FORM 10-Q
TASER INTERNATIONAL INC - TASR
Filed: August 11, 2008 (period: June 30, 2008)
Quarterly report which provides a continuing view of a company's financial position

Table of Contents
10-Q - 10-Q

PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.

FINANCIAL STATEMENTS
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
CONTROLS AND PROCEDURES

PART II
ITEM 1.
ITEM 1A.
ITEM 2.

LEGAL PROCEEDINGS
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EXHIBITS

ITEM 4.
ITEM 6.
SIGNATURES
Index to Exhibits
EX-31.1 (EX-31.1)
EX-31.2 (EX-31.2)
EX-32 (EX-32)

Table of Contents

United States Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q
�

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
or

�

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from

to

Commission File Number 001-16391

TASER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)

86-0741227
(I.R.S. Employer
Identification Number)

17800 N. 85th St., SCOTTSDALE, ARIZONA
(Address of principal executive offices)

85255
(Zip Code)

(480) 991-0797
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes � No �
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer �
Non-accelerated filer �
Smaller reporting company �
�
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

�

There were 61,711,712 shares of the issuer’s common stock, par value $0.00001 per share, outstanding as of August 6, 2008.

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

No

�

TASER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2008
TABLE OF CONTENTS
Page

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance sheets as of June 30, 2008 and December 31, 2007
Statements of operations for the three and six months ended June 30, 2008 and 2007
Statements of cash flows for the six months ended June 30, 2008 and 2007
Notes to financial statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures

3
4
5
6
18
28
28

PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
SIGNATURES
INDEX TO EXHIBITS

29
29
35
35
35
36
37

EX-31.1
EX-31.2
EX-32
2

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TASER INTERNATIONAL, INC.
BALANCE SHEETS
(UNAUDITED)
June 30, 2008

December 31, 2007

ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance of $200,000 and $190,000 at June 30, 2008
and December 31, 2007, respectively
Inventory
Prepaids and other assets
Deferred income tax assets, net

$

Total current assets
Long-term investments
Property and equipment, net
Deferred income tax assets, net
Intangible assets, net
Other long-term assets
Total assets

33,026,135
—

$

42,801,461
8,499,978

10,750,184
20,554,202
1,479,015
7,474,738

11,691,553
13,506,804
4,318,661
15,608,325

73,284,274
10,503,668
26,238,383
13,711,148
2,112,752
62,135

96,426,782
9,006,493
23,599,680
6,724,104
1,925,139
81,203

$

125,912,360

$

137,763,401

$

7,094,830
5,200,000
2,014,217
259,353
—
—

$

10,088,139
—
1,694,644
266,728
19,257
404,848

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Litigation judgment accrual
Current deferred revenue
Customer deposits
Current portion of capital lease obligations
Deferred insurance settlement proceeds
Total current liabilities
Capital lease obligations, net of current portion
Deferred revenue, net of current portion
Liability for unrecorded tax benefits

14,568,400
—
3,821,466
1,208,811

12,473,616
11,695
3,541,267
1,100,073

Total liabilities

19,598,677

17,126,651

—

—

Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.00001 par value per share; 25 million shares authorized no
shares issued and outstanding at June 30, 2008 and December 31, 2007
Common stock, $0.00001 par value per share; 200 million shares authorized;
61,710,478 and 63,263,903 shares issued and outstanding at June 30, 2008 and
December 31, 2007, respectively
Additional paid-in capital
Treasury stock, 2,091,600 and 300,000 shares at June 30, 2008 and December 31,
2007, respectively
Retained earnings

638
85,886,740

635
86,911,381

(14,708,237)
35,134,542

(2,208,957)
35,933,691

Total stockholders’ equity

106,313,683

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

120,636,750

Total liabilities and stockholders’ equity

$

125,912,360

The accompanying notes are an integral part of these financial statements.
3

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

$

137,763,401

Table of Contents

TASER INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended June 30,
2008
2007

Net Sales

$

21,101,309

$

For the Six Months Ended June 30,
2008
2007

25,863,376

$

43,587,813

$

41,165,191

Cost of products sold:
Direct manufacturing expense
Indirect manufacturing expense

6,019,957
1,476,329

7,338,890
2,993,227

13,591,454
3,628,767

11,947,459
4,797,444

Total cost of products sold

7,496,286

10,332,117

17,220,221

16,744,903

13,605,023

15,531,259

26,367,592

24,420,288

9,710,804
3,019,886
5,200,000

8,344,927
1,262,849
—

18,870,644
5,131,534
5,200,000

15,926,835
2,233,635
—

(4,325,667)

5,923,483

(2,834,586)

6,259,818

Gross margin
Sales, general and administrative
expenses
Research and development expenses
Legal judgment expense

Income (loss) from operations
Interest and other income, net

721,366

Income (loss) before provision
(benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Income (loss) per common and
common equivalent shares
Basic
Diluted
Weighted average number of
common and common equivalent
shares outstanding
Basic
Diluted

427,033

(3,604,301)
(1,588,565)

1,222,730

6,350,516
2,651,308

933,402

(1,611,856)
(812,707)

7,193,220
2,999,458

$

(2,015,736)

$

3,699,208

$

(799,149)

$

4,193,762

$

(0.03)

$

0.06

$

(0.01)

$

0.07

$

(0.03)

(0.01)

$

0.06

62,642,618
62,642,618

0.06

62,374,946
65,214,726

62,983,446
62,983,446

The accompanying notes are an integral part of these financial statements.
4

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

62,192,193
64,928,190

Table of Contents

TASER INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30,
2008
2007

Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation and amortization
Loss on disposal of fixed assets
Provision for excess and obsolete inventory
Provision for warranty
Stock-based compensation expense
Deferred insurance settlement proceeds recognized
Provision (benefit) for deferred income taxes
Litigation judgment expense
Change in assets and liabilities:
Accounts receivable
Inventory
Prepaids and other assets
Accounts payable and accrued liabilities
Deferred revenue
Customer deposits
Accrued litigation settlement

$

(799,149)

$

4,193,762

1,298,750
61,790
49,418
515,651
730,857
(404,848)
(759,674)
5,200,000

1,171,102
4,930
56,690
548,229
591,307
(953)
3,110,916
—

941,369
(7,096,816)
2,858,714
(3,508,960)
599,772
(7,375)
—

(4,828,753)
(746,021)
278,374
(577,720)
918,335
361,927
(8,000,000)

(320,501)

(2,917,875)

Cash Flows from Investing Activities:
Purchases of investments
Proceeds from maturity of investments
Purchases of property and equipment
Purchases of intangible assets

(38,901,411)
45,904,214
(3,950,353)
(267,455)

(64,647,257)
69,713,027
(1,592,988)
(231,658)

Net cash provided by investing activities

2,784,995

3,241,124

Cash Flows from Financing Activities:
Repurchase of common stock
Payments under capital leases
Proceeds from options exercised

(12,499,280)
—
259,460

—
(22,332)
1,458,594

Net cash provided (used) by financing activities

(12,239,820)

1,436,262

(9,775,326)
42,801,461

1,759,511
18,773,685

Net cash used for operating activities

Net increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of period
Cash and Cash Equivalents, end of period

$

33,026,135

$

20,533,196

Supplemental Disclosure:
Cash paid for interest
Cash paid for income taxes

$
$

—
484,200

$
$

2,865
281,000

Non Cash Transactions:
Deferred tax asset correction
Shareholder derivative lawsuit settlement

$
$

2,014,955
—

$
$

—
1,750,000

The accompanying notes are an integral part of these financial statements.
5

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. Organization and Summary of Significant Accounting Policies
TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced electronic control devices
(“ECDs”) designed for use in law enforcement, military, corrections, private security and personal defense. The Company sells its
products worldwide through its direct sales force, distribution partners, online store and third party resellers. We were incorporated in
Arizona in September 1993 and reincorporated in Delaware in January 2001. Our headquarter facilities are in Scottsdale, Arizona.
a. Basis of presentation
The accompanying unaudited financial statements of TASER International, Inc. include all adjustments (consisting only of normal
recurring accruals) which management considers necessary for the fair presentation of the Company’s operating results, financial
position and cash flows as of June 30, 2008 and for the periods ended June 30, 2008 and 2007. Certain information and note
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) have been omitted from these unaudited financial statements in accordance with applicable rules.
The results of operations for the three and six month period ended June 30, 2008 are not necessarily indicative of the results to be
expected for the full year (or any other period) and should be read in conjunction with the financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
b. Segment information and major customers
Management has determined that its operations are comprised of one reportable segment. For the three and six months ended
June 30, 2008 and 2007, sales by geographic area were as follows:
Three Months Ended June 30,
2008
2007

United States
Other Countries
Total

Six Months Ended June 30,
2007
2006

88%
12%

79%
21%

87%
13%

82%
18%

100%

100%

100%

100%

Sales to customers outside of the United States are denominated in U.S. dollars and are attributed to each country based on the
billing address of the distributor or customer. To date no individual country outside the U.S. has represented a material amount of total
net sales. Substantially all assets of the Company are located in the United States.
There were no customers exceeding 10% of total net sales in the second quarter of 2008. In the second quarter of 2007 there were
two distributors each comprising approximately 12% of total net sales. In the six months ended June 30, 2008 and 2007 one distributor
represented approximately 13% and 11%, respectively, of total net sales. At June 30, 2008, the Company had receivables from one
customer comprising 11% of the aggregate accounts receivable balance. At December 31, 2007, the Company had receivables from
two customers comprising 20% and 10% of the aggregate accounts receivable balance.
c. Stock-Based compensation
The Company applies the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), “Share
Based Payment” (“SFAS No. 123(R)”) using the modified prospective transition method. Under that transition method, compensation
cost recognized in the three and six months ended June 30, 2008 and 2007 includes: (a) compensation cost for all stock-based
payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123, and (b) compensation cost for all stock-based payments granted subsequent to January 1, 2006,
based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).
Total stock-based compensation expense recognized in the income statement for the three and six months ended June 30, 2008 was
$410,000 and $731,000 before income taxes, respectively, $295,000 and $564,000 of which was related to Incentive Stock Options
(“ISOs”) for which no tax benefit is recognized. Total stock-based compensation expense recognized in the income statement for the
three and six months ended June 30, 2007 was $329,000 and $591,000 before income taxes, respectively, $256,000 and $480,000 of
which was related to ISOs for which no tax benefit is recognized. During the three and six months ended June 30, 2008 and 2007, the
Company did not tax effect the stock based compensation expense for tax purposes related to the exercise of stock options as a result
of SFAS No. 123(R). The tax benefit will be recorded when the Company realizes the benefit in cash or with an offset to taxes payable
in future periods. The total unrecognized tax benefit related to the non-qualified disposition of stock options in the three and six
months ended June 30, 2008 was approximately $45,000 and $66,000, respectively. The total unrecognized tax benefit related to the
non-qualified disposition of stock options in the three and six months ended June 30, 2007 was approximately $106,000 and $221,000
respectively.
6

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
SFAS No. 123(R) requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected
to use the Black-Scholes-Merton option valuation model, which incorporates various assumptions including volatility, expected life,
and interest rates. The assumptions used for the three and six month periods ended June 30, 2008 and 2007 and the resulting estimates
of weighted-average fair value per share of options granted during those periods are as follows:
Three Months Ended June 30,
2008
2007

Expected life of options
Weighted average volatility
Weighted average risk-free interest rate
Dividend rate
Weighted average fair value of options granted

4.0 years
69.8%
3.1%
0.0%
$
3.84

Six Months Ended June 30,
2008
2007

4.0 years
58.5%
4.8%
0.0%
$
5.06

4.0 years
69.9%
3.1%
0.0%
$
4.04

4.0 years
58.6%
4.7%
0.0%
$
4.98

The expected life of the options represents the estimated period of time until exercise and is based on the Company’s historical
experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee
behavior. Expected stock price volatility is based on a combination of historical volatility of the Company’s stock and the one-year
implied volatility of its traded options for the related vesting periods. The risk-free interest rate is based on the implied yield available
on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not
plan to pay any dividends in the near future. As stock-based compensation expense is recognized on awards ultimately expected to
vest, it should be reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company forfeiture rate was
calculated based on its historical experience of awards which ultimately vested.
d. Income (loss) per common share
The Company accounts for income (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” Basic income per
share is computed by dividing net income by the weighted average number of common shares outstanding during the periods
presented. Diluted income per share reflects the potential dilution that could occur if outstanding stock options were exercised. The
calculation of the weighted average number of shares outstanding and earnings per share are as follows:
For the Three Months Ended June 30,
2008
2007

Numerator for basic and diluted
earnings per share
Net income (loss)

$

Denominator for basic earnings per
share — weighted average shares
outstanding
Dilutive effect of shares issuable
under stock options outstanding
Denominator for diluted earnings
per share — adjusted weighted
average shares
Net income (loss) per common
share
Net income (loss) per common
share
Basic
Diluted

$
$

(2,015,736)

$

For the Six Months Ended June 30,
2008
2007

3,699,208

$

(799,149)

$

4,193,762

62,642,618

62,374,946

62,983,446

62,192,193

—

2,839,780

—

2,735,997

62,642,618

65,214,726

62,983,446

64,928,190

(0.03)
(0.03)

$
$

0.06
0.06

$
$

(0.01)
(0.01)

$
$

0.07
0.06

Basic net income per share is based upon the weighted average number of common shares outstanding during the period. Diluted
net income per share includes the dilutive effect of potential stock option exercises, calculated using the treasury stock method. As a
result of the net loss for the three and six months ended June 30, 2008, we have excluded 3,947,353 and 3,094,283 stock options,
respectively, from the calculation as their effect would have been to reduce the net loss per share. For the three months and six months
ended June 30, 2007, the effects of 666,423 and 639,267 stock options, respectively, were excluded from the calculation of diluted net
income per share as their exercise prices were greater than the closing price of our common stock on June 30, 2007.
7

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

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TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
e. Warranty costs
The Company warrants its X26 products from manufacturing defects on a limited basis for a period of one year after purchase,
and thereafter will replace any defective unit for a fee. The C2 product is warranted for a period of 90 days after purchase. The
Company also sells extended warranties for periods of up to four years after the expiration of the limited one year warranty.
Management tracks historical data related to returns and warranty costs on a quarterly basis, and estimates future warranty claims by
applying an estimated weighted average rolling four quarter return rate to the product sales for the period. In the fourth quarter of
2007, management made a revision to the basis of calculating the four quarter return rate as the result of being able to more accurately
capture data relating to the number of units replaced under standard warranty versus extended warranty terms. In addition, given the
trend of sales growth experienced in 2007, particularly in the second half of the year, the estimated four quarter return rate is weighted
to account for the higher return rate experienced in those periods. If management becomes aware of a component failure that could
result in larger than anticipated returns from its customers, the reserve would be increased. After the one year warranty expires, if the
device fails to operate properly for any reason, the Company will replace the TASER X26 for a prorated discounted price depending
on when the product was placed into service and replace the ADVANCED TASER device for a fee of $75. These fees are intended to
cover the handling and repair costs and include a profit. The following table summarizes the changes in the estimated product
warranty liabilities for the six months ended June 30, 2008 and 2007:
June 30, 2008

June 30, 2007

Balance at Beginning of Period
Utilization of Accrual
Warranty Expense

$

919,254
(456,539)
515,651

$

713,135
(376,018)
548,229

Balance at End of the Period

$

978,366

$

885,346

f. Recent accounting pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 141 (revised) (“SFAS 141(R)”), Business Combinations. The standard changes the accounting for business
combinations by requiring that an acquiring entity measure and recognize identifiable assets acquired and liabilities assumed at the
acquisition date fair value with limited exceptions. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. Management does not expect the adoption of SFAS 141(R) to have an impact on the Company’s financial
statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of
acquisitions, if any, the Company consummates after the effective date.
In December 2007, the Emerging issues Task Force (“EITF”) reached a consensus on EITF issue No. 07-1 “Accounting for
Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 establishes the accounting and disclosure requirements for participants in
collaborative arrangements conducted without the creation of a separate legal entity. EITF 07-1 will be effective for annual periods
beginning after December 15, 2007. The adoption of EITF 07-1 did not have a material impact on the Company’s financial position.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”). SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified
dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once made. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances.
Management adopted SFAS No. 159 beginning in the first quarter of 2008. The adoption of SFAS No. 159 did not have a material
impact on the Company’s financial position.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements,
the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning
after December 15, 2007. Management adopted SFAS No. 157 beginning in the first quarter of fiscal 2008. The adoption of SFAS
No. 157 did not have a material impact on the Company’s financial position.
g. Reclassifications
Certain reclassifications have been made to 2007 financial information to conform to 2008 financial statement presentation.
8

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
2. Cash, cash equivalents and investments
Cash and cash equivalents include funds on hand and short-term investments with original maturities of three months or less.
Short-term investments include securities generally having maturities of 90 days to one year. Long-term investments include securities
having maturities of more than one year. The Company’s long-term investments are invested in federal agency mortgage-backed
securities, and are classified as held to maturity. These investments are recorded at amortized cost. The Company intends to hold these
securities until maturity.
The following is a summary of cash, cash equivalents and held-to-maturity investments by type at June 30, 2008 and
December 31, 2007:
June 30, 2008
Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Cash and
money
market funds $ 27,033,261 $
Commercial
paper
5,992,874
Government
sponsored
entity
securities
10,503,668

28,522

Total cash,
cash
equivalents
and
investments $ 43,529,803 $

28,522 $

— $
—

Fair Value

— $

(13,832) $

Cost

27,033,261 $ 29,687,138

(13,832)

—

December 31, 2007
Gross
Gross Unrealized
Unrealized
Gains
Losses

$

—

$

Fair Value

—

$

29,687,138

5,979,042

13,114,323

—

(37,838)

13,076,485

10,532,190

17,506,471

14,238

(12,022)

17,508,687

(49,860) $

60,272,310

43,544,493 $ 60,307,932

$

14,238

$

The following table summarizes the classification of cash, cash equivalents and investments in the accompanying balance sheet.
June 30,
2008

Cash
Cash equivalents
Total cash and cash equivalents

$

December 31,
2007

27,033,261
5,992,874
33,026,135

Short term investments
Long term investments

—
10,503,668
43,529,803

$

$

29,687,138
13,114,323
42,801,461
8,499,978
9,006,493
60,307,932

$

The following table summarizes the contractual maturities of commercial paper and government sponsored entity securities,
identified above as cash equivalents, short term and long term investments at June 30, 2008 and December 31, 2007:
June 30,
2008

Less than 1 year
1-3 years

$

December 31,
2007

5,992,874
10,503,668
16,496,542

$

$
$

21,614,301
9,006,493
30,620,794

The following table provides information about held-to-maturity investments with gross unrealized losses and the length of time
that individual investments have been in a continuous unrealized loss position at June 30, 2008:
Less than 12 months
Description of Securities

Commercial Paper
Total

Gross
Unrealized
Losses

Fair Value

$
$

5,992,874
5,992,874

$
$

(13,832)
(13,832)

12 months or more
Gross
Unrealized
Fair Value
Losses

$
$

—
—

$
$

—
—

Total
Gross
Unrealized
Losses

Fair Value

$
$

5,992,874
5,992,874

$
$

(13,832)
(13,832)

The unrealized losses on the Company’s investments in commercial paper are due to interest rate fluctuations. As these
investments were originally purchased at a discount, are extremely short term in nature with terms no longer than 45 days, are
expected to be redeemed at par value and because management has the ability and intent to hold these investments to maturity, the
Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Company does not consider these investments to be other than temporarily impaired at June 30, 2008.
9

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
3. Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials which
approximates the first-in, first-out (FIFO) method and manufacturing labor and overhead. Provisions are made to reduce potentially
excess, obsolete or slow-moving inventories to their net realizable value. Inventories as of June 30, 2008 and December 31, 2007
consisted of the following:
June 30, 2008

December 31, 2007

Raw materials and work-in-process
Finished goods
Reserve for excess and obsolete inventory

$

10,178,910
10,554,204
(178,912)

$

Total Inventory

$

20,554,202

$

8,475,055
5,352,304
(320,555)
13,506,804

4. Intangible assets
Intangible assets consisted of the following at June 30, 2008 and December 31, 2007:
June 30, 2008
Gross
Carrying
Amount

Useful Life

Amortized
intangible
assets:
TASER.com
domain
name
5 Years
$
Issued patents 4 to 15 Years
Issued
trademarks 9 to 11 Years
Non compete
agreements 5 to 7 Years

Unamortized
intangible
assets:
TASER
Trademark
Patents and
trademarks
pending

Total intangible
assets

$

Accumulated
Amortization

60,000 $
512,698

December 31, 2007
Net Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

60,000 $
137,501

— $
375,197

60,000
402,058

38,409

7,394

31,015

36,466

5,206

31,260

150,000
761,107

65,714
270,609

84,286
490,498

150,000
648,524

52,143
233,212

97,857
415,312

900,000

900,000

900,000

900,000

722,254
1,622,254

722,254
1,622,254

609,827
1,509,827

609,827
1,509,827

2,112,752 $

2,158,351

2,383,361 $

270,609 $

$

$

60,000
115,863

Net Carrying
Amount

233,212

$

$

—
286,195

1,925,139

Amortization expense for the three and six months ended June 30, 2008 was $19,000 and $37,000, respectively. Amortization
expense for the three and six months ended June 30, 2007 was $14,000 and $28,000, respectively. Estimated amortization expense of
intangible assets for the remaining six months of 2008, the next five years ended December 31, and thereafter is as follows:
2008
2009
2010
2011
2012
2013
Thereafter

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

$ 39,418
66,861
58,787
51,074
31,075
31,075
212,208
$490,498

5. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consisted of the following at June 30, 2008 and December 31, 2007:
June 30, 2008

Accounts payable
Accrued salaries and benefits
Accrued expenses
Accrued warranty expense
Total
10

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

December 31, 2007

$

3,652,440
942,471
1,521,553
978,366

$

7,304,112
1,046,534
818,239
919,254

$

7,094,830

$

10,088,139

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
6. Income taxes
The deferred income tax assets at June 30, 2008 are comprised primarily of a net operating loss carryforward, which resulted from
the compensation expense the Company recorded for income tax purposes when employees exercised stock options in 2004. For the
three and six months ended June 30, 2008, the Company did not recognize additional tax benefits related to stock options exercised.
Additionally, capitalized research and development, research and development tax credits, warranty and inventory reserves, accrued
vacation and other items have contributed to the deferred income tax assets.
The Company’s total current and long term deferred tax asset balance at June 30, 2008 is $21.2 million. In preparing the
Company’s interim financial statements, management has assessed the likelihood that its deferred tax assets will be realized from
future taxable income. In evaluating the Company’s ability to recover its deferred income tax assets, management considers all
available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income
on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some
portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining its
provisions for income taxes, its deferred tax assets and liabilities and its future taxable income for purposes of assessing its ability to
utilize any future tax benefit from its deferred tax assets. Although management believes that its tax estimates are reasonable, the
ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course
of business. Primarily as a result of the shareholder litigation settlement expense recorded in the second quarter of 2006 and the
litigation judgment expense recorded in the second quarter of 2008, management has determined that it is more likely than not that its
net operating loss carryforwards for the state of Arizona, which expire in 2009, will not be fully realized. Accordingly, the Company
has a valuation allowance of $500,000 against its deferred tax assets as of June 30, 2008, $250,000 of which was recognized as a
reduction to the net income tax benefit for the three and six months ended June 30, 2008. Management believes that, other than as
previously described, as of June 30, 2008 based on an evaluation and projections of future sales and profitability, no other valuation
allowance was deemed necessary as management concluded that it is more likely than not that the Company’s net deferred tax assets
will be realized. However, the deferred tax asset could be reduced in the near-term if estimates of future taxable income during the
carryforward period are reduced. In addition, due to the litigation judgment expense recorded in the second quarter of 2008 and
revised forecasts of future taxable income, approximately $8.0 million was reclassified from current to non-current deferred income
tax assets at June 30, 2008.
In July 2000, the Company granted 136,364 warrants to acquire Company stock at an exercise price of $0.55 per share to a member
of its Board of Directors as additional consideration for a $1.5 million loan. In October 2004, the stock warrants were exercised with
an intrinsic value of $5,233,650 As a result of personnel changes a 1099 was issued to the Board member in error. The Company
included the $5,233,650 as stock compensation expense in its 2004 tax return and because the Company had a net operating loss
carryforward, recorded a $2,014,955 deferred tax asset on the balance sheet and a corresponding increase to additional paid in capital.
The Company’s 2004 tax return was audited by the IRS in 2007 with no adjustment made to the stock compensation expense
deduction recorded by the Company. During a tax examination of the Board members tax return it was determined that the exercise of
the warrant should not have created taxable income and the inclusion of the intrinsic value of the warrant in the director’s 1099 was in
fact an error. Accordingly, at June 30, 2008, the Company has reduced its deferred tax asset balance and additional paid in capital by
$2,014,955. The adjusting entry is a balance sheet only adjustment with no impact on retained earnings and is not considered material
to the associated account balances or the balance sheet as a whole.
The FASB issued Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which the Company adopted
effective January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under FIN 48, the Company recognizes the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Under FIN 48, management must
also assess whether uncertain tax positions as filed could result in the recognition of a liability for possible interest and penalties. The
Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.
In 2007, the Company completed a research and development tax credit study which identified $3.1 million in tax credits for
Federal and Arizona income tax purposes related to the 2003 through 2006 tax years and an estimate for the 2007 tax year. As a result,
the Company recognized $2.0 million in 2007 as a reduction in income tax expense. The Company made the determination that it was
not more likely than not that the full benefit of the research and development tax credit would be sustained on examination and
recorded a liability for unrecognized tax benefits of $1.1 million as of December 31, 2007. Additionally, management has estimated
that an additional $244,000 of prorated tax credits are available for Arizona purposes for the first half of the 2008 tax year and
increased the liability for unrecognized benefits to $1.2 million as of June 30, 2008. As of June 30, 2008, management does not expect
the amount of the unrecognized tax benefit liability to increase or decrease within the next 12 months. Should the unrecognized tax
benefit of $1.2 million be recognized, our effective tax rate would be favorably impacted.
The following presents a rollforward of our liability for unrecognized tax benefits as of June 30, 2008:
Unrecognized Tax
Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Benefits

Balance at January 1, 2008
Increase in prior year tax positions
Increase in current year tax positions
Decrease related to settlements with taxing authorities
Decrease related to lapse in statute of limitations
Balance at March 31, 2008

$

$
11

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

1,100,073
—
108,738
—
—
1,208,811

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) – Continued
The effective income tax rate for the second quarter of 2008 was 44.1% compared to 41.7% for the second quarter of 2007. The
effective income tax rate for the first half of 2008 was 50.4% compared to 41.7% for the second half of 2007. The effective tax rate for
the three and six months ended June 30, 2008 increased compared to the same periods in the prior year due to the higher impact of
certain non-deductible items such as lobbying expenses against a lower taxable income base expected for the year ended
December 31, 2008. In addition the rate is impacted by the inclusion of the state research and development tax credit in the 2008
effective tax rate. Offsetting the credit provision and reducing the effective tax rate was the recording of the $250,000 valuation
allowance against Arizona State NOL deferred tax assets discussed above.
The Company is currently under audit by the United States Internal Revenue Service for its 2006 fiscal year. Management is unable
to determine the outcome of the audit process at this time. There can be no assurance the outcome of this audit will not have an
adverse effect on the Company’s future operating results.
7. Stockholders equity
Stock Repurchase
In April 2008, TASER’s Board of Directors authorized a stock repurchase program to acquire up to $12.5 million of the
Company’s outstanding common stock subject to stock market conditions and corporate considerations. Subsequently, the Company
repurchased 1.79 million shares at a weighted average cost of $6.98 and a total cost of $12.5 million.
Stock Option Award Activity
At June 30, 2008, the Company had three stock-based compensation plans, which are described more fully in Note 10 to the
financial statements included in the Company’s Annual Report on Form 10-K.
The following table summarizes the stock options available and outstanding as of June 30, 2008 as well as activity during the six
months then ended:
Shares Available for
Grant

Balance at December 31, 2007
Granted
Exercised
Expired/terminated
Balance at June 30, 2008

4,900,947
(656,858)
—
6,466
4,250,555

Outstanding Options
Weighted Average
Number of options
Exercise Price

5,234,072
656,858
(238,175)
(6,466)
5,646,289

$ 6.06
$ 7.44
$ 1.09
$16.86
$ 6.41

The options outstanding as of June 30, 2008 have been segregated into five ranges for additional disclosure as follows:
Options Outstanding
Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Life

Options Exercisable
Weighted
Number
Average
Exercisable
Exercise Price

Range of Exercise Price

Number
Outstanding

$0.28 – $0.99
$1.03 – $2.41
$5.75 – $9.93
$10.10 – $19.76
$20.12 – $29.98

1,014,886
884,109
2,774,995
910,299
62,000

$ 0.36
$ 1.58
$ 7.89
$12.27
$23.91

4.5
4.1
6.6
7.8
6.0

1,014,886
884,109
2,084,500
562,637
62,000

$ 0.36
$ 1.58
$ 8.04
$13.14
$23.91

$0.28 – $29.98

5,646,289

$ 6.42

6.0

4,608,132

$ 5.94

The total fair value of options exercisable at June 30, 2008 and 2007 was $14.2 million and $13.8 million, respectively. Aggregate
intrinsic value of options outstanding and options exercisable was $7.7 million at June 30, 2008. Aggregate intrinsic value represents
the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $4.99 per share, and
the exercise price multiplied by the number of options outstanding. Total intrinsic value of options exercised for the three and six
month periods ended June 30, 2008 was $429,000 and $2.2 million, respectively. Total intrinsic value of options exercised for the
three and six month periods ended June 30, 2007 was $4.3 million and $4.8 million, respectively.
At June 30, 2008, the Company had 1,038,157 unvested options outstanding with a weighted average exercise price of $8.48 per
share and weighted average remaining contractual life of 9.5 years. Of the unvested options outstanding, the management estimates
that approximately 995,000 options will ultimately vest based on its historical experience.
12

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
A summary of the status of the Company’s unvested options as of June 30, 2008 and changes during the six months ended June 30,
2008, is presented below:
Unvested options

Unvested at January 1, 2008
Granted
Vested
Forfeited
Unvested at June 30, 2008

Options

551,006
656,858
(169,707)
—
1,038,157

Weighted Average
Grant Date Fair Value

$
$
$
$
$

5.12
4.04
5.07
—
4.44

As of June 30, 2008, total unrecognized stock-based compensation expense related to unvested stock options was approximately
$4.6 million, which is expected to be recognized over a remaining weighted average period of approximately 16.7 months.
8. Line of credit
The Company has a line of credit agreement with a bank which provides for a total availability of $10.0 million. The line is secured
primarily by the Company’s accounts receivable and inventory and bears interest at varying rates of interest, ranging from LIBOR
plus 1.5% to prime. The availability under this line is computed on a monthly borrowing base, which is based on the Company’s
eligible accounts receivable and inventory. The line of credit matures on June 30, 2010 and requires monthly payments of interest
only. At June 30, 2008 there was no amount outstanding under the line of credit and the available borrowing was $10.0 million. There
have been no borrowings under the line of credit to date.
The Company’s agreement with the bank requires the Company to comply with certain financial and other covenants including
maintenance of minimum tangible net worth and fixed charge coverage ratios. At June 30, 2008, the Company was in compliance with
all such covenants.
9. Commitments and Contingencies
Equipment purchase commitment
On July 2, 2007, the Company entered into a contract with Automation Tooling Systems Inc. for the purchase of equipment at a
cost of approximately $7.7 million. Subsequent to the initial order, the Company placed a $0.7 million change order to this agreement
for additional equipment and modifications. The equipment is expected to be delivered to and installed at the Company’s facility in
2008. Payments will be made in installments, with an initial $1.5 million deposit paid in 2007, installments of $2.9 million paid in the
first six months of 2008, and the balance of $4.0 million expected to be paid in 2008. The installments paid to date have been recorded
in property, plant and equipment in the accompanying balance sheet.
Legal proceedings
Product Liability Litigation
The Company is currently named as a defendant in 38 lawsuits in which the plaintiffs allege either wrongful death or personal
injury in situations in which the TASER device was used (or present) by law enforcement officers or during training exercises.
Companion cases arising from the same incident have been combined into one for reporting purposes. Included in this number is the
Heston lawsuit where a jury verdict was entered against the Company on June 7, 2008, but judgment has not yet been entered and post
trial motions are pending. In addition, 72 other lawsuits that have been dismissed or judgments entered in favor of the Company are
not included in this number. A petition for review by the Arizona Supreme Court has been filed by the plaintiff in the Gerdon
(AZ) lawsuit where judgment was entered in favor of the Company, and an appeal was filed by the plaintiff in the Wilson (GA) where
judgment was entered in favor of the Company. With respect to each of the pending 38 lawsuits, the following table lists the name of
plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status
of the matter. This table also lists those cases that were dismissed during the most recent fiscal quarter. Cases that were dismissed in
prior fiscal quarters are not included in this table. In each of the pending lawsuits, the plaintiff is seeking monetary damages from the
Company. The defense of each of these lawsuits has been submitted to our insurance carriers that maintained insurance coverage
during these applicable periods and we continue to maintain product liability insurance coverage with varying limits and deductibles.
Our product liability insurance coverage during these periods ranged from $5,000,000 to $10,000,000 in coverage limits and from
$10,000 to $500,000 in per incident deductibles. We are defending each of these lawsuits vigorously.
13

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
Plaintiff
City of Madera

Month
Served
Jun-03

Jurisdiction
CA Superior Court

Claim Type
Wrongful Death

Glowczenski
Washington
Sanders
Graff
Heston

Oct-04
May-05
May-05
Sep-05
Nov-05

US District Court, ED NY
US District Court, ED CA
US District Court ED CA
US District Court, AZ
US District Court, ND CA

Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death

Rosa
Yeagley
Neal-Lomax
Yanga Williams
Mann
Robert Williams
Lee
Zaragoza
Bagnell
Hollman
Oliver
Teran/LiSaola
Short, Rhonda
Augustine
Toloskdo-Parker
Bolander
Wendy Wilson, Estate of
Ryan Wilson

Nov-05
Nov-05
Dec-05
Dec-05
Dec-05
Jan-06
Jan-06
Feb-06
Jul-06
Aug-06
Sep-06
Oct-06
Oct-06
Jan-07
May-07
Aug-07
Aug-07

US District Court, ND CA
Hillsborough County Circuit County, FL
US District Court, NV
Gwinnett County State Court, GA
US District Court, ND GA, Rome Div
US District Court, TX
Davidson County, TN Circuit Court
CA Superior Court, Sacramento County
Supreme Court for British Columbia, Canada
US District Court, ED NY
US District Court, MD FL, Orlando
CA District Court
US District Court, ND TX, Forth Worth
11 th Judicial Circuit Court, Miami-Dade
US District Court ND, CA
17th Circuit Court Broward County, FL
District Court Boulder County, CO

Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death

Status
Dismissed by Summary Judgment,
Appeal
Discovery Phase
Discovery Phase
Case Stayed
Discovery Phase
Plaintiff Verdict; Post Trial
Motions Pending; Appeal to be
Filed
Trial Scheduled July-09
Discovery Phase
Discovery Phase
Dispositive Motions Pending
Trial Scheduled Dec-08
Discovery Phase
Trial Scheduled Apr-09
Discovery Phase
Discovery Phase
Discovery Phase
Trial Scheduled Nov-08
Trial Scheduled March-09
Discovery Phase
Discovery Phase
Complaint Served
Trial Scheduled Oct-08
Discovery Phase

Crawford, Estate of
Russell Walker
Walker, Estate of Russell
Walker (Companion to
Crawford)
Jack Wilson, Estate of
Ryan Wilson (Companion
to Wendy Wilson)
Cunningham
Kasilyan
Gilliam
Romero
Guerrero
Marquez
Preyer
Powers

Oct-07

District Court Clark County, NV

Wrongful Death

Complaint Served

Oct-07

US District Court District of NV

Wrongful Death

Complaint Served

Nov-07

District Court Boulder County, CO

Wrongful Death

Complaint Served

Nov-07
Feb-08
Apr-08
May-08
Jun-08
Jun-08
July-08
Nov-03

US District Court, ND, IL
District Court Clark County, NV
US District Court, MD, AL
Dallas County District Court, TX
US District Court, Central District CA
US District Court, Arizona
US District Court, Middle District, FL
AZ Superior Court

Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Wrongful Death
Training Injury

Gerdon

Aug-05

AZ Superior Court

Training Injury

Stewart
Lewandowski
Peterson
Husband
Wilson
Perry
Perry
Bynum
Wieffenbach

Oct-05
Jan-06
Jan-06
Mar-06
Aug-06
Aug-07
Jul-08
Oct-05
Jun-06

Training Injury
Training Injury
Training Injury
Training Injury
Training Injury
Training Injury
Training Injury
Injury During Arrest
Il Injury During Arrest

Molina
Short, Harvey
Payne
Gomez
Kern / Banda

Sep-06
Oct-06
Oct-06
May-07
Feb-08

Circuit Court for Broward County, FL
US District Court, NV
US District Court, NV
British Columbia Supreme Court, Canada
US District Court, ND GA
US District Court CO
US District Court, CO
US District Court SD NY
Circuit Court of 12th Judicial District, Will County,
II
US District Court, ND West Virginia
US District Court, SD West Virginia
Circuit Court of Cook County, Illinois
Circuit Court 11 th Judicial Dist. FL
District Court, Tarrant County, TX

Dismissed
Complaint Served
Complaint Served
Complaint Served
Complaint Served
Complaint Served
Complaint Served
Verdict for TASER, Appeal
Decision For TASER, Plaintiff
Petition for Review Denied by AZ
Supreme Court
Dismissed; Appeal Affirmed;
Petition for Review filed
Discovery Phase
Partial Motion to Dismiss Granted
Discovery Phase
Discovery Phase
Dismissed; Appeal Filed
Dismissed
Complaint Filed
Discovery Phase
Discovery Phase

Injury During Detention
Injury During Arrest
Injury During Arrest
Injury During Arrest
Injuty During Admittanc

Dismissed
Dismissed
Discovery Phase
Complaint Served
Complaint Served

14

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Table of Contents

TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
In December 2005, the Company received a defense verdict in the Samuel Powers v. TASER International personal injury case. As
part of its legal strategy to aggressively defend these cases, the Company entered into a settlement agreement with its own insurance
provider in order to prevent its insurance provider from settling the case with the plaintiff. Under the terms of the settlement, the
Company received $575,000 from its liability insurance provider associated with a settlement and release agreement and the Company
assumed all future potential liability and costs from and after the date the settlement and release agreement was signed. After
offsetting approximately $187,000 through June 30, 2008 in legal expenses to defend and win the trial and cover the subsequent costs
of appeal, the Company had a remaining balance of approximately $388,000 which was recorded as “other income” in the second
quarter of 2008 when the plaintiff’s petition for review to the Arizona Supreme Court was denied and final resolution was completed.
The Company recorded a $5.2 million non-cash charge in the second quarter of 2008 for an adverse jury verdict received in the
case of Betty Lou Heston, et al. v. City of Salinas, TASER International, Inc., et al. which found that extended TASER device
application contributed 15 percent to the death of Robert C. Heston. While the jury attributed 85 percent of the cause of death to the
actions of Mr. Heston, the jury awarded a total of $1.0 million in compensatory damages, (for which the damages will be covered by
liability insurance), and $5.2 million in punitive damages against the Company based on alleged negligent failure to warn. The court
has not yet entered an order of judgment, instead setting a schedule for post trial motions. The Company is pursuing all appropriate
legal channels including filing an appeal in this matter at the appropriate time once a judgment is entered.
Other Litigation
In December 2005, we filed a lawsuit in Vigo County, Indiana, Superior Court against Roland M. Kohr for defamation, product
disparagement, Lanham Act violations, tortuously affecting the fairness and integrity of litigation as an adverse third-party witness,
and intentional interference with a business relationship. Dr. Kohr was the medical examiner and expert witness in the James Borden
wrongful death litigation, which litigation was dismissed with prejudice. This case is in the discovery phase and no trial date has been
set.
In June 2006, we filed a lawsuit in U.S. District Court for the Central District of California against Bestex Company, Inc. for patent
infringement, false patent marking, unfair competition and breach of written contract. Bestex filed a counterclaim for unfair
competition and false advertising. Both parties filed motions for summary judgment to dismiss the other parties claims, both of which
motions were granted and the matter was resolved on those motions before the Court in January 2007. An appeal has been filed by
Bestex.
In November 2006, we filed a lawsuit against the Chief Medical Examiner of Summit County, OH, in the Court of Common Pleas
of Summit County, Ohio, to correct erroneous cause of death determinations relating to the autopsy reports prepared by medical
examiner, Dr. Lisa Kohler, which identify the TASER device as being a contributing factor in the deaths of Richard Holcomb, Dennis
Hyde and Mark McCullaugh. We asked the Court to order a hearing on the appropriate causes of death of Mr. Hyde, Mr. Holcomb
and Mr. McCullaugh, and to order changes in the medical examiner’s cause of death determinations for Mr. Hyde, Mr. Holcomb and
Mr. McCullaugh removing all references to any TASER device causing or contributing to the causes of death for Mr. Hyde,
Mr. Holcomb and Mr. McCullaugh. Defendant filed a motion to dismiss for lack of standing and that motion was denied by the Court
in January 2007. The City of Akron has joined this lawsuit as a co-plaintiff. This case went to trial in April 2008, and on May 2, 2008,
the Court entered an order ruling in favor of TASER and the City of Akron and ordered the medical examiner to remove any reference
to the TASER device as a cause of death and to change the manner of death for Holcomb and Hyde to accidental and for McCullaugh
to undetermined.
In January 2007, we filed a lawsuit in the U.S. District Court for the District of Arizona against Stinger Systems, Inc. alleging
patent infringement, patent false marking, and false advertising. Defendant filed an answer and counterclaim for false advertising and
punitive damages. Discovery has begun and no trial date has been set.
In October 2007 we filed a lawsuit against Steve Ward and Mark Johnson, both former employees and VIEVU Corporation, for
breach of duty of loyalty, breach of contract, breach of fiduciary duty, and conversion. This lawsuit does not involve our core business
and we do not expect this litigation to have a material impact on our financial results. Defendants Ward and VIEVU Corporation filed
an answer and counterclaim for declaration of non-infringement, tortious interference with contractual relations, tortious interference
with business expectancy, abuse of process, injunctive relief and punitive damages. Discovery has begun and no trial date has been
set.
In July 2008 we filed a complaint against Morgan Stanley & Co., Inc., Goldman Sachs Group, Inc., Bear Stearns Securities Corp.,
Bear Stearns Capital Markets, Inc., Bear Stearns & Co, Inc., The Bear Stearns Companies, Inc., Merrill Lynch, Pierce, Fenner &
Smith, Inc., Deutsche Bank Securities, Inc., Credit Suisse USA, Inc., Banc Of America Securities, LLC, and UBS Securities, LLC. for
Violation of Georgia’s RICO Statute, Violation of the Georgia Securities Act, Violation of the Georgia Computer Systems Protection
Act and Conversion. An answer has not yet been filed, discovery has not started and no trial date has been set.
In July 2008 we were served with a summons and complaint in the lawsuit entitled Proformance Vend USA vs. Taser International,
Inc. alleging breach of contract of a vending machine contract. We will be filing an answer to this complaint.
15

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TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
General
From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is
management’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually
served on the Company. We intend to defend and pursue any lawsuit filed against or by the Company vigorously. Although we do not
expect the outcome in any individual case to be material, the outcome of any litigation is inherently uncertain and there can be no
assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our
insurance or will not be in excess of amounts provided by insurance coverage and will not have a material adverse effect on our
business, operating results or financial condition. In addition, the Company has seven lawsuits where the costs of legal defense
incurred are in excess of its liability insurance deductibles. As of June 30, 2008, the Company has recorded approximately $11,000 in
other assets related to the receivable from its insurance company for reimbursement of these legal costs. The Company may settle a
lawsuit in situations where a settlement can be obtained for nuisance value and for an amount that is expected to be less than the cost
of defending a lawsuit. The number of product liability lawsuits dismissed includes a small number of police officer training injury
lawsuits that were settled and dismissed in cases where the settlement economics to TASER International were significantly less than
the cost of litigation. One of the training injury lawsuits brought by a law enforcement officer was settled in June 2007 for an amount
in excess of nuisance value by our insurance company. Our insurance coverage at that time did not cover our costs of defense if we
won at trial. However, our insurance coverage at that time provided for a pro-rata reimbursement of our costs of defense if the lawsuit
was settled. Upon final settlement of this case, the Company was paid $241,000 by our insurance company as reimbursement of the
Company’s costs of defense. Due to the confidentiality of our litigation strategy and the confidentiality agreements that are executed
in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of
any settlement.
10. Related Party Transactions
Aircraft charter
The Company reimburses Thomas P. Smith, Chairman of the Company’s Board of Directors, and Patrick W. Smith, the
Company’s Chief Executive Officer, for business use of their personal aircraft. For the three and six months ended June 30, 2008, the
Company incurred expenses of approximately $69,000 and $143,000, respectively, to Thomas P. Smith. For the three and six months
ended June 30, 2007, the Company incurred expenses of approximately $123,000 and $217,000, respectively, to Thomas P. Smith. For
both the three and six months ended June 30, 2008, the Company incurred expenses of $102,000 to Patrick W. Smith. For the three
and six months ended June 30, 2007, the Company incurred expenses of $4,000 and $17,000, respectively, to Patrick W. Smith. At
June 30, 2008 and December 31, 2007, the Company had outstanding payables of $0 and $27,000, respectively, due to Thomas P.
Smith. At June 30, 2008 and December 31, 2007, the Company had outstanding payables of $102,000 and $0, respectively, due to
Patrick W. Smith. Management believes that the rates charged by Thomas P. Smith and Patrick W. Smith are equal to or below
commercial rates the Company would pay to charter similar aircraft from independent charter companies.
In the first quarter of 2007, the Company also entered into a charter agreement for future use of an aircraft for business travel from
Thundervolt, LLC, owned by Patrick W. Smith, should the need arise. For the three and six months ended June 30, 2008 and 2007, the
Company did not incur any direct charter expenses pursuant to its relationship with Thundervolt, LLC. Management believes that the
rates charged by Thundervolt, LLC are equal to or below commercial rates the Company would pay to charter similar aircraft from
independent charter companies.
The Company performed a review of the above relationship with Thundervolt, LLC, in accordance with the provisions of Financial
Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”
(FIN 46R). The Company determined that the relationships did not meet the definition of a variable interest entity (VIE) as defined by
FIN 46R as Thundervolt, LLC is adequately capitalized, its owners possess all of the essential characteristics of a controlling financial
interest, and the Company does not have any voting rights in the entity. Therefore, the entity is not required to be consolidated into the
Company’s results.
16

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TASER INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) — Continued
TASER Foundation
In November 2004, the Company established the TASER Foundation. The TASER Foundation is a 501(c)(3) non-profit
corporation and has been granted tax exempt status by the IRS. The TASER Foundation’s mission is to honor the service and sacrifice
of local and federal law enforcement officers in the United States and Canada lost in the line of duty by providing financial support to
their families. Daniel M. Behrendt, an officer of the Company, serves on the Board of Directors of the TASER Foundation. Over half
of the initial $1 million endowment was contributed directly by TASER International, Inc. employees. The Company bears all
administrative costs of the TASER Foundation in order to ensure 100% of all donations are distributed to the families of fallen
officers. For the three and six months ended June 30, 2008, the Company incurred approximately $58,000 and $107,000, respectively,
in such administrative costs. For the three and six months ended June 30, 2007, the Company incurred approximately $43,000 and
$91,000, respectively, in such administrative costs. The Company is authorized by its Board of Directors to make a discretionary
contribution up to a maximum of $200,000 per quarter. For the three and six months ended June 30, 2008, the Company did not make
a discretionary contribution to the TASER Foundation. For the three and six months ended June 30, 2007, the Company made
discretionary contributions of $0 and $125,000, respectively.
Consulting services
Beginning in August 2005, the Company agreed to pay Mark Kroll, a member of the Board of Directors, for consultancy services.
The cumulative expenses for the three and six months ended June 30, 2008 were approximately $81,000 and $183,000, respectively.
The cumulative expenses for the three and six months ended June 30, 2007 were approximately $76,000 and $124,000, respectively.
At June 30, 2008 and December 31, 2007, the Company had accrued liabilities of approximately $58,000 and $20,000, respectively,
related to these services.
11. Employee Benefit Plan
In January 2006, the Company established a defined contribution profit sharing 401(k) plan (the “Plan”) for eligible employees,
which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to
make tax-deferred contributions of up to the maximum allowed by law of their eligible compensation, but not exceeding $15,500. The
Company currently matches 100% of the first 3% of eligible compensation contributed to the Plan by each participant and 50% of the
next 2% of eligible compensation contributed to the plan by each participant. Beginning January 1, 2008, the Company’s matching
contributions are immediately vested. During 2007 the Company’s matching contributions cliff vested at 20% per annum and become
fully vested after five years of service, at age 59 1/2 regardless of service, upon the death or permanent disability of the employee, or
upon termination of the Plan. The Company’s matching contributions to the Plan for the three and six months ended June 30, 2008
were $96,000 and $196,000, respectively. The Company’s matching contributions to the Plan for the three and six months ended
June 30, 2007 were $61,000 and $121,000, respectively. Future matching or profit sharing contributions to the Plan are at the
Company’s sole discretion.
17

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following is a discussion of the Company’s financial condition as of June 30, 2008 and results of operations for the three and
six months ended June 30, 2008 and June 30, 2007. The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and the Management’s Discussion and Analysis of Financial Condition and
Results of Operations section contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Certain statements contained in this report may be deemed to be forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995, and the Company intends that such forward-looking statements be subject to the safe-harbor created
thereby. Such forward-looking statements may relate to, among other things: expected revenue and earnings growth; estimates
regarding the size of our target markets; successful penetration of the law enforcement market; expansion of product sales to the
private security, military and consumer self-defense markets; growth expectations for new and existing accounts; expansion of
production capability; new product introductions; our expectations that we will hold certain investments until maturity; our
expectations about deferred income taxes; assumptions about the future vesting of outstanding stock options; the outcome of pending
litigation; trends about our working capital and the sufficiency of our capital resources and our business model. We caution that these
statements are qualified by important factors that could cause actual results to differ materially from those reflected by the
forward-looking statements herein. Such factors include, but are not limited to: market acceptance of our products; establishment and
expansion of our direct and indirect distribution channels; attracting and retaining the endorsement of key opinion-leaders in the law
enforcement community; the level of product technology and price competition for our products; the degree and rate of growth of the
markets in which we compete and the accompanying demand for our products; potential delays in international and domestic orders;
implementation risks of manufacturing automation; risks associated with rapid technological change; execution and implementation
risks of new technology; new product introduction risks; ramping manufacturing production to meet demand; litigation resulting from
alleged product- related injuries; risks related to government inquiries; media publicity concerning allegations of deaths occurring
after use of the TASER device and the negative impact this publicity could have on sales; product quality risks; potential fluctuations
in quarterly operating results; competition; financial and budgetary constraints of prospects and customers; dependence upon sole and
limited source suppliers; fluctuations in component pricing; risks of governmental regulations; dependence on a single product;
dependence upon key employees; employee retention risks; and other factors detailed in the Company’s filings with the Securities and
Exchange Commission including in “Part II — Item 1A. Risk Factors” in this report on Form 10-Q.
Overview
We are a market leader in the development and manufacture of advanced electronic control devices designed for use in law
enforcement, military, corrections, private security and personal defense. We have focused our efforts on the continuous development
of our technology for both new and existing products as well as industry leading training services while building distribution channels
for marketing our products and services to law enforcement agencies, primarily in North America with increasing efforts on
expanding these programs in international markets. To date, over 12,400 law enforcement agencies in over 44 countries have made
initial purchases of our TASER brand devices for testing or deployment. To date we do not know of any significant sales of any
competing electronic control device products.
Our core expertise includes proprietary, patented technology which is capable of incapacitating highly focused and aggressive
persons. Competing non-lethal weapons rely primarily on pain to dissuade subjects from continuing unwanted behavior. Our
proprietary Neuro-Muscular Incapacitation (NMI) technology uses electrical impulses to interfere with a person’s neuron-muscular
system, causing substantial incapacitation regardless of whether the person feels or responds to pain. Our NMI technology stimulates
the motor nerves which control muscular movement.
18

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Table of Contents

Results of Operations
Three Months Ended June 30, 2008 Compared to the Three Months Ended June 30, 2007
The following table sets forth, for the periods indicated, our statements of operations as well as the percentage relationship to total net
revenues of items included in our statements of operations (dollars in thousands):
Three Months Ended June 30,
2008

Net sales
Cost of products sold
Gross margin
Sales, general and
administrative expenses
Research and development
expenses
Legal judgment expense
Income (loss) from operations
Interest and other income, net
Income (loss) before income
taxes
Provision (benefit) for income
taxes
Net income (loss)

Increase / (Decrease)
2007

$

$ 21,101
7,496
13,605

100.0%
35.5%
64.5%

$ 25,863
10,332
15,531

100.0%
39.9%
60.1%

9,710

46.0%

8,345

3,020
5,200
(4,325)
721

14.3%
24.6%
-20.5%
3.4%

(3,604)
(1,588)
$ (2,016)

$

%

(4,762)
(2,836)
(1,926)

-18.4%
-27.4%
-12.4%

32.3%

1,365

16.4%

1,263
—
5,923
427

4.9%
0.0%
22.9%
1.7%

1,757
5,200
(10,248)
294

139.1%
100.0%
-173.0%
68.9%

-17.1%

6,350

24.6%

(9,955)

-156.8%

-7.5%
-9.6%

2,651
$ 3,699

10.3%
14.3%

(4,240)
(5,715)

-159.9%
-154.5%

$

Net Sales
For the three months ended June 30, 2008 and 2007, sales by product line and by geography were as follows (dollars in thousands):
Three Months Ended June 30,
2008

2007

Sales by Product Line
TASER X26
TASER C2
TASER Cam
ADVANCED TASER
Single Cartridges
Other

$ 11,464
1,521
816
496
4,690
2,114

54.3%
7.2%
3.9%
2.4%
22.2%
10.0%

$ 16,656
—
1,135
639
6,900
533

64.4%
0.0%
4.4%
2.4%
26.7%
2.1%

Total

$ 21,101

100.0%

$ 25,863

100.0%

Three Months Ended June 30,
2008
2007

United States
Other Countries
Total

88%
12%

79%
21%

100%

100%

Net sales decreased $4.8 million, or 18%, to $21.1 million for the second quarter of 2008 compared to $25.9 million for the second
quarter of 2007. We believe the decline in sales versus the prior year was the result of lower municipal spending in the U.S. as
agencies reassigned budget dollars due to economic constraints, including significantly higher than budgeted fuel costs. In addition,
the Company reported several large non-recurring international orders in the second quarter of 2007. As a result, sales of the TASER
X26 product line decreased by $5.2 million, or 31%, to $11.5 million for the second quarter of 2008 compared to $16.7 million for the
second quarter of 2007. Single cartridge sales also decreased by $2.2 million, or 32%. Partially offsetting these decreases was the
introduction of the TASER C2 Personal Protector product which began shipping in July 2007. Sales of the TASER C2 were
$1.5 million for the second quarter of 2008. The increase in other sales is primarily driven by growth in out of warranty repairs and
extended warranty revenues. Other sales also include government grant, training and shipping revenues and are net of distributor
discounts.
International sales for the second quarter of 2008 and 2007 represented approximately $2.4 million, or 12%, and $5.4 million or
21%, of total net sales, respectively. The decline is due to several large non-recurring orders received in the second quarter of 2007.
19

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Table of Contents

Cost of Products Sold
Cost of products sold decreased by $2.8 million, or 27%, to $7.5 million for the second quarter of 2008 compared to $10.3 million
for the second quarter of 2007. As a percentage of net sales, cost of products sold decreased to 35.5% in the second quarter of 2008
compared to 39.9% in the second quarter of 2007. The 440 basis point improvement for the second quarter of 2008 compared to the
second quarter of 2007 was the result of a combination of factors. Direct labor decreased as a percentage of net sales due to lower
overtime and temporary labor costs and indirect manufacturing costs decreased as a percentage of net sales resulting from lower
production scrap expense and having a fixed indirect cost base spread over increased production volumes and production hours in
inventory compared to the prior year. Offsetting these decreases was an increase in product costs driven by a change in mix with lower
X26 sales as a percentage of net sales, 54% of total sales in the second quarter of 2008 compared to 64% in the comparable 2007
quarter, replaced with sales of our lower margin C2 product line.
Gross Margin
Gross margin decreased $1.9 million, or 12%, to $13.6 million for the second quarter of 2008 compared to $15.5 million for the
second quarter of 2007. As a percentage of net sales, gross margins increased to 64.5% for the second quarter of 2008 compared to
60.1% for the second quarter of 2007. The 4.4% increase in gross margin as a percentage of net sales for the second quarter of 2008
was attributable to the decreased direct labor and indirect costs as a percentage of net sales attributable to the reasons noted above
under the discussion of cost of products sold.
Sales, General and Administrative Expenses
For the three months ended June 30, 2008 and 2007, sales, general and administrative expenses were comprised as follows (dollars
in thousands):

2008

Three Months Ended June 30,
$
2007
Change

Salaries and benefits
Bonuses
Legal, professional and accounting fees
Consulting and lobbying services
Advertising
Travel and meals
D&O and liability insurance
Depreciation and amortization
Stock-based compensation
Other

$ 2,228
71
1,387
711
553
1,096
557
451
279
2,378

$ 1,679
355
1,832
590
161
769
479
444
238
1,798

$

Total
Sales, general and administrative as

$ 9,711
46.0%

$ 8,345
32.3%

$

% of net sales

549
(284)
(445)
121
392
327
78
7
41
580
1,366

%
Change

32.7%
-80.0%
-24.3%
20.5%
243.5%
42.5%
16.3%
1.6%
17.2%
32.3%
16.4%

Sales, general and administrative expenses were $9.7 million and $8.3 million in the second quarter of 2008 and 2007, respectively,
an increase of $1.4 million, or 16%. As a percentage of total net sales, sales, general and administrative expenses increased to 46% for
the second quarter of 2008 compared to 32% for the second quarter of 2007, a function of higher expense and the decrease in net sales.
The dollar increase for the second quarter of 2008 over the same period in 2007 is attributable to a $549,000 growth in salaries and
benefits related to an increase in personnel (our headcount was 91 at June 30, 2008 compared to 70 at June 30, 2007) to support the
expansion of our business infrastructure combined with an annual salary increase effective January 1, 2008. Advertising expense
increased $392,000 due primarily to TASER C2 promotional efforts and infomercial costs. Travel and meal expense increased
$327,000 due to higher tradeshow, and lobbying activity as well as the increased cost of air travel. The $580,000 increase in other
expense is driven by higher tradeshow activity including the annual TASER tactical conference which occurred in the second quarter
of 2008 but not until the third quarter of 2007, and higher recruiting and relocation costs. These increases were partially offset by a
$445,000 decrease in legal, professional and accounting fees which is primarily attributable to the timing of proceedings of our
outstanding litigation as well as seven cases where we have exceeded our insurance deductible, subsequent to which we are
reimbursed for expenses incurred. Bonus expense also decreased $284,000 based on the pre-tax loss for the second quarter of 2008.
20

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Table of Contents

Research and Development Expenses
Research and development expenses increased $1.7 million, or 139%, to $3.0 million for the second quarter of 2008 compared to
$1.3 million for the second quarter of 2007. The increase is driven by a $1.1 million increase in third party consulting costs primarily
associated with the development of AXON (Autonomous eXtended on-Officer Network). We expect to further increase research and
development spending in 2008 as we accelerate development of new products. In addition, there was $243,000 growth in salary costs
with headcount in our R&D department increasing 36% from 25 at June 30, 2007 to 34 at June 30, 2008, and an $81,000 increase in
indirect supplies to support our continuing efforts to develop new products such as the XREP (Extended Range Electro-Muscular
Projectile) and Shockwave.
Litigation judgment expense
We recorded a $5.2 million non-cash charge in the second quarter of 2008 for an adverse jury verdict in the case of Betty Lou
Heston, et al. v. City of Salinas, TASER International, Inc., et al. which found that extended TASER device application contributed
15 percent to the death of Robert C. Heston. While the jury attributed 85 percent of the cause of death to the actions of Mr. Heston, the
jury awarded a total of $1.0 million in compensatory damages (for which damages will be covered by our liability insurance) and
$5.2 million in punitive damages against TASER International based on alleged negligent failure to warn. The court has not yet
entered an order of judgment, instead setting a schedule for post trial motions. We are pursuing all appropriate legal channels
including filing an appeal in this matter at the appropriate time once a judgment is entered.
Interest and Other Income, Net
Interest and other income increased by $294,000 or 69% to $721,000 for the second quarter of 2008 compared to $427,000 for the
second quarter of 2007. The increase is attributable to other income of $387,000 related to the unused deferred insurance settlement
proceeds recognized in the second quarter of 2008 upon the dismissal of all final appeals in the Samuel Powers v. TASER
International personal injury case. This was partially offset by a $99,000 decrease in interest income due to lower average yields on
our investments, partially offset by an $8.5 million increase in average funds invested in the second quarter of 2008 compared to the
same period in 2007. Our cash and investment accounts earned interest at an average rate of 2.6% during the second quarter of 2008
compared to 4.0% during the second quarter of 2007.
Provision (benefit) for Income Taxes
The provision for income taxes decreased by $4.3 million from a provision of $2.7 million for the second quarter of 2007 compared
to a benefit of $1.6 million for the second quarter of 2008. The effective income tax rate for the second quarter of 2008 was 44.1%
compared to 41.7% for the second quarter of 2007. The effective tax rate for the second quarter of 2008 has increased due to the
higher impact of certain non-deductible items such as lobbying expenses against a lower taxable income base expected for the year
ended December 31, 2008. In addition the rate is affected by the inclusion of the state research and development tax credit in the 2008
effective tax rate. No benefit for any federal research and development tax credit has been included in the 2008 effective tax rate. The
effective tax rate for the second quarter of 2007 did not include any research and development tax credits. Offsetting the credit
provision and reducing the effective tax rate in the second quarter of 2008 was the recording of a $250,000 valuation allowance
against Arizona State NOL deferred tax assets.
Net Income (Loss)
Net income decreased by $5.7 million to a net loss of $2.0 million for the second quarter of 2008 compared to net income of
$3.7 million for the second quarter of 2007. Loss per basic and diluted share was $0.03 for the second quarter of 2008. This compares
to income per basic and diluted share of $0.06 for the second quarter of 2007.
Six Months Ended June 30, 2008 Compared to the Six Months Ended June 30, 2007
The following table sets forth, for the periods indicated, our statements of operations as well as the percentage relationship to total
net revenues of items included in our statements of operations (dollars in thousands):
Six Months Ended June 30,
2008

Net sales
Cost of products sold
Gross margin
Sales, general and administrative
expenses
Research and development
expenses
Legal judgment expense
Income (loss) from operations
Interest and other income, net

2007

$

$ 43,588
17,220
26,368

100.0%
39.5%
60.5%

$ 41,165
16,745
24,420

100.0%
40.7%
59.3%

18,871

43.3%

15,927

5,132
5,200
(2,835)
1,223
(1,612)

11.8%
11.9%
-6.5%
2.8%
-3.7%

2,233
—
6,260
933
7,193

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

$

Increase / (Decrease)
%

2,423
475
1,948

5.9%
2.8%
8.0%

38.7%

2,944

18.5%

5.4%
0.0%
15.2%
2.3%
17.5%

2,899
5,200
(9,095)
290
(8,805)

129.8%
100.0%
-145.3%
30.9%
-122.4%

Income (loss) before income
taxes
Provision (benefit) for income
taxes
Net income (loss)

$

(813)
(799)

-1.9%
-1.8%

2,999
$ 4,194
21

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

7.3%
10.2%

(3,812)
$ (4,993)

-127.1%
-119.1%

Table of Contents

Net Sales
For the six months ended June 30, 2008 and 2007, sales by product line and by geography were as follows (dollars in thousands):
Six Months Ended June 30,
2008

2007

Sales by Product Line
TASER X26
TASER C2
TASER Cam
ADVANCED TASER
Single Cartridges
Other

$ 22,638
3,368
1,784
2,055
10,224
3,519

51.9%
7.7%
4.1%
4.7%
23.5%
8.1%

$ 25,938
—
1,760
1,180
10,939
1,348

63.1%
0.0%
4.3%
2.8%
26.5%
3.3%

Total

$ 43,588

100.0%

$ 41,165

100.0%

Six Months Ended June 30,
2008
2007

United States
Other Countries
Total

87%
13%

82%
18%

100%

100%

Net sales increased $2.4 million, or 6%, to $43.6 million for the first half of 2008 compared to $41.2 million for the first half of
2007. The growth in the first six months of 2008 was due to a combination of several factors. Contributing to the growth in net sales
for the six months ended June 30, 2008 was the introduction of the TASER C2 Personal Protector product which began shipping in
July 2007. Sales of the TASER C2 were $3.4 million for the first half of 2008. Additionally, sales of the Advanced TASER increased
by $0.9 million due to a large purchase made by an international customer in the first quarter of 2008 and other sales have grown
$2.2 million due to an increase in out of warranty replacement and extended warranty sales. Partially offsetting these increases was a
decline in sales of our core X26 product line and single cartridges which we believe is a result of lower municipal spending in the U.S.
as agencies reassigned budget dollars due to economic constraints, including significantly higher than budgeted fuel costs. This
resulted in reduced sales of the TASER X26 product line which decreased by $3.3 million, or 13%, to $22.6 million for the first six
months of 2008 compared to $25.9 million for the first six months of 2007. Single cartridge sales also decreased by $0.7 million, or
7%. Other sales also include government grant, training and shipping revenues and are net of distributor discounts.
International sales for the first six months of 2008 and 2007 represented approximately $5.5 million, or 13%, and $7.4 million or
18% of total net sales, respectively. The decline is due to several large non-recurring orders received in the second quarter of 2007.
Cost of Products Sold
Cost of products sold increased by $0.5 million, or 3%, to $17.2 million for the first six months of 2008 compared to $16.7 million
for the first six months of 2007. As a percentage of net sales, cost of products sold decreased to 39.5 % in the first half of 2008
compared to 40.7 % in the first half of 2007. The decrease in cost of products sold as a percentage of net sales for the first six months
of 2008 compared to the first six months of 2007 was driven by a combination of factors. Total direct costs increased as a percentage
of sales primarily driven by higher material and direct labor costs; a function of change in product sales mix with only 52% of sales in
the first half of 2008 coming from X26 sales compared to 63% in the first half of 2007 and the introduction of the lower margin C2
representing 8% of sales in the first 6 months of 2008. Offsetting the increase in direct costs was a reduction in indirect manufacturing
costs as a percentage of net sales resulting from lower scrap expense and having reasonably fixed indirect costs spread over increased
production volumes compared to the prior year.
Gross Margin
Gross margin increased $2.0 million, or 8%, to $26.4 million for the first half of 2008 compared to $24.4 million for the first half
of 2007. As a percentage of net sales, gross margins increased to 60.5% for the first six months of 2008 compared to 59.3% for the
first six months of 2007. The 1.2% increase in gross margin as a percentage of net sales for the first half of 2008 was mainly
attributable to the decreased percentage of indirect costs as a percentage of net sales for the reasons noted above under the discussion
of cost of products sold.
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Sales, General and Administrative Expenses
For the six months ended June 30, 2008 and 2007, sales, general and administrative expenses were comprised as follows (dollars in
thousands):

2008

Six Months Ended June 30,
$
2007
Change

%
Change

Salaries and benefits
Bonuses
Legal, professional and accounting fees
Consulting and lobbying services
Advertising
Travel and meals
D&O and liability insurance
Depreciation and amortization
Stock-based compensation
Other

$ 4,331
71
2,818
1,423
1,361
1,975
1,090
907
491
4,404

$ 3,361
386
3,491
1,234
224
1,630
955
849
426
3,371

$

970
(315)
(673)
189
1,137
345
135
58
65
1,033

28.9%
-81.6%
-19.3%
15.3%
507.6%
21.2%
14.1%
6.8%
15.3%
30.6%

Total
Sales, general and administrative as

$ 18,871
43.3%

$ 15,927
38.7%

$

2,944

18.5%

% of net sales

Sales, general and administrative expenses were $18.9 million and $15.9 million in the first six months of 2008 and 2007,
respectively, an increase of $3.0 million, or 19%. As a percentage of total net sales, sales, general and administrative expenses
increased to 43.3% for the first half of 2008 compared to 38.7 % for the first half of 2007. The dollar increase for the first six months
of 2008 over the same period in 2007 is attributable to a $1.1 million increase in advertising expense primarily due to expensing of
$530,000 in capitalized production costs of the TASER C2 infomercial as well as ongoing promotion and infomercial airing costs.
Salaries and benefits grew $970,000 related to an increase in personnel (our S,G&A headcount was 91 at June 30, 2008 compared to
70 at June 30, 2007) to support the expansion of our business infrastructure combined with an annual salary increase effective
January 1, 2008. Additionally, travel and meal expenses have increased $345,000 due to higher tradeshow and lobbying activity as
well as the increased cost of air travel. Consulting and lobbying services increased $189,000; and D&O and liability insurance costs
are up $135,000 from amortization of increased annual premiums. The $1.0 million increase in other expense is primarily attributable
to a $279,000 increase in recruiting and relocation expenses driven by hiring of new vice presidents of sales and marketing, a
$210,000 increase in trade shows driven by the annual tactical conference being held in the second quarter of 2008 versus the third
quarter of 2007 and a $162,000 in increased computer licensing and maintenance fees. These increases were partially offset by a
$673,000 decrease in legal, professional and accounting fees which is primarily attributable to the timing of proceedings of our
outstanding litigation as well as seven cases where we have exceeded our insurance deductible, subsequent to which we are
reimbursed for expenses incurred, and a $315,000 decrease in bonuses due to the pre-tax loss in the first half of 2008.
Research and Development Expenses
Research and development expenses increased $2.9 million, or 130%, to $5.1 million for the first six months of 2008 compared to
$2.2 million for the first six months of 2007. The increase is driven by a $1.5 million increase in third party consulting costs primarily
associated with the development of AXON (Autonomous eXtended on-Officer Network). We expect to further increase research and
development spending in 2008 as we accelerate development of new products in the pipeline. In addition, there was $576,000 growth
in salary costs with headcount increasing 36% from 25 at June 30, 2007 to 34 at June 30, 2008, and a $287,000 increase in indirect
supplies to support our continuing efforts to develop new products such as the XREP (Extended Range Electro-Muscular Projectile)
and Shockwave.
Litigation judgment expense
As discussed above, we recorded a $5.2 million non-cash charge in the second quarter of 2008 for an adverse jury verdict received
in the case of Betty Lou Heston, et al. v. City of Salinas, TASER International, Inc., et al.
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Interest and Other Income, Net
Interest and other income increased by $288,000 or 31% to $1.2 million for the first half of 2008 compared to $0.9 million for the
first half of 2007. The increase is attributable to other income of $387,000 related to the unused deferred insurance settlement
proceeds recognized in the second quarter of 2008 upon the dismissal of all final appeals in the Samuel Powers v. TASER
International personal injury case. This was partially offset by a $105,000 decrease in interest income due to lower average yields on
our investments, partially offset by a $9.7 million increase in average funds invested during the first six months of 2008 compared to
the same period in 2007. Our cash and investment accounts earned interest at an average rate of 3.1% during the first half of 2008
compared to 4.2% during the first half of 2007.
Provision for Income Taxes
The provision for income taxes decreased by $3.8 million from a provision of $3.0 million for the first six months of 2007
compared to a benefit of $0.8 million for the first six months of 2008. The effective income tax rate for the first half of 2008 was
50.4% compared to 41.7% for the second half of 2007. The effective tax rate for the second half of 2008 increased due to the higher
impact of certain non-deductible items such as lobbying expenses against a lower taxable income base expected for the year ended
December 31, 2008. In addition the rate is affected by the inclusion of the state research and development tax credit in the 2008
effective tax rate. No benefit for any federal research and development tax credit has been included in the 2008 effective tax rate. The
effective tax rate for the first half of 2007 did not include any research and development tax credits. Offsetting the credit provision and
reducing the effective tax rate in the first half of 2008 was the recording of a $250,000 valuation allowance against Arizona State NOL
deferred tax assets.
Net Income (Loss)
Net income decreased by $5.0 million to a net loss of $0.8 million for the first six months of 2008 compared to net income of
$4.2 million for the first six months of 2007. Loss per basic and diluted share was $0.01 for the first half of 2008. This compares to
income per basic and diluted share of $0.07 and $0.06, respectively, for the first half of 2007.
Liquidity and Capital Resources
Liquidity
As of
June 30, 2008

Cash, cash equivalents and short term investments
Accounts receivable, net
Inventory
Accounts payable, accrued liabilities and litigation judgment accrual
Working Capital

December 31, 2007
(In thousands)

$33,026
10,750
20,554
12,295
$58,716

$51,301
11,692
13,507
10,088
$83,953

As of June 30, 2008, we had $33.0 million in cash, cash equivalents and short term investments, a decrease of $18.3 million from
December 31, 2007, which is primarily attributable to our use of $12.5 million to repurchase our common stock as well as investments
in property and equipment and intangible assets, partially offset by net proceeds from the maturities of investment holdings. Net cash
used by operating activities was $321,000 for the first six months of 2008.
Six Months Ended June 30,
2008
2007
(In thousands)

Net cash used by operating activities
Net cash provided by investing activities
Net cash provided by (used for) financing activities

$

(321)
2,785
$(12,240)

$(2,918)
3,241
$ 1,436

Net cash used by operating activities for the first six months of 2008 of $321,000 was driven by a $7.1 million increase in
inventory as purposeful investment has been made in building cartridges along with the purchase of C2 and X26 raw materials, and
building finished goods to support forecasted sales levels coupled with a $3.5 million reduction in accounts payable and accrued
liabilities. The change in accounts payable and accrued liabilities reflects the timing of last check run of the second quarter being in
closer proximity to period end than the last check run of December 2007 as well as the payment in January 2008 of $1.2 million for
the second installment for automation equipment which was accrued at December 31, 2007. Offsetting these items were non cash add
back adjustments to the net loss including $5.2 million in litigation judgment expenses, depreciation and amortization expense of
$1.3 million, stock-based compensation expense of $731,000 and provision for warranty expense of $516,000. In addition, accounts
receivable decreased $941,000 due to a decrease in sales in June 2008 compared to December 2007, (DSO’s increased slightly versus
the prior quarter due to elimination of cash discounts in the first quarter of 2008), and prepaid and other assets decreased $2.9 million
due to i) the net receipt of insurance reimbursements of legal fees incurred in excess of policy retention limits; ii) a decrease in prepaid
advertising due to the expensing of TASER C2 infomercial production costs and iii) amortization of prepaid liability and D&O
insurance premiums.
Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

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Net cash provided by investing activities was $2.8 million during the six months ended June 30, 2008 which was comprised of
$7.0 million in net proceeds from maturing investments partially offset by the use of $4.0 million to purchase property and equipment
mainly related to new automation equipment and computer storage solutions. In addition, we invested $267,000 in intangible assets,
primarily consisting of patent application costs.
During the first six months of 2008, we utilized $12.2 million in financing activities, a function of the $12.5 million to repurchase
1.8 million shares of our common stock partially offset by $259,000 of proceeds attributable to stock options exercised in the period.
Capital Resources
On June 30, 2008 we had total cash and short term investments of $33.0 million.
We negotiated a revolving line of credit on July 13, 2004, through a domestic bank. The total availability on the line is $10 million.
The line is secured by substantially all of our assets, other than intellectual property, and bears interest at varying rates, ranging from
LIBOR plus 1.5% to prime. The line of credit matures on June 30, 2010 and requires monthly payments of interest only. At June 30,
2008, there was a calculated availability of $10.0 million based on the defined borrowing base, which is based on our eligible accounts
receivable and inventory. At June 30, 2008, there were no borrowings under the line. Our agreement with the bank requires us to
comply with certain financial and other covenants including maintenance of minimum tangible net worth and fixed charge coverage.
At June 30, 2008 we were in compliance with all covenants.
We expect that accounts receivable, inventory and accounts payable in the second half of 2008 will remain consistent with the
levels at June 30, 2008; however, this will be managed closely to align with forecasted sales levels for the second half of 2008.
Additionally, we expect to invest a further $3.9 million in manufacturing automation equipment in the second half of 2008 and will
continue to ramp up research and development spending as we accelerate development of new products in the pipeline.
We believe that our balance of total cash and short term investments of $33.0 million as of June 30, 2008, together with cash
expected to be generated from operations, will be adequate to fund our operations and litigation costs for the next 12 months. We may
require additional resources to expedite manufacturing of new and existing technologies to meet demand for our products. Based on
our strong balance sheet and the fact we currently have no outstanding debt at June 30, 2008 we believe financing will be available at
terms favorable to us, both through our existing credit lines and possible additional equity financing. However, there is no assurance
that such sources will be available, or on terms acceptable to us.
Commitments and Contingencies
On July 2, 2007, we entered into a contract with ATS Automation Tooling Systems Inc. for the purchase of equipment at a cost of
approximately $8.4 million including $0.7 million of change orders made in the first quarter of 2008 for additional equipment. The
equipment is expected to be delivered to and installed at the Company’s facility in 2008. Payments will be made in installments, with
an initial $1.5 million deposit paid in 2007, $1.2 million was accrued at December 31, 2007 due to contractual requirements and paid
in January 2008, and a further $1.8 million paid in the first half of 2008.The balance of $3.9 million is expected to be paid in 2008
from existing cash balances.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements as of June 30, 2008.
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Critical Accounting Estimates
We have identified the following accounting estimates as critical to our business operations and the understanding of our results of
operations. The preparation of this quarterly report on Form 10-Q requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the
reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ
from those estimates. The effect of these policies on our business operations is discussed below.
Standard Product Warranty Reserves
We warrant our law enforcement products from manufacturing defects on a limited basis for a period of one year after purchase,
and thereafter will replace any defective TASER unit for a fee. We warrant our new TASER C2 product for 90 days. We track
historical data related to returns and warranty costs on a quarterly basis, and estimate future warranty claims by applying our weighted
average rolling four quarter return rate to our product sales for the period. In the fourth quarter of 2007, we made a revision to the
basis of calculating the four quarter return rate as the result of being able to more accurately capture data relating to the number of
units replaced under standard warranty versus extended warranty terms. In addition, given the trend of sales growth experienced in
2007, particularly in the second half of the year, the estimated four quarter return rate is weighted to account for the higher return rate
experienced in those periods. We have also historically increased our reserve amount if we become aware of a component failure that
could result in larger than anticipated returns from our customers. As of June 30, 2008, our reserve for warranty returns was $978,000
compared to a $919,000 reserve at December 31, 2007. Our reserve for warranty returns generally increased in the first half of 2008 as
the result of the sales growth from established and new products in 2007. In the event that product returns under warranty differ from
our estimates, changes to warranty reserves might become necessary.
Inventory
Inventories are stated at the lower of cost or market, with cost determined using the weighted average cost, which approximates the
first-in, first-out (FIFO) method. Provisions are made to reduce potentially excess, obsolete or slow-moving inventories to their net
realizable value. These provisions are based on our best estimates after considering historical demand, projected future demand,
inventory purchase commitments, industry and market trends and conditions and other factors. Our reserve for excess and obsolete
inventory decreased to $179,000 at June 30, 2008 compared to $321,000 at December 31, 2007 due to the write off of some slow
moving raw material components. In the event that actual excess, obsolete or slow-moving inventories differ from these estimates,
changes to inventory reserves might become necessary.
Accounts Receivable
Sales are typically made on credit and we generally do not require collateral. We perform ongoing credit evaluations of our
customers’ financial condition and maintain an allowance for estimated potential losses. Uncollectible accounts are written off when
deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts. These allowances represent
our best estimates and are based on our judgment after considering a number of factors including third-party credit reports, actual
payment history, customer-specific financial information and broader market and economic trends and conditions. Our allowance for
doubtful accounts was $200,000 and $190,000 at June 30, 2008 and December 31, 2007, respectively. In the event that actual
uncollectible amounts differ from these estimates, changes in allowances for doubtful accounts might become necessary.
Valuation of Long-lived Assets
We review long-lived assets, such as property and equipment and intangible assets subject to amortization, whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We utilize a two-step approach to
testing long-lived assets for impairment. The first step tests for possible impairment indicators. If an impairment indicator is present,
the second step measures whether the asset is recoverable based on a comparison of the carrying amount of the asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Our review requires the use of judgment and estimates. Management believes that no such impairments have occurred to date.
However, future events or circumstances may result in a charge to earnings if we determine that the carrying value of a long-lived
asset is not recoverable.
Income Taxes
Statement of Financial Accounting Standards No. 109, or SFAS No. 109, Accounting for Income Taxes, establishes financial
accounting and reporting standards for the effect of income taxes. In accordance with SFAS No. 109, we recognize federal, state and
foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax
jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities, as appropriate, for our estimate of future tax
effects attributable to temporary differences and carryforwards.
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In July 2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which we adopted
effective January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate resolution. Under FIN 48, management must also assess
whether uncertain tax positions as filed could result in the recognition of a liability for possible interest and penalties if any. Interest
and penalties are recorded in the provision for income taxes. In 2007, we completed a research and development tax credit study
which identified $3.1 million in tax credits for Federal and Arizona income tax purposes related to the 2003 through 2006 tax years
and an estimate for the 2007 tax year, and as a result, we recognized $2.0 million in 2007 as a reduction in income tax expense.
Additionally, we have estimated further $725,000 of tax credits are available for Arizona purposes for the 2008 tax year of which
$244,000 is included for the first half of 2008. We made the determination that it was not more likely than not that the full benefit of
these research and development tax credits would be sustained on examination and have increased the liability for unrecognized tax
benefits to $1.2 million as of June 30, 2008. Our estimates are based on the information available to us at the time we prepare the
income tax provisions. Our income tax returns are subject to audit by federal, state, and local governments, generally years after the
returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.
Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing
with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets and liabilities may change
based, in part, on added certainty or finality to an anticipated outcome, changes in accounting or tax laws in the United States, or
changes in other facts or circumstances. In addition, we recognize liabilities for potential United States tax contingencies based on our
estimate of whether, and the extent to which, additional taxes may be due. If we determine that payment of these amounts is
unnecessary or if the recorded tax liability is less than our current assessment, we may be required to recognize an income tax benefit
or additional income tax expense in our financial statements.
In preparing our financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable
income. In evaluating our ability to recover our deferred income tax assets we consider all available positive and negative evidence,
including our operating results, ongoing tax planning and forecasts of future taxable income. We establish a valuation allowance if we
determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. We exercise
significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable
income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets. Although we believe that our
tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax
authorities in the ordinary course of business. As a result of the shareholder litigation settlement expense recorded in the second
quarter of 2006, we recorded a valuation allowance of $250,000 in 2006 against our deferred tax assets for Arizona Net Operating
Losses (“NOL’s”). Further, as a result of the litigation judgment expense recorded in the second quarter of 2008, we recorded an
additional $250,000 valuation allowance against the same deferred tax assets. We believe that, other than as previously described, as
of June 30, 2008, based on our evaluation, no additional valuation allowance was deemed necessary as it is more likely than not that
our net deferred tax assets will be realized. However, the deferred tax asset could be reduced in the near term if estimates of taxable
income during the carryforward period are reduced.
Stock Based Compensation
We account for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R. We use the
Black-Scholes-Merton option pricing model which requires the input of highly subjective assumptions. These assumptions include
estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated
volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting
requirements (“forfeitures”). Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based
compensation and consequently, the related amount recognized on our statements of operations.
Contingencies
We are subject to the possibility of various loss contingencies including product related litigation, arising in the ordinary course of
business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to
reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is
probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We
regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals
are required.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We invest in a limited number of financial instruments, consisting principally of commercial paper and investments in high credit
quality government sponsored entity securities, denominated in United States dollars.
We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, “Accounting
for Certain Investments in Debt and Equity Securities,” (SFAS No. 115) . All of our cash equivalents and marketable securities are
treated as “held-to-maturity” under SFAS No. 115. Investments in fixed rate interest earning instruments carry a degree of interest rate
risk as their market value may be adversely impacted due to a rise in interest rates. As a result, we may suffer losses in principal if
forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our debt securities
as “held-to-maturity,” no gains or losses are recognized due to changes in interest rates and as such, a 10% change in interest rates
would not have a material adverse effect on our results of operations. These securities are reported at amortized cost, which
approximates fair value.
Exchange Rate Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal. Currently, sales to customers provide for
pricing and payment in United States dollars, and therefore are not subject to exchange rate fluctuations. To date, we have not engaged
in any currency hedging activities, although we may do so in the future. Fluctuations in currency exchange rates could harm our
business in the future.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective as of June 30, 2008 to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such
information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our
internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting
is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide
only reasonable, but not absolute, assurance that the control system’s objectives will be met.
Changes in internal control over financial reporting
There were no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion of legal proceedings in Note 9 to the financial statements included in PART I, ITEM 1 of this Form 10-Q.
ITEM 1A. RISK FACTORS
Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a
reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
We are materially dependent on acceptance of our products by the law enforcement and corrections market, and if law
enforcement and corrections agencies do not purchase our products, our revenues will be adversely affected and we may not be
able to expand into other markets.
A substantial number of law enforcement and corrections agencies may not purchase our electronic control devices. In addition, if
our products are not widely accepted by the law enforcement and corrections market, we may not be able to expand sales of our
products into other markets such as the military market. Law enforcement and corrections agencies may be influenced by claims or
perceptions that conducted energy weapons such as our products are unsafe or may be used in an abusive manner. In addition, earlier
generation conducted energy devices may have been perceived as ineffective. Sales of our products to these agencies may also be
delayed or limited by these claims or perceptions.
We substantially depend on sales of our TASER X26 products, and if these products are not widely accepted, our growth prospects
will be diminished.
In the three and six months ended June 30, 2008 and 2007, we derived our revenues predominantly from sales of the TASER X26
brand devices and related cartridges, and expect to depend on sales of these products for the foreseeable future. A decrease in the
prices of or demand for these products, or their failure to achieve broad market acceptance, would significantly harm our growth
prospects, operating results and financial condition.
If we are unable to manage the growth in our business, our prospects may be limited and our future profitability may be adversely
affected.
We intend to expand our sales and marketing programs and our manufacturing capacity as needed to meet future demand and new
product introductions. Any significant expansion may strain our managerial, financial and other resources. If we are unable to manage
our growth, our business, operating results and financial condition could be adversely affected. We will need to continually improve
our operations, financial and other internal systems to manage our growth effectively, and any failure to do so may lead to
inefficiencies and redundancies, and result in reduced growth prospects and profitability.
To the extent demand for our products increases, our future success will be dependent upon our ability to ramp manufacturing
production capacity which will be accomplished by the implementation of customized manufacturing automation equipment.
To the extent demand for our products increases significantly in future periods, one of our key challenges will be to ramp our
production capacity to meet sales demand, while maintaining product quality. Our primary strategies to accomplish this include
increasing the physical size of our assembly facilities, the hiring of additional production staff, and the implementation of customized
automation equipment. We have limited previous experience in implementing automation equipment, and the investments made on
this equipment may not yield the anticipated labor and material efficiencies. Our inability to meet any future increase in sales demand
or effectively manage our expansion could have a material adverse affect on our revenues, financial results and financial condition.
We may face personal injury, wrongful death and other liability claims that harm our reputation and adversely affect our sales and
financial condition.
Our products are often used in aggressive confrontations that may result in serious, permanent bodily injury or death to those
involved. Our products may be associated with these injuries. A person injured in a confrontation or otherwise in connection with the
use of our products may bring legal action against us to recover damages on the basis of theories including personal injury, wrongful
death, negligent design, defective product or inadequate warning. We are currently subject to a number of such lawsuits. In the second
quarter of 2008 we recorded a $5.2 million non-cash charge for an adverse jury verdict received in a wrongful death case. We may
also be subject to lawsuits involving allegations of misuse of our products. If successful, personal injury, misuse and other claims
could have a material adverse effect on our operating results and financial condition. Although we carry product liability insurance,
we do incur large legal expenses within our self insured retention limit in defending these lawsuits and significant litigation could also
result in a diversion of management’s attention and resources, negative publicity and a potential award of monetary damages in excess
of our insurance coverage. The outcome of any litigation is inherently uncertain and there can be no assurance that our existing or any
future litigation will not have a material adverse effect on our revenues, our financial condition or financial results.
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Pending litigation may subject us to significant litigation costs, judgments, fines and penalties in excess of insurance coverage, and
divert management attention from our business.
We are involved in numerous litigation matters relating to our products or the use of such products, litigation against persons who
we believe have defamed our products, litigation against medical examiners who made errors in their autopsy reports, litigation
against a competitor and litigation against former employees. Such matters have resulted and are expected to continue to result in
substantial costs to us and a likely diversion of our management’s attention, which could adversely affect our business, financial
condition or operating results.
Our future success is dependent on our ability to expand sales through distributors and our inability to recruit new distributors
would negatively affect our sales.
Our distribution strategy is to pursue sales through multiple channels with an emphasis on independent distributors. Our inability to
establish relationships with and retain police equipment distributors who can successfully sell our products would adversely affect our
sales. In addition, our arrangements with our distributors are generally short-term. If we do not competitively price our products, meet
the requirements of our distributors or end-users, provide adequate marketing support, or comply with the terms of our distribution
arrangements, our distributors may fail to aggressively market our products or may terminate their relationships with us. These
developments would likely have a material adverse effect on our sales. Our reliance on the sales of our products by others also makes
it more difficult to predict our revenues, cash flow and operating results.
If we are unable to design, introduce and sell new products or new product features successfully, our business and financial
results could be adversely affected.
Our future success will depend on our ability to develop new products or new product features that achieve market acceptance in a
timely and cost-effective manner. The development of new products and new product features is complex, and we may experience
delays in completing the development and introduction of new products. We cannot provide any assurance that products that we may
develop in the future will achieve market acceptance. If we fail to develop new products or new product features on a timely basis that
achieve market acceptance, our business, financial results and competitive position could be adversely affected.
We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.
Generally, law enforcement and corrections agencies consider a wide range of issues before committing to purchase our products,
including product benefits, training costs, the cost to use our products in addition to or in place of other non-lethal products, budget
constraints and product reliability, safety and efficacy. The length of our sales cycle may range from a few weeks to as long as several
years. Adverse publicity surrounding our products or the safety of such products has in the past and could in the future lengthen our
sales cycle with customers. In the past, we believe we have experienced revenue decreases in part as the result of adverse effects on
our customers and potential customers of negative publicity surrounding our products or use of our products. We may incur substantial
selling costs and expend significant effort in connection with the evaluation of our products by potential customers before they place
an order. If these potential customers do not purchase our products, we will have expended significant resources and received no
revenue in return.
Most of our end-users are subject to budgetary and political constraints that may delay or prevent sales.
Most of our end-user customers are government agencies. These agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In addition, these agencies experience political pressure that may dictate the
manner in which they spend money. As a result, even if an agency wants to acquire our products, it may be unable to purchase them
due to budgetary or political constraints. Some government agency orders may also be canceled or substantially delayed due to
budgetary, political or other scheduling delays which frequently occur in connection with the acquisition of products by such agencies.
30

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Government regulation of our products may adversely affect sales.
Federal regulation of sales in the United States: Our devices are not firearms regulated by the U.S. Bureau of Alcohol, Tobacco,
Firearms and Explosives, but are consumer products regulated by the U.S. Consumer Product Safety Commission. Although there are
currently no federal laws restricting sales of our devices in the United States, future federal regulation could adversely affect sales of
our products.
Federal regulation of international sales: Our devices are controlled as a “crime control” product by the U.S. Department of
Commerce, or DOC, for export directly from the United States. Consequently, we must obtain an export license from the DOC for the
export of our devices from the United States other than to Canada. Our inability to obtain DOC export licenses on a timely basis for
sales of our devices to our international customers could significantly and adversely affect our international sales.
State and local regulation: Our devices are controlled, restricted or their use prohibited by a number of state and local
governments. Our devices are banned from private citizen sale or use in seven states: New York, New Jersey, Rhode Island, Michigan,
Wisconsin, Massachusetts and Hawaii. Law enforcement use of our products is also prohibited in New Jersey. Some municipalities,
including Omaha, Nebraska and Washington, D.C., also prohibit private citizen use of our products. Other jurisdictions may ban or
restrict the sale of our products and our product sales may be significantly affected by additional state, county and city governmental
regulation.
Foreign regulation: Certain foreign jurisdictions prohibit the sale of conducted energy devices such as our products, limiting our
international sales opportunities.
Environmental laws and regulations subject us to a number of risks and could result in significant liabilities and costs.
We may be subject to various state, federal and international laws and regulations governing the environment, including restricting
the presence of certain substances in electronic products and making producers of those products financially responsible for the
collection, treatment, recycling and disposal of those products. Environmental legislation within the European Union (EU) may
increase our cost of doing business internationally and impact our revenues from EU countries as we comply with and implement
these requirements.
The EU has published Directives on the restriction of certain hazardous substances in electronic and electrical equipment (the
RoHS Directive) which became effective in July 2006, and on electronic and electrical waste management (the WEEE Directive). The
RoHS Directive restricts the use of a number of substances, including lead. The Waste Electrical and Electronic Equipment Directive,
or WEEE directs members of the European Union to enact laws, regulations, and administrative provisions to ensure that producers of
electric and electronic equipment are financially responsible for the collection, recycling, treatment and environmentally responsible
disposal of certain products sold into the market after August 15, 2005 and from products in use prior to that date that are being
replaced. In addition, similar environmental legislation has been or may be enacted in other jurisdictions, including the U.S. (under
federal and state laws) and other countries, the cumulative impact of which could be significant.
We continue to monitor the impact of specific registration and compliance activities required by the RoHS and WEEE Directives.
We endeavor to comply with applicable environmental laws, yet compliance with such laws could increase our operations and product
costs; increase the complexities of product design, procurement, and manufacturing; limit our ability to manage excess and obsolete
non-compliant inventory; limit our sales activities; and impact our future financial results. Any violation of these laws can subject us
to significant liability, including fines, penalties, and prohibiting sales of our products into one or more states or countries, and result
in a material adverse effect on our financial condition.
If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to
protect our rights.
Our future success depends upon our proprietary technology. Our protective measures, including patents, trademarks and trade
secret protection, may prove inadequate to protect our proprietary rights. The right to stop others from misusing our trademarks and
service marks in commerce depends to some extent on our ability to show evidence of enforcement of our rights against such misuse
in commerce. Our efforts to stop improper use, if insufficient, may lead to loss of brand loyalty and notoriety among our customers
and prospective customers. Our earliest expiring United States patent generally covers projectile propellant devices having a container
of compressed gas in place of gunpowder as a propellant. We use this technology in our cartridges. This patent expires in 2010. The
scope of any patent to which we have or may obtain rights may not prevent others from developing and selling competing products.
The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of
such claims may be highly uncertain, lengthy and expensive. In addition, our patents may be held invalid upon challenge, or others
may claim rights in or ownership of our patents.
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We have filed a lawsuit in Federal District Court against Stinger Systems that alleges infringement of three of our U.S. patents:
6,999,295; 7,102,870; and 7,234,262. As a tactical move, Stinger Systems filed a motion to stay this case pending a request for
ex-parte re-examination filed with the U.S. Patent and Trademark Office (USPTO) concerning only one of the patents in suit,
7,234,262. On February 21, 2008 the court denied Stinger Systems’ motion to stay this case. On June 23, 2008, the USPTO denied
Stinger’s request for re-examination of this patent.
We may be subject to intellectual property infringement claims, which could cause us to incur litigation costs and divert
management attention from our business.
Any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and
divert our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights, we
could be required to enter into costly royalty or licensing agreements in order to be able to sell our products. Royalty and licensing
agreements, if required, may not be available on terms acceptable to us or at all.
If we face competition in foreign countries, we can enforce patent rights only in the jurisdictions in which our patent applications
have been granted.
Our U.S. patents only protect us from imported infringing products coming into the U.S. from abroad. Applications for patents in a
few foreign countries have been made; however, these may be inadequate to protect markets for our products in other foreign
countries. Each foreign patent is examined and granted according to the law of the country where it was filed independent of whether
a U.S. patent on similar technology was granted.
Government regulations applied to our products may affect our markets for these products.
We rely on the opinions of the U.S. Bureau of Alcohol, Tobacco,Firearms and Explosives, including the determination that a
device that has projectiles propelled by the release of compressed gas, in place of the expanding gases from ignited gunpowder, is not
classified as a firearm. Changes in statutes, regulations, and interpretation outside of our control may result in our products being
classified or reclassified as firearms. Our market to civilians could be substantially reduced if consumers are required to obtain
registration to own a firearm prior to purchasing our products.
Competition in the law enforcement and corrections market could reduce our sales and prevent us from achieving profitability.
The law enforcement and corrections market is highly competitive. We face competition from numerous larger, better capitalized
and more widely known companies that make other non-lethal devices and products. Increased competition may result in greater
pricing pressure, lower gross margins and reduced sales. During 2007, a competitor introduced a new device to compete with the
TASER X26. We are unable to predict the impact such products will have on our sales or our sales cycle, but existing or potential
customers may choose to evaluate such products which could lengthen our sales cycle and potentially reduce our future sales.
Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and injury
to our reputation.
Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any
point in the life of the product. Defects in our products may result in a loss of sales, delay in market acceptance, injury to our
reputation and increased warranty costs.
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Our dependence on third party suppliers for key components of our devices could delay shipment of our products and reduce our
sales.
We depend on certain domestic and foreign suppliers for the delivery of components used in the assembly of our products. Our
reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or
subassemblies and reduced control over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on
suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other
miscellaneous customer parts for our products. We also do not have long-term agreements with any of our suppliers and there is no
guarantee that supply will not be interrupted. Any interruption of supply for any material components of our products could
significantly delay the shipment of our products and have a material adverse effect on our revenues, profitability and financial
condition.
Component shortages could result in our inability to produce volume to adequately meet customer demand. This could result in a
loss of sales, delay in deliveries and injury to our reputation.
Single source components used in the manufacture of our products may become unavailable or discontinued. Delays caused by
industry allocations, or obsolescence may take weeks or months to resolve. In some cases, part obsolescence may require a product
re-design to ensure quality replacement circuits. These delays could cause significant delays in manufacturing and loss of sales,
leading to adverse effects significantly impacting our financial condition or results of operations.
Our dependence on foreign suppliers for key components of our products could delay shipment of our finished products and
reduce our sales.
We depend on foreign suppliers for the delivery of certain components used in the assembly of our products. Due to changes
imposed for imports of foreign products into the United States, as well as potential port closures and delays created by terrorist threats,
public health issues or national disasters, we are exposed to risk of delays caused by freight carriers or customs clearance issues for
our imported parts. Delays caused by our inability to obtain components for assembly could have a material adverse effect on our
revenues, profitability and financial condition.
We may experience a decline in gross margins due to rising raw material and transportation costs associated with an increase in
petroleum prices.
A significant number of our raw materials are comprised of petroleum based products, or incur some form of landed cost associated
with transporting the raw materials or components to our facility. Any significant rise in oil prices could adversely impact our ability
to sustain current gross margins, by reducing our ability to control component pricing.
Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to
decline.
Our revenues and operating results have varied significantly in the past and may vary significantly in the future due to various
factors, including, but not limited to:
•

market acceptance of our products and services

•

the outcome of any existing or future litigation

•

adverse publicity surrounding our products, the safety of our products, or the use of our products

•

changes in our sales mix

•

new product introduction costs

•

increased raw material expenses

•

changes in our operating expenses

•

regulatory changes that may affect the marketability of our products

•

budgetary cycles of municipal, state and federal law enforcement and corrections agencies

As a result of these and other factors, we believe that period- to-period comparisons of our operating results may not be meaningful
in the short term, and our performance in a particular period may not be indicative of our performance in any future period.
33

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We may experience difficulties in the future in complying with Sarbanes-Oxley Section 404.
We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002. Beginning with our Annual
Report on Form 10-K for the fiscal year ending December 31, 2005, we have been required to furnish a report by our management on
our internal control over financial reporting. Such report contains, among other matters, an assessment of the effectiveness of our
internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. Such report also contains a statement that our independent registered public accounting firm has
audited internal control over financial reporting. In our Form 10-K for our 2005 fiscal year, because of our previously reported
material weaknesses related to not having controls in place to record appropriate accruals related to professional fees in the
appropriate accounting period and inadequate resources related to accounting and financial statement preparation particularly with
respect to financial statement footnote preparation were not fully remediated and tested at December 31, 2005, our management
assessment and the report of our independent registered public accounting firm concluded that our internal controls were not effective
at December 31, 2005.
Because of our prior material weaknesses, there is heightened risk that a material misstatement of our annual or quarterly financial
statements will not be prevented or detected. While we completed our remediation efforts to address these material weaknesses and
did not identify any materials weaknesses at June 30, 2008, we cannot assure you that material weaknesses will not occur in future
periods. If we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results,
financial condition and our ability to run our business effectively and could cause investors to lose confidence in our financial
reporting. We have incurred, and expect to continue to incur, increased expense and to devote additional management resources to
Section 404 compliance. In the event that our chief executive officer, chief financial officer or our independent registered public
accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, investor
confidence in us may be adversely affected and could cause a decline in the market price of our stock.
Foreign currency fluctuations may affect our competitiveness and sales in foreign markets.
The relative change in currency values creates fluctuations in our product pricing for potential international customers. These
changes in foreign end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets.
These changes may also negatively affect the financial condition of some existing or potential foreign customers and reduce or
eliminate their future orders of our products.
Use of estimates may cause our financial results to differ from expectations.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
We face risks associated with rapid technological change and new competing products.
The technology associated with non-lethal devices is receiving significant attention and is rapidly evolving. While we have patent
protection in key areas of electro-muscular disruption technology, it is possible that new non-lethal technology may result in
competing products that operate outside our patents and could present significant competition for our products.
We depend on our ability to attract and retain our key management and technical personnel.
Our success depends upon the continued service of our key management personnel. Our success also depends on our ability to
continue to attract, retain and motivate qualified technical personnel. Although we have employment agreements with certain of our
officers, the employment of such persons is “at-will” and either we or the employee can terminate the employment relationship at any
time, subject to the applicable terms of the employment agreements. The competition for our key employees is intense. The loss of the
service of one or more of our key personnel could harm our business.
34

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth our purchases of our common stock in the second quarter of 2008 and the footnote below designates
the repurchase program that the shares were purchased under.
Issuer Purchases of Equity Securities
(a) Total
Number of
(b) Average
Shares
Price Paid
Purchased
per Share

Period

April 29 – April 30
May 1 – May 30
June 1 – June 30

750,000
250,000
791,600

(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Programs

$7.48
$7.37
$6.34

(a)

(d) Maximum Number
of Shares that May Yet
Be Purchased Under
the Program

750,000 (a)
1,000,000 (a)
1,791,600 (a)

—
—
—

On April 28 2008, we announced that our Board of
Directors authorized the repurchase of up to
$12.5 million of our common stock subject to stock
market conditions and corporate considerations. All
shares were repurchased in open market transactions
and this program has been completed.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of our security holders at our annual shareholders meeting held on May 28, 2008:
•

Election of Patrick W. Smith, Mark W. Kroll and Judy Martz to serve a three year term on the Board of Directors

•

Ratification of the appointment of Grant Thornton LLP as our independent auditors for the year ended December 31, 2008

Election of Directors
The allocation of votes for the election of Patrick W. Smith, Mark W. Kroll and Judy Martz to the Board of Directors was as
follows:
FOR

Patrick W. Smith
Mark W. Kroll
Judy Martz

49,986,483
49,965,428
48,949,993

%

WITHELD

95.83%
95.79%
93.84%

2,177,996
2,199,051
3,214,486

%

4.17%
4.21%
6.16%

Ratification of Auditors
The allocation of votes for the ratification of the appointment of Grant Thornton LLP as our independent auditors for the year
ended December 31, 2008 was as follows:
FOR

50,192,553

%

AGAINST

96.21

1,733,280

%

3.32%

ABSTAIN

238,646

%

0.45%

Thomas P. Smith, Matthew R. McBrady, Bruce R. Culver, Michael Garnreiter, John S. Caldwell and Richard H. Carmona continued
their terms as directors of the Company after the 2008 Annual Meeting.
ITEM 6. EXHIBITS
31.1

Principal Executive Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2

Principal Financial Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32

Principal Executive Officer and Principal Financial Officer Certification pursuant to U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
35

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TASER INTERNATIONAL, INC.
Date: August 11, 2008

/s/ Patrick W. Smith
Patrick W. Smith,
Chief Executive Officer
(Principal Executive Officer)

Date: August 11, 2008

/s/ Daniel M. Behrendt
Daniel M. Behrendt
Chief Financial Officer
(Principal Financial and Accounting Officer)
36

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Table of Contents

Index to Exhibits
Exhibits:
31.1

Principal Executive Officer Certification pursuant to Rule 13a-14(a) under the Securities exchange Act of 1934.

31.2

Principal Financial Officer Certification pursuant to Rule 13a-14(a) under the Securities exchange Act of 1934.

32

Principal Executive Officer and Principal Financial Officer Certification pursuant to U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
37

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Patrick W. Smith, certify that:
1.

I have reviewed this Quarterly Report on Form 10-Q of TASER International, Inc. for the period ended June 30, 2008;

2.

Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: August 11, 2008

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

By: /s/ Patrick W. Smith
Patrick W. Smith
Chief Executive Officer

Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Daniel M. Behrendt, certify that:
1.

I have reviewed this Quarterly Report on Form 10-Q of TASER International, Inc. for the period ended June 30, 2008;

2.

Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: August 11, 2008

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008

By: /s/ Daniel M. Behrendt
Daniel M. Behrendt
Chief Financial Officer

EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TASER International, Inc. (the “Company”) on Form 10-Q for the quarterly period
ending June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Patrick W. Smith,
Chief Executive Officer of the Company and Daniel M. Behrendt, Chief Financial Officer of the Company, certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Patrick W. Smith
Patrick W. Smith
Chief Executive Officer
August 11, 2008
/s/ Daniel M. Behrendt
Daniel M. Behrendt
Chief Financial Officer
August 11, 2008
_______________________________________________
Created by 10KWizard www.10KWizard.com

Source: TASER INTERNATIONAL , 10-Q, August 11, 2008