Implant Sciences Reports Third Quarter Fiscal 2014 Financial Results

WILMINGTON, Mass., May 15, 2014 /PRNewswire/ -- Implant Sciences Corporation (OTCQB: IMSC), a high technology supplier of systems and sensors for the homeland security market and related industries, today announced financial results for the fiscal quarter and nine month period ended March 31, 2014.  

Revenues for the three months ended March 31, 2014 increased 115%, to $2.7 million, from $1.3 million for the comparable prior year period.  Our net loss for the three months ended March 31, 2014 was $4.9 million as compared with a net loss of $5.3 million for the comparable prior year period, a decrease of $0.4 million.  The decrease in the net loss is primarily due to higher sales and gross margin and by a $1.0 million decrease in stock-based compensation recorded on the September 2012 officer and director option grants in the three months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense.

Revenues for the nine months ended March 31, 2014 decreased 27%, to $7.0 million, from $9.6 million for the comparable prior year period.  Our net loss for the nine months ended March 31, 2014 was $15.3 million as compared with a net loss of $21.8 million for the comparable prior year period, a decrease of $6.5 million.  The decrease in the net loss is primarily due to a $10.0 million decrease in stock-based compensation recorded in the nine months ended March 31, 2014 on option grants to our directors and officers in September 2012, offset partially by increased operating expenses and increased interest expense.

Earnings before interest, taxes, depreciation, stock-based compensation, warrants issued to non-employees and common stock issued to consultants (Adjusted EBITDA), which is reconciled to net loss in this press release, were a loss of $2,299,000 in the three months ended March 31, 2014, compared to a loss of $2,307,000 in the comparable prior year period and, for the nine months ended March 31, 2014, a loss of $6,897,000, compared to a loss of $5,020,000 in the comparable prior year period.

Glenn D. Bolduc, President and CEO of Implant Sciences, commented, "During our recently concluded quarter we continued to progress through several regulatory approval processes, most notably we entered into the final testing phase for checkpoint qualification with the TSA and achieved approvals in China and Germany, all of which are important strategic achievements that we believe position the Company for consistent and sustainable growth. We have taken important steps to broaden the markets we serve, increase our revenue opportunities, and improve our financial stability." The following are some of our recent developments:

• In February 2014, we entered into Operational Test and Evaluation (OT&E), the final phase of testing for checkpoint qualification, with the Transportation Security Administration and continue to progress through this phase.
• We entered into a second Cooperative Research and Development Agreement (CRADA) with the U.S. Department of Homeland Security's Transportation Security Laboratory (TSL) for our QS-B220 explosives trace detector (ETD) which will be used as gold standard ETD by the TSL.
• In March 2014, our QS-H150 handheld ETD was certified by the Chinese Ministry of Public Security.
• Our QS-B220 ETD received regulatory approval from the German Federal Ministry of the Interior for aviation security applications at German airports in March 2014.
• We successfully completed the final registration audits for registration to ISO 9001:2008 and ISO 14001:2004 standards and received the registration certificates on May 13, 2014.
• On March 19, 2014, we completed a $20,000,000 refinancing with an accredited institutional investor group and extended the maturity of our credit agreements with DMRJ Group LLC through March 31, 2015.
• We continued our recent gains in the Russian market with the shipment of our QS-H150 handheld to the Minsk National Airport which are being deployed at the 2014 Men's World Hockey Championship and continued global distribution of our QS-H150 with sales to Latin America and Asia.
• We achieved growing sales of our QS-B220 to several domestic and international freight forwarders for use in air cargo screening and for use in critical infrastructure protection in Asia.

Mr. Bolduc concluded, "We believe that our continued progress with the TSA establishes our credibility as the next generation explosives technology in the competitive global trace explosives industry. The growth in sales of our QS-B220 recognized in the just concluded quarter is attributable to being accepted into the "Qualified" section of the TSA's Air Cargo Screening Technology List. We remain excited about our future prospects."

Details for the three months and nine months ended March 31, 2014 follow below.

Three months Ended March 31, 2014 vs. March 31, 2013

• Revenues for the three months ended March 31, 2014 were $2,708,000 as compared with $1,262,000 for the comparable prior year period, an increase of $1,446,000, or 114.6%.  The increase in revenue is due primarily to: a 1,050.0% increase in the number of QS-B220 benchtop units sold in the three months ended March 31, 2014, due to increased shipments to Asia and Europe, for use in infrastructure protection and air cargo screening, which resulted in a 1,082.3% increase in QS-B220 revenues; a 72.5% increase in the number of QS-H150 handheld units sold in the three months ended March 31, 2014, primarily due to the shipment of QS-H150 handheld units in Latin America which resulted in a 51.4% increase in QS-H150 revenues; and, to a lesser extent, increased sales of parts and supplies in the three months ended March 31, 2014, as compared to the comparable prior year period; and a 2.8% increase in average unit sell prices on sales of QS-B220 units.  These increases are partially offset by a 12.3% decrease in average unit sell prices on sales of our QS-H150 handheld units. We began shipping the QS-B220 in the second quarter of fiscal 2013.
• Gross margin for the three months ended March 31, 2014 was $806,000 or 29.8% of revenues as compared with $303,000 or 24.0% of revenues for the comparable prior year period.  The increase in gross margin as a percent of revenues is primarily the result of higher margins achieved on sales of our QS-B220 benchtop units and a $84,000 decrease in stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by a $296,000 increase in manufacturing overhead 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 March 31, 2014 was $1,179,000 as compared with $1,116,000 for the comparable prior year period, an increase of $63,000 or 5.6%.  The increase in research and development expense is due primarily to a $50,000 increase in payroll and related benefit costs, a $25,000 increase in occupancy costs, a $22,000 increase in government testing fees, a $24,000 increase in consulting fees and a $11,000 increase in prototype expense, offset partially by a $78,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants.
• Selling, general and administrative expenses for the three months ended March 31, 2014 were $2,845,000 as compared with $3,191,000 for the comparable prior year period, a decrease of $346,000, or 10.8%. The decrease in selling, general and administrative expenses is due primarily to a $807,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, a $135,000 decrease in legal fees and a $127,000 decrease in consulting fees, due primarily to the non-cash benefit recognized on the settlement agreement with a consultant, partially offset  by the $295,000 benefit recognized as a result of the litigation settlement with Fulong in the prior year period, a $172,000 increase in variable sales expenses due to higher revenues and increased non-employee sales commissions,  a $147,000 increase in occupancy costs, due to the relocation of our corporate offices, a $106,000 increase in stock-based compensation on non-employee warrants and a $84,000 increase in payroll, related benefit costs and travel expense resulting from the addition of sales personnel.
• For the three months ended March 31, 2014, other expense was $1,721,000 as compared with other expense of $1,335,000, for the comparable prior year period, an increase of $386,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ and our credit facility with BAM.
• Our net loss for the three months ended March 31, 2014 was $4,939,000 as compared with a net loss of $5,339,000 for the comparable prior year period, a decrease of $400,000, or 7.5%.  The decrease in the net loss is primarily due to higher sales and gross margin, decreased stock-based compensation recorded on the September 2012 officer and director option grants in the three months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense.

Nine Months Ended March 31, 2014 vs. Mach 31, 2013         

• Revenues for the nine months ended March 31, 2014 were $7,023,000 as compared with $9,615,000 for the comparable prior year period, a decrease of $2,593,000, or 27.0%.  The decrease in revenue is due primarily to an 60.2% decrease in the number of QS-H150 handheld units sold in the nine months ended March 31, 2014, primarily due to the shipment of QS-H150 handheld units under our contract with the India Ministry of Defence in the nine months ended March 31, 2013, which resulted in a 61.4% decrease in QS-H150 revenues, and, to a lesser extent, decreased sales of parts and supplies in the nine months ended March 31, 2014, as compared to the comparable prior year period and a 3.2% decrease in the average unit sell prices on sales of our QS-H150 handheld units, partially offset by a 1044.4% increase in the number of QS-B220 benchtop units sold in the nine months ended March 31, 2014, due to increased shipments to U.S. air cargo screening facilities, increased shipments into Latin America, Europe and agencies of the U.S. government, which resulted in a 985.3% increase in QS-B220 revenues.
• Gross margin for the nine months ended March 31, 2014 was $2,189,000 or 31.2% of revenues as compared with $2,732,000 or 28.4% of revenues for the comparable prior year period.  The increase in gross margin as a percent of revenues is primarily the result of the $552,000 decrease in stock-based compensation recorded on stock option grants to officers and directors in September 2012, partially offset by a $517,000 increase in manufacturing overhead 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 nine months ended March 31, 2014 was $3,601,000 as compared with $3,521,000 for the comparable prior year period, an increase of $80,000 or 2.3%.  The increase in research and development expense is due primarily to a $357,000 increase in payroll and related benefit costs, a $122,000 increase in occupancy costs, a $54,000 increase in government testing fees and a $48,000 increase in prototype expense, offset partially by a $487,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants and a $7,000 decrease in contract engineering services.
• Selling, general and administrative expenses for the nine months ended March 31, 2014 were $8,939,000 as compared with $17,115,000 for the comparable prior year period, a decrease of $8,176,000, or 47.8%. The decrease in selling, general and administrative expenses is due primarily to a $8,898,000 decrease in stock-based compensation recorded on the September 2012 officer and director option grants, the imposition of liquidated damages of $298,000 under our contract with the India Ministry of Defence in the prior year period, a $173,000 decrease in bank charges, a $253,000 decrease in legal expenses, offset partially by a $444,000 increase in payroll, related benefit costs and travel expense resulting from the addition of sales personnel, a $484,000 increase in occupancy costs, due to the relocation of our corporate offices,  the $295,000 benefit recognized as a result of the litigation settlement with Fulong in the prior year period, a $264,000 increase in stock-based compensation on non-employee warrants, a $105,000 increase in variable selling expenses due to increased non-employee sales commissions and a $177,000 increase in selling expenses due to the opening of our Shanghai representative office, increased participation at industry trade shows and an increase in demonstration units provided to our sales force.
• For the nine months ended March 31, 2014, other expense was $4,990,000 as compared with other expense of $3,906,000, for the comparable prior year period, an increase of $1,084,000. The increase is due to increased interest expense on higher borrowings under our credit facility with DMRJ and BAM.
• Our net loss for the nine months ended March 31, 2014 was $15,341,000 as compared with a net loss of $21,810,000 for the comparable prior year period, a decrease of $6,469,000, or 29.7%.  The decrease in the net loss is primarily due to the decrease in stock-based compensation recorded on the September 2012 officer and director option grants in the nine months ended March 31, 2014, partially offset by increased operating expenses and increased interest expense.

Company Webcast and Conference Call

The Company will host a webcast and conference call on Thursday, May 15, 2014 at 4:15 PM Eastern time to review financial results for the three months and nine months ended March 31, 2014. Following the Company's prepared remarks there will be a Q&A session.  The call can be accessed by interested parties by dialing: 866-700-0133 within the U.S. or 617-213-8831 outside the U.S. and entering passcode 90391694.  Participants are asked to call the assigned number approximately 5 minutes before the conference call begins.  A replay of the conference call will be available approximately two hours after the call for one month by dialing: 888-286-8010 within the U.S. or 617-801-6888 outside the U.S. and entering passcode 44239175.  The conference call will also be available live over the Internet at the "Webcasts" page of the Investor Relations section of Implant Sciences' website at www.implantsciences.com.  A replay of the webcast will be available for one month after the call.

About Implant Sciences

Implant Sciences is the leader in next generation Explosives Trace Detection (ETD) technology. In October 2013, the Company became the third ETD manufacturer, and the sole American-owned company, to currently have product qualification from the US Transportation Security Administration. Implant Sciences develops, manufactures and sells sophisticated sensors and systems for Security, Safety, and Defense (SS&D) markets. The Company has developed proprietary technologies used in its commercial explosives and narcotics trace detection systems, which ship to a growing number of locations domestically and internationally. Implant Sciences' QS-H150 portable explosives trace detector has received Qualified Anti-Terrorism Technology Designation and, in addition to receiving TSA qualification for air cargo screening and certification by Service Technique de l'Aviation Civile in France for passenger and air cargo screening, the Company's QS-B220 has also received Qualified Anti-Terrorism Technology Designation by the U.S. Department of Homeland Security under the Support Anti-terrorism by Fostering Effective Technology Act of 2002 (the SAFETY Act). For further details on the Company and its products, please visit the Company's website at www.implantsciences.com.

Safe Harbor Statement

This press release may contain certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to risks and uncertainties that could cause the Company's actual results to differ materially from the forward-looking statements. Such risks and uncertainties include, but are not limited to, the risks that we will be required to repay all of our indebtedness to our secured lenders, DMRJ Group, LLC and certain lenders for which BAM Administrative Services LLC serves as agent, by March 31, 2015; if we are unable to satisfy these obligations and to raise additional capital to fund operations, BAM or DMRJ may seize our assets and our business may fail; we continue to incur substantial operating losses and may never be profitable; our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern; our explosives detection products and technologies (including any new products we may develop) may not be accepted by the Transportation Security Administration or by other U.S. or foreign government and law enforcement agencies or commercial consumers of security products; economic, political and other risks associated with international sales and operations could adversely affect our sales; liability claims related to our products or our handling of hazardous materials could damage our reputation and have a material adverse effect on our financial results; our business is subject to intense competition; our markets are subject to rapid technology change and our success will depend on our ability to develop and introduce new products; we may not be able to retain our management and key employees or identify, hire and retain additional personnel as needed; we may not be able to enforce our patent and other intellectual property rights or operate without infringing on the proprietary rights of others: and other risks and uncertainties described in our filings with the Securities and Exchange Commission, including our most recent Forms 10-K, 10-Q and 8-K. Such statements are based on management's current expectations and assumptions which could differ materially from the forward-looking statements.

For further information, you are encouraged to review Implant Sciences' filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, as amended, for the period ended June 30, 2013. The Company assumes no obligation to update the information contained in this press release.

For further information contact:
Implant Sciences Corporation

Glenn Bolduc, President and CEO
(978) 752-1700

or

Investor Contact:
Laurel Moody
646-810-0608

SOURCE Implant Sciences Corporation