Well, this is my share for 2004.

The grounding of BA flight 223 to Washington has been all over the news this week. Along with the pictures of police armed with semi-automatic weapons and demands for armed rangers on planes the question of flight security is firmly back on the agenda.

Enter 7m British company Image Scan Holdings whose 3D X-ray baggage handling technology represents a 'Best of Class' solution to problems of baggage screening.

The advantage of Image Scan's machine over convential 2D machines is that it provides a 3D view of a scanned bag - providing psychological depth clues which have been shown to be important in identifying threat objects. 3D views are currently provided by CT scanners but these are slow and expensive. Image Scan's machine provides comparable results using X-ray. It is much less expensive and involves no loss of speed over conventional 2D scanners



Contracts are being signed and some major OEMs are trialling Image Scan's cameras in their own systems.
Broker forecasts are for EBITDA breakeven this year and eps of 6p in 2005 (shares are currently 39p to buy). The market Cap is just 7m

The FAA (now TSA) are swimming in grants with $Millions and $Millions being awarded to security companies. They have purchased two machines from Image Scan (machines are also on trial at Heathrow and Midlands airports) and have paid ISH for the development of 3D Image Threat Projection software which has been installed in beta form on these machines. Threat Image Projection(TIP) software should become compulsory on all machines during 2004. It trains bagage handlers and screens their performance by introducing threat images (knives, guns etc) into the image captured by the X-ray scanner.

What is better, they are not a 1 product company. The pipeline is exciting. They have a range of 3D solutions for industrial non-destructive testing available now, medical applications are ivolved in development of an automated system related to cervical smeer test screening expected 2005- currently the only unautomated major screening programme in the UK... And they are developing a 3D scanner for examining occluded electrical components post-assembly. Key IP is in the area of X-ray examination of plastic and non-magnetic components.

Image of an all-plastic inhaler pump
using ISH's DEX camera for industrial/medical
non-destructive testing:

(Key IP is in the area of x-ray imaging plastics and non-magnetic metals)

Look a very interesting prospect for 2004, IMO. The share price slid relentlessly last year but enjoyed a bounce last month. That trend re-commenced last week. Sitting on 1.4m cash (having raised fresh funds in the summer) and having now transitioned from pure r&D into a company actively marketing its commercial products there appears little downside in the price (the FD was buying at 35p). Upside looks considerable.

Durlacher published a research note in November - well worth getting hold of a copy. A couple of snippets:

"International legislation has delivered the security sector its most significant boost for almost a decade with the entire security industry looking set to become a hot sector for the next couple of years"

"We believe the Image Scan instrument to be 'best in class' and currently the only real time 3D X-ray device in the industry"

"Growth in the security sector has been in excess of 50% pa over the last 2 years....with equipment replacement cycles falling from an average 6 years to nearer 4."

Order potentially worth 1m from Scanna expected shortly...

"We believe Image Scan presents an immediate and unique opportunity to invest in the rapidly expanding global security markets"


To take just one element of what ISH are involved in, the importance of the 3D TIP software is conveyed in this extract:

p.32-33
"Following the September 11th attack, Dillinghams testimony [22] was provided before the Committee on Commerce, Science and Transportation, US Senate to discuss security concerns with:
i) aviation-relatedcomputer systems;
ii) airport access controls and
iii) passenger andcarry-on luggage screening including how the USA differs from other countries.

This committee had earlier reported in the year 2000 that there were several weaknesses found with screeners in tests in the USA. In 1987, screeners missed 20% of potentially dangerous objects and recent tests approximating real threats showed that the performance degrades even further.

The main problem is because of less experienced staff, large turnover because of low wages, limited benefits, and repetitive nature of the work. In addition, the amount of work at airports makes it impossible to check every bag (over 2 million passengers and their bags must be checked per day in USA alone).

Air carriers can use their own employees to conduct screening activities but mostly they hire security companies to perform screening. In the USA, Federal Aviation Authority (FAA) monitors the performance of screeners by periodically testing them with FAA special agents posing as passengers.

Two important reasons explain why screeners fail: rapidscreener turnover and inadequate attention to human factors.
From May 1998 to April 1999, screener turnover averaged 126% in 19 major airports in the USA, 200% at five airports andone with a turnover of 416%.

FAA has been recommended to use threat-projection systems that place images of dangerous objects on the monitors of X-ray machines to keep scanners alert and monitor their performance and a certification program to make screening companies accountable for the training and performance of the screeners that they employ.

The threat-projection systems are useful as they monitor screener performance, and help train them to identify more diffcult objects for the future.
It is expected that FAA will deploy this technology in airports by 2003 and also more FAA security screeners will be used."


This represents my opinions only and is not advice to buy or otherwise. Do your own research!

Happy new year.

G.

Great. I'll get somequestions together :-)

G.

A little surprised we dropped back to 40p.
Lets hope this becomes our support level and we bounce back.

Vasey... I Would be interested in their opinion on competition.
Also if they have any need/plans to raise cash.

8ball, looks like it might be :-)

Yes Garth looks like it.

I was hoping for a bit more press coverage.
Still very pleased with my investment and happy to wait.

Is Vasey the only one here going to AGM.......

Vasey

Can you ask what their budget for Sales in the current year and next. Don't suppose they would tell you in open forum but may give you a pointer privately.

GE buying InVision, tragic events in Spain, security all over the news. Image are making an important contribution. AGM/open day coming up, CBA due out next month.....

G.

Image Scan Holdings PLC
17 March 2004

17th March 2004





Image Scan Holdings plc ('Image Scan')

Industrial Sales of Axis-3d(R) Technology



Image Scan, a leading provider of multi-view, 3D X-ray imaging technologies for
the security and industrial inspection markets, is pleased to announce its first
commercial sale of their Axis-3d(R) technology into the industrial sector. The
sale, through its trading subsidiary 3DX-RAY Limited is to Amersham, the world's
leading supplier of nuclear medicines for imaging and diagnostics. Amersham
have acquired two customised versions of Image Scan's three dimensional X-ray
imaging systems for use in their sophisticated waste and decommissioning
facilities. The units will be used to help Amersham more cost effectively and
safely comply with stringent regulatory and internal safety requirements for the
disposal of waste products.



Following several months of intensive evaluations in which Image Scan
consistently demonstrated the ability to clearly identify and localise items of
interest within sacks of waste, Amersham's Director, Liabilities Management,
said:



'Having fully evaluated this technology we believe it represents the next
generation of X-ray inspection equipment for our industry. Amersham have
researched and tested a number of techniques for this application and believe
that the Image Scan solution provides the best performance, value for money and
importantly, ease of use out of the systems available today. We are delighted
to take delivery of the two new Axis-3d(R) units.'



Nicholas Fox, Chief Executive of Image Scan, said:



'The sale of these industrial inspection units to Amersham represents a
significant endorsement of our 3D technology for the industrial sector.
Building on our core expertise developed within the security sector we are
delighted to see our novel technology beginning to take a foothold in the
industrial sector.'

I've been rummaging around doing my own research before I decide on how significant a holding I want to take in IGE. I thought I would share with you some of my notes.

Of course I began with the accounts that shareholders will vote on at the AGM. I started with the directors' holdings and was a little puzzled that as of the year end Raymond Gibbs, an Executive Director only owned 60,000 shares (approx 24k) and that Simon Godber owned no shares at all, despite being an Executive Director.

A bit of digging later, I found an RNS confirming that on 29th Oct Mr Gibbs increased his holding to 345,000 shares but Dr Godber, while having a number of share options, still doesn't own any shares in the company. However he has been with the company, originally as a consultant and then a full time employee, from the formation of the company, so he probably is pretty committed. I would like to see him buy some shares from his own funds though.

My second area of curiosity was to discover if IGE faced any major competition for their products. My trawl of the internet suggests there is no competitive product for the AXIS-3D unit or the MAXIS-3D unit and that they are at least competitive with all existing manufacturers for the 2D imaging systems.

The industrial sector appears much more fragmented but the 3D-X-Ray imaging seems to be unchallenged.

If they continue to make sales such as the ones announced today, there will be less pressure to raise cash and, depending on the value of the contract, which will doubtless come out at the AGM or even before, we should be clearer as to when break-even/profit it reasonable.

Thanks for the research V. Good day for Image. The RNS is a great endorsement of the technology!

G.

Agree Garth

A very encouraging RNS.
As we have already said, the great thing is the number of applications in many industries.

More than happy to hold long term......

Up 15% the last two days and rightly so. It'll be interesting to see at what point Shares Mag finally notice the story and do it some justice...

G.

Up 20% on the week and just the start. Not bad in the face of market movement the other way. 70p here we come. :-)

G.

Bon Voyage merry travellers.

:-)

The IGE AGM and Open Day

I caught the 07.30 train from Kings Cross to Grantham because I was determined to attend the AGM. Most people were encouraged to arrive on a train that guaranteed they couldnt make the AGM . That was the train Image Scan arranged taxi transport for and as Grantham Station is a good 25 minutes and a 25 taxi ride from Melton Mowbray, this was a strong incentive for most people to take up the offer.

However, two of your representatives WERE at the AGM. But the formal process was over in exactly FIVE minutes and there was no opportunity to ask questions. Those of you who know me from other threads know that I always have questions for the directors, but today I encountered some novel obstacles. Firstly, while the shareholders all had badges to identify them, the directors didnt and nobody introduced themselves during the formal proceedings. Thus how was I supposed to know who was the Finance Director or what his name was, for example? Indeed, who was the Chairman? All he wanted to tell us was that where we were holding the meeting was once a secret meeting place for the former Prince of Wales and Mrs Simpson.

There was no trading statement which I found particularly disappointing as this is (normally) one of the set pieces of the year when shareholders get to know what has been happening since the year end, in this case 30 Sep 2003. Nothing. Not a word. I would have asked this and many other questions, but the directors left the room like scalded cats six minutes after the AGM began, and most of them did not come back for a considerable time. Indeed, the Finance Director, we were later told, had gone to take one of the AGM brethren back to Grantham Station so that was him absent for nearly an hour, given that it is 25 mins in each direction. So precisely when was I supposed to pose any questions I had lined up for him? Questions such as; why did the Cost of Sales increase over the year from 262,840 to 389,016 whilst the turnover stayed almost the same during the same period? Whether he saw the possibility of additional fund-raising in the foreseeable future (2 years)? Etc..

Now I worry when directors dodge questions and I cannot believe somebody less senior couldnt have driven whoever-it-was to the station so the Finance Director could make himself available to shareholders. Nick Fox also scampered off and never came near the two people he knew had made a considerable effort to be there. So I was unable to ask when the directors now believed the company would reach break-even or why we didnt get a trading statement or who-what-when-why any other questions either!

Anyway, once the folks had been collected from the station and settled into the meeting room, Nick Fox started a presentation, which was, for the most part, a shade too tecchie for ordinary shareholders. But this is a key point. These guys are techies. They are highly qualified experts in their fields, interested in research and development. PR, marketing, financial detail and sales projections are not subjects they did Ph.Ds in at university. So therefore, we heard nothing on these points. Nothing.

After 10-15 minutes from Nick Fox, Simon Godber (Security Techincal Director) and their Industrial Technical specialist (who, interestingly, is not a director) we were split into small groups and taken over to the research site to look at the products they are developing. But a quick resume would be to say Nick Fox explained ISH does not manufacture on site. Production is sub-contracted. They are purely research and the company is effectively divided into two main divisions, Security and Industrial. There is a medical branch but they were mainly focused on those two. Their main focus is on making X-Ray cameras to get 3D data. They put their cameras in other peoples machines, such as those of Rapiscan. Hence their main focus on the security side is hand baggage and getting a better image at a fast speed which would be acceptable to airport authorities who do not want long queues of people waiting to be processed when they could be in the shops, airside, spending money.

The Industial aim is to produce a machine that identifies rejects or potential problems - such as bones in fish fingers, bolts in production-line pizzas, faulty syringes etc.

Anyway three of the threadies were in one group that set off for the look-seeand guess what? We had the Finance Director as our guide! An opportunity we did not waste.

We did the tour or the various bits of kit and got to ask questions of the people demonstrating the relevant machines but I dont think I was the only person to start wondering whether these machines had a ready market of buyers, champing at the gates to buy them. Some were not ready to sell and were still being developed or tweaked but nobody said they were working on any orders for specific customers, except in the case of a rather nifty bit of kit that could X-Ray a small vehicle which would help security officers check what could be inside any suspiciously parked car somewhere. Maybe a government department might be wanting that sharpish, but how many of these were the company likely to produce? Profit margins?

We then went upstairs for a very pleasant buffet lunch, yes with pork pies, before you ask! Your threadies soon bolted off upstairs though when we heard there was a chance of seeing another piece of equipment, a sort of train set they had devised to show a simulated moving production line and screen results of the X-Ray images. This is the sort of demo they take to trade shows, exhibitions and the like and we learned that the big boys in the industry, such as Smiths Hyman and GE were prepared to put their equipment into high profile locations, such as the Athens Olympic Games AS A LOSS LEADER. That is going to be a bit of a problem for IGE who need to make a decent return on their sales and may find it hard to undercut their competitors where they exist.

All too soon, we were told that those wanting to catch the 14.21 train had better start moving and three of us travelled together, swapping observations all the way back to Kings Cross.

My conclusions. Firstly, I dont know why we didnt get a trading statement or opportunity to ask questions of the directors. They disappeared so fast, I was uneasy.

Secondly: No mentions of financials, marketing strategies, sales or PR to promote the company or its products. The figures in the accounts to the year end make it possible their cash-flow could become stretched in many possible ways within the immediate next 2 years.

Thirdly: Great scientific products and brains behind them, but that is where the assets of the company are. The people. Such as the Techincal Wizard in charge of the Industrial division. But he isnt a director and I couldnt see that he has been locked in by share options. He could leave and so could many other talented people. Now, I freely admit I could have missed an RNS where he was appointed a director.but I dont think I did and I never got a chance to ask Nick Fox why one division merits a director and the other doesnt.

The financials offered in the Report and Accounts promise profit in year 2005. Based on orders received? negotiations in progress? Market research? A kindly house broker? I have no idea but having spent a day at the company, I should have some idea, surely?

They kept us moving at a goodly pace but were the directors dodging us? If so, why?

I shall not be adding to my holding in the immediate future. But if I hear from the directors to answer any of the points above, I will certainly update you

Sorry, Garth. More questions than answers on this day out.

Vasey....

Thanks for the detailed report.

Just for interest, there is a major security exhibition in June at Sandoown Park: INTERSEC

Website here:
http://www.intersec.co.uk/ise/index.html

You can pre-order free passes to the conference by following a link from that page.

As far as I am aware Image Scan are not exhibiting directly themselves (although Rapiscan are), but I have heard a little rumour that they will be there. Surprised it wasn't mentioned on thursday actually. :-)

"Exhibition & Conference Security
Due to the nature of our event, all exhibition visitors and conference delegates must pass themselves through metal detectors and all their belongings through x-ray equipment prior to entering the site. Our security operatives are DfT accredited and trained to Level 3."

G.

The 3D20 is now featured on the Rapiscan website:

http://www.rapiscan.com/3d20.html

"The 3D20 is the only checkpoint screening system that enables operators to view three-dimensional images of scanned baggage."

G.

With the revelation that both QuinetiQ and Sharp are working with IGE to put 3D X-Ray baggage scanners into airports; orders for critical software components for training staff in next-gen baggage screening techniques, todays news of further industrial orders, a compelling CBA due towards the end of the month and the US launch by Rapiscan of the 3D20 next week, how long till these hit people's radars?

The 3D20 scanner was the product of choice to scan the baggage of everyone entering the major INFOSEC Security conference and expo last week.

Todays announcement of a sale of the kit for industrial NDT to a blue chip auto component manufacturer hinted at future global roll-out of the scanners at their factories and represented a commercial break-through:

"Image Scan offers a technical solution that hitherto had not been considered commercially viable.

The technology, which offers a very rapid return on investment, also opens up a clear opportunity for our customer to employ more of these systems in their
facilities on a global basis."

DYOR. Still my share for 2004. Price 36.5p, House broker forecasts of 6p eos next year. Do the sums.

G.

Is it any wonder that the Durlacher note on IGE called this an "increasingly hot sector" and Image Scan a "unique and immediate investment opportunity"?

Found this very interesting piece on TIP software. Has some pages about stereoscopic x-ray imaging (for which read 'as in AXIS-3D'). If there is any doubt that Image are a significant player in this arena, just skip down to pages 21-22.

http://www.ece.utk.edu/~lme/TIP.pdf

And then there is that recent software order to add to the equation....

Regards,

G.

Now, 18 months after some brilliant early posts from Garth and others, the SP is on the floor and may have bottomed. It has come up on my radar as a possible recovery stock following significant directors buys and some encouraging news about orders. Is anyone else watching?
sd.