Implant Sciences [IMSC], which for the past year-and-a-half has enjoyed marked success with global and domestic sales of its explosives trace detection (ETD) systems, has agreed to acquire a small French company that develops personal flight systems as it continues to entertain potential buyers for its trace technology.
Implant on July 21 announced the deal for Zapata Industries, which has developed and flown the Flyboard Air, a small flying platform with an independent propulsion system that a person stands-on to maneuver in the air. The Flyboard can achieve a top speed of 93 miles per hour and autonomously reach 10,000 feet in altitude, potentially ushering in an era that resembles “The Jetsons.”
If the acquisition is approved by Implant’s shareholders, the deal would cost the company $15 million but it would end up with $20 million in working capital and no debt.
Despite its huge successes selling its desktop ETD system to the Transportation Security Administration, airport authorities in Europe and Canada, and transportation systems elsewhere, Implant has been unable to grow itself out of debt.
Implant has “transformed” its business operations and customer focus “our capital structure has remained a challenge,” says Bill McGann, the company’s CEO, on an investor call to discuss the deal for Zapata and market trends. The company’s capital structure affects shareholders and the business strategy, he says, adding that there needs to be a focus on resolving the capital structure given the demands to grow the company while paying off its “substantial” debt.
McGann says the company has made “exhaustive” attempts over nearly a decade to find a financial solution to its capital structure problems “and none have been successful.”
Meanwhile, McGann says, the market for security products is moving away from standalone products like the company’s benchtop and handheld ETDs in favor of integrated solutions. On top of that, recent terrorist attacks are demonstrating that future aviation security requirements will move from the checkpoint to the curb where standoff capabilities are needed, he says, noting this isn’t a capability in the company’s current security portfolio.
Implant isn’t in a position to provide networked solutions in a standoff detection environment, McGann says.
The security industry is also going through a second wave of consolidations, which means the time may be right to sell Implant’s ETD business, company officials says. Currently Britain’s Smiths Group is on a path to acquire the Morpho Detection business of France’s Safran Group and OSI Systems [OSIS] has agreed to acquire American Science & Engineering [ASEI].
On the other hand, Zapata’s personal flight systems offer potential new inroads for that technology in the military, homeland security and commercial markets, Implant officials say. McGann says that the U.S. Defense Department is an “early adopter” of new technologies and Zapata’s Flyboard may be a candidate for DoD interest.
Roger Deschenes, Implant’s chief financial officer, tells investors that Zapata’s hoverboard technology isn’t “a circus trick,” noting the technology works and has scale. It has the “wow factor” and can open an entirely new market space and drive value for shareholders, he says.
There is “significant interest” within the U.S. government and foreign governments to look at ways Zapata’s technology can be “scaled to provide an operational platform for a variety of uses” for military and government applications to obtain a “competitive advantage that doesn’t exist today,” Deschenes says.
The Implant officials say the Flyboard in military applications could be used for troop movements and medical evacuations among other uses.
Deschenes says that Implant’s creditors are in favor of the deal and that Zapata is a profitable business with margins between 25 and 30 percent on earnings before interest, taxes, depreciation and amortization.
Late in 2015 Implant Sciences initiated a strategic review of its business alternatives and now says it is evaluating a “number of offers” for its ETD business.
“The potential acquisition of Zapata brings Implant Sciences a best-in-class personal balance and flight technology that has far reaching military and consumer applications,” says Robert Liscouski, Implant’s president and a member of its board. “We are beyond excited to have visionaries like Franky Zapata and his team on board and we are thrilled to allow for shareholders to benefit from the many breakthrough products he has already invented and the new innovations he will be unveiling in coming months and years.”
Implant said that the Flyboard Air uses Zapata’s proprietary algorithms and balance methodology to direct jet engines to act “both independently and harmoniously.”