significant competition

QR technology is facing increasingly serious competition. In addition to the competing technology platforms I've spoken about in previous posts (see Sharescene.com), there is a new kid on the block which should make QRS shareholders very nervous. It's a unit that combines high-speed gas chromatography with micro differential Ion Mobility Spectrometry. Visit:

http://www.thermo.com/com/cda/product/deta...0119656,00.html

(I recommend downloading the product fact sheet, and comparing it with QR).

18 months ago, I would have said that QR has a good chance of becoming an "industry standard" in carry-on and checked baggage EDS. Now I think this chance is remote. Over the next 3-4 years, I think the best case scenario for QR technology is that it will become a small niche player in a crowded field. If QRS receives any licensing revenue over the next 3 or 4 years, I find it hard to imagine a realistic scenario where this revenue would exceed $10mill per annum (roughly=the sale of 1000 units — keep in mind that 100 units is considered a big TSA order, so $10mill = 10 large orders per year).

Post takeover, QRS will have a market cap of around $44mill at 17c. Even on the assumption that QRS receives licensing revenue of around $10mill per annum beginning in FY06, the company is already looking over valued. But it is also quite possible that there will be no licensing revenue in FY06. (The possible absence of licensing revenue on the horizon may explain why management is now moving the company into the low-margin business of promoting and re-branding Gilardoni products). Company and analyst claims that QRS will generate $20mill+ in licensing revenue THIS FY (05) look absurd to me, and signal that management lacks credibility.

Indeed, with regard to mangement credibility, I'm reliably informed that KR has recently refused an ASX request to release more information to the market about why Ord Min pulled out from underwriting the Jan 20c options after the expiry date. There is obviously some information that KR is very keen to keep from the market, even if this means walking a fine line re listing rules/ continuous disclosure.

My advice is to avoid this stock until there is certainty on (i) the Ord Min pull out, and (ii) licensing revenue. The current SP still reflects a general market expectation that licensing revenue will emerge in the short term. Even with re-branding, China/Russia, and the sale of single units remaining in place, if the market gets the sense that no licensing revenue will emerge over the next 12 months (by which time company cash will have gone), I'd expect the SP to crash to <8.5c (or less than $20mill market cap).