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Executives

Roger Deschenes - Chief Financial Officer

Glenn Bolduc - President and CEO

Bill McGann - Chief Operating Officer

Darryl Jones - Vice President, Sales and Marketing

Analysts

Mark Jordan - Noble Financial

Joe Munda - Sidoti & Company

Implant Sciences Corp. (OTCQB:IMSC) F2Q2014 Results Earnings Conference Call February 13, 2014 4:15 PM ET

Operator

Good day, ladies and gentlemen. And welcome the Second Quarter 2014 Implant Sciences Corporation Earnings Conference Call. My name is Crystal, and I will be your Operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (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, sir.

Roger Deschenes

Thank you, Crystal. I’d like to welcome everyone to Implant Sciences’ second quarter 2014 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, Vice President, Sales and Marketing.

We’ll begin by providing a brief financial report on the company’s fiscal 2014 results for the three and six months ended December 31, 2013. Glenn will then provide a market overview and discuss recent developments. 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 on February 13, 2014 and stated during this conference call, as well as the risk factors and uncertainties described in our annual report on Form 10-K for the fiscal year ended June 30, 2013, as amended, 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. The presentation of non-GAAP information is intended instead to provide additional 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 dialing (888) 286-8010 within the United States or (617) 801-6888 outside the United States and entering the pass code 71522366. Any forward-looking statements we make today are based on assumptions which we believe to be reasonable as of today February 13, 2014.

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, reproduction, or rebroadcast of this conference call without the expressed written consent of Implant Sciences Corporation is prohibited.

Today, on February 13, 2014, we issued an press release summarizing the company’s financial performance for the three and six months ended December 31, 2013. Our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2013 will be filed with the Securities and Exchange Commission tomorrow February 14, 2014.

Revenues for the three months ended December 31, 2013, were $3,150,000 which compares with $6,938,000 for the prior year period, a decrease of $3,788,000 or approximately 55%.

For the six months ended December 31, 2013, revenues were $4,315,000 as compared with $8,353,000 for the prior year period, a decrease of $4,038,000 or approximately 48%.

The revenue decrease in both the three and six month periods ended December 31, 2013 is due primarily to an 80% decrease in the number of our H150 handheld unit sold in both the three and six months ended periods.

This is due primarily to the shipment of the QS-H150 handheld units under our contract with the India Ministry of Defence in the December 31, 2012 period, which resulted in a 79% decrease in revenues for our handheld units and to a lesser extent revenues decrease due to lower sales of parts and supplies in the most recent period. This is due primarily to the India MoD shipment in the 2012 period.

These decreases are partially offset by increased sales of our QS-B220 desktop units, which is due to increased shipments U.S. air cargo screening facilities, increased shipments into Latin America and to agencies of U.S. government.

Our sales of the QS-B220 for the three and six months period ended December 31, 2013 were $1,763,000 and $2,599,000, respectively. The average unit sell price on sales of our QA-H150 handheld units for the three and six months periods increased 4.3% and 5%, respectively.

The percentage breakdown of our revenue for the three months ended December 31, 2013 is for the H150 is 40% of revenues, the B220 is 56% of our revenues and parts and supplies represent 4% of our revenues, which compares to 88%, 2% and 10%, respectively, in the prior period.

For the six months, our revenues were for the handheld H150 were 35%, B220 were 60% of revenues and parts and supplies represented 5% of revenues, and this compares to 88%, 3% and 9%, respectively, in the prior period.

Gross margin for the three months ended December 31, 2013 was $1,170,000 or 37.1% of revenues, which compares with $2,468,000 or 35.6% of revenues for the prior year period. The six-month ended December 31, 2013 gross margin was $1,383,000 or 32.1% of revenues, as compared with $2,429,000 or 29.1% of revenues.

The decrease in gross margin dollars for both three and six months ended December 31, 2013 is due primarily to decreased sales of the H150 handheld units, that is due to the shipment under our contract with the India Ministry of Defence in the prior year periods.

The increase in the gross margin percent for both the three and six months ended December 31, 2013 is primarily the result of decrease stock-based compensation recorded on stock option grants to officers and directors in the September -- in September 2012 and this is partially offset by increase manufacturing overhead spending due to an increase in manufacturing personnel costs and increased occupancy costs as compared to the prior year period.

Research and development expense for the three months ended December 31, 2013 was $1,191,000, which compares with $1,068,000 for the prior year period, an increase of $123,000 or 11.5%.

For the six months ended December 31, 2013 research and development expense was $2,422,000 as compared to $2,405,000 for the prior year period, an increase of $17,000 or just under 1%.

The increase in research and development expense for both the three and six months periods is due primarily to increased payroll and related benefit costs, increased occupancy costs, increases in government testing fees and prototype expense, and this is offset partially by decreases in the three and six-month periods of $71,000 and $409,000, respectively, in stock-based compensation, which is recorded on December 2012 officer and director option grants.

The increase in development spending is due to the ongoing development because of the QS-B220 trace detector in the development of a portable explosives and drugs detector we continued development of a hyphenated system employing ion mobility and mass spectrometry in the ongoing effort with the regulatory approval processes.

Selling, general and administrative expenses of three months ended December 31, 2013 were $2,686,000 which compares with $3,793,000 for the prior year period, a decrease of $1,107,000 or 29.2%.

For the six months ended December 20 -- December 31, 2013, selling, general and administrative expenses were $6,094,000 as compared with $13,924,000 for the comparable prior year period, a decrease of $7,830,000 or approximately 56%.

The decrease in the selling, general and administrative expenses for the three and six months -- six-month period is due primarily to the decrease in stock-based compensation recorded on December 2012 officer and director option grants, the imposition of liquidated damages under our contract with the India Ministry of Defence in the prior year period and we also saw a decreases in bank charges, legal expenses and variable selling expenses.

These decreases are partially offset by increases in payroll and related benefit costs and travel expense, resulting from the addition of sales personnel, that's primarily our service component of the sales function, increased occupancy cost due to the relocation of our corporate offices, increased stock-based compensation on non-employee warrants and increase selling expenses due to the opening of our Shanghai representative office, increased participation at industry trade shows and an increase in demonstration units we provide to our sales force.

The three months ended December 31, 2013 other expense was $1,674,000 which compares with other expense of $1,330,000 for the prior year period, an increase of $344,000.

For the six months ended December 31, 2013 other expense was $3,269,000 which compares to $2,571,000 for the prior year period and that’s an increase of $698,000. And the increase in the three and six month periods is due to increased interest expense on higher borrowings under our credit facility with DMRJ.

Our net loss for the three months ended December 31, 2013 was $4,381,000 which compares with a net loss of $3,723,000 for the prior year period, an increase in the net loss of $658,000.

The increase in the net loss is primarily due to lower sales, increased operating expenses and increased interest expense, this is partially offset by the decrease in stock-based compensation recorded on the December, excuse me, on the September 2012 officer and director option grants in the three months ended December 31, 2013.

Our net loss for the six months ended December 31, 2013 was $10,402,000 which compares with a net loss of $16,431,000 for the prior year period, a decrease of $6,069,000.

The decrease in the net loss is primarily due to the decrease in stock-based compensation recorded on the September 2012 officer -- director or officer, excuse me, on the September 2012 officer and director option grants in the six months ended December 31, 2013. This is partially offset by increased operating expenses and the increase in interest expense.

Aggregate stock-based compensation recorded on employee stock options and non-employee warrants amounted to $707,000 for the three months ended December 31, 2013 which compared to $1,691,000 in the prior year period and amounted to $2,319,000 for the six months ended December 31, 2013 compared to $11,128,000 in the prior year period.

And on an adjusted EBITDA basis, which would be earnings before taxes, earnings for interest, taxes, depreciation, stock-based compensation and the value of warrants and common stock issuances.

Our loss for the three months ended December 31, 2013 was $1,891,000 compared with a loss of $681,000. And for the six months on an adjusted EBITDA basis our loss was $4,598,000 which compares to a loss of $2,713,000.

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

Glenn Bolduc

Thank you, Roger. And we would very much like to thank all of the participants joining our call today and I hope wherever you are it’s warmer and drier than it is here because we are right in the middle of the rather significant snow storm, we got about 10 or 12 inches outside right now.

Just to review the last quarter and we will probably go a little bit beyond that because we will talk about some things that have been happening this quarter as well and I think you'll see the build up of what we have been talking about over the last year or so.

Recently we had all hands company meeting in which we reviewed our results with our employees, some of whom offered some very positive comments regarding the accomplishments achieved by the company during our second quarter. This continues to be a very exciting time for Implant Sciences especially with the sales orders announced this week including the one I'm sure all of you saw this morning.

With everything going on around here, easy to forget just how far we've come. I think there really is something to the saying about the forest and the trees vision issues that we all use as an example sometimes.

Today we get to do the public version of that all hands meeting we have with our employees a few weeks ago. Parts of what we’ll talk about today, some of you will have heard before, however, when you hear it, viewed in the context with our goals and objectives, we think that you just like our employees will be impressed at just how much has been accomplished.

Excuse me, we’ve spoken several times about the importance of certifications and qualifications to our business. In the second quarter, we racked up -- the certain quarter means December 31st quarter, we racked up a string of approvals, the speed of which is unprecedented in our industry.

We opened the quarter, I think, it was actually on October 1st with certification of our B220 by STAC. I’ll try it again guys, Service Technique de l'Aviation Civile or STAC, I’m getting laughed at here. The regulatory agency or organization that is the TSA equivalent in France. Less than three weeks later I believe the date was October 18, we received notification from the Transportation Security Administration or TSA here in the United States that our B220 product would be added to the qualified product section of the Air Cargo Screening Technology List and the acronym you will see for this is ACSTL.

At the end of October, the Department of Homeland Security designated the B220 as a qualified anti-terrorism technology under the SAFETY Act. I’m not going to do it here but we have reviewed the advantages of being SAFETY Act designated and approved and the significance that it has on our business.

Finally, excuse me -- finally, it was also during the second quarter that the B220 entered testing at TSIF, which is TSA's Transportation Security Integration Facility which is an all important step towards being qualified for the larger markets and check point, passenger check point I should say unchecked baggage screening in the United States.

It doesn’t take a mind read it to know what some of you are thinking. In fact, many of you have called or written to me and said great, nice job. So where are the sales. Short answer is that sales are growing and we are gaining market share, not fast enough than they, but they are growing and I think you've seen the results of some of that over the last couple of months and we’re going to review it with you.

Back in December and just a couple of months after receiving our STAC certification in France, as well as the TSA qualification for cargo, we announced slightly more than $2 million in orders. These orders came from a variety of sources including a strong surge in air cargo screening sales.

Over all of 2013, we estimate that we captured around 10% of the U.S. air cargo sales, most of which happened in the recently completed quarter i.e. December 31st. Every one of these orders is a share takeaway from the larger established players in the market. This much progress in just a couple of months with a newly qualified product is pretty impressive.

Our market share continues to grow in the current quarter. Just last week, we received the purchase order from a well-known international shipper and we can now count two of the three major worldwide air cargo carriers as customers.

This is a clear sign that our small company is successfully competing with the established incumbent players on an unprecedented scale. We state proudly that we are the first company in 20 years to break into the space and your company, Implant Sciences, presents serious competition to the two entrenched competitors.

Building on our success in December, we've announced well over $3 million in sales in January 1. Combined with the December announcement, the total exceeds $5 million in just three months. Not sure, I have the whole list of people out there but some of you have said did you wait to announce around the time the call.

If the answer is no, we didn’t. These things just happened in the last six or seven days for us and for those of you have called me, I have told you how we are working on stuff. Some of which is pretty big and we’ve had a couple of things break very nicely for us over the course of less seven or eight days.

Let's put the $5 million that we talked about in perspective and just going to throw some statistics value here. First the $5 million is 50% more than our entire year revenues for FY 2012. The $5 million that we have announced in just three months is about 40% of our entire year’s revenue in FY 2013 and it is over 80% over the orders we received last year.

Sales over $5 million a quarter is also revenue rate that can -- that can sustain the company well into the future. Could we promise that sales will continue at this rate? God, I love too but of course we can’t. And you would likely be skeptical if we did but we can promise you this. Everything we've accomplished so far is only a fraction of the opportunity that remains in front of us.

Becoming qualified for air cargo screening in the United States and receiving the STAC certification in France were important steps. But truly they are just the beginning. The current TSA list of certified cargo screening facilities in the United States includes fewer than 600 locations, not companies but locations, the majority of which is only one or two trace detection systems.

By comparison, TSA owns and operates thousands of trace detection units in airports across the United States. Units that they will place on Implant cycle to ensure that they are deploying the latest security technology. Your company, Implant Sciences, represents that latest technology and we're pretty bold in terms of how we feel about our technology against all others out there.

Given this, some of you may be wondering why we made air cargo qualification our initial target. We try to explain this before but I think we understand it for our better today because we have some other things we can point to. Part of the reason is that the air cargo qualification was a much faster track for us to get established with our new technology.

The cargo qualification created a springboard for the larger checkpoint and checked baggage opportunity. Checkpoint meaning passenger where we all walk through before we go to an airplane, where there are numerous steps beyond laboratory performance to become qualified. The progress on some of which we've been reporting to you along the way.

One may also question why is it necessary to meet a large number and different set of operational acquirements that were not part of the air cargo qualification process. The answer is quite simple. The end customer for passenger checkpoint and baggage hold is the TSA, Transportation Security Administration and they are solely responsible for all of the security technologies deployed across aviation security.

This includes seamless integration of these diverse technologies into a holistic network security system and pursuing Air Cargo first, we were able to focus our resources on the base performance of our system, which included aspects such as protection, false alarm rates and throughput.

Once we established an impressive record in the core performance of our detection capabilities, we will then be able to focus on the implementation and testing of the additional capabilities required for checkpoint and baggage and not unchecked baggage.

Mainly these are operational utility, secured network capability, and this is -- the acronym is called STIP, which is Security Transportation Information Protocol and finally the integration of the product into the overall system. Today this is progressing at a good pace that is very consistent with TSA's expectations. And we have had numerous meetings with TSA officials over the course of the last six months.

The other part of the answer is that we believe procurements of trace detection equipment by TSA would occur somewhere between late 2013 in mid-2014. We also knew there was a hard deadline approaching in the air cargo screening market that we would have run the chance of missing completely if we had not pursued air cargo approval and qualification first.

In hindsight, we've done absolutely the right thing and the growing momentum in sales and credibility with our customer is validation. Also evidencing this is the fact that TSA checkpoint hasn't made any purchases in the last year.

In June of 2013, after we completed the laboratory approvals for the checkpoint QPL. We entered into Phase 2 of the valuation known as TSIF, which -- TSIF which stands for Transportation Security Integration Facility and this is an actual facility located at Reagan National Airport in Washington DC and it's a markup of a checkpoint but is used solely for testing of equipment.

It is here that those features of usability, operational reliability, network capability and information technology security are assessed and analyzed. Well, we are not authorized to publish any results from this phase of testing and many of you have called me and asked how we've done with this. We’ve stated boldly today we’re very proud to report here that we've successfully completed and cleared the critical piece of just TSIF objectives in early January 2014, just last month.

As of today, we've entered into the final phase of testing for the TSA checkpoint QPL process and this is referred to OT&E operational test and evaluation. And if you recall in the November call, we talked about this little bit back then.

We are in a process right now of installing and training TSA transportation security officers known as TSOs at two major category X airports. We’re not permitted to divulge which airports have been selected by TSA. For those of you, who are frequent travelers may well encounter our equipment in your travels domestically.

We expect that the OT&E phase will last a couple of months and will be followed by a detailed government review in reporting period by TSA that can last an additional couple of months. Our summary assessment in all of this is that this timing will position us well for the next TSA trace detection equipment procurement.

We are also pleased to advise the timing details here is consistent with our report to you back in November 2013. In our last call November, we remarked that depending on the timing of checkpoint qualification, our annual revenues could grow from $12 million in FY 2013 to $17 million to $24 million in FY 2014 this year, the year that we’re in.

I’d like to provide an update on upper deck projection while we still believe we are in a position to receive U.S. government orders measured in millions of dollars and believe we may see activity in this area by the end of our current fiscal year. However, the timing of these potential orders is very difficult to predict.

For those of you have been with us for the last four or five years, we have executed on most if not all of the things that we've talked about but doing it in the timeframe that we talked about has been difficult because of the many governments and some of the bureaucracy that we had to deal with.

We have more confidence that U.S. government orders will contribute positively to our results, just a question of how much will we see by the June quarter, how much will we see by the September quarter. We are prepared to say as we feel very confident about this September quarter which is the first quarter of the company's fiscal 2015 and we just got to have to see as we go through the next couple of months and how long it takes to get these reports, get on the QPL, Qualified Product List, et cetera et cetera before this activity is visible in sales.

We had a recent visit from Senior Members of the TSA technology and the acquisition teams as well as the Canadian TSA, also known as CATSA, C-A-T-S-A. And they strongly encouraged us to keep our focus and we were given some very, very strong accolades in both our innovative technology and perhaps more importantly our approach to them as the customer.

In a nutshell, we believe we are taking all of the right steps to establish sustainable new products in the industry to meet the current and future needs of these critical customers. Furthermore, we believe our technology represents a platform to meet and address a threat potential in the next 5 to 10 years, which is what these agencies are looking for.

Beyond TSA and also CATSA, we are currently in active testing with two other branches of the U.S. government. We anticipate that these tests started during the second quarter, will be complete before these agencies prepare their new budgets. This turns out to be a case where sequestration, naturally help us in a long run. As the organizations work to make up for the purchases deferred due to the recent budget delays that we saw in U.S. government.

We also continued to pursue other international approvals and certifications. While, no one of these is likely to have the same projected revenue impact as the TSA checkpoint and checked baggage qualification, each provides significant additional opportunity for the company. These incremental approvals are essential for us to achieve in our journey from a capable to a credible and ultimately a globally competitive company.

All of the activity we discussed here positioned us very well for negotiating an extension of our credit line with DMRJ, well in advance of its previous due date of March 2014. Last November if you will remember, DMRJ agreed to extend our credit line to September 30, 2014, we had the pleasure of working with DMRJ for a long time now and we have more time and again on how valuable their guidance and advice has been to us.

I'm sure you all know there are some pretty smart guys. They know quite a bit about making money. I think they know a lot about picking good companies and winners and hopefully, we will be one of those companies. I feel that we are already. But it should tell you something. When we say that this extension that we negotiated last November was one of the easiest negotiations we've had. And we believe that was because of how impressed they were with the progress we were making in the opportunity that they saw in front of us.

As always, we thank them for their continued support of the company. We also thank you, our investors for your loyalty and your patience. It’s been a longer road than we thought. When we set out on this journey, we knew we were attempting something that was very difficult. But we also believe it was the best way for us to build value for your shareholders.

We remain as convinced of that as ever. We used to be a small, scrappy challenger that’s transformed into a growing proven performer who's wrecking quite a bit of havoc for the entrenched competitors. These competitors often talk about their certifications and qualifications. Well, we have those now too. And we also have a little bit of difference in our product. We don't have a radioactive source. We clear down to it. We have automated calibration.

Recently, a competitor mentioned having sold 3,000 units of one of their models. While, we’ve sold nearly 2000 of our H150s. Our competitors announced large orders. Well, we’ve announced a few large orders too and every large order -- in fact every order we get is cutting into their market share in addition to creating new demand to grow the markets with our new technology.

We can't promise to make specific revenues by specific date yet because of the volatility in our business. We will need to land a few large contracts and delivery orders to drive the better level of predictability and a greater level of underlying consistency in our results. We will do this and are close to getting there.

History has proven that we can't promise that everything will happen as fast as we wanted to as I mentioned a little while ago. But we can promise that we show up, ready to work hard everyday and we are determined. We have the talent and the technology to succeed and aren't the only ones who believe it today.

We thank you for participating in today's conference call and for your continued interest and support of the company. And we are going to take your questions. But before we do that, we will also extend an invitation to each and every one of you to come visit us here in Wilmington.

I probably should keep a list, an account of how many people actually do that before each call. But we probably had about 15 folks in the last 90-days to have come in and visited us. And I know we have a couple more visits. We will schedule one as early as next week with some of our investors. We believe you should see the facility, meet with all of us, ask us your questions because if there's one other thing that I think we have attempted to do is to be as transparent as possible with all of you.

With that, we would be glad to take any questions anybody might have. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Mark Jordan with Noble Financial. Please proceed.

Mark Jordan - Noble Financial

Good afternoon, Glenn.

Glenn Bolduc

Good morning.

Mark Jordan - Noble Financial

Couple of questions related to TSAs, do you have a sense of what when they come back into the market to buy, what might be their needs over the next 12 to 18 months?

Darryl Jones

I’m not sure we are allowed to about with that. I’m not sure we are allowed to discuss what we think it is. But there is sizable amount of our units to be recapped. I’m not sure if you can hear me, Mark. This is Darryl Jones speaking.

Mark Jordan - Noble Financial

Yes. Okay. Is there any way to sort of scale that in terms of the range of units that they might be looking to replace? Again, they do weigh and there is a lifespan that’s relevant here. Could you talk about how many units are in the last year of their normalized expected life?

Glenn Bolduc

I can tell you the risk of this. Some of this is just public knowledge. Typically, you can look at what has been reported in the past and that the scale that they have upped the gear before has been from hundreds and hundreds if you will to thousands and it just varies. So that’s only a prediction. We hope that it will be the next time they procure.

Darryl Jones

And they never tell you, Mark, what they are going to do is they just announce an RFP and you just respond to the RFP.

Mark Jordan - Noble Financial

Aside from --

Bill McGann

Bill has a comment. Hey, Mark. How you doing? So the other thing that’s somewhat public knowledge is their total installed base for the TSA checkpoint is many thousands of units. So what Darryl is talking about in any given delivery order maybe, many hundreds to low thousands as a fraction of the total installed bases, they sort of roll over on an annual basis over many years to be kept free.

Glenn Bolduc

As I recall, Darryl alluded to numbers that were published and we looked at about five or six year period and it was at least 600 and up to as many as a thousand in the year, that kind of range. I don’t have that document in front of me right now, Mark. But I know that that documenting exists.

Mark Jordan - Noble Financial

Okay. Could you talk a little bit about sort of mechanics of TSAs purchasing process? I know obviously you have to get on with QPL, but do they tend to purchase off of individual competitive contracts, do they use some IDIQ, do they buy off of your TSA list? And where are you in establishing whatever facility is necessary to be able to respond?

Glenn Bolduc

Sure. They do work off an IDIQ. And I’m going to answer this question at 40,000 feet and then, I will ask Darryl and Bill to jump in and put some color into it. For those on the call that aren’t familiar with that term, IDIQ stands for indefinite delivery, indefinite quantity. And it’s very-very similar to what older guys like myself would remember to be blanket purchase orders in which case, you would negotiate all of your terms upfront and you would negotiate a document that would be for a very-very large number of units, a very large number of dollars. And then as units were needed, they would just buyoff of that and there is not an individual negotiation when they need units at a particular airport. That negotiation would cover TSA’s needs, which covers about 480 commercial airports across the United States. And we are familiar with this document, we know what it is. And we hopefully, it will be in process with one of those, very-very shortly.

Mark Jordan - Noble Financial

Okay.

Glenn Bolduc

Do you anything to add, Bill?

Bill McGann

Nothing. I think that’s adequately low.

Darryl Jones

I’m good with that.

Bill McGann

Okay.

Mark Jordan - Noble Financial

Okay. Just two related questions. One could you tell us what the backlog level is? Obviously, you’ve announced a lot of business here. What was the backlog at the end of the quarter if you were to roll in sort of the awards that you’ve had here recently, where does that stand? And then secondly, Glen, you did talk about the difficulty in estimating this approval plan to come down, was it intentional that you did not update the potential range of $17 million to $24 million because of that uncertainty coming right at the end of the -- towards at the end of the fiscal year?

Glenn Bolduc

I’m going to answer the last question first and then, I will go into the others if that's okay, Mark? Back in November -- as of our last call in November, we had meetings with TSA in September and October and then we ended up in a follow-up meeting with them in December where other things were more clarified for us. And what we were pointing to was something happening with the approval process in the March, April timeframe and while we believe we have a chance of being done with OT&E in the March, April timeframe, the report writing that TSA and other agencies of our government will undertake is going to take a little bit longer. So we do think that that will be completed by June. But the real question is how much time does that give us to do anything where our fiscal year ends on June 30th.

So what we are looking at now is we are very, very positive about the process right now where we stand, the performance of our product, the relationship with TSA and everybody else involved in this. But we run up against time and it's not too different from -- it's not too different from a lot of what we've experienced in the last four, five years here. Lot of you lived through the India MoD contract with us where we booked it, I think in 2009 or 2010. It didn't ship until 2012.

Bill McGann

Bad example.

Glenn Bolduc

Bill just said that’s a bad example. He is right, it is. With regards to backlog, our approximate backlog at the end of December was about $3 million. You can see the orders that we booked so far this quarter. We’ve talked a little bit about them. They're well over $3 million right now. Some of those have shipped, but our backlog total is a number that’s in excess of $5 million. And if you ask me to range it, I would say $5 million to $6.5 million at this point.

Mark Jordan - Noble Financial

Yeah, great. One last question, should stock comp expense be flat at about $700,000 a quarter moving forward now?

Roger Deschenes

Yeah, Mark, it’s still going off now. So that would seem like a reasonable number going forward.

Mark Jordan - Noble Financial

Okay. Thank you very much.

Glenn Bolduc

And that is a non-cash hit too, yes. Okay.

Mark Jordan - Noble Financial

Right.

Glenn Bolduc

Thank you, Mark.

Operator

Our next question will come from the line of Joe Munda with Sidoti & Company. Please proceed.

Joe Munda - Sidoti & Company

Good afternoon, Glenn. Can you hear me?

Glenn Bolduc

How are you doing, Joe?

Joe Munda - Sidoti & Company

Glenn, love snow in New York.

Glenn Bolduc

Yeah. More to come to couple more inches.

Joe Munda - Sidoti & Company

All right. Glenn, I wanted to touch with you on the Platinum Partners, credit agreement and relationship with them. And it seems like the line is increasing here. And I just wanted to get your sense of where, how much more you think you’d have to draw on this line and how do you begin to pay it down?

Glenn Bolduc

I wish I didn’t have to draw anymore line and I am sure the guys at Platinum, probably would agree with that, would like that as well. Fortunately, for us, they remain very supportive of the company, and I don’t know that we’ve ever had a better relationship than what we have with them right now. They have been close to us throughout the process. And over the course of the last quarter, they have been able to see much of the progress that we’ve made, particularly with all of these approvals and qualifications that we’ve achieved. And my belief, probably a better if they were to say it, but my belief is that’s providing them with more comfort for the loan, for the debt that they have -- for the amounts of money, for the debt outstanding today. I am thinking about my next thought as I am finishing that, so I am sorry, Joe.

Relative to how much more we will borrow from them, we become cash flow neutral, somewhere around $5 million to $6 million a quarter revenue line numbers. You can see what we’ve done in the last three months and that was, one of the things we wanted to draw to your attention, from December 1st until today which is really just 2.5 months, we booked over $5 million in orders. Maintaining that without the passenger checkpoint and regulatory approval, it could be a little difficult.

Once we achieve passenger checkpoint qualification -- passenger checkpoint regulatory qualification, there should be some more predictability and sustainability in the numbers that we are producing. We are very, very confident, we can’t guarantee anything obviously here, but the people sitting around this table right now are the people who are working with TSA and all of the people who work, who are working on this project day in and day out and we do feel very, very good about our product.

Relative to the line, I would like to think that by the time we negotiate an IDIQ with the government and we start shipping units against that IDIQ, the company will certainly be self-sustaining and then obviously the next step in the process will be to begin paying down on that line. And I would hope that that would be sometime during calendar 2014, so between now and December. And that we do feel good about. Could it be accelerated? Sure. Could it be delayed? Sure. We’ve seen both of those things happened. If there is one thing I’ve proven is, it’s very difficult to predict with much reliability some of these dates, but certainly as we get closer on these approvals, it will get easier for us, Joe.

I hope I am answering your question. If I am not Joe, ask it different way, and I will try to make it a little clearer.

Joe Munda - Sidoti & Company

Okay. Let’s say all that stuff comes to fruition, you get the IDIQ, but do you have the working capital or the inventory necessary to fill those orders, where you’re going to have to continue to draw line to fill those orders and then you go ahead and start to pay down?

Glenn Bolduc

Well, DMRJ or Platinum has been terrific with us in terms of allowing us to build the inventory that we need to meet orders and they have assured us that they will continue with that, okay. You said you asked your question and what you said was, assuming the qualification occurs and the IDIQ comes to fruition, under that scenario we are very, very comfortable that the dollars will be available and that we will be able to procure the inventory. We’ve begun with our orders for long lead time items already.

Joe Munda - Sidoti & Company

Okay.

Glenn Bolduc

Okay. And I don’t know if I can make a more confident statement than that, but we have, there are some lead time items fortunately for us, they are among the lesser expensive components than our equipment, but we have begun to buy those in quantities, I should say in significant quantities.

Joe Munda - Sidoti & Company

Okay, that’s helpful. So you expect an answer back to government, you expect an answer by the end of calendar ’14, correct, is that safe to assume?

Glenn Bolduc

Calendar ’14, that’s December I think…

Joe Munda - Sidoti & Company

Yeah, I am sorry fiscal ’14?

Glenn Bolduc

Yes, fiscal ’14. I should have said yes to the first question, Joe, yes. But it is the way it will work, we are in the OT&E process, an OT&E will be a 30 to 60 day event. Assuming all goes well, I mean, if you put it a 45 days, 45 days is going to put us out to April 1, then you got to report that has to be written and they told us that’s going to take 30 to 60 days and they told us don’t expect 30, don’t expect it to be closer to 30, expect it to be closer to 60, okay. And if we’ve seen the way some of this stuff works, we’ve seen that stuff delayed and that becomes very, very frustrating to us. But you can fill in the dates around that that brings us out around the May 31 to June timeframe.

Bill McGann

Hey, Joe, this is Bill, how are you doing? One way to look at this and sort of clear through all of the acronyms and stuff is what we’re really trying to do is get to all the final technical hurdles which is just the operational testing, allow the government to basically roll everything up and they are reporting and access the whole process we’ve been through and establish negotiated base contract. And that we hope to get down the hatch if you will around about the time of our fiscal year if all goes well. From there as Glenn described, once you get that base contract IDIQ up there, then you can very quick cycle as Darryl was describing quick negotiations on delivery orders from that point. We start to be able to generate revenue from sales. So the really goal here is to complete the technical pass on operational testing, negotiate a base contract and get it agreed on both sides and we go from there.

Joe Munda - Sidoti & Company

Okay. That makes sense. And then I guess my final question is for Roger. As far as gross margin is concerned Roger, is this a level that’s sustainable going forward, or is it the baseline that we are looking at?

Roger Deschenes

Joe, I would say that with the increased volume we are hoping to see the margin should improve quite a bit. I think we are at 37% which would be in the mid-40s and who knows, I mean we got initiatives here to reduce cost out and the product. So I would say that would be the base and we will see some improvement from that going forward.

Joe Munda - Sidoti & Company

Okay, thank you.

Glenn Bolduc

Thank, Joe.

Operator

(Operator Instructions) Our next question will come from the line of [Sean Sullivan]. Please proceed.

Unidentified Analyst

Hey, Glenn and Bill and Darryl, everybody, can you hear me?

Glenn Bolduc

Hey, Sean, how are you doing?

Unidentified Analyst

Good. And we’re freezing down here and near your daughter’s home.

Glenn Bolduc

So you are not in Florida?

Unidentified Analyst

No, but I’m going down there next week, tomorrow.

Glenn Bolduc

We don’t want to hear about that, we’ve got 12 inches outside and it’s still coming down here.

Unidentified Analyst

It’s a miserable day. I have a couple of question related. I think that from my understanding and I think from other investors understanding, I want to know a little bit more about TSA what its concerns are and what it’s looking for? The first question relates to the radioactive source that is in the competitors equipment, are they concerned or they put out any proposals for the radioactive elements are eliminated, in other words are equipment with high radioactive elements is what they want?

Glenn Bolduc

Sure, I am going to ask Bill to answer that question.

Unidentified Analyst

Okay.

Bill McGann

Hey, Sean, how are you doing?

Unidentified Analyst

Good. Thanks.

Bill McGann

Good. So look our non-radioactive ionization source is a huge technology linked forward and a big operational benefit to some of our customers but not all. It really matters a lot in European markets and in Asia markets and places like that. In the TSA and you asked, it’s interesting technology to them and they are fascinated by what we can do with it, but it’s not really a big regulatory burden for the TSA. So we don’t basically use our non-radioactive sort of marketing message, selling strategy against TSA because it’s not really a benefit to them, the requirements for using radioisotope sources in ETDs and U.S. is not a big deal. You go to France, you go to Germany, you got to other places in Asia, it’s becoming a very, very big game changing deal. So we kind of segment our technology and apply where it’s best served.

Unidentified Analyst

Okay, great. Thanks. The qualified competitive systems from Smiths and what’s the other competitor?

Bill McGann

Morpho.

Unidentified Analyst

Morpho, yeah. As of the end of the year, as of actually January 1 of this year, many of those units were no longer qualified as I understand it, but yet they are still operational. I would think that as they were no longer qualified, they have to be taken out. Is that correct perspective or what?

Bill McGann

So Darryl and I are looking at each other, maybe we will tag team you a little bit here. So first of all, what I believe here referring to is the cargo ACSTL list, the qualified products with the January 2014 deadline. So stay focused on that. And your answer is, yes, there were some of the competitive products that were previously grandfathered had to be dealt with. We without providing specific information can say that we have captured some of that share for sure with replaceable units of our B220. And so your assessment is that if unit is not requalified on the new standard, they can’t be used as accurate, but those competitors, we never underestimate any of our competitors. Those competitors will have their newest products always up-to-date and qualified. They maybe struggling sometimes or whatever, but you’ve got to assume they are going to get there and that’s what we do.

Darryl, do you to add on to that?

Darryl Jones

Yeah, what they promise to do, they mean TSA with randomly go to sites and see the equipment, see and look at the equipment that they are using to make sure that they are not using ones they were grandfathered anymore. And if they were, they would levy fines on them. So that is taking place. But probably what’s not well understood is like Bill said, there are the competitive products, they have some products that are qualified and can’t still be used. So our job is to go out there and unseat them and we’ve done I think remarkable job being in the fact that in a very, very short time, two months of having our qualification we’ve captured released 10% market share.

Unidentified Analyst

Now TSA here that we are an American company and other two are European companies?

Glenn Bolduc

Sean, do we lose you?

Unidentified Analyst

Can you hear me?

Glenn Bolduc

Now we can. You started asking the question about American company and then something happened.

Unidentified Analyst

I think the storm got to it. Anyway the question is, does the TSA which is part of the American government, do they care that IMSC is an American company and that we have American employees and we manufacture in the U.S., does that add to those anything besides [turning] points?

Darryl Jones

We certainly hope it does, but the U.S. government has to act very independently and fairly when they work in this process. We feel that we have been afforded an incredibly fair shot at everything that we’ve done here. We certainly have received a fair amount of attention from these folks from the highest levels within the agency and we believe we are representing the interest of our company and our shareholders very, very well. And we believe it’s being received equally well by the members of the U.S. government that have seen us. You know we have been to Washington to visit with not only the Massachusetts delegation but other states as well. We’ve probably been in 2530 congressional offices in the last 4, 5 years and we have always felt that we were looked upon favorably.

Now I don’t know how they treat the other two companies if they get that kind of attention, and then now I just know how they treat us. And it's been a very, we believe it's been a very fair process, albeit slow, but it’s been a fair process for us.

Bill McGann

Hey, Sean, this is Bill again. Another way to tie some things together from what we’re reporting to you today is, Roger went through a lot of numbers early on and sort of went over the product mix year-over-year where the numbers go something like last year in our B220, our newly approved product sales something like 3% of the total versus this year which were 60.

So there is huge -- and by the way the decrease in the H150 by the way it’s a decrease because of one big order that we finally filled. So it’s not really, I mean, the H150 is remarkably strong workhorse product. We actually maintain pretty strong price given its age as a product. But in terms of product mix, the really notable thing is that, we really are putting our new flagship product upfront and it’s been taken, it's been taken by the customers in the market.

So, that coupled to the 10% penetration where we had zero share last year in cargo and 10% this year in a fraction of a year I think indicates that the product is doing what we said it would do, the customers are appreciating its benefits. Whatever the radioactive source or otherwise, it was starting to become a really credible and competitive player in this highly competitive industry. So there's numbers to support it. The numbers aren’t grown as fast as we'd like maybe, but they are growing.

Darryl Jones

Let me add to that because I think it’s important to recognize how we’re doing versus the market trend. You look at the fastest growing segments for you today there will be critical infrastructure in aviation. Just in the last two years in critical infrastructure, we’ve grown by about 55% CAGR if you will. And then aviation which is obviously a big sector, we’ve gone a 101% just in the last few years.

Glenn Bolduc

Let me -- this is Glenn again, let me put a little bit different spin on this and we’ve done a lot of these calls and from time to time we thought, we’re going to be further along with approvals and qualifications etcetera, etcetera. And coming into 2014 or fiscal 2014, year ago we believed we were going to be selling to the U.S. government by now. So when we built our budget that was obviously a big number in our budget and then we had all these other sales that we’re looking at.

I believe we are above what we’re projecting for those other sales at this point. And certainly the last three months has helped when we booked over $5 million, but that $5 million were on deals that we start going after on December 1st. Those were deals we started going after last March, April and May. And you’re just starting to see that fruition of the sales efforts. And we’re not stopping with that, our pipeline today is bigger than it's ever been.

The number of deals that we’re going after continues to grow. What we got to do is get the customer to yes, that’s always the challenge. And I think it is one I’d like all of you to walk away from this call with is that look at the last three months, look at little over $5 million in sales and you got to realize this company has been able to get customers to yes. We've been able to get governments to yes on the qualifications. We've got one major qualification that still left and that is the passenger checkpoint and check baggage. And when we get TSA on that qualification, we are no less than [Perry Pursue] with the competitors out there.

And then what I’d like to say is we have the non-radioactive source, we have the fastest clear dark. We have the best calibration system. We are an American company and I can pitch that very, very well. But the key thing is, you got to get the notches in your belt here where you get these successes. But going back to when I started to talk about is the fact that in terms of what we expected to do we’re at non-TSA U.S. government sales. We’re ahead of where we though we would be today and certainly the last three months has helped us to achieve that.

Unidentified Analyst

I think it’s really important for all of those to understand that they’re dealing with the government and nothing ever happens especially to when it to happen. So I’m patient, hopefully most of the other investors will be patient because good things are happening. I had one last question. And that is when you mentioned integrated systems, which brings the question. Is anybody sniffing around to buy the company because you would be perfect, yeah -- we will be perfect match for companies, in fact some like down the road from you as I am aware of, so what is going on there that you can talk about, I know you probably can’t about it much?

Glenn Bolduc

We all know who all the obviously players are and lot of people keep track of us as to the progress we’re making with the various initiatives that we have, but there is nothing to report on that Sean. This is more situation where, we’ve got to prove ourselves, we’ve got to get to the point that we have this final qualification that we have a sustainable sales level, that's reflective of the industry that the marketplace that we’re in. And we believe, we can achieve those things. And even if there was something, I can't talk about it. We are solely focused right now on the things that we’ve talked about, which are the final qualification for TSA and just driving sales, sales and more sales. We do have some R&D going on for some new products, but the qualification and current sales are the most important thing for us right now.

Unidentified Analyst

Thank you very much. That answers the question. But could you say a little bit more about upgraded 150 and some of the other initiatives you have in terms of upgrading your product line?

Glenn Bolduc

I’m going to take it at the 50,000 foot level. With the extended time it's taken for a qualification for passenger checkpoint, we’ve thrown a lot of resources at that problem. And unfortunately, we’ve had to take them away from [Todd’s] development team there for the H150 upgrade as well as the IMS, QMS. But there has been progress made. And I’m going to ask Bill to address the technical progress that we’ve made.

Bill McGann

Yeah, sure, it’s a great question, Sean. So the progress is real, it's very measurable. We are actually having an internal meeting next week to sort of reset the bar on expected prototype deliveries into Darryl’s hands for production of the new H150, so the projects going well.

We haven't got all the performance attributes tested yet. There are little bit behind on some of the software test because we’ve been working so hard on the TSA qualification. So, the one thing I'll share with you that you’ll be interested is we do have the IMS mass spec is in our benchtop B220 here in the labs. You can come see it. I’ll show it to you. It actually works.

Unidentified Analyst

That’s better.

Glenn Bolduc

We showed it to the TSA and the CATSA folks a couple of weeks ago. They were fairly impressed. We did a pretty good demo for them, which I won't go into more details. It was actually a fairly impressive demonstration of the kind of future threats that they anticipate encountering where this technology fits like a hand in the glove to those intended future threats. So the systems up and running and it’s going into what I would call a new product development, commercialization phase. That’s a long process to make a system robust but we have a system here working. In fact, we got two, two here working.

Unidentified Analyst

That’s terrific. Hey, thanks. I’ll let somebody else ask the question.

Glenn Bolduc

Okay. Thanks, Sean.

Operator

Our next question will come from the line of [Nicholas Goodman]. Please proceed.

Unidentified Analyst

Hello, gentlemen. How are you?

Glenn Bolduc

Good. Hi, Nick, how you doing, haven’t heard from you for a while?

Unidentified Analyst

Yeah. I’m glad to be on the call. I want to clarify something you said earlier. You said, right now, you’ve gone from 0% to 10% of, what I’m assuming is the cargo market and that was $2 million in revenue, is that correct, did I hear that correctly?

Glenn Bolduc

You said, 10% of the cargo market. We are taking share in the last two months.

Unidentified Analyst

And I think, Glenn mentioned that dollar amounts that go along with that was really down to $2 million, is that right or is it a different number?

Bill McGann

Sure, Cargo. No. I said that we did $2 million in sales in December, Nick, and then another $3 million in January and February.

Unidentified Analyst

Okay. Good. Yeah. It wasn’t unclear whether or not that 10% represented that dollar amount then I thought the market was bigger than that.

Glenn Bolduc

It is bigger than that.

Bill McGann

It is bigger than that. Yeah.

Unidentified Analyst

Right. Okay, great. I did have a question regarding the current production capacity of the new facility. Again, it’s just to refresh my fussing memory from previous calls, is it the potential that you are maxing out of your current in-house production, would it be 100 units per month capability or was it 200?

Glenn Bolduc

So, Nick, I’m going to again do a 50,000 foot, and then I will ask, Bill to more narrowly focus in on it. In the new facility, we about five times were manufacturing space, if you will. And what we were comfortable in producing in the old building was probably about 25, 30 units a month. And we moved into the new space knowing that we needed increased capacity. I will ask Bill to do, because Bill manages the manufacturing processes to comment on where we are with regards to manufacturing.

Bill McGann

That’s a great question. So sort of rallying off of that point, so we have much needed space to ramp-up. Brenda and I and the team have put together that manufacturing plans being implemented. What I’ll say to you is we presented that plan two weeks ago to some of the key visitors from our customer base and review that with them. And the numbers that you're talking about are rational over the next. We will be ramping up from the low 10s of units per month to 150 to 200 units a month, if need be.

And we've got a combination of in-house core technology manufacturing, a little bit of outsourcing on the non-critical subassemblies and doing some all the final test in the inspection in the house. We have the space to do and we’re building the team to do it. They have a very strong base team today and we feel very comfortable. More importantly, Nick, though I have never spoken to you before, our customers seem pretty happy with what we show them, so that’s an indication. And these guys, they look at a lot of manufacturing facilities and they were kind of pretty, I don’t want to use the word impressed, they were pretty pleased.

Glenn Bolduc

I think they were impressed.

Bill McGann

Okay. So, I’ll take it.

Unidentified Analyst

Yes. And so, given that, how much of the production capacity, do you have the contracts that you having on the new announcements that we just heard about in the last couple of weeks. What is the actual production capacity being used right now as of today, can you tell us that?

Bill McGann

I will just say -- it’s Bill. I will just say that we haven't had a problem with meeting the orders that we get. And so, we are able to ramp -- as Bill mentioned, we will be able to ramp up as quickly as needed to get these much larger orders that we’re going after. It hasn’t been a problem at all.

Unidentified Analyst

Right. No. But I’m not asking about your ability to ramp up. I’m curious about at what level of things are cracking at present?

Glenn Bolduc

All right. So, currently, Nick, we’re in a position where we can produce whatever the sales team brings to us. If you're looking for physical space, we have a facility that can produce 200 units a month, all right so. And that space is here today. We don't have orders for 200 units a month right now.

We hope we will at some point in the near future. But in terms of the build out for people, okay. Now what we’re doing is we’re meeting our current needs right now. The model was very scalable. So, I want to be a little careful here with what we’re talking about but I want to make sure I answer your question too. So can you refine it a little bit more?

Unidentified Analyst

Sure. How many units per month is the company rolling out right now?

Glenn Bolduc

Whatever demand we get we can meet.

Unidentified Analyst

Okay. Okay. I get what you’re saying, Glenn. Let’s talk about cargo sales, obviously we’re looking, we’re waiting for TSA to add so the company can go to the next level. But as a long-term investment in the company, I certainly have been hopeful that you would be able to have sufficient cargo sales after getting the various approvals that would sustain the company until such time as TSA or other governments around the world would be making larger purchases.

And I guess, based on the report that we got today and previous reports, we’re still operating in a loss, so that's not happening. And I'm curious if you could talk about the cargo market and what the landscape is going forward. I mean, 12 months ago, we talked about names like the large shippers FedEx, UPS, DHL and those kinds of businesses. And you’ve cautioned us about a 12-month sales cycle, what that was over 12 months ago and we really haven't heard anything with purchases from entities like that. So can you give us a little texture on that?

Darryl Jones

So this is Darryl. So number one, there’s a couple of facts that you should know. I think Glenn mentioned in his report. You mentioned three major air cargo providers. And we are servicing two of those providers right now. Second fact, we just got a call by the end of October and the fight has been, you have to be approved first and then you have to be qualified. And so, if your a competitor is that what you would throw out there and says, we are asking if they are qualified. And so that was the fight. Well, we are not qualified, so the game has just started if you will.

And we haven’t -- we are actually going after a very active market. And I think in the last couple of months, we’ve done a remarkable job to gain market share in just two months now. That’s the third fact, we said this many times before. Once you get these qualifications, the step of approval, it opens up the rest of the world and that’s exactly what’s happening right now. We can go in and walk in and say, we are TSA qualified in the space and so. Now that is happening, so you are going to -- of course see more, I hope more market share being taken away from our incumbent by us.

Unidentified Analyst

Great. Okay. Thanks for answering that. I have two more questions if you guys don’t mind. One is relating to sports arenas. Also last year, there was a lot of talk about meetings with various entities and professional sports. And again, nothing has really been announced since then. I did understand a competitor was able to play some of their equipment with Super Bowl and I’m just curios whether you can tell us about sports arenas?

Glenn Bolduc

I think I probably told you how we demoed our equipment for MetLife stadium couple of years ago and one of the requirements that they placed on it was we had to be TSA approved and qualified. And that’s under the passenger and the passenger checkpoint qualification process because we reached out to them as well and got pretty much the same answer again. So we were precluded unfortunately from bidding on that contract.

Unidentified Analyst

(Inaudible)

Glenn Bolduc

We are kind of protecting a pretty big sport venue right now called Sochi.

Bill McGann

Right.

Unidentified Analyst

Right. Well, that’s great and we are -- that's why I’m glad to hear that. I certainly was expecting it to be a larger award though (inaudible) but it was a good sport. One other question I think was asked before but just want to be clear on it, in terms of bundling the technology with other company’s equipment, again names like L3, Raytheon, Northrup, Boeing, any, further thing you can tell us about how that’s going and what that might look like or project that in the future where we might see some of that?

Glenn Bolduc

Nick, I think we answered that question already. But bottom line is several of these companies will look down on us from time to time, ask us what we are doing but we really have nothing to report other than the fact that there are some discussions from time to time.

Unidentified Analyst

Okay. Well, thank you for taking my questions. I know sometimes I asked you tough things but you know as an investor I just want to be clear on the company I am investing in and I’m a long-timer supporter and look forward to great progress in the coming months. Thanks.

Glenn Bolduc

Thank you.

Bill McGann

Thank you

Unidentified Analyst

Bye.

Glenn Bolduc

Bye.

Operator

Our next question will come from the line of [Michael Glover]. Please proceed.

Unidentified Analyst

Gentlemen, can you hear me?

Glenn Bolduc

Yes Michael, how are you?

Unidentified Analyst

Good. Thank you. Let me just see if I understand the numbers. Basically, the sale of last year or booked last year with the Indian government was such an enormous order is that what we have pictured in the last quarter is smaller than that and that’s why we are seeing lower revenue, lower net revenue. Am I understanding that correct?

Glenn Bolduc

Yes you are.

Unidentified Analyst

Okay, another question. When it comes to the purchasing by the government and what I am speaking of these the U.S. government, do you use the term as IQID or IDIQ?

Glenn Bolduc

IDIQ, indefinite delivery, indefinite quantity.

Unidentified Analyst

Correct. Okay. Now my question is concerning this is, you said that you had during discussions with two other departments of the government. Would this IDIQ, would it be something that is established for the entire federal governments or is this what you are speaking about is for the TSA and then you have to do another document for say the Department of Navy or Homeland Security or whatever. As far as this IDIQ total for the entire federal government?

Glenn Bolduc

Good question and I apologize if I wasn’t clear before. The IDIQ that we were talking about was specific for TSA, okay. So the other agencies that we would be talking about that would be a different negotiation.

Unidentified Analyst

Okay.

Glenn Bolduc

And it’s not clear, it’s not clear that we would enter into an IDIQ with those other agencies. They might have specific purchases, specific tenders that they are putting out that would just be individual contract awards.

Bill McGann

And there is a government vehicle that a lot of people use, it’s called GSA and that terms are already negotiated. So people buy off of GSA as well.

Glenn Bolduc

And we are on the GSA schedule.

Unidentified Analyst

Well, I know there was a gentleman speaking before him saying I am patient and I am patient too. But I am also impatient and I just want to hear your feeling because its pretty demoralizing. I mean I believe in the company, I own the company but I have never had a profit in this company yet. And I have been with you all for a year and half and I am excited about the technology and I know that it is the key to the company.

But what really startled me is that considering you all, the management has put in place a plan to get through certain wickets we are doing these things, yet the stock price is down almost 50% from January or February of last year. And though I am not down that much, I am kind of demoralized in terms of why are not -- why are things are not happening and in the last quarter, we came out with numbers as stock dropped from a dollar to $0.77.

Now the reason why I started with the Indian sale was what’s going to happen tomorrow. And though I believe you in guys and I own the company, I am just tired to looking at my statement everyday and going, oh my goodness, what is happening. And can you address this, kind of this feeling or what I am saying?

Glenn Bolduc

Sure Michael. I will give you the best I can with that. What we have stated all along was the need for approvals and qualifications. What’s been difficult for any of us to accept is the time that it takes to achieve those. Unfortunately without those -- without those approvals and qualifications, it’s difficult to make certain sales.

There have been a couple of questions that have been raised where we have talked about our inability to compete before as we did not have the qualification. We are not given up. In fact, we are fighting with everything that we have got and we are about to receive the penultimate qualification for the company which is passenger checkpoint and approval hopefully in the next couple of months, next four or five months.

The stock price and I have done this example for few people is being created with volume that’s less than 200,000 shares a day. I think if I looked at it today the 90 day volume is about 172,000 shares. That covers buy side as well as sell side. So you probably have about 1000,000 shares that have been traded that are controlling that price. And it’s a pretty consistent number. I know the volume was up today probably because of the orders that we have announced recently.

But if you look at 100,000 shares on the numbers of shares outstanding which is about $60 million, it represents two times of 1% of the stock. So it’s not a very actively traded stock. And I can look at it in the inverse and say 59,900,000 don’t get traded every single day. And those are people who hold on to the stock and who believe in the stock and I am assuming you are one of those people right now.

We are pretty confident about what we are doing in the direction that we are going in and what we have tried to impart on you guys to the shareholders is that confidence from the recently concluded meetings that we’ve had with the folks who were controlling some of these approval processes. You will have to decide for yourself whether you continue to have confidence. We have all the confidence in the world than what we are doing and feel very-very good about where we are going with this company.

Unidentified Analyst

And let me just say that I understand what you all are doing, I really do and that’s why I’m so excited and it’s just got -- when you see the stock price and see it fall, when you all are doing some amazing things, that’s just what kind of is a bit demoralizing thing.

But let me ask you this, in terms of earnings per share, I was surprised last quarter when you all came out with the numbers that they actually have been on Yahoo! and few other places where they actually had a number for you and you will miss the number? What based on the numbers that were produced today, do we know what the earnings per share was and what was expected, did we beat it?

Glenn Bolduc

We do not put any guidance out, Michael. So it’s not a question of did we meet or exceed the number. Roger, do you have the numbers?

Roger Deschenes

Yeah. The earnings per share for the three months were loss $0.07 a share and for the six month period loss of $0.18 a share.

Unidentified Analyst

Okay. So $0.07 for this quarter?

Glenn Bolduc

Okay. Correct.

Unidentified Analyst

Okay. And then just one last thing, my understanding is that, right now we are going through the OT&E phase and we are looking at possibly getting qualified or certified in this quarter but then we wait another say 60 days as you were mentioning Glenn for a report to be generated. Now once that report is generated, is there any 60 days for the folks to make the decisions to read it and go over it.

Glenn Bolduc

Bill is going to take this but just real quick. You said this quarter, this quarter has about 45 days left to it. Okay so we are in the OT&E process and we will conclude OT&E, you will --we will not beyond the qualified products list until the reports are issued.

Bill McGann

Yes.

Glenn Bolduc

So I just want to clarify one thing that you said which is, you said lets assume we finish OT&E and we are qualified and then you start talking about the report. We will not beyond the qualified products list until the report is issued.

Bill McGann

Yes. That’s all I was going to clarify, Michael. So the qualification or the qualified product list is the culmination of everything, so the OT&E will take place, is taking place. When that’s done, the government does its internal roll up of all the reporting evaluations, the reports gets audited, reviewed by them and then upon successful completion of that they congratulate us and put us on the qualified products list.

And as soon as that happens, as soon as that happens, then we are able to negotiate a base contract as IDIQ that we talked about and once that happens then once we have base contract or an IDIQ, then the government in good faith negotiate with us for delivery audits or call of off that contract which has a minimum number of units that they will buy and a maximum number of units that they will buy in that base contract.

Unidentified Analyst

Okay. I assume during this whole process, you are -- are you all talking with TSA, I mean it’s not like a biotech company where you are awaiting on the committee to give some (inaudible) comes down, I assume during this report writing process, you all are careless, is it going?.

Glenn Bolduc

We have this close relationship as we can given that it’s a fair and transparent process.

Unidentified Analyst

Okay.

Glenn Bolduc

We have regular contact with our customers.

Unidentified Analyst

Okay. All right. Well, thank you so much.

Glenn Bolduc

Thank you.

Bill McGann

Thank you.

Operator

Our next question will come from the line of [Patrick Mayer]. Please proceed.

Unidentified Analyst

Hi, guys. How are you?

Glenn Bolduc

Hi, Patrick. How are you?

Unidentified Analyst

Good. So I appreciate you walking us through in the detail that you did earlier in the call about the, what let us up here with regards to the certifications, et cetera. It has been a little confusion, I just want to clarify. So in the same way that with the freight forwarders there is an approved status and then a qualified status, is there the same kind of things with the checkpoint, the upcoming, once you finish OT&E? I hear you guys saying that there is a reporting writing process and at the end of the report writing process, we are in the QPL.

Glenn Bolduc

Right.

Unidentified Analyst

Are you there is an approved or as qualified or is there a distinction for this…

Glenn Bolduc

Okay. Just to clarify, for passenger checkpoint and baggage hold, we are currently approved, okay.

Unidentified Analyst

Got it. Okay.

Glenn Bolduc

We received that approval back in June of 2013. Approval doesn’t put you onto the QPL, qualification does. TSA is the customer and TSA does the qualification process when they put you through the TSIF test as well as the OT&E process.

Let’s switch gears a second, go back go to cargo. With cargo, the approval process was left up to TSA. We made all the way through that. We received approval from TSA. However, the customer in that case was freight forwarders. So the qualification process was based on the experience of the freight forwarders and freight carriers around that they chose actually.

And they chose a freight carrier who used our equipment for a period of time and what they have said to us, it would take three to 12 months for qualification to occur. They began the process sometime after last January and concluded that process on October 18 if you remember when we received the qualification.

With passenger checkpoint and baggage hold, the customer is TSA. So TSA does the qualification process. But the difference being they are not going to buy your product the way freight forwarders were allowed to while we were approved. You need to be qualified before the passenger checkpoint and baggage hold product, you need to be, yes, you need to be qualified before the passenger checkpoint and baggage-hold product can be sold. Could I explain that?

Bill McGann

Yeah. Yeah.

Glenn Bolduc

Okay.

Bill McGann

For cargo, you can beyond the, what they call the air cargo screening technology list as approved then customers can buy it, okay. You cannot beyond the TSA check-bag, hold-bag procurement until you are fully qualified. That is the sort of technical trials and the operational trial to complete.

Unidentified Analyst

Got it. Well I think…

Bill McGann

Glenn, you said, if the TSA be in customer, that’s many different requirements for performance and integration across airports, there is a lot of reasons, right, that we went through earlier.

Unidentified Analyst

Okay. Thank you for that. And then you have also talked about the IDIQ? Is that one of the ways that you anticipate or is that the way that the TSA is going to buy? In other word, are we just talking about that as an example or as a definitive way that we expect to help in purchase?

Glenn Bolduc

That is the way they are going to purchase.

Unidentified Analyst

Okay. All right. Thank you very much.

Glenn Bolduc

Thank you.

Operator

With no other questions in the queue, I would now like to turn the call back over to Mr. Glenn Bolduc for closing remarks. Please proceed.

Glenn Bolduc

Thank you, Crystal. And thank you to all of our investors who are on the call. I don’t know how many of you are on, if I remember correct.

Roger Deschenes

112.

Glenn Bolduc

We had 112 of you today. I am suspecting that the storm may have had something as an impact on this. But we do appreciate your support, your questions and again, we invite all of you to visit with us here in Wilmington. I am looking at some of the names up there and a few of you have been here to visit with us and for those of you who haven’t please take advantage of that, come on in, meet all of the employees, see the equipment and see the facility and I think some of the questions you might have will be answered and I think answered in a very positive way for you. Thank you again and we look forward to speaking with you over the course of the quarter.

Operator

Ladies and gentlemen that conclude today’s presentation. You may now disconnect. Have a good day.

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