FB

Cross Match recently executed the major acquisition of Smiths-Heimann Biometrics in Germany. Can you please elaborate on the thinking behind that acquisition?

JZ

I would be happy to! At the time this acquisition was being contemplated, we believed that if we could combine these two companies it would create a new dynamic in the business. In particular, what it would do -- from the Cross Match point of view and from Smiths-Heimann's point of view -- was three things. One, it would expand our engineering and software capabilities significantly, drawing on the complementary nature of these disciplines on both sides of the Atlantic. Secondly, and very importantly, it would expand our manufacturing surge capacity. I know that both Smiths-Heimann and Cross Match have both, on occasion, been confronted with delivering rather large orders in a very short time frame, such as the Venezuelan voter registration project which involved 10,000 scanners. Having the ability on both sides of the Atlantic to manufacture the same products gives us tremendous surge capacity. Thirdly, there is no question that the Biometrics business is an international business. The business model that Smiths-Heimann had was one of distributing internationally through partners -- through AFIS providers and integrators and others, and so by putting these two companies together we created a major international footprint with, at this point, an installed presence in over 50 countries and over 5,000 customers. So we think that combining these two companies has created a critical mass and momentum that is changing the dynamic in the Biometrics business.

FB

It certainly establishes you as a leading international Biometric company. Would the recent announcement about your partnership with Hyundai Information Technologies for the live-scan system for South Korea be an example of that, Jim?

JZ

Yes! We are actually working on a number of potential partnerships like that. That particular arrangement, as you know, came through our German operation. They obviously have operated for years in the international arena - we are teaching them a little something about how you do direct sales in the North American market and they are teaching us a little something about how you operate in the international arena - so it is a wonderful synergistic arrangement that we have here.

FB

It sounds like a great fit! Now Cross Match has always had many significant milestones since its formation back in 1996. Can you describe some of these for us?

JZ

Yes, we have had a number of industry firsts. We were the first to get FBI certification. We were the first to achieve certification for both flats and rolls in one device. We introduced auto-capture. A very interesting first that we just recently achieved was at the ICAO (International Civil Aviation Organization) interoperability contest in Singapore for document readers. The document reader that we have -- the Authenticator 100 -- won first place because it was the only document reader tested that was able to read every e-passport presented. It was a major breakthrough for us and positions us as a major competitor in the entire border control arena.

FB

I think you have also had a first for the 1,000 ppi and you have also been very active in mobile fingerprint scanners. Is that correct?

JZ

You bet! We are still the only serious player in the 1,000 ppi market. We believe that mobile wireless is going to be a big part of the future and we are devoting a lot of resources to developing in that area. For example, the MV 100 that we introduced last year is part of our complete mobile solution and it is very interoperable with our portfolio of products. With the MV100 you can collect fingerprints in a wireless mobile environment and bounce them against the same database that is also connected to a hard-wired scanner. The other thing that we have recently introduced that is an integral part of our solutions business is something we call the PIV One (Personal Identity Verification) product.

The PIV One is a system that addresses the mandates of Homeland Security Presidential Directive-12 (HSPD-12). It is an end-to-end solution for Phase 1 of HSPD-12 implementation. It provides the entire enrollment process by capturing the biometric data, capturing the demographic data, and creates the skeletal EFT file that can be submitted to the FBI for a background check. Also, from the database credentials can be created with embedded biometric data. Now all of that is only, as you know, Phase 1 of the HSPD-12 process. Phase 2 employs Smart Card technology whereby all of this data, including the biometrics, are embedded into a Smart Card for Federal Government employees and contractors to use for both identity verification and for access control. The way we have developed the database makes it very easy to array the data in the way the government wants it for the Smart Cards. In fact, we have been quite successful already - although we have only been in the market with this for about 3 months - in selling it to a number of agencies who are now moving quickly to get into compliance with HSPD-12.

FB

Cross Match has always had a significant presence in the US Federal space. Is that because, as you have just described, you saw a need and then you created products to match specifically the demand in the market?

JZ

Well we think so! That is certainly our strategy. We are a customer focused company, which means that we find out from our clients and potential clients what they need and want, instead of trying to design something that we think they need. As a result of that approach, Cross Match hopes to maintain a good position with the Federal Government, with state and local law enforcement, and in the commercial space. These are areas that have been growing very quickly for us. While we are on the subject, let me give you the best example of what I was just talking about and that further responds to your question. The example is a new product that we just launched. In September 2005, the Federal Government put together a user group consisting of the Department of Justice, Department of State, the Department of Homeland Security, The National Institute of Justice, NIST and the DoD Biometric Fusion Centre. They all got together and said, "Look, we have all of these needs, why don't we see if we can't come up with a common set of specifications and requirements and then take those and go out to the industry and challenge industry to create a device and the software associated with that device to meet these common needs." It was a very good thing for the Federal Government to take this approach. In September, they issued this challenge to industry and in October they took responses to the request for information that they had posted in September. The challenge was to provide a new ten-print live-scan capture device and the related software that was light, fast, mobile, met the FBI certification requirements, and met certain quality and performance specifications. Industry was given 12 months to respond. We responded to the requirements request and in November we went in for a one-on-one meeting with the user group. The interesting thing was that during this period there were some public statements made by Government officials that basically said they did not think that industry could meet this challenge. When we met with the user group in November, we gave them a time schedule that promised that we would meet all of their requirements for hardware and software, we would produce a device that would be smaller in volume than they specified, that we would have FBI certification by the end of March 2006, and that we would be in production in the second quarter of 2006... i.e. April. On March 23^rd of this year, the FBI certified this new device, called The Guardian, for both rolls and flats. We also were in production of this product in April. Within 36 hours of the time that we got the FBI certification one of the major agencies in the user group came in with an order -- the first order for this device. The Guardian is 6 ins. by 6 ins. by 4.7 ins. high, weighs 4 lbs. and it will capture, segment, score for quality and create a skeletal EFT record for transmission to the FBI in well under 15 seconds! Needless to say it has caused quite a stir because, frankly, the Government never thought that the private sector would be able to belly up to the bar and do this. This challenge came right after I became CEO of Cross Match and although I didn't bet the company on this product, I guarantee you that we turned our priorities and our resources to developing this product to meet the Government's need, and we have done it a full six months ahead of the best case schedule they thought was possible.

The Guardian has applications not just at the Federal level but also at the State and local level both for civil and for law enforcement purposes. Also, when you think about the banking industry, where for example, it is a requirement to do background checks, the Guardian provides great opportunity because it is fast, it is intuitive, and it is very easy to use. It uses icons to guide the user, so you don't have to do much operator training. The commercial sector is going to find this a very appealing product and when combined with our services business that will provide fingerprint submissions for background checks, we think that we have substantial opportunities in the commercial sector.

FB

To follow-up on that comment, the commercial space for small to mid-sized companies is growing dramatically for biometrics as well. Are you planning on launching products for that particular segment of the market?

JZ

In the smaller commercial applications our Cross Match Technology services business provides an outsource opportunity for small and medium size companies that need to do background checks but don't want to put up the capital to create their own system. That is why we are promoting our services business and are deploying our technology so that we can provide this kind of opportunity to small and medium size businesses. Our services business is also scalable to meet the challenges of very large government and private sector initiatives.

FB

Jim, it sounds like this has been a good year for Cross Match with the acquisition and the new products being launched. Are there any other changes?

JZ

There is one other thing that has really been a big change at Cross Match and that is the completely new management team. I came in last August and since then we have added a new General Counsel, a new CFO, a new head of Sales, Marketing and Customer Service, and a new head of manufacturing. These are all highly qualified and experienced people. We realigned our management and our focus has been on efficiency and the bottom line, but even more so, our focus has also been on having a clear vision of the future. We are making some investments today that we believe will pay off in terms of realising on that vision. To me that is one of the most exciting things -- this new energy and new vision that is going on at Cross Match, and above all our desire to win!

FB

Jim, thanks for speaking with us about the great things going on at Cross Match.

JZ

Peter, it has been my pleasure.

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