CSP Inc.

Greetings. Welcome to the CSPI's first quarter fiscal year 2024 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Michael Polivio. You may begin.

Thank you, Holly. Hello, everyone, and thank you for joining us to review CSPI's fiscal 2024 first quarter results conference call, which ended December 31, 2023. With me on the call today is Victor DeLobo, CSPI's Chief Executive Officer, and Gary Levine, CSPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we will then open the call for questions. Statements made by CSPI's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance or event and are subject to several uncertainties and other influences, many of which are beyond the company's control, that may influence the accuracy of the statements and the projections upon which the segments and statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the risk factor section of the annual report on Form 10-K and the quarterly reports on Form 10-Q filed with the Series and Exchange Commission. Overlooker statements are based on the information available at the time those statements are made and management's good faith belief as of the time with respect to future events. All overlooker statements are qualified in their entirety by this cautionary statement and CHPI undertakes no obligation to publicly revise or update any overlooker statement, whether as a result of new information, future events, or otherwise after the date thereof. With that, I'll turn it over to Victor DeLobo, Chief Executive Officer. Victor, please go ahead.

Thanks, Michael, and good morning, everyone. Early this morning, we announced our fiscal 2024 first quarter results. However, before I ask Gary to review the quarter, I want to spend a few minutes highlighting two developments that were recently announced, as I believe these truly demonstrate our growing business prospects and continued optimism with high-performance products in the technology solution businesses. To begin, the launch of the AZT Protect offering is and continues to be a game-changing development within the high-performance products, or HPP business, because the advancements allow us to offer our customers a giant leap forward in the evolution of cybersecurity solutions. A few days ago, we announced our largest and most significant contract to date for AZT, a multimillion-dollar agreement with a global pharmaceutical company deploying AZT across its Global Manufacturing Operations Technology, or OT, protecting over 40 facilities in response to the growing cybersecurity threat to OT from hostile nation states, terrorism, and organized cybercrime. This customer appreciated the enormous risk of cybersecurity attacks on the facilities. It could lead to theft of intellectual properties, compromised safety and quality, regulatory fines, and major disruptions to its manufacturing process. However, many other remain extremely vulnerable and are ill-prepared to protect their critical assets from new wave of cybersecurity threats that can bypass network, bypass protections in modern cloud-based next-generation antivirus solutions. The second development that was also recently announced was a five-year multi-million dollar contract to provide managed services for a prominent Florida Public College, one of the largest and most diverse institutions of higher education in the nation. We will deliver proactive monitoring, management, and support for college critical infrastructure, including networking, security, and private cloud services. I believe these two developments are a strong indicator of the future success, and it's precisely why The Board of Directors had the conference to raise its quarterly dividend to $0.05 per share. I will spend a few moments highlighting the technology solutions or the TS business, and then I will focus the majority of my comments on the AZT offering, as it is the potential to dramatically change our growth curve. The TS business performed as planned, and we continue to be excited about the current business. as well as the leads being generated on a daily basis from new and existing customers. The TS business accounted for 14.7 million of the overall revenue, and its success continues to be driven by our customers' increasing use of our implementation, installation, and training capabilities. As I stated on the last call, the UCAS has become a profitable business, and we ended the fiscal first quarter with an increase in clients that, based on our current information, and leads flow will continue to see an upward swing in the client's activity as we move throughout fiscal 2024. As many of you know, it's been a challenging business environment for several years, and the team's ability to remain engaged with customers is amazing. I believe the yes-can-do attitude has enhanced our clients' loyalty because they recognize that our products and solutions are the most effective, cost-efficient answer to their critical needs. For example, while our cruise-related business has been relatively quiet during the following of the pandemic, the team has remained on the ready and we are beginning to see some positive developments. For example, we received orders for several ships from one of the cruise line operators and the consistent growth of our non-cruise-related shipping business is continuing as we're currently working with one of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide with an extensive global agent network and has become one of our larger MSP customers. Turning now to our high-performance products or HPP business, my comments will focus slowly on the emerging AZT offering as it continues to generate a significant amount of interest in the market that we believe will grow to over $50 billion based on the number of devices that need to be protected across the relevant verticals. We are excited about the industry's positive reaction to AZT, and we remain bullish as sales funnel is getting larger and is attracting prospects across the Fortune 500. As a reminder, AZT's advancement allows us to offer our customers a giant leap forward in the evolution of cybersecurity solutions. AZT's performance surpasses what's available on the market today, and its new generation of endpoints cybersecurity protection designed for critical operation technology environments. For example, based on the internal testing, we believe AZT would have stopped SolarWinds Sunburst malware used during the attack after the initial breach. The unique patent solution protects a line organization endpoints for a full spectrum of cyber attacks and attack techniques, including the most advanced zero-day attacks, malware, ransomware, supply chain vulnerabilities, even those threats that are completely unknown to security teams. By deploying artificial intelligence capabilities, AZT automatically halts attacks before damage occurs, ensuring seamless operations without disruption or downtime. It lowers the risk of applications code-based vulnerabilities from exploit while running on endpoint devices to near zero. This removes the need for constant security patching updates and associated costs of production downtime. On the last call, I mentioned the number of industry events and conferences the team attended. In that each one, our name and reputation is growing and we are gathering more and more attention. For example, Gary Southwell, CSPI's General Manager of Aria Cybersecurity, recently hosted a webinar with retired FISA Global Head of Automation Engineering, Jim Labonte. They discussed a wide range of challenges manufacturers face in today's new threat landscape. They delved into issues manufacturers need to address ranging from how to select the right technology to best practice to ensure critical manufacturing operations are protected. They focus on how current passive and active cloud-based security solutions are failing to guide against the new era of AI-embedded attacks, creating substantial financial regulatory and reputational risk in manufacturing sectors such as pharmaceuticals. The webinar demonstrated how ARIA cybersecurity's breakthrough solutions for OT environments would have stopped the SolarWinds attack and other recent high-profile attacks on critical infrastructure. where existing defenses have failed. We are planning additional webinars every quarter going forward. Additionally, we will be attending several conferences in the coming months, including the CS4CA Manufacturing Conference in Houston and the Distribute Tech International Conference in Orlando. Our current customers are varied, chemical, national security, pharmaceuticals, demonstrating the breadth of offering. In fact, there is no limit nor industry we can't access through our AZT offering, given the wide range of needs of companies dealing with constant attacks on their enterprises. Our goal is to ensure the team remains focused and is able to deliver consistent results, which basically means it's just as important to pursue smaller transactions while still hunting elephants, which can take up to several months to close. Additionally, we have continued to add resellers to leverage their knowledge, expertise, and customer depth to drive greater adoption of ARIA Zero Trust Protect. Including the addition this week, a leading cybersecurity advisor firm and reseller, which serves around 6,000 companies worldwide, including a focus on large enterprises in the world. To summarize, we remain cautiously optimistic and continue to position the company for greater success throughout fiscal 2024. We have two stellar businesses, the TS business, which has been the growth driver over the past few years, and the reemergence of the HPP through AZT offering is generating significant buzz throughout the organization and within the industry. With that, I will now ask Gary to provide a brief overview of the fiscal first quarter financial performance. Gary.

Thank you, Victor. For the first quarter ended December 31st, 2023, we reported revenue of $15.4 million compared to $18.3 million in the year-ago fiscal first quarter. The revenue could have been higher, that is, if certain contracts were signed as expected towards the end of Q1. However, there were pushouts to the end of the year in the holiday season, and signed contracts were signed earlier this quarter and will benefit fiscal Q2 revenue. Our Q1 gross revenue was $4.1 million, or 26.6% of revenue, compared to $5.8 million or 31.7 percent of revenue in the same prior year period. The decrease in gross margin compared to the year-ago period was anticipated was due to the mix of business and the lower margin products. We continue to believe our gross margin will expand as the business transitions, especially the AZT offering, to higher margin products and services. For the first fiscal quarter, our engineering and development expenses were $700,000, $173,000 lower from the year-ago fiscal quarter as we reduced outside contractors and elected to not fill some open positions. Our SD&A cost for the fiscal first quarter was $3.7 million, compared to $3.6 million in the year-ago fiscal first quarter. The slight year-over-year increase is attributable to the addition of several salespeople and increased conference participation to help us raise awareness of the AZT offering. We reported a slight net loss of $73,000 or two cents per diluted share for the fiscal first quarter ended December 31st, 2023, compared to the net income of $1 million or 21 cents per diluted share for the fiscal first quarter ended December 31st, 2022. The company had cash and cash equivalents of $25.6 million as of December 31st, 2023, compared to cash and cash equivalents of $25.2 million as of September 30th, 2023. We believe our robust financial position allows us to be flexible and successful implement our operating initiatives, and if necessary, leverage this to finance large customer agreements which have been highly successful in the past for CSPI. As Victor mentioned earlier, the Board of Directors approved an increase in the quarterly dividend to $0.05 per share, payable on March 8, 2024, to shareholders of record on the close of business on February 26, 2024. With that, I will turn it over to the operator to take your questions.

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question for today is coming from Brett Davidson with Invest Letter.

Good morning. Good morning. Must be pretty satisfying to finally land that bigger deal. Oh, my God. And, you know, I'm thinking, too, so as far as – You know, salespeople, I know you added some in the past. Has that changed your thinking any? Is there plans to add more along the sales lines, or are you guys pretty set right now?

No, we're interviewing other people right now. So we plan on adding to that this quarter in the future.

Has it changed, like, the company's compensation philosophy? you know, as far as share grants or kind of like tying these people to the prospects of the company overall?

Um, all that is on the table when we, when we talk to these individuals.

Yeah. I mean, you know, I'd love to see the people that are working there and selling this thing highly invested in the, uh, you know, the performance of the company. Um, I think that would be just a great idea. And then, you know, a little bit on the revenue recognition of that contract the other day. How is that going to run through the income statement? Is that going to be all at once or is that going to be, you know, spread out over time?

That's all at once.

Okay. So that'll drop this coming quarter. Nice. And last time we talked, I know that, you know, the cruise business was still kind of, slow getting rolling here again. Has that changed at all? Is there any more progress on the cruise ship business?

Yeah, we made some progress on a little different work that we've done in the past. I can't mention what kind of work we're doing with them, but we kind of moved into a new a new technology with the cruise line, and we're rolling it out to a bunch of ships. We won't have to travel as much as we used to in the past. We can do it a lot remote. But, yeah, it gave us a new form of income from these cruise lines that will be coming over the next couple quarters.

And what does the size of that, you know, business look like?

Um, it's in the hundreds of thousands.

Got it. And is this applicable to pretty much all the cruise lines or is this just like certain customers that feel take advantage of it?

No, every cruise line could do it. We're just not talking to every cruise line about it yet. You know, getting in front of them is, you know, half the battle.

Yeah. Interesting. Um, and the, the, uh, you know, that deal with the pharmaceutical company. I know you guys did not release the name of that. Are you guys able to use the name of that company when you are, you know, discussing sales with other potential customers?

With permission, yes.

So that is a possibility. We have to ask permission, yes.

Yeah, they are a referenceable account.

Yeah.

What was it, Gary? They're a referenceable account. Okay. But we need to get their approval on the account.

Got it. All right. Well, it was, you know, pretty exciting seeing those press releases. Hope to see more of them in rapid succession here.

As soon as I said to numerous people numerous times, you know, I don't hold anything back, you know. Until, you know, I had said earlier, you know, I thought the ink was close to being dry on some of them, but working with these large organizations, everything takes way longer than expected, you know. You know, some of these things needed 10 signatures, and getting 10 signatures, I guess, in a large organization, it takes months, not weeks.

Yeah, well, it's nice to have, you know, no matter how confident you are in the product, you know, there's always that lingering doubt in the back. It's nice to see that first big contract come through kind of confirming that, you know, you're headed down the right path.

Yeah, exactly, exactly. Yep.

And so, yeah, I'm very, very glad to see that. I'm glad that, you know, that finally put behind you the big deal there and looking forward to plenty more, so. Great job. Bring everybody along with you.

Yeah, we're trying. We're trying. Thanks, Brad. Appreciate your support.

All right.

Your next question is coming from Joseph Merges with Sengrin Investments.

Morning, guys. Guys, how are you today? Good. Morning, Joe. I just want to tell everybody that the annual meeting was very nice last week, and we had a From an investor standpoint, we had a 100% increase in the attendance. That's the good news. The bad news, we went from one to two people at the meeting. So I've been to annual meetings where we had a game-changing product, and it was standing room only. We're not there yet, but maybe possibly down the road we'll have standing room only at the meetings. A couple quick things. I researched just briefly on your release of the pharma contract the Merck breach, which was breached a number of years ago. And just to let the market know here, the damages on the Merck breach, the insurance companies paid $1.4 billion dollars. That's how much damage was done by that breach with Merck. So just to give you an indication of how much some of these OT environments are at risk when that type of damage can be out there. Do you guys know how the insurance is involved with these companies? a separate policy for, let's say, the OT environment as opposed to the IT environment for breaches, or is this kind of all rolled into one, or do you not know that?

I have no idea, Joe. I have no idea.

I'm just saying, when you see that kind of a, I mean, when you hit the OT environment, you could take down factories, I mean, for an extended period of time, and so you could see where the cost could be quite dramatic, so And I don't know how these insurance companies work, but I imagine they are pressuring these companies to either provide better security or the premiums on the policy, either there'll be no policy or the premiums will be sky high on that type of award.

I can tell you, Joe, that just in our case, as a small company, what we had to go just to get our cybersecurity and in talking to the insurance companies, They're taking a very hard line on it, and you need tools such as we have to implement to help, because if you don't have any protection, you don't get any insurance. They will give you nothing.

Well, and that's, I guess, the point I'm trying to make, and, of course, we're too early with the AZT Protect rollout to establish. In other words, if you could become almost a best-in-breed, for the OT environment, then there would be demands from either the insurance end or, you know, to protect yourself to the best you can. So I'm just hoping that we can get ourselves known well enough that the companies, even the insurance companies, begin to recognize the, you know, the benefits of the AZT Protect product. we'll see how that goes down the road. A couple of things at the annual meeting you mentioned. One was your intellectual property. I think you said, Victor, that we have two patents awarded, and what do we have, six or eight more pending? I'm trying to recall what you said on that.

Six total. Two that are already approved. Two that are in the last waiting stage. So I think they're if my memory serves me right, I think it was supposed to be February, March somewhere, you know, it's the waiting stage of just making sure, you know, no one has any issues. And then two that are in more of the, um, longer term, the review, the review process.

Okay. And, and I assume almost all of it is tied to the, uh, uh, area platform, right?

It's all the AZT. It's all, all six on it. Yep.

Okay. Um, A couple things. I did ask you two on R&D, what are we doing? And I think you said we're in beta test now. We're expanding the software to Android devices out there. Is that what you're saying?

Yeah, it's on the roadmap. Yep, Android's on the roadmap.

And I think you're adding to even the screen capability where you – Multiple screens can be reviewed by some of these managed service providers at one time. Yeah. Okay.

It's on the roadmap. Yep, it's on the roadmap. We're still in development.

I don't think a lot of people out there realize that when you introduce AZT Protect in July – We weren't on version one. We were on multiple versions. We had gone through multiple versions before we came out with that. So it wasn't like it was the first version that came out there. And since then, of course, you added the Linux, right? I don't know what version. Do you know what version we are now on the AZT Protect product? I mean, we must be six or seven.

Yeah. No, I think we're on like 13. Really? Yeah.

Well, even again, sometimes most people come out with the product and say, 1.0, but we're not there. So we've advanced this over the number of years pretty extensively.

Yeah, I think I had mentioned before that our original goal was to get a version out and then add a lot of the functionality and the bells and whistles as we moved along. But through one of our large companies, Customers that we've talked about, they needed all the functionality immediately before they were willing to sign off on it, and that's kind of why it took a lot longer for the development. And, you know, truly the first release that was available to sell was in this past July.

Well, so the end result was a more robust product.

Yeah.

We finally came out with it, and I'm assuming that, What we built can be utilized almost across the board on any industry, like you said. One thing, on this major reseller agreement, you just signed a contract. You talked the last time about two major system integrators. Was this the contract that was just signed, one of the two, or is this a separate group altogether?

No, it's a separate group.

So we're talking about other major integrators that we haven't... I think you talked two the last time. Is this now three?

Yeah, I think about half a dozen of, I would say, decent-sized integrators. There's a couple that are real. This is annual sales in the billions.

And just a quick point on this. When you signed a contract, what's different with the contract versus what you're talking to the others? I mean, is there any performance requirements in the contract for the reseller, or is it just a contract that any one of them could sign a contract of the number you're talking about?

Well, let's face it. Anybody can sign it, but some of these larger ones, because they're quoted by every – you know, every product out there. They only, you know, bring on new products where they believe, A, there's a gap, and then, of course, too, that there's a big, you know, there's a certain amount of revenue they can, you know, they can get from a product line, right? It's not, you know, one-time sales is something that they're not looking for. So it took... Oh, I would say at least six months to go through the process with them, of them, you know, looking at the product and then also bringing our product into some of their customers and talking about it and getting feedback and, you know, looking at a real need that's out in their customers' environments. And that's kind of what brought it over the... you know, over the finish line to get the contract signed was that they believe there's enough for their customers that can look at this product. You know, they're not guaranteeing anything, of course, but if there's truly a need and a gap and we are talking, you know, I would say at least a half a dozen of their customers already in different stages, So we're hoping, you know, they have a lot of customers. You know, I think that the target that we looked at is somewhere over 500 potential customers that we can at least talk to that may have a need of some sort for AZT.

Okay, well, that's great. I mean, it's a huge market to expand.

Yeah.

Just one other point, and you brought this at the annual meeting. You talked about that you often get calls from, down there in the TS group for people that are after or looking to buy either the TS group or buy into our managed services. In other words, offering, do you want to buy our managed service offerings? Has any of those talks ever reached a dollar or have we just not advanced those talks at all? We're not interested.

um no we're just concentrating on building the business okay but but you have fearless calls or people want to know if we're we're even in the market to sell it what you're saying yeah it's a it's a lot of emails you know um and there's a few people that actually catch me picking up the phone that i have conversations with um but right now it's just about building that monthly recurring revenue.

The clocks have never progressed, other than just a pure interest that people are floating in some questions out there to see if we're interested at all. Well, thanks a lot. I appreciate it. It seems like we're just a matter of time to get some of these big numbers across the board for AZT. Thanks, guys.

Thanks, Joe. Thanks, Joe.

Your next question for today is coming from Will Lauber with Visionary Wealth Advisors.

Hi. There's been some confusion on our end how the ADT product is being priced. Is that a monthly recurring subscription?

Yeah, moving forward with the customers, it is a monthly recurring subscription. Gary had mentioned that this one is upfront and we made an agreement with the pharmaceutical organization just because they helped us test it for 18 months that they could purchase it, you know, upfront as a one-time fee with a yearly maintenance after that. But moving forward, you know, it'll be more of like a CrowdStrike model where it's a monthly recurring.

Okay.

And is that, um, priced, uh, by site or per user per user. Yeah. Per, per endpoint, I should say, which it's, you know, we're, we're in the, you know, we're not truly end user as, as a laptops or in the server as the, the endpoint because we're protecting the application. So if there's a, you know, a server with 10 VMs, it would be, you know, basically 11 licenses for that. And if you had a thousand servers, you do the math,

Okay. And I guess one of the things that I noticed in this latest release compared to some of the early ones, I guess in particular that Fortune 500 chemical company, I think that was just for one site. pharmaceutical companies, does that include all their manufacturing sites, or is there still some that could come on later?

Yeah. I'm hoping it's just the first phase, no guarantee, but once we roll these out, then we'll see what's next. Okay.

And then with that manufacturing company, how are things going with that? Does that have to be... Is there each plant manager that has to make the decision to add that, or how is that?

On which company is that?

The chemical company?

Yeah. Unfortunately, we have to deal with each and every location separately. The pharmaceutical, this is being pushed out from a corporate level. It's a little easier for us to deal with this rollout. um, than the other one. So it's been, uh, it's, it's been challenging. Um, but you know, it's a process.

And, um, so it's in one facility now, what, what's the potential with that customer? How many facilities?

Um, I want to say there's 80 sites. Okay.

All right. Um, and, um, Have you guys been seeing any increased interest from that SEC rule about cybersecurity, or how's that kind of playing out?

We're using it as a sales, you know. It's out there, and we're talking about it. Every time we talk about it, it's one of our selling points. You know, not only the protection, but, you know, what could happen if you don't. Okay.

Okay. Well, thank you very much. You're welcome. Have a good one.

Your next question is coming from Mike Price, a shareholder.

Good morning. Thanks for taking my questions. Appreciate the press releases, but they're pretty vague. All of them have said multi-million dollar, and there's no way for us to evaluate what the impact is going to be to revenues. And you said that you could use the buyer of the AZT as a reference in trying to secure new buyers. But what about publicly disseminating who a buyer is? It seems like it's in everybody's best interest with their permission. It gives credibility to CSPI. And for the customer, it seems like putting up a sign in front of your house saying, I'm protected by this security, and that's almost a deterrent.

It works opposite. If they know what it is, then they could potentially – know what to do, how to hack. Two, we don't have permission. It's right in the contract. We cannot use their name. That was part of the terms and conditions. Two, we can use it on, as I said, a permission basis, basically calling a customer up, saying I have this customer. They would like to talk to you. They would like to have a reference. Are you willing to speak with them? And if they say yes, then we can set up the call, and then we can move forward. So anytime I can use someone's name legally, I will do it. If I didn't, it's for a reason.

Okay. On the last conference call, you said you were in discussions with 50 potential buyers of AZT. Can you give us an update on that?

Yes, some have progressed. There's some that are moving again. I don't want to say it again because then after I get you guys driving me crazy on exactly, we're talking contracts. But when that is, I have no idea. But, yeah, they're all progressing. Some fell off. Some of them said, we'd love it. We don't have budget for six months. You know, it's a normal sales game. But, you know, some fall off. Some come in. And, you know, we're setting the shows did well for us. You know, we have multiple POCs that came from the shows where, you know, they have the product, they're testing it. And, you know, after the testing, then we'll see, you know, how long it takes to close the deal. But there are some progressing on that. So we have a couple more shows coming up in March, which, you know, as they come up, And we believe that it's the right audience. We'll be attending them.

Okay. And if a reseller actually places, sells AZT, is this something that you'll disseminate to the same as you have when you sell it yourself?

Correct. Correct. Yep, exactly. Okay.

And I asked this question each of the last two conference calls about buying stock. Did you buy back any stock last quarter?

No. No, the company did not. I personally bought, you know, some stock again last quarter.

Yeah, I saw you bought it. It was down $5. Couldn't have been better timing. And, again, we have the same issue today with the stock down almost $3 and down more earlier. And, you know, with the roadway that you paint for us, it still seems like a good use of, you know, shareholders' cash. Appreciate the increase in dividend, but it seems like a good use of cash going forward. It seems like there's quite the runway here. One final question. Any thoughts about changing the name of the company? I mean, the company is definitely going towards cybersecurity, Aria Cybersecurity.

That's why we have Aria Cybersecurity on the umbrella of CSPI because we still have the other business, the TS business.

Okay, appreciate it. Thank you very much.

Your next question for today is coming from Sergio Heber with Heber Research.

Good morning, guys, and congratulations on the progress that you're making. I understand that you can't disclose the customer without the customer's permission, but why can't you disclose the amount of the contracts?

Because we normally, we don't give, we've never have given exact amounts of contracts and what they are. We'll disclose the next quarter when we actually recognize it.

It's difficult for investors to put a price on the stock without knowing how much the contracts are. And that's why I ask. And you're not giving any guidance. Are there plans to provide guidance in the future?

Potentially, but not right now.

Is the reason that you're not giving out the amount of the contracts because of competition, not to give away to the competition what the product sells for?

That's part of it, yes.

Okay. And then I have a question from a reader from my Seeking Alpha article, and I figured I'll pose it to you. I don't know how to answer this question, and I don't know if it's a fair question, but the companies and the enterprises that you're selling the ACT product are large entities that have their own IT department. Why would they be customers of you instead of developing the product for their IT?

they want to develop a security product to their own it. Okay. Well, I guess with enough money, time and expertise, anybody could potentially do it. Um, but you know, if he's asking, you know, if they have their own it department or if someone who doesn't have their own security department, you know, could we help manage that for them? The answer is, is yes. Um, But, you know, whether you have your own IT department or not, you still need some type of product, you know, to do the inspection and, you know, and the protection and the detection and everything else that goes along with that. But, you know, I'm a little confused on what he's asking.

Look, I couldn't answer the question either. And it came from more than one person. Basically, I don't think that the average person, including me, understands that the complexity of security and there's so many products out there and we're trying to figure out how do we know that there's nothing else like this product and and that how disruptive it is how can we judge that if we're not you know i've asked experts in the field then they can't answer the question and i think investors are trying to figure that out so

you know, I think I've mentioned on calls, it's a crowded space, right? You know, everybody knows the big boys, right? The Palo Alto's, you name it, right? Then there's the second tier, which, you know, I don't know exactly the number, but a couple of years, there was over 2000 other security companies of all sizes. So of course it's a crowded space. How do you separate yourselves? You know, that's a challenge that, that, you know, we have to deal with every day. So, Winning this contract, right, that's going to be our biggest selling tool because when you looked at the company we sold to, they tested everything. They have the resources. God knows it took us over 18 months to close this deal. So they had the option, and everybody out there security-wise was knocking on their door. So they had the option to look at many, many products. And for them to choose our product after the, you know, literally over a year testing, that's kind of how we believe, you know, our product does fit a need. You know, it's not just from, you know, of course, you know, some of the people on the phone have heard this. You know, we think our baby's beautiful, but it may not be. But having these customers, you know, test the product, look at it, And it fills a need, especially with the later XP, Windows, the older versions. All these other companies are really not supporting the old versions of Linux and Windows. So not only we can do the current ones, but we can go all the way back. And as I suggest to everybody who's on the call, go back to the webinar that we did. It really breaks down the value of the product, why we're different. and how we complement other existing products, right? You know, I think Jim Labonte mentioned on the webinar that if you look at like Clarity or CrowdStrike, you know, they have, they're necessary, but there's a void, and we can fill that void. Now, you can use us exclusively if you want. That's beautiful, and we'll take it, or we can complement the existing products that are out there to fill a gap, right? There's some products that, know they'll detect but they won't prevent and that's kind of where we step in you know and we do zero day attack on zero day not oh my god i gotta go patch it give me a week or two days or five days or six months to go patch it so you know our our biggest issue is we need to get the message out and we're doing everything we possibly can to talk to as many customers and to evangelize that message give us a chance to show our product do a poc beat it up, and, you know, let us, you know, show you the performance of the product.

Thank you for that. I think you guys are making great progress considering the product hasn't been out a year yet. So when will we start seeing revenue from ADP?

Next quarter.

And is that the pharmaceutical contract?

Yeah, yeah. And we're hoping that there'll be other, you know, other customers, yeah, that are falling to place. But this, like, two months, like I told you, you're going to hit a big bang from the pharmaceutical because the way we sold it to them is a one-time deal. And then all the other customers, we want to sell them as a monthly recurring revenue to build up that model.

Excellent. And will there be upfront fees on the recurring revenue?

Well, it just depends. If they want us to do the install, then we're going to charge professional services for that. And then you'll do a monthly fee per endpoint. And that will include the maintenance in that monthly fee, too. So they'll get all the latest and greatest updates that we have available.

All right, guys. Thank you, Gary and Victor, and continued success.

Thank you. Have a great day. Thanks.

We have time for two more questionnaires. Your next question is coming from Paul Scolardi, a private investor. How are you doing, gentlemen?

Awesome job on the quarter. Awesome job with the press releases. I want to start off by saying that.

Thank you. Can you hear me? Yes, I can hear you perfectly.

Yeah, I kind of feel bad that you have to deal with these rookie questions from shareholders because it's common knowledge that smaller companies cannot release either the name of larger companies' deals or the amounts for strategic reasons. But I, as a shareholder and most shareholders, appreciate that you're still getting a great flow of press releases once you get these deals to keep the street informed. So I say great job. with the press releases. And also, if the prior caller would have listened to that awesome webinar with the ex-Pfizer executive, he said the differentiation of the AZT product out in the marketplace. That webinar was awesome information. So I think first, some of the shareholders, you need to do a little more research before you waste the executive time with these questions. Now for a few questions, and I'll be brief because you guys did an awesome job. We're seeing on a macro level in recent weeks, Headlines coming out about China, Iran, Russia, that they're going to attack infrastructure. We saw in recent months that water infrastructure in the United States was actually attacked. This seems to be brewing as an emerging scary theme that, one, doesn't this place even more massive importance and imminence on the AZT product, and are those type of headlines Do you see them as being, A, obviously a selling point, and do you think they're going to raise awareness for these companies to start seeking to protect their OT environment?

I would think so. Joe actually, it was Joe Nergis. Every morning I get the latest and greatest releases of every breach that happens at like 4 a.m. He sends them out to me. And we use that, right? I forward it to the sales force. How people say we don't have budget for the security when they know they have a gap. I have no idea. I literally, on every sales call, if that comes up, I'm like, I just don't believe it because getting hacked is only a matter of time, right? It's not if you're ever going to. Some way, somehow, somebody will get some type of hack inside the organization. I don't know if it's three years from now, two years, but it's going to happen of all size companies. So how people are not making security their number one priority is And the thing is, like, good enough is not the right answer, right? Because it only takes, you know, one access point inside the network or the infrastructure, and then they're in. So, you know, saying I'm 90% protected is not the right answer for these organizations. So, you know, how this doesn't just fly off the shelf, I'm not sure because I believe we're doing a really good job separating ourselves from the rest of the group out there. But, you know, it's still CSPI. Who are we? And, you know, we're trying to. Like I said, we're trying to do the shows. We're trying to do the webinars. We're trying to get in front of the many customers. We're trying to bring on resellers. And then let the product speak for itself. You know, that's what we try to position. You know, you can listen to us all day long. Let us do a POC. Let's run the product in your environment and let the product talk, you know, speak for itself. And, you know, we've never got bad feedback from any customer that's taken the time to look at it.

Right. No, 100%. And in many ways, like according to the damage of the hack, the product pays for itself if you think about how much it's going to cost to get hacked. And I think really what we need is to get you on CNBC or Fox News, business news, when they have all these scary headlines that say AZT has the solution. And hopefully maybe we'll see that soon. Next, like we talked about mandates. And we know there's an SEC reporting mandate. I think Australia has a mandate. Does the U.S. and other countries have these growing mandates to have this OT protection? And is that kind of, you see something that's going to drive more awareness to AZT, the mandates themselves? Are you seeing that? Are people saying, hey, we've got to get this in place, whether it be the U.S. or other countries?

Um, people are talking about it. If they're not, we're bringing it up, right? You know, like I had mentioned earlier, we're using that as one of our key selling points. Like it's not going to be a choice any longer, right? You're going to have to do this. And, you know, it all becomes about just getting time in front of the customers. You know, once you have some time with them, you can, you know, peel back the cover and you can see where their need is. And then it's our job just to sell it to them and show them the value. But, yeah, I believe, you know, the mandates, they can't hurt, right? They can only help. Yep.

Yep. Okay, and then also we talked about last call about cybersecurity company partners potentially and talking to them, and we know that there is a press release showing that NVIDIA is a current partner. Now, I know companies like NVIDIA are very secretive, and you might not be able to tell me anything about it, but it is public info that they are a partner. Are they partnering on the AZT side, and are you still in talks with other big cybersecurity players to potentially – sell this for you since it doesn't compete and it could just be an add-on product to like a Palo Alto's offering?

Yes and yes. We are still talking to NVIDIA heavily weekly and we are still talking to other major players out there to partner with them to make our offering selling as a bundle product.

Awesome. That's great. Thank you for that. And lastly, my last quick point is you guys are doing an amazing job on executing, both you and Gary and the whole company. We want that as shareholders. But it would be nice when CNBC and everybody's talking about these cyber threats for operational technology, if we could get you on CNBC. So have you thought about hiring like an investor relations, public relations firm? since one of our biggest, this is like the group, like I feel like the Superbowl just happened. Um, FCSPI is at the Superbowl, but nobody knows they're playing in it yet. So have you thought about hiring an IR PR firm? So while you guys are busy executing, somebody can help get this story out from, from a marketing shareholder perspective, which is also, it's not the most important thing. Execution is more important, but it's part of the equation.

Yep. We are, we are, we are talking about it. And, uh, where there's a game plan.

Okay. No, that's good. As long as you guys are on your plate and you're thinking about it, I just want to say, because I was more intense last quarter, you guys have done an awesome job. Appreciate the press releases. Keep them flowing. And to me, this is like a generational opportunity. And with the headlines, the scary macro headlines we're seeing, this is like a much-needed product. for so many companies in government. So thank you guys and great job.

Thank you, Paul. Have a good day. Bye.

Your final question for today is coming from John Crotty, a private investor.

Hey, good morning guys. How you doing? Good morning. Good. Yeah. Just want to say, I want to say congratulations and a great quarter. You guys actually accomplished everything you said you were going to do the last quarter. Some of it not have been as timely like the ink drying, but you did it. So that's actually a big kudos to see management actually do what they say they're going to do. And the other thing is there's great information on this, you see, and every retail investor should listen to this. Most importantly, when Joe mentioned a $1.4 billion cost to Merck, I mean, those are amazing numbers. You'd think everyone would realize that when their insurance company won't cover it, they should be calling you guys. I mean, but anyway, here are my questions. So we know, and I anticipate your phone to be ringing off the hook, but I know you have a lot of resellers. Like we saw you guys with a deal down in Florida, any pre-existing MSP customer. Any feedback to many of your resellers, especially the large one in Australia, and they do have a mandate as well, and just about the other like 50 smaller partners you have regarding these large ones. Any feedback? Are you assisting them? Are they needing any assistance? Yes.

Um, well, there's two separations, right? So, you know, the reseller, the TS division is the one that sold the MSP contract, right? So that's all part of the CSPI umbrella. And then you have all the other resellers that we sign under the ARIA, um, division, the HPP division. So those resellers are the ones that we're targeting with AZT, um, And those are the new contracts that we sign with the large reseller. And, you know, it's about training them, doing marketing events with them. So those are the things that we're doing with those types of resellers. But there's, you know, it's really no one's, you know, really put two and two together or asked us any questions about the MSP contract or anything else. we won, you know, that's why we separated the two. So all, all the information that we're dealing with, with the IRS, they separate, you know, so those resellers feel comfortable, um, you know, that all their information is, is private.

Okay. So that, that you're doing that on behalf of the preexisting partnership side of the deal. What about like a logitech that's been strictly an AZT, uh, reseller over in Australia? And again, they have a mandate. Just wondering, uh, what they're seeing and saying may be equivalent to you.

Yeah. You know, he's coming, he deals with a lot of government. entities out there in Australia. So as you know, things work slow, but, you know, it's about getting in front of them with the POCs and then he does the rest of the work. You know, we educated him, we trained him. He has a lab, everything that he needs to be successful, he has. And now it's about him just working the relationships and the opportunities that he finds out in Australia.

Okay. And my last question has to do with the type of product, a company mix you're seeing with your leads. Are they more government? Are they more infrastructure like electrical, oil, and gas? Or are they more like manufacturing like you just recently won or higher ed even?

Oil and gas is definitely a segment that we're talking to quite a few people. The pharmaceutical area, medical, you know, those are probably the three top ones that we're talking to right now. Okay.

Okay. Fair enough. Okay. No, that was it. Just kind of get a good mix. All right, guys. Thank you so much, and look forward to next quarter and attending the meeting as well. Thank you. Thanks.

We have reached the end of the question and answer session, and I will now turn the call over to Victor for closing remarks.

Thank you. As always, I want to thank our shareholders for your continued interest and support. We are entering a period... if increased activity, and we look forward to sharing our progress on the next fiscal 2024 second quarter in May. Until then, be well and stay safe. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.