Implant Sciences: The 30-Year-Old Virgin Grows-Up.

| About: Implant Sciences (IMSCQ)

Corporations, like people, mature at different ages. Implant Sciences, (OTCQB: IMSC) was founded 30 years ago, and never grew up. The company never quite knew what it wanted to be - at different times in the past it was a medical company, a semiconductor company, a research organization, a consultant, among other sputtering attempts to become a stable business.

Five years ago a new management team arrived, and for all intents and purposes created what was a startup out of the bits and pieces of the old corporation's corpse. IMSC Version 2, so to speak. Implant Version 2's new leadership decided to focus on a specific industry segment, Explosives Trace Detection (ETD). Why? 1. There were only two major competitors in the niche. 2. There were no American companies selling ETD products. 3. Competitors' products used radioactive material and were expensive, meaning a superior product developed by an American company stood a good chance of success.

Management accomplished what it set out to do - develop a product that today is the industry standard. What it didn't earn immediately was membership in what I call the "Safe Club." In Rodney Dangerfield's term, IMSC "got no respect" because it lacked the blessing of the Transportation Security Administration, among other critical factors. Even as good news began to pour in throughout 2013, sales were slow to follow, and stockholders became impatient.

Let me tell you why sales reacted indifferently, or worse, to good news, and more importantly, how the recent dramatic transformation of the ETD industry will raise IMSC's stock price to well over $2 by the end of the fiscal year.

I used to work for IBM. I also founded, was a board member, and executive of a number of high-tech start-ups. At IBM, we won significant business because we were the "safe choice". No IT director, no purchasing manager ever got fired for recommending IBM. The small companies I started or led faced an uphill climb. We often couldn't get in the door, while at IBM we had the keys to the castle. So think of the startup, IMSC V.2, as the Unsafe Choice. No Security director, no purchasing manager was going to recommend a product that the TSA hadn't blessed. Why risk one's job?

The shift in IMSC's favor began last January when the B220 product was "approved" by the TSA. Approval, however, left the company short of an even playing field. Competitors could - and did - tell prospects that "approval" was a long way from having a "qualified" designation, meaning a product that actually was tested in the field. IMSC remained the Unsafe Choice.

Until just two months ago. In late October, the TSA qualified the B220 for cargo screening. Rigorous new TSA standards based on advanced technology go into effect January 1, 2014, and for the first time, IMSC is on the qualified list, with a superior product. On September 30, the B220 was certified by the Service Technique de l'Aviation Civile (STAC), the French Civil Aviation authority for passenger and cargo screening at French and other EU airports. As with the TSA certification, IMSC earned a place on the EU's list of qualified ETD suppliers. The company's growing reputation was made obvious earlier this month as it earned a prestigious Government Security News' Homeland Security Award as best ETD solution, no small feat for a "start-up" company with basically no advertising budget.

So just two months ago, Implant had no TSA qualification, no European certification and no visibility in the ETD press. Today we have them all. These critical factors will lead to significant sales in the near future, but shareholders need a bit more patience while one more piece of the sales puzzle is put in place. That piece is relationships. Specifically, replacing existing relationships the competition has today with IMSC relationships. Taking my IBM example, when smaller competitors with superior products initially took on IBM, they faced not only the fact that they were perceived to be a "risky" choice, but they also had to unwind entrenched relationships that went back years. Lengthy relationships aren't easily or quickly displaced. It was only when it became crystal clear over time that competitors were offering superior products at better prices were buyers forced to look at alternatives to IBM.

That's where Implant stands today. Contrary to being a risky choice, IMSC now offers fully certified superior products at better prices. IMSC's growing sales force IS opening more doors. Sales ARE growing, as evidenced by a spate of announcements in just the last two weeks alone: December 12, Global CFS buys IMSC products; Dec. 16, U. S, air cargo screeners place over $600,000 for B220s; Dec. 17, $600,000 in new international sales; Dec. 19, more than $1 million in new sales to customers in Asia; Dec. 23, sales to Russia to protect the Sochi winter Olympics. (All the more important after the recent bombings of the last few days) That's more than $2 million in sales in a period of 14 days. Implant Science has momentum!

When checkpoint certification is achieved in the next few months, revenues will grow even faster. Checkpoint purchases made directly by the TSA are not small purchases. Depending on what percentage of the 2014 checkpoint buying goes to IMSC, it numbers in the hundreds of units. The non-radioactive core of Implants technology gives them a leg up on this huge market opportunity. Doesn't hurt that it's the ONLY American company in the running.

IMSC's CEO Glenn Bolduc has put his reputation on the line by offering, for the first time, revenue guidance. He said more than a month ago on a conference call that in FY 2014, IMSC will achieve between $17 and $24 million in sales. Subtracting the $1.2 million already booked in Quarter 1, that works out to between $5 million and almost $8 million in each of the next three quarters. In other words, a record year. The company already has a good start - a $3.5 million order that was signed and expected to ship in the first quarter was delayed and will be booked over the next three quarters.

Here's what I think will happen. Second quarter earnings (ending Dec. 31) will be OK, as revenue improves based on recent announcements. However, the third quarter (January-March) will be the quarter that factors mentioned earlier start to kick in, in earnest, and sales will surge. The stock will move to the $1.30-1.50 level or higher by quarter end. The 4th quarter, April-June, IMSC will procure a large TSA order, substantial orders from more international customers AND qualified status for passenger screening. The stock will break $2 before June 30. Early next fiscal year we can expect orders for checkpoint screening systems and continuing acceleration of revenue. The stock will follow the revenue.

With the company now moving briskly out of its startup phase, the hard slough of the past over, ambitious goals met, its reps developing relationships with buyers in the U. S. and around the world, and the stock around 90 cents, much of the risk has evaporated. For myself, I've bought more.

Disclosure: I am long IMSC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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