DSS Inc (DSS) 2009 Q3 法說會逐字稿

Greetings and welcome to the Document Security Systems third quarter 2009 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, Jody Janson, Director of Investor Relations for Document Security Systems. Thank you. You may now begin.

Thank you. Good afternoon, everyone, and welcome to the Document Security Systems conference call for the third quarter of 2009. Joining us today from management are Chairman Robert Fagenson, Chief Executive Officer Patrick White, and Chief Financial Officer Philip Jones. This conference call is also being webcast and will be archived in the investor relation section of our website at www.documentsecuritysystem.com. Before turning the call over to management, I'd like to read the Safe Harbor statement.

Document Security Systems has included in today's press release and conference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including all statements considering future or expected events or results. Please note that during the course of this call we will be making forward-looking statements regarding management's opinion and expectations about Document Security Systems business, its markets and financial performance. These statements are subject to risks, assumptions, uncertainties and changes in circumstances. Actual results may differ materially from those expressed or implied in such statements. For more detailed information about Document Security Systems risk factors that may cause actual results to differ from expectations, please see the Company's filings with the SEC including our Form 10-Q that we expect to file on November 16, 2009, and our earnings release which is posted on our website today.

Part of the Company's presentation includes non-GAAP numbers that management considers to be useful such as adjusted EBITDA which is earnings before interest, taxes, depreciation, and amortization, stock-based compensation and nonrecurring items. These non-GAAP measures should be considered as supplemental to its corresponding GAAP numbers and we encourage you to review the differences between these measures as described in today's press release. With that, I'd like to turn the call over to Mr. Robert Fagenson, Chairman of Document Security Systems.

Thank you, Jody. Welcome and good afternoon to everyone and I thank you for taking the time to be with us this afternoon. I normally would say to you that it's been a challenging quarter, but we say that all the time because every quarter is a challenging quarter at DMC. However, the real key is whether or not we're making progress, and I believe we are. I'll cite some statistics, although Phil will go into them in detail, and a few things key to our operations and Pat will elaborate on those. Sales were up 52% in the third quarter as opposed to 2008 but obviously that is the result of the DPI acquisition. More positively, we had a 13.6% increase in sales over the second quarter of this year. Obviously, we continue our focus which is managing our expenses effectively and our operating expenses did decrease by 24% over the third quarter -- in the third quarter, rather, as compared to the third quarter of last year and operating expenses for first nine months of 2009 have decreased 39% compared to the first nine months of 2008. We were able to decrease the net loss 64% to $955,000 as compared to $2.663 million in the third quarter of last year and perhaps the most frustrating part of the quarter is the elusive goal of trying to get us to cash break even as the result of some extraordinary expenses that we incurred during the quarter, particularly in the legal area which Phil will explain a little bit more in depth. We just have not gotten to where I'd like us to be.

The statistics however, don't tell the whole story as they rarely do, particularly our company. When I came to DMC, the Board and I really took a look and I stepped back together with management and we decided that we really had to rebuild from the ground up. We were basically a royalty based licensee. There did not seem to be any effective way to monitor how people were using our technology and whether or not the company was, in fact, getting paid or getting paid reasonably. Expenses were way higher than they should have been for a company of our size and we had to aggressively go after those and really the key was to make what I would call the right acquisition. Something that would allow us to get paid effectively for our technology and to grow a combined company by leveraging our technology into a real operating business where we were selling something to the end customer.

Obviously, this also had to be accomplished with very little cash because we didn't have a lot of cash on the balance sheet to be able to use in making an acquisition. Now actually that strategic plan has worked out, I think, magnificently. The DPI acquisition was just what we needed and it moved us into areas that really I don't think the company could have moved into effectively if we hadn't done that. Of course we did all this not expecting to walk into the worst economic downturn in modern history. It makes growing a company more challenging and, in fact, what we had to do was in effect almost shrink the company temporarily as a combined entity. To prepare for growth, we actually had to fire some customers that really didn't fit in to the way we wanted the company to look going forward, reduced our staffing, cut costs of the combined companies dramatically and spent some time cleaning up old messes as well. All of that is what we felt was necessary to prepare to grow.

Some good things have happened in this third quarter. Our existing large customers have started to give us reorders and potential new clients have been actually coming after us as they started in the second quarter throughout the third quarter. We spent some time and money properly securing to meet government standards. The DPI printing facility to quality for additional work that our customers were clamoring for but could only give us if, in fact, we met tighter government standards. We've moved into packaging and opened several (inaudible) have been using our print and packaging capability both in our own facility and in joint ventures to really transition into an additional area for document securities DPI in secure packaging which we think is a phenomenal area for future growth.

We brought on an additional five Fortune 500 clients for whom we are manufacturing print products containing our security technology which is obviously a key portion of our plan to be able to take our technologies and actually add value to existing printing products with our DPI acquisition. We recently announced that we signed a four-year distribution agreement with Samsung S1 Corp which we hope will bear fruit, certainly a company that size and scale has the capability if they get behind our products as we hope they will and launch us into markets that we would probably not reach on our own for many, many years. Our AuthentiGuard security paper has been approved recently by HP as an indigo certified product and that obviously is a tremendous validation of this product in the marketplace. We are in fact continuing our evaluation of acquisitions and there are two that I'm very excited about and hopefully we'll be able to zero in on one of those and have something else exciting to report during the course of the next year.

This is progress. This is progress towards capitalizing on the gems of this company. I am today no less excited than I was when I joined the company as non-executive chairman. I feel we're far better positioned, far better positioned to take those gems of technology and actually unlock the value that is residing in them but which this company always has a problem getting paid for. It's tough in this economic environment to get where we want to when we want to but, for us, taking the company and getting on sound financial footing, making the acquisition, allowing us to grow by selling what we've got to people who want to buy it and reducing the middle man so that we can control from inception to end and how our technology gets used and how we get paid for it has been the key to our strategy. I think we're making good progress in that area. I'm sure we are.

The real issue obviously is going to be able to show you how this translates ultimately into sales and earnings growth. I think as the economy continues to -- it's recovery which I believe it will over the next 12 to 18 months, the clamor that I see from sizable customers to start using and reusing our technology hopefully will translate into the type of growth both in the top line and the bottom line that we're hoping that we can achieve for you. To be more specific, I'm now going to turn the call over to Mr. Phil Jones, our Chief Financial Officer, and allow him to walk you through the numbers. Phil.

Thank you, Robert. Today we announced third quarter earnings and we have provided the detailed financial results in the press release that was posted on the financial news wires and is also available on our website. As Robert mentioned, revenue for the quarter increased 53% over third quarter of 2008. Security and commercial print increased 68% during the quarter which is -- reflects the impact of the acquisition of DPI. Royalty revenues actually increased 8% over the prior year while legal store sales in its final quarter as a member of the DSS family actually declined by 32% as the division was being sold and transitioned to the new owners. So the blended growth rate of 53% was very positive.

Furthermore, what we're most pleased about is the revenue rebound from the second quarter with an increase of 14%. We do hopefully feel an indication of the worst of the downturn may be behind us. In addition, on the gross profit side, gross profits rebounded by 42% from June, sequential growth of 42%. That's a real positive. It's a factor of our ability to control costs and it's an indicator of the increasing degree of the fixed costs that we have within our operating line, including the new equipment that we invested in at our plastic printing division. That allows us to really obtain higher margins as sales increase. We saw that in the third quarter and we do feel that's a trend that will continue.

Operating expenses -- I'm sorry, gross profits for the third quarter as compared to 2008's third quarter increased 3% and that's really a -- it points to the change in the financial model that we have since we acquired DPI. Gross margins of 38% for the quarter are near our model of between 40% and 45% based on the financial model that we have after the acquisition. So gross margins have improved and that's a very good number for us.

As Robert mentioned, operating expenses for the third quarter were -- did decrease. They were $1.8 million as compared to $2.4 million in the third quarter of 2008. This is despite adding $450,000 worth of operating expenses associated with DPI. Those numbers are significant, they are the result of the cost reductions across the board that we have made which we initiated in late 2008, decreases in general administration, compensation costs, professional fees, sales and marketing costs, stock-based compensation costs and intangible amortization costs.

However, during the quarter we did experience a fairly large increase in legal fees from where we expected them to be. We were disappointed in this number. Of all the costs, legal fees do seem to be a bit difficult to control; however, we do feel the levels we experienced this quarter were unusually high. We don't expect them to occur.

Net losses for the third quarter were reduced by 64% to $955,000 or $0.06 per share. This is compared with a net loss of $2.7 million or $0.19 per share in the third quarter of 2008. While we are pleased with the improvement, we are not at the levels we hoped to be at. Adjusted EBITDA for the third quarter was a loss of $407,000 as compared to adjusted EBITDA loss of $348,000 in the third quarter of 2008. We had hoped to see an improvement in the adjusted EBITDA number. The significant amount of legal costs up to $80,000 of that decline were associated with legal costs during the quarter negatively impacted this result.

Year to date revenues up 42%, that's compared to the first nine months of 2008. Taking out the impact of a one-time deferred revenue royalty amount that we recognized in 2008 which we discussed in the second quarter, taking that out, revenue for the year is up 61%. Once again, this is primarily reflected by the acquisition of the commercial printing business in December of 2008. Year to date operating expenses are 34% lower than 2008 as well as year to date net losses have been reduced by 54%.

Moving on to the balance sheet, we ended September of 2009 $423,000 of cash on our balance sheet. In October we concluded a private placement of our common stock which raised approximately $1.5 million. On a side note, we did have an inventory relation inquiry regarding this raise. The question was whether executive officers or directors have sold shares during the private placement. I just want to clarify that. The answer is no. All the proceeds were received by the company.

Also, as you'll notice on our balance sheet as of September 30 we have $3.9 million of short-term debt. We are concentrating on this issue and wanted to inform our shareholders that we have reached tentative agreements to refinance approximately $1.3 million of this debt to longer term debt as well as we've reached tentative agreements to convert approximately $2 million of this debt to restricted shares or other equity instruments. We understand the importance of that issue and that's an issue we are concentrating on this quarter. We will update our shareholders as soon as we have any news we can report on. Once again, if I have omitted any information, feel free to ask questions during the Q&A session. Otherwise, I'll turn it over to Pat.

Thank you, Phil, and good afternoon, everyone. Let's begin by discussing our major revenue segments. The first segment is our largest which is our security commercial printing operation known as DPI located here in Rochester, New York. To review, DPI is a large sheet fed commercial printing company that we acquired in December of 2008. The major revenue stream comes from traditional commercial printing which manufacturers various high quality marketing materials for western New York clients. In an effort to transition DPI from the lower margin commercial print business to higher margin security print manufacturing, we began securing the print facility and we have completed the installation of all of our technologies. I am pleased to say that since February we have successfully printed and distributed over 4 million secured financial instruments for five very large Fortune 500 companies and I'm very proud to say there has not been a single report of any counterfeits to date.

On top of that, we have also received fourth quarter orders from additional -- from two additional Fortune 500 companies and we are being processed as approved vendors for several additional large US consumer product companies that we hope to complete by the fourth quarter of this year. Additionally, it's important to note that several of the new Fortune 500 clients have returned for repeat orders and they are asking for quotes for additional brands which they manage. When you analyze these results, you have to take into consideration that this is something that we just began offering in the marketplace in February of this year. It's an eight month period for our concept to market to manufacturing to repeat work. We are very excited and convinced that the security printing work will continue to build and substantially grow in the weeks and months to come.

Research and development continues as we can recently announce a test for a new security paper that's a product we created and developed for the Hewlett-Packard digital indigo press. This paper was tested by the Rochester Institute of Technology which is the premier school for the printing industry. It is our intention to get this new security product into the hands of Hewlett-Packard and their indigo users around the world. This is, in our opinion, a new potentially large market channel for us to create products for and penetrate and we anticipate solid sales results going forward.

I'm also very honored and pleased to say that we recently announced a deal with Samsung S1 Corporation. Samsung S1 is part of the Samsung group of affiliated companies which specializes in security solutions, particularly in the Far East. Things are moving fast and furiously with S1 and we anticipate that this relationship will produce significant print manufacturing and digital product revenue in 2009 and beyond.

Another of our major revenue drivers is our San Francisco, California-based plastic printing operation known as P3. P3 should know soon on several bids which are soon to be awarded. For example, one of their large partners has bids for a foreign national ID card that P3, upon winning, will be doing all the manufacturing for the card. We are also working with a company that builds some of the most modern public stadiums and venues all over the world. As part of these venues, this client developed a secure credentialing system which they are patenting with our P3 manufactured cards and security technologies which we feel will produce some higher margin revenue when sold.

Finally, P3 is also working with a foreign security company which is involved in a large 2010 ID card project which could equate to possible sales f $2 million in the second quarter of 2010 P3 with a potential of $5 million over the full year of 2010. Unfortunately, sales cycles are longer than we like in this space. However, the good news is that some of these opportunities are now mature and getting to decision time.

The third revenue driver to report on the our digital software product called AuthentiGuard DX. This is a new software appliance that is basically a modern new flexible encryption security product which protects important or sensitive alphanumeric information on Microsoft generated e-mails, documents, and spread sheets. We installed our first system in the third quarter in a very large multibillion dollar finance company in California. Unfortunately, after our first installation, the company made it clear that they have two platforms that need our security encryption system. Our initial version is currently PC format only. PCs make up 92% of the desktop market, so it was logical to create that platform first. Once we installed our system, we experienced some fallout from the Macintosh users who were slighted and they demanded a version for their platform prior to completing the sale. We have been addressing the Mac version head on with our technical team. We are making headway and we hope to finish the Mac platform this quarter. When completed, we feel that this product will become a strong revenue generator for DMC. Samsung is also very excited about the product as well as several other large Fortune 500 companies we are discussing it with.

Finally, our fourth revenue generator is our licensing revenue component. Licensing is the highest of all margin revenue streams. Due to growing counterfeiting issues, licensing has perked up lately for some of our newer technologies with a couple of very large clients. Testing is underway with an $11 billion commercial printing company who is a current licensee of ours that basically uses our older technology for bank check protection. Another test is in process with one of the largest aerosol can manufacturers in the world. Both of these potential licensees will provide us higher royalties on a tremendously larger base for which to apply the royalties. In addition, we need large partners such as these companies since they have the girth to take on very large print projects which we are being presented but we have the lack the in-house capacity to produce. We have decided to work on these types of opportunities as a one source secure printing project manager where the client comes to us with a project and we design it and print manufacturing to our licensed partners.

Now turning over to a brief statement concerning the [Euro] litigation. For those of you who are familiar with our pending patent infringement proceedings regarding the alleged use of one of our older technologies on billions of year-old notes, our co-owner of the patent, Trebuchet, is responsible for the litigation and informed us that they will make any new litigation matters public when they commence. Recently, the patent was found to be invalid in the country of Belgium which at this point is meaningless and irrelevant. Our patent was found valid in Germany, home of the European Central Bank, and the Netherlands. Those validity wins were all we need to pursue infringement damages. Trebuchet has informed me they are concluding their due diligence prior to going on the offensive. When they do file infringement, it will mark the first time in the litigation process where we have the opportunity to be awarded damages in countries where the patent the already passed the validity test. That concludes my presentation for today. And now Robert, Phil, and I are available to take your questions. Operator, could you please give the instructions for Q&A?

(Operator Instructions). Our first come comes from [Jack Briggs] from Rochester Wealth Management.

Good afternoon, Pat and Robert. Just a quick question for you. At the shareholders meeting you mentioned potential business with government contracts. Has there been any status change on any of those that you were discussing?

Yes. We mentioned a federal credentialing project that we were involved with. And just to show you how our US government works, this was a project with the TSA to secure credentials for federal air marshals who need credentials, secure to get on planes with weapons and prisoners they are transporting. We met with the TSA originally in February of this year with a government firm that made the introduction of our behalf. We met with them again in March. We met with them again in April and May. And in June it was decided that they were going to do a prototype test with our technologies in the state of Virginia once they receive some budget money approved in October of this year.

We stood in touch and in October of this year we read an article that the TSA had decided to use a different coding system. Basically, it's a memory system where the federal air marshal receives a code and verbally gives a code to get on flights. We contacted TSA and said what happened. And they said it was a cost consideration and they decided to go that route. And so ends the story.

I think the additional answer to the question is that we have not had success in penetrating the government to the point where we can see a contract. It is -- we spent money. We've hired people who are well connected, who have the ability to get us in front of agencies and it has proved a very daunting process. We are not spending a lot of time and energy on that at the moment.

Okay. Maybe Pat can give me a little more color on the Samsung opportunity. It sounds real good. I know in the past we've had expectations set with companies like (inaudible), BTI, (inaudible) the Ergonomics Group. The revenue really hasn't followed up to the expectations. Is there anything different at the beginning here? Can you give us an idea? I know you can't give projections but what the scope of that opportunity might be compared to some of the others in the past.

I think you have to take the past and say we don't wont to raise expectations. The only thing that appears different in Samsung is that they have approach us based on knowledge of our technology. We use that opportunity to showcase all the products and management was very effective together with our technology team in not only peaking their interest but bringing more senior members to management which led in record time to the execution of these preliminary agreements. The potential and the way they see it is probably greater than what we've seen in the past. The follow through is once again out of our hands. There is a large foreign partner in perhaps one of the fastest growing areas in the world and they really need the product. Once again, the question whether or not they're willing to pay for it and whether or not it leads to meaningful revenue is the large question mark. We don't everyone to raise their expectations beyond what's rationale in that we finally have an agreement with a true multinational company tremendous size and scale that came to us wanting our products. So we're hopeful. But beyond that, you can't -- this is not counting these chickens and eggs yet. It is far too early.

Okay. Thank you.

Thank you. Our next question is coming from Sandy Wyman from Gilford Securities.

Good afternoon. I actually have a few questions. The first one I think the CFO addressed this a little bit. I noticed there was a Form 4 filed which implied that a lot of insiders seem to have sold stock. I gather that was somehow misfiled and it was really related to the private placements. If so, could you give me an idea what that money is being used for in the private placements? That's my first question.

Actually, it was a Form D.

Form D, I didn't mean Form 4. I'm sorry.

Related to the private placement. It's just a matter of compliance. The private placements which we discussed in the second quarter were used for working capital during the year and they were consistent with what the program that we had started back in June. So the Form D that was filed in October was just kind of the formal announcement that that process is over.

Form D -- Sandy, the Form D as I understand it is a statuary form that every time it's filed includes references to any affiliated individuals, officers, directors. That's historic and it actually relates to acquisition of shares through options and other matters. It has nothing to do with sale of shares. The only sale of shares was sales primary shares by the company, individuals of the shares, none of the officers and directors mentioned in there, does not refer to any sales by any of those individuals.

In the last quarter there was some reference to some new products, particularly barcode technology products. Has been been any further improvement or any further discussion or any further headway on that technology?

Pat, you want to speak to the technology? I can certainly speak to the history.

Yes. We're working with the barcode authorities to test what we've developed and also meet their standards. They've got standards that we must address before we release the product. We have done several different designs. It's working. Basically, so the people understand, what it is is right now barcodes are pretty bare and you can copy it and a copy will work just as well as the original. Therefore, if you have a ticket to an event, if you get there first you get the seat and the person with the real ticket would have a problem. We have a system where if you print the bar code with our trade secrets and some of our patented technologies, a copy of the barcode will not work. It will be rendered useless and so, therefore, protects the original bar code. We are in process. We do want to make sure we're meeting the standards that are required and we're submitting them and testing at this time. We have interest from some of the Fortune 500 companies.

Okay.

This should be completely separated from the former foray that we made of a barcode technology company that approached us once again with grandiose ideas but did not follow through at all.

Okay. So this is really sort of self-initiated on your part.

All the exciting things that we're doing, Sandy, self-initiated, self-managed. We don't determine our own destiny. Trying to count on partners is a way to waste money, time, effort, dissipate the strength of our technology and get nowhere and get nowhere slowly and we just don't have the time for that. We have to move ahead where we are having our successes and people are coming to us. Is where we're managing the technology and not only delivering that directly, but also delivering it in product directly. It's a quantum change for this company.

Good. Good. Has there been thought or ideas as to the X date on the spinoff?

That I believe is tied up in regulatory requirements of them doing their filings. So until we have registrable shares that we could in fact bring to the Board to consider that, there's nothing we can do. The timing is out of our control. As soon as we have something, we'll be right back.

Will this be then spun off as originally as a private company that we'd have shares in and an S-1 would be filed and then become public?

The thought process is otherwise, that the distribution would be when you had fundable shares.

Okay. Do you anticipate that would happen this year?

I give you personal opinion which would be no, but it's really out of our control.

Okay.

It's moving ahead quickly. But, once again, our partners are basically spending their first hours, weeks, and months getting their arms around the company and trying to get the strategic plan in play. And the capital aspect is operating in parallel but they have got tremendous expectations for this. You see the ads for a competing company on TV, that's where they see the potential. The plans are in progress. The timing is something we hope to be able to talk with some confidence about at the end of the fourth quarter.

Okay. Great. One last one which is the $64,000 question. At the end of the first quarter and then repeated at the end of the second quarter you had hoped to be cash flow positive and maybe by the fourth quarter and earnings positive by the end of the fourth quarter. Obviously, this quarter has a little bit of a hiccup along the way because of the legal expenses. Do you see yourself still at that same schedule that you had originally set out at the beginning of the year?

Individual months that bring us very, very close to that goal. The key now is to string three of them together. Could there be the quarter? It's possible but I don't want to sit here and project it with any level of confidence. It's too early. If we hadn't had the economic malaise last this long, maybe we'd be further along. Every other number is moving in the right direction. This one, I believe, is going to follow. Just timing on the cash side of it is less precise. That has put the pressure on those of us in management and on the Board to make sure that the company has access to capital which we've been able to do. But all the indicators both from customers, sales, repeat sales, and the numbers themselves on expense and revenue generation are moving in the right direction and I am still hopeful that this one is going to follow along in due time. Whether I've got to extend out the time period, I don't know. We're still hopeful that this is going to happen sooner rather than later.

Okay. Thank you. My absolutely last question then. In terms of need for additional capital where do you see that at this stage?

At the moment we're stable. Obviously we could always use money and what's happening is particularly as DPI starts to grow and customer orders are becoming larger, there's only one thing that needs more money than a losing company and it's a growing company and those are good things. Thus far, we have been able to provide for the adequate capital needs of the company and we have no reason to believe that we wouldn't be able to do so in the future but without any promises. We're in a reasonable spot now. And we're hopeful as we do the restructure of all our short-term debt over the next few months that it will put us in a position to take care of the needs with greater ease and facility. And hopefully, we'll be able to add an acquisition in to the mix that will bolster cash flow substantially.

Great. Thank you very much.

(Operator Instructions). Our next question comes from [Tom Felker] from T&T Commercial Corporation. Hi, Pat and Robert.

Hi, Tom.

You referenced that you're working on a licensing agreement or additional licensing agreement with an $11 billion printer as well as the largest aerosol can manufacturer of the world. Can you give us an idea of what types of your products would be used with those customers, the business model you're looking at and what type of relationship you would like to see put in place. And, Phil, by the way, I'd like to say hello to you too.

Hi. Thanks.

The $11 billion commercial printer I want to make sure you're aware is a client now. It's one of our largest licensing clients. They are using the -- one of our check protection technologies to produce checks and I think they apply it to probably $40 million worth of revenue that we're getting royalties on today. They're an $11 billion company and they're in to all kinds of printing. They are in to labels, they are in to packaging, they are in to catalogs, they are in to mailings, they are in to every facet of printing you could ever imagine. Coupons, gift certificates, marketing materials, games. I mean there's all kinds of uses for the technology that they are now discovering because their clients are experiencing pretty severe counterfeiting problems that the newer technologies would enhance their ability to sell and build their company. The commercial printing industry is flat on its back. It's hurting. And these companies have not had my R&D in the last 12 years. They have cut out their R&D department. We are an R&D and R&D is what's going to save these companies and the smart ones are recognizing that fact.

Though I think in that particular case if we get them licensed with a newer technology we are now testing, they apply to the bigger base of their sales and it will be a win-win for everybody. And also we need them because I have a client that will want 50 million pieces printed and mailed and distributed within a 30 day time period and we just don't have the capacity for anything like that. We have been talking about these types of things with clients so we would need them to be the capacity for those types of projects so it is very serious talks, very serious consideration, very serious testing. And we're looking forward to it coming to fruition and I really think it will.

Can you -- ?

I think that the principal change here is we're looking for a fulfillment partner. Before, that partner might come to us and try and license the technology and we would lose control. Now the customer is coming to us. We control the order and we go to the fulfillment partner to be able to produce. They do not then control the customer and that's the real key for us. We just have no way of knowing whether or not we're getting, in fact, treated fairly or getting paid the appropriate amount unless we are, in fact, controlling that relationship.

So in effect, you would be hiring them to do the work as opposed to them licensing from you for their customer?

Well, while both go on, we do have licensing relationships both with this particular entity and others. The real key now is we are getting the customer approach as opposed to a commercial printing or fulfillment company coming to us asking for granting of license to fulfill a customer request coming to them. The customer comes to us and puts us in a much stronger position.

The aerosol company is a you're seen company, one of the largest in the world. I think this is a first. They've had us send them art work to protect the printing of a WD 40 can that I guess is slated for the Far East -- or maybe Russia or one of the eastern European countries. We've already printed some. It's gone back and forth a few times. It's not there yet because they had some issues in understanding how to print the technology. Again, we don't know how big an opportunity this is. This company does hundreds and millions of pieces a year. It's certainly not something that's in our sweet spot, but it wasn't even an area that we had considered before until they approached us. It's something we do have people assigned to the project and we are hoping to get further test results shortly.

Thank you.

Thank you. (Operator Instructions).

Operator, no further questions?

We have no further questions.

On behalf of the management team, I would like to thank everyone for their continued interest. Be advised that we are continuing to work full speed ahead at taking the technology, the real cornerstone of this company, and getting it out to areas that we had never thought possible before. We are seeing for the first time major US multinational companies who have used our products, are satisfied with it, as Pat said. Other brands and other divisions within the company are being referred to us by brand managers within the same parent company. It's very important for us. It makes our sales job much easier, the cycle slower -- shorter rather, because they already have approval within the company to use us, to do business with us and proof positive that the product works. When Pat says we produced over 4 million security pieces with not one complaint of counterfeiting, it's a major milestone for us.

Counterfeiting is expanding around the world of every product you can imagine, whether it's going to be secured coupon or perfume, both packaging and marketing, what we've got increase in the chain of commerce and we now have the ability to fulfill and deliver not just financial but a finished product. We're hopeful trends continue and we hope that you'll continue to have faith as we do in the validity of Document Security patents and technology. Pat, Phil, anything else you'd like to add?

Just want to thank everyone for joining us today and I think we're building and building and building, and we will get to the promised land. So hang in there.

Thank you.

That's it, operator. That will conclude the call.

Thank you, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.