Liberty Defense: A Revolution in Weapons Detection Technology

November 2019                                                                                                                Research Note

LIBERTY DEFENSE HOLDINGS (TSX-V: SCAN; OTCQB: LDDFF; FWB: LD2)



THE TECHNOLOGY
In 2014, in light of massshootings and terrorist attacks globally, the Department of Homeland Security(DHS) approached the Massachusetts Institute of Technology’s (MIT) Lincoln Labto develop a new, more effective weapons detection technology and funded theresearch over the next few years.
In 2017, MIT successfully testedthe new system at Boston’s Transit Authority and filed patents. After a six-mothprocess of vetting companies interested in the system, MIT chose LibertyDefense (which was created a year and a half ago) to commercialise this uniquetechnology (called Hexwave) and gave Liberty the global licensing rights. MITis actively working with Liberty to bring Hexwave to the market by Q4, 2020.
What Hexwave can do, compared to metal detectors, is magic. When you are at the securityscreening at the airport, you have to take off your jackets, belts, coins,phone, laptops, even shoes at some airports, and send your purses/backpacks forseparate screening. Then you walk through the metal detector and if it pings,you are subjected to a full body pat-down or the wand. No wonder the line movesso slowly.
With Hexwave you just walk through as you are.
What Hexwave does is scan theperson using active, real-time 3D radar imaging technology, within 0.2 seconds (includingbags and backpacks). The antennae arrays send low power radio frequency waves,200 times less powerful and less harmful than Wi-Fi, that reflect off bothmetals and non-metals, to create 3D data and imaging of concealed objects inreal-time.
An Artificial Intelligence (AI)algorithm then automatically identifies objects displayed in that image andignores the usual items (belts, phones, etc.), only creating an alert if itdetects a threat. It can not only then let security know what the threat is butalso exactly where it is in the body, allowing for much faster processing.
Unlike its competitors, Hexwavecan be used indoors and outdoors. It can also be used as a mobile, standaloneproduct or integrated into an existing technology infrastructure. It does notviolate privacy, as the image is not photographic nor it is retained.
There was a knife attack in Parisin October 2019 where four policemen were killed. The assailant used a 3Dprinted ceramic knife which metal detectors cannot identify. Similarly, therewas a 3d ceramic gun used in Germany in October 2019 at Jewish synagogue. Thethreat profile is changing dramatically, and Liberty’s Hexwave will be a uniquesystem on the market that can effectively detect metallic and non-metallicthreats (including 3D ceramic objects, suicide vests, pyrotechnics, etc.) with acommercially superior throughput rate.
Hexwave will provide much faster processing andmuch better security.


According to a Harvard study, therate of mass shootings has risen dramatically in the US, tripling since 2011,from one in every 172 days to one every 64 days. A DHS study estimates that theurban security market will be $ 5.3 billion globally and grow rapidly to reach$ 7.5 billion by 2025.
Companies now have a strong financial incentive toinvest in weapons detection technology. MGM Resorts estimates that it is nowfacing lawsuits totaling $ 800 million from the mass shooting incident from itsLas Vegas premises in 2017.
THE COMPANY
Liberty was formed a year and ahalf ago and went public in April 2019. It is listed in Canada, the US andGermany. Liberty has raised C$ 16 million so far and expects to begin sales inQ4 2020.

Price(Oct 31)	Shares Issued(millions)	MarketCap(S millions)	52 week High-Low	WorkingCapital(June 30)
$ 0.26	66	17.3	0.97 – 0.245	4.7 million

In a research report in September 2019, Laurentian Bank puta one-year price target on Liberty of $ 1.40 per share, using a 10-yearDiscounted Cash Flow model. An investment made today has the potential to be a5 bagger within a year, according to this price target.
Liberty is currently doing alphatesting and in September, successfully demonstrated the functioning of all thesubsystems to a select group of invitees. They will be doing beta testing at manyhigh profile test venues, within a few months. This is both to refine the AI inreal world conditions and to win customer acceptance. Orders from these wellknown organisations will provide a strong validation for Hexwave and make iteasier to sell to other companies within their vertical markets. There arehundreds of millions of facilities that could use Liberty’s technology overtime.
A list of the test venues thatHexwave will be deployed in shown below:

1) Toronto's Pearson Airport
2) The Sundance Film Festival
3) The National Hockey League venue in Vancouver        (the Rogers Arena)
4) The FC Bayern stadium in Munich
5) The Major League Baseball stadium in Baltimore        (Baltimore Oriels)
6) At a government facility in Utah
7) At a mall in Florida
8) At a facility operated by the Vurginia Divison of          the Capitol Police
9) At a Hindu temple is the US (one of 3,300 owned      by the organisation worldwide
10) At Toronto's Convention Center
11) At the University of Wisconsin
12) At a cruise terminal in Tampa

What is also remarkable is thatFrancesco Acquilini (owner of the Vancouver Canucks and an NHL Governor) is notonly a shareholder but sits on the Advisory Board, as does a VP of FIFA. Bothcould have just facilitated the tests at the Rogers Arena and at FC Bayernwithout publicly associating with a young start-up such as Liberty. Thisattests to their belief in the technology and their need for it in theirvenues.
THE COMPETITION
This is a paragraph fromLaurentian Bank’s report: “To get a sense of the blue sky opportunity, if weapply SCAN’s business (including pricing) model on a global scale with a portalconfiguration (two units) for each entrance, we arrive at a total market sizeof $135B including set-up fees, with recurring revenues of $10B. The point ofthe exercise, however, is to shed light on how vast the market opportunity is,and to draw the conclusion that this market is capable of supporting multipleindustry participants with varying offerings.”
Weapons Detection technology comesin two forms: the older systems using Walk-Through Metal Detectors (WTMDs) andtheir handheld wand versions, and new emerging technologies which uses heat orenergy signatures. The old technologies are cheap but rigid, requiring longlines and slow throughput and only able to detect metallic threats. The newertechnologies either are Passive (have good range but have accuracy limitationsand don’t use 3D – used by the Thruvision Group)  or are Active (support 3D and AI but systemshave various limitations – used by Evolv, Patriot One, Radio Physics, L3Harrisand Smiths Group).
Here is a quote from theLaurentian report: “In our view, Microwave 3D Imaging,as championed by Liberty, appears to be the most practical for the emergingthreat environment, as it is able to support the best feature rich solution set(3D, AI, range, throughput, RF and third-party compatibility) at a reasonableprice.”
The publicly listed company mostcomparable to Liberty is likely to be Patriot One, on a scale andcommercialisation basis. Both are listed on the TSX-V, both are pre-revenue andboth expect to have sales within 12 months. One fundamental difference is howboth systems approach threat identification.
Pstriot’s PATSCAN CMR product has been significantlydelayed to the market. It requires a database and is built on the ability torecognize specific weapons.  For example, one manufacturer may offerpistols in 7 sizes, 7 calibers and over 50 models as well as 5generations.  To update PATSCAN CMR therefore requires a significantdatabase of threats.   HEXWAVE’s learning algorithms look for a classof threat, not each individual item. 
The best example here might be of a chair – a chairgenerally has legs, seat and a back and HEXWAVE will determine that the objecthas legs, a seat and a back and therefore is a chair. PATSCAN looks for aspecific type of chair and that specific chair needs to be in the database. 
PATSCAN is trying to recognize a specific weapon’s “signature“ asopposed to HEXWAVE which uses its 400,000 data points to make a determinationof whether a threat or non-threat exists, i.e. it looks for a weapon ratherthan checking for each type of weapon.
PATSCAN CMR is also quite sensitive to theenvironment to be able to function optimally while HEXWAVE is environmentallyagnostic. 
Finally, PatriotOne’s market capitalisation is C$ 238 million and Liberty is just $ 17 million.
The value proposition is obvious. Liberty will beraising capital soon. Accredited investors who may be interested can contact meat fayyaz.acamar@gmail.com for further information.
THE RISK
All emergent technologies carryrisk until full market adoption. Liberty still has to develop the full workingprototype to be used at its beta test sites. But, in September, it invited agroup of independent observers to witness a demonstration of all the subsystemsat work, which went well.
MIT and Liberty won theprestigious Federal Laboratory Consortium (FLC) for Technology Transfer award,for the technology transfer from MIT to Liberty.
Liberty will have to get FCCcertification to operate in their specified spectrum but the company is wellinto the process and does not anticipate any issues. They have engaged TUC SUD,a large company that specialises in testing and certifications and has over1,000 locations, to help them obtain the certification by early 2020.

THE MANAGEMENT
The CEO, Bill Riker, is a graduate of the WestPoint Military Academy and has a Master’s degree in engineering and an MBA. Hehas managed multi-billion dollar projects and has worked for several companiesin the defense and security space, such as Smith Detection, DoD, GeneralDynamics, etc.Aman Bhardwaj is the COO, with30+ years of experience in building and leading global teams for largemulti-national and start-up companies such as Panasonic, Flextronics/Imerj,Educo and Hisense.Damian Towns is the Chief Financial Officer.He is a CPA, with over 20 years of experience in accounting and finance in seniorpositions with several Canadian public companies.Bob Flak wasrecruited from Evolv, which is a competitor, where he was Director ofInternational Sales and established reseller agreement in several countries. Hehas also worked as a security consultant for a number of U.S. and Europeancompanies including Gilardoni, AS&E and Surescan.
Bart Smudde, CTO, is an Electrical Engineerwith 30+ years of experience designing, testing and manufacturing electronicsproducts for consumer, industrial, medical and military markets. Bart hasmanaged engineering teams for Graco, Landis+Gyr, SignalONE Safety, Panasonicand Digalog Systems.

For further information about Liberty Defense, pleasevisit: www.libertydefense.com
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