Posted on 08/17/11

Investment Overview

Implant Sciences Corporation has 32 distribution plants across 6 continents and is one of the very rare, if not the only company in the U.S, which has a non-contact non-radiation explosives trace detection technology. The Transportation Security Administration (TSA) has stated the need for such a device to make security checks more dignified and effective. As IMSC’s QS-H150 perfectly fits the definition, the company has chances of substantially increasing shareholder value if they land a with the TS. Moreover, the Department of Homeland Security has taken IMSC’s ETD technology under review for implementation at airports as security check equipment; and if approved, the company would be given a $2.1 million contract.

Implant Sciences has a patent portfolio made up of 11 patents related to technological methods of explosives and narcotics analysis, detection, and sample harvesting and collection, which helps the company, generate steady cash flow. Talking about cash, the company has successfully been able to increase revenue 421.9% due to expanding sales of their portable explosives trace detectors in countries like Japan, Mexico, China and Spain. The company has recently increased the number of distributors by adding seven new countries described later in this article.

What makes IMSC a high potential company is the fact that it is the fourth best global provider of ETD technology and the company has strong U.S government support. Furthermore, the company has a strong balance sheet, the historical analysis of which indicates efficient conversion of short-term investments into cash. The company does not have any long-term debt and has enough cash on hand to ensure liquidity.

 

About the Company

Implant Sciences Corporation, established in 1984, belongs in the trace explosive detection industry alongside competitors such as General Electric (GE Securities) and Smiths Detection. The company develops, manufactures and sells sensory and detection systems for security, safety and defense (SS&D) industries which are associated with Homeland Defense efforts worldwide. IMSC has two main products namely Quantum Sniffer QS-H150 Portable Explosives Detector and Quantum Sniffer QS-B200 Bench-top Explosives Detector.  The company also engages in the development of the propriety explosives trace detection (ETD) technology used in the mentioned products. Private and public companies make use of the products to detect and screen people, cargo, baggage and other objects for traces of explosives. There is high demand for such products since 2001 due to enhanced security procedures for protection against terrorism. IMSC’s Quantum Sniffer Portable Explosives Detectors have been labeled qualified anti-terrorism technology by the U.S Department of Homeland Security under the SAFETY (Support Anti-Terrorism by Fostering Effective Technology) act of 2002. Implant Science’s is also among the top five global providers of ETD products.

According to the CEO of Implant Sciences, Glenn D. Bolduc, their non-contact and non-radioactive way of detecting explosive traces eliminates any instances of embarrassment or health concerns during the passenger screening method, allowing the security personnel to conduct a non-intrusive, efficient and graceful screening procedure. Many companies in this industry have long been attempting to create such Explosive Trace Detection (ETD) technology; IMSC being the pioneer, gives the company the first-mover advantage in the market.

IMSC markets and sells its products both domestically and globally with United States and China being the main locations. Recently sales of the products to Mexico, Spain and Japan have increased allowing IMSC to generate more revenue from the international market rather than domestic. The major customers of the company include the India Ministry of Defense, Beijing Subways, Japan National Police Agency, Russian Federation Ministry of Transportation, and Civil Aviation Administration of China. With the recent expansion, the company has 32 distributers across 6 continents.

Products

Quantum Sniffer QS-H150 Portable Explosives Detector:

The product makes use of Ion Mobility Spectrometry in order to detect and identify trace amounts of explosives which come in various forms of homemade, improvised, commercial and military explosives. Owing to the portable, high-performance, and low cost features of the product, IMSC has managed to sell over 1300 units; approximately $30 million sales worldwide.

Quantum Sniffer QS-B200 Bench-top Explosives Detector:

Similar to QS-H150, QS-B200 uses non-radioactive and contamination resistant Ion Mobility Spectrometry to detect and identify trace amounts of military, improvised, commercial and homemade explosives as well as narcotics. The only difference is the fact that this product is a bench-top rather than hand-held.

 

How the technology works

 

In the first step, the non-contact ETD technology uses its heated vortex to release and collect the trace particles from the surface of the sample. The vortex, which is like a miniature tornado, transports the vapor taken from the sample directly to the detector. By the use of its Ion Mobility Spectrometry, the ionized molecules in the vapors are sent through a rift tube where it is separated, collected and analyzed by special software. If any trace of explosives is detected the device provides with visual and auditory alarm and further displays the necessary information regarding the detected explosive.

 

Intellectual Property

Implant Sciences holds an extensive range of intellectual property related to technological methods of explosives and narcotics analysis, detection, and sample harvesting and collection. The company’s patent portfolio is made up of 11 patents related to security with 4 additional patents still pending.

 

Key Statistics

TICKER IMSC
Market Capitalization 23.70 Million
Shares Outstanding 28.90 Million
Float 26.03 Million
% held by insiders 2.40%
% held by institutions N/A

 

Management Team

Glenn D. Bolduc, President and CEO at Implant Sciences, has 25 years of extensive experience in the field of public and private technology and services companies as an executive and financial leader. The Financial Vice President also has 25 years of leadership experience in his line of profession of accounting and finance. Moreover, IMSC has veterans as members of board of directors such as Robert Liscouski, who was the Director of Information Assurance at The Coca Cola Company, and Joseph E. Levangie, who has the expertise required by small-cap companies to overcome their growth and financial challenges owing to his vast experiences as a CEO of a business advisory firm. Moreover, the board of director has Howard Safir as the Director who is the Chairman and CEO of one of the highly renowned security consulting company. He has extensive expertise in the field of defense and security. Safir was the Assistant Director of the DEA and chief of Witness Security Division at U.S Marshals Service and is the Director of the Foundation of the International Association of Chiefs of Police.

Balance Sheet Analysis

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It is evident from the asset decomposition how over the years short-term investment has decreased and cash has increased, this demonstrates how IMSC is capable of converting their short-term investments and inventory into liquid cash, ensuring liquidity for the company. The decrease in total assets is due to the drastic decrease in good will, which is a non cash item. This further confirms the fact that the company is financially stable as the decrease of assets is not due to decrease in important assets such as cash. Furthermore, the reason for the rise in liabilities and decrease in assets is due to the need for short-term debt and investment for the expansion of the selling and marketing department to cater to the rising global sales of product. The rise in liabilities is consequentially due to the increase in debt to 18.10 million, but it should be realized that this debt is short-term which is required by most companies in the industry to carry their research and development; the company has no long-term debt.

 

Current Developments and Expansion

l  According to the official website of IMSC, their recent sales contracts include:

  • $380,000 to Canada, China, and India
  • $60,000 to Turkey, Russia, China and Armenia
  • $2,100,000 to China, Mexico, Armenia, and Libya
  • $550,000 in orders to Spain and China
  • $850,000 Follow-on order to China
  • $6,000,000 contract with India
  • $1,200,000 million order with China

l  There has been addition of seven new distributors namely Mexico, Cyprus, Spain, Philippines, Indonesia and Romania which will further expand the sales pipeline and increase revenue.

l  IMSC witnessed an increase of $2,544,000 or 421.9% in the second quarter due to the increase in sales of the portable explosives detectors for aviation security, public safety, law enforcement and transportation security in countries like Japan, China, Mexico and Spain.

l  Compared to the financials of the previous year period, research and development expenses have increased 12%. The increase in $74,000 is due to the addition of contracted engineering resources for the development of the newly launched QS-B200 bench-top explosives detector. Increase in expenses is inevitable and necessary for the company to further expand their product line and invest in efficient research and development in areas of explosives detection and to make the products ready and flawless for government laboratory acceptance testing.

l  The increase in distributors and expansion in the selling and administrative department to cater to global demands has led to an increase of 54.6%. The payrolls, fringe benefits, and travel costs of the additional personnel in the area of sales, marketing and administration are the primary causes. Regardless, such increase in expenses is off-set by the previously mentioned 421.9% increase in revenue.

l  IMSC recently received an order worth $586,000 of QS-H150 systems to facilitate security screening at the 2011 Summer Universaide, also called the World University Games, in China.

l  The ETD technology is currently under review by Department of Homeland Security, if approved and the technology is normalized in airports for security scanning purposes, the company could generate a lot of money starting with the initial 2.1 million contract.

l  Transportation Security Administration recently stated the need for superior explosive detection device which could make security checks more effective without making the security check an undignified or embarrassing process. The QS-H150 seems to fit the description. IMSC has made clear the non-contract method of trace detection; therefore, the company could possibly land a contract with TSA which could resultantly mean increase in cash and consequentially stockholder value.

 

Positive Outlook/Highlights

l  The newly introduced Quantum Sniffer QS-B220 is expected to further increase revenues for the company by inviting more local and global purchasers.

l  Expansion of the sales, marketing and administrative team has facilitated increase in global sales over the past year.

l  IMSC is the fourth best global provider of ETD products.

l  With the existence of terrorism and enrichment of anti-terrorist developments in majority of the countries has increased need and reliance on such ETD products over the years.

l  High U.S government support and positive response from federal, state and local product decision makers at FPED VII regarding the establishment of company government sales and marketing team.

This is part of a paid, but independent Research Series on IMSC. The views and opinions expressed in this Series are purely my own. I have no positions in IMSC, and no plans to initiate any positions within the next 72 hours. Rule 17B requires disclosure of payment for investor relations services. Value Walk has been compensated $750 by a third party on 08/172011 for one sponsored post/ advertisement for IMSC. For complete disclosure/disclaimer statement, please review the Disclosure Statement relevant to this Series.