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Fireside Chat with the Xperts: Counterfeits Across Industries

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Creative Electron has a long history of fighting counterfeiters; it can be a bit of a recurring theme around here.  And so it is, too, on our Fireside Chats with the Xperts, when it’s topical counterfeiting often becomes the topic.

This week’s deep dive into counterfeiting takes an interesting turn as the Xperts address the challenges it presents in e-commerce.  We’ve fought the good fight against counterfeit electronic components, but X-rays are no less revealing when it come to validating luxury handbags, jewelry and watches, designer shoes, any number of consumer electronics, and even sporting goods.  E-commerce has essentially democratized counterfeiting; now just about anyone armed with a bit of ill will and a passable substitute can gum up the wheels of an etailers returns process.  Not to worry… X-ray to the rescue, again!

Enjoy the video, and then reach out to us directly with any question.  Register for upcoming Fireside Chats with the Xperts and view our archives here.

 

Transcript:

David Kruidhof:
Welcome to another fireside chat with the experts. I am here again with Dr. Bill Cardoso, Dr. Glen Thomas. Today we’re going to be talking about counterfeits. I know we’ve hit the subject a couple of times, it’s really a broad topic, right. And an important one. Because it does have a lot of consequences in many, many different industries. So Bill, why don’t you start and give us a little background in creative electrons experience with counterfeit. Where we’ve helped people out, that kind of thing, overview for us.

Dr. Bill Cardoso:
So we’ve been dealing with, applications, counterfeit detection applications using X-ray technology for a good part of the last decade, right. It’s been, it’s been almost 10 years now. And we started in the early days looking for a counterfeit components right. So the business model there, at the time, there was a lot of counterfeit components coming from overseas.

Dr. Bill Cardoso:
They were being produced by physical recycling or they were pulling components from old boards or old PCBs that the electronics that we disposed went overseas and they would just pull components from those boards.

David Kruidhof:
Right.

Dr. Bill Cardoso:
Clean them, refinish them, straighten the leads and then mark whatever component you’re looking for. Right. It doesn’t matter the guts or the components they would just mark on the outside with the part number that you’re looking for.

Dr. Bill Cardoso:
And of course when you put in a new board it’s not what it’s supposed to be and you can have disasterous consequences.

Dr. Bill Cardoso:
So we developed, not only the machines, but also software, to look for that. And over the years, we’ve noticed that these criminals, they got more sophisticated, right.

Dr. Bill Cardoso:
So in the past the counterfeits were fairly, I don’t want to see they were gross, but they were less sophisticated in the sense that you could, for the most part, you could look with a microscope, you could tell that was a fake, right. You could see sanding marks on top the component. You can see the refinishing that was done. Then in some cases you can usually see dripping of the epoxy, you know, the black topping that they did.

Dr. Bill Cardoso:
So it was fairly straightforward to apply a kind of, I forget the actual methodology, to find a good chunk of these fake components and get rid of them and clean up the supply chain.

Dr. Bill Cardoso:
And we’ve noticed is that, over the years, that they, as we developed technologies or methods to find counterfeits, they find ways to get around those technologies. To the point where today, the X-ray inspection is really a requirement. You can’t have a proper counterfeit mitigation strategy and policy in your company if you don’t have an X-ray machine to look at the insides.

Dr. Bill Cardoso:
And it’s not only in, and people think that when you look at components that you’re looking at specifically, you know, comparing to a golden sample, right. So if it doesn’t match perfectly to what a reference component looks like, then it’s counterfeit.

Dr. Bill Cardoso:
There’s definitely a very powerful way to do it, right. Not only comparing to a reference component, but also doing lots homogeneity. So make sure all the whole lot of, let’s say you have a reel with a thousand components, make sure that every single component of that reel looks exactly the same. If they don’t, it’s a suspect counterfeit.

Dr. Bill Cardoso:
But we also have a whole range of other things, other methods you can apply to the components that give you a pretty good indication if it’s a good component or a fake. A lot of these methods, we go over, discussing the application with our partners or customers, and we don’t publish all of them, right. We keep a few of them to ourselves. But one example you can do for example, is if you look at the X-ray of a component and what you’re going to see is the lead frame, the bare die, and wire bonds for the most part, connecting that bare dye to the leads of the component. And by comparing the wire bond diagram to the component details, which you can find in the data sheet of the component, you can make some very powerful assertions, right.

Dr. Bill Cardoso:
So for example, you can assess if you see wire bonds going to the corner of the component, and you can see that there are two, three or four wire bonds from one pad of the bare die to a specific lead, that’s very likely a power connection, right. A VCC…

David Kruidhof:
Right.

Dr. Bill Cardoso:
…because you put multiple wire bonds to minimize the impedance of that connection. So you’re pretty sure that’s a VCC connection. If you look at the data sheet and that pin is in reality, a bus pin or an IO connection, you know something doesn’t match. And then you keep…

David Kruidhof:
Yep.

Dr. Bill Cardoso:
…looking around wire bond diagram and you can, you see wire bonds going to, from the lead, from the pin to the lead frame itself, right. Which is a ground connection, cause the back of the bare die is usually grounded. And then you look at your data sheets and you see that it’s, that pin is supposed to be a control pin, which makes no sense to be grounded.

Dr. Bill Cardoso:
So by doing an analysis, which doesn’t, it’s not complicated, it takes a little time. But making that analysis you can quickly figure out if that component is legit or not.

Dr. Bill Cardoso:
So we got over the years, we’ve got a lot of experience looking at components and looking for things that look different and then trying to understand what can you do if you don’t have a reference, right. And because of that, we ended up finding other applications for X-ray inspection to find counterfeit components. It turns out there’s a lot of applications out there, of things that you can look for an X-ray and figure out if they look the same or look the same or more importantly, you can assess the construction of the object. right. If it makes sense, if it’s a legit construction or not. So at this point I don’t remember what the question was anymore, so…

David Kruidhof:
I asked for a quick overview, not a 10 minute, uh…

Dr. Bill Cardoso:
Oh an overview. Yes, so there it is, that’s the overview.

David Kruidhof:
A lot of those principles that we’ve learned in electronics really applies to basically anything that wants to be counterfeited, right.

Dr. Bill Cardoso:
Mm hmm.

David Kruidhof:
Because initially when people come to counterfeit something, they don’t do a great job. But it’s good enough they start selling some stuff, people start getting aware of it, and they’re, usually the first pass is visual, right.

Dr. Bill Cardoso:
Yep.

David Kruidhof:
So like you’re saying on the components, you’re looking for the markings, is it the same kind of ink? Can I see epoxy drips? Or there’s sand scratches on it. All that’s visual, you don’t need an X-ray for any of that.

David Kruidhof:
But as the counterfeiters make some money, get more sophisticated and progress you can’t do it visually. That’s not just components. Right? We’ve hit, we’ve talked to a lot of industries that have been fighting counterfeits visually and now we’re coming to a point where maybe that’s not quite good enough.

Dr. Bill Cardoso:
Yeah, we have, I have a good example. Golf balls. Even golf balls are counterfeit, right.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
We saw one box of golf balls that, high end golf balls, of course, not the $5 a box we’re talking like 50 bucks a box of a dozen. And from the outside, the golf balls all look pretty much the same, same markings, same color. And then we did an X-ray. We can see that some of them were dual core. Some of them are a single cores. They’re all mixed up, right.

Dr. Bill Cardoso:
So you can tell there’s probably someone buying, basically an assorted variety, maybe, but range used golf balls. Cleaning them up, applying the logo of the brand that they were selling, put in a nice box, and passing them off as counterfeit. And we thought an X-ray can’t really tell, right. Unless you go to, when you go to the golf course and you’re not hitting the balls right, because it’s not the right ball anyway!

Dr. Bill Cardoso:
In other words, every time I have a problem with my golf swing, I know we’re using the wrong counterfeit ball. You know…

David Kruidhof:
Absolutely, it’s the only reason.

Dr. Bill Cardoso:
It’s the problem with the ball. Yeah it’s never my fault.

David Kruidhof:
Maybe the club.

Dr. Bill Cardoso:
Exactly.

Dr. Glen Thomas:
Which, the clubs can be counterfeit as well.

David Kruidhof:
Yeah, pretty much anything, right. A lot of companies produce product and they destroy the lower quality stuff, or they sell the lower quality as a lower quality item, but they can get rebranded by counterfeiters. right.

Dr. Glen Thomas:
Right.

David Kruidhof:
Go ahead.

Dr. Bill Cardoso:
The one area that this gets really dangerous is medical devices, right. When they start counterfeiting or modifying medical devices to pass them on as something else. And that’s a real concern, right. That’s when lives are at stake and that’s where…

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
You’ll be very careful that you are using the right thing and you’re using what you’re supposed to be using.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
All the way to fashion, right. Where you can use an X-ray inspection to find out if the $50,000 bag you’re buying is a legit bag or not. Again, counterfeiters are fantastic at figuring out how to fake the outside of the bag or shoe, but the internals are very hard to counterfeit, right. To the point where if you perfectly counterfeit the internals and the external you made the real item, right.

David Kruidhof:
Good point.

Dr. Bill Cardoso:
You’re almost there, right. You feel so perfect you make exactly the same item, it’s the same item.

Dr. Bill Cardoso:
So, but that’s another area where you’re very successful at finding counterfeits is in the fashion industry.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
That’s one industry where the counterfeiting criminals run rampant. I mean, there’s so much fake stuff out there.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
And the reason is because they cost a lot of money, right. A $50,000 bag, we’re not exaggerating, it’s a $50,000 bag.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
It’s an industry where even the fakes are worth money. Even if you know it’s a fake, right.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
If it’s a $50,000 bag, a good fake might be worth 800 bucks, right.

Dr. Glen Thomas:
Right.

David Kruidhof:
Yeah, some of the fake stuff we’ve seen is quality, right.

Dr. Bill Cardoso:
Yeah.

David Kruidhof:
It’s a good quality bag. If it didn’t say it was by this brand that it’s not actually by, they’re making a decent bag.

David Kruidhof:
I find a lot in dealing with that industry I definitely did not know before. But you know, shoes. You look, looking at it with an X-ray you can quickly tell if they’re using staples or they’re using nails.

Dr. Bill Cardoso:
Yeah.

David Kruidhof:
Right? The cobbler put it together with nails or is it just a machine throwing a bunch of staples in it to keep it together. How much metal is in the heel to keep it supporting the weight properly and distributing it versus just a little stick, mostly plastic. Things you can’t tell visually, right.

Dr. Bill Cardoso:
Yeah.

David Kruidhof:
But with an X-ray it’s super quick. I think that’s one of the big things is it’s really fast, right. You get to the meat of the argument really quick, with an X-ray.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
And the X-ray gives you an absolute reference, the product.

David Kruidhof:
Yeah.

Dr. Glen Thomas:
Can have some lineage with the product. If it’s sold at another time you could actually go back and verify that it is indeed the same bag, right.

David Kruidhof:
Yeah.

Dr. Glen Thomas:
So X-ray gives you the ability to fingerprint the product, right. So in the fingerprinting, in some cases, even with the electronics and some of the electronic components for critical applications is key, right. For some of the counterfeits and some of the more nefarious counterfeits that are for infrastructure and that sort of high security applications.

Dr. Glen Thomas:
So the ability to take those images that you’ve captured and save them in an archive and reference them later, or use them for reference images at a future point, is pretty important.

David Kruidhof:
Yeah.

Dr. Glen Thomas:
And that’s one of our strong points is the database that we have.

Dr. Bill Cardoso:
Which brings me also to that, the reverse logistics application, right Glen? This one you work with a lot with your customers.

Dr. Glen Thomas:
Absolutely. The return of fraud good, of fraudulent goods, to any e-commerce is huge. It’s mostly under the radar, right. You don’t see a lot of articles about it. You don’t see a lot of headlines, but it’s a huge implication. There’s a lot of different reasons for it. But mostly it’s for profit, right.

Dr. Bill Cardoso:
Mm hmm

Dr. Glen Thomas:
Real simple. It’s two prong. It’s actually three prongs. It’s more like a spider web.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
You don’t have a single point of counterfeit. If you get a guy that’s really good at doing purses or bags or shoes, that’s a single point. He’s only pumping out a few, right. And it’s more organized. It’s a larger operation. They have a lot of money involved.

Dr. Glen Thomas:
But when you’re looking at e-commerce fraud and e-commerce counterfeits, it could be as simple as you took an iPhone 12 out of the box and put an iPhone 4 in place and returned it for the money, right.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
So the e-commerce fraud and e-commerce counterfeiting can go from the basic level of a single person stealing a thousand dollars up to organized crime rings that are producing product that looks similar to an iPhone 12 and putting it back in the box and returning it for a $1,000, right.

Dr. Bill Cardoso:
And that’s a good point, I never thought about that. It’s a very powerful point you made. These are counterfeit actors that we discuss all the time, they are, they require a certain level of sophistication and equipment, right.

Dr. Bill Cardoso:
I mean, if you want to make a fake component, I don’t care how bad the components going to look, but you need to polish the top of the components. I mean, there’s a lot of things you have to do to come across as reasonable that somebody’s going to accept as a fake.

Dr. Bill Cardoso:
You bring up a really good point for reverse logistics for e-commerce. The barrier to entry is zero. Anyone can do it. Anyone!

Dr. Glen Thomas:
Pick up on it out of the yard right.

Dr. Bill Cardoso:
Anyone. Exactly. I mean, you can go to E-Bay and buy some of those fake phones, right. You can buy them for 10 bucks and you return a $1,200 phone, iPhone, that you just bought. And then you sell the iPhone somewhere else. So you just made twelve hundred bucks out of nowhere, right.

Dr. Glen Thomas:
Right.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
But it’s interesting. It’s a very. I never. In that generally it’s this distributed problem, right. Where it’s basically, you can’t, for counterfeit of luxury bags for example. I don’t know, Louis Vuitton, Fendi, they can go after the manufacturers of these things in overseas and crack them down, right. Can’t use my brand. And can’t do that anymore. For e-commerce, it’s like whack-a-mole, right. You get one here, 30 others showed up there and you just, there’s no end. So you do have to bring protection to the other side, right.

Dr. Bill Cardoso:
So, enforcement, you have to do it but it’s incredibly hard because you’re going to be basically fighting them forever. So you have to bring protection to the inside to avoid influx of those fake parts.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
Interesting.

Dr. Glen Thomas:
Right. So that’s a huge market, there’s a huge liability there for everyone involved, right. Not only is it a money issue, but it’s also a…

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
…A reputation. Customer service. It’s a huge, I think it’s actually probably larger than the component manufacturing or, you know.

Dr. Glen Thomas:
The e-commerce has the potential to be much larger than any counter…

Dr. Bill Cardoso:
Uh-huh.

Dr. Glen Thomas:
…just based on the fact that someone with less than perfect intentions can commit this type of crime without actually being caught. It’s a pretty straightforward and simple, right.

Dr. Bill Cardoso:
Yeah. And like you, like we discuss, right. It’s a level of awareness, right. The maturity of the industry. For a criminal, right, the ROI for an iPhone is much bigger than a reel of components.

Dr. Glen Thomas:
Right.

David Kruidhof:
Yeah.

Dr. Bill Cardoso:
Right? Cause a reel of components, I mean to make 1200 bucks in one real, right. It’s not just any components, right. It’s going to be…

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
It’s not a reel of capacitors or resistors, right. It’s going to be an active component. It’s going to be a memory or processor or an older amplifier that can justify commanding 1200 bucks.

Dr. Bill Cardoso:
Then you have to find a person looking for that component, right. And most of the people willing to pay 1200 bucks for a reel of components, they have a similar level of awareness that counterfeits are out there.

Dr. Bill Cardoso:
So now you have to, now you can’t just be a dude in a garage doing it, right. Because no one’s going to buy 1200 bucks of components out of you, hopefully. Right. Hopefully. This day and age no one’s going to do that! But for e-commerce, if you have 10 iPhones, it’s 1200, $12,000.

Dr. Glen Thomas:
Right. And the problem is that the protections that companies have had in place for years we bypassed based on the same machine vision? Yeah, looks like it. It’s got the same markings. The labeling is perfect. So the machine vision would look at it and say, yeah it’s fine.

Dr. Glen Thomas:
And then let’s do weight checking. Right? We checked the weight when it went out, we’ll check the weight when it comes back.

Dr. Bill Cardoso:
Exactly.

Dr. Glen Thomas:
And some of your more sophisticated thieves for, lack of a better term, would match the weight perfectly, right.

Dr. Bill Cardoso:
Yep.

Dr. Glen Thomas:
It’s easy with a steel bar or led strips, you know? So it’s the conventional way of checking incoming goods like that and comparing them to the weight, into the vision image of the outgoing goods is some major problems. The only way to look at it is with X-ray.

Dr. Bill Cardoso:
Yeah I think whoever invented, Glenn, those dummy phones, you see at stores, when you go to Walmart, Target you know? They have those dummy phones so they don’t put the real stuff out there because people were stealing the real stuff, right. So whoever invent, oh let’s make some dummy phones, right. Dummy stuff. It looks exactly like the real stuff, even weighs the same, but it’s a dummy. Like?? So you just created a market, right. You can go to eBay or any other web, other websites, you can find this things, right. And they look exactly like the real stuff, but they’re fake, they’re empty inside.

Dr. Glen Thomas:
Created the hammer that’s going to hit you in the head next month.

Dr. Bill Cardoso:
Yeah, there you go. And then as you said, right, you open the box because you can buy the box as well, right.

Dr. Glen Thomas:
Yeah.

David Kruidhof:
Yep. Empty boxes.

Dr. Bill Cardoso:
Yeah, you buy an empty box. You open the box, you look like, oh. Now you have a person, right, looking at this stuff.

Dr. Bill Cardoso:
Oh looks exactly the same, weighs the same. Now, you don’t have the time to be charging every device. Right. So you don’t know if the thing is out of charge, right. Or empty inside? You don’t know.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
You just put it back on the shelf. And I think the reputation thing you’re talking about is really important, because it’s… Can you imagine shipping somebody a fake device?

David Kruidhof:
Yeah, absolutely.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
That’s disastrous. So either you take the time to verify every device you get back, right. Which is going to take a lot of time and money. Or, and then you have to delay the refunds to people who return stuff for you. But then they have to delay for everybody, right.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
Which basically is a huge hit in that relationship you have with the e-commerce companies, where they weigh heavily in favor of the consumer, right. You return stuff, same day or next day you have your money back. And that’s the expectation, right.

Dr. Bill Cardoso:
Why? Because you don’t want to create a delay, which will, in turn, incentivize people to go to the store instead of going to you, to an e-commerce, right.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
So you know all these different things were created to mimic that physical relationship the customer has with the store. But the volumes we have today, right, are so huge that unless you have an X-ray automated gates, right. To make sure those things don’t enter the supply chain, they stop right there when you get the device, X-ray. Uh, this is a dummy device. Reject. Don’t do the refund and cancel that person’s account right.

Dr. Glen Thomas:
Right. And then you look at the labor costs of sorting all of that suspect material. Every electronic component you get back with a value of say, over a thousand dollars, you would quarantine.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
Have someone open up the box, take a look at it. Make us an informed judgment, which means you have to train them to a certain degree.

Dr. Bill Cardoso:
Yeah.

David Kruidhof:
Yeah.

Dr. Glen Thomas:
Able to make that judgment. And then you’ve got a building dedicated to, in a warehouse dedicated to suspect quarantine components and products. And what do you do with those? Right.

Dr. Bill Cardoso:
Exactly.

Dr. Glen Thomas:
You give semi-trained or fairly well-trained employees on top of that. And that’s their full-time job. So you’re spending $5 million a year in one facility to quarantine suspect product.

Dr. Bill Cardoso:
Yeah, but right there, you already screwed up the supply chain right.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
Now I can’t return a thing to any warehouse. Now I have to return an item, at, always that specific warehouse, right.

David Kruidhof:
Yeah.

Dr. Glen Thomas:
Exactly.

Dr. Bill Cardoso:
Unless you’re going to mimic that infrastructure in every warehouse you have. Which is incredibly expensive right.

Dr. Glen Thomas:
Right.

Dr. Bill Cardoso:
You have artificial intelligence, for example, where you can create a database of what an iPhone 12 X-ray looks like. So when you get that device back, you take a quick X-ray, your AI compares so you don’t need an operator in the loop, right. Just real quick compares it, says hey, this don’t look like an iPhone 12 it’s an iPhone 4 that somebody’s returned. And right away reject it. Without any human intervention, right. Automatically done. Barcode scan and all the stuff can quickly help you assess those things automatically. So, it’s a no brainer.

Dr. Glen Thomas:
Another advantage is at that point, you start a paper chain with the product, right. Since you barcode scanned it, you then, you know who who sent the product. What our account number is. You can look up all of the data on how many returns they’ve made in the last, say, six months, three months, since their account was open. You can take a visual image of that. You can take an X-ray image of that product and a comparison image of what it should look like.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
And you create a ticket that travels with that. And when it goes into quarantine, it goes to your fraud protection teams. They now have some documentation that they can work with. And you can take that data and you can start building a pretty strong database and get an idea that maybe in one part of the world, we’re getting an uptick in this. And it may be an organized crime…

David Kruidhof:
Exactly.

Dr. Bill Cardoso:
Yeah.

Dr. Glen Thomas:
So you can…

Dr. Bill Cardoso:
With X-rays you don’t have to open the package, right. So you can…

Dr. Glen Thomas:
Yep.

Dr. Bill Cardoso:
You can properly assert the custody, right, of that item. The package, as received back from the customer, right. So not like you open and change something. It’s a sealed package from the customer. You X-ray, you can assess if it’s the real device or not.

Dr. Glen Thomas:
Right. And a side note. Now everyone knows and can understand when they’re looking on eBay and they’re looking for an iPhone 12, when they see an iPhone 12 box for 50 bucks, they know what that box is for now. Right?

Dr. Bill Cardoso:
Very good point.

Dr. Glen Thomas:
A lot of people see that and they’re like, who would buy a box?

Dr. Bill Cardoso:
Who would buy a box? Makes no sense. Whose going to buy a legit box for 50 bucks.

Dr. Bill Cardoso:
Somebody whose going to turn 50 bucks box into 1200 bucks.

David Kruidhof:
Yep.

Dr. Glen Thomas:
And for an FYI, that’s why they sell iPhone boxes on eBay.

Dr. Bill Cardoso:
Very good point. Very good point.

David Kruidhof:
Although we’re not encouraging you to go out and buy empty boxes and return them.

Dr. Bill Cardoso:
Or sell them, right. Yeah.

Dr. Glen Thomas:
But we can detect them.

David Kruidhof:
That’s right.

Dr. Bill Cardoso:
Yes.

David Kruidhof:
We can detect them.

Dr. Glen Thomas:
Absolutely.

David Kruidhof:
You’re more likely to get caught nowadays than you were a year ago, right.

Dr. Glen Thomas:
Absolutely.

Dr. Bill Cardoso:
If it’s up to us? Yes.

David Kruidhof:
Okay, well Gentlemen, we’ve come to the end of our time. I appreciate it. Always good talking to you two. And I’ll see you again in two weeks.

Dr. Bill Cardoso:
Thanks so much, David.

Dr. Glen Thomas:
Thanks guys.

Dr. Bill Cardoso:
Cheers.

David Kruidhof:
Have a good afternoon.

Dr. Glen Thomas:
Bye.

 

 

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