BEACON EQUITY RESEARCH - QualityStocks

BEACON EQUITY RESEARCH 

Analyst: Victor Sula, Ph.D 

Initial Report 

February 27, 2007 

INTELLIGENTIAS 

San Francisco 

82 Pioneer Way 

Suite 114 

Mountain View, CA - 94041 

Phone: 972-987-5880 

www.intelligentias.com 

Market Data 

Symbol 

Exchange 

 

Current Price 

 

Rating 

 

Fair value 

 

Outstanding Shares 

 

Market Cap. 

Average 50-Day 

Volume 

ITLI 

OTC BB 

$1.25 

Outperform 

$2.50 

86.38 Mn 

$88.1 Mn 

40,814.6 

Company Introduction 

Intelligentias, Inc. (ITLI) is group of data intelligence companies that market 

Homeland Security products to law enforcement agencies, telecommunication 

companies, and Internet service providers all over the world. 

The company’s subsidiary Retentia, Inc. sells data retention, tracking, and 

management software. ITLI’s customers use Retentia’s software to keep track 

of the phone calls made by their clients, to notify them of security breaches 

and malicious behavior, to keep track of the web sites being visited. Even 

more, Law enforcement agencies use Retantia’s software to catch criminals 

and terrorists. 

In addition, ITLI intends to focus on fraud, identity theft, identity authentication, 

and verification, through its data investigation company, Investigatia, 

Inc. While, ITLIs’ third subsidiary Interceptia, Inc. was established to focus on 

legal interception of telecommunications by law enforcement authorities and 

intelligence services. 

Intelligentias sells its software and services through value added resellers, 

system integrators, and network equipment providers. ITLI has established 

solid technology partnerships with companies like Oracle, BEA, SS8, 

Microstrategy, Business Objects, and Penlink.

Analyst Summary 




Intelligentias, Inc. (ITLI) is group of data intelligence companies that market Homeland Security products to law 

enforcement agencies, telecommunication companies, and Internet service providers all over the world. The 

company’s business model emerged as a result of E.U. Data Retetion Directive that require Telcos, ISPs and other 

service providers to retain more data, make it available in near real time, and to archive it for far longer periods of 

time than they have in the past. 

The Company has everything to succeed: 

• An emerging and rapidly growing data retention market; 

• The E.U. and U.S. commitment to further support Homeland Security initiatives through legislation; 

• The early-entry position with a ready for use and cost-effective solution; 

• A well established growth strategy to better serve the growing demand; 

• Strategic relationships with some of the biggest technology companies; 

• Blue Chip customer base; and 

• Strategic System Integration partnerships 

Consequently, we initiate coverage of the ITLI with an Outperform rating and a fair value of $2.50/share. 

The biggest obstacle for ITLI to achieve success is getting the word out about its Data Retention product and letting 

potential customers know that their software exists. Simply speaking, the Company lacks brand awareness. 

Intelligentias, Inc. (OTCBB: ITLI) 

2

Highlights 




Market opportunity 

In response to recent terrorist events, governments around the world are passing data retention related legislation 

that will aid law enforcement agencies to capture terrorists and criminals. These data retention laws require service 

providers to retain more data, make it available in near real time, and archive it for far longer periods of time than 

they have in the past. As a result, Telcos, ISPs and Law Enforcement Agencies are upgrading their infrastructures to: 

• Keep a record of each phone call made; 

• Keep a record of each website visited; 

• Guarantee immediate access to law enforcement of each customer record; 

• Guarantee timely and useful call and message analysis; 

• Retain these records for a minimum of 6 months and not more than 2 years. 

This changing landscape has generated a new competitive market that has been marked out by IDC – security 

compliance and control (SCC). The SCC market includes all compliance-related products in the areas of content 

control, identity and access management, security and vulnerability management, and security compliance services. 

According to IDC, the SCC market reached $7.4 billion worldwide in 2006 . The SCC market will experience high 

growth through 2010 as new security threats emerge and government regulations mandate better understanding 

about the integrity of the IT infrastructure. 

Data retention market has emerged with EU directive and in expected to further expand with the passage of 

“Safety Act” in the U.S. Congress. 

The strong growth seen in the data retention market over the past year is expected to continue, since the market is in 

the early stage. The directive that refers to data retention, which has been approved on 15th March 2006 by European 

Parliament and Council, gave momentum to this market. 

The U.S. Attorney General Alberto Gonzales and FBI Director Robert Mueller have both called for legislation that 

mirrors the EU data retention directives. This legislation, called the “Safety Act” is likely to pass in the U.S. Congress 

in first months of 2007. 

ITLI product portfolio is ready to address the growing demand for data retention 

ITLI is the first company to comply with data retention legislation of E.U. ideally suited to meet the stringent 

requirements of the pending U.S. “Safety Act”. With dozens of clients globally, deep domain knowledge, strong 

position at the forefront of the industry and 20 years experience, ITLI is the first choice of every company that is 

searching compliance with data retention legislation. 

Cost effective and ready for use data retention solution 

The Company has developed a proprietary solution that makes it possible to capture data and manage it for far less 

than the cost of other solutions. The biggest advantages of ITLI’s solution are the readiness for use and low cost. 

Other most important advantages of the Company’s data retention solution refer to: 

• File system technology that uses less storage space and has faster response times; 

• Distributed architecture that allows huge scalability by using low end, low cost servers; 

• Real time data analysis capability; 

• Complete accordance with E.U. directive with regard to security preservation and access control; 

• "Purpose-built" feature, which excludes Relational Data Base Management Systems technology or licensing. 


3




Strategic relationships with some of the world's best technology companies 

The Company provides data retention and management services to dozens of telecom companies, law enforcement 

agencies, ISPs and enterprises globally. These include Telecom Italia, Telecom Italia Mobile, Fastweb, Ferrovie Dello 

Stato, Italian Ministry of Defense, 3 Mobile Media Company and many others. 

In addition, large system integrators and network equipment providers are selling ITLI software. These include 

Italtel, IBM, Elsag, Kapsch, Unisys, Siemens, Reksoft, Nokia, Lucent, Alcatel, Sony Ericsson, Nortel and many others. 

Moreover, the Company has established technology partnerships with some of the world's best technology 

companies: SSS, Penlink, BEA, Sunrise Telecom, Microstrategy, Business Objects and Oracle. 

Effective expansion strategy 

ITLI has changed its marketing and growth strategy to address the challenges of the market. The following principles 

are forming the expansion strategy: 

• Development of reseller channels with leading IT companies to expand customer base and exposure within the 

marketplace; 

• Direct sales channel discontinuation to redirected resources to support reseller channel and obtain lower 

selling costs; 

• System Integration outsourcing to enhance sales and marketing efforts and free up resources; 

• Complete solution approach to eliminate customer frustration, increase sales and shorten sales cycle; 

• Software Standardization to make it easier to integrate proprietary software into a much broader range of 

technology infrastructures faster and for less money; 

• Brand building, to substantially increase ITLI’s sales and margins. 

Growth through acquisition and geographical expansion 

Previously, ITLI software was focused only on data retention and management solutions. In 2007, the Company 

declared the intention to enter the Lawful Interception (Interceptia), Behavior Tracking and Data Investigation 

(Investigatia) product areas through internal product development, partnerships and acquisitions. These products 

could, easily, find a market in sectors with strict compliance issues like Financial Services, Banking, and Health Care. 

In addition, many small ISPs and Telcos especially in the Eastern Europe countries have indicated that they do not 

have the upfront funding needed to upgrade infrastructure and come into compliance with the EU directive. ITLI 

think that it can capture this business by offering data retention solution utilizing an Application Service Provider 

model (ASP). 

Favorable Management outlook 

The Company’s management is expecting FY07 revenue to increase 415% to $37 

million and 116% in FY08 to $79 million. Gross margin is also expected to improve 

by 2 percentage points to 77.4% in FY07. 


4

Valuation 




Revenue Outlook 

ITLI is ready to capitalize on growing demand for data retention solutions. Benefiting from Governmental directives 

that obligated Telcos and ISPs to retain and store traffic data, as well as from strong positions within the E.U. market, 

ITLI is poised for stellar growth over the next two years. 

The Company’s management is expecting FY07 revenue to increase 415% to $37 million. Moreover, operating 

margins are also expected to improve to 77.4% in FY07 compared with 75.4% in FY06. 

Income Statement Forecast (Hypothetical) 

$ Million 

2006 2007 2008 

Revenues 

7.1 36.6 79.0 

Cost of Goods Sold 

1.7 8.3 16.8 

Gross Margin 

5.4 0.0 62.2 

Operating Expenses 

4.1 13.4 28.4 

EBITDA 

1.3 15.2 33.6 

Source: ITLI presentations 

Peer comparison 

Since there are no peer companies with similar profiles, we based our valuation analysis on companies involved in 

the broad IT Security market. Even so, ITLI is traded with a not warranted discount to peer group forward 2007 P/S 

multiple. 

Peer analysis 

Company 

19-Feb-2007 

Network Appliance Inc. 

Check Point Software 

Websidestory Inc 

aQuantive Inc. 

NetRatings Inc. 

BMC Software Inc. 

Median 

Intelligentias 

Ticker Price Market Cap P/E P/S EPS Growth Rev. Growth 

$ $ Mn 2006 2007 2006 2007 2007 / 06 2007 / 06 

NTAP 40.01 14,960 35.72 28.78 5.34 4.18 24% 28% 

CHKP 24.31 5,510 16.43 14.64 7.89 7.21 12% 9% 

WSSI 13.96 276 25.85 19.39 3.95 3.04 33% 30% 

AQNT 27.92 2,170 40.46 31.02 3.87 3.18 30% 22% 

NTRT 20.74 746 159.54 79.77 9.21 8.07 100% 14% 

BMC 31.76 6,480 21.46 19.02 4.08 3.90 13% 4% 

30.79 24.09 4.71 4.04 27% 18% 

ITLI 1.02 88.1 12.40 2.41 

Source: Yahoo Finance, ITLI’s presentations 

Given its revenue, margins and EBITDA outlook, we believe ITLI can quite easily be valued with a 20% premium 

over its peers’ forward 2007 P/S multiple of approximately 4.9x. 

The Company is expecting to report 2007 revenue of $36.6 million. Applying a 20% premium to its forward 2007 P/S 

multiple of 4.9x to revenue estimate, we obtain a fair value of equity of $216 million. 

Dividing the fair value of equity to 86.4 million of shares outstanding we arrive at a fair value of stock of $2.50. 


5




Company Background 

ITLI is a worldwide group of data intelligence companies, with distinctive specialization, leading-edge technology 

and top-tier customer base, which qualifies as one of the most dynamic and fastest-growing companies in the 

Homeland Security sector. ITLI is the first company to comply with data retention legislation of European Union. 

With deep domain knowledge and a strong position at the forefront of its industry, ITLI is well positioned to benefit 

from the increasing worldwide legislation that requires ISPs, Telcos and Enterprises to retain customer data for longer 

time periods than in the past. 

The Company employs a software-licensing model that includes an upfront license fee with annual renewal and 

maintenance fees. ITLI has also pricing tiers that are based on the number of data transactions to be processed and 

stored and premiums for custom engineering and development work. 

ITLI portfolio Companies 

Source: http://www.intelligentias.com/portfolio.htm 

Retentia 

Retentia is a provider of homeland security, data retention 

and tracking software and services. The company sells its 

software to telecom companies, enterprises, Internet 

service providers and law enforcement agencies all over 

the world. Telecoms use ITLI’s software to keep track of 

the phone calls made by their customers. Enterprises use 

software to notify them of security breaches and malicious 

behavior. ISPs use software to keep track of the web sites 

being visited by their customers. Law enforcement 

agencies use software to catch criminals and terrorists. 

Investigatia 

Launching in 2007, Investigatia is ITLI’s data 

investigation company; which is intended to focus on 

fraud, identity theft, identity authentication and 

verification. 

Interceptia 

Launching in 2007, Interceptia is ITLI’s lawful intercept 

company; which is intended to focus on Legal 

Interception of telecommunications by law 

enforcement authorities and intelligence services. 


6




Strategic relationships 

Client base 

The Company provides data retention and management services to dozens of telecom companies, law enforcement 

agencies, ISPs and enterprises globally. These include Telecom Italia, Telecom Italia Mobile, Fastweb, Ferrovie Dello 

Stato, Italian Ministry of Defense, 3 Mobile Media Company and many others. Currently, ITLI software is processing 

and storing tens of billions of data transactions every day. 

Reseller partnerships 

Large system Integrators and network equipment providers are selling ITLI software. These include Italtel, IBM, 

Elsag, Kapsch, Unisys, Siemens, Reksoft, Nokia, Lucent, Alcatel, Sony Ericsson, Nortel and many others. 

Technology partnerships 

Intelligentias has technology partnerships with some of the world's best technology companies These include SSS, 

Penlink, BEA, Sunrise Telecom, Microstrategy, Business Objects and Oracle. 


7




Products and technology 

ITLI addresses the high-growth data retention market, providing data retention and management service to dozens 

of clients globally. Data retention generally refers to the storage call detail records of telephony and Internet traffic 

and transaction data by governments and commercial organizations. The Company has developed a proprietary 

solution that makes it possible to capture data and manage it for far less than the cost of other solutions. 

How data retention works 

ISP 

TEL co 

Data Retention Technology 

Suspect 

Fixed Phone 

Internet Surfing 

Mobile Phone 

Location 

Law ENforcement Agencies 

Source: ITLI presentations 

Data retention is necessary to combat terrorism. The authorities in Spain and the United Kingdom have claimed that 

retained telephony data made a significant contribution to police inquires into the 11 March 2004 Madrid train 

bombings and the 7 July 2005 London bombings. For example Investigators traced the movements of Osman 

Hussein, a suspect in the failed 21 July bombings across the continent largely by tracking calls placed on his mobile 

phone. 


8




EU Legislation is driving the adoption of data retention technologies 

After the terrorist attacks of March 2004 in Madrid and July 2005 in London, the European Union saw the need to 

create a framework harmonizing, across the member states, the obligations of Telecom companies and Internet 

service providers to retain traffic data and make it available to the authorities for the purpose of investigating, 

detecting and prosecuting serious crimes. 

As a result, European Parliament and Council have approved a directive, which refers to data retention, on 15th 

March 2006. The goal of the EU Data Retention Directive is to enable law enforcement agencies to quickly, investigate 

and prosecute terrorists, pedophiles and other criminals. The EU directive calls for ISPs and telecommunications 

companies to store all phone, fax, SMS and e-mail traffic data for a period of six months to two years 

The Directive, which must be enacted at least partially, by September 2007, will have a big impact on telecom 

companies and Internet service providers. Simply stated, it makes mandatory the retention of all traffic data 

generated by fixed and mobile telephony communication as well as Internet access, Internet telephony and Internet 

messaging for minimum and maximum periods. 

It determines that "providers of publicly available electronic communications services or of a public communications 

network" must retain essential information such as name, user identifications (user IDs) and addresses of the 

individuals initiating the communication, as well as those of the targets of such communication. The time and date of 

the communication, the mobile equipment used and the geographic location involved must also be recorded and 

retained. 

Implications to Member States 

Member states are required to enact, the EU Directive provisions by 15th September 2007. It does provide the option 

to push this deadline forward in the case of Internet access, Internet telephony and Internet messaging until 15th 

March 2009. In effect, this option has created a phased implementation of the Directive, The first stage will require 

retention of traditional fixed and mobile traffic data. In the second phase, these requirements will be extended to 

Internet data. 

Implications to Telcos and ISPs 

In order to meet the EU data retention directive Telecom companies and ISPs must upgrade their systems to: 

• Keep a record of each phone call 

• Keep a record of each website visited 

• Guarantee immediate access to low enforcement of each customer record 

• Guarantee timely and useful call and message analysis 

• Retain these records for a minimum of 6 months and not more than 2 years. 

The largest impact to Telcos and ISPs is the requirement to store extraordinary amounts of data. The data to be stored 

in compliance with the data retention regulations is expected to be in the tens and hundreds of terabytes and for 

much longer terms. The Intelligentias solution will enable operators to store larger amounts of data, for longer 

periods of time for less money. 

While law enforcement is heralding this as a huge victory, telecommunications companies and ISPs are moaning the 

heavy costs in investing in data warehouses, retrieval software and the latest data protection initiatives. 


9




U.S. Data retention initiatives 

The U.S. already has a law called "The Communications Assistance for Law Enforcement Act" requiring 

telecommunication carriers to cooperate in the interception of communications for Law Enforcement purposes. The 

Act obliges telephone companies to make it possible for law enforcement agencies to tap any phone conversations 

carried out over its networks, as well as making call detail records available. Telecommunication carriers must come 

into compliance by May 14th 2007. 

The U.S. Attorney General Alberto Gonzales and FBI Director Robert Mueller have both called for legislation that 

mirrors the EU data retention directives. This legislation is likely to pass in the US Congress in early 2007. The 

successful passage of the "Safety Act" bill that is now pending in the U.S. Congress will open the U.S. market to ITLI. 

Competitive Advantages of ITLI solution 

The ITLI Solution: 

• ITLI proprietary file system technology uses less 

storage space and has faster response times; 

• Is "Purpose-built" and excludes RDBMS technology 

or licensing and is far less expensive; 

• Uses Distributed architecture that allows huge 

scalability by using low end, low cost servers; 

• Has Real time data analysis capability; 

• Preserves security and access control in complete 

accordance with the EU directive 

Traditional data retention solutions: 

• Rely upon a combination of mediation systems, 

storage, data warehousing and Relational Data Base 

Management Systems (RDBMS); 

• Are not optimized for wide date window analysis or 

storage of millions/billions of daily phone/ Internet 

details records; 

• Require high end server systems, massive storage 

appliances, and more administration resources to 

meet EU directive requirements; 

- Cannot guarantee data segregation and privacy 

regulations; 

- Cannot guarantee unauthorized access 

Source: Our Research 


10

Expansion strategy 




ITLI growth strategy is based on several milestones, particularly: 

Sales channel expansion 

The company’s sales efforts will target the development of reseller channels with leading IT companies to expand 

customer base and exposure within the marketplace. 

In-house channel support 

ITLI has discontinued its direct sales channel (except to existing customers) and redirected its sales team to offer sales 

and technical support to reseller channel. The combination between direct sales team, that have greater product 

knowledge and resellers with longer standing relationships with potential customers could result in more customer 

wins, shorter sales cycles, and lower selling costs. 

System Integration outsourcing 

The company intends to outsource system integration to enhance sales and marketing efforts and free up resources, 

which are expected to be redirected to support the integration efforts of ITLI resellers and system integrators and 

answer important customer integration questions at the point of sale. This new strategy will shorten the integration 

cycle leading to lower integration costs and greater satisfaction for system integrators and customers. 

Sell a complete solution 

ITLI decided to bundle its software with pre-sourced hardware to provide the customers with a more complete 

solution, to eliminate customer frustration and to increase sales and shorten sales cycle. ITLI is currently in 

discussions with a major server vendor and a clustered storage vendor to implement this strategy. 

Software Standardization 

ITLI succeeded to build a more horizontal and modular code base, which will make it easier to integrate proprietary 

software into a much broader range of technology infrastructures faster and for less money that in the past. As a 

result, this effort will expose ITLI solutions to a much broader base of potential customers. 

Product line extension 

Previously, ITLI software was focused only on data retention and management solutions. In 2007, the Company 

declared the intention to enter the Lawful Interception (Interceptia), Behavior Tracking and Data Investigation 

(Investigatia) product areas through internal product development, partnerships and acquisitions. These products 

could, easily, find a market in sectors with strict compliance issues like Financial Services, Banking, and Health Care. 

Brand building 

ITLI will increase the effort to develop and increase the recognition of its brand. The Company intends to present its 

logo at every opportunity including business cards, brochures, press releases, trade show booths, and branded team 

clothing. The brand development initiatives refer to associate ITLI with much larger companies with longer histories 

and respected reputations. This effort can substantially increase ITLI’s sales and margins. 

Data retention solution offered as a web service 

Many small ISPs and Telcos especially in the Eastern Europe countries have indicated that they do not have the 

upfront funding needed to upgrade infrastructure and come into compliance with the EU directive. ITLI think that it 

can capture this business by offering data retention solution utilizing an Application Service Provider model (ASP). 


11

Industry outlook 




Following the tragic events of 9/11, U.S. government agencies have taken steps to strengthen the nation’s safety and 

security. Spending for Homeland Security has more than doubled over the last five years. For example, the FY2007 

Department of Homeland Security budget approaches $42.7 billion, compared to $19.5 million in FY2002. Federal 

Homeland Security research and development spending has increased from $1.5 billion in FY2002 to $5.1 billion in 

FY2007. 

As technology-related security threats continue their unrelenting assault on the corporate world, increasingly 

stringent government and industry regulations are forcing organizations to revamp security policies, adhere to best 

practices, and more accurately measure and report security issues. 

Security IT spending remains a top priority in many organizations. The worldwide security market achieved a level 

of $32 billion in 2005, representing growth of 18% over 2004 according to Brian Burke, research manager for IDC's. 

IDC believes government regulations, general and industry specific will continue to influence spending on security 

as companies do their best to meet compliance mandates . 

In response to recent terrorist events, governments around the world are passing data retention related legislation 

that will aid law enforcement agencies to apprehend terrorists and criminals. These data retention laws require 

service providers to retain more data, make it available in near real time, and to archive it for far longer periods of 

time than they have in the past. As a result of this legislation, Telcos, ISPs and Law Enforcement Agencies have been 

seeking to upgrade their infrastructures to meet these governmental mandates. 

This shifting landscape has spawned a new competitive market that has been marked out by IDC – security 

compliance and control (SCC). The SCC market includes all compliance-related products in the areas of content 

control, identity and access management, security and vulnerability management, and security compliance services. 

According to IDC, the SCC market reached $7.4 billion worldwide in 2006 . The SCC market will experience high 

growth through 2010 as new security threats emerge and government regulations mandate better understanding 

about the integrity of the IT infrastructure. According to IDC regulatory compliance initiatives are quickly becoming 

part of larger corporate governance and risk management strategies, as a result executives are pushing for 

compliance to protect themselves from security threats, but also to avoid personal liability and the possibility of 

criminal and/or civil penalties. Civil prosecution can carry substantial financial penalties and seriously damage a 

company's reputation. 

Even more, compliance is not just an U.S. or E.U. issue. Worldwide, governments have legislated regulations 

governing privacy and governance, but laws vary from country to country. Industry organizations are requiring, as 

well, members and partners to adhere to proprietary standards and guidance. In addition, SCC solutions are not just 

for compliance because it can reduce loss/leakage of intellectual property and confidential information. 


12




Global software storage sales to soar due to data retention requirements 

Enterprises, al over the world, show no sign of restraining their storage software investments. According to IDC, the 

worldwide storage software market experienced its 12th consecutive quarter of year-over-year growth in the Q3 2006 

with revenues of $2.5 billion, a 10.7% increase over the same quarter one year ago . 

IDC experts mentioned that the market for storage software has performed very well over the past three years with 

the replication and archiving segments providing a lot of momentum. Moreover, IDC expects this trend to continue 

as companies focus on data retention requirements and business continuity needs, as well as storage consolidation 

and migration issues. 

Quarterly global software storage sales, $ million 

2,600 

2,500 

2,400 

2,300 

2,200 

2,200 

2,158 

2,282 

2,218 

2,446 

2,379 

2,477 

2,454 

2,100 

2,000 

1,900 

Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 

Source: IDC 

Storage replication, one of the largest storage software markets, demonstrated year-over-year growth of 22.5% in the 

third quarter of 2006. Meanwhile, the smaller, but fast-growing archive and hierarchical storage management market 

posted 30.8% year-over-year growth. 

Enterprises are spending more money on larger disk storage systems. IDC reported the total amount of storage 

shipped at 783 petabytes in Q3 2006, a 50.2% increase over the third quarter of 2005. The increased virtualization, the 

consolidation of offices, and a rise in demand for the storage of fixed content such as archived videos and email 

messages will cause this growth to continue. 


13

Financial analysis 




Income Statement 

ITLI has recently become a publicly traded company: the reverse merger with Merchandise Creations, Inc. in 

December 2006 facilitated this move. Up-to-date, the company has not filed its post-merger financial statement with 

SEC; therefore our analysis was based on information supplied to us by ITLI’s management. 

According to management, ITLI 2006 revenue reached $7.1 million. The Company’s gross margin neared 75.4% and 

EBITDA $1.3 million during the same period. 

Solid industry outlook, E.U. directive momentum and product portfolio are making us to consider a solid growth in 

revenue over the next three years. 

Income Statement 

Revenues 

Cost of Goods Sold 

Gross Margin 

Operating Expenses 

EBITDA 

2006 

$ Million % 

7.1 100.0% 

1.7 24.6% 

5.4 75.4% 

4.1 57.2% 

1.3 17.9% 

Source: ITLI’s presentations 

The latest financing initiatives 

On December 7, 2006, ITLI entered into a Note and Warrant Purchase Agreement with Vision Opportunity Master 

Fund, Ltd. (Investor), pursuant to which the Company issued to the Investor a secured convertible demand 

promissory note in the principal amount of $8 million, which principal amount under the Note is due and payable in 

full on December 7, 2009. The Note bears an interest rate of 5% per annum, payable quarterly in cash, commencing on 

March 1, 2007 and on the first business day of each subsequent three-month period. The Note is payable on demand 

of the Investor at any time. Pursuant to a security agreement dated as of December 7, 2006, the Company granted to 

the Investor a first priority security interest in all of the Company's right, title and interest in, to and under and all 

assets and personal property of the Company. 

In addition, the Note may be converted, at the option of Vision, into such number of shares of common stock of ITLI 

as is determined by dividing (x) that portion of the outstanding principal balance under the Note as of such date that 

Vision elects to convert by (y) the Conversion Price of $2.25 per share, provided, however, that the Conversion Price 

is subject to adjustment as described in the Note. In the event ITLI completes a private placement of its common stock 

for aggregate gross proceeds of $12,000,000 or more, the outstanding principal amount of the Note plus all accrued 

and unpaid interest must be, at the option of Vision, either: 

(A) converted into a number of fully paid and nonassessable shares of common stock of the Registrant equal 

to the quotient of (y) the principal amount of the Note plus all accrued and unpaid interest outstanding on the 

Mandatory Conversion Date divided by (z) the Conversion Price, or 

(B) exchanged for an amount in cash equal to the principal amount of the Note plus accrued and unpaid 

interest outstanding on the Mandatory Conversion Date. 


14




In connection with the issuance of the Note, and for no additional consideration, ITLI issued to the Investor 9 million 

Class A warrants each of which is exercisable into one share of common stock at $0.01 per share. 6,750,000 Class A 

warrants are immediately exercisable and the remaining 2,250,000 Class A warrants are exercisable following the date 

that the Note is fully converted or prepaid. The Class A warrants expire in December 2011. Pursuant to a registration 

rights agreement dated as of December 7, 2006, the Company has agreed to register all of the securities underlying 

the Note and the Class A warrants with the Securities and Exchange Commission. 

Pursuant to the terms of the Agreement and the transaction documents relating to the purchase of the Note and the 

Class A warrants, the Investor may not acquire shares of common stock upon conversion of the Note or upon exercise 

of the Class A warrants to the extent that, upon conversion or exercise, the number of shares of common stock 

beneficially owned by the Investor and its affiliates would exceed 9.9% of the issued and outstanding shares of 

common stock of the Company. 

In connection with the transactions contemplated by the Agreement, the Company also entered into a lock-up 

agreement with certain of its shareholders whereby such shareholders agreed not to offer, sell, transfer or otherwise 

dispose of any of the shares of the Company's common stock from the period commencing on the closing date of the 

transaction and expiring on the date that is six months following the effective date of the registration statement filed 

by the Company with the Securities and Exchange Commission providing for the resale of the shares of common 

stock issuable upon conversion of the Note and exercise of the Class A warrants issued pursuant to the Agreement In 

the event that (A) the Investor converts at least 51 % of the aggregate principal amount of the Note issued pursuant to 

the Agreement or (B) the aggregate principal amount and all accrued interest under the Note has been fully repaid, 

the restrictions set forth in the lock-up agreement shall no longer apply to such shareholders. 

In addition, on December 7, 2006, the Investor entered into two separate option agreements with a third party 

whereby the Investor may acquire up to an aggregate of 4,500,000 shares of the Issuer's common stock at an exercise 

price per share of $0.10. The term of the first Option Agreement, with respect to 2,250,000 shares, expires February 

28,2007. The term of the second Option Agreement, also with respect to 2,250,000 shares, expires on the date the Note 

is fully converted or repaid and can only be exercised with respect to the number of shares issued to the Investor 

upon conversion of the Note. 

Further, on December 7, 2006, the Investor entered into a Share Escrow Agreement with a third party and an escrow 

agent whereby the Investor shall be issued up to an aggregate of 10,000,000 shares of Common Stock being held in 

escrow in connection with conversions of the Note by the Investor. The number of shares to be delivered to the 

Investor by the escrow agent upon each conversion of the Note shall be equal to the product of (A) the percentage 

obtained by dividing (i) the principal amount of the Note being converted by (ii) the total principal amount of the 

Note held by the Investor at the time of such conversion, multiplied by (B) the number of shares remaining in the 

escrow account at the time of such conversion. 

Acquisition of SysteamUS (Retentia, Inc.) 

On December 9, 2006, ITLI entered into and consummated the transactions contemplated by a Limited Asset 

Purchase Agreement with SysteamUS, Inc., a California corporation. In accordance with the Asset Purchase 

Agreement, the Company acquired all of SysteamUS' right, title and interest in and to certain of its assets associated 

with its security business, including the source codes, patents, trademarks, service marks, copyrights, documentation 

and technical specifications and intellectual property associated therewith, along with other written descriptions of 

the security software (the "Software"), for an aggregate purchase price of $5,850,000 in cash. The Company used the 

proceeds of the private placement of the Note to pay the purchase price of SysteamUS. Intellegentias subsequently 

renamed Systeam to Retentia, Inc. 


15

Management 




Ian Rice 

Chairman and CEO 

Luigi Caramico 

President 

Mario Mene 

Chief Technical Officer 

For twenty five years, Mr. Rice has been involved in the funding, development and 

management of early stage companies. Since November 1985, he has been a consultant to 

Sigma Limited S.A., a Swiss investment firm that concentrates on development phase 

technology companies. He was a founder of Oxley Energy Inc. in December 2003. Oxley is a 

natural gas exploration and production company with assets in Texas and South Africa. Mr. 

Rice was Chairman of Wall Street Strategies Corporation in New York, a distributor of 

financial advice, from June 1999 to November 2000. From June 1997 to August 2001. Mr. Rice 

was Chairman of Ikon Ventures an Italian manufacturer of environmentally friendly 

chemicals for the detergent industry. Mr. Rice was a founder and a director of the Irish 

company, Navan Resources PLC, from 1987 until 1993. Overall he has had commercial 

experience in twenty-one countries. 

Mr. Caramico is also co-founder of Retentia, Inc. (formerly known as Systeam Italy SpA and 

Systeam US) and is is responsible for Corporate Strategy and business development. From 

2003 to 2006 he was the President and CEO of SysteamUS, Inc. the holding company of 

Systeam Italy Spa. From 1998 to 2003 he was Chief Technical Officer and Board Member of 

Systeam SpA. Mr. Caramico has expertise in advertising systems, DVD technologies, 

broadband and digital video processing. He successfully patented a VOD video server and a 

DVD archiving system. In 1995, Mr. Caramico joined Stream SpA, a leading Italian pay-tv 

company. There he was responsible for a joint project with Microsoft for the localization and 

implementation of the Microsoft Interactive TV Platform (MiTV) working out of the Redmond 

(WA) Microsoft Campus. In 1984, he was co-founder, partner and technical director of Studio 

Sistemi Grafici srl, a computer graphics company that created on-screen highlights and 

statistics for the Sunday afternoon Soccer games, and other programs for the Italian 

Broadcasting Companies. (RAI1, La7 formerly Tele Montecario). Mr. Caramico is a member of 

IEEE and New York Academy of Sciences, and holds a PhD degree in Computer Science. 

Mr. Mene is responsible for technical vision, design and implementation of all of the 

company's' products. Mr. Mene is also CTO of Retentia, Inc. From 2001 to 2002 Mario was 

technology advisor for Acantho SpA one of the leading IPTV broadband network operators in 

Italy, where he co-created its Business and Operations Plan. From 1999 to 2000, he was Chief 

Technology Officer and Board Member of SysteamUS Inc. In 1999 Mr. Mene was DVB area 

manager in Systeam, for the design and integration of Digital Television Systems. He 

coordinated Systeam's participation at the European pool for the delivery of DVD authoring 

systems to VideoCentro, an Italian based company. He designed the satellite platform for the 

delivery of Digital Television services for Stream, the second largest Italian pay-W operator. In 

addition, Mr. Mene participated in creation of Conditional Access System for Digital 

Television, coordinating the Systeam workgroup in Irdeto/Mindport (Netherlands). Mr. Mene 

obtained a degree cum laude in Electronic Engineering from the University of Rome "La 

Sapienza". 


16




Risks 

Limited operating history and lack of reliable financial data raises questions regarding the Company’s ability to 

build a feasible business. 

ITLI has recently become a publicly traded company: the reverse merger with Merchandise Creations, Inc. in 

December 2006 facilitated this move. Up-to-date, the company has not filed its post-merger financial statement with 

SEC; therefore our analysis was based on information supplied to us by ITLI’s management. 

Despite the fact, that ITLI has significantly advanced with implementation of its operating plans, there is no 

assurance that these efforts will be successful and that the company will build a viable business. 

Lack of information to prove the capability of ITLI’s solutions. 

The company’s biggest disadvantage is lack of brand awareness. The potential customers are not supplied with the 

right information to find the way to ITLI. This fact could make the Company to fail in achieving the projected market 

share and revenue volumes. 

Strong competition than can emerge with the industry momentum 

ITLI’s management mentioned Hewlett Packard, as the only active competitor. However, the growing market could 

attract other competitors with greater resources, stronger brand awareness and bigger market exposure. This fact 

could also influence negatively the outlook of ITLI’s management. 


17




Disclaimer 

Beacon Equity Research (otherwise known as BER) is an independent research firm specializing in small and micro capitalization 

companies. BER has no investment banking or consultation conflicts thereby minimizing the inherent conflicts of interest between the 

research analysts and the companies they cover. BER is not a registered investment advisor or broker dealer. No information in this 

report should be construed as an endorsement to either buy or sell any securities mentioned in this report. The analyst(s) who prepared 

this report rely on publicly available information which neither the analyst, nor BER, can guarantee to be error-free or factually accurate. 

All conclusions in this report are deemed reasonable and appropriate by the author. The Private Securities Litigation Reform Act of 1995 

provides investors a "safe harbor" in regard to forward-looking statements. To fully comply with the requirements of this law, BER cautions 

all investors that such forward-looking statements in this report are not guarantees of future performance. Unknown risk, uncertainties, as 

well as other uncontrollable or unknown factors may cause actual results to materially differ from the results, performance or 

expectations expressed or implied by such forward-looking statements. Investors should exercise good judgment and perform adequate 

due-diligence prior to making any investment. Beacon Equity Research has been compensated a total of six thousand dollars by a third 

party for a limited participation of Intelligentias, Inc in its research program. Ratings and price targets in this report should not be 

construed as recommendations or stock price predictors. Readers of this report are urged to use due diligence in any purchase of 

security list herein. Readers should consult the Company's SEC filings as well as our initial report on the firm to better understand the 

inherent risks associated with this security. There may be many uncontrollable or unknown factors which may cause actual results to 

materially differ from the results, performance or expectations expressed or implied by such forward-looking statements. Investors should 

exercise good judgment and perform adequate due-diligence prior to making any investment. 

All decisions are made solely by the analyst and independent of outside parties or influence. 

I, Victor Sula, CFA, the author of this report, certify that the material and views presented herein represent my 

personal opinion regarding the content and securities included in this report. In no way has my opinion been 

influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance 

of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the 

companies featured in this report. 

Victor Sula, Ph.D. - Senior Analyst 

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms 

since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored 

Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and 

Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also 

employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. 

degree in 2001 and bachelor's degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. 

Sula is currently a level III candidate in the CFA program. 

All material contained in this report is the sole property of Beacon Research Partners, LLC. 

No information contained herein may be copied or reproduced in any manner without the 

express written consent Beacon Research Partners, LLC. 


18

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