Progress With TSL Makes Implant Sciences An Attractive Investment At Current Prices

| About: Secure Point (IMSCQ)
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The week just prior to Thanksgiving (U.S.), Implant Sciences (IMSC.PK) offered insight into recent meetings with the Transportation Security Laboratory (TSL), the testing branch of the TSA, suggesting that approval of the company's B220 Benchtop explosives trace detection (ETD) device is closer than ever. Shareholders who've kept a close eye on the approval process since its beginnings will be quick to note that TSL approval unlocks significant value for investors.

Implant Sciences manufactures the QS-H150 and QS-B220 handheld and benchtop ETD devices and has been gaining attention in the second half of this year as it approaches a crucial regulatory junction. ETD technology allows security personnel to essentially "sniff" screened objects and people. The devices pick up minute traces of explosives and narcotics, alerting screeners to potential safety threats. The B220 has been in testing with the TSL for some time, and pending certification from the Transportation Security Administration (TSA), will be available as an approved air cargo screening device. Under new regulations going into effect on December 3, all international air cargo on passenger planes will be required to undergo screening for explosives, and the TSA's approval will allow Implant's technology unprecedented access to a new market, where competition is limited due to barriers of entry created by regulation (among technological and other legal barriers).

On the November 15 first quarter earnings call, IMSC management said that in their latest meetings with the TSL, the governing body indicated that the company's technology is some of the most impressive they've seen:

"[They] led us to believe that they are currently looking at the best explosive trace detection product that they have ever seen come through their laboratory in 18 years, from a detection/performance perspective."

The TSL presented Implant with a list of addressable issues, which the company believes they have satisfied in full, and continued discussions have been positive. The government agency will proceed with an independent evaluation, and management suggested that with Thanksgiving week ahead, the TSA's work will likely be delayed until the following week: "We expect that we are going to be successfully completed with this process pretty quickly from that point." Management reiterated that, although approval opens a new market, they are not going to receive a single lump order immediately. Sales will be driven over time by the 16,000 freight forwarders around the world, 4,200 of which are in the U.S.

Pending approval, management remains confident in FY2013 revenue of $15-$20M (bearing in mind Implant Sciences' year-end is June 30), and believes they have an adequate inventory to handle the uptick. As shareholders will have noted, revenue in 2012 has been sporadic, but in dealing in-part with government organizations, investors should expect to see lumpy sales figures. Implant Sciences reported 1Q revenue of $1.4M compared to $0.6M in the fourth quarter and $0.7M in the third quarter. If approved, management emphasized that Implant Sciences will become the only American company, and one of only three companies total, with a TSA-approved ETD device. And with improved safety, ease-of-use, and cost-of-ownership over existing products from Smiths Detection (OTCPK:SMGKF) and Morpho Detection, a subsidiary of Safran (OTCPK:SAFRY), Implant's products offer advantages unavailable elsewhere. The Quantum Sniffer line lacks a radioactive element, unlike competition, allowing for field maintenance otherwise impossible. Similar devices require trained and certified technicians for repairs. Similarly, testers have been repeatedly impressed by the ease with which the devices operate, and the QS line requires fewer disposables, resulting in lower long-term expenses (cost of ownership) related to the device.

As with most young companies, IMSC's volatile balance sheet represents the most notable risk to investors, as the company has limited cash moving into a pivotal year. But considering management's guidance and the expectation for improving sales, the approval should push Implant Sciences, after months of waiting, into profitability in 2013. It's a key value-driving event, and investors should take note of recent share prices, well off their 52-week highs. With approval around the corner, the depressed stock price presents a compelling entry point, and equally a rare investment opportunity.

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