Taser International Profile

Taser International

Stock Symbol: tasr
Warrant Symbol: tasrw
Industry: Handarms

Warrant Terms

Expiration: 5/11/2006
Exercise Price: $9.53
Conversion Ratio: 1.0
Call Provision: Callable if net earnings per share exceed $1.00 for one year

The Company

Not surprisingly, Taser International manufactures and designs tasers. For those who don't know, a taser is a sort of gun that delivers a temporarily paralyzing electrical shock within a limited firing range (currently, around 20 feet). In the company's case, a nitrogen cartridge (patented) shoots two "probes" into an assailant's body, with wires connected to the actual gun conferring the electric jolt. These devices are not to be confused with "stun guns", which require actual physical contact with an assailant.

There's an obvious relevance here to the events of Sept.11. Bullets fired within the confines of an airplane can have disastrous effects on the structural integrity of the aircraft. They can also easily kill an unintended target in a crowded environment. Tasers are rarely lethal (deaths have occurred, though...thus the company's "less lethal", as opposed to "non lethal", advertising tag). While the company hadn't sold any tasers to airlines prior to the attacks, it's interesting to note that its early-2001 IPO documents specifically mention the relevance of tasers on airlines.

Just recently, however, the company announced that Mesa Air pilots will be trained to use the company's taser.

As might be expected, the stock has moved nicely since Sept. 11, climbing from a Sept 10 $8.75 to as high as $12.30. Our interest in the company, however, really doesn't have much to do with the implications of Sept. 11. We're more compelled by the sales figures being generated and the 2002 guidance offered by the company (discussed below).

The potential markets are indeed large, and largely untapped. The company claims there are 740,000 law enforcement officers. and 450,000 correctional officers in the U.S. alone, not to mention private body guards, all of whom must be increasingly wary of the legal consequences of killing or maiming someone via "excessive force". There are also 45 million owners of firearms, a certain percentage of which might care to own a "less lethal" weapon.

In a press release accompanying recent third quarter results, the company stated that 129 accounts with law enforcement agencies were opened in the third quarter, with nearly 1000 agencies either on board or evaluating the company's taser. 15 enforcement departments stipulate that every officer be equipped with the taser.

Despite the "International" tag, 82% of the company's sales occur in the U.S., and the figure seems to be growing. With the exception of a few accounts, most sales occur through the use of sales firms that specialize in law enforcement equipment.

A low-end consumer model taser is available for about $100, while the more potent "Advanced Taser" can be had for between $400-600, depending on the features. The all-important nitrogen cartridges cost about $18 per pop, meaning that the company profits every time a taser gets fired.

Visit the company's web site: www.etaser.com.

There is some competition, most prominently in the form of a company by the name of "Tasertron". Taser International's device claims some advantages, though. Most importantly, the device is more incapacitating, thanks largely to the Harvard neurophysiology background of the CEO, Patrick Smith. One criticism of tasers has been that they haven't offered much protection against drug-crazed or pain-tolerant assailants. The company's device seems to knock just about anyone out for about 5 seconds, with the shooter able to deliver new shocks for as long as 10 minutes.

Tasertron's device uses gunpowder, meaning that these tasers are restricted by the Bureau of Alcohol, Tobacco, and Firearms. Tasr's use of compressed gas subverts this restriction...there's no regulation of these "consumer products" at the federal level at all, though there are prohibitions at the state level.

The company also claims its taser's pistol-like appearance and grip has an intuitive appeal to those who are familiar with the use of handguns. Interestingly, an obviously well-informed Yahoo poster claims the opposite...officers don't necessarily want to assume the immediate role of "assassin" when trying to manage a conflict, and Tasertron's flashlight-shaped gun would seem less inclined to get the adrenaline flowing.

The Numbers

To some extent, concerns about the competition are rendered moot by the limited growth figures available from the company. 1999 sales came in a $2.2 million, while 2000 sales came in at $3.4 million. In the nine months of this year, we've already seen $4.0 million in sales, with most recent third quarter sales ($1.28 million) exceeding last year's third quarter by nearly 50%. The third quarter figures, in fact, were something of a disappointment given prior company guidance...an expected large order was not consumated, but the company expects the sale to go off this quarter, adding nicely to fourth quarter figures. Third quarter earnings showed a loss of $.03/share.

Meanwhile, the company has offered guidance for the upcoming quarter and 2002, a rather unusual move for a small company fresh off the IPO block. The company is looking at $2-2.3 million in sales for the fourth quarter, and an eps figure between $.06 and $.10. For the year 2002, the company expects $12.0 million in revenue, and a basic eps of $.50/share. Such an eps figure, if accurate, would mean this fast growing company is not exactly overvalued at current levels (about $9.50 per share). Note also that the guidance doesn't include the possibility of any new income from airlines.

Current assets stand at $6.6 million, with liabilities at $927,000. Given the likelihood of showing profits in short order, the company doesn't seem to be in any danger of burning its cash at an excessive rate.

The company has 16 employees. Future projects include multiple fire tasers, and tasers with extended range, though the company's relatively meager R&D expenditures of the last couple years (totalling less than $100,000) would seem to indicate the company isn't exactly pursuing these possibilities full throttle.

The Warrants

The interesting feature here is the call provision: the warrants can only be called if eps exceeds $1.00 for a year. At such an eps, the company might reasonably trade around $20. Then again, the stock could trade considerably higher before reaching this goal (if ever). In any case, warrant holders can rest easy that the carpet won't be pulled out from under them before a decent profit can be had. The relatively distant expiration is also a plus.

At current levels, the warrants offer decent, if not spectacular, leverage. Given our optimism for the company itself, we'll add a handful of warrants to our model portfolio at the current ask ($3.55).

Stock Outstanding: 2.7 million shares
Public Warrants: 1.2 million shares
Insider Holdings: 52%
Institutional Holding: nil
7860 East Mclain Dr
Suite 2
Scottsdale, AZ 85260
480-905-2000

This profile is current as of 10/30/2001