Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Cogent Systems fourth quarter full year 2007 financial results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded, Tuesday, February 26, 2008. Now, I'd like to turn the conference over to Rakesh Mehta with the Blueshirt Group. Please go ahead, sir.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Cogent's fourth quarter and full year 2007 financial results. This call is also being broadcasted live over the web, and can be accessed in the Investor Relations section of Cogent's website at cogentsystems.com for 15 days. With me on today's call are Ming Hsieh, President and Chief Executive Officer; and Paul Kim, Chief Financial Officer; Jim Jasinski, Executive Vice President, is also joining Ming and Paul for the Q&A session. After the market closed today, Cogent issued a press release discussing the results for its fourth quarter and full year ended on December 31, 2007. If you would like a copy of the release, you can access it online at the company's website or you could call the Blueshirt Group at 415-217-7722 and we will fax or email you a copy. This conference call will include a discussion of non-GAAP financial measures, as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company's financial results, prepared in accordance with GAAP, are included in the earnings release, which is posted on the company's website, at cogentsystems.com. We would like to remind you that during the course of this conference call, Cogent's management may make forward-looking statements, including financial projections, statements as to the plans and objectives of management for future operations, and statements as to the company's future economic performance, financial condition, or results of operations. The company believes that its estimates and expectations are reasonable and based on reasonable assumptions. However, risks and uncertainties relating to future events could cause the actual results to differ or differ materially from these expectations. For a full discussion of the risks and uncertainties, please refer to today's press release and our recent SEC filings, including, without limitation, the company's report on Form 10-Q for the quarter ended September 30, 2007. The company does not intend and assumes no obligation to update any forward-looking statements. With that said, I'd now like to turn the call over to Cogent's President and CEO, Ming Hsieh. Please go ahead, Ming.

Thank you, Rakesh, and thank you everyone for being on the call. 2007 was a challenging year, but not without a significant account position and promise, as a number of potential applications for biometrics solutions continue to grow. We are seeing new opportunities in all facets of our business -- border control, law enforcement, civil and commercial. We continue to be excited about the potential of each of our market. We are optimistic about the delivery and the improving financial performance in 2008. Our revenue over the last two quarters has been lower than anticipated, due to the delays, and the falling short of certain projects in the second half of 2007. Despite this, we still delivered a good earning growth for the year, with non-GAAP EPS, excluding legal fees, coming in at a $0.09 per share for the quarter, and the $0.39 per share for the year, which is well within the revised guidance ranges, we gave in our last conference call. We were also pleased with our success over the last year in winning a numbers of new contract awards, and obtaining further orders from existing customers. As samples, some of our contracts awarded over the last year include AFIS contracts in Spain, Uganda, Hong Kong, Egypt, Houston, Canada and Syria. I am pleased to announce that we were also awarded a contract from a large banking consolid in India to provide authentication identification transaction based services for Indian banks. Moreover, we continue to expand our background checks, probably in Pennsylvania and Georgia. We also have major follow-up orders from over the last year to expand the new Cogent technology from existing customers, including DHS, RCMP, Italy Jamaica, Bulgaria, Chile, Singapore, Connecticut, Fresno, [Simlas] and others. Also in early 2008, I am pleased to announce that we were…

Thank you, Ming. I should mention that, unless specifically noted otherwise, we are discussing all numbers on a pro forma or non-GAAP basis. Fourth quarter GAAP results included 532,000 in non-cash charges related to FAS 123 regarding the expensing of non-cash stock-based compensation. In today's discussion, I will first give you an overview of our fourth quarter results, then give you our financial guidance for a full year 2008, and finally finish with an update on our pipeline and opportunities going forward. Fourth quarter revenues were $21.9 million. Product revenues decreased sequentially by 7%, while maintenance and service revenues increased by 8% from the third quarter. Revenue contribution during the quarter came from customers such as the DHS, Delivery Identity Systems, Chile, Bulgaria, RCMP, Ohio, San Joaquin County, LA Sheriff's Department, and Pennsylvania. Last quarter, we noted a delay in specific follow-up on orders from LA County, and delay in recognizing revenue for the Maryland contract. Also we anticipated an award and revenues from Algeria for a Criminal AFIS system, which is now being bid as part of our larger program. We do not see contribution from any of these opportunities in the fourth quarter, which led to overall revenue for the year to come within our revised guidance range. Gross margin rose 71.5% in Q4, compared to 55.6% last quarter. Higher gross margin is primarily due to product mix. For the year, gross margin came in at 62.1%, which is above our annual target range of 55 to 60 points. This is also very good improvement from our full year 2006 gross margin of 57.8%. Looking ahead, we expect gross margins to be above our annual target range for 2008. At this time, we foresee 2008 annual gross margins to be more, possibly higher than the 62 point margins…

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from the line of Julie Santoriello. Please state your company name followed by your question.

Hi. Thanks. It's Morgan Stanley. Paul, question around the guidance, sounds like you've taken a conservative approach again and looking just at revenue that you can see from follow-ons and recent wins and long-term customers. Can you share with us and it sounds at the same time, is though you remain still very confident about the pipeline and just state the size or magnitude of that pipeline? Can you put a general range around it for us in terms of potential opportunity for additional revenues in 2008?

Sure. So, I'll will answer the first part of the question and then I'll turn it over to Ming, who can talk about the upside, if any, that will come from probably the most important and large customers that we have. The pipeline for the company as well as backlog, backlog can fluctuate based on certain scenarios as I have mentioned in my script. But backlog that we have at the end of 2007 is at records levels. It's at $140 million. If you compare that to what we had last year, even back in 2005, it was at $133 million, 2004 it was at $127 million. We feel very good with the orders that we have in place that's in backlog as well as the opportunities I had. I think the other point to note is we have a much broader set of customer. As you know, in the last three or four years Venezuela has been a big component of our revenues and we have nothing in terms of Venezuela that's big into the guidance for 2008. It doesn't mean that we can't get work there. We're going after opportunities but that's not in the $120 million guidance. So given that we have a lot of orders, and given that the pipeline looks very promising, and given that we have a much broader set of customers, we feel good about the pipeline. On the flip side, as both of us know, revenue recognition and the timing and predictability on when the orders are going to be placed by the customers and when we can record it into revenues will and has been an issue. And we don't want to take any kind of aggressive assumptions for that, so when you kind of wrap all that in, we feel very comfortable with the $120 million of guidance that we're giving out to the street, but there is a potential for upside. And as I indicated, the upside could potentially come from a feel of our large customers and I'd like Ming to talk about that.

Yes, Julie. We are working with the couple our major customers. At the present time it's redefining some of their goals and their performance targets. Those numbers are not finalized, so we cannot give the details about what is size of the project at the present time. But definitely, we do see the increase demand from a couple of our key customers and they show strong indications that they want to get new performances terms are defined. But we are looking on and we defined those parameters at the present time, that's why we are not able at this conference call to give this numbers.

Okay. Can you talk about with the picture become clear in terms of with those larger customers are planning on doing. Will it become clear in the near-term or in the next few months or is there something that's more backend unloaded for 2008?

It should be next few months it will be getting clear.

Okay. Thanks. And Paul can you just share with us the revenue contribution from DHS in the fourth quarter and also if you would share with us your assumptions from DHS in 2008 guidance?

During the fourth quarter revenues from DHS was the largest contributor to our top line and looking at 2008 we anticipate the revenues from the US-VISIT program to continue to grow. And we believe that it will be the largest customer in 2008 unless if some of these variables from large programs that are not related to a DHS comes together in a really promising way.

Okay. That's all for now. Thank you.

Thank you. Our next question is from the line of Jeff Kessler. Please state your company name followed by your question.

As you probably know the NGI does award the systems integration contract. However the [swift] application for the biometrics of fingerprint item key general requirement is not released yet. We did see the draft [RFI] version of that specification, which has required enormous processor power to handle the system. To satisfy that requirement, we do introduce a new technology, which we call the PME, [Unique 4], which is 6 million comparisons per second. It is a very, very powerful machine and which we target for the FBI's opportunities, but in terms how many they need to buy, we need to see their detailed project specifications. We do believe with the new machine, we could set us apart from our competition by the way continued increase our effort, try to continue improve our own products efficiencies.

So, what the AFIS portion of the contract come, did the contract value come from the $1 billion awarded to Lockheed Martin or could that be in excess of that?

We believe for the FBI stated their project is about a $1 billion. They will spend about $1 billion for the projects and we believe the fingerprint identification should be a large portion of that project.

Okay. And then could you maybe give us a little color. I know you said you have a lot of awards and customer discussions that are going on just with respect to your cash usage. I mean clearly using some of it clearly not a big portion to buy back shares. What is sort of your I guess medium to longer-term goals with the healthy cash balance that you guys have?

Okay. I can answer your questions in two ways. The one is about our new products. We are receiving a strong interest from our global customers regarding about our PMA technology as well as our mobile and LiveScan products. So, that strong interest is pretty high. We have lots of meetings with the customer in first part of January and we continue to try to schedule the meeting with our customers. That's in terms of new product issue. In terms of how do we use the cash, we are pursuing opportunities. We are looking for the target, but for adding some merger and acquisition target. Some of the target is short-term. You might see some results shown late in next one or two months. Although, the job opportunities work on may take a little bit longer but we expect sometime happening in 2008.

Okay. And just one final question for FY'08, what sort of stock compensation assumption should we use? I know you gave your guidance in a non-GAAP excluding that, should it sort of be the 532,000 run rate this quarter?

Yeah. I think that's appropriate estimate.

All right. Thanks guys. I'll step back.

Right.

Thank you.

Thanks you. Our next question comes from the line of Matthew Mckay. Please state your company name followed by your question. Matthew Mckay - Jefferies & Co: Yes. Well, Jefferies. Good afternoon, guys.

Hello, Matt Matthew Mckay - Jefferies & Co: You talked about this new PMA server and if you could talk a little bit about just this new server ability to drive an upgrade cycle with your exiting customers and also maybe its ability to potentially drive additional service revenues as well.

Matt, yes, as you know, every almost 18 months or two years, we introduce a new technology and this time we introduced a technology, which is a two times more performance than our previous generation technology. We do see through mobile identifications deployment and many of our customers require real-time identifications and it's not more, any minutes they want to see seconds. Based on those kind of demands, we are pushing for the new technology and try to give it faster. And we see that requirements from where is state and local governments and they have to give us an enormous forecast in terms of matching capability requirement because of these mobile demands. Because these are new products and because we have such a high super capabilities, we do believe that we can define better margins for our product rollout for this year. Matthew Mckay - Jefferies & Co: Okay. Have you sort of shown this to, for example, US-VISIT or any other customers and kind of what interest have they expressed in terms of potentially upgrading and over what time?

We do present the product to all our key customers. Matthew Mckay - Jefferies & Co: Okay. And if they express

Include the DHS, yes. Matthew Mckay - Jefferies & Co: Yeah. And have they expressed any interest to move to upgrade?

As I indicated, all of our customers were encouraged, because we expect us to roll out the new products, but they expect maybe 4 million match per seconds. But we surprised everybody for much, much better performance for this product. Matthew Mckay - Jefferies & Co: Yeah. And it's very impressive. And then, just secondly, maybe if you could share a little bit about looking into the pipeline for new product introductions and what we might be able to expect over the next couple months or during 2008?

We will introduce some new products in mid of this year via the new mobile identification devices, a new life skin devices and the some products for the commercial market. Matthew Mckay - Jefferies & Co: Okay. Look forward to. Thank you a lot guys.

All right. Thank you.

Thank you. Our next question is from the line of Brian Gesuale. Please state your company name followed by your question.

Hey, guys. Raymond James. Congratulations on the quarter here. It sounds like you're entering the year with record backlog and I don't want to words in your mouth but it sounds like the pipeline of stuff you are bidding on or have bid on plus you expect to bid on short lease as broad and as deep as it has being in quite some time. Can you add a little bit in how we should we should expect the year to unfold seasonally. I would imagine the first quarter perhaps being the softest and maybe a first half versus second half of the year revenue split and then just a little bit to bog you down a little bit more Paul when, how should we expect that Northrop Grumman License revenue to come in throughout the year?

Okay. Lots of few questions I will try and answer each and every one of them. In terms of our pipeline it does look as good as its ever being in terms of what we have in there as well as the number of customers and looking at 2008 we definitely know that we will have revenues from customers such as the department of Homeland Security, Egypt, Hong Kong, Maryland, LA, Morocco, Spain, Texas, Pennsylvania and Santa Cruz and possibly Northrop Grumman mostly likely Northrop Grumman. I'll get back to that in a little bit. In terms of the proposals that we have outstanding, we have submitted these proposals and we are waiting to hear back on Algeria. That's a very sizable program. Belgium, El Salvador, Oman, Libya. And then, we've various ID card, an ID systems proposal that we're waiting to hear back on. And then looking out ahead, we do know that there are opportunities associated with the FBI, DoD, UK and various countries like Israel, Greece, Turkey and New York. So, when you kind of wrap all that together and taking a look at the things that we have, the things that we are waiting for and things that we are going to be going after, we feel that the pipeline looks very promising. Now having said all of that because most of these are governments, we also have experienced the risk of timing of a war and how the revenue flows in from the government and that's why we're taking a conservative view with our guidance at this time. We can certainly change that, as we get additional data points and we certainly will update you on our guidance and our outlook for the year. As far as the variables that can turn that needle and…

Okay. That's a great answer. Thanks, Paul. I'm wondering just on the housekeeping side of things if you can give us the revenue contribution from the top three customers in the fourth quarter.

So the top customers that we had in the fourth quarter, DHS was a very important customer, and then we also had Rwanda, Ohio, Chile and Bulgaria that made up a decent chunk of revenues in the fourth quarter.

Okay. Thanks very much.

You're welcome.

Thank you. Our next question is from the line of Brian Ruttenbur. Please state your company name followed by your question.

Yes. It's Brian Ruttenbur with Morgan Keegan. First question deals with the guidance, I'll get that on out of the way first. In your $120 million revenue guidance, does that include Northrop in there, and if so, how much of Northrop is included in there?

So it does include Northrop Grumman, but it's a very nominal amount. It's less than 10%.

Less than 10%? Okay, great. The next question I have is they will include FBI in '08, is that correct?

That's correct.

Okay. If the FBI were to hit, what's the timing of that right now? I heard the second half of '08, I think in Ming's comments, can you tell us a little bit more specifically on where you're seeing that shake out? Does that mean July, does that mean December?

Let's play it safe. We didn't count any of the revenue from FBI for this year. We expect the contract award probably later this year versus July. It could be higher than earlier. But as I said, let's plan for the end of the year.

Okay. Can you give us a complete update on what's going on right now as in they are currently evaluating, they are going to evaluate for 90 days just walk us through the process maybe?

I probably let Jim to cover that issue with you what's the issue.

They had the kickoff meeting with the systems integrator last Thursday and the first task that the systems integrator has is to prepare for the AFIS evaluation. And that will probably take anywhere from four to six weeks before we really have any schedule or progress beyond that general guidance.

Okay. So you don't have real timeline then yet where you can say it's going to take three moths of evaluation and then and four to six weeks our next conference call you should be able to walk us through kind of the process?

That's correct. We can not give any further detail because we don't have it. And I think that something is still being developed by the FBI. The main thing I think is that the only once that can be evaluated for the AFIS those who are been through NIST Certification process. So, it's only those companies that are eligible through that NIST evaluation that has already conducted through their SDK testing and as a result that will limit the number of participants.

Okay. And then final question is the breakdown of expenses in the fourth quarter you did R&D of about 2.9 sales and marketing 3, G&A 2.4 going forward legal expense should drop, which comes out of the G&A. Can you tell us kind on a going forward basis R&D should be at that 2.5, 2.9 level was fourth quarter aberration. I'm just trying to get some kind of seasonals into this.

Sure. So, R&D based on our projected headcount and the 39 people that we have allocated for hiring in 2008, it will primarily being an engineering and that includes R&D engineering as well as operational support engineering and then sales and marketing. So, when looking out at 2008 in terms of total R&D expense it should be below $30 million, but in the high 12 like between $12.5 million and $13 million. So, I think that the run rate that you're taking to look at right, it is the appropriate run rate and then you kind of have to tack it up a little bit for the additional people that we are going to be hiring.

Okay. So, it should be incremental from quarter to quarter kind of building or every quarter?

Yes. If we have some equipment, they can fluctuate it somewhat, but it's not a capital intensive type of R&D. I mean these are software engineers. So, its largely labor-driven, head count driven.

Okay. And can you go through the same thing on sales and marketing in G&A for us?

Sure. So, sales and marketing, it should be approximately little bit over $10 million and then G&A should be right at about $9 million. We are going to try and keep it under that and that's the target that we have.

Great, that's helps a lot. And all of those should build throughout the year?

Yes.

Okay, great. Thanks.

Thank you. Our next question is from the line of Scott Zeller. Please state your company name followed by your question. Scott Zeller - Needham & Company: Hi, Needham & Company. Could you just tell us with the RFTs that are outstanding right now? Have you seen any changes where they have been either expanded or contracted with scope over the past couple of months?

I think is Scott, we have seen pretty typical RFPs and these are the kinds of RFPs that we're seeing all the time. But you probably try to mean whether they include multi-modal biometrics or not. We still see RFP we are working on majority of the component is the fingerprint. We do see the requirements for the mugshot photos and with option for the searching capability and we do occasionally get some requirements they may need iris as an option, but in general that what we have seen. Scott Zeller - Needham & Company: I guess to be more specific once you submitted RFPs and responded to them. Have you had any changes where scope has been tightened and the project is shrunken? I guess this is really what I'm trying to get out.

I see. No, normally, we see the otherwise. Once the RFP is expect all contracts are award, customers always adding more changes and adding more options. So we are not even shrinking the contracts. We see the contract size getting expanded. Scott Zeller - Needham & Company: Okay. And then could you give us approximate share count for the March quarter that you're expecting?

For the March quarter, it should be between $92 million and $93 million, probably closer to $93. And that's only estimating the number of shares that we bought back so far. I mean, if we continue to buyback shares obviously that can go down even lower. Scott Zeller - Needham & Company: Okay. So that doesn't really factor on the continued buyback.

No, its not. Scott Zeller - Needham & Company: And could you review the details of your 20% investment that you did this quarter in ANP?

The ANP is a technology company. They currently divide the products for DoD for the biological warfare detections and the same technology can be used to extend into the medical field for the home diagnostics or the diagnostics at the point of [home cares]. So this is the company we have been working with them. They produce a biological detection assays. For Cogent, we provide our pattern recognition technology and the reader technology to quantify what is the density. And this is the project we've been working with them for past three years. We do see there is a lot of growth potential for that product and we do see there is a potential market to extend into the commercial and the home cares area and that's why we made our investment and also we contributed our technology to them. Scott Zeller - Needham & Company: And how much of a revenue -- its sounds like a passer but how much revenue would you expect to pass through them in calendar '08?

We during the historically, we're doing about the close to $1 million a year with them. Scott Zeller - Needham & Company: Okay.

We're hoping to do a little more Scott Zeller - Needham & Company: Thank you.

Thank you. (Operator Instructions). And our next question is from the line of Ben Radinsky. Please go ahead.

Thanks. Last year if you look at the backlog number, it was $120 million in revenues came in at $105 million. Was there a change in the quality of that backlog throughout the year, or was $15 million just pushed into the outer years?

So last year, our backlog was at $120 million, but not all of the $120 million was short-term backlog. We have backlog that goes beyond one-year. So I believe I am answering your question. Most of the short-term backlog that we had last year was converted over into revenues in 2007.

So the $140 million in backlog that you presented today, what percentage is short-term versus long-term?

Little bit over half is short-term and then the remainder is long-term.

And how long-term?

Some of these contracts, it can extend out for say like a period of three years or so. But I mean most of it is converted within 18 months.

Okay. From a bigger picture vantage point, the NGI press release was very clear and that they were focusing on multi-model systems. Do you find that surprising? Do you believe that you still have this same competitive advantage as AFIS moving through different place than it had been in the past?

If you take a look for almost all the system we installed is equal the multi-model. It has the fingerprints. It has the facial. The fingerprints are always used as the primary biometrics. If fingerprints does not exist, the customer can select either use of facial or other biometrics to conduct the searching. So I do not believe that we are surprised with the NGI's approach. But I think that's a pretty typical for us.

Okay. And then from technological point of view, it's very impressive what you've been able to do in terms of matches per second. Is that still the relevant feature though that your customers are looking for as the processing power becomes cheaper? Is it really necessary to have the server that can do so much instead just buy another server and you have regular processing?

I do believe that a real-time response provides the value. If you take a look at the US-VISIT as example if we are not able to process data at such rapid speed, you're going to back out all the travelers at the airport. You have to build a new airport waiting facility to host those travelers. I do believe for the mobile identifications they cannot wait for minute or hours, they need a seconds response. So for those kind of demands, you need higher throughput powers to provide the services.

Right. But can't that throughput be provided not by one super powerful server, but you just have lots of, you have the server farm that is doing the matching with multiple processing points?

Sure, it did. Our competitor is using thousands of Intel processors to compete with one of our box. So that definitely will give us a better competitive advantage against the competition.

Okay. Thanks. That is it for me.

Thank you. And our next question is from the line of Jeremy Grant. Please state your company name, followed by your question.

Thanks guys. That's Jeremy Grant with Standford Group. I wanted to talk a little bit about US-VISIT. It seems like you can't read a story about DHS Secretary Chertoff, without him mentioning that he wants to get the 10-print upgrade done by the end of the calendar year. So obviously, you are seeing some of the high profile roll-out of the 10-print scanners at the airports. But what can you tell us about the timing of what is going on upgrading the back-end of IDENT to support those 10-fingerprints?

Hi, Jeremy. As you probably know, for the US-VISIT 10-print process, even though they updated all those 10-print scanners, it takes us some period of time to get all databases collected and built. So we are taking a conservative approach to make the linear model over the next few years inside the once locked procurement.

Okay. So you are not assuming a huge change then in revenues this year. Rather, you think this is going to be built over several years?

Until we see their new specifications, and how do they handle that the DHS make out a new vision of how they handle the process. And we are encouraged to see their new visions. And as they give you more details, release how they handle the new process, we will have more data to provide you. At the present time, we just don't know it.

And what do you think timing is, in terms of when DHS is going to provide all that?

We believe in next few months, those picture will be clear.

Okay. And then the other thing I wanted to ask about was the EU. I know they have also had some big announcements that they want to step up what they are doing with biometrics to actually be not just part of the Visa application process but also roll it out to border entry points, much like we do in the US. But a year and a half ago, you had the big battle with Sagem, and they came in at a much cheaper pricing. You lost that bid. Are you expecting that this next round of EU work, that they are talking about to just roll into that Sagem contract? Or do you see new opportunities over there for bids in the countries coming out?

I believe, Jeremy, that we do see the new opportunities. You mentioned the battle we have with our competitor and low balled jobs. Until now, that system is still not running. So I think, as we do have new opportunities, and I think that's why with the new technology we introduce, it will be harder for our competitor to continue to give system away.

Okay. Another question I had Northrop Grumman and I know the terms of the settlement. I think you were supposed to get $15 million cash payment as part of the settlement from them last month. Did that go forward?

Yeah. We were paid with respect to the terms of the settlement agreement. We were fully paid.

Okay. So that show up on this quarter, is like a one-time exceptional item below the line?

The payment that we have that will be recorded in cash, how it's going to roll through the income statement, I believe I answered that earlier. We are still assessing it.

Okay. I know there was the settlement fee and then was the licensing fee. So I was just trying to get an idea of how that was going to, if those are or you are assessing both of them I guess is the question? And then the other question I had that might be tied to that, is your optimistic gross margin forecast of 62% to 66% this year, what do you see changing in the business or, I guess, your revenue mix over the next year, that's going to allow you to grow that so significantly? And is a lot of it tied to anticipated revenues coming in from Northrop that will drop mostly to bottomline, or are there other efforts as well?

No. As I indicated, the Northrop accounting is still being assessed. What we have in the guidance is well below 10%. So it's not a big factor, in terms of the guidance that we laid out. In terms of the treatment for Northrop Grumman, on the income statement that's being assists. As far as the cash, that's pretty straightforward, that we don't have to assess. They paid us $20 million in early January and that was recorded into our cash balance. As far as what's leading us to give this positive increase to the gross margin range, it's primarily due to the introduction of better technology, more accurate and faster products having the lowest cost, with the least amount of investment, sheer high customization, and we feel very, very good with it. I mean the other way to look at it is to take a look at the gross margins that we achieved for the balance of 2007. We have zero revenues from Northrop Grumman. But the fact that we're developing new technology, the fact that we are introducing new suites of products even in this competitive environment, we are able to increase our gross margins. And we feel very confident in our ability to continue to deliver high gross margins and to expand our profit going forward.

Okay. And then, the final question I wanted to get into was just cash flow on the quarter. I know there was a lot of deferred revenue. Can you just talk a little bit more about whether this was sort of a one-time event, and when you expect some of that to be recognized in cash flows, which have generally been very strong quarter-to-quarter, should pick up in terms of what we're used to seeing?

Sure. Two things on the cash flows. I mean, one, we purchased a significant amount of stock in Q4 and we purchased even more stock in Q1. So, you're going to have to strip that out in doing your cash flow analysis. And then, the other thing is our accounts receivable that went up. But the accounts receivable, the reason why it went up is related to two of our largest customers and we had zero history of write offs or uncollectibility from those customers. So we feel fully confident that we can collect on those receivable.

Okay. In terms of timing on that though, is there something you think will get resolved this quarter or could it drag another quarter or two before that gets resolved?

It wasn't due at the end of last quarter. It is due during this quarter. So, you should see the AR balance related to those two customers being relieved at the end of this quarter.

Okay. I appreciate it. Thanks

No problem.

Thank you. And there are no additional questions at this time. I'll turn it back to management for any closing remarks.

All right. Thank you very much for you to be on the conference call and we'll keep you updated for the next quarter. Again, thank you.

Ladies and gentlemen, this concludes the Cogent Systems fourth quarter full year 2007 financial results conference call. If you'd like to listen to the replay of today's conference, please dial 800-405-2236 or 303-590-3000, using the access code of 11107530 followed by the "#" key. AT&T would like to thank you for your participation. You may now disconnect.