Taser International, Inc

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Taser International, Inc.

7860 East McClain Drive, Suite 2
Scottsdale, Arizona 85260
U.S.A.
Telephone: (480) 991-0797
Toll Free: (800) 978-2737
Fax: (480) 991-0791
Web site: http://www.taser.com

Public Company
Incorporated: 1993 as Air Taser, Inc.
Employees: 130
Sales: $24.5 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: TASR
NAIC: 332995 Other Ordnance and Accessories Manufacturers

Taser International, Inc. is a leading manufacturer of stun guns. Its weapons, which it describes as "less lethal," are used by law enforcement officers across the United States and Canada. The company markets its Taser brand stun guns in some 60 other countries as well. While law enforcement and the military make up most of its customers, Taser has also developed models designed for consumers. United Airlines made a major purchase of Tasers to protect its airplane cockpits, and Taser International has a potential wide market among other airlines, pending federal regulation. Unlike other stun guns, the Taser can operate from a distance. It fires small barbs into an attacker, and electrical charges travel along wires through the barbs, delivering incapacitating electronic pulses. The company was founded by two brothers, Patrick and Thomas Smith, and is chaired by their father, Phillips W. Smith. The Smith family owns roughly one-third of the stock of the publicly traded company.

Reinventing an Idea from the 1970s

Taser International, Inc. manufactures and markets several styles of stun guns under the brand name Taser. The word "taser" apparently originated in a Tom Swift adventure book, part of a ghostwritten series of books about a boy inventor that ran from 1910 through the 1970s. Taser stands for "Thomas A. Swift Electric Rifle." Jack Cover, a NASA scientist, invented and patented the electronic stun gun in 1974, naming it for the invention he recalled from his childhood reading. Cover's original Taser resembled a large flashlight. It used gunpowder to blast two wires at its target. When probes attached to the wires connected to the target's body, the Taser delivered massive but short-lived electrical bursts. These bursts overrode the target's neuromuscular system. Ideally, the target collapsed instantly and remained incapacitated—but essentially unharmed—long enough for the Taser's wielder to escape. Cover marketed his invention through a company called Taser Systems. Taser Systems went into bankruptcy, and it was then sold to an investor who operated it under the name Tasertron. Tasertron was a small business which marketed its products to police departments. The Los Angeles Police Department used Tasertron's Tasers, most publicly in 1991 in the notorious Rodney King case. Police officers fired a Taser at King, but it failed to incapacitate him. The officers then beat King in a videotaped attack that prompted much outrage.

Patrick "Rick" Smith was earning a master's degree in business administration at the time of the Rodney King incident. That same year, two of Smith's friends were shot to death during an angry altercation with a motorist. Smith wanted his mother to have a gun at home, to defend herself, but she would not accept one. Smith brooded over the problem of self-defense, wondering why the public could not buy something less dangerous than a gun for protection. He researched the stun gun used in the King incident, which had evidently failed to work because of a battery problem. As a classroom project, Smith developed a business plan for a new and improved stun gun. When he graduated in 1993, Smith brought his academic project to life. He contacted inventor Jack Cover, and the two began to tinker with the stun gun design. With an investment put up by his brother Tom and other family members, Smith bought the rights to the Taser and made a significant change. Cover's Taser fired its barbs using gunpowder. Because of that, it was classified as a firearm and was subject to all the laws and regulations that governed guns. The Smiths adapted the firing mechanism so that it used a compressed air cartridge. This changed the weapon's classification so that consumers would be able to buy it without a license.

Initial Marketing in the Early 1990s

The Smith brothers incorporated Air Taser, Inc. in Scottsdale, Arizona in 1993. They hired an electrical engineer to design a prototype, and by the end of the year they had a model to show the Bureau of Alcohol, Tobacco, and Firearms. The bureau approved the Air Taser for consumer use, and the new company began selling its product at the 1995 Consumer Electronics Show. Though Air Taser did little advertising, there was enough interest in its product line to give it sales of several million dollars in its first year. Air Taser grew from seven employees to 25, and it began selling through the electronic gadget retailer Sharper Image. Air Taser employed a lobbyist and public relations man to handle regulatory and safety concerns. While stun guns were outlawed in several states, 43 states allowed their sale without the licensing and waiting period that burdened other weapon transactions.

All Air Taser's marketing was initially directed at consumers. It produced a video to show people how the Taser worked, and the brothers demonstrated the Taser at trade shows. However, though the company had strong initial sales, its costs were high, and Air Taser was far from profitable. The Smiths frequently scrambled to meet the payroll of their assemblers and other employees. Air Taser hoped it could reach a broader market by selling to law enforcement agencies, but there were several roadblocks. The Taser still had some operational flaws. Rick Smith showed the product to the Czech National Police Academy in Prague in 1995, when to his mortification the Taser failed to stop a volunteer. This police cadet was able to keep going despite the pain of the Taser attack, and Smith's demonstration came to a humiliating end with the cadet locking him in a wrestling hold. The company went back to the drawing board, developing a different model that set off severe muscle contractions in the target body. This meant that even if a person was impervious to pain—because of rage, psychosis, or whatever reason—the Taser's shock would nevertheless be debilitating. The next step was to sell the Taser to police forces. In this endeavor, Air Taser was blocked by an existing licensing agreement between Jack Cover and the earlier Taser manufacturer Tasertron. Tasertron filed suit against Air Taser, claiming it had the exclusive rights to market Cover's invention to police and military. While Air Taser believed its agreement with Cover let it sell to the military and police as well, the company did not have the finances to fight the case in court. Consequently, Air Taser settled with Tasertron, agreeing to market only to private consumers until February 1998.

Air Taser thought its consumer sales would jump if ordinary people could see and hear about police using the weapons. Bound by Tasertron's suit, however, the company instead tried to reach consumers with a different product line. The company made an anti-theft device for cars which debuted in 1997. The Auto Taser was similar to a popular anti-theft device called The Club, a metal bar that locked the steering wheel. Car thieves had figured out how to get past The Club by sawing through the steering wheel or by picking the lock. The Auto Taser was a locking metal bar with the addition of a motion sensor. Any movement of the steering wheel activated an alarm. This set off electrical waves that shocked or stunned a would-be thief. Air Taser began selling the Auto Taser through Sharper Image, which ran both retail stores and a mail order catalog. However, the Auto Taser never took off. "No one bought it," Tom Smith told the Los Angeles Times (March 21, 2002). "My brother started calling it the Bearded Lady: Everyone wanted to look at it and no one would take it home."

Going Public in 2001

The company was close to bankruptcy several times, but it kept going. In 1998, Air Taser was legally free to market its products to law enforcement agencies. By that year, it had sold more than 100,000 Tasers in the United States and had exported the weapon to some 60 countries abroad. The company began to develop a more powerful Taser and to show prototypes to the law enforcement community. Air Taser used a former Marine, Hans Marrero, to demonstrate the effects of the new model. Marrero had been the Hand-to-Hand Combat Chief of the U.S. Marine Corps, and he had the physical strength and willpower to fight off the effects of the first Air Taser. The new Advanced Taser knocked down even the formidable Marrero in under two seconds. In 1998, the company changed its name to Taser International, Inc., reflecting its growing overseas sales and its development past the Air Taser to more advanced models. In 1999, Taser International demonstrated its new model at the U.S. Marine Corps headquarters and then at a meeting of the International Association of Chiefs of Police. The company got permission to sell its products in Canada in 1999, though stun guns had previously been banned in that country. Taser International began to make sales of its Advanced Taser to police forces and correctional facilities throughout the United States by the end of 1999.

Company Perspectives:

Corporate Mission: To raise mankind above violent behavior by developing products which enable people to protect themselves without causing injury or death to another human being. To do all that is possible to ensure society, as well as our customers, can benefit from our products. To uphold the highest level of personal and professional ethics in the execution of business.

Taser International quickly gained sales in the law enforcement market, and by 2000 more than 500 law enforcement agencies were either using or testing the company's Advanced Taser. Police guarding both the Republican and the Democratic National Conventions in 2000 were equipped with Tasers. The company took in several large orders, including 500 Advanced Tasers for the police force of Albuquerque, New Mexico, and 400 for police in Sacramento, California. Taser still did not turn a profit, despite growing sales. The company needed an infusion of capital in order to keep up with its burgeoning markets. The Smiths considered selling the company but decided instead to sell shares to the public.

Taser arranged its initial public offering (IPO) with an underwriting firm that had handled several other law enforcement-related businesses, Paulson Investment Company. The firm was to debut on the NASDAQ, and the stock sell-off was intended to raise about $11 million. Unfortunately, the timing of the offering was bad. Many small high-tech companies traded on the NASDAQ, and these stocks had been flying high through the late 1990s into 2000. The stock market started to contract in 2000, and the NASDAQ was particularly hard hit. Over 400 companies went public in 2000, the last good year of the 1990s bull market, compared to only 91 for 2001. Financing was hard to find, and investors were wary of once-hot small cap stocks. Tom Smith, in the Los Angeles Times interview cited above, claimed that the IPO market was so poor that "we had to pull brokers from under desks to talk to us."

Taser International went public in May 2001, pricing its shares at $13. The price dropped from there, making the deal a modest success, not one of the eye-popping instant-millionaire IPOs of a few years earlier. However, conditions soon changed drastically. The terrorist attacks on September 11, 2001 jolted the United States into a mode of heightened security. Barely two months after the attacks, United Airlines announced that it was buying Tasers for all its 600 plus planes. Other airlines soon followed suit. This action was taken by the airlines despite the fact that the Federal Aviation Administration (FAA) did not allow arming of pilots. The airlines believed Tasers were the appropriate choice for its cockpit crews for two principal reasons: first, unlike a gun, a Taser did not have the potential of puncturing the aircraft and possibly causing a dangerous loss of pressure; second, the Taser was designed to immobilize its target, not to kill. While the FAA mulled over allowing the defensive weapons on board planes, Taser sales took off. The company's stock price began to rise, and orders poured in from all sides. Taser International finished 2001 in the black, making a profit for the first time since its founding. Revenue stood at $6.8 million.

Wider Markets in the 2000s

The tragedy of September 11 stimulated Taser sales to law enforcement groups, airlines at home and abroad, and to consumers. Since 1998, Taser International had focused its sales on the police and military. Tasers were available in fewer than 100 retail stores. In 2002, the company brought out a model designed specifically for the consumer market. Some 500 retailers were expected to carry the consumer model Taser by the end of 2002. More than a thousand police departments in the United States were using Tasers by that year. Revenue doubled, and the company's long struggle to keep going finally seemed to be paying off. Tasers were also increasingly in the news. Time magazine, Business Week, the New York Times and the Wall Street Journal all wrote about the company in 2002 or 2003. There were some cases of deaths of people stunned with Tasers, though the company claimed that medical examinations in every case pointed to another underlying cause for the fatality.

In 2003, Taser International bought out its rival Tasertron. The company spent $1 million to acquire Tasertron's assets and patents. This gave Taser International undisputed rights to the underlying technology and left the company the unquestioned leader in the stun gun market. Taser International also took over Tasertron's pending government contracts. The acquisition gave Taser International new access to some military markets and put an end to the legal squabbling between the two companies. Several months later, the company announced it was spending $2.9 million to build new facilities in Scottsdale. The company brought out a new model that year, the X26, and needed the new plant to meet its growing orders. Law enforcement sales were increasing. Many of Taser's customers were small police departments, but in 2003 the company sold 200 stun guns to the Chicago Police Department, one of the largest police departments in the country. Taser hoped that might lead to more orders from major metropolitan law enforcement bureaus.

Taser International hoped to break $20 million in sales for 2003. The company had phenomenal sales in its fourth quarter and finished the year at $24.5 million. Its stock price took a run, hitting $135 per share in February 2004. The stock had sold a year earlier for only $4. Investors clearly believed the company had bright prospects. Taser's stun guns seemed to be gaining acceptance as standard police equipment, and the company had still not fully tapped the law enforcement market. It also had no serious domestic rivals in its particular market niche. The Smith brothers had run the company at a loss for seven years. By the early 2000s, their persistence seemed to have been well worth it.