Covert and overt security features in banknotes play an important role in protecting governments from a variety of counterfeiting sources including state sponsored and drug financed counterfeiting activities whose purpose is often to obtain arms and materials which can threaten national security. State sponsored counterfeiting, first undertaken by Germany in World War II, has also been believed to be the source of Superdollars and Supernotes (the US Secret Service term for counterfeit notes of extremely high quality) believed to be manufactured in the Middle East since the 1990s and in more recent years in Asia. In addition to the potential national security threats, such sophisticated counterfeiting activities on a large scale can result in the erosion of confidence in a country's currency.

Spectra Systems has sophisticated capabilities which allow us to invent, develop and manufacture integrated solutions comprised of a system of taggant materials and sensor equipment to authenticate banknotes at high processing speeds. These integrated solutions are used by two G8 central banks and numerous other central banks for currency security, and by a major G8 country for passport security.

Our materials are engineered and are not simply based on hard to reproduce chemical species like several currently used taggants in the market. These materials are available in several forms, including particles, threads, inks and coatings and can produce unique signatures and codes in or on paper, polymer and hybrid substrates for use by central banks for currency authentication.

The Company's software and hardware systems include high-speed currency authentication sensors, of which the Company is one of the world's leading suppliers. Central banks utilise the sensors for authentication at rates of up to 40 banknotes per second with error rates of less than one in 100,000 in some cases. In addition to our sensors which operate on sorters from both Geiseke and Devrient as well as De La Rue International, we also develop the necessary quality control equipment for use in paper and polymer banknote manufacturing and printing with our engineered taggants.

The Company is continually in the process of commercialising new generation covert as well as overt security features both independently as well as collaboratively with central bank and commercial partners. We have a full suite of secure facilities for covert development at all stages of the process from chemical synthesis to taggant engineering and sensor design. Our facilities are at the levels required to maintain secret level clearances by all G8 security organizations worldwide.

In addition to our authentication products, we are currently develping a new banknote fitness system which will allow for unprecedented detection of banknote wear. The system is based on agressively expanding the range of the electromagnetic spectrum ustilized by state of the art image capture and processing techniques. Through the use of multi-spectral imaging and Transient Thermal Imaging methods extending to the 10 micron wavlength region, we are able to detect the condition of public security features as well as the substrate, including tears which are overlapping and undetectable through image skeletonization methods. We expect to test this system with two G8 processing centres in the near future.