Shares of Implant Sciences (IMSC) traded higher by nearly seven percent on Wednesday morning after dropping to as low as $1.05 earlier in the week. Although some recent events may hamper IMSC's immediate potential to excel, such as the fiscal cutbacks in DC resulting from the inability of our elected officials to efficiently run a government or a budget, others have taken shape that put the company on a more stable foundation moving forward. In a summary of this week's events thus far, VFC's Stock House examines the latest Implant Sciences credit extension with DMRJ and also takes a look at how the budgetary turmoil in Washington could effect the short term potential to land national-level contracts or sales.
Implant's Credit Extension Marks Potential Pivot Point
With the announcement last weak of Implant Sciences' (IMSC) deal to extend the terms of a debt agreement with its primary creditor - DMRJ Group - for a full year, investors and company officials can concentrate fully on the building of sales, revenue and - with a recent TSA approval in the bag - the path towards becoming a dominant player in the ETD and homeland defense markets. Implant had last year already extended this agreement through the current month. In retrospect, this move looked to be a temporary fix in order to allow for the TSA approval to come to fruition, but the year-long extension allows ample time for the business to grow and the for the company to gain the means and resources to pay the portion of its debt that has not been converted into the convertible notes outlined in the press releases associated with the said credit agreements.
In noting the recent IMSC share price dip, short term credit concerns and uncertainty may have prevailed and curtailed enough investor interest to cause the drop. The relatively light volume, however, also indicates that many investors continue to hold to see this story - which is still in its early chapters - play out.
As noted last month when Implant released its most recent earnings report, an uptrend in revenue has already emphasized the potential of the company's Quantum Sniffer ETD technology to infiltrate numerous global defense-related markets, including the air cargo screening market for which the QS-B220 was recently approved. The TSA approval, in its own right, lays the foundation for more significant and relevant deals to materialize over the coming months and quarters.
There will be concerns that sequestration could hamper the short term consummation of any government-related deals, but it's unlikely that Congress - or anyone else in Washington - would pull money from terrorism-related defenses when it's all said and done. It could take time to weed out some of the pork from budget allocations, though, which may delay the process somewhat. When considering the sequestration cutbacks, we should bear in mind that it looks like the Department of Defense will be hit the hardest - not homeland security - so the threat of an impact to Implant may be minimal, unless the guys or gals looking to finalize such deals on the government end find themselves furloughed along the way.
In the meantime, Implant has also demonstrated the ability to grow its business in other high-threat markets, which provides enough growth potential outside of the domestic circuit to keep investors interested.
Some are concerned that no major deals relating to the TSA approval have yet to be announced, but Implant routinely announces deals after they are finalized, shipped and the money banked, so that's a point to consider. Also consider that the high profile failures of companies receiving government bail out money through the recovery periods have led to a higher level of scrutiny of companies doing business with federal agencies, which includes concerns about the credit worthiness and viability of such companies. The newest agreement with DMRJ, however, takes any short term speculative nature out of the equation for Implant Sciences, and that fact alone can seal the deal.
As the only US company ready to hit the homeland defense market with a non-radioactive ETD device, and with a credit line now extended long enough to allow for significant growth, IMSC remains a company to watch in a hot - and still growing - sector. This most recent DMRJ deal emphasizes the cooperative working relationship that these two entities have forged over the years and allows for concentration to be paid on growing sales.
Implant Could Potentially Be Impacted By DC's Stalled Budget Talks
In discussing the potential effects of sequestration and Washington's stalled budget talks, it may be worthwhile to consider the potential Impacts that these issues could have on Implant Sciences (IMSC) and other companies that may be looking towards government money to fuel growth. In the case of Implant, investors had speculated that recent TSA approval of its Quantum Sniffer B220 explosive trace detector would result in the landing of some key deals potentially associated with Washington's anti-terrorism efforts in relation to air cargo and overall aircraft and airline security. While the potential remains for Implant to land deals in the private sector for air cargo providers, the company's potential to enter into the government sector could be stalled by the budget woes in Washington, and investors should take note of that fact.
As news trickles out from DC regarding spending cuts and furloughs, one item mentioned is that Washington is in a period now where money already obligated to existing contracts will not be effected, but any new contracts or requests for fiscal obligations will be just as stalled as an elected official's 'to do' list once they arrive for work post-election. That could impact the type of new money that would be necessary for Implant to secure the government contracts - that's another aspect to consider in the patience game.
Such a scenario could lead to a period where investors may grow anxious at a point when large government-related deals were anticipated, but those looking towards the long term may appreciate the recent price pullback as an opportune time to add or continue with accumulation. As previously discussed, the advantages of Implant's ETD technology over the competition are distinct, and that underlies the potential for the company to play a large role in the growing homeland defense market. For that to occur, though, homeland defense needs to be funded and as we all know, the Mets might win the 'outfield of the year' award before a budget gets passed in DC.
A slowdown in domestic growth does not mean that the company can't come through on the international market, as has been noted in the past. On Tuesday, too, Implant noted that an existing aviation security customer in Africa had purchased three QS-H150 handheld units as part of a follow-on order. Having demonstrated a significant amount of overseas growth over the past year, including a multi-million dollar order to India, this company is not overly-reliant on the US market right now - but a budget resolution could help, as it'll free up new money for contracts again.
Shares of IMSC have traded in a volatile range since the TSA approval earlier in the year, but that action has both offered traders an opportunity to bank short term gains while those looking towards the long term have used the dips as an opportunity to accumulate. Indications are there that this is the ground floor of a potential runaway story over the long term, although some investors will stay away while the stock continues to trade on the pinks. The company has discussed a move to the bigger boards in the past, in conjunction with a name change, but such moves take money and Implant is currently allocating resources to building its business and expanding the reach of the Quantum Sniffer technology. That said, by the time the company is ready to make a move to the Nasdaq, for instance, then shares could be trading significantly higher as it probably would come at a time when revenue has jumped and the company is comfortable allocating the resources necessary to make the move.
Investors have had the opportunity to trade those trading shares at various points over the past few quarters, but the time to consider this one a pure accumulation play may be soon approaching.
Still a hot one to watch.
Disclosure: Long IMSC.
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