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$IMSC - Introducing The New And Improved Implant Sciences
Seeking Alpha
Oct 18 2013, 08:06

For Implant Sciences (IMSC.PK), 2013 has proven to be the year where significant approvals, sales and achievements have led to a path of accelerated growth the company has been seeking for years. Put in words by the company's CEO Glen Boulduc on the last conference call to investors, he reiterates that Implant Sciences a year ago and Implant Sciences today are two differentiated companies. Taking a closer look, we will examine what warrants the CEO to make these claims and review looming catalysts in the near term that could be a potential boon to the company and corresponding stock price.

Sales Penetrate All Time Highs: The Best Year in the Company's History

With revenues exceeding $12 million (10-K), 2013 sales volume of Trace Detection systems has truly trumped the sales figures of any prior year (3.5x or 252% of last year's sales). This of course was manifested by several approvals and sales to new clients that the company realized over the course of the year. The increase in revenue is due primarily to a 225% increase in the number of QS-H150 handheld units sold, due largely to the shipment of the India Ministry of Defence order in the amount of $6 million, $848,000 in sales to agencies of the U.S. Government, increased sales into Africa, the Middle East and Japan, and increased domestic and international sales of the QS-B220 bench top units, which began shipping commercially in the third quarter of fiscal 2012. Though the figures are exemplary, as they give testimony to the worldwide adoption of the company's product, the immense potential for market saturation lies in the approvals Implant Science's received over the course of this year.

TSA Approvals Foreshadow Vast Market Opportunity

Strict regulations imposed by the TSA necessitate Trace Detection Equipment to have approvals and certifications to be purchased and used by government agencies and related bodies. A year ago, Implant Sciences had no approvals from the TSA, however to date; the company has two major approvals in hand with another pending approval well on its way. On January 15th of this year, the company received official notification from the U.S. Transportation Security Administration (TSA) that its Quantum Sniffer QS-B220 trace detection system will be added to the Approved Products section of the Air Cargo Screen Technology List (ACSTL) for Explosives Trace Detection (ETD) screening. The implications of the approval not only correspond to permitted use in the United States for air cargo screening, but also solidified and reinforced international governments and agencies that the technology is bona fide and certified which in turn drove and will continue to drive sales. On top of everything else, Implant Sciences became only the third manufacturer to currently have TSA approval for trace detection, being the only U.S owned and approved provider.

In addition to the TSA approval, the QS-B220 became certified by Service Technique de l'Aviation Civile (STAC) in France on October 1rst, marking the second major regulatory success for the company. STAC is a highly respected certification organization, and becoming certified opens the doors to the vast French aviation market. A number of other governments including French territories, several European Union member nations, and a select number of countries around the world look to STAC certification in their purchasing decisions. This will immediately allow the company to sell their product for passenger, cargo and baggage screening in Europe and several other countries around the world. Mentioned in the earnings call to investors, distributors told the company that the STAC certification was one of the catalysts they were looking for, and intentions have turned to plans to present at several European trade events in the fall to showcase the technology and its benefits to interested parties.

Potentially the most exciting pending approval ongoing is the TSA approval of the QS-B220 for use in passenger checkpoint and checked baggage screening applications. Announced in July, Implant Sciences received confirmation for successfully completing the Independent Testing and Evaluation (IT&E) by the TSA, land marking Implant Sciences as the only company to have ever passed IT&E using Ion Mobility Spectrometry (IMS), a non-radioactive source. To be included on the Qualified Products List or QPL the TSA requires a three step process. The first step called IT&E or Independent Test and Evaluation which is the laboratory based detection performance testing considered by many to be the most difficult process as evidenced by so very few products obtaining a passing grade. Although full disclosure pertaining to the specific results of the TSA's finding cannot be released, the CEO has stated that "We did not just pass the test, we nailed it". Following IT&E, products were tested at the TSA Systems Integration Facility also known as TSIF (the second step), located at Reagan International Airport, TSA operates the systems in a simulated aviation security environment before actually deploying them in airports for final testing. The last phase is operational, OT&E (Operational Test & Evaluation) where the equipment is used in an actual airport security setting to perform, live screening of passengers and baggage. Upon satisfactory completion of all three stages, the equipment is qualified for use in passenger check point and check baggage screening.

Given that the company has already realized approvals for the QS-B220 from both domestic and international parties (TSA and STAC) along with the completion of the first phase, the case can be made that the approval for the QS-B220 in passenger checkpoint and baggage screening is imminent. The implications of such an event will benefit both parties of the company and investors, as the approval would allow Implant Sciences to introduce and sell a revolutionary approved and patented product in every airport, government agency, and sporting venue nationwide. With a current $2 billion dollar explosives, weapons and contrabands, known as EWC detective market, Implant Sciences anticipates broadening their market share by recapitalization of currently deployed systems and by creating demand for their products which host tremendous advantages like: Low cost of ownership, unmatched ease-of-use and rapid low-cost deployment. In particular, it is estimated that approximately $300 million of this market is in trace detection equipment sales and is largely split between two companies, with Implant Sciences cutting a 4% piece of the pie ($12M in revenue). With all aforementioned approvals considered, and technological advantages over the competition, management has been quoted saying that their goal to capture at least one-third ($99M) of this market in the next couple years, a very attainable figure with all variables considered.

Is Implant Science's a Buy?

For Investors, an entry point at current oversold (RSI 33) level of $1.03 may appeal to some considering the impact of the last TSA approval had for the QS-B220 back on January 15th (QS-B220 approved for air cargo applications) where the price spiked from roughly $1.10 to over $1.60 on almost 4 million shares traded (approx. 30x average trading volume) illustrated on the chart below:

(click to enlarge)

Reasonably, if the QS-B220 does indeed become a TSA approved device (more likely than not) for passenger checkpoint and baggage screening, the trading will react in a similar way as the implications of this approval opens new doors with potential the company has never seen before. When looking back at Implant Sciences a year ago, we witness a company with an innovative technology with no approvals for market penetration. Fast forwarding to the present day, we can see why the CEO Glen Bolduc claims that the Implant Sciences of today is dissimilar from the one a year ago, as the company is now strategically positioned with approvals to penetrate niche markets not available to them before. With the government and related TSA agency back in action (delayed by the governments hiatus), the steps towards the TSA approval can now continue to get closer to realization.


Disclosure: I am long IMSC.PK.

http://seekingalpha.com/article/1753492-introducing-the-new-and-improved-implant-sciences?source=yahoo