UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-KSB/A

þ	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
o	TRANSITION REPORT UNDER 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.

(Name of small business issuer as specified in its charter)

Delaware	86-0741227
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
7860 E. McClain Drive, Suite 2, Scottsdale, Arizona (Address of principal executive offices)	85260 (Zip Code)

(480) 991-0797

(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00001 par value per share

Warrant, right to purchase one share of Common Stock

      Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 þ          No o

      Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.     þ

      The issuer’s revenues for the fiscal year ended December 31, 2001 were $6,853,272.

      The aggregate market value of the Common Stock held by non-affiliates of the issuer, based on the average of the high and low sales prices of the issuer’s Common Stock on March 14, 2002 as reported by Nasdaq, was $25,251,341. 1,240,572 shares of Common Stock held by each current executive officer, director, and non-executive manager of the issuer have been excluded from this computation in that such persons may be deemed to be affiliates of the issuer.

      The number of shares of Common Stock outstanding as of March 14, 2002 was 2,793,545.

Transitional Small Business Disclosure Format:     Yes o          No þ

DOCUMENTS INCORPORATED BY REFERENCE

      Parts of registrant’s proxy statement dated March 25, 2002 prepared in connection with the annual meeting of stockholders to be held May 1, 2002 are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

SIGNATURES
	REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
	Balance Sheets
	Statements of Operations
	TASER INTERNATIONAL, INC. Statements of Stockholders’ Equity (Deficit) For the Years Ended December 31, 2001 and 2000
	TASER INTERNATIONAL, INC. Statements of Cash Flows For the Years Ended December 31, 2001 and 2000
	Notes to Financial Statements

AMENDMENT

      The following amendment is filed solely to amend Note 11.c. to the financial statements included in the Annual Report on Form 10-KSB of TASER International, Inc. (the “Company”) filed with the Commission on March 18, 2002, to provide additional disclosure regarding the Company’s outstanding public warrants. The entire text of Item 7 is included for reference purposes.

ITEM 7.

      The information required by this Item is incorporated by reference to the Financial Statements beginning on page F-1 herein.

Page 2

SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TASER INTERNATIONAL, INC.

(Registrant)

Date: April 18, 2002

/s/ PATRICK W. SMITH

_________________________________________
Patrick W. Smith,

Chief Executive Officer

      In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 18, 2002	/s/ PATRICK W. SMITH ------------------------------------------------ Patrick W. Smith, Chief Executive Officer and Director
Date: April 18, 2002	/s/ THOMAS P. SMITH ------------------------------------------------ Thomas P. Smith, President and Director
Date: April 18, 2002	/s/ KATHLEEN C. HANRAHAN ------------------------------------------------ Kathleen C. Hanrahan, Chief Financial Officer (Principal Financial and Accounting Officer)
Date: April 18, 2002	/s/ PHILLIPS W. SMITH ------------------------------------------------ Phillips W. Smith, Director and Chairman of the Board
Date: April 18, 2002	/s/ KARL F. WALTER ------------------------------------------------ Karl F. Walter, Director
Date: April 18, 2002	/s/ BRUCE R. CULVER ------------------------------------------------ Bruce R. Culver, Director
Date: April 18, 2002	/s/ MATTHEW R. MCBRADY ------------------------------------------------ Matthew R. McBrady, Director

Page 3

TASER INTERNATIONAL, INC.

Financial Statements

As of December 31, 2001 and 2000

Together with Report of

Independent Public Accountants

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of

TASER International, Inc.:

      We have audited the accompanying balance sheets of TASER INTERNATIONAL, INC. (a Delaware corporation) as of December 31, 2001 and 2000, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TASER International, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

      As explained in Note 6 to the financial statements, effective January 1, 2001, concurrent with its change in tax status from an S corporation to a C corporation, the Company changed its method of accounting for income taxes and adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.

Phoenix, Arizona

February 4, 2002

F-2

TASER INTERNATIONAL, INC.

Balance Sheets

December 31, 2001 and 2000

			2001			2000
Assets
Current Assets:
	Cash and cash equivalents		$	5,636,100		$	206,408
	Accounts receivable, net of allowance of $29,000 in 2001 and $55,000 in 2000			765,328			312,681
	Inventory			801,926			221,169
	Prepaids and other			103,829			24,535
	Income tax receivable			53,817			—
	Deferred income tax asset			60,840			—
		Total current assets		7,421,840			764,793
Property and Equipment, net				560,423			274,273
Other Assets, net				72,416			—
		Total assets	$	8,054,679		$	1,039,066
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
	Current portion of note payable		$	—		$	100,000
	Current portion of notes payable to related parties			455,691			124,574
	Current portion of capital lease obligations			51,834			22,171
	Revolving line of credit			760,838			—
	Accounts payable and accrued liabilities			1,154,280			589,949
	Customer deposits			32,123			539,329
	Inventory financing payable			—			189,980
	Accrued interest, primarily to related parties			890			268,134
		Total current liabilities		2,455,656			1,834,137
Notes Payable to Related Parties, net of current portion				—			2,778,219
Capital Lease Obligations, net of current portion				50,979			43,925
Deferred Income Tax Liability				19,311			—
		Total liabilities		2,525,946			4,656,281
Commitments and Contingencies
Stockholders’ Equity (Deficit):
	Preferred stock, 0.00001 par value per share; 25 million shares authorized; 0 shares issued and outstanding at December 31, 2001 and 2000			—			—
	Common stock, 0.00001 par value per share; 50 million shares authorized; 2,734,473 and 3,177,421 issued and outstanding at December 31, 2001 and 2000			27			32
	Additional paid-in capital			5,073,617			4,256,558
	Deferred compensation			(59,940	)		(79,920	)
	Common stock held in treasury, at cost, 0 and 1,666,667 shares at December 31, 2001 and 2000			—			(1,000,000	)
	Retained earnings (accumulated deficit)			515,029			(6,793,885	)
		Total stockholders’ equity (deficit)		5,528,733			(3,617,215	)
		Total liabilities and stockholders’ equity (deficit)	$	8,054,679		$	1,039,066

The accompanying notes are an integral part of these balance sheets.

F-3

TASER INTERNATIONAL, INC.

Statements of Operations

For the Years Ended December 31, 2001 and 2000

			2001		2000
Net Sales			$	6,853,272	$	3,412,620
Cost of Products Sold:
	Direct manufacturing expense			2,304,669		1,350,175
	Indirect manufacturing expense			609,761		488,214
		Gross margin		3,938,842		1,574,231
Sales, general and administrative expenses				3,123,224		1,617,605
Research and development expenses				43,362		7,137
		Income (loss) from operations		772,256		(50,511	)
Interest Income				90,285		103
Interest Expense				246,776		426,362
Other Income, net				4,260		3,523
		Net income (loss) before income taxes		620,025		(473,247	)
Provision for income taxes				104,996		—
		Net income (loss)	$	515,029	$	(473,247	)
Net income (loss) per share:
	Basic		$	0.22	$	(0.19	)
	Diluted			0.17		(0.19	)
Weighted average number of common and common equivalent shares outstanding:
	Basic			2,303,386		2,482,976
	Diluted			3,029,330		2,482,976

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

F-4

TASER INTERNATIONAL, INC.

Statements of Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2001 and 2000

		Common Stock						Additional			Treasury Stock									Retained
								Paid-in									Deferred			Earnings
		Shares			Amount			Capital			Shares			Amount			Compensation			(Deficit)
Balance, December 31, 1999			3,177,421		$	32		$	4,068,814			—		$	—		$	—		$	(6,320,638	)
	Repurchase of shares from stockholder for note payable		—			—			—			(1,666,667	)		(1,000,000	)		—			—
	Stock options granted for payment of Board fee		—			—			79,920			—			—			(79,920	)		—
	Stock options granted for payment of consulting fee		—			—			13,917			—			—			—			—
	Stock options and warrants granted for loan guarantees		—			—			93,907			—			—			—			—
	Net loss		—			—			—			—			—			—			(473,247	)
Balance, December 31, 2000			3,177,421			32			4,256,558			(1,666,667	)		(1,000,000	)		(79,920	)		(6,793,885	)
	Issuance of shares pursuant to IPO, net of issuance costs		1,200,000			12			8,370,152			—			—			—			—
	Cancellation of treasury shares		(1,666,667	)		(17	)		(999,983	)		1,666,667			1,000,000			—			—
	Discount on retirement of related party note		—			—			61,690			—			—			—			—
	Elimination of accumulated deficit upon conversion from S to C corporation		—			—			(6,793,885	)		—			—			—			6,793,885
	Conversion of stock options		23,722			—			27,336			—			—			—			—
	Stock options and warrants granted for payment of consulting fees		—			—			53,844			—			—			—			—
	Stock options and warrants granted for loan guarantees		—			—			10,060			—			—			—			—
	Cancellation of partial shares		(3	)		—			—			—			—			—			—
	Income tax effect of stock options exercised		—			—			87,845			—			—			—			—
	Amortization of deferred compensation		—			—			—			—			—			19,980			—
	Net income		—			—			—			—			—			—			515,029
Balance, December 31, 2001			2,734,473		$	27		$	5,073,617			—		$	—		$	(59,940	)	$	515,029

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Total
		Stockholders’
		Equity
		(Deficit)
Balance, December 31, 1999		$	(2,251,792	)
	Repurchase of shares from stockholder for note payable		(1,000,000	)
	Stock options granted for payment of Board fee		—
	Stock options granted for payment of consulting fee		13,917
	Stock options and warrants granted for loan guarantees		93,907
	Net loss		(473,247	)
Balance, December 31, 2000			(3,617,215	)
	Issuance of shares pursuant to IPO, net of issuance costs		8,370,164
	Cancellation of treasury shares		—
	Discount on retirement of related party note		61,690
	Elimination of accumulated deficit upon conversion from S to C corporation		—
	Conversion of stock options		27,336
	Stock options and warrants granted for payment of consulting fees		53,844
	Stock options and warrants granted for loan guarantees		10,060
	Cancellation of partial shares		—
	Income tax effect of stock options exercised		87,845
	Amortization of deferred compensation		19,980
	Net income		515,029
Balance, December 31, 2001		$	5,528,733

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

F-5

TASER INTERNATIONAL, INC.

Statements of Cash Flows

For the Years Ended December 31, 2001 and 2000

					2001			2000
Cash Flows from Operating Activities:
	Net income (loss)				$	515,029		$	(473,247	)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities —
		Depreciation and amortization				176,519			124,803
		Amortization of deferred compensation				19,980			—
		Compensatory stock options and warrants				63,904			187,744
		Stock option tax benefits				87,845			—
		Deferred compensation				—			(79,920	)
		Change in assets and liabilities:
			Accounts receivable			(452,647	)		(190,760	)
			Inventory			(580,757	)		(63,002	)
			Prepaids and other			(79,294	)		(10,492	)
			Deferred income tax asset			(60,840	)		—
			Income tax receivable			(53,817	)		—
			Accounts payable and accrued liabilities			564,331			14,960
			Customer deposits			(507,206	)		477,012
			Accrued interest			(267,244	)		129,192
			Deferred tax liability			19,311			—
				Net cash (used in) provided by operating activities		(554,886	)		116,290
Cash Flows from Investing Activities:
	Purchases of property and equipment, net					(368,140	)		(99,759	)
	Purchases of other assets					(85,000	)		—
				Net cash used in investing activities		(453,140	)		(99,759	)
Cash Flows from Financing Activities:
	Payments under capital leases					(45,228	)		(16,266	)
	Payments on notes payable					(4,485,412	)		(12,000	)
	Net proceeds from notes payable to related parties					—			163,238
	Borrowings under line of credit					2,260,838			—
	Payments under product financing payable					(189,980	)		—
	Proceeds from notes payable					500,000			—
	Proceeds from Initial Public Offering, net of issuance costs					8,370,164			—
	Proceeds from options exercised					27,336			—
				Net cash provided by financing activities		6,437,718			134,972
Net Increase in Cash and Cash Equivalents						5,429,692			151,503
Cash and Cash Equivalents, beginning of year						206,408			54,905
Cash and Cash Equivalents, end of year					$	5,636,100		$	206,408
Supplemental Disclosure:
	Cash paid for interest				$	514,020		$	239,552
	Income taxes paid				$	112,500		$	—
Noncash Investing and Financing Activities:
	Acquisition of property and equipment under capital leases				$	81,945		$	43,207
	Exchange of shares from related party for note payable				$	—		$	1,000,000
	Discount on prepayment of note payable				$	61,690		$	—
	Fair value of stock options issued for payment of consulting and legal fees				$	53,844		$	13,917
	Fair value of stock options and warrants issued for loan guarantees				$	10,060		$	93,907
	Fair value of stock options and warrants issued for Board fees				$	—		$	79,920

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

F-6

TASER INTERNATIONAL, INC.

Notes to Financial Statements

December 31, 2001 and 2000

1.     The Company

     a.     History and Nature of Organization

      TASER International, Inc. (TASER or the Company) was incorporated and began operations in Arizona in 1993 for the purpose of developing and manufacturing less-lethal, self-defense devices. From its inception until the Company commenced production in December 1994, the Company was in the development stage. On May 11, 2001, the Company completed its initial public offering (IPO) of 800,000 units at a price of $13 per unit, consisting of one and one-half shares of common stock and one and one-half warrants, each whole warrant to purchase one share of common stock. The net proceeds received, after the underwriting discount and financing costs, totaled approximately $8.4 million.

     b.     Reincorporation and Restatement of Shares

      In February 2001, the Company reincorporated in the State of Delaware. In connection with the reincorporation, the Company completed a 1-for-6 share reverse stock split. The accompanying financial statements and footnotes have been restated for the lower number of shares of common stock outstanding for all periods presented.

2.     Summary of Significant Accounting Policies

     a.     Cash and Cash Equivalents

      Cash and cash equivalents include funds on hand and short-term investments with original maturities of three months or less. At December 31, 2001, cash and cash equivalents included $4.9 million deposited in highly liquid certificates of deposit and money market funds. These accounts earned interest at an average rate of 1.86% during 2001. Of the $4.9 million, $1.5 million of cash and cash equivalents are required to be maintained as a compensating balance under the Company’s line of credit agreement (Note 7).

     b.     Inventory

      Inventories are stated at the lower of cost or market; cost is determined using the most recent acquisition cost which approximates the first-in, first-out (FIFO) method. Inventories consisted of the following at December 31:

	2001		2000
Raw materials and work-in-process	$	678,406	$	153,506
Finished goods		123,520		67,663
	$	801,926	$	221,169

      Inventory costs in 2000 include primarily the cost paid to an outsourced manufacturer, which included charges for material, labor and overhead. Inventory costs in 2001 included manufacturing costs, including materials, labor and overhead related to finished goods and components.

     c.     Property and Equipment

      Property and equipment are stated at cost. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.

F-7

     d.     Long-Lived Assets

      The Company periodically evaluates the carrying value of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Under SFAS 121, long-lived assets to be held and used in operations are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized if the sum of the expected long-term undiscounted cash flow is less than the carrying amount of the long-lived assets being evaluated. The Company has not recognized any impairment losses during the two-year period ended December 31, 2001.

     e.     Customer Deposits

      The Company requires certain deposits in advance of shipment for foreign customer sales orders. At December 31, 2000, customer deposits consisted primarily of one foreign customer sales order.

     f.     Cost of Products Sold

      During 2000 and early 2001, the Company outsourced the assembly of its finished goods, but continued to manufacture certain small, proprietary components internally. Prior to August 1999, all finished goods were assembled internally. At December 31, 2000, cost of products sold represents net amounts paid to a vendor to acquire finished goods sold to customers and the manufacturing costs, including material, labor and overhead related to the proprietary components the Company manufactures internally. In mid 2001, the Company discontinued their use of a contract assembler, and consolidated their product manufacturing and assembly operations at their new facility in Scottsdale, Arizona. At December 31, 2001, costs of products sold included the manufacturing costs, including materials, labor and overhead related to finished goods and components. Shipping costs incurred related to product delivery are also included in cost of products sold.

     g.     Revenue Recognition

      The Company recognizes revenues when products are shipped and title passes, and all sales are final. The Company charges certain of its customers shipping fees, which are recorded as a component of net sales.

      On December 3, 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which provides additional guidance in applying generally accepted accounting principles for revenue recognition in financial statements. The issuance of SAB No. 101 did not have a material impact on the revenue recognition method of the Company.

     h.     Use of Estimates

      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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

     i.     Advertising Costs

      The Company expenses the production cost of advertising as incurred or the first time the advertising takes place. The Company incurred advertising costs of $19,872 and $35,035 in 2001 and 2000, respectively. Advertising costs are included in sales, general and administrative expenses in the accompanying statements of operations.

     j.     Warranty Costs

      The Company warrants its product from manufacturing defects for their lives and will replace any defective AIR TASER units with a new one for a $25 fee, and defective ADVANCED TASER units for a $75 fee. In 2000, the Company recalled a series of ADVANCED TASERs due to a defective component in

F-8

connection with which the Company incurred warranty expense of approximately $9,000 and recorded an additional charge of $41,000 to cover estimated future warranty costs based upon the number of units sold and the estimated defect rate using its prior actual experience. Accrued warranty expense of $43,000 and $50,000 in 2001 and 2000, respectively, are included in accounts payable and accrued liabilities in the accompanying balance sheets.

     k.     Research and Development Expenses

      The Company expenses research and development costs as incurred. The Company incurred product development expense of $43,362 and $7,137 in 2001 and 2000, respectively.

     l.     Income Taxes

      The Company, from inception to December 31, 2000, qualified as an S corporation under the Internal Revenue Code, and accordingly, was not directly subject to income taxes. There is no provision or benefit for income taxes reflected in the accompanying 2000 financial statements, since items of taxable income and losses are reported in the individual returns of stockholders.

      In 2001, the Company reincorporated in the State of Delaware and elected to be taxed as a C corporation. Net operating losses (NOLs) prior to the change to a C corporation accrued to the individual stockholders. Accordingly, such losses were not available to reduce future taxes payable by the Company as a C corporation.

      Upon termination of the S status, the Company was required to implement SFAS No. 109, Accounting for Income Taxes, which requires the calculation of existing temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

      Based on the criteria described in SFAS No. 109, had the Company been a C corporation in 2000, no federal or state income tax benefit would have been recorded for the NOLs discussed above. Accordingly, no pro forma benefit for federal or state income taxes is recorded as if the Company were taxed as a C corporation for any of the periods presented. Additionally, the accumulated deficit at the time of the S election termination was reclassified to additional paid-in capital.

     m.     Concentration of Credit Risk and Major Customers

      Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable, accounts payable and notes payable to related parties. Sales are typically made on credit and the Company generally does not require collateral. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated potential losses. Accounts receivable are presented net of an allowance for doubtful accounts. No provision for bad debts was recorded for the year ended December 31, 2001 and $72,905 was recorded for the year ended December 31, 2000.

F-9

      For the years ended December 31, 2001 and 2000, sales by product were as follows:

		2001			2000
		(000s omitted)
Sales by product line:
	ADVANCED TASER	$	5,460		$	2,099
	AIR TASER		1,304			1,241
	AUTO TASER		—			24
	Other		89			49
		$	6,853		$	3,413
Geographic:
	United States		91			82
	Other countries		9			18
			100	%		100	%

      Sales to customers outside of the United States are denominated in U.S. dollars.

      The Company had no major customers accounting for more than 10% of sales in 2000. In 2001, three different customers accounted for 10% or more of sales in that year, as follows:

	2001
Customer 1		12.8	%
Customer 2		10.9
Customer 3		10.8
		34.5	%

      Receivables from two customers comprise 46.2% of accounts receivable at December 31, 2001. These balances were fully collected subsequent to year end. Receivables from one customer comprised 44.3% of accounts receivable at December 31, 2000, representing a concentration of credit risk as defined by SFAS No. 105, Disclosure of Information About Financial Instruments With Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk.

     n.     Financial Instruments

      The Company’s financial instruments include cash, accounts receivable and accounts payable. Due to the short-term nature of these instruments, the fair value of these instruments approximates their recorded value.

      The Company has a note payable to a shareholder which, based on the short-term nature of the note and financing obtained from outside sources, the Company believes is stated at its estimated fair market value. The revolving line of credit and capital lease obligations approximate fair value as rates on these instruments, in the aggregate, approximate market rates currently available for instruments with similar terms and remaining maturities.

     o.     Segment Information

      The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This statement requires disclosure of certain information about the Company’s operating segments, products, geographic areas in which it operates and major customers. This statement also allows a company to aggregate similar segments for reporting purposes. Management has determined that its operations can be aggregated into one reportable segment. Therefore, no separate segment disclosures have been included in the accompanying notes to the financial statements.

F-10

     p.     Stock-Based Compensation

      The Company measures compensation costs related to stock option plans using the intrinsic value method and provides pro forma disclosures of net income (loss) and earnings (loss) per common share as if the fair value based method had been applied in measuring compensation costs. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company’s common stock at the date of measurement over the amount an employee must pay to acquire the stock and is amortized over the vesting period, generally three to four years.

     q.     Comprehensive Income

      The Company has adopted SFAS No. 130, Reporting Comprehensive Income. This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. During the years ended December 31, 2001 and 2000, the Company did not have any components of comprehensive income requiring separate reporting in the Company’s financial statements.

     r.     Income (Loss) Per Common Share

      Income (loss) per common share is computed in accordance with SFAS No. 128, Earnings Per Share. Basic income (loss) per common share is based upon the weighted average shares outstanding. Diluted income (loss) per common share is based on the weighted average shares outstanding and dilutive common stock equivalents. Approximately 725,944 options and warrants were included as common stock equivalents in the computation of diluted earnings per share for 2001. Approximately 186,049 options and warrants were not included in the computation of diluted earnings per share for 2000, as their effect would be anti-dilutive.

     s.     Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under SFAS 133, all derivatives are required to be recognized in the balance sheet at fair value. Gains or losses from changes in fair value would be recognized in earnings in the period of change unless the derivative is designated as a hedging instrument. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, which amended SFAS 133, delaying its effective date to fiscal years beginning after June 15, 2000. The Company does not currently hold any derivative instruments nor does it engage in hedging activities. The adoption of SFAS No. 133 did not have a material impact on the Company’s financial position or results of operations.

      In March 2000, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 44 (“FIN 44”), Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion No. 25. FIN 44 is intended to clarify the application of APB No. 25 by providing guidance regarding among other issues: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000 but certain provisions covered specific events occurring after December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact on the Company’s financial position or results of operations.

      In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001, use the purchase method of accounting and prohibits the use of the pooling-of interest method. SFAS No. 142 changes the method by which companies may recognize intangible assets in purchase business combinations and generally requires identifiable intangible assets to be recognized separately from goodwill. In addition, it eliminates the amortization of all existing and newly acquired goodwill on a prospective basis and requires companies to assess goodwill for impairment, at least annually, based on the fair value of the reporting unit. The Company adopted SFAS Nos. 141 and 142 on January 1, 2002.

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Management has determined that adoption of these standards did not have a material impact on the Company’s financial statements.

      Additionally, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets during 2001. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and related asset retirement costs. SFAS No. 143 is effective for financial statements with fiscal years beginning after June 15, 2002. This statement is not expected to have a material impact on the Company’s financial statements. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company adopted SFAS No. 144 on January 1, 2002. Management has determined that adoption of this standard did not have a material impact on the Company’s financial statements.

     t.     Basis of Presentation

      Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

3.     Property and Equipment

      Property and equipment consist of the following at December 31, 2001 and 2000:

	Estimated
	Useful Lives		2001			2000
Leasehold improvements		lesser of life	$	63,393		$	5,000
	of asset or lease term
Production equipment		5 years		592,472			380,326
Telephone and office equipment		5 years		32,786			31,535
Computer equipment		3 – 5 years		467,057			383,492
Furniture and fixtures		5 – 7 years		148,894			57,542
				1,304,602			857,895
Less: accumulated depreciation				(744,179	)		(583,622	)
			$	560,423		$	274,273

4.     Other Assets

      Other assets consist of the following at December 31,

	2001			2000
TASER Trademark	$	25,000		$	—
TASER.com domain name		60,000			—
		85,000			—
Less: Accumulated amortization		(12,584	)		—
	$	72,416		$	—

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      These other assets are being amortized over 5 years, their estimated useful lives.

5.     Commitments and Contingencies

     a.     Operating Leases

      The Company has entered into operating leases for office space and equipment. Rent expense under these leases for the years ended December 31, 2001 and 2000, was $139,033 and $93,241, respectively. Future minimum lease payments under operating leases as of December 31, 2001, are as follows:

2002		$	142,643
2003			146,363
2004			150,193
2005			154,139
2006			18,673
Thereafter			124,484
	Total	$	736,495

     b.     Litigation

      From time to time, the Company is involved in certain legal actions and claims arising in the normal course of business. Management is of the opinion that it maintains adequate insurance and that such matters will be resolved without a material effect on the Company’s financial position or results of operations.

      In February 2000, the Company was named a defendant in a suit with a former distributor in the state of New York asserting certain rights of exclusive representation with respect to the Company’s products. The suit was dismissed in February 2001 for lack of jurisdiction of the New York court. In March 2001, the former distributor appealed the dismissal. The case is now pending in the state of Arizona. Management believes this matter will be resolved without a material effect on the Company’s financial condition or results of operations.

      In early April 2001, a patent licensee sued the Company in the United States District Court, Central District of California. The lawsuit alleges that certain technology used in the firing mechanism for the Company’s weapons infringes upon a patent for which the licensee holds a license, and seeks injunctive relief and unspecified monetary damages. The Company believes it does not infringe this patent, that the licensee’s claims are without merit and that the litigation will have no material adverse effect on the Company’s financial condition or results of operations.

     c.     Employment Agreements

      The Company has employment agreements with its President, Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The Company may terminate the agreements with or without cause. Should the Company terminate the agreements without cause, upon a change of control of the Company or death of the employee, the President, CEO and CFO are entitled to additional compensation. Under these circumstances, these officers may receive the amounts remaining under their contracts upon termination, which could total $660,000.

6.     Income Taxes

      Concurrent with the change in tax status discussed in Note 2, the Company adopted the provisions of SFAS No. 109. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on

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the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

      The cumulative effect of the change in the method of accounting for income taxes was approximately $140,000.

      Pro forma income taxes have not been provided for 2000. As a result of the losses recognized in that period, any income tax benefit would have been fully offset by the establishment of a valuation allowance for deferred tax assets had the Company been taxed as a subchapter C corporation.

      Significant components of the Company’s deferred tax assets and liabilities are as follows:

			December 31,
			2001
Current deferred tax assets:
	Nondeductible reserves for bad debts, sales returns and other		$	60,840
		Total deferred tax asset	$	60,840
Long-term deferred tax (assets) liabilities:
	Tax over book depreciation of property and equipment		$	22,666
	Amortization of other assets			(3,355	)
		Net deferred tax liability	$	19,311

      Significant components of the federal and state income tax expense are as follows:

			Year Ended
			December 31,
			2001
Current:
	Federal provision		$	119,968
	State provision			26,558
		Total current		146,526
Deferred:
	Federal benefit			(35,300	)
	State benefit			(6,230	)
		Total deferred		(41,530	)
Provision for income taxes			$	104,996

      A reconciliation of the Company’s effective income tax rate to the federal statutory rate follows:

Federal statutory rate	34	%
State tax, net of federal benefit	6
Change in method of accounting for income taxes	(23	)
	17	%

7.     Line of Credit

      In April 2001, the Company obtained a revolving line of credit with a bank with a total commitment of up to $1,500,000. The line was fully used to repay a $1,500,000 promissory note to Mr. Bruce R. Culver, a director of the Company, is secured by assets of Mr. Culver and substantially all of the Company’s assets other than intellectual property, and has an interest rate of bank prime plus 1% (4.75% at December 31, 2001). The line matures on April 30, 2002 and requires the Company to make monthly interest payments only until such date. The line of credit was repaid in full in June 2001 from the proceeds of the Company’s IPO. In July 2001,

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the Company drew $760,838 under the line of credit to prepay amounts due Mr. Bruce Culver, a stockholder and director (Note 9). This amount was outstanding under the line of credit at December 31, 2001.

8.     Inventory Financing Agreement

      In 1995, the Company entered into an inventory financing agreement with its warehouser. Under the agreement, the Company had the right to sell its product to the warehouser at a stated price up to quantities totaling the lesser of $500,000 or the number of units sold in the last two months. The Company repurchased the product once sold to a third party at the stated price plus 2% per month (24% annually). In June 1998, the agreement expired and the Company issued a $189,980 note for the amount due. The note included interest at a rate of 10% and matured March 31, 2000. As of December 31, 2000, no amounts of principal had been paid on this note and the balance was recorded as a current payable. In 2001, the note was repaid in full at the close of the IPO in May 2001.

9.     Related Party Transactions and Notes Payable

      At December 31, 2001 and 2000 debt obligations were as follows:

		2001			2000
Notes payable to stockholders, interest at varying rates of 9% to 27%, principal and interest due through July 1, 2002		$	455,691		$	2,878,010
Note payable to stockholder, interest at 9.18% payable monthly, principal matures July 15, 2001			—			24,783
Note payable to unrelated private lender, interest at 11%, payable monthly, principal matured December 31, 2000			—			100,000
Capital leases, interest at varying rates of 7% to 23%, due in monthly installments through December 2005, secured by equipment			102,813			66,096
			558,504			3,068,889
Less: current portion			(507,525	)		(246,745	)
	Total	$	50,979		$	2,822,144

      At December 31, 2001, aggregate annual maturities of long-term debt and capital leases were as follows:

2002	$	507,525
2003		37,827
2004		12,608
2005		544
	$	558,504

      During 1998, Mr. Phillips W. Smith, the Company’s chairman, loaned the Company approximately $725,691. In March 1998, $150,000 was converted into 20,833 shares of common stock at an estimated fair value of $7.20 per share and $120,000 was repaid. In December 1998, the Company issued a promissory note for $455,691, the remaining amount due. The note carried interest at 9% (increased to 10% in January 2001) and its maturity was extended to July 1, 2002.

      In addition during 1998, Mr. Bruce R. Culver, a director of the Company, loaned the Company approximately $622,525. In March 1998, $150,000 was converted into 20,833 shares of common stock at an estimated market value of $7.20 per share. In December 1998, the Company issued a promissory note for $472,525, the remaining amount due. The note carried interest at 9% (increased to 10% in January 2001) and its maturity was extended to July 1, 2002.

      In January 1999, Mr. Culver loaned the Company $1,500,000. In return, the Company issued a promissory note for $500,000 at an effective interest rate of 27.12% to mature October 31, 2000 and issued 1,666,667 shares of common stock to Mr. Culver at a fair market value of $0.60 per share. The stock issued

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was subject to a repurchase agreement which allowed the Company to repurchase the shares issued at cost if certain criteria were met. In July 2000, the Company repurchased the 1,666,667 shares under the agreement in exchange for a promissory note for $1,000,000. This $1,000,000 note and the $500,000 note issued in January 1999 were consolidated into a new note for $1,500,000 which carried interest at bank prime (9.5% at December 31, 2000) plus 1%. The Company repaid the new note in full with the proceeds of a loan from a commercial bank in April 2001.

      In March 1999, the Company issued a promissory note to Mr. Culver for $100,000 at an interest rate of 10% which matures on July 1, 2002.

      In March 1999, the Company issued a promissory note to Mr. Smith for $99,794 at an interest rate of 10% which matured December 31, 2000 and was repaid in full.

      In July 1999, the Company issued a promissory note to Mr. Culver for $50,000 to fund working capital needs at an interest rate of 10% which matures July 1, 2002.

      In May 2000, the Company issued a promissory note to Mr. Culver for $200,000 to fund working capital needs at an interest rate of 10% which matures on July 1, 2002.

      On July 24, 2001, the Company’s Board of Directors approved the prepayment of the total remaining amount due Mr. Culver, a stockholder and director, of $822,528. The terms of the prepayment included a 7.5% discount, or $61,690 off the face of the note, which was applied to additional paid-in capital. The funds used to pay this note were obtained from the Company’s existing line of credit (Note 7).

      In July 1999, the Company issued a promissory note to Mr. Malcolm Sherman, a stockholder, for $75,000 to acquire production equipment. The note carried interest at 9.18%, matured July 1, 2001 and was repaid in full.

      In September 1997, the Company issued a promissory note to an unrelated private lender to fund working capital for $112,000 at an interest rate of 11% which matured June 30, 2002. In June 2001, the note was paid in full.

      In January 2001, the Company issued a promissory note to an unrelated private lender to fund working capital for $500,000 at an interest rate of 18% which was repaid at the close of the IPO in May 2001.

10.     Related Party Transactions

      The Company leases an aircraft from its President and is obligated under an operating lease to pay a negotiated rate of $1,560 per month for rent. This lease expires August 2013. Rent expense for this aircraft for each of the twelve months ended December 31, 2001 and 2000 was $18,673. In October 2001, the Company entered into an agreement with the President to pay approximately $29,000 for the replacement of the aircraft’s engine. The Company has capitalized the cost of the engine in leasehold improvements at December 31, 2001. This amount is being depreciated over the asset’s useful life of five years.

      The Company has a note receivable from a stockholder, the proceeds of which were used by the shareholder to exercise his options. The note bears interest at 10% and is due December 2002. The amount remaining on the note totaled $5,501 at December 31, 2001.

      Certain officers and a director of the Company have personally guaranteed the Company’s revolving line of credit and certain capital leases.

11.     Stockholders’ Equity

a.     Common Stock

      Concurrent with the re-incorporation in Delaware effective February 2001, the Company adopted a certificate of incorporation and authorized the issuance of two classes of stock to be designated “common stock” and “preferred stock”, provided that both common and preferred stock shall have a par value of

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$0.00001 per share and authorized the Company to issue 50 million shares of common stock and 25 million shares of preferred stock.

      Additionally, effective February 2001, the Company declared a 1-for-6 reverse stock split of common stock. All references to the number of shares, per share amounts, conversion amounts and stock option and warrant data of the Company’s common stock have been restated to reflect this reverse stock split for all periods presented.

b.     Preferred Stock

      The Company is authorized to issue up to 25 million shares of preferred stock, $0.00001 par value. The power to issue any shares of preferred stock of any class or any series of any class and designations, voting powers, preferences, and relative participating, optional or other rights, if any, or the qualifications, limitations, or restrictions thereof, shall be determined by the Board of Directors.

c.     Warrants

      At December 31, 2001, the Company had warrants outstanding to purchase 1,253,493 shares of common stock at prices ranging from $0.22 to $21.00 per share with an average exercise price of $9.32 per share and a weighted average remaining life of 4.60 years. A summary of warrants outstanding and exercisable at December 31, 2001 is presented in the table below:

Outstanding
Weighted
Average
Exercise				Expiration
Price		Warrants		Date
$	0.22		16,667		1/1/03
	21.00		3,333		7/31/05
	3.30		22,727		7/31/05
	7.80		5,769		4/1/06
	10.00		5,000		1/1/06
	9.53		1,199,997		5/8/06
$	9.32		1,253,493

      In 2000, the Company issued 22,727 warrants to a stockholder as consideration for his provision of a $1,500,000 loan to the Company. The warrants are exercisable at $3.30 per share and expire July 31, 2005. These warrants have been recorded at their estimated fair value of $77,862 and amortized into interest expense in the accompanying financial statements.

      In January 2001, the Company issued 5,000 warrants to an unrelated private lender as a loan guarantee. These warrants are exercisable at $10 per share and expire January 1, 2006. The fair value of these warrants of approximately $10,060 was expensed ratably over the life of the debt. In May 2001, the Company issued 5,769 warrants to its legal counsel for consulting services related to the IPO. These warrants are exercisable at $7.80 per share and expire April 2006. The fair value of these warrants of approximately $12,627 was recorded in the Company’s financial statements in 2001.

      In May 2001, in connection with the Company’s initial public offering, the Company issued 1,200,000 warrants to the public. These warrants are exercisable at $9.53 per share and expire May 8, 2006. The Company has the right to redeem the public warrants issued in the offering at a redemption price of $0.25 per public warrant after providing 30 days prior written notice to the public warrant holders, if at the time of notice, the basic net income per share of the Company’s common stock for a 12-month period preceding the date of the notice is equal to or greater than $1.00.

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d.     Deferred Compensation

      During 2000, two non-employee Board of Director members received their director fees for services relating to 2001 to 2004 through the issuance of, in the aggregate, 13,334 options at an exercise price of $3.30 per share. These options were recorded at their estimated fair value of $79,920 as deferred compensation in the accompanying balance sheets and are being amortized into expense over a four-year period.

e.     Stock Option Plans

      The Company has historically issued stock options for various equity owners and key employees as a means of attracting and retaining quality personnel. The option holders have the right to purchase a stated amount of shares at the estimated market value on the grant date. The options issued under the Company’s 1999 Stock Option Plan (the “1999 Plan”) generally vest over a three-year period. The options issued under the Company’s 2001 Stock Option Plan (the “2001 Plan”) generally vest over a four-year period.

      A summary of the Company’s stock options at December 31, 2001 and 2000 and for the years then ended is presented in the table below:

		2001					2000
					Weighted					Weighted
					Average					Average
					Exercise					Exercise
		Options			Price		Options			Price
Options outstanding, beginning of year			143,322		$	1.14		124,875		$	0.82
	Granted		401,724			7.29		21,863			2.83
	Exercised		(23,722	)		1.15		—			—
	Expired/terminated		—			—		(3,416	)		0.22
Options outstanding, end of year			521,324		$	5.88		143,322		$	1.14
Exercisable at end of year			223,670		$	4.81		84,979		$	1.02
Options available for grant at end of year			148,276		$	—		690,011		$	—
Weighted average fair value of options granted in the year			—		$	4.08		—		$	5.21

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      Stock options outstanding and exercisable at December 31, 2001 are as follows:

		Outstanding				Exercisable
Exercise				Average
Price		Options		Life(a)		Options
$	0.22		3,333		3.50		3,333
	0.60		63,500		7.00		61,486
	0.60		5,333		2.41		4,176
	0.66		29,642		2.00		28,623
	7.20		3,958		8.74		3,958
	3.30		13,834		8.90		3,598
	7.21		120,000		4.00		27,500
	6.55		170,000		9.00		38,959
	6.55		3,000		9.40		—
	6.55		1,000		4.00		1,000
	6.55		13,224		4.42		13,224
	6.85		50,000		9.50		—
	8.82		500		9.67		42
	8.25		1,500		9.75		63
	10.58		5,000		9.75		208
	10.80		17,500		9.86		17,500
	11.88		20,000		4.88		20,000
$	5.88		521,324		6.91		223,670

(a)  Average contractual life remaining in years.

      The Company measures the compensation cost of its stock option plan, using the intrinsic value based method of accounting prescribed in Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees. Accordingly, no compensation cost has been recognized for its stock option plan. The weighted average remaining contractual life of those options is approximately 7.0 years. For SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company estimated the fair value of each option grant as of the date of grant using the Black Scholes option pricing model (beginning in 2001). Prior to the Company’s IPO, the Company followed rules acceptable for private companies. The following assumptions were used for each year:

	2001			2000
Volatility		42.0	%		—
Risk-free interest rate		5.0	%		5.0	%
Dividend rate		0.0	%		0.0	%
Expected life of options		10 years			10 years

      Had the Company’s compensation cost been determined using the fair value of approximately $407,000 in 2001 and $8,300 in 2000, based on the method of accounting prescribed by SFAS No. 123, the Company’s

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net income (loss) and net income (loss) per common share would have been adjusted to the following pro forma amounts (amounts in thousands except per common share amounts):

		Year Ended
		December 31,
		2001		2000
Net income (loss) available to common stockholders:
	As reported	$	515	$	(473	)
	Pro forma		108	$	(482	)
Basic net income (loss) per common share:
	As reported	$	0.22	$	(0.19	)
	Pro forma		0.05	$	(0.19	)
Diluted net income (loss) per common share:
	As reported	$	0.17	$	(0.19	)
	Pro forma		0.04	$	(0.19	)

      In January 2001, the Company adopted the 2001 Plan which provides for officers, key employees and consultants to receive nontransferable stock options to purchase up to 550,000 shares of the Company’s common stock. In January 2001, the Company granted 120,000 five-year and 171,000 ten-year options to stockholders and one consultant at exercise prices equal or greater than the value of the common stock portion of the initial per unit public offering price in the Company’s contemplated IPO. Total compensation costs associated with the option granted to the consultant is approximately $2,898. In May 2001, the Company granted 11,449 five-year options under the 2001 Plan, to its outside legal counsel in return for legal services. The options are exercisable at $6.55 per share and expire May 2006. The options have been recorded at their estimated fair value of $33,177 and amortized into expense in the accompanying financial statements. Also in May 2001, the Company granted 1,775 five-year options to consultants for services rendered. The options are exercisable at $6.55 per share and expire May 2006. These options have been recorded at their estimated fair value of $5,144 and amortized into expense in the accompanying financial statements.

      In November 2001, the Company granted 37,500 ten-year options to employees and stockholders at an exercise price equal or greater than the value of the common stock on the date of grant. The options vest over a one-month period.

      Also in 2001, the Company granted 60,000 ten-year options to employees at an exercise price equal or greater than the value of the common stock on the date of grant. The options vest over a four-year period.

12.     Income (Loss) Per Share

      Basic net income (loss) per common share is based upon the weighted average number of common shares outstanding during the period.

      In periods of losses, diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. As the Company had a net loss for the year ended December 31 2000, the Company’s common stock options and warrants were anti-dilutive.

F-20

      Income (loss) per share is calculated as follows for the years ended December 31:

			2001		2000
Basic:
	Net income (loss)		$	515,029	$	(473,247	)
	Weighted average shares outstanding			2,303,386		2,482,976
		Net income (loss) per share	$	0.22	$	(0.19	)
Diluted:
	Net income (loss)		$	515,029	$	(473,247	)
	Weighted average shares used in basic calculation			2,303,386		2,482,976
	Stock options and warrants			725,944		—
	Weighted average common and common equivalent shares outstanding			3,029,330		2,482,976
		Net income (loss) per share	$	0.17	$	(0.19	)

13.     Subsequent Event

      In February 2002, the Company’s Board of Directors approved the prepayment of the total remaining principal amount due under a note payable to Mr. Phillips Smith, a stockholder and director of $455,691. The balance was paid in full in February 2002.

F-21