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Biometrics stocks this week: IWSY, Hawk Systems Inc

Author: huifan   Time: 2018-03-16

The majority of tech companies have reported earnings. Results were generally strong. Monday the Nasdaq 100 index hit 7,121, reversing February’s losses.

In the biometrics space, ImageWare Systems, a producer of mobile and cloud-based, multi-modal biometric ID products, is scheduled to release results after market close Friday. Wednesday the company presented at the 30th Annual ROTH Capital Partners conference in Orange County, California. Jim Miller, chairman and CEO, was on hand to talk about where it is the company is at.

ImageWare produces multi-modal products that can process face, voice, fingerprint, iris or palm data.

The company already services hundreds of police departments. Its products are also used at airports. But now the company is moving away from the government market as the biometric eco-system evolves.

“Fujitsu is likely going to be first to market with our product. They were our first. We have a true global rollout with Fujitsu,” said Miller. “We’re at the start of a big ramp up phase. We are going to market as we speak. We have signed agreements. Biometrics is going to be the authentication system for the coming flood of IoT devices.

“It’s a market that has been some time in the marking, but we believe it’s at an inflection point,” said Miller. “This is an enormous market, $30 to $50 billion over the next couple years. Two thirds of transactions will be biometrically-authenticated by 2020, which is just two years away.”

The Fujitsu deal will see the two companies split revenues, 50-50. “If they sell it for $0.50 to a $1.50, we would split that in half going forward,” said Miller. The company is also providing a product to the market through major software reseller, CDW, as the commercial market opens up.

“We believe we are funded to reach cash flow positive at his point. We’re a software play. We think gross margins can expand from 70 to 80 percent as we continue to shift from the government space to the the private sector,” says Miller.

Today, companies are more often demanding biometric security. It’s not just government spaces that are demanding biometric-based protection. There are too many hacks, breaches and leaks in the existing password, PIN-based system. “Never before in history have we had tech help us with so many things. At the same time, never have we been so vulnerable,” says Miller. “Passwords are the culprit. Fifty years of use. But it’s a bad habit. We’re in that process of rooting out that bad habit. Password reset can cost over a $100 a year per client to maintain. We thought that was free. At the same time 82% of all data breaches were caused by faulty passwords. I can steal your password and PIN, and can be you. But I can’t steal your iris.”

The company also has a healthcare product coming online that uses biometrics to do medical reminders, and an I-pill that allows caretakers to tell if patients have taken their medication. The product also does electronic prescription ordering. “It was initially designed as a medical adherence product, which is a multi-billion dollar space,” says Miller. But now it’s a larger project and is HIPAA compliant. “We’re excited about this. We’re expecting very good things out of this product. It’s the only FDA-cleared product in its space,” he says. Last Monday Fujitsu took this product in and made it part of their license and are now offering it. And so these are exciting times at the company.

“We are at an inflection point. The first revenues have begun to come in. These are big customers with revenues in the hundred of millions,” says Miller. “Revenue is not a light switch, but ramps up over time, and we’re starting to see the first of those sales come in.”

The company will continue to support multiple biometric modes. “Multi-modal is here to say. It’s taken a long time. If you crack one biometric, highly unlikely you’ll crack two,” says Miller. Also interestingly, “We expect to uplist to a national exchange in the summer,” said Miller.

“We’re a foundational holder of patents. The most cited in the multi-modal space. We’ve built the backend. If you have a front-end, we can sell you the back-end. The enterprise solution installs in half an hour. There is no coding necessary. You are biometrically-enabled within minutes. Because we sell as-a-service, you can finance the product by booking it as an operating expense rather than a capital expense. That’s a good thing in terms of accounting preferences,” he says. Winding up the presentation he described the forces coming together here in 2018. “Our human identity has become our digital identity. The device has become the bridge from that digital identity to our human identity and biometrics is an easy way to secure that. An amazing opportunity is coming at us like a freight train. The 8.9 billion devices in the IoT need to be secured,” he said.

It will be interesting to see what the results are that won’t be released until after market close Friday. Shares in ImageWare have bumped up from USD $1.80 per share to USD $1.91 over the last couple days.

There is an interesting story playing out in Florida that those in the biometrics sector will want to keep an eye on. A purported stock scam has been spun out based on a fictitious story involving a biometric device. It’s important to see the situation cleared up. Investors have been burned. That’s not good for the wider industry.

If the principal of Lerman Law is able to get some justice for victims and clean up the situation, those in the industry will have to thank her.

This past week the law firm distributed a press release encouraging “financial victims” who purchased stock in Hawk Systems Incorporated, to come forward. The company is an alleged stock scam that has been promising investors it would manufacture a biometric sensor based on a patent said to be owned by the company.

Lerman is gathering information from whistleblowers and victims related to Hawk Biometric Technologies, Inc. Hawk Biometric Technologies, Inc., Hawk Biometrics of Canada, Inc., Fist Enterprises, LLC, Auto Secure, Inc., Auto Secure USA, Inc., and Secure Start USA, LLC. The firm is particularly interested in any patent information.

It’s no surprise a stock scam artists would use the biometric sector as a cover. You need a good story to sell a story. The biometric sector is hot. Using that term in a pitch is going to attract attention from investors.

In the case of Hawk the story was simple, understandable: In the days after 9/11 the ability to read vein patterns in hands was going to be valuable. By manufacturing such a device the company would be swimming in cash. Investors found the story irrestistable and were eager to put money in.

Early investors were shown a bustling operation with a professional-looking staff clad in pristine white lab coats, protective goggles and hardhats. According to a newspaper report one of the burned investors, “surveyed a bustling operation with a professional-looking staff clad in pristine white lab coats, protective goggles and hardhats. The host who was showing him around as part of a 15-minute tour explained that, ‘… production was underway on a newly patented, high-tech, highly profitable fingerprint identification device’.”

Investors put in $22 million. The investor group included Wall Street commodities traders, NFL players, elderly people betting their retirement savings.

But the company only ever recorded $5,000 in sales. As it turns out, “…there was no production, no product, no patent.”

Company insiders burned through the cash investors provided and funded a lavish lifestyle. Investors are angry.

“In-depth investigative reporting by the New York Daily News, Miami Herald and Palm Beach Post have exposed credible and deeply disturbing fraud allegations against Hawk, and there is strong evidence to suggest that the cynical financial frauds were perpetrated with the complicity of financial services institutions among others,” said Cathy Lerman, principal of the law firm undertaking the research into Hawk.

One investor reportedly lost $4 million in the sham. Others duped in the scam include investors spread across 13 different states. How has the case has dragged on for so many years? Turns out, principals of the company are reportedly linked to the mob, have been described as “untouchable” by at least one reporter following the case. A report in the New York Daily News claimed that Hawk Biometrics has been described in court papers as a, “… mobbed-up farce, a racketeering enterprise intent on fleecing its investors.”

Says Lerman in the press release, “One of the elderly HAWK victims stated that the principles behind HAWK, who perpetrated the initial scam, are ‘untouchable.’ That is a sad, but not surprising, statement about law enforcement and regulatory agencies in Florida,” said Lerman. “We intend to get to the truth about the operation of these companies and help any other victims/investors obtain justice. No one is or should be above the law.”

This is saucy and exciting stuff. Clearly, Lerman is taking on a challenge. But she wants to see some justice. “Investors in Hawk or the other various Hawk-related companies are encouraged to contact the Lerman law firm so that we can get to the bottom of what has happened,” she is quoted as saying. “We are gathering information so that we can better understand the facts and why regulatory agencies and law enforcement have so far declined to take any actions against these entities.”

There are defenders of the company. A director has spoken out, claiming the company is legit. But the NFL Players Association warned its members about the company as far back as a 2010 memo.

According to the press release from Lerman, “If you are an investor in one or more of the companies listed in this alert, wish to provide information to assist the Lerman Law Firm in its investigation, or are a potential whistleblower, then please contact Cathy Lerman.” Lerman Law is particularly interested in a biometric fingerprint identification device patent that was reportedly owned by HAWK according to the release.