Implant Sciences' CEO Discusses F3Q 2013 Results - Earnings Call Transcript

May.11.13 | About: Implant Sciences (IMSCQ)

Implant Sciences Corporation (IMSC.PK) F3Q 2013 Earnings Call May 10, 2013 1:00 PM ET


Roger Deschenes - CFO

Glenn Bolduc - President & CEO

Bill McGann - COO

Darryl Jones - VP, Global Sales & Marketing


Mark Jordan - Noble Financial


Good day ladies and gentlemen and welcome the Third Quarter 2013 Implant Sciences Earnings Conference call. My name is Derek and I'll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Roger Deschenes, Chief Financial Officer. Please proceed.

Roger Deschenes

Thank you, Derek. I would like to welcome everyone to Implant Sciences’ third quarter fiscal 2013 earnings conference call. We also welcome those of you joining us on the webcast. On the call this afternoon are Glenn Bolduc, President and Chief Executive Officer, Bill McGann, Chief Operating Officer, and Darryl Jones, our Vice President, Sales and Marketing.

We will begin by providing a brief financial report on the company’s fiscal 2013 third quarter and nine months results. Glenn will then provide a corporate overview, discuss recent developments and the company’s strategic vision for the balance of fiscal 2013. Following our prepared remarks, we will open up the call for questions from today’s participants.

During this afternoon’s presentation, we will make forward-looking statements concerning upcoming events and our expectations regarding the company’s financial performance. Each time we do, we will try to identify these statements with words such as expect, believe, anticipate or other words that indicate potential events. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those stated in the forward-looking statements. Please consider the risk factors contained in the press release issued this morning, May 10, 2013 and stated during this conference call as well as the risk factors and uncertainties described in our latest annual report on Form 10-K for the fiscal year-ended June 30, 2012 which is on file with the Securities and Exchange Commission.

During our presentation, we may discuss or disclose non-GAAP measures. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with U.S. GAAP rather the presentation of earnings excluding certain items provides additional and information to investors to facilitate the comparison of our past and present results.

A replay of the conference call will be available for a limited time by dialling 888-286-8010 within the U.S. or 617-801-6888 outside the U.S. and entering the pass code 54922770. Any forward-looking statements we make today are based on assumptions which we believe to be reasonable as of today May 10, 2013.

We undertake no obligation to update these statements as a result of future events. Finally, this conference call is the property of Implant Sciences Corporation and any recording or reproduction or rebroadcast of this conference call without the expressed written consent of Implant Sciences Corporation is prohibited.

On May 10, 2013 we issued an earnings press release summarizing the company’s financial performance for the third quarter and the nine months ended March 31, 2013. We will now review those results.

Revenues for the quarter ended March 31, 2013 increased 84% to $1,262,000 compared with $686,000 for the comparable prior year period, due primarily to increased unit sales of our QS-H150 handheld device. For the nine months ended March 31, 2013 revenues were $9,615,000 compared with $2,854,000 with the comparable prior period, an increase of 237% and this was due primarily to the shipment of our handheld product and spare parts to India, Ministry of Defense, sales to U.S. government agencies and incremental sales of our QS-B220 benchtop product, partially offset by a 6% decrease in the average units sell prices of our QS-H150 handheld product.

Gross margin for the quarter ended March 31, 2013 was $303,000 or 24% of revenues which compares with gross margin of $182,000 or a 26.5% of revenues for the comparable prior year period. For nine months ended March 31, 2013 gross margin was $2,732,000 or 28.4% of revenues which compares with gross margin of $946,000 or a 33.1% of revenues for the comparable prior year period.

Factors impacting current and nine months margins are increased stock based compensation and increased manufacturing overhead. In addition for the nine months cost incurred for the shipment to the India Ministry of Defense and the decrease in the average unit sell price noted earlier impacted the margins. Stock based compensation increased $100,000 and $670,000 respectively in the current quarter and the nine month period compared to the comparable prior year periods.

Research and development expense for the quarter ended March 31, 2013 was $1,116,000 as compared with $799,000 for the comparable prior year period, an increase of just under 40%. The nine months ended March 31, 2013 research and development expense was $3,521,000 as compared with $2,365,000 for the comparable prior year period an increase of just under 49% and this is due primarily to increased payroll and related benefit costs, increased stock based compensation and both of which were partially offset by decreased contract and engineering. Stock based compensation increased $137,000 and $757,000 respectively in the current quarter and nine months period compared to the comparable prior year periods.

Selling, general and administrative expenses for the quarter ended March 31, 2013 were $3,191,000 as compared with $2,258,000 for the comparable prior year period, an increase of just over 41%. For the nine months ended March 31, 2013 selling, general and administrative expenses were $17,115,000 which compares with $6,053,000 for the comparable prior year period, an increase of just 183% and this was due primarily to increased stock based compensation, increases in payroll and our related benefit costs, travel, legal and bank fees and this was partially offset by lower consulting fees due to the issuance of common stock to certain advisors in the prior year period.

During the recently concluded quarter, we concluded the litigation settlement with Fulong resulting in the recognition of a $295,000 benefit. Stock-based compensation increased $1,244,000 and $10,847,000 respectively in the current quarter and nine month period compared to the comparable prior year periods.

For the quarter ended March 31, 2013 other expense was $1,335,000 as compared with other expense of $1,015,000 for the comparable prior year period, an increase of $320,000. For the nine months ended March 31, 2013 other expense was $3,906,000 which compares with other expense of $2,780,000 for the comparable prior year period, an increase of $1,126,000 and this is due primarily to increased interest expense on higher borrowings under our credit facility.

Our net loss for the quarter ended March 31, 2013 was $5,339,000 as compared with the net loss of $3,890,000 for the comparable prior year period. For the nine months ended March 31, 2013 our net loss was $21,810,000 as compared with a net loss of $10,252,000 for the comparable prior year period due primarily to stock based compensation, increased operating and interest expense.

Aggregate stock based compensation recorded on employee stock options and non-employee warrant amounted to $1,679,000 and $12,807,000 for the quarter and nine months ended March 31, 2013 compared to $192,000 and $525,000 in the comparable prior year periods. We expect stock based compensation will continue at the present levels for the next two fiscal quarters and will return to normalized levels in our second quarter of fiscal 2014.

On an adjusted EBITDA basis which is earnings before interest, taxes, depreciation, stock based compensation and the value of warrants and common stock issuances, our loss for the quarter was $2,310,000 for the most recent quarter ended which compares with a loss of $2,081,000 and for the nine months our loss was $5,020,000 which compares with a loss of $5,507,000 for the comparable prior year period.

That concludes the financial report and I will now the call over to Glenn.

Glenn Bolduc

Thank you very much Roger and I would like to thank all of our investors and other participants who are joining on the call today. The recently completed third quarter for the company was a time of growth and also momentum building for the company and during the quarter there were many positive developments that positioned us very nicely for the future. We are going to share those with you today.

The first of these was pretty simple; of course it was the TSA approval of our B-220 in January. This approval allows U.S. as well as international air cargo companies to buy from us under the TSA rules and we were very pleased to issue our first press release about our growing success in this market just a couple of weeks ago. TSA approval has built tremendous credibility for the company in the overall Explosive Trace Detection market and I will refer to that as ETD going forward here; gaining us access to opportunities in the U.S. government and other governments that go well beyond cargo in the aviation sectors of the market. We couldn't begin to approach these opportunities as most of you well know until the third quarter, when we received this TSA approval. Since that time our progress is notable, with initial unit orders for our pilot programs that we believe will ultimately lead to significant business opportunities in North America and beyond.

So what does increased credibility really mean? Before we received our approval, the first questions customers would ask us regarded substances detected, sensitivity levels for our equipment etcetera, etcetera. Now these basic performance criteria are accepted and the conversation focuses on operational issues an area where our technology and our product offerings far exceed that of the competition. Another benefit of TSA approval has been the advance of our other approval efforts domestically as well as on the international level.

We are making progress, significant progress towards TSA checkpoint approval and this is passenger screening in airports and baggage screening; we’ve gained considerable momentum since we mentioned it on our last investor call. The last couple of weeks have been an exceptionally busy period for us in this area. We expect to be in a strong competitive position to win these orders in airport screening of passengers and baggage in the coming year. We have also been successful in strengthening our ties with other regulatory bodies around the world and now that there is proof that our non-radioactive solution is viable, we are gaining momentum with customers concerned about the use of radioactive materials in their security screening applications.

Currently, we estimate we’re about four, five months behind, where we had hoped to be with the introduction of the B220 as an approved product for cargo. What this has translated to in sales terms is that product trials we originally expected to have conducted late last year or early this year are just now underway. We are beginning to see heightened interest in the B220 from several of the major freight forwarding companies and presently have a number of trials and evaluations going on which we believe will yield orders in the near term. Things are going quite well with these.

I just like to highlight an experience we had and just something that we believe you would be interested in knowing where quite of bit of excitement was generated at one of these trials just last week or the week before. One of the major international air cargo companies testing the B220 in a large cargo warehouse was screening packages as they were being consolidated for air shipment. During the test, this system alarmed for drugs on two separate occasions on the outer surface of the packages. Customs officers investigated the packages and confirmed our results seizing the shipments for the transportation of illegal narcotics; I don't think anyone will be surprised that the person in charge of this trial is quite happy with our systems performance right now.

Looking at the overall business, fiscal 2013 will be a banner year for our H150 with unit shipments already exceeding any previous year in the history of the company as well as our own forecast to date. Our sales for the quarter are nearly double those of the same quarter a year ago. We have already booked enough revenue to make fiscal 2013 our best year ever. Customers continue to appreciate our technology with (inaudible) reliability, the non-radioactive design and the very low cost of ownership. Current sales of this product are a leading indicator of the success we expect to enjoy with new 220 product as it becomes established as the next-generation ETD in the marketplace. As we have stated before and I'll state now we are the new standard in trace detection in the industry.

Just to back up a second the H150 is seven year old technology with modifications that we've made along the way. The performance of the H150 in the sales environment today has been remarkable. Roger noted the fact that we've seen a little bit of price erosion but some of that is due some of the volume that we've been able to ship with that product and you know overall we are seeing participation in more tenders. We are being invited to more trials and in general just seeing a greater number of sales opportunities than we have at any time in the past and certainly this is one of the many areas where we see our momentum building.

Trials will lead to orders, tenders will lead to sales; certification efforts will lead to new sales opportunities potentially numbered in the many hundreds of units; so I know the next question many of you will have is when, and you know we've said before that we expect to be running on a profitable basis on an adjusted EBITDA level by the end of the calendar year and we reiterate today that we continue to expect that. To try to be more specific than that today is unwise from a competitive information standpoint, so stay away from that right now.

However, what we can do is show you where we are going in broad terms and provide some ways so that our progress can be measured. When Implant Sciences was added to the Air Cargo Screening Technology List referred to as ACSTL in January we became only the third manufacturer to be approved by TSA for Explosives Trace Detection. The other two companies are Smith’s Detection out of the UK and Morpho Detection which is a subsidiary of Safran, a French company; these firms are our primary competitors in the ETD market and currently they capture a significant share of ETD sales globally.

The currently approved ETD systems are direct descendents of the trace detection equipment deployed by the FAA back in 1998. The B220 is the first fundamentally new trace detection system approved by TSA since that time because our design team was not constrained by existing legacy products containing previous generations of technology, and also because they are pretty smart guys here, they were able to create a system with the key advantages that we always speak proudly off.

A great indicator of our message and momentum in the industry is that our customers themselves cite these advantages time after time when purchasing Implant Sciences equipment. With these advantages taking hold in the market, we believe we can gain significant market share from Morpho and Smith’s and establish a new trace detection application to drive demand creation. Together, we estimate these companies sell approximately $200 million of trace detection equipment per year and we’ve set ourselves a goal of gaining at least one-third of that market within the next few years. We considered that our baseline of opportunity and believe there is significant room for revenue growth beyond that.

This growth will be fueled primarily by three things: One, world events calling for changes or additions to screening protocols. Two, the use of trace detection to solve currently unmet security needs, and three, advanced trace detection technologies replacing other technologies in the explosives, weapons and contraband detection market often known, EWC. Our technology singularly puts us in a position to capitalize from these factors.

World events are certainly unpredictable, but often have a great impact on the security industry as well as our business. Past examples include the Lockerbie bombing that brought trace detection to aviation security in the 1990s followed by the attacks of 9/11 that led directly to the creation of the Department of Homeland Security as well as the Transportation Security Administration. Most recently and unfortunately, the Boston Marathon terrorist bombing has led to the review and reinforcement of security of public events around the world. This atrocity demonstrates the necessity of implementing security measures for gatherings as few as 250 people.

Our H150 has been used in the past for ETD [protection] [ph] during the Beijing Olympics in 2008, the Universe [ad] Games in 2010 and the Special Olympics just last year. And that product can provide such a solution to these kinds of problems. Utilizing its unique non-contact sampling capability, it can screen admission tickets of all fans entering a stadium or an arena without creating large bottlenecks or delays. This approach provides excellent detection performance along with a strong deterrence factor.

The combination of continues operation, ease of use, speed of processing and enhanced event security make the screening process highly effective as well as staying friendly. Because of our ability to add safe and affective security measures to the existing method used at sporting events, we were recently actually just the past two days, well it was offered to us last week but we attended just the past couple of days the opportunity to be one of the sponsors for the Global Sports Management Summit held in Chicago. This event was attended by most of the NBA, NHL, Major league Baseball and NFL teams as well as international soccer teams, some of the management companies that work at many of these sports venues.

And it led to a nice presentation that we were part of in the security area, as well as some pretty interesting meetings for us and please note I just returned very late last night from Chicago after spending two days at these meetings. So hopefully we will have some news to report in the near future.

Just as our innovative technologies can provide the opportunity to expand trace detection into new security markets, they may also be able to displace other technologies used in existing detection markets. The $200 million in annual ETD revenue that we mentioned a few minutes ago that’s currently captured by our competitors is but a small fraction of the overall explosive weapons and contraband EWC detection market. We believe that our sampling technologies and emerging advanced technologies such as mass spectrometry offer us the basis to pursue opportunities in this large market recently estimated by IMS Research to be in excess of $2 billion a year. All of this adds up to tremendous opportunity for the company, but it isn't going to happen just because of one approval or one sale or one event. It’s going to happen because we know what we need to do and we are prepared for success.

For those of you that have visited the company I hope the one thing you take away from it is our dedication to preparation for what we are doing. We rarely go into meetings without being prepared for what's needed and I think on the front end of that is our technology staff as well as our sales and marketing group.

We know clearly we need more than just approval on the Air Cargo Screening Technology List, ACSTL. As mentioned earlier and I need to emphasize this to you, we are actively working on other certifications here in the United States which we talked a little bit ago about passenger screening and baggage screening and the check points and also some of the other certification bodies around the world. We prefer not to discuss just which ones publicly and for the reasons that I'm sure all of you can understand but we have established the product certification roadmap designed to lead to profitable growth on a global scale.

We truly play in a very large market. We know that we need to be ready for big orders. The kinds of customers that place these orders have very high expectations. They need a manufacturer that can fill their order quickly and who is committed to service training quality. They want a training group that will get their personnel up to speed quickly and effectively. They require strong support and service organizations.

We have built these capabilities and are currently flexing them in our customer trials where training and service support are paramount to our success. Several large potential customers have recently visited us to ascertain our manufacturing and service readiness. You would have been very proud of the results achieved. These folks which include government as well as large company personnel took the time to come to me and advise that their expectations were met very satisfactorily. We know that we need an ongoing commitment to innovation as well. Our intellectual property puts us in a unique position to explore new markets for trace, but successfully converting these opportunities to products will require the development of newer and better and faster technologies. We are no different than any of those other technology companies out there. We continue to attract the top scientists and top engineers to Implant Sciences. Many of you or many of our shareholders have commented on some of our recent additions to our staff with emails and some of you with telephone calls to me directly. We're heavily invested on the technology side and I think we will reap the benefits of that in the future.

With TSA approval, the company has proven that it can do the big things right. We’ve gained the credibility and we've built a team to reach a point where we are confident that if we now take care of the little things, the next big one will happen. Every new certification is a step forward on our plan. Every small sale helps build the momentum to get to the bigger ones. Every new trial or pilot program is a step to unlocking a whole new market. We, as a group, and I speak for the executive staff and I think for all of our employees, can’t remember having a more exciting quarter at the company. Having said that, we believe that there are future quarters coming that will be even more exciting. We have the technology, we have team, we have the credibility and we now have the momentum. Please just watch what we do with it here.

As always we thank our shareholders and our customers and our employees and also our vendors for their continuing support and dedication. We would be remiss if we did not put a shout out to our secured lender, DMRJ Group out of New York for their support and their guidance. If you will all recall it was during this quarter, they extended our credit agreements for one year, which was a huge leap of faith behind the management team and the company here.

Without them we wouldn’t be in this game. They support our every move and understand the direction that we are going in.

If anyone has any questions not addressed today please feel free to contact me, many of you do that without that invitation and we always do our best here to get back to you as promptly as we can and usually that’s me but I noticed I’ve been getting some help from Bill McGann with this especially on those highly technical questions that get asked.

This quarter we probably had five or six visits from investors who are in the area. And we always enjoy those things and I believe the shareholders who come in, go away excited about what we have done if any of you are interested in setting up meetings with us, at times when you are in the area, please contact the company. Kim Brown is my assistant, and she does a very nice job of arranging those things and we will make preparations and arrangements to meet at convenient times.

Thank you again for your participation in today’s call, and as always for your continued support of the company and the team here. We are going to stop here, and we will take any questions that any of you may have, thank you.

Question-and-Answer Session


(Operator Instructions) And our first question is from the line of Mark Jordan, Noble Financial.

Mark Jordan - Noble Financial

Good afternoon, I was wondering if you could delve in a little bit more closely into the check point screening process, could you tell us one, when do you expect to receive accreditation from the labs for this application, I guess be one; two how predictable is that forecast, and then thirdly could you talk about the size of the installed base of trace detectors that are at check points today, and then finally what do you think in terms of what is going to be the replacement cycle over the next three years, addressing that market opportunity?

Glenn Bolduc

All right, Mark you got a couple of questions, and unfortunately we are unable to answer some of them because its SSI information, Sensitive Secure Information within the government, it’s a large number, okay, I guess that’s about as far as I can go with it. But the process is quite detailed. We understand what it is, generally involves preparation of the qualification data packet, check, review of that QDP and acceptance of it, check. Generally you have to go through an RD&E, readiness testing, readiness development, check, okay, then you go into something called IT&E which is independent test and evaluation and that's where we are now, okay, and doing quite well, okay, I really don't want to comment further on that.

The balance of the process involves satisfaction to an integration facility which we expect no problem with and also with an information protocol that we have to be able to provide where our equipment provides the necessary data and then finally the process has an operational test which we hope to be in over this summer and I would prefer just to keep it at that for right now because we are dead smack in the middle of this right now with the TSA.

Mark Jordan - Noble Financial

Okay. Another question related to this, historically, does TSA have a typical schedule under which they place orders annually and if so do you think they will be somewhat on that historical pattern?

Glenn Bolduc

Again you are into an area that is very difficult for us to comment on just because of the agreements that we are under Mark, okay. But you are on to something I'll tell you that.

Mark Jordan - Noble Financial

Let me just give one other one then I will relinquish.

Glenn Bolduc

No, I love your questions so long as I can still dance around them.

Mark Jordan - Noble Financial

Okay you did receive the cargo award in January, could you talk about sort of give some sense of the pipeline you've been able to build to date relative to the cargo market now that you had that certification here for some odd months.

Glenn Bolduc

Yeah, you know what, I've got Darryl Jones with me, who is our VP of sales and marketing and he lives, breathes, sleeps this information. So what I'm going to do is ask him to comment.

Darryl Jones

Hi Mark. We’ve indicated before in other calls that we’ve hired a person and other agents and distributors to specifically go after that particular market base. That person has made significant traction. First starts when we had called initially to develop that pipeline kind of lukewarm in the sense that we weren’t approved at the time, that was last year. Now that we’ve got approval now you have to go in to the point where you have a pilot and demos, beyond demos is where I’d like to say, pilot and then it gets to the procurement phase. I will say that we are - people are flying all over and I'll be specific in the United States first, just to fulfill those pilot trials if you will. We have had significant interest from the major air cargo providers in United States and we are either in discussion, trials or pilots right now. So the pipeline is still fresh and tremendous and of course a lot of them are trying to fulfill the need that is required for them to replace existing ETDs by January. So I am very pleased with the way the pipeline is progressing.


(Operator Instructions) The next question is from the line of [Nicholas Goodman] [ph], Private Investor.

Unidentified Participant

I have a couple of questions if you don’t mind. In previous calls you’ve said that TSA is not generally a big buyer for the cargo area because that would mostly be the straight forwarders, but I am curious just in a general landscape sense, would they be a potential big buyer for checkpoint screening?

Glenn Bolduc

Yeah, they are the buyer for the checkpoint screening.

Unidentified Participant

That’s what I thought, I know it’s a (inaudible) question; I just wanted to hear you say it.

Glenn Bolduc

For a second I thought was a trick question.

Unidentified Participant

No, not at all. So with the recent certification of the H150 and 220 in the Russian Federation and also in today’s release talking about the final independent validation testing by TSA laboratory, I am curious why these significant events were not put out in separate press releases up to this point and is just the kind of sort of keeping it close to the best that we can expect going forward?

Darryl Jones

Yes, interesting question. So you know, the strategy - this is Darryl Jones. The strategy we’ve had for the last year or so is to show the kind of diverse verticals that we can go out there and the customers that are buying from several different verticals; law enforcement, aviation, deep waters, forest protection people like that, and that has worked very well. I think it has shown to all the investors that we are everywhere and now what we are going to do going forward, was going to be, instead of releasing one-sey, two-sey orders, I am sorry, news about those orders, we are going to actually release press releases that are “news worthy”. So in fact we have a change in strategy and you will see that going forward. That’s what we are doing now.

Unidentified Participant

Okay. You said in terms of orders, I was asking in terms of certifications and advancements in your government approvals and things like that?

Darryl Jones

We have announced certain levels of certifications and we have been very, I think we have been very forward with that.

Glenn Bolduc

I think we also tend to be pretty conservative with that, where as we mentioned before with regard to the TSA certifications that we are seeking around, we don't have it right now. So let’s understand that. I don't want to confuse anybody. We are in the process, we certainly have a leg up in that our technology has been approved under air cargo, they are testing for the same things, they are just testing on different surfaces, okay. We believe that we should detect all of these things and at the time we have news to report on that, we will report, we knew we were going to discuss this with you today, because we think this is material news. We think you should know where we are in the process, where we are trying to be as transparent as we can. But I think it's important to note that we still have some work to do here, okay. And that work isn’t measured in days or weeks it's measured in months, okay. But this is all fallen within a plan. What I might also add is we have been able to successfully reduce the normal amount of time that it takes to get this done because of some very strategic planning that we did back in the December, January timeframe which we hopefully will have more to speak about in the coming months.

Unidentified Participant

Okay, you actually take me direct to my next question which was the approval on the cargo screening which of course was a great milestone. When you actually look at the government information online it comes with a caveat, comes with this is not qualified, buy at your own risk, sort of caveat, and I was curious when if you can give us some idea of how the 220 can become qualified in other words get on the qualified providers list versus the approved list, so is that something you can discuss.

Glenn Bolduc

Thank you very much for asking that question. You want to take it.

Bill McGann

Sure, I will start if I miss something then Daryl or Glenn will fill in the blanks. So you are right there is basically a couple of levels if you will of approval the ultimate being on the qualified list which requires operational experience in the field with the recently approved technology and that's where we are. We are right now in the process of deploying systems into an operational environment along with the TSA and a selected third party freight forwarding company selected for us by them.

Glenn Bolduc

By them being TSA, yeah…

Bill McGann

By TSA and all the appropriate agreements that go along with that, and are in the process of working that and we expect that in a matter of months, though people get a little bit afraid when they read the specific language in the government documents because it said these things can go on for a year, which technically they can, but within a matter of months we expect to get onto the qualified portion of the ACSTL, and there's another caveat and I should probably say this because this is what competition does when they start splitting hairs, I mean what I would say is our competition comes at us pretty hard in this area that's why we were kind of smiling when you asked the question. You know, well, they are approved and we are qualified etcetera, etcetera and while that's true there's no entitlement to being on the qualified list. You can be disqualified at any time.

So there's no magical bar that you cross over and stay there forever and anyone who is really listening here to gain insight you should not lose sight of that statement and there's no entitlement associated with doing an operational test to becoming qualified. We expect to go through that process swiftly in a matter of months, maybe three months, four months at most. At that time you will see when we are successful an upgrade to that list. We will move up into the other section and I would say to you then we will be in the same game.

So it’s kind of interesting, our competitors when they fight with us or compete with us which I love they talk about these details, these administrative details. How many times do we get confronted with how well our technology works or how easy it is to use or how effective it is in terms of cost of ownership or how well it detects. We don't get any push back from our competitors on that at all. It’s all this administrative bureaucratic competition which I personally am very happy with because it tells me that once we clear these final hurdles I don't know how they are going to come at us any more but it will be interesting.

Glenn Bolduc

Nick let me just add a little bit to that and back on January 15 when we got that approval fundamentally it was impossible for us to be qualified simply because our equipment had only been tested in the lab and it was approved in the lab. The qualification notation that you received is because the equipment has worked in the field. But we weren't allowed to put the equipment in the field because it wasn’t approved. So you’ve got to go through that approval process first, and as Bill just described that process has now been set up.

I would like to add a couple of other things to what Bill said though. Our equipment passed under the 2012 standards. We are the only company to have passed under those standards, and those standards exist because there were differences between the previously issued standards and no standards and I would rest assured the 2012 standards are more difficult ones and the more current ones and that's the approval that we have. We will go through the operational phase of this and as Bill said we do expect that certification to occur in the near future and then we will just have to deal with whatever is next that people want to bash us about.

Darryl Jones

I'm going to add to that Nick. So customers have a choice this is Daryl again, customers have a choice. They can buy the products that are qualified under the 2006 list of threats or they can buy the approved under the latest 2012 and you know it’s funny because what would you do, you would go for the one probably that would have the most current threats and that's what the customers are really focused on right now.

Unidentified Participant

Of course and that's the competitive advantage and that's what we are interested in. Do you have any sense of what the competition is doing? I don't imagine they are sitting on their thumbs.

Darryl Jones

You know we are all going after the same, if you will, same customers and the customers they look at all the other competitors as well. I actually kind of thought that, take a look at them and take a look at ours and you make a choice, and you would be surprised what they are saying. Happily surprised.

Unidentified Participant

One real quick question.

Glenn Bolduc

Check the resumes of our VP of sales, our government sales guy, our chief scientist.

Unidentified Participant

Right. Quickly, I just found out that DHS industry day on explosive trace is upcoming this summer, I’m curious is Implant going, are you going to be represented there in any way?

Darryl Jones

Yeah, we will be well represented there and right now we're debating if we want to present one of our most recent topical discoveries in our new advanced technology, we're certainly socializing that discussion with some of our government colleagues. We are certainly going to be there in force and we're debating whether we're going to present some of our new technology papers or not right now.

Glenn Bolduc

And one thing I would add under our time here, or under my watch. We have attended all of the ETD industry days that TSA has put on.

Unidentified Participant

Great, thanks for clarifying that. I wasn’t sure. Congrats, thanks a lot for answering my questions.


Your next question is from the line of [Nick Sally] [ph]. Private Investor.

Unidentified Participant

Glenn, I just had one question as far as which I have been to your website now. Are the 220s capable of handling large volume like on conveyer belts and stuff, cargo?

Glenn Bolduc

The 220 is a swap technology that probably doesn't lend itself to a conveyor system, okay, unless you had a conveyer going and you are sampling boxes on a conveyor and which I think when you are talking about a something different where you would have stand-off detection using our equipment on a conveyor system, and we do have a prototype of that kind of unit any investor who has visited with us has seen that device. The issue is TSA currently doesn’t have a standard, doesn’t have an application for stand-off detection, stand-off explosive trace detection. That’s part of what we are looking to do in the future and I would actually prefer not to talk too much further about that.

Unidentified Participant

Right I figured you were working on it if it weren’t quite available right now, but that’s what I was thinking in my mind, it's always, the cargo screening, I guess I just walked into warehouses and on skids and check stuff with the 220s right now, right? [Unclear] desk tops, so to say.

Glenn Bolduc

Correct. They are often screening the boxes as they are being palletized to go on to the air freight shipments, so it's relatively convenient way to do it, but to your point not an automated high throughput method?

Unidentified Participant

Right. Appreciate it.


At this time, I am showing no further questions, thank you. I would like to turn the call back over to Mr. Glenn Bolduc for any closing remarks.

Glenn Bolduc

Thank you very much Derek. Thank you folks, we appreciate it. We continue to work the issues, take the technology to the next steps and as I have told you so many times you have an incredibly dedicated group of employees here working on this. We are very excited about what we are doing and we are optimistic about where we are going and I guess we will speak with you again, barring anything unforeseen in the middle but we will speak with you again later in the summer. Thank you and we hope you’re all well, and as mentioned earlier if you are in the area please stop by to see us. If you have any phone calls or questions, please feel free to give us a call. Thanks again and be well.


Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great weekend.

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