re: accumulate /careful I think QRSL's (the economic entity)...

re: accumulate /careful I think QRSL's (the economic entity) present implied market cap still reflects market expectations that QRSL will generate significant licensing revenue this FY. I think this expectation is misplaced. While there has been talk of $5mill profit this FY, I think QRS will be lucky if it generates $5mill in revenue this FY (=$2-3mill operating loss). If the market decides to value QRS on the basis of its actual revenue (as distinct from potential revenue), the SP could easily fall by a further 70% from present levels.

My sense is that L3 and Lockheed Martin have put their plans to develop a QR-CT scanner on ice, or at least on the back burner. (From memory, there has been no newsflow on L3 for around 12 months, and no newsflow on Lockheed Martin for over 18months). I think there are still concerns about (i) high false alarm rates (despite the company's claims that QR technology has been fully tested, the TSA is still testing the technology), and (ii) whether there are better solutions to the plastic explosive detection problem.

Of QRS' 3 licensing partners, it seems to me that only Rapiscan is actively attempting to implement QRS's technology in its next generation QR-CT scanner. Whether QRSL's present market cap can be sustained over the medium term depends very much on (i) the timing of Rapiscan's release of this new product (Could it still be another 12-18 months away?) and (ii) whether sales of this scanner are sufficiently large to allow QRS to earn meaningful licensing revenue.

Of course, in QRS' original business plan, the bulk of its revenue over the next few years was not going to come from new product sales, but from licensing revenue generated from a massive retrofit programme. As I have been stating for some time, I think this so-called retrofit programme, which QRS' management is still advertising, is little more than wishful thinking.

For investors interested in QRS, I think the smart thing to do is to wait until management are in a position to give firm guidance on licensing revenue before taking a position. It is possible that QRS will not secure a firm revenue generating deal in the foreseeable future. And even if a deal is secured, the revenue could well be extremely modest and some time off. The key risk in the short term is that the market will cease to value QRS on the basis of unrealistic blue sky projections, and start valuing the company on the basis of its actual numbers.

When QRS was trading at 28c, I said that stock was buy at around 17-18c. For the reasons I have outlined above, I now think that even 17c is too much to pay this stock at the present time. Unless there is news on a firm, revenue-generating licensing deal, I recommend waiting until the economic entity (whether or not it is 100% owned by QRSH) has an implied market cap of around $20mill.