Gun violence and terrorist activity are of great concern throughout the world. Governments and enterprises are constantly looking for improved, cost-effective ways to keep people safe, which includes the use of scanners and metal detectors to screen for weapons in many public locations.
A new technology for this type of screening is being commercialized by Patriot One Technologies (TSX:PAT.V) (OTC:PTOTF), based in Ontario, Canada. Its new, patent pending system efficiently and surreptitiously scans for hidden metal-based weapons. The system uses cognitive microwave radar, instead of the traditional magnetometer or X-ray methods, to provide features not previously available.
Patriot One’s first product, the NForce CMR1000, has a starting range of six feet and can be efficiently deployed in a myriad of scenarios including stadiums and concert halls, trains and buses, bars, schools, malls, airports, and any other venues where guns and other weapons are restricted or controlled.
Not only does this device not need any human intervention or line of sight to screen for weapons, it is smaller, portable, and less expensive than traditional large stationary pass-through systems used in places such as airports and prisons.
The unit is only 9-1/2” x 5-1/2” x 3”, about the size of a brick.
It scans for metal items and then matches the metal content against known weapons, which are then identified and relayed to the customer in real time.
Older technology used today is primarily magnetometers (metal detectors), used since 1972, and millimeter wave or backscatter x-ray scan technology. These traditional screening technologies are inefficient, time consuming, and require labor in addition to equipment.
For example, x-ray technology and CT scanners flag 18–35% of all bags as “suspicious” and these bags require further examination. When used to screen people, these methods have privacy concerns as they generate images, as well as health concerns due to radiation.
They also require subjects to comply with being searched and can result in high operator error and false positives. These processes are slow and require one-at-a-time processing, as well as additional labor for detailed secondary scans using hand-held equipment. The radar-based Patriot system has none of these negatives.
Patriot One’s technology provides other useful features besides its small size and ability to identify specific weapons. For one, its scanning can be done without being noticed. Since the device is looking for metal weapons, everything else is ignored alleviating any concerns for privacy. There are no images generated so there is no chance of image records being kept or revealing anything at all that isn’t metal.
Another advantage is that people who are allowed to have weapons, such as security guards, can be tagged so as not to set off alarms. And finally, if a range larger than the 6 feet covered by an individual unit is needed, the low cost allows multiple networked units to be installed to increase the coverage area.
The company hopes to continue to reduce the footprint of the device in the future and ultimately hopes to develop hand-held portables that can be used anywhere. For example, a police officer approaching a car could scan the car for weapons without manually searching, and from a safer distance.
Although its product has not yet been approved by the FCC, the company has been showing it at demonstration facilities. Patriot One Technologies has also started beta testing the NForce detection system. The first trial is with VGroup Concepts where it has installed an NForce CMR1000 at its Vintage Lounge nightclub in Orlando, Florida. The company plans to formally launch at the security conference ICS West in April and will be taking pre-orders, but not shipping until it gets FCC approval.
Patriot One is seeking a change of use certification for hardware in the walk through metal detector category, rather than a new category with a brand new build. Given variation in the timing of the approval process, the company is still anticipating being able to deliver product to customers by summer 2017. In order to sell in countries other than the US, the company will also have to get additional certifications. The company has already had interest in the product in Europe, Asia, Australia, Latin America, and the Middle East.
Patriot One was established in March 2016 and went public through a shell in November of last year on the TSX-V, and December on the OTCQB. At that time, it raised $2.4 million in gross proceeds. The company was created to leverage five years of NATO-funded academic research at McMaster University into a commercial product. It has licensed the rights to the research and there is a patent pending. It currently has less than 10 employees and approximately C$2 million in cash. Despite its current cash burn of $125,000 per month we believe the company will need to raise more capital to support operations until it reaches profitability. The company has 51 million shares outstanding and 92 million fully diluted shares including all warrants and options. Using this all-in fully diluted share count of 92 million, the company trades at a market cap of C$124 million. The company has not yet generated any revenue and will not at least until it gets FCC approval. The university has applied for a patent to which the company has the rights. Test units are being built on site in Canada and the Patriot plans to outsource production when volumes increase.
US Patent Application 20150379356 A1
ON-BODY CONCEALED WEAPON DETECTION SYSTEM
A system and method for detecting weapons. A radiofrequency transmitter transmits an RF signal stream into a region of interest. An RF receiver receives a scattered signal stream from the region of interest. The scattered signal stream is generated in the region of interest from the radiofrequency signal stream when a target is at least partially within the region of interest. A plurality of resonant signal components is identified from the scattered signal stream. Preprocessed resonant signal components are generated by removing environmental signal components. A target assessment is determined from the preprocessed resonant signal components using a trained statistical model. A target response is triggered if the target assessment indicates that a weapon is detected on the target.
According to marketsandmarkets.com the threat detection systems market was valued at $48 billion in 2015 and is estimated to reach $119 Billion by 2022, at a CAGR of 13.11%. A subset of that, the security screening market, which includes X-ray & biometric screening systems, EDT, and metal detectors could worth $9.10 billion by 2020 at a growth rate of 9.5% per year.
There are a number of large companies that provide fully integrated threat detection systems including Thales, Saab, Honeywell, and Alstom. Patriot however serves a narrower subset of that market called security screening. The security screening market is dominated by companies such as Smiths Group and Sanfran. The perimeter security market, a market Patriot can also play in, is dominated by Senstar, Southwest Microwave, RBtec Perimeter Security Systems, United Technologies Corporation, and Tyco.
Patriot One’s unique features and lower pricing could give it an advantage in many applications. Primarily it is now a replacement for less expensive standalone walk through metal detectors. In addition to metal detection units, Patriot may successfully compete in some situations with higher-end, full-range, and more-expensive full body scanner detection products. According to the TSA, it spent $2.1 billion from 2008 through 2017 on these types of scanners.
Examples of these are the two shown below:
Smiths’ current walk-through detection product called the eqo, a product based on systems introduced in 2006. It is described as a people screening portal that reveals items hidden under clothing. Objects that the system can detect include but are not limited to: ceramics, metals, liquids, explosives, leather, plastics, paper, and narcotics. It is based on passive millimeter-wave technology.
Rapiscan Secure 1000 SP actively illuminates the target with an x-ray backscatter. This model can detect small objects and threats concealed on a passenger. It can detect concealed liquids, ceramics, weapons, plastic explosives, narcotics, metals, contraband, currency etc. In 2105 the company added radiation detection capabilities to its products.
Smiths Group (SMGKF) is a $7.8B company located in London with 22,000 employees. Its Smiths Detection Group is one of five divisions. It has over 2,000 employees and generated $665 million in revenue in 2016. The division is a world leader in sensors that detect and identify explosives, weapons, chemical agents, biohazards, nuclear & radioactive material, narcotics and contraband primarily using X-ray technology. The division was founded in 1997, is based in Edgewood, Maryland and reported to have 400 employees.
OSI (OSI) has a subsidiary called Rapiscan based in Fremont, CA and founded in 1993, which specializes in baggage and parcel inspection, cargo and vehicle inspection, hold baggage screening, cargo and vehicle screening, people screening, radiation and trace detection. Rapiscan’s Metor metal detectors come in seven versions, from the hand-held $300 Metor 28 wand that requires a person to scan the body, up to the walk-through Metor 6WP for outdoor use with large crowds that costs thousands of dollars. The company also sells the high-end Secure line that screens for more than metal as shown above.
Other companies that sell metal detectors for security are:
CEIA USA based in Twinsburg, Ohio, sells two walk-through and three hand-held metal detectors. They recently installed 92 units at MetLife stadium at a price of approximately $500,000 (or about $5,500 each) to screen the 80,000 Giants and Jets fans that come to each game. This private company was founded in 1962 and has approximately $65 million in revenue.
Garrett Metal Detectors is a privately owned company founded in 1967 and is based in Garland, Texas. The company sells four walk-through models and five hand-held. Its newest walk-through model, the PD6500i has a MSRP of $5,495. We believe the company has under $100 million in revenues and 180 employees.
The senior management of Patriot One is expert in the areas of high-frequency electromagnetics, counter-terrorism, conflict resolution, government/corporate interface, sensor development, proactive security, and business development. The experience of the team, combined with government and law enforcement connections, should help make Patriot One a success.
C. Scott M. Shepherd, Chairman, Board of Directors
Scott is currently the President, Chief Executive Officer & Director and Founder of Northstar Trade Finance, Inc., which provides financing services for export sales aimed specifically at small and medium-sized enterprises. It was founded in 1993. He is also Chairman of Northstar Europe as well as MDS Aero Support Corp. Before founding Northstar, Scott worked at organizations including the Department of Foreign Affairs and International Trade, Export Development Corporation, Imperial Chemical Industries PLC and Trafalgar House PLC, and the Nexus group of Companies in Burnaby, B.C. Canada.
He earned a BA in International Relations and Economics from University of Toronto in 1981 and an MBA from Dalhousie University in 1983.
Martin Cronin, CEO and Director
Before joining Patriot, Martin had a 20-year career as a Canadian diplomat from 1988 to 2008 with postings in Yemen, Jordan, Sweden, Pakistan and Iraq. From 2010 to 2012, he was Director of Government and Corporate Relations at ArmorWorks Canada. He has been a director of Helios Global Technologies since 2012, on the advisory board of International Yacht Training Worldwide since 2012, Honorary Colonel in the British Columbia Dragoons since 2015, Regional Director, Canadian Forces Liaison Council since 2010, as well as a member of the executive board of the Central Okanagan Economic Development Commission since 2011. Martin earned a BA in International History and Politics in 1987 from the University of Leeds.
Dinesh Kandanchatha, President & Director
Dinesh is serial entrepreneur who has built and exited three companies. Currently he is Managing Director of Macadamian Technologies a product consulting company in Canada that he joined in 2011. He has also been a venture capitalist since 2006 at his company dineshk.co. From 2004 to 2011, he was a sales and marketing executive and general manager at Protus IP Solutions. From 1997 to 2001 he was in marketing at Precise Software Technologies. He earned an MBA at the University of Ottawa in 2001.
Michael Barnsley, Chief Financial Officer
Michael joined Patriot One this month. He is a CPA whose career includes over 30 years of experience as a chartered accountant (CA) for public companies. He comes to Patriot from UGE International (UGE.V) where he had been CFO since 2014. Before that he was with Epic Fusion, Epic Data and Rainmaker Entertainment. He began his career at Deloitte & Touche. Michael earned a Bachelors in Accounting and Business Management from the University of British Columbia in 1982 and is a member of the Chartered Professional Accountants of British Columbia.
The company currently has 51 million shares outstanding of which 23 million or 46% are in the public float.
Since it outsources production, Patriot is primarily a marketing driven company. It has a large number of advisors and relationships as well as government and diplomatic contacts to leverage sales of the product worldwide. It is in the process of closing new reseller agreements and is finalizing relationships with strategic clients. This month the company announced it was adding a sales team in London to pursue the UK market. Patriot will have an exhibit at ISC West, the leading security trade show in the U.S., April 5-7 in Las Vegas. In October the company participated in the International Association of Chiefs of Police (IACP) conference.
In December 2016, the company entered a strategic partnership with Ridge Global LLC, a consulting firm run by Governor Tom Ridge, the first U.S. Secretary of Homeland Security. His contacts will open doors for the company worldwide as well as in the US. The agreement with Ridge Global provides for the payment of a monthly retainer, as well as performance-based bonuses and success fees payable on revenue and market capitalization-based milestones. Governor Ridge was also given 200,000 incentive stock options at an exercise price of $1.44, exercisable for a term of four years and vesting in 25% tranches every three months beginning on March 14, 2017.
Since it is only a few months old, there is a lot of risk in investing in Patriot One Technologies. The company has a number of milestones to achieve to reach viability. These include:
- manufacturing and scaling a new hardware and software product using novel technologies versus the rest of the industry
- getting FCC and other government and industry approvals and certifications
- raising enough capital to reach cash breakeven which will dilute current shareholders
- convincing customers to try a new type of product for current applications
- demonstrating the effectiveness of the system to the market.
In addition, the system will require missionary selling to establishments such as nightclubs and schools that have not used any weapon screening and need to be convinced that it is a valuable feature. It will take time for commercial specs to be updated to purchase the system and for the company to get on bidders lists. Also the product is not yet priced and it remains to be seen what margins and pricing will be for the company and versus the competition.
The company has not yet reported a quarter since it merged into its current form and raised capital. It has moved to a July 31 year and we expect a report of the January 31, 2017 quarter in the next two months. The company says it is currently burning $125,000 per month, and we believe it will need more cash before it reaches profitability. Although the market is large and the technology looks to have features significantly improved and different compared with competitors, at a C$124million fully diluted market cap, the company must successfully execute against much larger and well-funded established companies. Its size and financial limitations will prevent it from bidding on many contracts until it is larger and self-funding. That being said, should the company show technical success and meaningful market traction, it could be an attractive investment both as a stand-alone business and as an acquisition for any of the larger companies currently in the security business, as its unique features increases the total addressable market (TAM) for any of them.
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