007 was $2.239 million, an increase of $233,000 over the cash used in operating activities for the year ending December 31, 2006. The increase was primarily a result of cash used to fund the increase in accounts receivable and a reduction in non-cash adjustments for the stock-based compensation, partially offset by a lower net loss. Cash provided by investing activities for the year ended December 31, 2007 of $1.873 million resulted primarily from net redemptions of marketable security and short-term investments, which were the principle means used to fund the operating cash deficit and the deferred merger costs.

Cash provided by financing activities was $232,000 for the year ending December 31, 2007 and resulted from the proceeds of the issuance of common stock from the exercise of stock options and warrants.

At December 31, we had approximately $2 million in cash and cash equivalents and short-term investments. Our cash is invested in short-term, investment-grade municipal auction rate securities. At year-end, Intelli-Check had no bank financing and no long-term debt.

We had total assets of $4.1 million, and working capital, defined as current assets less current liabilities, of $1.8 million. Our ratio of current assets to current liabilities as of the quarter ending December 31, 2007 was 1.9-to-1.

During the year ending December 31, 2007, the Company used net cash of approximately $2.2 million or approximately $187,000 per month. During the fourth quarter of 2007, the level of accounts receivable increased by $171,000 resulting from the delay in payments of some of our larger customers. We have received substantially full collection from these accounts in the first quarter of 2008. Also, as a result of a decrease in the market price of our common stock in the second half of the year, there were no stock option exercises in the last six months of 2007, compared to cash proceeds of $232,000 for the first six months of 2007.

Not taking into account our transaction with Mobilisa, we currently anticipate that our available cash on hand and marketable securities and the cash resources from operations, including the licensing of technology, as well as from the significant amount of backlog, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.

In addition, Mobilisa generated positive cash flows from its operations in 2007 and has a substantial backlog of orders as of March 14, 2008, the date the transaction with Mobilisa was consummated. We anticipate that these will provide us with additional sources of liquidity and capital resources beginning in the second quarter of 2008. We may need to raise additional funds, however, to respond to business contingencies which may include the need to fund more rapid expansion, to fund additional marketing expenditures, to develop new markets for our ID-Check technology, enhance our operating infrastructure, respond to competitive pressures, or to acquire complementary businesses or necessary technologies.

I will now turn the discussion over to Nelson to discuss Mobilisa's financial highlights for 2007, and then to Steve to discuss our current and future marketing opportunities.

Thank you, Pete. Mobilisa also had a very good fourth quarter. Let me give you some numbers. Revenues for Mobilisa for the year ending December 31, 2007 increased by approximately 94% to $6,634,282, as compared to $3,423,456 in the year ending December 31, 2006. Mobilisa's earnings before interest and taxes, or EBIT, increased to $1,026,062 for 2007. That's an approximate 647,000 -- sorry, 647% increase as compared to the $137,358 for 2006.

The fourth-quarter results for 2007 are that revenue was $2.57 million and the EBIT was $661,000. At the end of 2007, Mobilisa had $872,289 in cash and $2.2 million -- $2, 227,134 in accounts receivable.

So those are the numbers. Those two sets of numbers set a, in terms of revenue, best-ever year and best-ever quarter both for Intelli-Check and for Mobilisa.

So now Steve Williams, our Chief Operating Officer, will now discuss the fourth quarter and future sales activities.

Thank you, Nelson. The fourth quarter represented a good example of Intelli-Check's forward progress towards executing our strategy, moving 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 applications. For example, the fourth quarter '07 for Intelli-Check, we had sales of approximately $1 million and included customers such as Fidelity and Sonoco. Continuing with Intelli-Check for the first quarter '08, we had approximately $300,000 in sales with customers such as Barclays and Chase. This focuses our commercial sector on retail and a loyalty card program was recently announced with a major grocery store chain, as well as demo products in the banking industry with a company called [Pfizer].

For the fourth quarter, Mobilisa '07 as you may know, the federal government end the fiscal year at September 30, so each year we receive the bulk of our new product orders in August and September timeframe with a busy installation schedule during the fourth quarter. We posted $4.1 million in new bookings prior to the end of 30 September. Even though, traditionally, we see little activity in new sales in the fourth quarter, this year, we had several new contracts totaling approximately $800,000.

New focus of sales for 2008 -- the Air Force and Navy have recently both purchased new equipment for their bases with installations at Quantico Marine Base scheduled for this quarter. We had approximate sales of $300,000 in first quarter '08 for Mobilisa.

The Army and Air Force have started servicewide certification and accreditation for our products. I personally accompanied the Army team who thoroughly inspected our system. They looked at our IM2500 Defense ID hand-helds and Fort Dix, New Jersey. You may remember there was a terrorist incident at for Dix. After that event, the base did a thorough review of products available and competitively selected the Intelli-Check-Mobilisa system. After the team conducted its testing at Fort Dix, they continued testing our secure network operation center in Port Townsend, Washington. While on any inspection, some items will be noted as improvements or areas to correct, I'm pleased to report the Army inspection team recommended approval for (inaudible) to operate. Further, the Air Force has already issued an authority (inaudible) authority to operate. We welcome additional testing and certification and ultimately a servicewide approval of our products will make it easier for our customers to purchase the system. In the past, each base had a certified system for use on their own computer network.

We recently also joined the Federation for Identity and cross-credentialing System Consortium, or better known as FiXs. We were also elected is a board member to this organization. This allows us to share identity validation data between consortium members, which includes the Defense Department.

With regards to our sales team, we've sales team that is deployed around the nation in the field. They will offer the combined company a commitment of 7 days a week, 365 days a year, 24 hours a day service -- 24 hours a day customer service.

We are also introducing total product solutions. We want Intelli-Check-Mobilisa to be a one-stop shop. Customers will not be able to acquire hardware and software tools, but we are offering all the attachments, components, service and additional hardware required. We will keep everything in-house as best we can.

This concludes my formal remarks. I will now turn it back to Nelson.

Thank you, Steve. As you can see, both companies had a very good fourth quarter. If you add up the revenue -- and you can do the math -- that will be a combined company that generated in excess of $10 million in revenue for 2007. Now, while the losses of one business unit exceed the gains of another business unit, this is a much healthier company that in the past. We still have some work to do, but we are moving things in the right direction. Costs were down for the year, the revenue was up, and you put these together, that's definitely in a positive direction.

We look forward to report to our shareholders the progress all along the way. At this time, we would be glad to answer any questions from our shareholders.

Thank you. The question-and-answer session will be conducted electronically today. (OPERATOR INSTRUCTIONS). [Tom Burns].

Good afternoon, gentlemen. Just a quick question -- I know that you mentioned the TWIC program a little bit earlier today. Can you give us the current status on what the government is doing with the TWIC program?

This is Nelson Ludlow with Intelli-Check-Mobilisa. The TWIC program stands for the Transportation Worker Identity Credentialing program. It's a very interesting program. This is one where the government is issuing ID cards to transportation workers, particularly in the Seaport area and then in the future, they will in the airport area as well. So, these seaport and airport workers will each have one of these TWIC cards. The government is currently estimating 1.5 million users will be issued one of these cards. Intelli-Check-Mobilisa has been working very closely with several groups within the Department of Homeland Security. We've recently presented to them and to our knowledge and their words, we were the first people to present a TWIC card reader. So we're going to be launching that as a commercial product known as the IM2700. We're very excited, and that's one of the reasons that you saw we're doing more research and development and that's one of the advantages of combining these two big companies together -- is we now have a new TWIC card reader application, a new product to sell.

Is there any -- I know you just mentioned but is there any timeframe on when the government should put out any standards on this? In other words, any type of roll-out time for Intelli-Check-Mobilisa?

That's a good question. I think what you're going to find is often the government does not come up -- even if they discuss it, does not come up with this huge RFP where they issue a lot of money and they buy millions of readers.

What happens in reality that we found with the military is it's step-by-step, and we essentially sold to every military base, base by base by base. You know what? That's exactly our philosophy that we're going to do with the seaports and airports. We've got a very good sales team that went and visited 300 military bases. Well, we're going to do the same thing with 167 seaports. We're going to visit them port by port, and we're going to get in there and we will make some sales. But I don't expect some grand Holy Grail contract from the government to be issued.

Okay, but you were mentioning before, I think it was from Mr. Williams, that the Air Force and the Army were putting out some type of approval so you'd just have one-stop selling, so you don't have to go to every military base any more?

Specifically what that's about is certification and authority to operate. It means to plug the system into their computer network, so to speak. It's kind of the seal of approval that the system has already been tested and cleared to be put on a computer network.

Previously, what we had to do was we made the sale at the base. The customer would want to buy it and then they would go through their own individual certification process. We did that dozens and dozens of times.

The beauty of this is, after the Air Force and the Army does their service-wide certification, after that is received, the product then is allowed -- we can sell it to a base and they don't have to go through that certification process again. It has already been done for them.

So would the same type of application apply to the seaports also as time goes on?

Seaports are slightly different. The Homeland Security has what's called a Qualified Products List, and there is a similar evaluation procedure. It's not exactly the same but close.

Great. Thank you very much and congratulations on the merger to the whole team at Intelli-Check and Mobilisa. I'm looking very forward to the future.

Robert Lambert, RLR Capital.

Good afternoon. I guess I'm asking a question similar to the last, and then moving on to first responders. I know at some point we have to get a good unit, a good hardware. Has that been developed for first responders, and then will you do the same strategy going from state to state to get sales?

We are actively looking at the first responder access card or FRAC. Our system does read the FRAC card. There's a lot of different hardware, just to mention a couple different companies, Intermec, DAP, Symbol, Motorola, [Labco]. We are aware of all their products. TSL is another one in the UK. We are working or partnered with all of them. I don't think it's been decided yet as well as the effort that we're doing with the TWIC card, and I think that program is a bit more mature.

Thank you.

[Richard Carp], Paulson Investments.

Good afternoon, gentlemen. A, congratulations to Intelli-Check on pulling off a quarter after Frank's death. To be able to pull off what you did, I congratulate you. Congratulations on the merger.

I have one question because I've been keeping up with everything you've been putting out as far as news and looking at Mobilisa's Web site as often as possible. But the number you gave out for cash, that was the Intelli-Check number, I assume. What is the cash position of the combined company now?

Currently, the cash position of the combined company is somewhere in the range of the same number at year-end; probably it's just close to $2 million. Mobilisa had brought some cash into the transaction, and Intelli-Check had used, in the first quarter of the new year, approximately $200,000. There were some significant payments on income taxes that were due with regard to the Mobilisa transaction. We are hoping that the utilization of our net operating losses that Intelli-Check has will help reduce that on a going-forward basis.

In addition, Mobilisa brought in in excess of $1.2 million of accounts receivable at the time of the merger.

All right. I'm really looking forward to seeing what you guys can put out. Again, congratulations on your merger.

(OPERATOR INSTRUCTIONS). Bart Blout, Sawtooth Capital.

Yes, my congratulations as well, and it seems like we're talking to a real company now.

I wonder if this is possible, if you could put, on the Web site, some of the projects that you're working on. Now, you may not want to do that because of competitive reasons, but at least some definitions because, in the past, it was all rather garbled. In other words, we need to have a map that we can follow so that we can rate, both in the commercial sector and the military sector, how you're doing other than just by calling you or talking to you.

Mr. Blout, this is Nelson Ludlow. I agree and what you're going to seeing is, in the product line, we are simplifying it; we are rebagging it. Everything is going to be called and have IM number, an Intelli-Check-Mobilisa number. We're going to pick the products so that they are clean, easy to understand. If it's hard for you, the shareholder, to understand, it is also possible that it's hard for our customers to understand. We want to make sure they are clean and easy to do, and our Web site is going through several processes. Absolutely, we will try to -- I think that's a good comment. Thank you.

One other question -- is it possible that you could just briefly give us a sketch as to the competence that you have in the military is exceeded -- exceeds the competence that I perceive we have in commercial. I don't know if that's correct or incorrect, but how do you stand to drive the company in the direction so there is competency in both places?

Okay, well I think the competency is good in both. We have three business units; there's one other wireless. Let me briefly mention (multiple speakers).

Yes, no, I meant to include that, to.

Well, the reason I mentioned the wireless one is you're going to see that both the identity systems in the commercial and in the government space, both are somewhat seasonal or cyclical. They have the lesser first quarter and they have the strongest fourth quarter.

The beauty of our wireless programs is it is extremely well funded; we have a lot of good research and development funded government contracts in that area. That will help us stabilize and kind of smooth some of that out, so to speak, so that it isn't extremely cyclical.

The other is we've restructured our sales team. We've made some personnel changes; we've put people in different areas. One of the things we've already found is several of our salespeople, by combining the product lines and putting the talents together, re helping each other sell into the government or into the commercial space.

Also additionally, Steve Williams, our COO, and I are spending -- who did spend time in our government area, are spending significant time in the commercial space. So we are ramping up in the commercial area, and we have -- we're putting a lot of energy there.

Thank you very much.

[Mike Buckley], [BMC] Capital.

Congratulations on combining the companies. I've got couple of questions; maybe you can shed some light on them.

Can you discuss the wireless over water program, what your intentions are, what your visions are? Can you give us an idea of what your short to long-term revenue goal projections are? Where do see this company down the road as far as where you want to take it? Obviously you have to discuss today your vision for where you see this company now as the new CEO. Can you give us an idea what you do when they get out there and generate some additional interest in the company, and getting obviously the negatives taken away from the short (inaudible) and making a major problem for the shareholder. Thank you.

Thanks, Mike. Wireless over water, we call that WOW. That's a very exciting program. Originally, what we did is we first used that technology to put wireless on passenger ferry systems. It got a lot of press; we actually made the front page of the Business Section of the New York Times and dozens and dozens of other publications. It actually set a record of having the most users of a Wi-Fi system in a passenger environment, even larger than the Boeing connection project.

We also did it for British Columbia Ferries, extended that. But really what was nice is we extended it to the Navy. What they're doing is a thing called Floating Area Network, ship-to-ship wireless. We were recently notified that we're going to be part of a Navy experiment called Trident Warrior 2008. This June, this system is being live tested on three naval vessels between San Diego and Hawaii and several admirals are evaluating this new technology. In a time when satellites have had some problems recently, and I think you saw the news where the Navy had to shoot down their own satellite, this direct ship-to-ship wireless is now more important and more important to the Navy than it ever has been.

We're starting anew project where we're putting wireless on buoys. This is for Homeland Security, for Navy protection of ships and ports in harbors. One of the interesting things to me is, in Homeland Security, the largest increase of new funding is in port security. My vision for wireless is that's where we go. This is not the type of wireless maybe for cruise ships or something; this is for protecting a port and the ships and the environments around them. So rather than waiting until some terrorist event could occur in a port, if we put sensors on buoys, we can extend that safety perimeter out many miles away from the port. That's really my view, to kind of become portsecurity.com for that group to really grow themselves to be the protection group for ports and providing that wireless capability out there.

For short-term goals, we can't give any specific projections because we as a management team and board have been unified and that's not what we want to do, to give out promises, because what we want to do is we want to under-promise and over-deliver. We want to make sure we achieve those goals. But the one goal that we have stated is that we're trying to push as hard as we can to be cash flow positive and then profitable as quickly as we can. I think, if you add up the numbers and see where we are, we're not that far from getting there and just with a couple of more million in revenue we're probably going to be very close to that point. So you can kind of guess with the direction we're going.

The final comment you had about generating new interest in the company, that to me is one of my main jobs as CEO. I have a lot of help from other people in the Company to do that. On Monday, I am flying to San Francisco, meeting with several of the investors on the West Coast and later in the week coming out to New York City and meeting with them. I'm going to make an increased effort and emphasis to meet with investors, to do press releases. I have my Director of Communications, Micheline Mendelsohn, sitting right here, and our investor relations firm. We want to get the word out. We think we have a good story to tell; we want you to hear it, and we want new investors to hear it.

Operator, are there further questions?

(OPERATOR INSTRUCTIONS). Bart Blout, Sawtooth Capital.

This is probably a little stupid but what keeps people from blowing up those buoys?

I didn't hear the question. You said what (multiple speakers)?

Buoys that you have where you put the wireless stuff on, what keeps somebody from destroying the buoy?

Well, okay, let me just comment on that. One of the advantages of buoys obviously is they are unmanned, so if somebody did attack them or blow them up, it protects life. The military often uses systems like that. We helped them build a thing called the Unmanned Surface Vehicle. It's a remote-controlled seven-meter rib. It's kind of a boat that is remotely controlled, and we help them provide the wireless to move the collection information off of that back to the mothership, to a destroyer for example. If that thing got blown up, thank God there's no people aboard. So I assume some of these things are expendable but they will be able to record the fact, have video and sensors that ships and people are getting close, and be able to alert the port before they actually get to where they can hurt someone.

Thank you.

Michael Buckley with Intelli-Check.

Yes, gentlemen, on that wireless over water, can you explain that a little further? Are you really talking about creating a sort of force field around the continental United States, as far as shipping goes? Potentially, if that is the case, can you sell this to other -- would you sell this to other countries as far as that technology? Obviously, if you blew up a buoy, you would have some kind of an alert mechanism that something is going on off the water, so I guess that would be a good indication that something is happening. Can you tell us potentially what this could mean to the Company as far as where can you take this outside of just the continental United States, and how much revenue could something like this conceivably cost? How many buoys would you conceptually need and what would the cost of each buoy be? I mean, this sounds like something that would be quite a Defense Department initiative.

Well, it is an exciting initiative, and the Navy I can tell you is quite excited about it. Our wireless over water are also a term we use called FAN, floating area network, was ranked by one admiral in his top five priorities of all things he has to have.

We have a view on our Web site, icmobile.com, that you could look at, that talks about a floating area network, and it's a retired four-start admiral who used to be the commander of what's called [XENPAK] fleet, commander of the whole Pacific, talking about it. And in the old days, ships couldn't leave because the engines had a problem or something. Nowadays, ships can't leave because they have a computer network problem. So being able to provide Internet capability, super high-speed-capable networks between ships, between buoys, between the shore and the port, that's a big deal. We're talking about such high-speed bandwidth that you can move video. So, it really just changed the way the military looks at things, the way the Coast Guard could look at things, port security. We are very excited about this new technology, and a good portion of our backlog for 2007 is funding for those programs.

Okay, well, thank you. If there's any other questions?

At this time, we have no further questions, gentlemen.

Well, I would like to thank everyone for listening to our results. We appreciate you as shareholders. Thank you very much. Have a good day.

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