Key Stats: Reflex Protect on Republic
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Pepper spray has become one of the most common non-lethal self-defense tools available to both consumers and police departments. What many people may not realize, though, is the lasting health ramifications for those targeted with it, and the risk that it poses to those nearby during the product’s discharge. The mist that’s ejected from the product’s nozzle can result in collateral damage because it does not just hit the target. It often fans out and affects those nearby. Pepper spray also often leaves surfaces sticky, meaning it can affect people who come into contact with the surface after the initial application. Because capsaicin is not soluble in water, it is very difficult to wash off of skin and other materials.
Reflex Protect claims to have the answers to the problems plaguing the pepper spray market. Instead of relying on traditional pepper spray, the company has developed what it calls Presidia Gel. It operates very similarly to pepper spray. It comes in a bottle. You point the nozzle at the threat and pull the trigger. Instead of a mist/spray emitting from the container, though, a stream of their Gel gets emitted. Because it is spewed out in stream form, the target aimed at is typically the only casualty. The Gel is also colorless and odorless. Upon contact, the Gel results in a rapid onset of temporary blindness (if it hits the right region) and it causes intense pain, similar to pepper spray. In fact, the CS agent in the product is often used in tear gas, with the express aim of being deployed as a riot control agent. The product only affects sensitive tissue, as well as mucous membranes, and is believed to cause no long-lasting damage to those affected. This argument is further bolstered by the 15 minute dissipation rate, making it ideal for indoor use as well.
At this time, the company has created a line of products centered around their Gel. In addition to spray bottles of Presidia Gel itself, they also offer practice targets for training purposes, docking stations for the bottles, and holsters. Lastly, Reflex Protect has developed Reflex Remove, a cleaning solution that neutralizes and removes their product as well as other non-lethal substances like pepper spray and tear gas. This product serves as a sound differentiator because it further enhances the company’s stance as promoting non-lethal, non-violent protection methods. Those impacted by accident and those impacted intentionally by Reflex Protect’s Presidia Gel can be treated as soon as desirable.
Already during its short history, Reflex Protect has done well to establish a quality reputation. The firm is primarily targeting the healthcare industry. Management’s rationale relates to the nature of healthcare facilities. Small hallways and beds filled with the sick and infirm are not locations where you want to deploy a harmful mist like pepper spray. The pinpoint accuracy of Reflex Protect, and the ability of the product to dissipate rapidly, makes for an attractive, less-harmful alternative. At this time, it is already approved by a group purchasing organization that includes over 38,000 medical clients. This figure is expected to grow materially in the near future. Healthcare isn’t the only viable market for its offerings though. Management claimed that its hallmark product is used by school districts across eight states in the US. Law enforcement is also an attractive target, since police and security personnel are major utilizers of pepper spray today.
Since launching, the company has seen attractive growth. Gross revenue in 2018 totaled just $54,546 and grew to $276,988 in 2019. Net revenue over these two periods was $51,108 and $238,234, respectively. At this stage in its life, Reflex Protect is still generating significant net losses. In 2018, their net loss was $500,636, but it did narrow to a loss of $450,108 last year. Operating cash outflows over the same timeframe narrowed from $642,124 to $406,382. Financial projections are simply based on educated guesswork. There is no guarantee that they will come to fruition, but if management’s own guidance is accurate, they expect big things in the near future. Management currently believes that by 2024 it could find itself generating nearly $35 million in revenue per year.
Besides the large net losses relative to sales, there was another negative for investors in Reflex Protect. This is the company’s debt. As of the end of 2019, the firm had debt of $626,801. Fortunately, $431,500 of this is a convertible note, while the bulk of the rest is attributable to amounts payable to insiders. The firm also has, separate from this, $125,000 in the form of revenue participation agreements. Though not debt, it should be treated similarly to it.
A Small Market
In its filings, the management team at the firm stated that it sees itself as operating in the non-lethal defense market. This is, according to one source, a space worth about $8.28 billion today. The expectation is for this market to grow at a rate of 8% per annum until at least 2022. In that year, the market would reach a size of $9.66 billion. This alone is a niche space, but we don’t believe this is a good comparison for Reflex Protect. That’s because this market includes all non-lethal options.
At the end of the day, Reflex Protect’s product line does not seem to compete with tear gas. Nor does it compete with tasers or non-lethal ammo. Really, it can be perceived as a competitor to pepper spray. Admittedly, the improvements made on Reflex Protect do suggest that it could expand the existing market. Some people who might use tasers, for instance, might opt for a spray if it weren’t for the negatives associated with pepper spray. Hospitals and schools, areas where individuals would be hesitant to employ pepper spray due to sensitivity and liability issues, might become more open to this new type of non-lethal option. Because of these things, investors should consider the market to be somewhat larger than just the pepper spray market is on its own. However, it’s unclear just how much larger it would be.
Focusing just on pepper spray, we find a really small, niche market. According to one source, the market today for the product is, on a global scale, worth about $33.41 million. This is expected to grow at a rate of 15.2% per annum until, in 2024, it’s worth $51 million. A second source pegs the market at $39.17 million. Using the same annual growth rate, it projects that by 2025 the space should be worth $60 million. Yet a third source, employing the same growth rate, calculates a market of $53 million by 2024. This is up from $29.95 million this year.
Terms of the Deal
In order to continue growing the business, the management team at Reflex Protect is looking to raise some capital. The goal is for between $25,000 and $1.07 million. They are doing this by issuing a SAFE. In order to participate in the deal, investors must contribute a minimum of $200 apiece. As of this writing, the company has $27,730 contributed to its raise. Upon conversion, the SAFE will convert at whatever the company is valued at, subject to a valuation cap of $9 million. Unlike in the case of most SAFEs, there is a 0% discount rate applied to the SAFE. These are rather unfavorable terms. Given where the company is from a growth point, and considering its bottom line, the valuation cap is incredibly high. The discount rate of 0% is also unattractive since it gives prospective investors little extra incentive to jump in now.
An Eye on Management
Reflex Protect has built up for itself a sizable team. At the core of the organization, though, are a few individuals. The two most notable are Joe Anderson and Steve Mangold, both founders of the business. Anderson is the business’s CEO and Mangold is its Director of R&D. Anderson has extensive experience as an attorney over the years. He worked as the attorney and mediator of his own practice, Joseph B. Anderson Legal and Mediation Services. Prior to that, he was a General Counsel and co-founder at StudySync, a digital education company. Before that, he worked as independent outside general counsel for various firms.
Mangold’s professional record is less-detailed. However, it is stated that he has several patents to his name and considers himself an inventor. Mangold designed Reflex Protect’s patented nozzle head, and he continues to try and identify new ways for the company to expand products and break into markets.
A final key player at the firm is Libby Brunell, its COO. Detailed work experience was not provided. But her profile reveals that she spent 15 years working in the area of curriculum design, coaching, and program development as a public school educator. She was also a member of Cascadia Business Development. Her goal there was to bring her team-building and operations experience to the small business environment.
At this time, Reflex Protect has been rated a Deal To Watch by our team. The company’s line of products appear to be incredibly interesting and attractive. The ways in which Reflex Protect differs from pepper spray make it a unique offering, and it could very well go on to make significant inroads across the market. It is possible that the product could replace not only pepper spray, but also other non-lethal options like tasers. Add in the strong sales growth in the two years it has been operating, and it’s a hard idea to ignore.
This is not to say that this opportunity is without its problems. The large and continued net losses and cash outflows are an issue. Debt is also a bit high. The biggest problem, though, is the company’s valuation and the 0% discount on conversion. These terms are painful for incoming investors. They are particularly unattractive when you consider what is going on with the economy and when you look at the likely falloff in demand the company has probably experienced due to schools and other places shutting down. Even with these negatives to be mindful of, we do believe the risk-reward here warrants considerable consideration from prospective shareholders.
About: Daniel jones
Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.