United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

or

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.

(Exact 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	85260
(Address of principal executive offices)	(Zip Code)

(480) 991-0797

(Issuer’s telephone number)

There were 2,793,545 shares of the issuer’s common stock, par value $0.00001 per share, outstanding as of March 31, 2002.

Transitional Small Business Disclosure Format (Check One): Yes         No   

TABLE OF CONTENTS

PART I —FINANCIAL INFORMATION
	ITEM 1.    FINANCIAL STATEMENTS
		BALANCE SHEETS
		STATEMENTS OF OPERATIONS
		STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED FINANCIAL STATEMENTS
	ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
PART II—OTHER INFORMATION
	ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES

TASER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE THREE MONTHS ENDED MARCH 31, 2002

TABLE OF CONTENTS

			Page
PART I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		Balance sheets as of March 31, 2002 (unaudited) and December 31, 2001		1
		Unaudited statements of operations for the three months ended March 31, 2002 and 2001		2
		Unaudited statements of cash flows for the three months ended March 31, 2002 and 2001		3
		Notes to financial statements		4
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			6
PART II — OTHER INFORMATION
	ITEM 1. Legal Proceedings			8
	ITEM 2. Changes in Securities and Use of Proceeds			8
	ITEM 6. Exhibits and Reports on Form 8-K			9
SIGNATURES				10

PART I —FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

         The accompanying unaudited financial statements of TASER International, Inc. (the “Company”) include all adjustments (consisting only of normal recurring accruals) which management considers necessary for the fair presentation of operating results, financial position and cash flows as of March 31, 2002 and March 31, 2001.

TASER INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 2002 and December 31, 2001

					March 31, 2002			December 31, 2001
					(Unaudited)
				Assets
Current Assets:
	Cash and cash equivalents				$	4,671,232		$	5,636,100
	Accounts receivable, net of allowance					1,212,311			765,328
	Inventory					1,057,169			801,926
	Prepaid expenses					67,828			103,829
	Income tax receivable					53,817			53,817
	Deferred income tax asset					60,840			60,840
			Total Current Assets			7,123,197			7,421,840
Property and Equipment, net						489,020			560,423
Other assets						68,166			72,416
			Total Assets		$	7,680,383		$	8,054,679
				Liabilities and Stockholders’ Equity
Current Liabilities:
	Current portion of notes payable to related parties				$	—		$	455,691
	Current portion of capital lease obligations					46,990			51,834
	Bank revolving line of credit					760,838			760,838
	Accounts payable and accrued liabilities					1,070,909			1,154,280
	Customer deposits					37,831			32,123
	Accrued interest					612			890
			Total Current Liabilities			1,917,180			2,455,656
Capital Lease Obligations, net of current portion						45,535			50,979
Deferred Income Tax Liability						19,311			19,311
			Total Liabilities			1,982,026			2,525,946
Commitments and Contingencies
Stockholders’ Equity:
		Preferred Stock, 0.00001 par value per share; 25 million shares authorized; 0 shares issued and outstanding at March 31, 2002 and December 31, 2001				—			—
		Common Stock, 0.00001 par value per share; 50 million shares authorized; 2,793,545 and 2,734,473 shares issued and outstanding at March 31, 2002 and December 31, 2001				28			27
	Additional paid-in capital					5,108,537			5,073,617
	Deferred compensation					(54,944	)		(59,940	)
	Retained Earnings					644,736			515,029
			Total Stockholders’ Equity			5,698,357			5,528,733
				Total Liabilities and Stockholders’ Equity	$	7,680,383		$	8,054,679

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

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TASER INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the three months ended March 31, 2002 and 2000
(UNAUDITED)

			Three Months Ended
			March 31, 2002			March 31, 2001
Net Sales			$	2,366,875		$	1,206,331
Cost of Products Sold:
	Direct manufacturing expense			799,185			508,897
	Indirect manufacturing expense			248,384			88,009
Gross Margin				1,319,306			609,425
Sales, general and administrative expenses				1,065,958			448,438
Research and development expenses				33,075			—
Income from Operations				220,273			160,987
Interest Income				18,752			3,153
Other Income (Expense), net				(72	)		525
Interest Expense				19,093			101,762
Net Income before Taxes				219,860			62,903
Provision for Income Tax				90,154			25,266
Net Income			$	129,706		$	37,637
Net Income per common and common equivalent shares
		Basic	$	0.05		$	0.03
		Diluted	$	0.03		$	0.02
Weighted average number of common and common equivalent shares outstanding:
Basic				2,793,545			1,510,754
Diluted				3,815,064			1,656,967

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

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TASER INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2002 and 2001
(UNAUDITED)

				Three Months Ended
				March 31, 2002			March 31, 2001
Cash Flows from Operating Activities:
Net Income				$	129,706		$	37,637
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization				58,286			37,504
	Amortization of deferred compensation				4,996			4,996
	Compensatory stock options and warrants				—			25,585
	Deferred compensation				—			(5,030	)
	Change in assets and liabilities:
			Accounts Receivable		(446,983	)		(88,217	)
			Inventory		(255,243	)		(162,669	)
			Prepaids and other		36,001			(7,477	)
			Accounts payable and accrued liabilities		(83,371	)		395,170
			Customer Deposits		5,708			(31,937	)
			Accrued Interest		(278	)		41,148
Net Cash provided by (used in) operating activities					(551,178	)		246,710
Cash Flows from Investing Activities:
	Purchases of property and equipment, net				(13,922	)		(50,603	)
	Proceeds from sale of fixed assets				31,290			—
	Purchase of other assets				—			(25,000	)
Net Cash provided by (used in) investing activities					17,368			(75,603	)
Cash Flows from Financing Activities:
	Payments under capital leases				(10,288	)		(8,592	)
	Payments on notes payable				(455,691	)		(24,309	)
	Additions to deferred financing costs				—			(370,356	)
	Proceeds from notes payable				—			500,000
	Proceeds from warrants exercised				6,222			—
	Proceeds from options exercised				28,699			—
Net cash provided by (used in) financing activities				$	(431,058	)	$	96,743
Net Increase (Decrease) in Cash and Cash Equivalents				$	(964,868	)	$	267,850
Cash and Cash Equivalents, beginning of period				$	5,636,100		$	206,407
Cash and Cash Equivalents, end of period				$	4,671,232		$	474,257
Supplemental Disclosure:
		Cash paid for interest		$	18,481		$	60,686
		Cash paid for income taxes		$	—		$	—
Noncash Investing and Financing Activities:
	Acquisition of property and equipment under capital leases			$	—		$	44,000
	Fair value of stock options issued for payment of consulting fees			$	—		$	2,898
	Fair value of stock warrants issued for loan guarantees			$	—		$	10,060

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

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TASER INTERNATIONAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 —GENERAL

The accompanying quarterly financial statements of TASER International, Inc. (the “Company”) are unaudited and include all adjustments (consisting only of normal recurring accruals) considered necessary by management to present a fair statement of the results of operations, financial position and cash flows. They have been prepared in accordance with the instructions to Form 10-QSB, and, accordingly, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

The results of operations for the three month periods are not necessarily indicative of the results to be expected for the full year and should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB as filed on March 18, 2002, as amended. Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 2 —NET SALES

The components of net sales for the three months ended March 31, 2002 and 2001 are as follows:

Sales by Product Line:		March 31, 2002		March 31, 2001
ADVANCED TASER		$	1,851,869	$	871,376
AIR TASER			448,515		298,253
Other			66,491		36,702
	Total	$	2,366,875	$	1,206,331

NOTE 3 —INVENTORIES

The inventories are stated at the lower of cost or market; cost is determined using the most recent acquisition cost method that approximates the first-in, first-out (FIFO) method. A physical count was completed for both years prior to the quarter-end closing. The components of inventories are as follows:

		March 31, 2002		March 31, 2001
Raw materials and work-in-process		$	980,975	$	349,138
Finished goods			76,194		34,700
	Total	$	1,057,169	$	383,838

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NOTE 4 —EARNINGS PER SHARE

The Company follows SFAS No. 128, Earnings per Share, which requires the presentation of basic and diluted earnings per share. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for net income:

	Three Months Ended
	March 31, 2002		March 31, 2001
Numerator for basic and diluted earnings per share:
Net Income	$	129,706	$	37,637
Denominator for basic earnings per share weighted average shares:		2,793,545		1,510,754
Dilutive effect of shares issuable under stock options and warrants outstanding		1,021,519		146,213
Denominator for diluted earnings per share adjusted weighted average shares		3,815,064		1,656,967
Basic earnings per share	$	0.05	$	0.03
Diluted earnings per share	$	0.03	$	0.02

NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets on January 1, 2002. Management has determined that adoption of this standard did not have a material impact on the Company’s financial statements.

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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 results of operations and analysis of financial condition for the three months ended March 31, 2002 and March 31, 2001. 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-KSB for the year ended December 31, 2001, filed on March 18, 2002, as amended.

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: (1) expected revenue and earnings growth; (2) the Company’s estimates regarding the size of its target markets; (3) the ability of the Company to successfully penetrate the law enforcement market; (4) the growth expectations for existing accounts; (5) the ability of the Company to expand its product sales to the commercial airline, private security, military and consumer self-defense markets; and (6) the Company’s business model. The Company cautions 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: (1) market acceptance of the Company’s products; (2) the Company’s ability to establish and expand its direct and indirect distribution channels; (3) the Company’s ability to attract and retain the endorsement of key opinion-leaders in the law enforcement community; (4) the level of product technology and price competition for the Company’s ADVANCED TASER products; (5) the degree and rate of growth of the markets in which the Company competes and the accompanying demand for its products; and (6) other factors detailed in the Company’s filings with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001

Net sales. Net sales increased by $1.2 million, or 96.2%, to $2.4 million for the three months ended March 31, 2002 compared to $1.2 million for the three months ended March 31, 2001. The increase in sales was largely due to the increased sales of the ADVANCED TASER to U.S. law enforcement distributors and law enforcement agencies. Specifically, the ADVANCED TASER sales increased by $980,000 to $1.9 million in the three months ended March 31, 2002 as compared to $871,000 for the three months ended March 31, 2001. AIR TASER sales also increased by $150,000 to $449,000 in the three months ended March 31, 2002, compared to $298,000 for the three months ended March 31, 2001. The increase in AIR TASER sales resulted from the shipping of product ordered in the fourth quarter of 2001. The Company’s policy is to record product revenues at the time the product is shipped. The Company records training revenue as the service is provided.

For the three months ended March 31, 2002 and 2001, sales by product line were as follows:

		For the Three Months Ended
Sales by Product Line:		March 31, 2002		March 31, 2001
ADVANCED TASER		$	1,851,869	$	871,376
AIR TASER			448,515		298,253
Other			66,491		36,702
	Total	$	2,366,875	$	1,206,331

Cost of products sold. Cost of products sold increased by approximately $450,000, or 75.5%, to nearly $1.1 million in the three months ended March 31, 2002 compared to $597,000 in the three months ended March 31, 2001. As a percentage of total revenues, cost of products sold decreased to 44.3% for the three months ended March 31, 2002 from 49.5% for the three months ended March 31, 2001. This decrease was due to the reduced labor and material costs associated with relocating manufacturing and final assembly operations back to the United States. Prior to the Company moving its manufacturing operations in early March of 2001, costs of products sold included an additional markup to compensate the third party supplier for administrative and manufacturing overhead expenses associated with the production of TASER products in Mexico.

Gross Margins. Gross margins increased by $710,000 or 116.5%, to $1.3 million in the three months ended March 31, 2002 compared to $609,000 in the three months ended March 31, 2001. This increase was due to the increased sales volume of higher

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margin ADVANCED TASER products, a reduction in manufacturing expenses as a result of relocating manufacturing operations.

Sales, general and administrative expenses. Sales, general and administrative expenses increased by $618,000, or 137.7%, to $1.1 million in the three months ended March 31, 2002 compared to $448,000 in the three months ended March 31, 2001. As a percentage of total revenues, sales, general and administrative expenses increased by 7.8% to 45.0% in the first quarter of 2002 compared to 37.2% for the same period in 2001. The increase in sales, general and administrative expenses in 2002 versus 2001 was a result of increased legal expenses, investments in corporate infrastructure, trade show participation and the development of sales and marketing programs to launch the ADVANCED TASER into consumer distribution.

Specifically, legal costs increased $112,000 to $122,000 for the three months ended March 31, 2002 compared to $10,000 in the same quarter of 2001. The increase is attributed to fees incurred to defend the Company in a case alleging patent infringement, and another case in which a former distributor alleges breach of an oral contract pertaining exclusive rights to sell the Company’s products. Management believes both of these cases are without merit.

The Company also incurred additional expenses in the areas of investor relations, corporate reporting, and salaries during the first quarter of 2002. Specifically, these costs increased $148,000 during the three months ended March 31, 2002.

Sales and marketing expenditures also increased during the three months ended March 31, 2002 by $354,000, or 242.5%, to $500,000, compared to $146,000 during the same period in 2001. These increases were a result of added sales and support positions, commissions paid to the new manufacturers’ sales representatives, and costs associated with participating in the three of the largest consumer trade shows held in the U.S. and Germany during the first quarter of 2002.

Interest Income. For the three months ended March 31, 2002, the Company generated interest income of $18,800. This income was associated with the investment of the unapplied proceeds from the Company’s May 2001 initial public offering into a liquid reserves account that paid an annual interest rate of approximately 1.8% as of March 31, 2002. For the three months ended March 31, 2001, interest income was not significant.

Interest Expense. Interest expense decreased by $82,700 to $19,100 in the three months ended March 31, 2002 from $101,800 in the three months ended March 31, 2001. This decrease was the result of retiring debt through the use of proceeds from the Company’s initial public offering, as well as the refinancing, with a more favorable interest rate, of a note payable to a director and stockholder in July 2001 through the use of the Company’s revolving line of credit. In addition, the Company retired its remaining note payable to a director and stockholder in January 2002, which further reduced the first quarter interest expense by approximately $10,000.

Income Taxes. The Company recognizes a quarterly provision for corporate income taxes equal to 40% of pre-tax earnings. As of March 31, 2002, the Company accrued $90,200 for income taxes, compared with $25,300 accrued for the three months ended March 31, 2001.

Net Income. Net income increased $92,000 to $130,000 in the three months ended March 31, 2002 compared to net income of $38,000 in the three months ended September 30, 2000. The increase in net income over the prior three-month period was the result of increased sales and product margins, offset by a significant increase in selling, general and administrative expenses as a percentage of total sales.

The weighted average basic earnings per share for the three months ended March 31, 2002 was $0.05 compared to earnings per share of $0.03 in the comparable prior period. In 2002 there were 1,282,791 more shares outstanding. The weighted average diluted income per share for the three months ended March 31, 2002 was $0.03 compared to income per share of $0.02 for the corresponding period in 2001. In 2002 there were 2,158,097 more shares diluted outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity: On May 11, 2001, the Company completed its initial public offering (IPO) and received net proceeds, after the underwriting discount and financing costs, of approximately $8.4 million. As a result of the cash reserves generated by the IPO, coupled with net income of $515,000 for the twelve months ended December 31, 2001 and, $130,000 of net income for the quarter ended March 31, 2002, the Company achieved positive working capital of $5.2 million as of March 31, 2002. The Company had working capital of $5.0 million as of December 31, 2001.

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In the three months ended March 31, 2002, the Company used $551,000 of cash in operations compared to $247,000 of cash provided by operations for the three months ended March 31, 2001. The increase in cash used in operations was due primarily to increase investment in raw materials inventory to meet anticipated sales, and to an increase in accounts receivable created by large orders shipped in March of 2002.

The Company generated $17,400 of cash from investing activities during the three months ended March 31, 2002, compared to $76,000 used in the same period in 2001. The funds generated were the result of the termination of an operating lease with a stockholder and director that required the stockholder and director to repay approximately $31,000 for a leasehold improvement that was installed and funded by the Company in the fourth quarter of 2001. These funds were offset by purchase of equipment of approximately $14,000 during the first quarter of 2002.

The Company also used $431,000 in financing activities during the three months ended March 31, 2002, as compared with $97,000 generated through financing activities for the three months ended March 31, 2001. The cash used in the first quarter of 2002 was to prepay a note payable to a shareholder and director, which was scheduled to mature on July 1, 2002, and carried an annual interest rate of 10%. This early payment will result in a decrease in interest expense of approximately $26,000 over the remaining seven months of the loan.

Capital Resources. For the quarter ended March 31, 2002, the Company generated $130,000 of cash from net income. In addition, the Company had cash and cash equivalents of $4.7 million at March 31, 2002 as a result of the remaining proceeds from its initial public offering coupled with net income generated in the twelve months ended December 31, 2001, as well as in the first quarter of 2002.

As of March 31, 2002, the Company had a revolving line of credit from a domestic bank with a total availability of $1.5 million. The line is secured by substantially all of the Company’s assets, other than intellectual property, and bears interest at prime plus 1.0%, or approximately 4.9% at March 31, 2002. The line of credit matured on April 30, 2002 and required monthly payments of interest only. The outstanding balance under the line of credit at March 31, 2002 was $761,000. Subsequently, on April 14, 2002, the line of credit was repaid in full from the Company’s cash reserves.

The Company has negotiated a new revolving line of credit from a domestic bank with a total availability of $2.5 million. The line will be secured by substantially all of the Company’s assets, other than intellectual property. The Company has received a commitment letter from the bank, with terms more favorable than the previous line of credit, and intends to enter into a formal loan agreement before the end of May 2002.

The Company anticipates that cash generated from operations, available borrowings under its line of credit and the proceeds from its initial public offering will be sufficient to provide for its working capital needs and to fund future growth.

PART II—OTHER INFORMATION

ITEM 2.    LEGAL PROCEEDINGS

In early April 2001, James F. McNulty Jr. sued the Company in the United States District Court, Central District of California (CV. SACV 01-395-DOC-ANX). The lawsuit alleges that certain technology used in the firing mechanism for the Company’s weapons infringes upon a patent for which Mr. McNulty holds a license, and seeks injunctive relief and unspecified monetary damages. During March 2002, United States District Court conducted a three day Markman claim interpretation hearing to enable the appointed judge to interpret the patent claim as a matter of law. Within ten days of the hearing, both McNulty and the Company filed motions for summary judgment. Mr. McNulty requested a summary judgment finding that the Company’s products infringe, while the Company requested a summary judgment ruling of non-infringement which would result in the dismissal of McNulty’s complaint. The ruling on those pending summary judgment motions is expected in the near term.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 11, 2001, the Company completed its initial public offering of 800,000 units, at an aggregate offering price of $10.4 million.

8

Each unit consisted of one and one-half shares of common stock and one and one-half redeemable public warrants, each whole warrant to purchase one share of common stock. The initial public offering price was $13.00 per unit. The units sold in the offering were registered under the Securities Act of 1933 on a Registration Statement on Form SB-2, as amended (Registration No. 001-16391), which became effective on May 7, 2001.

During the three months ended March 31, 2002, the Company utilized $460,000 of the funds raised through the offering for early payment of a note payable to a related party. In addition, the Company used an additional $761,000 in April of 2002 to pay down its revolving line of credit. The balance of the initial public offering proceeds, or $3.6 million, remains in short term liquid reserves accounts.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(b)  Reports on Form 8-K

No Current Reports on Form 8-K were filed during the three months ended March 31, 2002.

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SIGNATURES

         In accordance with 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. (Registrant)
Date:  May 10, 2002	/s/ Patrick W. Smith
	Patrick W. Smith, Chief Executive Officer
Date:  May 10, 2002	/s/ Kathleen C. Hanrahan
	Kathleen C. Hanrahan, Chief Financial Officer (Principal Financial and Accounting Officer)

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