TR2 August 17

*OSI Systems [OSIS] Rapiscan Systems division has received a $7 million contract from the Army to provide multiple ruggedized Secure 1000 whole body imaging systems. The delivery order is the first for any firm under the Army’s Entry Point Control indefinite delivery, indefinite quantity contract awarded last month (TR2, July 6). The Secure 1000 is also being acquired by the Transportation Security Administration for deployment at some of the nation’s airports. Separately, OSIS says that Rapiscan Systems achieved record bookings in its fourth quarter ended June 30 of $85 million, a 22% increase from the prior year.

*American Science and Engineering [ASEI] has received an order from an Eastern European country for two Z Backscatter Van X-Ray screening systems for border security applications. The award is a repeat order.

*The Domestic Nuclear Detection Office (DNDO) plans to award AMETEK’s [AME] Ortec division a one-year, $648,000 sole source contract for upgrades to currently fielded Micro Detective high purity germanium handheld radio-isotope identification devices. The Ortec Micro Detective-HX was developed under DNDO’s Human Portable Radiation Detection System program.

Morpho Detection, Inc. (MDI) will best be able to grow in the long-term by diversifying its customer base globally, finding new markets with its current product set and eventually expanding its product portfolio, according to the company’s new chief, Brad Buswell.

The company is currently limited to its two major product lines, explosives detection systems (EDS) for screening checked baggage, and explosives trace detectors (ETD), but needs to expand beyond these products to become more competitive in other market sectors, Buswell tells TR2.

“My intention is that we grow to a leadership role in the aviation checkpoint,” Buswell says. “The emerging air cargo sector is very interesting” with new regulations being implemented for supply chain security and it’s not a “problem that’s going away anytime soon,” he says.

MDI has been selling its ETD products into the air cargo security market, mainly its Itemiser DX, but Buswell, like some of his competitors, believes there’s more room to grow here, particularly on a global scale. MDI exhibited at the Paris Air Show this summer and one of the takeaways for Buswell was continued interest from potential customers for air cargo security solutions, particularly among the third party logistics providers such as FedEx, UPS and DHL.

In fact, MDI recently received a $5 million order from one of the major logistics providers for its Itemiser DX.

Moreover, he believes there are also near-term opportunities for ETD products in other market segments such as infrastructure protection and field-type operations.

As for expanded product offerings, MDI is developing a system to detect explosives in palletized cargo for the air cargo market. Funding for that effort is being provided by the Department of Homeland Security’s (DHS) Science and Technology Directorate.

Buswell believes that government investments are critical if effective palletized screening systems are going to become a reality. There are currently no palletized screening solutions that DHS believes are effective for explosives detection that can be widely used throughout the air cargo supply chain.

While MDI’s Itemiser DX systems are in widespread use at airport security checkpoints, particularly with the Transportation Security Administration in the U.S., Buswell says the current core product at the checkpoint is the Advanced Technology X-Ray system for screening carry-on bags. These systems, at least for the U.S., are currently supplied by OSIS Systems [OSIS] and Smiths Detection although L-3 Communications [LLL] also has a system that is certified by TSA.

Acquisitions and Partnerships

The seemingly obvious way to gain a foothold with AT X-Ray products is through an acquisition although Buswell suggests that another way is to partner with a hardware vendor to take advantage of MDI’s core expertise in developing detection algorithms.

“We are looking at combining our core expertise with other potential partners that have hardware,” Buswell says. A potential hardware partner doesn’t have to be one that has a currently certified product for aviation security, he says.

Still, MDI will be keeping acquisitions in mind.

“At end of day, if you look across the industry, I think it’s at a point in time where we’re going to start seeing some strategic moves, consolidation, and so we need to make sure that we’re strategizing around that as well,” Buswell says.

The current leader in the detection area in terms of sales is Smiths Detection, with other competitors less than half its size. Buswell says that for is a plenty of room for acquisitions or joint ventures for companies to compete against Smiths Detection with more complete product lines. One glaring absence in Smiths Detection’s portfolio is computed tomography-based EDS for checked baggage screening.

One product area that Buswell says MDI won’t be getting into is whole body imagers that the TSA is currently buying and installing at airport checkpoints to detect anomalies hidden beneath passengers’ clothing. He doesn’t see room for a new entrant in this product category and doesn’t believe there is widespread traction for it internationally.

MDI at one time sold a walk through explosives trace portal to the TSA although that program was canceled due to maintenance issues with the system. More recently, MDI acquired mass spectrometry experts Syagen Technology, which also has a “top notch” trace portal that Buswell believes has potentially strong global business opportunities because it can detect a range of explosives, not just conventional, and because it does not emit radiation or present privacy concerns (TR2, Aug. 3).

“We are looking at the right way to relaunch the effort on trace portals,” Buswell says.

MDI is also working with Syagen to develop a new explosives trace detection desktop system based on mass spectrometry. This will provide a detection capability for homemade type explosives, Buswell says.

MDI is part of France’s Safran Group, which also operates two U.S.-based identity solutions firms, MorphoTrak and the former L-1 Identity Solutions, MorphoTrust. At the recent Paris Air Show MDI and MorphoTrak unveiled a concept for a future checkpoint that combines their respective detection and biometric solutions as an integrated approach to meet evolving risk-based screening requirements (TR2, June 22).

Buswell says that the high-throughput, trusted-traveler lanes that TSA is beginning to experiment with ultimately means it needs to be “as hands off a process as possible.” Safran’s combination of detection and identity management capabilities gives it the ability to possibly offer a “totally automated trusted traveler lane,” he says.

Sales for many of the detection companies have been lumpy from quarter to quarter and year to year. Buswell says for MDI to grow long-term and to smooth out revenue intake, international sales are critical.

Last spring MDI established MDI International based in Paris, which is responsible for all MDI sales and service activities outside the U.S., Canada and Germany. MDI International is outside the Special Security Agreement that MDI has with the U.S. government, making it easier to leverage MDI’s products for global sales, the company believes.

Boeing‘s [BA] Insitu subsidiary has introduced a new, man-portable small unmanned aircraft system (UAS) for the public safety market, an attempt to open a new market niche with a new UAS product.

The short-range Inceptor UAS weighs less than four pounds, fits into the trunk of a squad car and provides stable, real-time video to a handheld ground control station. Insitu says the system can operate in sustained winds and wind gusts and still provide stable imagery.

The rotary-wing aircraft can stay aloft and operate for more than 20 minutes at up to 400 feet of altitude and patrol at speeds up to 24 mph.

Insitu is initially focusing on the law enforcement market for Inceptor although it has already generated interest from the military, Border Patrol and even farmers, Paul McDuffee, a business development executive with Insitu, tells TR2. But for now the company remains committed to going after law enforcement customers, he says.

McDuffee says the company doesn’t have an initial market estimate for its micro-UAS other than to say that the law enforcement community across the U.S. is expressing a lot if interest.

The micro-UAS is a new direction for Insitu, which supplies the much larger ScanEagle UAS to the Defense Department and is developing an even larger UAS, the Integrator for the DoD. The company has partnered with Adaptive Flight, Inc., which is providing the flight control system that McDuffee says is ahead of the competition in terms of enabling stable flight in windy conditions up to 25 and 30 knots.

Inceptor also features auto-tracking of a target and can fly autonomously from point-to-point based on pre-programmed instruction or be operated manually by the handheld unit. A camera aboard the Inceptor provides high-resolution video to a user. McDuffee says the system will be operating at low altitudes, which means it will be close to the target, able to provide “quick look” video to officers.

McDuffee says that in testing the video is stable even when operating in windy conditions.

Imagery can be recorded for post-processing and Insitu is looking to make the system Wi-Fi based so that it can operate on unlicensed frequencies to enable additional authorized officers to view the video on a smart phone, McDuffee says.

Insitu is developing a beta version of Inceptor it plans shortly to deliver to initial customers to gain operational lessons and provide feedback to the company prior to beginning full production in the first quarter of 2012, McDuffee says.

Insitu believes the timing is right to enter the micro-UAS field for the domestic market given that the Federal Aviation Administration (FAA) is moving, albeit slowly, toward integration of small UAS into the national air space, McDuffee said. This fall the FAA is expected to release a notice of proposed rulemaking that will mark the “first concrete steps” for integrating these systems into the national air space, he says.

This is a “big deal” because it marks the first attempt at baseline requirements for national air space flight” for small UAS, McDuffee says. Small UAS are defined as weighing less than 55-pounds.

Insitu plans to offer Inceptor for about $50,000, the price of a well equipped Crown Victoria operated by police forces, McDuffee says.

In addition to an electro-optic camera for day time use, an infrared camera is in development for Inceptor, McDuffee says.

Insitu is developing the Inceptor system to be easy to use. The aircraft takes off from the ground with a one-button push start and a user can be trained in about an hour. The objective is it is “extremely simple” to use the system, McDuffee says.

The Air Line Pilots Association (ALPA) and the Air Transport Association (ATA) have begun operations of a risk-based screening system for airline pilots, kicking off a trial at several airports that they expect will expand nationwide and to eventually include flight attendants.

The Known Crewmember program began at three access points at Chicago O’Hare International Airport last week and later this month will expand to Miami International Airport with four additional access points. Later this year, the evaluation phase of Known Crewmember will continue at Boston Logan, Washington Dulles, Minneapolis-St. Paul, Phoenix Sky Harbor and Seattle-Tacoma International Airports.

Under Known Crewmember, when a pilot approaches a Known Crewmember checkpoint, he or she presents their photo identification badge. A Transportation Security Officer (TSO) uses a laptop computer connected to an ATA-hosted system to connect with the airline’s crew database. The TSO is then pulls up a photo of the pilot to match the photo on the laptop with the badge and the individual.

This positive identification will give pilots expedited passage through security checkpoints.

In addition to positively verifying a pilot’s identity, Known Crewmember also verifies a pilot’s employment status. Combined with the fact that airline pilots already undergo a thorough fingerprint-based criminal background and employment check as a condition of their employment, it will mean that pilots will be subject to a more efficient security screening process at checkpoints.

“This enhanced screening process recognizes the extensive background checks pilots receive as part of their employment and, importantly, airline pilots’ critical role and responsibility in securing their aircraft each and every time they fly,” says Capt. Lee Moak, president of ALPA.

Known Crewmember is operated jointly by ALPA and ATA with oversight from the Transportation Security Administration (TSA).

TSA in the spring said it was ready to begin moving forward with a more efficient screening program for airline pilots following a growing chorus of complaints from pilots and their unions over checkpoint security procedures for pilots despite the extensive background checks they go through (TR2, April 13). At the time TSA Administrator John Pistole said the agency wants to focus its limited resources on passenger screening and be able to speed and enhance the checkpoint experience for everyone.

The two industry groups say they hope to make the program available to all U.S. airline pilots, noting that 13 airlines have already connected to Known Crewmember. They have also asked TSA to include flight attendants in the future.

Known Crewmember is also expected to improve the checkpoint experience for passengers by removing the airline pilots from passenger screening lines.

Following the 90 day trial, TSA, ALPA and ATA will review the results and make any necessary changes before the agency commits to full implementation of Known Crewmember.

American Science and Engineering [ASEI]

Sells fell nearly 5% due to a decline in revenues in the company’s cargo and Z Backscatter Van (ZBV) product lines. Company officials attribute the declines to ongoing order delays stemming from a number of issues such as budget and debt ceiling issues in the U.S., with the latter issue impacting spending decisions by European governments, the Arab spring, and fallout from the tsunami and consequent nuclear troubles in Japan that had ripple effects along the Pacific Rim. Popular uprising in the Middle East have delayed the completion of work on some cargo inspection system installations, which means delayed revenue recognition for the company, Anthony Fabiano, AS&E’s president and CEO, tells analysts. Bookings also suffered, albeit more dramatically, due to the same reasons that hampered sales, with orders totaling $8.3M in the quarter versus $76.7M a year ago. The sales breakout for the quarter by product category was: Cargo, $3.4M; Backscatter Systems, $10.4M; Field Service, $23.5M; Parcel, $12.9M; and Contract R&D, $910,000. AS&E booked six ZBVs in the quarter and shipped 12. Parcel revenues were well up due to the deliver of multiple whole body imaging systems for an order that has been fulfilled. The order decline also impacted backlog, which slid to $172.5M from $218.8M a year ago. The company expects to ship 75-80% of backlog in the next year. Fabiano says it was a disappointing quarter but that the sales pipeline remains strong but with no clarity when government agencies worldwide will begin to cut checks. As usual, AS&E provided no guidance and said sales could go up or down. One sign of its confidence in the market is a ramp up in R&D spending to $6.1M versus $5M a year ago as it continues to work to expand and enhance product lines. Net income declined 16% and free cash flow was $11.9M. The company only repurchased 301 shares in the quarter and still has $20M remaining on its repurchase authorization. Benchmark Capital analyst Josephine Millward, who has a hold on AS&E, says there is limited visibility to support any revenue growth for the company this year and sees “more potential downside” given the recent loss to Smiths Detection for a $69M Marine Corps contract for rugged mobile non-intrusive inspection systems and little in the way from the Army in near-term requirements.

The U.S. Coast Guard’s third 418-foot National Security Cutter (NSC), the Stratton (WMSL 752), has successfully completed several days of acceptance trials to ensure that it meets all contractual requirements, making it ready for delivery to the service. The Huntington Ingalls Industries [HII]-built cutter went through acceptance trials at the shipyard in Pascagoula, Miss., and at sea in the Gulf of Mexico by the Coast Guard and the Navy’s Board of Inspection and Survey (INSURV). “NSC 3 acceptance trials were a very safe and well executed evolution,” says Rear Adm. Bruce Baffer, the program executive officer for the Coast Guard’s Acquisition Directorate. “We got underway on schedule, successfully demonstrated all contractual requirements and returned three hours early, flying two brooms, signifying a clean sweep of all challenges during at-sea testing.” As for issues with the cutter, acceptance trials resulted in two starred cards for Stratton, down from three with NSC 2, the Waesche, and eight with NSC 1, Bertholf. Starred cards are discrepancies that must be corrected before delivery or waived by the government. The INSURV team will soon make a formal recommendation regarding the Stratton’s acceptance to the Coast Guard. The cutter is expected to be delivered to the service in early September. The production contract for NSC 4 was awarded last November and construction is slated to begin later this month. The Coast Guard plans to acquire eight NSCs to replace 12 Hamilton-class high endurance cutters that began service in the 1960s.

Implant Sciences Corp. [IMSC] says it is enhancing its Quantum Sniffer handheld QS-H150 and benchtop QS-B220 explosives trace detection systems with an advanced performance logging and reporting system. The new software package, which will be offered as an accessory, is available for the company’s installed base of over 1,300 QS-H150 units as well as future sales of the H150 and B220. The new software tool allows users to collect data from multiple Quantum Sniffer devices into a single data repository where it can be queried and organized to produce detailed reports. Data includes time of scan, system operator, substances detected, and a detailed analysis for each positive detection. Implant says that the reporting enhancement is important to government regulators as part of an audit trail and enables use of the Quantum Sniffers on a pay-per-scan basis.

The National Institute of Standards and Technology (NIST) Law Enforcement Standards Office and its partners will offer documentary standards to first responders as part of a pilot project that began this month and runs through October to help the office determine who needs access to standards in the federal, state and local responder communities, what types of standards they use the most, and how the office can better serve first responders in the future. Documentary standards can specify product characteristics, establish accepted test methods and procedures, characterize materials, define processes and systems, or specify knowledge, training and competencies for specific tasks. Typical subjects include personal protective equipment, detection systems, body armor, urban search and rescue robots, communications systems and biometric identification systems. NIST is working with Science Applications International Corp. [SAI], SAI Global, Inc., ASTM International, IEEE and the NFPA for the pilot project.

Northrop Grumman [NOC] has received a five-year, $207 million follow-on contract from New York City for ongoing operations and maintenance of a wireless communications network that gives city agencies a secure broadband infrastructure to support public safety and other operations. The award follows an original five-year, $500 million contract the company won in 2006 from the city’s Department of Information Technology and Telecommunications to develop and install the New York City Wireless Network (NYCWiN). NYCWiN is high-speed, mobile data network spanning more than 300 square miles and five boroughs. Under the new award Northrop Grumman will also provide integration services and mobile application solutions for enhanced and expanded public safety and public service applications. In addition to police officers, the city’s Department of Environmental Protection is using the service to track water use via automatic meter reading. The network also provided live video to City Hall of plowed street conditions during a blizzard earlier this year.

The Army has awarded GTSI Corp. [GTSI] a 16-month, $159 million contract to provide warfighters mobile biometric devices to assist in real-time identification of persons of interest in the field. The Biometric Automated Toolset-Army award was made under the Information Technology Enterprise Solutions-2 Hardware contract. GTSI is partnered with Cross Match Technologies, Inc., to deliver the portable, rugged multi-biometric solution. The BAT-A toolset includes an enrollment kit consisting of a laptop computer and attached biometric devices capable of enrollment, verification, and identity detection, together with mobile handled devices for collecting, storing, and uploading pertinent data to U.S. Army biometrics collection centers. A system of servers containing the biometric database maintains and synchronizes information, ensuring that data collected at one location is available at others. “We are delighted to win BAT-A and this contract positions GTSI as a leader in mobility and biometrics integration and support for our warfighters,” says Sterling Phillips, GTSI’s CEO. GTSI and Cross Match both declined to identify the specific biometric solutions that Cross Match will provide as part of BAT-A. BAT-A devices collect fingerprints, iris scans, facial photos and biographical information. Science Applications International Corp. [SAI] has been the Army’s BAT-A engineering support provider since 2003.

CSC [CSC] has won a potential $147.4 million task order from the State Department for Global Support Strategy (GSS) for Visa Services for Brazil. CSC beat CGI Federal‘s [GIB] Stanley Associates business unit for the award. The two are the only companies on the Global Support Strategy for Visa Service Indefinite Delivery, Indefinite Quantity contract. The task order has a $19.2M base year value and four one-year options that could bring the total value to $147.4 million. Under the task order CSC will launch a regional GSS program for Brazil and provide information services, appointment services, fee collection services, document delivery services, greeter services, and off site biometric collection services.

In a surprise win, the Marine Corps last month awarded Smiths Detection a potential $69.8 million indefinite delivery, indefinite quantity contract for up to 45 Rugged Mobile Non-Intrusive Inspection (NII) Systems. There were three bids for the work, including American Science and Engineering [ASEI], which has been successful so far in selling its Z Backscatter Van Military Trailer to the military for Rugged Mobile NII applications. AS&E officials say they are “perplexed” over the loss and would review their options following a debriefing of the source selection by the Marines. The initial award is for $12 million for 10 systems. The NII systems will be deployed to Afghanistan and the contract is expected to be completed by July 2013. The contract includes spare parts, installation, and maintenance, training and technical data.

The Department of State has awarded CGI Federal Inc.‘s [GIB] Stanley Associates unit a $26 million task order under the Global Support Strategy (GSS) for Visa Services program indefinite delivery, indefinite quantity contract. Under the award CGI will provide business process services to support the processing of non-immigrant visa applications, including information services, fee collection, appointment services, and document delivery at U.S. embassies and consulates in Russia, Kazakhstan, Tajikistan, Kyrgyzstan and Mongolia. This is CGI’s third task order won under the GSS contract. CGI competes against CSC [CSC] for task orders under GSS.

The Germany Interior Ministry has awarded Smiths Detection a contract to provide about 50 Advanced Technology (AT) X-Ray systems for security checkpoints at Frankfurt International Airport. The value of the award was not disclosed. The X-Ray systems include HI-SCAN 6040 aTiX and HI-SCAN 7555 aTiX systems, combined with re-inspection components and other equipment to facilitate carry-on baggage screening for liquid explosives. “This latest order from Germany underlines our leading role in supplying advanced detection technologies that meet the strict EU security requirements for detecting liquid threats,” says Cherif Rizkalla, chief commercial officer of Smiths Detection.

General Dynamics‘ [GD] Information Technology business unit has won a potential $11 million blanket purchase agreement to provide the Coast Guard Force Readiness Command (FORCECOM) information technology (IT) support services over a five-year period. The work will include simulator support for non-standard work stations and systems, which are customized and stand-alone from the overall enterprise and support command, control communications, computers and intelligence systems, navigational, telecommunications and shipboard sensors. The award is based work GD is already providing FORCECOM. GD said it plans to hire 17 new employees to support the contract. FORCECOM is charged with preparing forces to perform missions.

OSI Systems [OSIS] says its Rapiscan Systems division has received a $4 million contract from a major Asian international airport to service and maintain its checkpoint screening and hold baggage inspection systems. The customer was not disclosed. “Leveraging Rapiscan’s global support network, we look forward to servicing this key international customer located in a high growth region,” says Deepak Chopra, president and CEO of OSI Systems. “With a growing international presence, over half of our security revenues are from outs the U.S. We continue to see strong international demand for full life-cycle support for inspection platforms, which allows customers to focus their efforts on screening operations while we provide seamless service and maintenance of the related infrastructure.”

Cross Match Technologies and its technology partner Digent Co., Ltd, have been selected by the South Korean Ministry of Justice to support its Foreigners’ Fingerprint Verification System. The ministry will register foreign travelers in 30 immigration offices throughout South Korea using the Cross Match Patrol, and FBI Appendix F- certified biometric capture device that delivers flats and 10-print images. Digent is supplying its Fingerprint Authentication Server software, which allows for rapid matching and verification of captured fingerprints. The companies’ say their solution can verify more than 500,000 fingerprints per second. The ministry will use Cross Match Patrol to identify travelers at airports and harbors.

Fresh of off its termination of the Advanced Spectroscopic Portal program, the Domestic Nuclear Detection Office (DNDO) has issued a special notice saying it will release a Request for Information early in FY ’12 for readily available commercial-off-the-shelf radiation scanning systems and detectors that are capable of detecting and identifying radiation sources within cargo and conveyances entering the U.S. via land border crossings and seaports. The conveyances may be full-sized motor vehicles, trucks, buses, vehicles, cargo containers or a combination thereof. These systems must accurately ant rapidly detect radiation threat materials and devices, including nuclear weapons, improvised nuclear devices, special nuclear material and radiological dispersal devices with sufficient discrimination to separate innocent radiation materials from threat materials. The systems must also be able to discriminate between radioactive material such as naturally occurring radioactive material and radioisotopes utilized for medical procedures and industrial applications. Sol. No. DNDONTI08132011. Contact: Paul Burrowes, program manager, [email protected].

The Pentagon’s Defense Advanced Research Projects Agency (DARPA) is soliciting under the Cyber Fast Track (CFT) program to engage numerous cyber related efforts across the spectrum of computer and network operations to demonstrate that cyber efforts can be accomplished rapidly and cost effectively. One goal of the program is to demonstrate the ability for cyber projects to be performed at an asymmetric advantage in time, cost and contribution of the efforts in comparison to more traditional applied research areas. The CFT program is encouraging community interest and participation and allowing for an open submission of proposals in the field of cyber. Sol. No. DARPA-RA-11-52. Respond by Aug. 3, 2012. Contact: I2O BAA Coordinator, [email protected].

The Nuclear Regulatory Commission (NRC) is soliciting for computer awareness training to address phishing activities. The NRC is planning to award a one year contract with four one-year options. The NRC says that its system users have shown the need for additional awareness training and reinforcement of such training to better safeguard NRC information and information systems. Educating employees on how social engineering and phishing works is a key requirement for the successful implementation of anti-phishing training at the NRC to maintain mission effectiveness and meet emerging security requirements. Sol. No. CSO-11-134. Respond by Aug. 18. Contact: Wanda Brown, 301-492-3634, [email protected].