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 June 30, 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 (State or other jurisdiction of incorporation or organization)	86-0741227 (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)

There were 2,805,277 shares of the issuer’s common stock, par value $0.00001 per share, outstanding as of June 30, 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 INCOME
		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 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit Index
EX-10.18
EX-99.2
EX-99.3

TASER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002

TABLE OF CONTENTS

				Page
PART I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		Balance sheets as of June 30, 2002 (unaudited) and December 31, 2001			3
		Statements of income for the three and six months ended June 30, 2002
			and 2001 (unaudited)		4
		Statements of cash flows for the six months ended June 30, 2002 and 2001 (unaudited)			5
		Notes to financial statements (unaudited)			6
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				8
PART II — OTHER INFORMATION					11
	ITEM 1. Legal Proceedings				11
	ITEM 2. Changes in Securities and Use of Proceeds				11
	ITEM 4. Submission of Matters to a Vote of Security Holders				12
	ITEM 6. Exhibits and Reports on Form 8-K				12
SIGNATURES					13

2

PART I —FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TASER INTERNATIONAL, INC.

BALANCE SHEETS
June 30, 2002 and December 31, 2001

					June 30, 2002		December 31, 2001
				Assets
Current assets:
	Cash and cash equivalents				$	3,557,147	$	5,636,100
	Accounts receivable, net of allowance					1,608,801		765,328
	Inventory					1,349,828		801,926
	Prepaids and other					80,691		103,829
	Income tax receivable					133,649		53,817
	Deferred income tax asset					70,840		60,840
			Total current assets			6,800,956		7,421,840
Property and equipment, net						481,698		560,423
Other assets						63,917		72,416
			Total assets		$	7,346,571	$	8,054,679
				Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of notes payable to related parties				$	—	$	455,691
	Revolving line of credit					—		760,838
	Current portion of capital lease obligations					44,694		51,834
	Accounts payable and accrued liabilities					1,206,711		1,154,280
	Customer deposits					26,677		32,123
	Accrued interest					181		890
			Total current liabilities			1,278,263		2,455,656
Deferred income tax liability						19,311		19,311
Capital lease obligations, net of current portion						36,405		50,979
			Total liabilities			1,333,979		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 June 30, 2002 and December 31, 2001				—		—
		Common stock, 0.00001 par value per share; 50 million shares authorized; 2,805,277 and 2,734,473 shares issued and outstanding at June 30, 2002 and December 31, 2001				28		27
	Additional paid-in capital					5,287,233		5,073,617
	Deferred compensation					—		(59,940	)
	Retained earnings					725,331		515,029
			Total stockholders’ equity			6,012,592		5,528,733
				Total liabilities and stockholders’ equity	$	7,346,571	$	8,054,679

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

3

TASER INTERNATIONAL, INC.
STATEMENTS OF INCOME
For the three months and six months ended June 30, 2002 and 2001
(UNAUDITED)

			Three Months Ended					Six Months Ended
			June 30, 2002			June 30, 2001		June 30, 2002			June 30, 2001
Net sales			$	2,689,582		$	1,537,574	$	5,056,457		$	2,743,905
Cost of products sold:
	Direct manufacturing expense			877,078			530,235		1,676,262			1,039,133
	Indirect manufacturing expense			305,981			127,934		546,045			215,793
Gross margin				1,506,523			879,405		2,834,150			1,488,979
Sales, general and administrative expenses				1,390,589			596,476		2,456,546			1,044,841
Research and development expenses				32,541			13,304		73,937			13,454
Research and development funding				(46,258	)		—		(46,258	)		—
Income from operations				129,651			269,625		349,925			430,684
Interest income				13,901			15,761		32,653			18,940
Interest expense				5,431			89,975		24,524			191,737
Other income (expense)				(462	)		14		(534	)		442
Income before taxes				137,659			195,425		357,520			258,329
Provision for income tax				57,063			78,170		147,218			103,436
Net income			$	80,596		$	117,255	$	210,302		$	154,893
Net income per share:
		Basic	$	0.03		$	0.05	$	0.08		$	0.08
		Diluted	$	0.02		$	0.05	$	0.05		$	0.08
Weighted average share:
		Basic		2,799,688			2,211,878		2,786,205			1,868,765
		Diluted		3,862,080			2,357,327		3,848,598			2,014,215

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

4

TASER INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001 and 2000
(UNAUDITED)

			Six Months Ended
			June 30, 2002			June 30, 2001
Cash flows from operating activities:
Net income			$	210,302		$	154,893
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation and amortization			116,595			75,442
	Amortization of deferred compensation			—			9,990
	Compensatory stock options and warrants			901			—
	Stock option tax benefits			231,705			(16,589	)
	Deferred income taxes			(10,000	)		—
	Change in assets and liabilities:
		Accounts receivable, net		(843,472	)		(266,135	)
		Inventory		(547,902	)		(571,739	)
		Prepaids and other		23,138			(34,145	)
		Income tax receivable		(79,832	)		—
		Accounts payable and accrued liabilities		52,429			162,024
		Customer deposits		(5,447	)		(427,342	)
		Accrued interest		(709	)		(268,134	)
Net cash used in operating activities				(852,292	)		(1,181,735	)
Cash flows from investing activities:
	Proceeds from sale of property and equipment			32,848			—
	Purchases of property and equipment, net			(62,218	)		(215,800	)
	Purchase of other assets			—			(85,000	)
Net cash used in investing activities				(29,370	)		(300,800	)
Cash flows from financing activities:
	Payments under capital leases			(21,713	)		(20,769	)
	Payments on notes payable			(455,691	)		(2,220,874	)
	Payments on revolving line of credit			(760,838	)		—
	Payments under product financing payable			—			(189,980	)
	Proceeds from notes payable			—			500,000
	Proceeds from initial public offering			—			8,440,522
	Proceeds from warrants exercised			6,222			—
	Proceeds from options exercised			34,729			—
Net cash provided (used in) by financing activities			$	(1,197,291	)	$	6,508,899
Net increase (decrease) in cash and cash equivalents			$	(2,078,953	)	$	5,026,364
Cash and cash equivalents, beginning of period			$	5,636,100		$	206,407
Cash and cash equivalents, end of period			$	3,557,147		$	5,232,771
Supplemental disclosure:
	Cash paid for interest		$	25,792		$	150,481
Noncash investing and financing activities:
	Fair value of stock warrants issued for IPO costs		$	—		$	14,569
	Acquisition of property and equipment under capital leases		$	—		$	81,945
	Fair value of stock options issued for payment of legal fees		$	—		$	33,177
	Fair value of stock options issued for payment of consulting fees		$	3,809		$	8,042
	Fair value of stock warrants issued for loan guarantees		$	—		$	10,060

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

5

TASER INTERNATIONAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
 
 
NOTE 1 —GENERAL

The accompanying quarterly financial statements of TASER International, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles applicable to interim financial statements 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 and six 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 for the year ended December 31, 2001, dated March 14, 2002.

NOTE 2 —NET SALES

The components of net sales are as follows:

		For the Three Months Ended				For the Six Months Ended
Sales by Product Line:		June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
ADVANCED TASER		$	2,346,093	$	1,151,166	$	4,197,962	$	2,022,542
AIR TASER			293,645		367,698		742,160		665,951
Other			49,844		18,710		116,335		55,412
	Total	$	2,689,582	$	1,537,574	$	5,056,457	$	2,743,905

NOTE 3 —INVENTORIES

The inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out (FIFO) method.

		June 30, 2002		December 31, 2001
Raw materials and work-in-process		$	1,129,968	$	678,406
Finished goods			219,860		123,520
	Total	$	1,349,828	$	801,926

6

NOTE 4 —EARNINGS PER SHARE

The following table reconciles average common shares outstanding – basic, to average common shares outstanding – diluted, that are used in the calculation of earnings per share.

	Three Months Ended				Six Months Ended
	June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
Numerator for basic and diluted earnings per share:
Net Income	$	80,596	$	117,255	$	210,302	$	154,893
Average common shares outstanding — basic		2,799,688		2,211,878		2,786,205		1,868,765
Dilutive effect of shares issuable under stock options and warrants outstanding		1,062,392		145,449		1,062,393		145,450
Average common shares outstanding — diluted		3,862,080		2,357,327		3,848,598		2,014,215
Basic earnings per share	$	0.03	$	0.05	$	0.08	$	0.08
Diluted earnings per share	$	0.02	$	0.05	$	0.05	$	0.08

NOTE 5 —LINE OF CREDIT

The Company has obtained a new revolving line of credit from a domestic bank with a total availability of $2.5 million. The line is secured by substantially all of the Company’s assets, other than intellectual property, and bears interest at varying rates of interest, ranging from LIBOR plus 1.5% to prime plus 1%. The line of credit matures on May 31, 2003 and requires monthly payments of interest only. The Company had no borrowings under the line of credit at June 30, 2002.

NOTE 6 —PATENT PURCHASE

On July 2, 2002, the Company purchased U.S. Patent Number 5,078,117 from its original owner, John Cover, for $50,000. The patent expires in 2009, and covers the technology used to manufacture the gas capsule, or propellant module, used in the Company’s air cartridges. Previously, the Company was licensed to use this technology. The Company intends to amortize this investment over the remaining useful life of the patent.

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following is a discussion and an analysis of operations for both the three months and the six months ended June 30, 2002 and an analysis of financial condition as of June 30, 2002. 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 filed on Form 10-KSB, dated March 14, 2002.

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 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.

Critical Accounting Policies

The Company has identified the following policies as critical to its business operations and the understanding of its results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The preparation of this Quarterly Report on Form 10-QSB 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.

• Revenue Recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. We recognize revenues when products are shipped and title passes and all sales are final. We charge certain of our customers shipping fees, which are recorded as a component of net sales. The Company records training revenue as the service is provided.

• Warranty costs. We warrant our products from manufacturing defects for their lives and we replace any AIR TASER units with a new one for a $25 fee and defective ADVANCED TASER units for a $75 fee. The Company tracks historical data related to returns on a quarterly basis and as of June 30, 2002 and December 31, 2001 had accrued warranty costs of $65,000 and $43,000 respectively.

• Concentration of Credit Risk and Major Customers. Financial instruments that potentially subject us to concentrations of credit risk include accounts receivable and accounts payable. 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 at the end of each quarter, and accounts receivable are presented, net of an additional allowance for doubtful accounts. Our allowance for bad debts as of June 30, 2002 and December 31, 2001 was $28,000 and $29,000 respectively.

8

RESULTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Net sales. Net sales increased by $1.2 million, or 74.9%, to $2.7 million for the three months ended June 30, 2002 compared to $1.5 million for the three months ended June 30, 2001. Net sales increased $2.3 million, or 84.3%, to $5.1 million for the six months ended June 30, 2002 compared to $2.7 million in the corresponding period in 2001. These increases were primarily due to increased unit sales of the ADVANCED TASER to law enforcement distributors, law enforcement agencies and initial sales to U.S. commercial distributors.

For the three months and six months ended June 30, 2002 and 2001, sales by product line were as follows:

		For the Three Months Ended				For the Six Months Ended
Sales by Product Line:		June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
ADVANCED TASER		$	2,346,093	$	1,151,166	$	4,197,962	$	2,022,542
AIR TASER			293,645		367,698		742,160		665,951
Other			49,844		18,710		116,335		55,412
	Total	$	2,689,582	$	1,537,574	$	5,056,457	$	2,743,905

Cost of products sold. Cost of products sold increased by approximately $525,000, or 79.8%, to $1.2 million in the three months ended June 30, 2002 compared to $658,000 in the three months ended June 30, 2001. This increase was primarily due to the manufacturing costs associated with the increased unit sales of the ADVANCED TASER product line, coupled with increased indirect expenses in the areas of warranty charges, scrapped raw materials, and indirect labor. Specifically, the Company incurred a total charge of approximately $100,000 associated with in-line production scrap, warranty returns, and replacement products resulting from a combination of training issues and a defective electronic component provided by an external vendor during the three months ended June, 30, 2002. As a percentage of total revenues, cost of products sold increased by 1.2% to 44.0% for the three months ended June 30, 2002 as compared with 42.8% for the three months ended June 30, 2001. This increase was the result of the labor inefficiencies and scrap incurred during the quarter. Cost of products sold for the six month period increased $967,000, or 77.1%, to $2.2 million in 2002 compared to $1.3 in 2001. This increase was also due to the increased sales of the ADVANCED TASER products. As a percentage of total revenues, cost of products sold decreased 1.8% to 43.9% in the more recent six month period from the 45.7% recorded at the same time last year. This improvement is primarily attributed to bringing manufacturing and assembly operations back in house in early 2001, providing a full six months of reduced processing costs for fiscal 2002.

Sales, general and administrative expenses. Sales, general and administrative expenses increased by $794,000, or 133.1%, to $1.4 million in the three months ended June 30, 2002 compared to $596,000 in the three months ended June 30, 2001. As a percentage of total revenues, sales, general and administrative expenses increased to 51.7% for the three months ended June 30, 2002 from 38.8% for the three months ended June 30, 2001. For the six month period ended June 30, 2002, expenses increased $1.4 million, or 135.1%, to $2.5 million compared to expenses of $1.0 million for the corresponding period in 2001. As a percentage of total revenues, sales, general and administrative expenses increased to 48.6% from the six months ended June 30, 2002 from 38.1% for the six months ended June 30, 2001.

The increase in sales, general and administrative expenses in 2002 versus 2001 was a result of larger than anticipated expenditures in the areas of legal, employee severance, bad debt and investor relations. In late May of 2002, the Company entered into a severance agreement with an executive employee. As a result, the Company expensed more than $75,000 of additional salary and benefit costs during the quarter. The Company was also notified in June that a commercial distributor owing in excess of $30,000 for product shipped in April had filed for bankruptcy protection. Although the Chapter 11 proceedings may provide for partial payment in the future, a bad debt write off for this account was expensed in June. The Company also incurred more than $50,000 in legal fees associated with SEC filings during the second quarter of 2002.

Sales expenses were also higher than anticipated in the quarter ended June 30, 2002. Specifically, year to date sales salary expense increased by $136,000 due to new positions added to support the growing customer base. Outside sales representative commissions also increased during the three and six months ended June 30, 2002. During the second quarter of 2002, sales commissions totaled $279,000 compared with $21,000 paid for the same period in 2001. Year to date sales commissions total $343,000 compared with $51,000 for the six months ended June 30, 2001. Trade show and marketing collateral expenses also increased by nearly $124,000

9

over the same period in 2001. The other large increase in selling expenses was for advertising and printed materials. As of June 30, 2002, the Company spent $71,000 in developing materials for and marketing the ADVANCED TASER product line. For the same period in 2001, the total investment in this area was $15,000.

Research and development expenses increased $19,200 for the three months ended June 30, 2002 to $32,500, as compared with $13,300 for the same period in 2001; and increased $60,500 to $74,000 in the six months ended June 30, 2002 as compared with $13,500 for the same period in 2001. The increased investment in research and development for both the three months and six months ended June 30, 2002 has been for improvements to existing TASER products, as well as test and prototype work on the Company’s next generation TASER technology. As of June 30, 2002, the total investment in research and development was offset by $46,000 of funded research and development related to research funds granted to the Company by the Office of Naval Research during the second quarter of 2002. The grant provides for a cost-plus-profit arrangement for research performed by the Company under a contract with the Office of Naval Research.

Interest Income. For the three and six months ended June 30, 2002, the company generated interest income of $14,000 and $33,000 respectively. This income was associated with the investment of the unused IPO funds. For the three and six months ended June 30, 2001, interest income was $16,000 and $19,000 respectively. The increase in interest income for the six months ended June 30, 2002 is a result of a full six months of interest, versus the 45 days of interest income earned immediately following the Company’s initial public offering in May of 2001.

Interest expense. Interest expense decreased by $85,000 to $5,000 in the three months ended June 30, 2002 from $90,000 in the three months ended June 30, 2001. For the six month period ended June 30, 2002, interest expense decreased $167,000, to $25,000, compared to $192,000 for the corresponding period in 2001. This decrease was the result of eliminating both short and long term debt with the proceeds received from the Company’s IPO. Additionally, the Company paid off its former revolving line of credit, totaling $761,000 in April 2002 in order to obtain more favorable rates with a new bank. The retirement of the Company’s line of credit resulted in a monthly interest expense reduction of approximately $4,000.

Income tax. The provision for income taxes in both 2002 and 2001 have been computed at a 40% rate. As of June 30, 2002, the Company has provided for $147,000 in tax expense as compared with $103,000 for the corresponding period of 2001. This increase in the income tax provision payable was the result of the increased income before taxes in 2002.

Net Income. Net income decreased to $81,000 in the three months ended June 30, 2002 compared to net income of $117,000 in the three months ended June 30, 2001. For the six months ended June 30, 2002, net income increased to $210,000 compared to net income of $155,000 for the corresponding period in 2001. The decrease in the quarterly performance from 2001, was primarily the result of the items discussed above. Net income was lower than originally predicted for the quarter, and for the six months ending June 30, 2002. As a result in the reduction in earnings, and forecasted increases in lobbying and marketing costs throughout the remainder of the year, the Company has revised its earnings per share guidance for 2002, to a range of $0.30 to $0.32 per basic share. This target represents a reduction of approximately $0.20 per share from earlier predictions to allow for greater investments in consumer marketing programs and lobbying expenses to promote approval of the Company’s products for use on commercial aircraft.

Diluted net income per share for the three months ended June 30, 2002 was $0.02 compared to $0.05 in the comparable prior period due to there being 1.5 million fewer shares average outstanding. Diluted income per share for the six months ended June 30, 2002 was $0.05 compared to $0.08 for the corresponding period in 2001, when there were 1.8 million fewer average shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity: As of June 30, 2002, the Company had working capital of $5.5 million compared to $5.0 million at December 31, 2001. In January, of 2002, the Company paid off a note payable, totaling $456,000, and in April 2002, paid in full its revolving line of credit with a local bank. This reduction in debt reduced the monthly interest expense, and assisted the Company in obtaining an increased line of credit with a new bank.

In the six months ended June 30, 2002, the Company used $852,000 of cash in operations compared to $1.2 million used in operations for the six months ended June 30, 2001. The decrease in cash used in operations was due primarily to a $232,000 tax benefit from the exercise of stock options by the Company employees, offset by an increase in accounts receivable. This increase in accounts receivable was the result of the increase in days sales outstanding from approximately 30 days in 2001 to approximately 43 days as of

10

June 30, 2002, resulting from lower prepaid international sales.

The Company also used $29,000 of cash in investing activities during the six months ended June 30, 2002, compared to $301,000 for the same period in 2001. These funds were used to purchase production and office equipment required to support expanded staffing and production capacity.

Capital Resources. As of June 30, 2002, the company has generated retained earnings of $725,000, and had cash and cash equivalents of $3.6 million at June 30, 2002.

The Company has obtained a new revolving line of credit from a domestic bank with a total availability of $2.5 million. The line is secured by substantially all of the Company’s assets, other than intellectual property, and bears interest at varying rates of interest, ranging from LIBOR plus 1.5% to prime plus 1%. The security for this loan is computed on a monthly borrowing base. The Company’s intellectual property has been excluded from the bank pledges. The line of credit matures on May 31, 2003 and requires monthly payments of interest only. The Company had no borrowings under the line of credit at June 30, 2002.

On July 13, 2002, the Company filed an S-8 with the U.S. Securities and Exchange Commission, registering the remaining 609,011 employee stock options authorized under the Company’s 1999 Stock Option Plan. On May 29, 2002, the Company’s Board of Director’s authorized the grant of 264,000 options under this plan for distribution to the Company’s key employees. These options were granted at fair market value on the date of grant, or $16.00 per share for employees holding less than 5% of the Company’s outstanding shares, and $17.20 for employees with beneficial ownership greater than 5% of the total shares outstanding. All of the shares vest over a 36 month period, beginning July 1, 2002. As of the date of this filing, no options from this grant were exercised.

The Company anticipates that cash generated from operations, available borrowings under its line of credit and the residual proceeds from its initial public offering in May of 2001 will be sufficient to provide for its working capital needs and to fund future growth.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In early April 2001, a patent licensee sued the Company in the United States District Court, Central District of California, in an action entitled McNulty vs. Taser (Case No. SACV 01-395 DOC-ANx). The lawsuit alleged that certain technology used in the firing mechanism for the Company’s weapons infringed upon a patent for which McNulty holds a license, and saught injunctive relief and unspecified monetary damages.

Subsequent to the end of the period, in an order filed on July 29, 2002, the Court granted a motion for summary judgment filed by the Company seeking a ruling that no product manufactured by the Company infringed the claims of the patent licensed by McNulty. Upon entry of a Final Judgment, plaintiff McNulty will have a period of thirty days in which to file an appeal.

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. 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.

During the first six months of 2002, the Company applied approximately $1.5 million of net proceeds from its initial public offering toward the repayment of notes payable and working capital. Of this amount, $1.2 million was used to retire debt, and the remaining $283,000 was used to purchase raw material inventory. Previously, during 2001, the Company used approximately $3.6 million to retire debt, purchase inventory, and fund investments in equipment, research and technology, and fund working capital. The remaining proceeds were invested in short term liquid reserve accounts with a domestic bank as of June 30, 2002.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders on May 1, 2002. Voting common shareholders took the following actions at the meeting:

1. The shareholders elected the following nominees to the Company’s Board of Directors to serve until the next annual meeting of the shareholders or until their successors are elected and qualified:

	Shares		Shares		Shares		Broker
Name	Voted for		Withheld		Abstaining		Non-votes
Phillips W. Smith, Class A (two year term)		2,725,221		0		2,445		0
Bruce R. Culver Class A (two year term)		2,725,221		0		2,445		0
Patrick W. Smith Class B (three year term)		2,725,221		0		2,445		0
Karl F. Walter* Class B (three year term)		2,725,221		0		2,445		0

* Mr. Walter subsequently resigned from the Board of Directors on May 24, 2002.

2. The shareholders voted to ratify management’s selection of auditors for fiscal 2002 by the affirmative vote of 2,554,134 shares, with 158,160 shares voting against ratification and 15,372 shares abstaining. There were no broker non-votes with respect to this proposition.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

10.18	Bank Line of Credit
99.2	Chief Executive Officer Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3	Chief Financial Officer Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:

Current Reports on Form 8-K were filed during the three months ended June 30, 2002:

Form 8-K: Change in Registrant’s Certifying Accountant from Arthur Andersen, LLP to Deloitte & Touche, LLP, as filed on June 10, 2002

Form 8-K/A: Amendment to Change in Registrant’s Certifying Accountant, as filed on June 27, 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: August 12, 2002	/s/ Patrick W. Smith
	Patrick W. Smith, Chief Executive Officer
Date: August 12, 2002	/s/ Kathleen C. Hanrahan
	Kathleen C. Hanrahan, Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit Index

10.18	Bank Line of Credit
99.2	Chief Executive Officer Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3	Chief Financial Officer Certification pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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