IDO Security Still Poses Substantial Risk
IDO Security, Inc. [[IDOI.OB]] announced another successful sale of its MagShoe security device to an international cruise line earlier this week. The product is being used in the ships’ cargo holds to prevent the theft of jewelry and other metal valuables, as well as to provide additional security for passengers. The sale led to a sharp increase in the company’s stock, but will this new technology be enough to generate substantial shareholder value?
The importance of searching shoes for weapons was first realized on December 22, 2001. Richard Reid, known as the “shoe bomber,” attempted to destroy a Boeing 747 on American Airlines Flight 63 by igniting explosives hidden in his shoes. After his arrest, airports began requiring passengers to remove their shoes at security checkpoints. Many passengers see this process as a major inconvenience, which led to the MagShoe alternative.
Instead of removing their shoes at a security checkpoint, passengers can step onto MagShoe’s platform for a few seconds. MagShoe then tests the shoe for metal and explosives before giving a green light (or red light and alarm if there is any danger). This simplified process can save time and hassle at airports and other locations where security is necessary. So far, the company has only sold a limited number of units, making its first sale in July of 2008.
And while IDO Security’s products may be promising, the company has yet to open up its books. The company filed its 10-K annual report with the SEC earlier this month, but the document only contained limited financial data. The company reported revenues of $326,780 for 2008 compared with $69,080 for 2007; however, cost of goods sold amounted to $339,263 in 2008 compared to $125,230 in 2007. Meanwhile, the company reported a net loss of $8.18 million in 2008 compared to $15.17 million a year earlier.
These numbers represent a negative gross profit margin, which means that the IDO Security’s products are not yet commercially viable, as it is selling them at a loss. Meanwhile, a $23.14 million accumulated deficit and more than $5 million in current liabilities means that the company could face difficulties in the near term, given that it only has $391,569 in cash and will need to raise additional funds to continue operations.
In the end, IDO Security has an interesting product that is seeing adoption by a few customers. However, they face substantial competition in their market, and have not yet reached the point of commercial viability. As a result, prudent investors may want to hold off on purchasing this stock until they can turn a positive gross margin and keep their costs under control.
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