Chembio Diagnostics Inc (CEMI) 2010 Q2 法說會逐字稿

Greetings and welcome to Chembio Diagnostics' second-quarter 2010 financial results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Bobbie Coco. Thank you, Ms. Coco, you may begin.

Good morning. This is Bobbie Coco with Chembio Diagnostics, Inc. Thank you all for participating in today's call. Joining me from Chembio Diagnostics are Larry Siebert, Chief Executive Officer, and Richard Larkin, Chief Financial Officer.

This morning Chembio Diagnostics announced financial results for the second quarter of 2010 and filed its 10-Q quarterly report. These documents, as well as an updated investor presentation and fact sheet, may now all be viewed and downloaded by going to www.Chembio.com and selecting Investor Center. If you would like to be added to the Company's distribution list, please call Chembio Diagnostics at 631-924-1135 and ask for Susan Norcott or e-mail Susan at SNorcott@Chembio.com.

Before we begin I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Chembio Diagnostics. I encourage you to review the Company's past and future filings with the Securities and Exchange Commission including without limitation the Company's forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, July 29, 2010. Chembio Diagnostics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I would like to turn the call over to Larry Siebert. Larry?

Thanks, Bobbie, and good morning, everyone, thanks for joining us. We're very pleased with the milestones Chembio achieved during the second quarter of 2010. Of course, with the strong profitability which was supported by the $740,000 in milestone revenues we recorded which provided strong validation for our DPP technology.

In addition, our product order backlog increased significantly at the end of the second quarter as a result of orders we received from customers in Africa. And this order backlog, combined with anticipated continuing income from ongoing R&D contracts and anticipated milestone fees from additional product approvals in Brazil during the third quarter, should provide the basis for continued progress in our operating results for the rest of the year.

During the second quarter we also improved our working capital position with the final payment on the $1.01 million liability to Alere and also in obtaining a $500,000 bank facility with HSBC Bank. I'll have a few more specific comments on our second-quarter activities and recent developments, but first I'd like to turn the call over to Rich Larkin, our Chief Financial Officer, to go through the financial results in some greater detail. Rich?

Thanks, Larry. Welcome, everyone. Total revenues for the second quarter were $3.75 million which compares to total revenues of $3.37 million for the three months ended June 30, 2009, a modest increase. Product sales for the quarter ended June 30, 2010 decreased 23.7% to $2.14 million from $2.8 million for the same period of 2009.

Net product sales to Alere for the second quarter increased more than $0.13 million to $1.29 million or approximately 11% as compared to $1.16 million in the same quarter of 2009. Research and grant revenues increased by $426,000.

In addition, we had our first milestone license revenues of $400,000 from our 2004 transfer agreement with Bio-Manguinhos and -- I'm sorry, that's another typo -- that's from our license revenue for the screening test for HIV and milestone license revenue of $340,000 from Bio-Rad.

Our gross profit margin for the second quarter 2010 was $2.09 million, an increase of 53.8% from $1.36 million in the same period of 2009. As a percentage of total revenues gross profit margin in the 2010 period was 55.9% as compared to 40.4% in the same period of 2009. The recognition of the milestone license revenues along with the increase in our R&D revenues combined to produce this gross margin improvement.

Our R&D expenses increased by $87,000 in the second quarter of 2010 as compared to the same quarter in 2009. Increases in wages and related costs and the continuation of clinical trials for our DPP screen assay all contributed to this increase.

Our net R&D expenses -- R&D revenues, actually, decreased in the second quarter of 2010 from $433,000 and that's obtained by taking the $703,000 in expense, subtracting $270,000 in income during the 2009 period down to $95,000 which was obtained by taking $791,000 in expense and deducting $696,000 in revenue for the 2010 period. The details of these increased costs are reported in our 10-Q.

Our selling, general and administrative expenses increased by $138,000 or 25% in the second quarter of 2010 as compared to the second quarter of 2009. Again, the details of this category are reported in our 10-Q.

Our operating income was approximately $623,000 in the second quarter of 2010 as compared to operating income of $117,000 in the second quarter of 2009, an improvement of $506,000. In addition, net income was approximately $622,000 in the second quarter of 2010 as compared to a net income in the second quarter of 2009 of $110,000 or an improvement of $512,000.

At June 30, 2010 our cash balance was $321,000 less than as of December 31 2009. This was primarily due to a $294,000 increase in our DPP inventories based on product produced in anticipation of approval in Brazil. Also contributing to the cash decrease was a $635,000 decrease in accounts payable and a decrease in the deferred revenue of $246,000.

The non-cash expenses totaled $416,000 and consisted of $148,000 from depreciation expense, $114,000 in share-based compensation expense and $154,000 in amortization of licenses. For our six-month results please see our 10-Q filed with the SEC. Now I would like to turn the call back over to Larry. Larry?

Thanks, Rich. So we didn't have a 911% increase?

No.

Thanks very much. I'd just like to touch on our progress in product development and commercialization during the recent quarter. First, based on the most recent dialogue we've had with our notified body in Europe we now believe that we will be able to meet the CE marking requirements for our two FDA approved rapid HIV tests at a reasonable additional cost.

Secondly, as we previously announced, at the end of June we received notification from FIOCRUZ that our DPP HIV screening test was in fact approved by Brazil's national health surveillance agency known as ANVISA. Two of the other three products under contract with FIOCRUZ, our HIV confirmatory test, canine leishmaniasis test as well have been submitted for and we believe are pending Brazilian regulatory approval soon. We certainly believe that will occur during 2010.

Third, we've commenced the US clinical trials for this HIV rapid screening product for oral fluid and blood samples and they're going very well. We completed about 10% so far and we anticipate completing the clinical trials and submitting the PMA around the end of this year and receiving approval of the PMA before the end of next year. The pace of the clinical trials is going to depend upon operating cash flow or other financing sources.

Fourth, the DPP syphilis screening confirm test we've had a slight delay in as we were planning on commencing the clinical trials this month for the 510-K submission; however, we had some delays in validating the manufacturing lots we need to produce for use in these clinical trials.

We did receive some evaluation results from the retrospective international study that was organized by the World Health Organization, WHO. Results were acceptable although showing some variation which we want to improve on; nevertheless the product was recommended for the next phase of the study which is the prospective Phase II that the WHO is conducting.

Also in June we received a letter from Bio-Rad Laboratories confirming the completion of the development phase for the multiplex DPP product that we signed a development agreement with them back in 2008. So we completed that multiplex very sophisticated test pretty much on schedule and we're now proceeding to the next phase of that program.

Also, some of the other research programs that we have that are helping fund a lot of our activities, the $900,000 development contract we had signed at the end of last year with Battelle Memorial Institute on behalf of the CDC for the DPP influenza immunity test is proceeding on schedule and we plan to in fact send the first prototypes of this product to the CDC during this current quarter -- third quarter.

Also, we received some results of the study conducted by CDC with respect to our hepatitis C as well as our combo hepatitis C and HIV test, both utilizing oral fluid samples. And we're advised that the remaining data will be available to us, as well as the other study participants, around or sometime between now and the end of this current third quarter. And that data will certainly be helpful to us to help us ascertain the performance characteristics of these products in comparison to other products that were in the evaluation.

We've also made progress on the flu A/B antigen detection test that we started design work -- we have started design work on this product and we're considering further modifications in optimization. We still plan to complete the product and initiate clinical trials before the end of this year.

Work pursuant to the $3 million Phase II NIH grant for DPP leptospirosis test is progressing on schedule. Also we're pleased to report that the Phase II grant application we submitted in May to the NIH following our Phase I completion of our TB serology test development -- we received some feedback from the NIH very recently, just this month. And based upon their historical grant criteria we had an outstanding, I would say, feedback which leads us to believe that there's a substantial likelihood of the $2.7 million Phase II funding of that product NIH grant presumably being funded in the beginning of 2011.

Also as we reported in our 10-Q, we submitted several applications for grants pursuant to the qualifying therapeutic discovery projects program which is part of the new healthcare law known as the US Patient Protection and Affordable Care Act of 2010.

The program covers up to -- this particular program that we submitted for [QTVP] program covers up to 50% of a qualified investment made or to be made in 2009 and 2010 limited though to a maximum of $5 million per company. Sometime during the fourth quarter we should have some feedback as to whether and what kind of funding we might get back for some of the investments that we've made over the last couple of years.

And finally, during the second quarter we began validation of the automated assembly equipment which we previously reported we took delivery of earlier this year and we're right on track to complete the validation of that machinery over the next several weeks actually. So with that, thanks for listening and I would be happy to answer a few questions.

(Operator Instructions). Brian Marckx, Zacks Investment Research.

The $400,000 in inventory that you've been carrying for FIOCRUZ, will that be shipped in the third quarter?

It's not $400,000, I think it's $200,000 and we sure hope so. We expect that it will be. We're waiting for the regulatory approval of that product. That's not the HIV screening product that's the leishmania product that we're still waiting for regulatory approval and we have every reason to believe that it is imminent. But until we receive that approval we can't ship that product.

And it's $294,000.

$294,000.

Okay, I guess I was under the impression that you were carrying inventory for the HIV products, the DPP HIV products. No?

As things transpired we anticipated that the leishmaniasis approval would be first. We didn't even expect that it was going to be close. But it didn't happen that way. So we know -- what we do know is that we received feedback for our partners in Brazil, we received feedback on that product approval in terms of some questions.

We believe everything has been satisfactorily answered and there's nothing that we see that stands in the way other than mechanics to get that approval. But until we get it they can't apply for an import approval since the product can't legally be imported and therefore we can't ship that product out of our inventory. But we do think it's going to happen soon -- whether that's a few weeks or a few months I can't tell you.

Okay, great. The DPP hep C data that you got, can you give us a little background on the data that you received and anything that you can to give us a little more color on that?

Sure. Not much because we want to really wait until everything is in. But given the amount of time that we invested prior to participating in that evaluation, we're very pleased with what we've seen so far. There were three participants and we were certainly well within range of being able to have a product, an offering that would meet the performance criteria and that was with a limited amount of work that we did prior to providing product in.

But we hope to -- I believe that the data is actually going to be published by CDC from what I understand. So then that should be sometime within the next 60 to 90 days.

Okay. The Bio-Rad Multiplex product agreement, based on today's 10-Q filing I'm not clear on if they have exercised their option to manufacture the product or is that still up in the air?

No, they've exercised the option.

Okay. And have clinical evaluations begun?

No, because first they need to validate the production or validate manufacture in their facility, and then they'll have -- that will enable them to have product to be used for the clinical trial labs. But that manufacturing validation is proceeding expeditiously.

Can you give us sort of a timeline on when you think the clinical evaluations may start?

Yes, there's going to be a submission for -- from what we understand for both CE marking as well as US. And I think that before the end of this -- I would estimate that during the fourth quarter they're going to have product available for clinical evaluation.

Okay, great. On to the US DPP oral fluid test, the HIV test, relative to financing is the financing portion of it potentially holding it up? Is it holding it up? How big of an issue do you think getting or not getting financing might be to get the trials through?

That's a good question and I think that there's no one answer to that and we have -- we've made good progress. I think there are some advantages from having proceeded slowly because this is an important program for us. And so we wanted to make sure that everything would start off on solid footing.

So unfortunately or fortunately, I don't have that excuse moving forward any more, so we're very pleased with how it's going. So, we need to -- absent financing we need to generate the cash flow from the things that we've been counting on from Brazil and some of the other things that we're working on in order to be able to fund it ourselves. And I'm hopeful that that's going to happen.

If we hit these approvals in Brazil, that will go a long way toward making some good progress over these next several months on the clinicals. And as I mentioned and as we reported, we have a strong backlog, so we expect to have positive operating cash flow over the balance of the year from our current operations, so that will also be a source of financing.

We're not going to raise capital at our current stock market valuation, we've made that clear. And so we're confident that as we continue to generate results both from our current operations as well as our development programs we will find a way to get it done while protecting the dilution of our shareholders.

Can you give us an idea of -- and I know this is really hypothetical at this point just because of just what you went through. But is it possible to give us some sort of idea on how much financing you may need?

We've set that out in our filings. There's no secret about that. We've said that the clinical, the regulatory cost for the three products that we have that we would like to begin clinical evaluation for or continue clinical evaluation for as it pertains to the HIV product, we're talking about it will cost us about $3 million. And we have a registration statement that we filed with the SEC that calls for a financing for up to $4.5 million. But as you know, we haven't moved forward with that registration statement.

So it's a $3 million cost we can raise up to $4.5 million if we decide to utilize that registration statement if the market conditions are satisfactory to us, valuations. And we have these other sources of cash flow, those that I've talked about at least, and we'll -- I mean, one scenario is that we slug it out and we take longer to get it done. I can't exclude that as a possibility, but I'm hopeful that we'll be able to meet the timeframe of completing the clinicals by the end of this year.

Okay, all right. And this is my last one. On the DPP US syphilis test --.

Let me just mention one other thing. One other opportunity that we have for receiving funding for these activities is this program that we submitted fairly hefty applications for the reimbursement of investments that we've made. This program that we've been calling Obamacare here in the office is a significant opportunity, only available to companies under 250 employees that have eligible products and projects.

And we believe we -- of course we believe we're eminently qualified. We had like seven different projects that we submitted. We may bat zero, we may bat 100%. It won't bring in any more than $5 million, I can guarantee you that, because that's what the program specified as the limit. But be assured that we're very aggressive in seeing if we could be a significant participation in that program.

Larry, do you have any visibility on kind of what your chances are and what the timeframe might be?

We know what the timeframe will be, and that's set forth in the rules and the procedures and so we'll know before the end of this year. In terms of our chances, I couldn't tell you.

Okay. So on the DPP US syphilis test, any more background you can give us on the validation issues?

Yes, I think we're a little bit delayed, but I don't think that there is anything fundamental that we're concerned about. We just need to do a little bit more work here. And I think it's actually a good thing to get this product as robust as possible because we're very excited about it.

Does it push back development and commercialization timelines from before the validation issues?

Well, -- clearly a delay, but I don't think it's a huge delay; it's a minor delay.

Okay, fair enough. Okay, great. I appreciate it, guys. Thank you.

[Steve Rud], Chembio Diagnostics (sic).

I didn't know you worked for Chembio.

I just got a new employer, but that's fine; I won't charge you much. No, it's not with Chembio, but that's fine, we've talked before. Let me ask you this, Larry. First off, thanks again for the hard work and I know you're really pumping away. I just want to be clear, the $3 million that we need is for the HIV product, to bring that to complete testing on that?

HIV, syphilis and flu.

Okay. And breaking it out into the HIV product or breaking out each one, what are we at?

About $2 million for the HIV and about $600,000 for the syphilis and $400,000 for flu, roughly. $2 million on the HIV -- I'm comfortable we have that number pretty well honed.

Okay. And given our current -- look, I know we've got all these moving targets, but how short do we think we would be in the -- not with everything going bad, how short do we think we are for the year?

I'm sorry, I didn't hear the back part of that.

In other words we've got -- sure, no problem. We need $3 million in cash, we have an expectation, some expectation discounted not overstated as to what our cash flow -- free cash flow will be for the year and that could be allocated to this product, to these three products. How short do we think we are? In other words, what's the net cash we think we might need to raise?

Well, we think that it won't be any more than $4.5 million and we might be zero. And so I'm not trying to be difficult, but one thing that you said that is very true, is that there are a lot of moving parts. And one of the things we are doing now is to try to better answer that question because we have had a number of new developments that we're working on that could be useful in filling that gap, filling that hole. So we're going to be working on that and we'll follow up at the appropriate time with a better answer than that. I just can't give you a better answer than that right now.

Okay. And you see the issue for all of us and I'll just articulate it so that it's crystal clear. If we're short $4 million, well we may see a $4 million offering; if we're short $600,000, well that's a lesser offering and with lesser implications to it. So the sooner that you can fill us in as investors as to what that shortfall is, the less risk we really see to our equity interest.

Yes, I appreciate that and I think what you should be comfortable with is that our Board, and we all believe that preserving -- avoiding dilution at these levels is something that we want to do. So we're hopeful that we'll be able to find a different way of financing the Company as we've been able to do these last couple years.

(technical difficulty) you've been very good at (technical difficulty), I'm probably the last one to give you advice on how to get this kind of money. But on this what you're calling Obamacare, have you or -- I want to do it the right way. But I figured you were getting help along the way from outside parties to move you up on that list of folks who could get this money.

We think we have a compelling application, and we think we've got good advice. And we think our -- we think what we do stands on its own and there's no special preferences. We have a very good track record as it relates to getting the recognition of government programs.

The qualified therapeutic discovery project is like a two-parter. One part is the IRS which basically just is going to look at the numbers, but it's the NIH that's really going to be making the decision on what qualifies. And as Larry said, we have a very good track record in submitting grants and getting very good ratings on our proposals.

So we did also seek some outside counsel, but we feel very, very confident that we have a very good shot at getting some of these. (multiple speakers). It's $5 million per company per year, so in 2009 obviously we didn't spend $5 million, so we're not going to get anywhere near that for 2009, but there's a possibility for 2010 to recovery that.

I would just re-characterize what Rich said because I don't want to be misleading. When we say good shot, I'm not quite sure what that means. I guess being a Knick fan, low percentage. So I think that we put together a very compelling application and I'm very conservative in terms of predicting what's going to happen, but I think we have as good a shot as anybody, I will say that.

One thought, Larry, for you guys to do and I don't know if you've done it already. It may feel like it's silly and, gee, we just have our application and it's compelling enough on its own. But in New York you've got a very, very heavyweight Senator in Chuck Schumer who's behind a lot of funding. And without anybody even walking you into his office, and that's usually a help if you find someone who can walk you in. But even walking in on your own literally asking for an appointment saying we're employers of -- how many people do we employ now?

Over 100.

Okay, we're employers of over 100 folks, we're out in -- we're in Suffolk, right -- Suffolk County?

I appreciate that, Steve, and we certainly have reached out to our representatives.

Okay. All right, that's key, that is a key thing and that's very important. Larry, you mentioned earlier -- look, I was around when we were diluted the last time and I have to tell you it didn't leave a great taste. I understand that it was necessary, but it came as a surprise (technical difficulty) wasn't welcome.

And you mentioned earlier, we don't want to -- we're not going to raise capital at these levels, but I guess I'm curious on at what point would you look to -- what point would you be willing to dilute us? In other words, put it another way, in the answer to the prior gentleman's question it seemed to be that at these levels you wouldn't dilute the shares, but at higher levels you would. At higher share prices you would and --.

I'm not going to speculate on that. And I know we have to do what we believe is in the best interest of the Company and the shareholders. And what we believe three months from now may be different from what we believe today. And I can't tell you -- I can't fix a number because the world could change three, six months from now one way or the other, as you know.

So I can't get in the business of predicting what that number is. I can tell you that so far, based upon the facts that we've had available to us to date, the valuation that we've had in the market has not been acceptable, that's a fact. So I have another question waiting, so I'm going to have to cut this off.

Keay Nakae, (inaudible).

Good morning. Larry, talk about current business in the US starting there with Inverness, what would you envision as the upside for sales there?

I know that they're working on some opportunities, I can't quantify it. But there are many things happening with respect to rapid HIV testing in the US as you may have seen over these last several weeks, notably the rollout of the national strategy for HIV.

And that is very bullish for testing because, as we've said ad nauseum, it was -- a large percentage of people that are HIV positive don't know that they are and that's why the rate of new infections has not come down. And they want to reduce that percentage of unawareness from 20% to 25% to about 10%.

And there's increasing unanimity, or increasing agreement I should say, that the way to do that is through testing, not only here in the US but globally. In fact, the global market which we've also participated in, as you know, has been the evidence that shows how fundamental testing is to long-term HIV eradication.

So whether those manifest themselves this quarter, next quarter, into next year -- excuse me, I don't -- I can't tell you specifically, but we are optimistic about the market both with respect to the products that we have with Inverness, as well as with our DPP product as it comes in over the next year or so.

Okay. And then you talked about your backlog as it relates to Africa, your sales there have been pretty lumpy. So what has to happen for you to monetize that?

When you say to monetize that, we have an order we're producing. We have a large order, a couple of large orders from Africa. Maybe I'm not understanding your question.

So I guess what's your level of confidence that the backlog will be realized in actual revenue?

I'm very confident. We don't call it backlog unless we have a confirmed purchase order with appropriate credit from the customer. And when we say backlog we mean a confirmed order, we don't mean an expected order. It's an order that we're producing against right now.

Okay. Thanks for that clarification. And then on a go-forward basis then, what is your outlook for the prospects of sales of your product in Africa?

Well, this year we are expecting about a 25% increase as compared with last year. And so we're going from -- what was the number? I think it's going from about $3.5 million to about $4.3 million this year. Yes, it was going from -- we still have to get to $4.25 million this year which is a 25% increase over last year and that's based upon the backlog we have now. If we get some additional large orders between now and the end of the year that would even further increase that 25% improvement over 2009.

Okay. And then finally, prospects for your DPP HIV in Brazil. I mean, you've gotten the approval, so how is your outlook now, has it changed at all?

No, my outlook is very, very positive. I'm very optimistic that we're going to have a very good program in the offing with Brazil and now they're determining exactly when they want to receive the first product and moving forward on a technology transfer schedule it's a $10 million program over the next five years just for that product.

So we're very excited about it and we think that the product is going to be very well received there. So we're optimistic about that. I don't know what the schedule of deliveries of the first order will be. I think the details of the first order are being discussed right now in terms of timing and amount.

Okay. That's all I have. Thanks.

Very good, okay.

(Operator Instructions).

Okay.

Anthony Marchese, Monarch Capital.

Good morning, guys. Listen, you guys have done a tremendous job, so I want to, A, thank you and, B, just say keep it up. Let me ask you a question. It seems like you guys have said repeatedly at these levels we don't want to sell equity. This is either an unfair question or a lay-up question depending on how you look at it, but what do you think the market is missing in your story?

Obviously you feel the stock is undervalued. You guys have bought stock I believe in the open market as well. What is it you think that the market is either not focusing on or missing or why do you believe the stock should be valued higher than where it is today? And again, maybe it's an unfair question but I'd ask it anyway.

Well, so why do I think (multiple speakers).

Yes, why do you personally believe the stock -- and again, it's just meant to help me understand what it is that you guys -- and I say that in a positive -- what is it you guys think the market is missing in terms of valuing at a higher price?

I think there could be a number of things. There are explanations meaning it could be simply the audience -- we're on the bulletin board, it's a penny stock, so you have a limited audience both in terms of recommendation and coverage and all of that. So how much of a factor that is I don't know, but I do believe that is one factor.

Another factor is the -- now could be maybe the uncertainty with respect to financing, which I understand, and that's part of the -- comes with the territory.

Third, I think that -- and this is one area strategically that we clearly want to find ways to address is having more content for our platform because we have a platform but to develop applications we need to go out and license in markers. So I think that that is something that the market may well appreciate if and when we are able to achieve that and maybe more visibility, more predictability to our operating results.

Okay, I appreciate the candor because obviously I believe the stock is undervalued, but obviously the market, for whatever reason, sees it differently. And my only other comment or question is are you guys actively involved, or obviously my guess is considering -- when you say non-dilutive sources of financing, collaborations, in other words you mentioned content maybe licensing other markers. Have you guys considered working with others in collaboration so that you can --?

Absolutely, absolutely. That is clearly a direction that I've been spending a lot of time on these last several months. I was just overseas last week for several meetings with respect to potential collaborations. There are also potential collaborations here and that is clearly one focus of ours is to develop those kinds of collaborations, strategic and otherwise.

Great. Okay. Listen, thank you very much.

Thank you.

[John Lobes], private investor.

Thank you. I would just like to know what you think is the long-term potential for the influenza testing and market and how you feel your product will fare versus the competition?

There is a significant market for rapid test for flu antigen detection. The companies that are the leaders in that market place have had significant decreases in their results most recently, of course they were comparing to a phenomenal year last year when we had the H1N1 epidemic.

Based upon the prototype that we've developed our product is more sensitive than the leading product. We need to prove that in the clinic and in the field. And we think that having our first antigen detection product happens to be flu because it's a significant rapid test market, has value in and of itself.

The commercialization of that, what do you estimate? I know it's very rough at this point, but just give me a rough timeline of when you think there could be commercial?

To submit -- start the clinicals before the end of this year and then we would submit sometime in the early part of next year so that we would be out sometime toward the back half of next year.

Thank you.

Thank you.

Steve Rud.

I just figured I'd get back in queue.

I just wanted to make sure I was able to take the other question.

That's fine, not a problem. I appreciate your candor to that fellow's question on what the hindrance is to the share price and we're pretty sophisticated investors. And I'll tell you, for us it's the financing. And for us if we knew that -- we would buy more shares, we'd be bidding up the stock, we'd be buying whatever we could if the financing was in place. Or if we knew that you were going to offer financing opportunities, others that would give it to -- put that offer out to existing shareholders.

What the biggest overhang here is, the concern that I'm going to wake up one day and be diluted, and that's really where we are. I mean, the fundamentals of the business are compelling. Management appears to be excellent and the opportunities seem to be unlimited. But with the possibility that I'll like wake up one morning and be 25% diluted without even having had the opportunity to put more money in, that's what holds us back and it's happened before. I don't criticize the past, I understand the compelling need. And you were diluted yourself; I mean you suffered pretty badly here, Larry, no question about it.

Yes, and I would -- that same morning that you wake up, I would be having the same feeling because I own about 10%. So I our interests are aligned.

Okay. So one thing to think about as you look for the next round is coming back to those of us who are already here because some of us believe in the story but we can't put in the money until we know we're not going to be diluted. That's really where it comes down to.

I understand.

I just wanted to put more color and I wanted to put an exclamation point on it. And I don't want anybody to have any misconceptions or ill feelings about it. We know what's past is past, but we don't need to have it happen to us twice (multiple speakers).

I appreciate that very much. I understand the uncertainty that this creates right now, so we're going to try to address that.

Terrific. Thanks and, again, thanks for the hard work. We really know you're busting it and it's getting results. So we really do appreciate it.

Thanks so much. Okay.

Thank you. At this time, ladies and gentlemen, we have no further questions and I'd like to turn the floor back to management.

Okay. Well, thank you all for participating and listening in and we look forward to informing you of future developments, certainly no later than the end of this current quarter when we deliver our third-quarter report. Thanks again. Have a great day and great weekend.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.