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(BSNS WIRE) Chatfield Dean & Co. Release Research Report on Saf-T-Lok In
Chatfield Dean & Co. Release Research Report on Saf-T-Lok Inc.
Business Editors
GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--June 9,
1998--Chatfield Dean & Co. Inc. today released its research report on
Saf-T-Lok Inc., (NASDAQ:LOCK), with a BUY recommendation in a
nine-page research report entitled "Tremendous proprietary product has
recently begun shipments."
Please add our analyst coverage to your database.
o Rating: BUY
o Risk Rating: Speculative
o 1998 Earnings Estimates: $0.03
o 1999 Earnings Estimates: $0.31
o 12- to 24-Month Price Target: $10.00
Analyst: Cheryl J. Bostater
Industry: Firearm Safety Lock Manufacturer
(NASDAQ: LOCK)
Tremendous proprietary product has recently begun shipments.
Recommendation: Buy
Recent Price: $5.09
12- to 24-Month Price Target: $10.00
Risk Rating: Speculative
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*T
Symbol Price 52-Week Shares Market
(NASDAQ) (6/8/98) Range Fully Cap.
Diluted
LOCK $5.09 - $5.13 $0.625 - $6.00 19.9 mil. 101.3 mil.
Symbol Avg. Daily Dividend S&P
(NASDAQ) Vol. (shrs.) Yield 500
LOCK 565,000 none 1116
SELECT BALANCE SHEET DATA EPS SUMMARY/a
(as of 3/31/98) FYE: Dec. Q1-Mar Q2-Jun
Cash/Share: $0.12 1998E $0.00A $0.00E
Tang. Book/Share: $0.23 1999E $0.04E $0.06E
Current Ratio: 1.6:1
Current Est.
Q3-Sept Q4-Dec for Year/b P/E
Cash/Share: $0.01E $0.03E $0.03E 169.7X
Tang. Book/Share: $0.09E $0.11E $0.31E 16.4X
Current Ratio:
Note:
/a Balance Sheet calculations exclude $5.5 million in prepaid expenses
na = not available
nm = not meaningful
ne = not estimated
/b Quarterly results may not sum due to rounding.
*T
o Patented handgun and semi-automatic locking devices provide
safety from unintended use, but allow access by the owner in seconds,
which is unique from the competition.
o Signed order to ship $625,000 worth of product per month for 10
months to a retail distributor.
o Assembly operations began in March, 1998 for the grip locks and
began in May for the magazine locks.
o Large potential U.S. Market: 60-65 million handguns in the
U.S. and 30-35 million handgun owners.
o Considerable concern in the U.S. regarding prevention of
firearm-related suicides, homicides, and accidents.
o New V.P. of Marketing has extensive law enforcement experience
and will lead the Company's efforts in direct sales to law
enforcement agencies.
o Announced on 5-26-98, an agreement with Semiconductor Laser
International Corp. (SLIC) to develop a laser-enhanced gun locking
mechanism that can recognize fingerprints.
o Announced on 6-8-98, a Marketing Agreement with ENZONE USA, a
large distributor of home safety equipment.
OVERVIEW
Saf-T-Lok Inc., through its subsidiary STL Lock, Inc., designs,
develops, manufactures, and markets proprietary combination gun locks
to prevent unauthorized use of firearms, including unintentional
discharge by children and assailants. With the Saf-T-Lok locks, gun
owners do not have to choose between protecting their home and their
children's safety. The locks consist of a combination lock that is
integrated into the grip of a handgun or the magazine of a
semi-automatic weapon. The attractiveness of the lock is that it can
be disengaged in seconds only by the owner that knows the
combination, it can be used on a loaded gun, and it does not require
a separate key, battery or other gadget to lose or fail. The body of
the lock is positioned under and concealed by the gun grip or
incorporated in the actual magazine for a semi-automatic weapon.
The Company has been awarded seven patents and has one pending on
its handgun locks, 14 patent claims have been allowed covering all
aspects of the Company's magazine lock for semi-automatic weapons.
Three U.S. patents are pending as are 32 foreign patent applications
filed in Canada and other countries. The patents on the magazine
lock give Saf-T-Lok the rights to any firearm lock that is encased in
a magazine; a very broad claim. The largest and fastest growing
market for new gun sales is for semi-automatic weapons. The
Saf-T-Lok has passed extensive testing for wear, impact resistance,
and corrosion.
Frank Brooks started Saf-T-Lok in 1991 in order to market a hand
gun safety lock product that he developed and patented primarily due
to safety concerns for his grandchildren who were frequent visitors
to his home. To get the product from prototype to production mode,
the Company needed more funding; therefore, Mr. Brooks decided to
merge the Company with a public shell company that had about $2.5
million in cash available to further product development. The family
that had started that public shell is no longer involved with the
management of Saf-T-Lok and has very little stock in the Company.
Some stock was sold both by Mr. Brooks and Mr. Gardner, the current
CEO in 1997 and prior to that, in order to support the Company and
themselves as they were taking little or no salary and the company
had no revenues. Early in 1997, the Company raised approximately
$500,000 from sales of common stock to various offshore investors.
In the fall of 1997, the Company raised $750,000 from the sale of
convertible debentures that have since converted into common. In
November, 1997, the Company raised $2,500,000 from the sale of common
stock and warrants to offshore investors, and raised another $500,000
in January of 1998. These additional funds have allowed the Company
to begin production of its gun safety lock products. The Company is
currently assembling the locks in-house with a constantly growing
number of assembly employees. The metal components for the locks are
being manufactured by Dynacast in South Carolina.
The Company has a broad marketing and distribution strategy that
includes retail distribution, internet sales, direct sales to police
departments and government agencies, and OEM agreements with gun
manufacturers.
SUMMARY AND INVESTMENT THESIS
In our opinion, Saf-T-Lok has reached a critical point in its
development. The Company has just started shipping its first
products and obtained its first revenues ever in March. If the
Company's distributors are able to sign agreements with their large
retail clients, and if the Company is able to deliver on its plan to
sell to police departments and gun manufacturers, this Company could
become a huge success. In addition, gun safety is clearly a prime
national concern.
The Company currently has 11,519,077 shares outstanding (as of
April 30, 1998), plus 4,834,725 warrants and 3,539,137 options with
exercise prices of $5 and below. This gives a fully diluted number
of shares outstanding of 19,892,939.
Because Saf-T-Lok is a very early stage company with little
history of revenues or earnings, it is difficult to assess whether or
not the Company can meet its projections. However, the purchase
orders with United Safety Action and D&W Enterprises ensure they will
have some level of sales this year. We believe that Saf-T-Lok could
have revenues of approximately $7 million in 1998 and $23 million in
1999. Net income after tax could be approximately $700,000 in 1998
and $6.0 million in 1999, depending mostly on how quickly the Company
can ramp up its assembly operations, and how quickly orders are
signed with major retailers and other customers. The Company has net
operating loss carryforwards as of December 31, 1997 of approximately
$9.4 million, which will reduce income tax expenses over the next
couple of years. In our opinion, the stock could trade at a P/E of
approximately 25X by the end of FY'99, indicating a 12- to 24-month
price target of $10.00 per share based on 20,000,000 projected fully
diluted shares. Based on the following investment considerations, we
rate an investment in LOCK shares with a BUY for the portfolios of
speculative investors who are prepared to lose their entire
investment.
Please note that the gross profit for the first quarter of 1998
is significantly overstated, because the cost of goods sold was based
on older inventory that had a significantly lower cost than is
expected in the future. Also note that the complex accounting for
the value of stock options and stock purchase warrants has caused the
capital in excess of par to increase from $9,317,133 as of March 31,
1997 to $21,678,171 on March 31, 1998. Of this amount, only
$3,258,705 is the net amount received by the Company for the sale of
stock and the exercise of stock options during that 12-month period.
KEY INVESTMENT CONSIDERATIONS
o The Company has strong retail distribution agreements. For
retail distribution, the Company has signed a purchase order with D&W
Enterprises and a distribution agreement with United Safety Action.
D&W is currently in negotiations with several very large retailers
and has signed an initial purchase order with the Company to purchase
$6 million worth of locks at the rate of $625,000 per month for 10
months. D&W has paid the Company $1.0 million up front for $1.0 |
