QRSciences Holdings Ltd has exercised an option to take full control of US-based Spectrum San Diego Inc for $11 million.
QRSciences, which originated in Perth and is now headquartered in Melbourne, currently holds a 31.3 per cent stake in Spectrum on a diluted basis through its US arm.
Spectrum currently has two imaging products being sold and a third in development.
The acquisition will boost QRSciences' product offering of security related applications including the detection of explosives and narcotics, metal detection and imaging.
Below is the full announcement:
QRSciences Holdings Limited (QRSNY)(ASX: QRS), ("Holdings") wholly owned U.S. subsidiary QRSciences Corporation, ("QRSciences") has exercised its option to acquire the remaining shares of Spectrum San Diego, Inc. ("Spectrum") for approximately US$9.32 million.
Spectrum has two products which are being sold currently and a third which is in late stage development.
CastScope uses backscatter imaging to inspect casts and bandages for hidden threats is buoyed by a US$37 million dollar IDIQ (Indefinite Delivery Indefinite Quantity) order that was placed by the US government in October 2007.
SentryScope is a 21 mega-pixel ultra-high resolution camera with 180 degree field of vision. Over 200 systems have been installed to date with customers including airports, stadiums, ports, prisons, casinos and border checkpoints.
CarScan, the third product is expected to be available for sale in the next twelve months and uses dual-energy X-ray to scan vehicles for explosives, narcotics and other contraband.
CEO of QRS Rick Stokes commented, "Spectrum have worked closely with the US Department of Homeland Security and the Transportation Security Administration and are delivering products and solutions to the market now. The R&D pipeline is expected to yield a steady stream of new products to improve security for travellers, at border crossings, public buildings, hospitals, prisons, stadiums, auditoriums and transportation hubs."
The CastScope enables checkpoint screeners to search for concealed threats when screening passengers with casts, braces, heavy bandages or prosthetics for professional inspections with less embarrassment. Other potential customers for CastScope include the US Department of Defense, the US State Department, the US Department of Homeland Security as well as other local, state and federal government agencies. CastScope should also be attractive to non-US governments."
CarScan is being funded by Technical Support Working Group, an agency of the US government and will allow vehicles approaching a checkpoint or gate to drive slowly through the inspection gantry enabling screening without the driver or passengers leaving the vehicle. Phase I of the contract included a laboratory feasibility study that was followed by Phase II that involves the construction and field testing of a prototype.
Background on the transaction
In July, Diversified Opportunities, ("DVOP" or the "Company") a 97.5% owned subsidiary of Holdings entered into a share exchange agreement with Holdings. Under the terms of the Agreement, the Company will acquire by share exchange all of the equity of Holding's wholly-owned subsidiary, QRSciences Proprietary Limited ("Limited"), an Australian private corporation.
The description of the acquisition of Limited by the Company can be referenced in its entirety in the Form 8-K filed with the Securities and Exchange Commission on July 31, 2008 A copy of the Agreement is filed as an exhibit to that same Form 8-K.
Limited's assets include a wholly-owned subsidiary, QRSciences, a private company based in San Diego, which holds convertible notes receivable and convertible Series A preferred stock of Spectrum. The conversion of the notes and Series A preferred stock would result in QRSciences owning 33.4% of the currently outstanding common stock with a fully diluted equity position of approximately 31.3% of Spectrum. QRSciences also holds an option valid through September 2009 to purchase all of the remaining shares of Spectrum.
On August 4, 2008, QRSciences exercised its option to purchase all of the remaining shares of Spectrum. In accordance with the option, the $14 million purchase price will be reduced by the percentage of Spectrum that QRSciences already owns. Given the fully converted 33.4% ownership interest in Spectrum, the remaining amount of consideration in cash and equity required to be tendered by QRSciences in connection with the purchase is estimated to be approximately $9.32 million.
The purchase option also allows QRSciences to tender up to 50% of Spectrum's purchase price in the equity of Holdings or a publicly traded entity in which QRSciences owns more than 50% of the voting stock. The purchase option also gives QRSciences the option to pay for the acquisition in equal monthly installments over a period not to exceed six months.