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Executives

Roger P. Deschenes - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Glenn D. Bolduc - Chief Executive Officer, President and Director

William J. McGann - Chief Operating Officer and Director

Darryl K. Jones - Vice President of Sales & Marketing

Robert P. Liscouski - Director and Member of Nominating/Corporate Governance Committee

Analysts

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Joseph P. Munda - Sidoti & Company, LLC

Implant Sciences (OTCQB:IMSC) Q3 2014 Earnings Call May 15, 2014 4:15 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Implant Sciences Corporation Conference Call. My name is Denise, and I'll be the operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now hand the conference over to your host for today, Mr. Roger Deschenes, Chief Financial Officer. Please, proceed.

Roger P. Deschenes

Thank you, Denise. I'd like to welcome everyone to Implant Sciences' Third Quarter Fiscal 2014 Earnings 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; Darryl Jones, Vice President, Sales and Marketing; and joining us remotely is Bob Liscouski, a Director of the company and a Former Assistant Secretary for U.S. Infrastructure Protection with the U.S. Department of Homeland Security under Governor Ridge.

We will begin by providing a brief financial report on the company's fiscal 2014 results for both the 3 and 9 months ended March 31, 2014. 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 so, we will try to identify these statements with words such as expect, believe, anticipate and 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 today, May 15, 2014, and stated during this conference call, as well as the risk factors and uncertainties described more fully 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 this afternoon, 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 past and present results.

A replay of today's 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 passcode 44239175.

Any forward-looking statements we make today are based on assumptions which we believe to be reasonable as of today, May 15, 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.

Again, I'd like to welcome you to today's call. Earlier today, we issued an earnings press release summarizing our financial performance for the 3 and 9 months ended March 31, 2014. And our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2014 was filed earlier today with the Securities and Exchange Commission.

Our revenues for the 3 months ended March 31, 2014 were $2,708,000 which compares with $1,262,000 for the comparable prior-year period, an increase of $1,446,000 or just under 115%. For the 9 months, the revenues were $7,023,000 as compared with $9,615,000 for the prior-year period, a decrease of about $2,593,000 or 27%.

The revenue increase in the 3-months period is due primarily to increased shipments of our benchtop our QS-B220 into Asia and Europe for use in infrastructure protection and air cargo screening and increased shipments of our QS-H150 handheld units into Latin America.

For the 9 months ended March 31, 2014, revenues -- the revenue decrease is due probably to the shipment of our order to the ministry of -- India Ministry of Defence in the prior-year period; and this is partially offset by increased sales of our QS-B220 benchtop unit, which was shipped primarily into the U.S. air cargo screening facilities; increased shipments into Latin America, Europe and the agencies of the U.S. government, which speaks to the investment we have made in our sales team and their efforts to strengthen our sales channel.

Average unit sell prices on sales of our QS-H150 handheld units for the 3 and 9 months decreased 12.3% and 3.2%, respectively. We're continuing to see improvements in our gross margin, which, for the 3 months ended March 31, 2014, was $806,000 or 29.8% of revenues which compares with $303,000 or 24% of revenues for the prior-year period. For the 9-month period, gross margin was $2,189,000 or 31.2% of revenues, which compares with $2,732,000 or 28.4% of revenues. The decrease that we've noted in gross margin dollars for both the 3- and 9-month periods ended March 31, 2014 is due primarily to decreased sales of the QS-H150 handheld units. The increase we've seen in the gross margin percentage for both the 3- and 9-month periods ended March 31, 2014 is primarily due to the decrease in stock-based compensation, which has been recorded on stock option grants to officers and directors in the September 2012 period; and this is partially offset by an increase in manufacturing personnel costs and an increase in occupancy cost as compared to the prior-year period.

Research and development expense for the 3 months ended March 31, 2014 was $1,179,000 which compares with $1,116,000 for the comparable prior-year period, an increase of $63,000 or approximately 6%. The 9-month period research and development expense was $3,601,000 which compares to $3,521,000 for the comparable prior-year period, an increase of $80,000 or slightly above 2%. The increase in our research and development expense for both periods is due primarily to increased payroll, related benefit cost and occupancy cost, which was offset partially by decreases of $78,000 and $487,000, respectively, in the stock-based compensation in the prior-year period.

Selling, general and administrative expenses for the 3 months ended March 31, 2014 were $2,845,000 which compares with $3,191,000, a decrease of $346,000 or 10.8%. For the 9-months period, selling, general and administrative expenses were $8,939,000 which compares with $17,115,000 for the comparable prior-year period, a decrease of $8,176,000 or 47.8%. The decrease that we're seeing in the SG&A for both the 3- the 9-month periods is due primarily to the -- to a decrease in stock-based compensation, which was recorded on the September 2012 option grant. And this is -- this decrease is partially offset by increases in several administrative expense categories, which are noted in detail in the earnings release and on our Form 10-Q.

For the 3 months ended March 31, 2014, other expense was $1,721,000 which compares with the other expense of $1,335,000 for the prior-year period, an increase of $386,000. For the 9 months ended March 31, 2014, other expense was $4,990,000 as compared to $3,906,000 for the prior-year period, an increase of $1,084,000. And this increase is due to increased interest expense and higher borrowings under our credit facility with DMRJ and, to a lesser extent, in the 9-month period borrowings under a new senior secured promissory note.

Our net loss for the 3 months ended March 31, 2014 was $4,939,000 which compares to a net loss of $5,339,000 for the comparable prior-year period, a slight decrease in the net loss of $400,000, and this decrease in net loss is primarily due to higher sales in the quarter and gross margin and also influenced by the decreased stock-based compensation recorded in the current 3-month period. All of this is partially offset by increased operating expenses and increased interest expense.

For the 9 months, our net loss was $15,341,000 which compares with a net loss of $21,810,000 for the comparable prior-year period, a decrease of $6,469,000. The decrease in the net loss is primarily due to the decrease in stock-based compensation. And again, this is partially offset by increased operating expenses and increased interest expense.

Our aggregate stock-based compensation expense recorded on employee stock options and nonemployee warrants amounted to $779,000 for the 3 months ended March 31, 2014 which compares to $1,679,000 in the prior-year period and, for the 9 months, amounted to $3,128,000 which compares to $12,807,000 in the prior-year period.

Our earnings per share for the quarter was a loss of $0.08 per share, which, when you adjust for stock-based compensation, the loss is reduced to $0.07 per share, which is in line with the analyst estimates.

This concludes our financial reporting. I'll now turn the call over to Glenn.

Glenn D. Bolduc

Thank you, Roger. And I would also like to welcome all of you onto our call today. It's a pretty exciting time here at Implant Sciences. And what I'd like to do is quote Andy Grove and his book, Only the Paranoid Survive. In that book, Mr. Grove introduced the concept of strategic inflection points by writing, and I quote, "A strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end."

Implant Sciences has gone through its own strategic inflection point a few years ago. We knew we either had to change or die. Fundamentally, we knew we had to reinvent ourselves. We knew the road ahead would be difficult, and we made the commitment to transform the business and entered what Mr. Grove called "The Valley of Death."

Today, we're successfully emerging from 1 inflection point and preparing to enter another. We have a very clear picture of our strategic advantages and feel empowered to capitalize them. Many of you have called me, and I've enumerated what those differentiations are. We're clearly ready to take on a leadership role in the market in order to gain significant market share and drive new opportunities through what we call demand creation. Our vision from the time we started with this has been to build a sustainable business for the future and one that would grow and return value to you, our shareholders.

Fortunately for us, we found an investment partner that shares in that vision, and we've discussed them before. It's Platinum Partners in New York City. With their support, we've been able to make the necessary investments to turn our vision into a reality, and that has -- that's coming into very clear focus right now. We've assembled what many consider to be the best trace detection team in the industry, and we hear that from all walks of life, customers, governments that we talk with, et cetera, et cetera.

We've designed and built a product that knowledgeable experts have called the best detector in the business. That was what we set out to do. We've invested in our sales channel. We've moved into a modern facility, and we've built a top-notch manufacturing firm -- team, excuse me, that we're going to talk a little bit more about here in a little bit. All of this brings us to the results for our third quarter, which ended on March 31 in which Roger just finished discussing with you.

The quarter was a strong one for the company considering where we are with approvals, et cetera. Our $2.7 million in revenue is more than double the amount from the comparable period last year. And if you exclude the one large order to India MOD in the prior year, our year-to-date revenue numbers are also about double those from last year. You all know we expected to have TSA qualification by now. We don't. We're going to talk about that in a little bit. But given those statistics, we feel quite good about our sales results reported here.

Historically, our third quarter revenues represent 15% to 20% of our annual business. If this relationship were to hold true for our most recent third quarter results, it would yield the biggest year in the company history, and that's before we add in any sales to TSA or other government agencies. While every reputable financial advisor in the world would tell you that past performance is no indicator of future results, this is the kind of growth we have been aiming towards ever since we made the decision to focus on the trace detection business at our earlier inflection point. It is also the kind of growth that will lead to a strong and sustainable business.

We believe that this growth is the result of several factors, with one of the largest being our growing list of international certifications. These certifications provide unbiased proof of the performance capabilities of our equipment.

In the third quarter, we were proud to add approvals from the Chinese Ministry of Public Security and the German Federal Ministry of the Interior. I would also add, at this point, we're not done by any stretch of the imagination. There are other approvals that we are still seeking. We also credit our investment in our sales team and their efforts in strengthening our sales channel.

Overall, we would say that our non-U.S. government business is on track with our plans and expectations. The milestone we still need to unlock is our full U.S. government -- to unlock our full U.S. government business potential is the addition of the Quantum Sniffer benchtop B220 to the Qualified Products List, also known as the QPL. This is TSA's designated list of products that it purchases from directly for use in checkpoint and check baggage operations. As we've discussed before, being added to the QPL is a 3-stage process of laboratory testing also known as IT&E; testing at the TSIF, which stands for Transportation Security Integration Facility; and then Operational Testing and Evaluation in actual airports, or OT&E.

When we spoke last quarter, we were just starting OT&E. As of today, we believe we are nearing the end of it. We are literally counting down the days and feel confident about our systems' performance. Things have taken longer than we'd hoped because ours is a new design in the industry. The B220 works somewhat differently than previous generations of trace detection equipment, and the differences can manifest themselves operationally. Some differences have necessitated training, explanation or evaluation for the testers to fully understand. Each of these requires a little extra time and effort on the part of the TSA team to resolve, occasionally as much as a few days. Perhaps, this may be the source of the rumors you have heard about testing being halted.

As of today, we are not aware of any deficiencies that will prevent the system from passing OT&E. I'm going to repeat that. As of today, we are not aware of any deficiencies that will prevent the system from passing OT&E.

We have had service personnel stationed near the airports where the bench -- where the B220 is being tested. Just a little bit of a backdrop to that, we literally have placed our technicians in hotels so that they can respond as quickly as possible to any potential issue that may come up. Thus far, they have received a minimum number of service requests, and our overall statistics on operational support have been very good by our accounting and very encouraging to our outlook.

We joke -- and many of you may remember the Maytag Repairman TV commercials back in the '60s and '70s, I'm dating myself right now, and those commercials may have some insight as to how our service personnel are starting to feel. Basically, they're sitting in a hotel room waiting for a call that hasn't -- that haven't -- calls that have not been coming. Of course, during this period, we have no access to the TSA data collection. But based on the data our field service support teams are collecting, our metrics are very strong. From where we sit, all we see is TSA doing a very thorough job of testing and evaluating a piece of equipment that we fully expect will soon be protecting travelers in the United States.

While we could wish the process was faster, our ultimate objectives are being met, and our new trace detection system has gained the recognition that it deserves in the process. The time spent over the last couple of months in familiarizing screening operators at the designated airports is not only building confidence with TSA personnel but is also providing invaluable experience for our installation, training and field service teams. All of this is required to establish the proper rhythm of delivering, operating and maintaining new systems in the field for the decades ahead. These are the critical aspects of the OT&E process, and our experience to-date with the TSA has been very, very positive.

Separate from the OT&E process, but yet another indicator of the future opportunity for the benchtop, is the Cooperative Research and Development Agreement, or CRADA, we recently signed with the United States Department of Homeland Security's Transportation Security Laboratory, or TSL, as the way I'll refer to it going forward here.

The purpose of this CRADA is for the laboratory to use the newly approved benchtop B220 as a gold-standard explosives trace detector for assessing new threats and defining future standards. This means that the TSL will be using Implant Sciences' technology, that's your company's technology, to help shape the explosive detection security environment of tomorrow. Our relationship with TSL remain strong, and we are committed to sustaining it. We felt this was a major progress for us when that CRADA was issued to us some 4 or 5 weeks ago. It is no secret or surprise that despite this growth in revenue the company continues to operate at a loss. That is because we have invested in the infrastructure to meet our next major step along the path to our goal of building a sustainable company. That is to be ready to install and support our products at airports across the United States and the world in general. This has required scaling our organization to handle much larger volumes of production, sales and support in advance of receiving revenues. The fact of the matter is, to play at this level in the industry, you have to prove you're ready before you actually get the order.

To secure our ability to reach our goal, we have been searching foreign debt additional investment. In our third quarter, we were successful in attracting another group -- institutional group, to share our vision. Their $20 million investment, combined with Platinum's agreement to extend the maturity of our existing debt to March 31 of next year, 2015, provides us with the ability to keep the pedal to the metal, if you will, while we finish the work that we began over 5 years ago.

An example of this is the recent hiring of Jonathan Saunders as Manufacturing Manager and Gary Hack [ph] as Test Manager. We haven't talked much about manufacturing in our recent meetings, so I'm going to spend some time there today.

Jon brings an extensive background in manufacturing operations to our growing production floor and group, and his joining the team is a very important part of ramping up our production capability. Gary [ph] will be using his background in chemistry and instrumentation technology to help make sure our products are of the best possible quality.

Another important part of reaching our goal was the completion of our new combined quality and environmental management system. We announced earlier this week that our system had been reviewed by an independent auditor and was recommended for registration under both ISO 9001 and ISO 14001 standards. We are very pleased to be able to inform you today that we have received our final registration certificates. They had advised us it would take a month, and it took about 4, 5 days for us -- for those certificates to come in, and we just received them yesterday. This achievement establishes our credibility as a world-class organization with proven capabilities to deliver and support quality products while remaining sensitive to our impact on the global environment.

These 3 pieces: increased financial backing, manufacturing leadership and the new business management systems, have come together at just the right time. We have recently begun the largest single production run of Explosive Trace Detection systems in company history. I will repeat that. We have recently begun the largest single production run of trace detection systems in company history, a quantity of systems that will be necessary to fill the orders we see coming in over the next few months. This run is bigger than that which we needed to fulfill the Beijing Olympics order. It is more trace detectors than we built for the India Ministry of Defence. Perhaps one of the most exciting moments in our recent company history was the meeting in which we determined we absolutely had to begin manufacturing this quantity of systems. None of this would have been possible without the strong backing of Platinum. Their commitment to helping us build lasting value for our shareholders has been one of the cornerstones of our success. We thank them, as we always have, for their support and guidance over the years. We also thank you, our investors, who have stood by us through thick and thin, and we certainly hope to be seeing more of the thick very, very soon.

Going back to Andy Grove a little bit. In speaking at the Annual Meeting of the Academy of Management in August of 1998, Mr. Grove said, and I quote, "Key warning signs that hint that the change you are dealing with make a strategic inflection point is when it is clear to you that, all of a sudden, the company or the entity that you worry about has shifted. You've dealt with 1 particular company or establishment as a competitor all your life. And all of a sudden, you don't care about them. You care about what someone else thinks." This is Mr. Grove speaking, "I have this mental silver bullet test. If you had 1 bullet, who would you shoot with it? If you change the direction of the gun, that is one of the signals that you may be dealing with something more than an ordinary shift in the competitive landscape."

Ask our competitors where they stand on the silver bullet test. We're pretty sure that they've changed the direction of their guns lately, and that's a sign of a strategic inflection point we should all be pretty excited about. Thank you very much for participating in today's call and for your continued interest in the company and what we're doing.

We will take your questions. But before doing so, as always, we invite all of you to take us up on our offer to visit us here at our offices. We had about 6 or 7 visitors over the course of the last quarter. I haven't seen the list of who's on today, so I'm not sure how many of you may have been in to visit with us. But as always, you're invited to come in. Please either call me or Kim Brown, my very able assistant, and we can get that set up.

With that, we'll take calls. And one other thing, for anybody who may have joined a little late, Bob Liscouski is on the call today. Bob is one of our Board members. Bob is not able to be with us here in Wilmington, so Bob is joining us electronically. For those of you that don't know Bob, Bob is a former DHS officer, having served as the Assistant Secretary under Governor Ridge at DHS. And Bob's responsibilities were U.S. Infrastructure, where he had about $0.5 billion budget buying -- responsible for buying equipment to protect the United States infrastructure. So I just want to make sure everybody knows that Bob is on the call. And, Bob, when you feel fit to have say something, we're just going to have to work the protocol here somehow. But if Denise can open it up for questions, we would appreciate it.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mark Jordan with Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Glenn, I'd like to delve into your comment about starting your largest production run of desktop explosive trace detectors. Number one question, would you talk about what are the long lead time parts that you have? How costly are they? And what are the lead times? And then a second question would be, assuming there are -- or do you think it's reasonable to assume by the end of the government's fiscal year, which is the end of September, September 30, that you would receive 1 or 2 large governmental orders? If they were to be issued and received, how long would it take you to, say, produce and deliver 200 units, which would represent about $6 million in revenue?

Glenn D. Bolduc

Okay. Thanks, Mark. With the first question, we have -- I'm not going to give away competitive information here, Mark. Okay? But like any business, we have lead times for certain components that go into our products. We have done a very, very careful job of identifying which of those components might be a little bit longer because of availability, production time, et cetera, et cetera. What we have done is made certain that we will have a sufficient quantity of inventory on hand so that we can meet requirements for the June quarter, the September quarter and also the December quarter. And that's how far out we've looked at this point. Historically, explosive trace detection equipment is something that in a very normal cycle, you're probably looking at something between 4 and 8 weeks to build. But that doesn't take into consideration some of those longer lead time items that you might have. So you have to buy them up front. A little bit of good news is the longer lead time items have not been the overly expensive inventory that we've needed to purchase. So making that investment in that inventory has not been cumbersome for us. So before I go to your second question, does that answer your first question?

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Yes, it does.

Glenn D. Bolduc

Good. So with your second question, and it's really the $64 million question if you think about it, we feel that we're substantially through the OT&E process. So once you get through OT&E, you've got some report writing that you've got to go through. And once that report writing and -- by the way, that report writing is done by agencies of the government. But once that's done, then you're placed on to the QPL. Once you're on the QPL, the government has a mechanism from which they buy. The acronym is IDIQ. It stands for Indefinite Delivery Indefinite Quantity. For those of us old enough to remember blanket purchase orders, it's substantially the same thing. We believe that there will be a buying opportunity or a sales opportunity for us sometime in this year's -- government's fiscal year. I'm not sure I said that right, but let me be real blunt about it, by September 30. Delivery schedules would have to be determined at that point. But one question that you asked was, how long would it take us to ship. I think you said 100 units?

Mark C. Jordan - Noble Financial Group, Inc., Research Division

200 units.

Glenn D. Bolduc

200 units?

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Two units which would be a little over twice your revenue this past quarter.

Glenn D. Bolduc

Correct. We have the capacity to do 200 units in a month. We have the space capacity, et cetera, to do that within a month. We're currently ramping up people-wise to meet that. By the time we'll receive contracts that would be of that size, we should be in position to satisfy those requirements. That's what we -- if you remember, when we moved into this facility, what we identified was in our old facility, and for those of you that have seen it, it would have been very difficult to produce even 25 or 50 units a month, and that was one of the prime motivators for us moving to this much larger facility. And since we've been here, we have worked on the processes and systems to enable that to happen. Obviously, the ISO 9001 and ISO 14001, which is the environmental side, gives us a lot more confidence because we've had an independent audit group come through and assess the fact that they can -- that we can adhere to our practices and procedures in a normal inventory buildup. And we have been visited by TSA and also by the Canadian TSA, and they came and visited us in late January. I think we may have reported that on our last call. That was a very favorable visit from them -- from those folks as well. So I'm hoping I answered your question, Mark.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Yes. Moving on, the CRADA you signed with TSL labs, 2 questions there. Number one, what do you think they're trying to do with your detector in terms of advancing the science? Are they looking to see how it would work with, say, in mass spec capabilities? Or are they just going to use it for setting standards for new explosives that they want to be able to detect in the future? Second related question, have Smiths or Morpho had any CRADA relationships with TSA labs in the last few years?

Glenn D. Bolduc

While I'm generally acknowledged as a brilliant scientist and engineer -- just kidding. I had to say that for Todd Silvestri. I'm going to defer this question to Bill McGann, if that's okay, Mark. Bill?

William J. McGann

So, yes. First question. It's principally the latter, the TSA. It's a newly approved product in our Quantum Sniffer B220, and they are assessing its abilities from a perspective of standards development toward the next generation of threats, so-called homemade explosives, or HMEs. Of course, they're very aware and have actually seen our hybrid IMSs as well. But that is not currently in the center scope of the radar, if you will, on this current CRADA. It's mostly on standards development and looking at that sort of gold standard unit to figure out how the threats of the future can be integrated. In terms of the second part of your question, I have no idea anymore what Smiths or MDI are doing. I mean, I can only -- they're obviously able-bodied competitors, and I'm quite certain that their systems have also been assessed in some way, shape or form regarding the current threats and future threats. But they don't kind of clue us in on that stuff.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Okay. Final question for me then I'll turn over the floor. The ISO 9000 award that you've just received, it's clearly very important for -- especially European customers. Has the lack of that certification hindered your sales capability there? And now that you have that piece of paper in hand, should that meaningfully change the sales pace in Europe?

Glenn D. Bolduc

Richard -- I'm sorry, Richard. Mark, I'm going to ask Darryl Jones, our VP of Sales and Marketing, to address that question.

Darryl K. Jones

No, it's a great question, Mark. No, it has not hindered our opportunity. This just actually expands the opportunity. Before, we had focused primarily on selling H150 and we had that ISO registration. Now, with this ISO registration, we're able to expand the sales of our B220, and how -- and it gives us capability. It has not been a hindrance at all at this point.

Glenn D. Bolduc

Let me expand a little bit on Darryl's comments. When he talks about the H150, we use a -- for the H150, our manufacturing was being done by our contract manufacturer, who was -- who is ISO 9000, and they have some other certifications as well. So that was applicable to our product. Our approval is for all manufacturing that we do here. But specifically, we were looking at the fact that we would be manufacturing the B220. And for that reason, we were looking to have the ISO 9000, as well as the 14001 certifications.

Darryl K. Jones

And just one other thing, it gives us the capability and the confidence that our ramp-up plan is actually robust and sound so we can meet those kinds of commitments that you were just asking us about. So it's more of an internal boost, if you will, than an external.

Operator

Our next question comes from Eric Panzik [ph], a private investor.

Unknown Attendee

Hi, Glenn, and congratulations to you and the team. A lot of accomplishments there, continuing accomplishments. I'm very proud to be associated, even though I'm only a private investor. I guess...

Glenn D. Bolduc

Hey, you know what? That counts. And thank you very much for being a supporter.

Unknown Attendee

I'd like to be vested like Platinum is. But I'm reading this paragraph in the Q, in the 10-Q. I'll just read it briefly: "Despite our current sales expense and cash flow projections and $21.2 million in cash available on from our credit line with DMRJ at May 5, 2014, we will require additional capital in the first quarter of fiscal 2015 to fund operations and continue the development, commercialization and marketing of our products. Our failure to achieve our projections and/or obtain sufficient addition of capital on acceptable terms would have a material adverse effect on our liquidity and operations. It could require us to file for protection under bankruptcy laws." So a couple of questions there. You and I have talked about this a few times, capitalization -- recapitalization, a key to what I feel is the success of my investment there. But I was surprised on the first question to hear about the first quarter of fiscal 2015 as opposed to calendar '15. So that suggests to me that we're 3 months away from that, and I'm wondering why is it 3 months away from that as opposed to calendar '15, which I believe DMRJ has extended to?

Roger P. Deschenes

It should be calendar '15.

Glenn D. Bolduc

Yes, just one second, Eric. Roger is just looking at it.

Roger P. Deschenes

Yes, it should be.

Glenn D. Bolduc

Very good Mr. Panzik [ph]. You caught a typo.

Unknown Attendee

Okay. Well, meaningful to me. Okay. Good.

Glenn D. Bolduc

Okay. So let me address that. Actually, I'm impressed by your due diligence.

Unknown Attendee

Gotten 20 minutes to read it. Wait till I get a couple of hours to read it.

Glenn D. Bolduc

Oh, God, please. But no, that should be calendar 2015 because it does coincide with the period in which the credit line would be coming due. And if you've looked at any of our 10-Qs and our 10-Ks that we've issued over the last 5.5 years since we've been invested in by Platinum, language very similar to that would always appear in the quarter that the debt would be coming due. And it's like a risk factor when you get right down to it. And it's just advising the investors that, that's not...

Unknown Attendee

Sure. Totally understandable.

Glenn D. Bolduc

Okay. Yes. And as you know -- I've actually lost count. Is it 13, Roger, or 14?

Roger P. Deschenes

13. It's...

Glenn D. Bolduc

Okay. We have 13 amendments with Platinum where they have re-upped with us. And in just about every case, they've increased the size of the line that they've done with us. And as we've talked in the past, we've been attempting to do this with debt as much as we can, simply because -- we know where the end line is here, and what we're trying to do is protect the existing shareholders as much as we can. And debt is something you pay back later. Once you do the equity part of it, that creates quite a bit of dilution. And there is dilution involved because of the Platinum convertibility on the very, very old debt. But what we have attempted to do is minimize that as much is possible.

Unknown Attendee

Yes, I guess. You know my opinion is, and I hope Platinum is listening. I'm sure they are. My opinion has always been that what I have seen over, unfortunately, decades of doing this, is that the market gets excited about accomplishments that you issue in press releases, which expand your market horizontally, vertically. Your accomplishments with ISO; your new order here, there; the potential of U.S. government to contracts or orders. And these lead -- what we've done is -- something is holding back the stock as I've felt is my opinion. And the only thing that I can see, because of all the accomplishments, is that people are worried about the capital structure. And indeed, as I read through it, it's very complicated and everybody has their hierarchy of claims. And the problem is if all of that were wiped out and everybody had a smaller share of the company, Eric, myself had a smaller share of the company, but we had a much cleaner balance sheet, what you'd see is you'd see the market -- you'd see more activity in the stock. And indeed, we've talked about this. Why is there only 100,000 trading on this stock a day when potentially, it is in tens -- at least in tens of millions of dollars in revenues a year? And what's going on here? Why are people so cautious? But having said all that -- and thank you for giving me the ability to say that -- what will -- first of all, a quickie, is the 200 units that are indeed hypothetical, the credit line would be able to -- what's left on the credit line would be able to satisfy that order?

Glenn D. Bolduc

In terms of the inventory acquisition are you talking?

Unknown Attendee

Yes. And payroll and all that.

Glenn D. Bolduc

Yes.

Unknown Attendee

Yes, okay. Okay, cool. And then what do you think -- what maybe has been discussed about where the company will be in a capital structure, say, 1 year or 2 from now? Is debt the preferred -- increasing the debt and then, in theory, hopefully overcoming the negative cash flow and then paying down the debt over time? Or is a recapitalization being talked about?

Glenn D. Bolduc

Boy, that's a mouthful. Let me try to answer that for you, okay? Well, you know that there is a significant portion of our debt that is convertible. It's about $27 million -- over $27 million of it is convertible. So that's a nice chunk. That comes on onto the equity side. As I mentioned before, and I -- I said this is a little bit differently. I'll be a little bit more clear. I would prefer that if we did need to raise money -- and someday, that need may arise -- we did sell at a higher stock price, which would create a lot less dilution to you, the shareholders. And that has been our mantra for the last 5.5 years. Certainly, results -- positive results -- operating income results will also assist in solving the problem that you're talking about. We're very fortunate to have the investor we have, who has supported us and done the things necessary for us to grow our business. And the reason we took the passages from Andy Grove was because we do believe the company is now at a very strategic inflection point, where we do believe we can see significant increases to revenues, significant increases to profitable operations. And what we would have to do out in the future, I can't predict what we're going to do a year from now with regard to our cap table or what have you, but it's like everything else, you just plan. You manage to that plan as best you can, and then you execute as need be. And of course, you react as need be, as you move along. Today, what I would say is we have created a plan, and our execution has been very good. Very few people can sit there and criticize that we haven't accomplished things. Where we're lax is in the timing of that execution and guilty. We know that. We thought we would be done with some of this stuff a long time ago. We're not. I assure you, the company and everyone here works as hard as they can every day to get all of the things done. But at the end of the day, we're depending, in large part, on governments and bureaucracies who are making decisions on sales and also on approvals. So I think the next time that we'll look at this is probably going to be in the -- probably, I would say, the March quarter. Okay? And that also coincides with the termination date of the debt. I just thought of that. And so we'll probably look at it a little bit before that. But right now, we're still in execution mode on securing the QPL with TSA for the benchtop. And there are some significant orders out there that we've got our work cut out for, for us on. So I hope that answered the question, Mr. Panzik.

Unknown Attendee

I think it's given me an idea that it will be, respectfully, it'll be status quo. Again, as an investor, I look at it from a supply and demand equation as far as the stock is concerned. Don't understand with all the accomplishments, and certainly no mea culpa was necessary as far as waiting for governments to do things because the company has executed in the commercial sector, where it has been waiting for the government to do something. So as far as I'm concerned, the operations and management has been doing nothing but accomplishing things. I guess from the supply-demand equation, there is something wrong with the demand when the stock only trades 100,000 on most days, and that's what I'm trying to solve. And not to belabor the point, something is missing, and the only thing I can see missing, because of all the accomplishments, which aren't secrets, you guys regularly issue press releases and say -- that some hotel or whatever it was in Africa has decided it could be in their best interest to have this technology. So the public gets the information that this has many more uses than originally may have been discussed. Why aren't people interested? It must be the capital structure. So that is what my concern is. And indeed, thank you very much for answering the question. So assume that -- certainly, the news will get out and be widely advertised about the accreditation or, what do you call it, qualification?

Glenn D. Bolduc

Qualification.

Unknown Attendee

Yes. But I wanted to -- I would like to demand to be there 3 days after that, press release, not just the day of.

Glenn D. Bolduc

So I'm going to make one last comment very quickly. What I try to convince myself for the low -- the reason for the low volume, is because all of our shareholders just want to hang on to the stock because they believe it's going to be a good stock in the future. But of course, we know that, that isn't always going to happen. But I try to explain...

Unknown Attendee

Well, you are explaining [ph] me.

Glenn D. Bolduc

Well, thank you very much. And I enjoy our -- I get about a call a quarter from you, and I do enjoy our conversations.

Operator

Our next question comes from Joe Munda with Sidoti & Company.

Joseph P. Munda - Sidoti & Company, LLC

Glenn, real quick -- or Darryl, if you want to take this. In the prepared remarks I think that Roger touched on, he said the B150 average sales price came down 12%. Can you guys give us a little bit of color on why that actually occurred?

Glenn D. Bolduc

So the H150.

Joseph P. Munda - Sidoti & Company, LLC

I'm sorry, the 150. H150.

Roger P. Deschenes

Yes. I won't go into too much detail, but I will say that every region has a different price point, if you will, that's acceptable to that particular region. And sometimes, when you do great things in a region, the price points will follow a bit. Let me add a little more color to that and say comparing our sales from last year, year-over-year, we've grown 100% in EMEA. 100% -- I'm sorry, 100% or more in EMEA. 100% or more in Europe -- I'm sorry, in Asia, and 100% in Latin America. So you'll see that price fluctuation just depending on which one is actually buying more of those H150s. That's always going to happen.

Glenn D. Bolduc

Largely volume related, Joe. Unfortunately, our cost structure enables us to do that with some reasonable comfort. And yes, someone just put a piece of paper up. If you notice, our gross margins did increase in each of the periods -- the quarter, as well as year-to-date. And so we were in a position where we could take deals at a little bit lower price, and it's not a whole lot. I think it was a 12% reduction and a 3% -- and that's on the selling price. And I think what we reported in the past is we were surprised at how long the H150 price has stayed up, because we didn't give up much. It's a 7- or an 8-year-old product right now, and it's selling at reasonable prices for us still.

Joseph P. Munda - Sidoti & Company, LLC

Okay. Now I know somebody else had mentioned it on the call, a hypothetical 200-unit order. I mean -- but that's just hypothetical. Right?

Glenn D. Bolduc

Yes.

Joseph P. Munda - Sidoti & Company, LLC

As far as your comments that it's probably going to be bigger than the India order, can you give us some kind of color? Are we talking twice as big? 3x as big? Any...

Glenn D. Bolduc

Joe, I'm going to answer that with one word: yes. You put the number on it. It's a -- we're dealing with the U.S. government. Okay? And inside the U.S. government, there are considerable quantities that sit out there, and I would rather just leave it that we have embarked on a build program. Okay? That #1 will satisfy the requirements that there are -- or attempt to satisfy the requirements that could be placed on us, and those numbers, as we indicated, are larger than the quantities -- that the Beijing Olympics or the Ministry -- India Ministry of Defence put on us. And just so you know, Beijing Olympic was a 300-unit order. The India order was a little over 200 units.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And do you anticipate -- I know you talked about something by June. So are we anticipating any of that business in your fourth fiscal quarter? Or is that more of a fiscal 2015 picture being painted? As well as if not, what are we looking at for the rest of the year, ex government orders?

Glenn D. Bolduc

Okay. So U.S. government opportunity will not be realized in orders in the June 2014 year. There was a time back in the fall when we thought approval would occur in the February, March time frame, in which case we thought there would be orders in the June year. The testing process was delayed and pushed back. And I mean, this goes back to when the government shutdown occurred back in October. And we did believe they were going to get through testing in the, as I said, February, March time frame. So the U.S. government business that you'll see will be in the September and December quarters and should be in the March and next June quarters as well. So to the second part of your question, what we see our business doing today -- this last quarter was a representative example of what we've been doing outside of that government business. We have been able to penetrate the cargo market. We've also been able to penetrate some of the international markets. And what I believe is you'll see this kind of quarterly activity up until the time the TSA approval is available to us or granted to us, I should say.

Joseph P. Munda - Sidoti & Company, LLC

Okay. So something similar, I'm guessing, out in the fourth quarters that we've seen? And then obviously, should that time occur, a ramp in revenue going out?

Glenn D. Bolduc

Correct.

Joseph P. Munda - Sidoti & Company, LLC

As far as your ramp in production and just looking at possible CapEx, what are we looking at? Are we -- is there going to be a significant increase in the amount of spend on the CapEx line in anticipation of this? Or has all the spending and investment been done already?

Glenn D. Bolduc

Largely, it's been done already, Joe. This is not a heavy CapEx business. Our fixed assets, if you go to our balance sheet, a couple of hundred thousand dollars, Rog?

Roger P. Deschenes

No. Our fixed assets are $629,000.

Glenn D. Bolduc

Is that gross or net?

Roger P. Deschenes

Net.

Glenn D. Bolduc

Okay. So I'm sorry. It's about $600,000, Joe. So it's -- and to your question, no, there aren't significant CapEx expenditures expected for this business.

Joseph P. Munda - Sidoti & Company, LLC

And then, I guess, Roger, some housekeeping items on the P&L. As far as spend on the SG&A line and R&D line -- I mean, it's been -- second quarter is pretty -- I mean, third quarter is pretty much nearing the second quarter. Are we going to experience something like that going forward? And then I guess when that government order, if and does hit, are we going to see a ramp in SG&A spend?

Glenn D. Bolduc

Go ahead, Rog.

Roger P. Deschenes

Yes. We expect the SG&A spend and R&D spend to be fairly consistent over the next few quarters. I mean, I think the only ramp we'll see with the government order will be some higher for salesmen's commissions. I mean, that's a good spend.

Glenn D. Bolduc

Well, the other area will see some increase, too, will be field service personnel to the extent we need to install more units and bring some more people on. But that increase will be -- no. Let's -- that increase will be consistent with the sales increase.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then I guess my final question. Glenn, on the new investor, new institutional investor, can you kind of walk us through how that occurred? Was it DMRJ reaching out? Or were they reaching out to you guys? Can you give us some color on that?

Glenn D. Bolduc

Sure. These folks, their money comes out of the insurance industry. They raised a fund of between $500 million and $1 billion. We were one of the first investments that they've made. One of the principles was familiar with Platinum, DMRJ, but the other 2 principles come from a bulge bracket investment banking firm in New York City. This was an investment that they coveted. They wanted it, and we made it happen.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then I guess a follow-up to that and this will be it. I mean, it seems that Platinum has been very -- I don't how to say this, very understanding as far as extending the line, understanding the opportunity that's at stake. Very, accommodating, you guys. Would this new investor be as accommodating to you guys? Are they along with a program that Platinum has put out there?

Glenn D. Bolduc

They seem to be. Certainly, they -- we looked at the maturity date being March 31 of next year. Okay? Our revolver is still with Platinum, however. But they're earning a nice coupon rate, Joe. All of the indications that we've seen from them are consistent with the behavior of Platinum. Your comment a minute ago about Platinum supporting us, someone made the comment. We referenced Platinum a couple of times in the document. We're very appreciative of what they've done. And to your point, they have been very supportive of the company. And we do believe this group will be also.

Operator

Our next question comes from Jacob Yakobi [ph], a private investor.

Unknown Attendee

Primarily, my question deals with China. You received recently another approval from the Chinese government. Given the fact that -- from what we've read in the press that the Chinese government is hoping over the next decade or so to be building dozens of new airports throughout the country, is there anything going on that you can illuminate us to as far as China's concerned? Anything that we could get excited about hopefully in the near future?

Glenn D. Bolduc

I'm going to ask Darryl to take that question.

Darryl K. Jones

I would say that the one thing that this certification has done is -- again, it's another validation. Here's what's going in the -- from my perspective. I think that our competitors are getting a little bit more tricky, if you will, in the sense of making sure that they throw -- try to throw roadblocks to prevent further market penetration. So, let's say, we'll ask them if they this certification. Ask them if they have certification, and we will go in there and prove it and will pass it. And so it's just, if you will, a hurdle -- who will jump over that hurdle. So the growth is still the same. We're selling to the same segments of the market and the expansion, talking about that for a long time, we'll see if it comes, and we'll be prepared to go after that as well. So part of the thing we did a year or so ago was make a further investment in China and make sure that we maintain our install base there and actually grow it, and that's exactly what's happening. Did I answer the question?

Unknown Attendee

Yes, absolutely. Also, as far as Europe is concerned, you received a certification in France and Germany. Given the fact that France, of course, is Morpho's backyard, obviously, they're going to put up a tremendous fight, of course, in France and try to be -- make sure that the French government is as protectionist as possible. Is there any stumbling blocks that you're incurring with France, for example?

Glenn D. Bolduc

No. We announced that we got the STAC certification in France, and that opens the doors. We said that. And we just got that at the end of October. And one thing that's going on in Europe -- just across Europe, is that they want products that do not have a radiation source in them. So it makes us a little bit more attractive. And so what you have not seen yet, if you are the big tenders that are supposed to, allegedly, come out in Europe, which is a good thing, it's okay, but we are actually selling in the Europe market now. So that hurdle is gone. So yes, I'm going to always expect the competition to get a little bit more competitive. But if you pass the certifications, that is the major hurdle that we jump over. So it's not blocking anything.

Unknown Attendee

You're doing very good, the quality.

Glenn D. Bolduc

Yes.

Operator

Our next question comes from Shawn Sullivan [ph], a private investor.

Unknown Attendee

I have a couple of questions. We have 6 weeks left in the quarter, right, till the end of June? And is there no chance in how that -- the certification will come -- the qualification will come over the next 6 weeks and therefore perhaps an order? Or is that just not in the cards?

Glenn D. Bolduc

Shawn, I'm going to give you a pretty conservative answer to that. The report-writing process that's been described to us is quite lengthy. It's 30 days in each case, a minimum of 30 days in each case. We don't control that. Okay? But what we believe is we're right at the end of the OT&E process. I have done just such a horrible job of predicting the days that some of this stuff was going to happen. And the mistake that I probably made was transparency. We're trying to tell you guys what we believe and what we're told when we meet with these agencies. And to me, that's -- it's important for me to do it that way because it's so much easier to remember what I said to you. But it will come. I don't -- I don't think you'll see approval by June 30. I'm pretty sure that, that won't happen. I think it'll be sometime after that. I just can't tell you how much longer after that. We expect to be done with the OT&E process. Like I said, we're at the end of it. I can't tell you if they're going to come back, and they're going to tell us they want to do something else. Right now, we don't see any indication of that. But -- and we wouldn't, simply because they don't communicate with you during this period. The only time that they will communicate with you is when there's a problem. And the best thing I can tell you is we haven't received any phone calls in a while.

Unknown Attendee

So you don't -- I know -- even if they've started writing a report, would they let you know that?

Glenn D. Bolduc

I don't know the answer to that question. What I can tell you is, at one time, I did ask them to expedite the writing of the report. But that's all within their control and completely out of our control.

Unknown Attendee

Right. I understand. It's really important for all the investors to understand that these hurdles that have to be passed with the government are out of your control. And it must be so much more frustrating for you than for -- even for those of us who have invested in the company over the last few years.

Glenn D. Bolduc

It is. But at the end of the day, what we do know is they are very, very, very thorough in their testing. This is the most substantial testing I've gone through in my career on anything that's gone on. I'm going to guess, for most of us, that's true. Bill has obviously been through it before with TSL and TSA. And the further I get into this, and I think speaking for the team, the further we get into this, it becomes more and more normal for us.

Roger P. Deschenes

And I want to add to that because we -- I think thorough is good. That means it limits the playing field. There are so many people that would love to be in the spot we're in right now, and we hope to be that third player. So...

Glenn D. Bolduc

Can you spell barrier to entry?

Unknown Attendee

That's a good thing. And just -- you want to make sure that this equipment is top-of-the-line because it's protecting our lives. So that's a good thing. But it's a frustrating thing too. So...

Glenn D. Bolduc

I was very encouraged when we received that CRADA 4 or 5 weeks ago. Very encouraged. But I thought that was a very positive signal for us, Shawn.

Unknown Attendee

Yes, I don't think they'd give you a CRADA unless they thought you had a really great product. Why would they? That would just be a waste of time and money. So that is a very good signal.

Glenn D. Bolduc

Correct.

Unknown Attendee

I have another question or 2, this one probably goes to Darryl. Darryl, in the last quarterly call, you said that Implant had captured 10% of the ETD cargo market. There certainly haven't been many sales announced into that market. Looking at the $2.7 million, I know that $1 million of that -- I am assuming $1 million of that -- was that State Department sale, which you guys apparently don't know anything about because it's going to be announced. I'm joking about that. But if you take that $1 million order out, that leaves you $1.7 million for the quarter. I'm assuming also that, that partial order that's being partially fulfilled over each of the last couple of quarters and maybe in this quarter now, if you subtract that, it doesn't leave you a lot, it appears, sales into the cargo market. And so my question is, do we still have 10%? We have more hopefully? And how is that market going for us?

Darryl K. Jones

So let me address the air cargo market part. First of all, we -- when I made that announcement -- whenever I made the announcement -- it was -- 10% of the...

Unknown Attendee

February 13, Darryl. February 13.

Darryl K. Jones

Okay. Yes, it was 10%. And it was -- by the way, we got our qualification. I think was October 31, but who's counting. And so we did it in 3 short months. A lot of, if you will, onesie-twosies. Now, what's the next play? The next play are the big ones out there, if you will. Those are all in play right now. So there's plenty more market share to capture. This is -- that was just the start. So we're saying 10% in 3 months, what will it be in 6 months? It will be more than that. We're going after the big tenders now.

Unknown Attendee

Yes, okay. Well, that's very encouraging, very good to hear. I want to come back to Glenn again. What revenue level or number of units sold do we have to achieve to get to profitability?

Glenn D. Bolduc

This is -- you can see this in our numbers. We target profitability at about $24 million in annual revenue, or $6 million in a quarter.

And the way you back into this is, is by looking at your operating expenditures, which, not inclusive of your manufacturing overhead, is about $1 million a month, or $3 million in a quarter. So if you're driving a 50% gross margin, you would need $6 million to absorb a $3 million OpEx level. Included in that cost of goods sold would be your manufacturing overhead. Now as your OpEx increase, obviously, that breakeven point increases with it. But it goes up far more slowly because the whole idea is to get to a base of business and then add to it. So that's pretty much where we are with that, Shawn.

Unknown Attendee

Okay. Well, one last question. Glenn, you said, I think, on the last conference call that all the staff has been working on the OT&E and the qualification. Is that still the case? And that question leads to the future. Where do we stand on R&D and coming out with new or enhanced products?

Glenn D. Bolduc

I very rarely say this, but that was a very good question, Shawn. Let me address it. First, I think Bill McGann is snickering over here because every day, Bill reminds me: focus, focus, focus. And what he's saying to me is, you know what, the TSA qualification is the most important thing for us right now. That is the signature moment for us here in the company. We do have other initiatives that we've discussed on these calls in the past, and they haven't lost any of their importance. However, the TSA qualification importance is a lot more, is far more significant, I should say, for us. Within the company, a large part of the company, not just the staff, is focused on TSA qualification. Darryl's team is obviously selling every place that they can, and his team is probably the one that's least focused on the TSA qualification because they're selling every place else that they can. The engineering team is focused on addressing any issues or questions that may come out of it, but there are -- and also, anything that we might find in the future. But there are future development projects that we continue to work on, but we don't have the resources that we would like working on those. Once we're qualified, there will be a continuing engineering team that will be assigned to the TSA qualification project. And then what we'll have are other projects in due course. Did I do a good enough job for you, Dr. McGann?

William J. McGann

Yes, perfectly. Shawn, what a great question. And the TSA does not end with getting on the QPL. They're -- we have a whole series of planned and proposed continual improvements that will continue to enhance the value of our products for the TSA and for our company. We've had these conversations with those stakeholders. They're actually looking forward to injecting technology innovation for today, and also for addressing the standards of the future. So that's a whole roadmap. In addition to that, as Glenn said, we've got some of the other platform developments that you are aware of, our hypervalent SMS [ph], which guess what, someday will fold into that TSA initiative. And even our new handheld platform. I mean, on and on, all this work is ongoing. We work quietly on these things. But we do work on them.

Unknown Attendee

Basically, what you're saying is what Lou Holtz is a win. What's important now and what's important now is qualification. So...

William J. McGann

There you go. He was talking about the former Notre Dame football coach. Right?

Unknown Attendee

Yes, of course.

William J. McGann

Okay. All right. I just want to make sure everybody knows who Lou Holtz is. That's all.

Glenn D. Bolduc

I sure didn't.

William J. McGann

Yes. Some people here who I know didn't know who Lou Holtz was, or is. He's still alive.

Operator

We have no further questions. I would now send the call back over to management for closing remarks. Please proceed.

Glenn D. Bolduc

Thank you, Denise. One of the things that I wanted to do -- and I am assuming that Bob Liscouski is still on the line, and I asked Bob to be available today. And I know there were no questions that came up that Bob could specifically answer to. But as a former DHS officer and a person of importance within the government, Bob, I invite you to the floor to talk about the company, the products and any other observations you might have.

Robert P. Liscouski

Sure, Glenn. Thank you. And just to make sure you can hear me, am I coming through?

Glenn D. Bolduc

Yes, yes, yes. We got you.

Robert P. Liscouski

So first off, thank you for the opportunity. I think it was a great call, and I think -- my comment to you, just in terms of the great job your team is doing, really is a testament to your leadership and the hard work. I think comments that are relevant that you like to hear from a government perspective, even as a former government official's perspective, is that there's probably 3 things to keep your -- the investors have done their research, I'm sure, on the marketplace. The thing that drives the market is not just the government's desire to look at replacement equipment at the checkpoints, see how our equipment might be able to provide them more competitive advantage with respect to Smiths or Morpho. We have to remember that the reason that this equipment is being deployed in the first place is because of threats that are continually present from Al-Qaeda and others out there in the United -- that are targeting the United States, both here in the United States as well as abroad, continue to increase. And I'm not going to reveal anything in terms of current threat information, but I will tell you historically that the threat that they are persistently focused on, trying to penetrate, are air system either from checkpoint perspective or air cargo perspective or in any other innovative way that they may be able to continue to try to exploit weaknesses that they identify and perceive in those systems. And therefore, the government is always looking for the best technology that they can deploy out there on the front lines to provide that protection. Point number one. Point number two is regrettably, that threat is just not unique to the airline system. It is continually evolving, as we saw with the regrettable episode in Boston with the bombing at the marathon a year ago, and continuous targeting of other soft targets be they from Al-Qaeda or euphemistically called a lone wolf, or other extremist groups, be they domestic or foreign. The barrier to entry for using an IED to conduct an attack against a soft target is very low. And because they are so easy to construct, and the damage that they can result -- and the results resulting from an explosion, from an IED can be so devastating, even just from a few people's perspective or from many hundreds, we always have to look at ways we can deploy this equipment in a way that can prevent that from happening. From where I sat, the infrastructure protection seat I had with DHS the reason I was drawn to this company the first place is because this type of technology at a time when I joined the company was really in its evolution phase but represented something that I thought that had I had knowledge of it while at was at DHS I would have pushed my folks to closely examine for ways we could have deployed it and urged its deployment in the private sector and the government sector today. And it's the -- it's that ability to respond to these types of threats this company's technology actually provides that will make this country safer. And that's a trajectory that's going to continue on over time. And I'll make one last comment, and maybe ask questions or just sign off, but I've been doing this work for well over 30 years now. And if you look at the statistics of bombings and attacks both against the United States by foreign actors or domestically, that trend line regrettably has only continued up. And though this company is not working to make sales out of bad news, is working to try to protect this nation against those types of threats that's what it is purposely positioned for. I hope, Glenn, that -- if you have anything you would like to amplify.

Glenn D. Bolduc

That's great, Bob. I had asked you to be available for this call, and just in case there are any questions that would fall into your domain because you do represent the federal government aspects of what we're doing. And clearly, the inflection point to go back to Mr. Grove again, the inflection point that we're at right now is entry into that federal government area particularly the U.S. government. But you also add perspective and not only to the domestic opportunity but it is also an application to the foreign government opportunities as well. So I do thank you for your comments. And I'm assuming that this is the end of the call. So I'll finish with my comments. And as always, thank you very much to all of you for your support over the years. This has been one heck of a journey for all of us. Actually, in July I'll be celebrating my sixth anniversary with the company and I can't believe it's been 6 years.

But I look from where we were back then to where we are today, and where we sit in the industry relative to the market share that we're taking, as well as the stir in the industry we're creating with the qualifications we've been able to achieve. To go back to the Grove book for a second, we are at an inflection point, very pleased with the way we're managing this right now. It has taken more time than we expected. I'm going to be dead honest about it. It's been a lot of hard work. It's also been a lot of fun, and I've gotten to meet a lot of you over time. Be it over the phone or in person, I'm doing the best I can to meet as many of you as I can. But we feel good about what we're doing. As always, we invite you to visit with us here in Wilmington. We're very proud of our new facility. And I know it's not easy for folks who live at distances from here. But as you travel to the Northeast, if there is a way to make a trip up to Boston, we're just 15 minutes outside the airport. I'll leave and come to the airport and pick you up.

William J. McGann

Snow has finally melted.

Glenn D. Bolduc

Oh, they have. Bill just said the snow has finally melted. I think the last traces of it went away about a week or so ago. But again, thank you for your participation on the call, and I'm hoping we'll have some opportunity to speak with you before our year-end call, which will take place sometime in September. But we'll see where we go with it. Again, thank you very much, folks. And we'll talk to you soon. And by all means, feel free to call me if you deem so necessary. So long.

Operator

This concludes today's conference. You may now disconnect. Have a great day.

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Source: Implant Sciences' (IMSC) CEO Glenn Bolduc on Q3 2014 Results - Earnings Call Transcript
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