PROUDLY SUPPORTING HEROES
WHO RISE TO THE CHALLENGE.

Annual Report

13

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or





TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-16391

TASER International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)

86-0741227
(I.R.S. Employer
Identification No.)

17800 North 85th Street
Scottsdale, Arizona
(Address of principal executive offices)

85255
(Zip Code)

Registrant’s telephone number, including area code:
(480) 991-0797
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.00001
par value per share

Name of exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes 

No 
No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes  No 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 

Accelerated filer 

Non-accelerated filer 
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes 

Smaller reporting company 
No 

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the last sales price of the issuer’s common stock on June 28, 2013, which was
the last business day of the registrant’s most recently completed second fiscal quarter, as reported by NASDAQ, was $418.5 million
The number of shares of the registrant’s common stock outstanding as of Feb 28, 2014 was 51,872,391.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for its 2014 annual meeting of stockholders to be prepared and filed with the Securities and Exchange Commission not later than
120 days after December 31, 2013 are incorporated by reference into Part III of this Form 10-K.

1

TASER INTERNATIONAL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013

PART I
Item 1. Business……………………………………………………………………………………………………………
Item 1A. Risk Factors………………………………………………………………………………………………………
Item 1B. Unresolved Staff Comments……………………………………………………………………………………
Item 2. Properties…………………………………………………………………………………………………………
Item 3. Legal Proceedings…………………………………………………………………………………………………
Item 4. Mine Safety Disclosures…………………………………………………………………………………………

5
15
22
22
23
23

PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities………………………………………………………………………………
Item 6. Selected Financial Data…………………………………………………………………………………………
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations……………
Item 7A. Quantitative and Qualitative Disclosures About Market Risk………………………………………………
Item 8. Financial Statements and Supplementary Data………………………………………………………………
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure…………
Item 9A. Controls and Procedures…………………………………………………………………………………………
Item 9B. Other Information…………………………………………………………………………………………………

24
26
27
43
45
78
78
79

Item 5.

PART III
Item 10. Directors, Executive Officers and Corporate Governance……………………………………………………
Item 11. Executive Compensation…………………………………………………………………………………………
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters…………………………………………………………………………………
Item 13. Certain Relationships and Related Transactions, and Director Independence……………………………
Item 14. Principal Accounting Fees and Services………………………………………………………………………
PART IV
Item 15. Exhibits, Financial Statement Schedules………………………………………………………………………

2

80
80
80
80
80

81

PART I
The statements contained in this report that are not historical are “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), including statements regarding our expectations, beliefs, intentions or strategies regarding the future. We intend
that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements relate to, among other things:
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our intentions about future development efforts and activities, including our intentions to invest in research and development as
well as the development of new product and service lines and enhanced features for our existing product and service lines;
expectations relating to new product and service introductions;
our need and willingness of customers to upgrade and replace existing conducted electrical weapons (“CEW”) units;
that we expect legal expenses to decrease in the second half of 2014 and our expected use of the savings arise therefrom;
that we may have more sales denominated in foreign currencies in 2014;
that we will incur software development costs in 2014 that will be eligible to be capitalized;
our intention to increase our investment in the development of sales in the international and law enforcement market;
that sales to private citizens will be a steady contributor to our business in 2014;
our plans to expand our sales force;
that increases in marketing and sales activities will lead to an increase in sales;
our belief that the video evidence capture and management market will grow significantly and the reasons thereto;
our intentions to continue to pursue the personal security market;
our intention to grow direct sales;
the sufficiency of our facilities and our strategy to expand manufacturing capacity if needed;
that we may lease facilities from parties that specialize in handling and manufacturing of firearm materials;
that we will continue to focus on supply chain management;
the benefits of our on-officer camera product compared to an on-car camera;
that we expect to continue to depend on sales of our X2 and X26P CEW devices;
our strategy and plans, and the expected benefits relating thereto, to expand our international sales;
that we expect further increases in our trial EVIDENCE.com programs and that these programs will lead to additional sales;
our intention to apply for and prosecute our patents;
that fixed costs as a percentage of net sales in the EVIDENCE.com & Video segment will decline;
that gross margins in the EVIDENCE.com & Video segment will be lower in the near-term;
that SG&A expense will remain flat or increase;
that research and development expenses will increase in 2014;
the timing of the resolution of uncertain tax positions;
our intention to hold investments to maturity;
the effect of interest rate changes on our annual interest income;
that we may engage in currency hedging activities;
our intentions concerning, and the effectiveness of, our ongoing marketing efforts through web activities, trial programs, and
law enforcement trade shows;
the benefits of our CEW products compared to other lethal and less-lethal alternatives;
our belief that customers will honor multi-year contracts despite the existence of appropriations (or similar) clauses;
our belief that customers will renew their EVIDENCE.com subscriptions at the end of the contractual term;
our insulation from competition and our competitive advantage in the weapons business;
estimates regarding the size of our target markets and our competitive position in existing markets;
the availability of alternative materials and components suppliers;
the benefits of the continued automation of our production process;
the sufficiency and availability of our liquid assets and capital resources, including financing, to fund new and maintain existing
facilities and manufacturing equipment, for research and development and for future investments in markets and products;
our financing and growth strategies, including: our decision not to pay dividends, potential joint ventures, mergers and
acquisitions, stock repurchases and hedging activities;
the safety of our products;
our litigation strategy; including the outcome of legal proceedings in which we are currently involved;
3

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our ability to maintain secure and consistent customer data access and storage, including the use of third party data storage
providers, and the impact of a loss of customer data, a breach of security or an extended outage;
our ability to attract and retain the qualified professional services necessary to implement and maintain our video business, both
through employment and through other partnership arrangements;
the effect of current and future tax strategies;
the impact of recently adopted and future accounting standards; and
the ultimate resolution of financial statement items requiring critical accounting estimates.

These statements are qualified by important factors that could cause our actual results to differ materially from those reflected by the
forward-looking statements. Such factors include, but are not limited to, those factors detailed in ITEM 1A of this annual report
entitled “Risk Factors.” The risks included in the foregoing list are not exhaustive. Other sections of this report may include additional
factors that could adversely affect our business and financial performance. New risk factors emerge from time to time, and it is not
possible for management to predict all such factors, nor can it assess the impact of all such risk factors or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to expectations over time.
TASER International, Inc. owns the following trademarks: ADVANCED TASER, CHECKLOK, TASER, XREP, C2, X2, X3, the
bolt on West Hemisphere logo, the bolt on ball logo, the bolt on circle logo, and the bolt within circle logo, all registered in the United
States. All other trademarks and service marks including M18, M26, X26, X26C, X26P, AXON, AXON flex, AXON body,
Shockwave, TASER CAM and designs belong to TASER International, Inc., except as expressly indicated as belonging to another.

4

Item 1. Business
Overview
TASER International, Inc.’s (the “Company” or “TASER” or “we” or “our”) core mission is to protect life and to protect truth
through technologies that make communities safer. We are the market leader in the development, manufacture and sale of conducted
electrical weapons (“CEWs”) designed for use in law enforcement, military, corrections, private security and personal defense. Since
our inception in 1993, we have remained committed to providing solutions to violent confrontation by developing devices with
proprietary technology to incapacitate dangerous, combative, or high-risk subjects who pose a risk to law enforcement officers,
innocent citizens, or themselves in a manner that is generally recognized as a safer alternative to other uses of force. More recently, to
address challenges faced by law enforcement officers post-incident, we have developed a fully integrated hardware and software
solution to provide our law enforcement customers the capabilities to capture, store, manage, share and analyze video and other digital
evidence.
TASER CEW solutions deliver significant results to our customers and to communities in which they are deployed. Numerous
studies show a significant reduction in both officer and suspect injuries with TASER CEW usage. Further, most reporting agencies
demonstrate overall decreases in use of force and decreases in suspect and officer injuries resulting from conflict. Reducing uses of
force and gaining compliance of the suspect by use of a TASER CEW has provided significant reductions in worker’s compensation
expenses and claims for excessive use of force for law enforcement agencies, and ultimately taxpayers.
Our mission to protect life has also been extended to protect truth. Bringing a subject into custody is not the end of the challenge for
law enforcement. A significant number of incidents that start as a physical conflict then transition into a legal conflict. Prosecuting and
convicting the individual arrested, and responding to excessive use of force allegations, are examples of significant post-incident
challenges law enforcement faces on a continual basis, often requiring years and millions of litigation dollars to resolve in the
courtroom. Instead, the optimum situation is to prevent the conflict from ever escalating. TASER CEWs and AXON on-officer video
have a measured and positive effect on better suspect and officer behavior as well as achieving compliance without escalation of force.
Central to our strategy, we conduct research and develop advanced technologies for both the creation of new, and the enhancement
of existing hardware and software products and services. We believe that delivering high-value solutions through our various product
platforms is the key to delivering compelling value propositions to meet our customers’ needs and to drive our future growth. We
place the highest level of importance on the safety and appropriate use of our products and have established industry leading training
services to provide our users a comprehensive overview of the legal, policy, medical and risk mitigation issues relating to our CEWs
and the use of force.
Our products are sold directly to law enforcement agencies and through a network of distribution channels we developed for selling
and marketing our products and services to law enforcement agencies, primarily in North America, with continuing focus and effort
placed on expanding these programs in international, military and other markets. To facilitate sales and provide customer service to
our European customers, we established TASER International Europe SE, a wholly owned subsidiary, in 2009.
Segments
The Company’s operations are comprised of two reportable segments; the sale of CEWs, accessories and other products and
services (the “TASER Weapons” segment); and the video business, which includes the TASER Cam, AXON Video products and
EVIDENCE.com (the “EVIDENCE.com & Video” segment). Within the EVIDENCE.com & Video segment, the Company includes
only revenues and costs directly attributable to that segment which include: costs of sales for both products and services, direct labor,
selling expense for the segment sales team, segment product management expenses, segment trade shows and related expenses, and
research and development for products included in the EVIDENCE.com & Video segment. All other costs are included in the TASER
Weapons segment. Further information about our reportable segments and sales by geographic region is included in Footnotes 1(p)
and 17 of the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
CEW Products
We make CEWs that use our proprietary Neuro Muscular Incapacitation (“NMI”) effects for two main types of market segments: (i)
the law enforcement, military, corrections and professional security markets; and (ii) the consumer market. Our products use a
replaceable cartridge containing compressed nitrogen to deploy and propel two small probes that are attached to the CEW by insulated
conductive wires with lengths ranging from 15 to 35 feet. Our CEWs transmit electrical pulses along the wires and into the body
5

affecting the sensory and motor functions of the peripheral nervous system. The electric current can penetrate up to two cumulative
inches of clothing or approximately one inch per probe. The basic design is to provide incapacitating effects that last in cycles of five
seconds for our law enforcement, military and corrections products and up to thirty seconds for our consumer market models. This
effect can be extended, if necessary, by the operator.
The benefits of using CEWs in the field have been undeniable and powerful. By some studies, TASER CEWs have prevented death
or serious injury more than 118,000 times from the first deployment in 2000 to the end of 2013. In addition to protecting life, the use
of these devices instead of other force options has substantially reduced injuries for suspects and officers with substantial liability and
workers’ compensation savings to government agencies around the world.
Law Enforcement, Military, Corrections and Professional Security Products
For the law enforcement, military, corrections and professional security markets, we primarily manufacture four hand-held CEW
product lines and have also incorporated our technology into several other product line extensions. Certain of these products are also
sold into the consumer market. Consumer sales are not included in the table below.
Sales (in millions)
CEW Product
TASER X26P
TASER X2
TASER X26
TASER M26

Year
Introduced
2013
2011
2003
1999

$

2013
2012
2011
21.9 $
- $
26.5
25.8
8.1
30.3
35.2
36.6
0.7
0.5
2.4

% of Net Sales
2013
16%
19%
22%
*

2012
*
23%
32%
*

2011
*
9%
41%
3%

* less than 1% of net sales

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TASER X26P - Simple to use one-shot CEW, featuring enhanced data port logs; Integrates with EVIDENCE.com.
TASER X2 - Simple to use CEW. Featuring a second shot for instant miss recovery, dual lasers for high accuracy, a power
magazine with more than 500 firings, enhanced data port logs and the ability to display a warning arc; Integrates with
EVIDENCE.com.
TASER X26 - Simple to use one-shot CEW (sales will be discontinued December 31, 2014).
TASER M26 - First TASER CEW featuring the NMI capability (discontinued sales to North American law enforcement in
2011).

CEW Product Line Extensions
In addition to our primary CEWs, we have developed more innovative methods to deploy our proprietary NMI technology,
increasing the capabilities of our systems and extending the range at which they can be deployed. Our product line extension includes
the TASER eXtended Range Electronic Projectile (“XREP”). The XREP is a self-contained, wireless (non-tethered) CEW that
deploys from a 12-gauge pump-action shotgun. It delivers an impact distraction to the suspect and a similar NMI bio-effect as our X26
handheld CEW, but can be delivered to a maximum effective range of 100 feet.
Consumer Products
Our primary consumer product for the personal defense market is the TASER C2 CEW that provides the same proven NMI
effectiveness as our market leading law enforcement CEWs but in a less intimidating, more compact form at a price point more
attractive to private citizens. While the C2 CEW is our primary product for the consumer market, we have developed consumer
versions of the X2, M26 and X26 CEWs. In 2013, we introduced the TASER StrikeLight, a handheld stun device, integrated with a
high intensity flashlight, at a low price point. Our total consumer products accounted for $4.0 million, $4.6 million and $4.6 million in
the years ended December 31, 2013, 2012, and 2011, respectively, which translates to 3%, 4%, and 5% of net sales, respectively.

6

Cartridges
We manufacture multiple cartridge types for varying ranges and purposes. Types of cartridges include, among others, standard
cartridges, Smart cartridges and training cartridges. Smart cartridges communicate with the fire control system within the TASER X2
and X3 indicating the type of cartridge loaded in each bay and its deployment status. Standard cartridges are designed for use within
the M26, X26 and X26P CEW systems with unique variations for warm and cold climates, training scenarios, and tactical situations.
Training cartridges contain non-conductive wiring, which allows law enforcement, military, and corrections trainers to use the
cartridge during training role-playing scenarios. In addition, cartridges may have varying probe sizes, which affect the penetration of
clothing.
All of our cartridges, with the exception of the training cartridge, contain numerous colored, confetti-like tags bearing the
cartridge’s serial number. These tags, referred to as Anti-Felon Identification tags (“AFIDs”) are scattered when one of our cartridges
is deployed. Sellers of our products participate in the AFID program by registering buyers of our cartridges. In many cases, we can use
AFIDs to identify the registered owner of cartridges deployed. AFIDs provide an additional level of accountability when using
TASER CEW devices.
Individual cartridge sales accounted for approximately $35.7 million, $32.8 million and $25.4 million, or approximately 26%, 29%
and 28%, of our net sales for the years ended December 31, 2013, 2012 and 2011, respectively.
Other Accessories
Other accessories include, among other items:
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a modified battery that shuts down the high voltage output of the CEW after five seconds and contains a built-in speaker
alerting the user to the impending shut down; and
a modified battery source that features a disabling safety key and wrist strap lanyard designed to secure the device to the
officer and is intended to disable the CEW should it be separated from the officer or other peacekeeper.

Video Products
We believe that the video evidence capture and management market will grow significantly in the near future due to several factors
including increasing recognition of the benefits of video evidence. The International Association of Chiefs of Police and other law
enforcement organizations have endorsed the benefits of video evidence. In addition, a Rialto Police Department study through the
University of Cambridge found implementation of TASER video products not only reduced citizen complaints against law
enforcement but also significantly reduced the use of force by law enforcement. Additionally, video evidence in law enforcement has
the potential to reduce the cost to United States (“U.S.”) taxpayers for payment of law enforcement litigation and claims, which is
currently estimated at greater than $2.0 billion per year.
Given our existing long-term relationships with law enforcement agencies as well as our industry-leading video products, we
believe we are well positioned to benefit from this growth. Our products can significantly reduce liability risk for individual police
officers and for law enforcement agencies by capturing the ‘truth’ of what actually happened in an incident, saving law enforcement
agencies significant resources. In addition, our video products work on a stand-alone basis, or seamlessly integrated together, to
automate key workflows, including the ingestion of videos recorded into our system, and improve officer efficiency by enabling a
reduction in report documentation workload while increasing accuracy and accountability.
AXON
The AXON system was introduced in May 2012 and utilizes advanced audio-video record and capture devices worn by first
responders to record video of critical incidents from the visual perspective of the officer. AXON cameras provide the option for
officers to use AndroidTM or iOSTM devices to review and tag video evidence, streamlining the evidence transfer process. AXON flex
provides complete flexibility in how an officer chooses to wear the device, including an option to deploy as an attachment to Oakley
Flak JacketTM eyewear. Thousands of law enforcement officers assisted in the development of AXON flex, making it, we believe, the
most customer-driven officer worn camera solution ever produced.

7

Responding to market feedback, we introduced the AXON body camera in 2013. AXON body is a simple, low-priced body worn
camera for law enforcement, designed for customers seeking easy deployment at a lower price-point. The AXON body eliminates the
need for the camera to be mounted above the shoulder of the individual and rather hooks into the shirt of the officer at mid-chest level.
This camera also eliminates all wires from the wearer’s body.
Both cameras are designed to integrate seamlessly with the Company’s video evidence management system, EVIDENCE.com.
EVIDENCE.com
EVIDENCE.com is a cloud-based digital evidence management system and warehouse, offering digital evidence management,
sharing, analysis and storage in a highly secure, easily accessible environment. The service is designed to allow an agency to manage
all of its digital evidence in one place, and accommodates video from many sources, including TASER products, digital pictures, fixed
cameras, interview rooms, and more. EVIDENCE.com automates key workflows from evidence collection to review, eliminating
expensive and manual steps in the production and movement of evidence among law enforcement and legal professionals. Evidence is
generally transferred to EVIDENCE.com from AXON products using an Evidence Transfer Manager (“ETM”), also sold by TASER.
Interviews and other digital evidence from the field can be quickly and securely uploaded using EVIDENCE Mobile, built for iOS and
Android, which was introduced in 2013. Enabling digital evidence collection from EVIDENCE Mobile saves agencies time and
money by streamlining the process to manage, ingest and physically process storage media. We believe that cloud and mobile
technologies are fundamentally changing the way in which officers connect with each other, the agency and other partners in the law
enforcement community. Technology is developing at such a quick rate that it is often not practical or efficient for agencies to keep
pace. Utilizing our cloud-based solution allows agencies to rapidly adopt new technology without the cost and complexity of
managing the hardware or software in-house, and without the risk of large investments in equipment that could be obsolete in a matter
of months or years.
Together, our AXON camera system and EVIDENCE.com, along with EVIDENCE Mobile, are an end-to-end video capture and
digital evidence management solution. With the launch of the AXON flex camera system in 2012 and the AXON body in 2013,
growth accelerated for AXON and EVIDENCE.com. Bookings by quarter for 2013 and 2012 are as follows:
Year Ended December 31,

Q1
Q2
Q3
Q4

$

Total

$

2013
1,387
2,046
5,847
5,206
14,486

2012
$
352
451
1,318
1,671

Dollar
Change
$
1,035
1,595
4,529
3,535

$

$

3,792

10,694

Percent
Change
294 %
354
344
212
282

AXON flex, AXON body and EVIDENCE.com bookings is a statistical measure defined as the sales price of orders placed in the
relevant fiscal period. Bookings are an indication of the activity the Company is seeing relative to AXON flex, AXON body and
EVIDENCE.com.
The Company has deliverables to meet prior to recognizing revenue related to many of the orders. These statistics represent orders
and not invoiced sales. Once invoiced, the revenue related to EVIDENCE.com is recognized over the requisite service period of one
to five years. Due to municipal government funding rules, certain of the future year amounts included in bookings are subject to
budget appropriation or other contract cancellation clauses. Although TASER has entered into contracts for the delivery of products
and services in the future and anticipates the contracts will be completed, if agencies do not appropriate money in future year budgets,
or enact a cancellation clause, revenue associated with these bookings will not ultimately be recognized, resulting in a future reduction
to bookings.

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TASER Cam HD
The TASER Cam HD is a video recording device that captures both video and audio of potential and actual TASER use incidents as
an accessory to a TASER CEW. The device can capture video and audio before, during and after a TASER deployment, which
provides law enforcement with a greater level of accountability to support their use of TASER devices against a resistant subject. The
TASER Cam HD is capable of recording in low light conditions, has a wide field of view, high resolution and color video. A nonaudio version of the device is also available for agencies operating in states where legislation prohibits the use of audio recordings.
Revenue related to the TASER Cam HD was $4.7 million, $3.1 million and $2.2 million in the years ended December 31, 2013, 2012
and 2011, respectively.
Product Warranties
We generally warranty CEWs, StrikeLight, AXON cameras and ETMs from manufacturing defects on a limited basis for a period of
one year after purchase and thereafter, will replace any defective unit for a fee which covers the handling and repair costs and includes
a profit. We believe this policy is attractive to customers.
The Company also offers customers the right to purchase extended warranties, which provide additional coverage beyond the
limited warranty, ranging from one to five years, offered at specified fees. The sales of extended warranties give customers a level of
cost certainty that they would not have without an extended warranty. At December 31, 2013, 2012 and 2011, the balance of deferred
revenue was $15.9 million, $10.8 million and $7.2 million under this program, respectively. The revenue associated with the extended
warranties will be recognized over the extended warranty period.
Markets
Law Enforcement and Corrections
Our primary target market for both our weapon and video products is federal, state and local law enforcement agencies in the U.S.
and throughout the world. In the law enforcement market, more than 17,000 law enforcement agencies in nearly 150 countries have
made initial purchases of our TASER brand devices for testing or deployment. Our belief is that in the U.S., approximately one half
of all law enforcement patrol officers carry a TASER CEW and internationally, approximately one out of every fifty eligible law
enforcement officers carries a TASER CEW.
We continue to educate correctional facility personnel, as well as parole and probation field officers, regarding the benefits of using
TASER brand products and we have developed training programs and command staff demonstrations specific to the corrections
market. Our TASER devices are deployed in multiple county and state correctional facilities in the U.S.
Military Forces, U.S. and Foreign Allies
TASER CEW devices continue to be deployed in support of key strategic military operations in locations around the world. We
continue our focus initiative on supporting our military customers. The former head of the U.S. Military Joint Non-Lethal Weapons
Directorate is our Vice President of Government and Military Programs, and we meet regularly with our Senior Executive Advisory
Board, comprised of a team of professionals with extensive military, homeland defense and law enforcement experience, with the
purpose of advising on business models in support of federal law enforcement and military users.
Private Security
We continue to pursue opportunities for sales of TASER CEW devices in private security markets; however, we have made limited
sales to date. Private security officers represent a broad range of individuals, including contract security patrol, healthcare, gaming,
retail security employees and many others. Similar to our other emerging markets, we have developed training programs and
demonstrations specific to the industry by meeting with several large corporate and private patrol security companies to discover their
unique needs. We also attend several private security tradeshows, conferences and industry association meetings to generate a
presence in this market space.

9

Private Citizen / Personal Protection
Our primary consumer product for personal defense is the TASER C2 personal protection device, a CEW specifically designed for
the private citizen market. We have also developed consumer versions of the X2, M26, and X26 CEWs. Further, in 2013 we
introduced the StrikeLight, a simple stun device integrated with a high-intensity flashlight. We continue to explore alternatives to
generate more consumer sales.
Sales and Marketing
Law enforcement, federal/military and corrections represent our primary target markets. In each of these markets, the decision to
purchase TASER CEWs, AXON video products or EVIDENCE.com is normally made by a group of people, including the agency
head, municipal information technology departments, the agency’s training staff and agency weapons experts. Depending on the size
and cost of the device deployment and local procurement rules and customs, the decision may involve political decision-makers such
as city council members or the federal government. The decision-making process can take as little as a few weeks or as long as several
years. Although we have focused on three primary markets, we have been able to expand our customer base to hundreds of thousands
of end users within these markets. We currently have a presence in more than 17,000 law enforcement agencies.
We have used multiple types of media to communicate the benefits of acquiring and deploying our products. These campaigns have
included the development of on-line educational campaigns geared toward law enforcement leaders in the community, web and print
advertisements in law enforcement publications, the use of training classes conducted around the world, and more recently, in the case
of the TASER X2 and X26P, an integrated online media launch including trade-in programs on used TASER devices. During the first
quarter of 2014, we will host a technology summit at our Scottsdale headquarters during which our employees, customers and
potential customers will conduct forums to discuss, educate and promote the benefits of cloud computing and wearable technology. A
similar event was held in 2013. We also target key regional and national law enforcement trade shows where we can demonstrate our
products to leading departments. In 2013, we attended and exhibited at many of the major regional, national and international law
enforcement trade shows. We also held our annual TASER Conference as part of our certified master instructor school, the continued
focus of which was to train the officers in the use of all of the latest CEWs and other new products.
TASER maintains a corporate website for TASER.com and a website for EVIDENCE.com designed to deliver benefit-driven
messages and to drive follow up by TASER or one of our distribution partners. We also maintain foreign-language sites for nonEnglish speakers around the world, including French, Portuguese, German and Spanish, with the same goals to provide information
and education on our products and services in a local language. We plan to continue investment in web activities and law enforcement
trade shows and conferences in 2014, as it provides us the ability to market our products to our target audience. We believe these types
of activities accelerate penetration of our TASER product lines in each market, which should lead to increased visibility in both the
private security and private citizen markets and reinforce the value of these devices for self-defense.
U.S. Distribution
The Company sells directly to law enforcement agencies in the U.S. as well as through a distribution network. In addition, we have
one U.S. military and federal government contracting distributor. Distributors are selected based upon their reputation within their
respective industries, their contacts and their distribution network. Our regional sales managers work closely with the distributors in
their territory to inform and educate the law enforcement communities. We continue to monitor our law enforcement distributors
closely to help ensure that our service standards are achieved. Where appropriate, we intend to grow our direct sales over time.
Distributors often allow us to penetrate regions at lower fixed costs; however, direct sales allow us greater control over the customer
relationship.
Sales in the private citizen market are primarily made through our commercial distributors and our website. We have implemented a
variety of marketing initiatives to support sales of our consumer products, with a focus on web, public relations and consumer trade
shows. We have consulted with professional digital media and public relations professionals to assist us in media and press events, and
editorial placements along with attending numerous tradeshows specifically to target the consumer market.
International Distribution
We market and distribute our products to foreign markets primarily through a network of distributors. For geographical and cultural
reasons, our distributors usually have a territory defined by their country’s borders. These distributors market both our law
enforcement, military, and corrections products, and our consumer products where allowed by law.
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Our distributors work with local law enforcement, military and corrections agencies in the same manner as our domestic market
distributors. For example, they may perform demonstrations, attend industry tradeshows, maintain country specific websites, engage
in print advertising and arrange training classes.
Training Programs
Most law enforcement, military, security and corrections agencies will not purchase new weapons until a training program is in
place to instruct and certify personnel in their proper use. TASER maintains a robust training program and conducts a variety of
classes valuable to the users of our products. Attendance at our courses generally requires a fee which varies depending upon course
content. For the years ended December 31, 2013, 2012 and 2011, training revenue was $1.9 million, $2.2 million and $2.1 million,
respectively.
To coordinate the growing demands of our training programs, we created a Training Advisory Board. This board annually reviews
the qualifications of the master instructors, and provides retraining or certification as required. In addition, the Training Advisory
Board oversees the trainers and curriculum to ensure that new information is properly communicated and implemented. We also
created the designation of Senior Master Instructor whose primary duties are to perform quality control checks on Master Instructors
during instructor courses and to help instruct at the Master Instructor School. As of December 31, 2013, 26 experienced individuals
hold the designation of Senior Master Instructors based on their exemplary performance as Master Instructors.
CEW Courses Offered:


Instructor Training: An approximately 20 hour class that certifies law enforcement, military, corrections and security agency
trainers as Instructors in the use of TASER CEWs.



Master Instructor School: Attendees that successfully complete this course become certified as Master Instructors. Master
Instructors are independent professional trainers, serve as local area TASER experts, and assist in conducting TASER
demonstrations at other police departments within their regions. As of December 31, 2013, 809 individuals hold current
certifications as Master Instructors.



CEW User Training: A 4 hour on-line course is available to law enforcement, military and security personnel that satisfy the
classroom and knowledge assessment portions of the user certification course. Agency instructors must still put students
through a series of drills and hands-on exercises.



TASER Technical Solutions and Investigations Course: The purpose of this course is to train agencies on the proper care and
preventative maintenance of TASER devices and to train those who are responsible for investigating crime scenes and use of
force events.



TASER Use of Force, Risk Management and Legal Strategies Seminar: The purpose of this course is to educate law
enforcement executives, risk managers, and legal and medical advisors on topics relevant to TASER CEWs.



Private Citizen Training: In 2011, we launched a new online training course for consumer instructors. This course focuses
on non-law enforcement private self-defense training schools that have expressed a desire to include TASER consumer
products in their courses.

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Video Systems Courses Offered:
With the release of the AXON flex on-officer audio and video recording system in 2012, we developed new courses and incorporated
the AXON cameras as an integral part of all CEW Instructor and Master Instructor courses.


AXON User and Instructor training: This training is provided to agencies that purchase AXON units either for deployment
or for a test and evaluation.



Digital Evidence Management Course: Designed to educate information technology personnel and those who will be
administrators of EVIDENCE.com accounts. This course covers cloud computing, data security, best practices in on-officer
video, legal issues, and set up and management of EVIDENCE.com.

Manufacturing

We perform light manufacturing, final assembly, and final test operations at our headquarters in Scottsdale, Arizona, and own
substantially all of the equipment required to develop, prototype, manufacture and assemble our finished products. This includes
critical injection molds, schematics, automation equipment, test equipment and prototypes utilized by our supply chain for the
conversion of raw materials into sub-assemblies. We have implemented lean/six sigma methodologies to optimize all direct and
indirect resources within the organization, which has helped boost capacity for existing products, as well as provide flexibility to
accommodate production of new TASER product introductions. We are currently operating a single production shift; however, other
capacity options, including the use of multiple shifts, will be considered should we experience higher demand resulting from large
orders of legacy or new product releases. We continue to maintain our ISO 9001 certification.
Our XREP product is considered a firearm due to the propellant used to launch the projectile from the device. We have a Class 7
Federal Firearms license to manufacture, store and sell XREP and related products. We have previously, and may again in the future,
leased facilities from a local third party who specializes in defense products and provides facilities, ensuring compliance to required
firearm and dangerous good standards.
We constantly seek opportunities to invest in automated equipment for the continuous improvement of product quality and
reduction of manufacturing costs. As a result, we have implemented a number of equipment initiatives including the purchase and
integration of robotic equipment, computerized laboratory and medical testing equipment, machining and tooling equipment, as well
as sophisticated modeling equipment for our research and development. We have a highly automated cartridge assembly line which
improves both our production capacity and yields while significantly improving efficiency over what was previously a very laborintensive manufacturing process.
In 2011, we automated the gathering of our test data. We now have the ability to review real-time test data from our in-process test
equipment as well as our equipment based at suppliers. This allows us to recognize and correct processing issues before they move
out of control limits, reducing rework and scrap costs, as well as improving supplier quality and internal productivity.
Supply chain management has been, and will continue to be, a focus of ours. We presently purchase completed printed circuit board
assemblies and components primarily from suppliers located in the U.S., along with selective strategic relationships internationally.
Although we currently obtain plastic components from an outside supplier base, we own all the designs and tooling. We believe there
are readily available qualified alternative suppliers in most cases who can consistently meet our needs for these components. We
continue to develop and implement policies to mitigate supply chain risk and ensure continuity of supply, while maintaining
efficiencies at all levels within the organization.
Competition
Law Enforcement, Corrections and Private Security Markets
Law enforcement customers partner with TASER for the long-term. The primary competitive factors in the law enforcement and
corrections market include a weapon’s accuracy, effectiveness, safety, cost, ease of use and an exceptional customer experience.
Stinger Systems introduced an electronic device in 2007 to compete with the TASER X26; however, they had limited success before
going out of business in 2010. Stinger Systems subsequently sold its assets to Karbon Arms. We are not aware of any significant sales
to date by Karbon Arms. We were granted summary judgment in a patent infringement claim against Stinger Systems and an
12

injunction was issued against Stinger Systems in August 2010. In July of 2011, we filed a complaint against Karbon Arms, LLC for
infringement of U.S. patent numbers 7,800,855 and 7,782,592 in U.S. District Court for the District of Delaware seeking damages,
injunctive relief and an award of attorney’s fees. Karbon Arms filed a counter suit on July 18, 2011, alleging invalidity and noninfringement of four of TASER’s patents, tortuous interference with prospective contractual relations and for false advertising under
the Lanham Act. In January 2014, TASER and Karbon Arms agreed to a permanent injunction against Karbon Arms after it was
decreed that Karbon Arms infringed on the aforementioned patents. The permanent injunction restrains and enjoins Karbon Arms and
its current and former officers, agents, directors, employees, and affiliates and those persons in participation with them who received
actual notice of the injunction from making, using, offering to sell or selling the Karbon Arms MPID and MPID-C or supplying a
substantial portion of the components that are used in the Karbon Arms devices. We believe that our strong relationship with our
customers, our large installed base of products, the significant amount of medical and safety testing already performed on our
products, our world-class customer service and other support we provide to customers provides us with a strong competitive
advantage. In some international markets, our CEWs face local competition.
We also believe our CEWs compete indirectly with a variety of other non-lethal alternatives. These alternatives include, but are not
limited to, pepper spray, batons and impact weapons sold by companies such as Defense Technology. We believe our TASER brand
devices’ advanced technology, versatility, portability, effectiveness, built-in accountability systems, and low injury rate enable us to
compete effectively against these other less-lethal alternatives.
Military Market
In the military markets, both in the U.S. and abroad, a wide variety of weapon systems are utilized to accomplish the mission at
hand. CEWs have gained increased acceptance as a result of the policing role of military personnel in the conflicts in both Iraq and
Afghanistan. There has also been an increased awareness of the use of non-lethal weapons as a way to preserve human intelligence.
TASER CEWs give our armed forces a means to capture or immobilize targets without using lethal force. We are the only supplier
providing CEWs to these military agencies. However, there is indirect competition from pepper spray, batons and impact weapons
sold by companies such as Defense Technology.
Private Citizen Market
CEWs have gained limited acceptance in the private citizen market. These devices primarily compete with guns, but also with other
less lethal weapons such as chemical spray. The primary competitive factors in the private citizen market include a weapon’s cost,
effectiveness, safety and ease of use.
Video Evidence Market
The video evidence capture and management market segment is a highly fragmented and competitive market amongst companies.
In the video evidence capture market segment, there are existing companies with an established presence. Continued evolution in the
industry and technology shifts are creating opportunities for both established and new competitors. Key competitive factors include:
product performance; product features; product quality and warranty; total cost of ownership; data and information work flows;
company reputation and financial strength; and relationship with customers. We believe our AXON products, which place the camera
directly on-officer at a much lower total cost of ownership than a traditional in-car camera, overcome some of the inherent limitations
of an in-car system. We believe that placing the camera on the officer creates a paradigm shift that will ultimately overtake the
majority of the in-car camera market.
Our digital evidence management system, EVIDENCE.com, is a cloud-based platform. Cloud computing fundamentally changes the
way local, state and federal government agencies will develop and deploy software applications. Applications used by these agencies
have historically required the agency to deploy their own infrastructure of servers, storage, network devices and operating systems.
With a cloud-based system, the entire infrastructure is managed by third parties who specialize in infrastructure management.
Agencies use the internet to access the application. Our cloud-based EVIDENCE.com service enables agencies to store, manage and
analyze video evidence. We believe our end-to-end solution of AXON and EVIDENCE.com is a compelling value proposition for
law enforcement agencies to implement.

13

Regulation
U.S. Regulation
The majority of TASER weapons, as well as the cartridges used by these devices, are subject to regulations; however, most are not
considered to be a “firearm” by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives. The TASER XREP does use a
propellant system which falls under the definition of a “firearm” and is, therefore, subject to federal firearms-related regulations.
Many states have regulations restricting the sale and use of stun guns, hand-held shock devices and electronic weapons. We believe
existing stun gun laws and regulations apply to our devices.
In many cases, the law enforcement and corrections market is subject to different regulations than the private citizen market. Where
different regulations exist, we assume the regulations affecting the private citizen market also apply to the private security markets,
except as the applicable regulations otherwise specifically provide.
As of December 31, 2013, the possession of stun guns by the general public, including TASER CEWs, is prohibited in six states:
District of Columbia, Hawaii, Massachusetts, New Jersey, New York, and Rhode Island. Some cities and municipalities also prohibit
private citizen possession or use of our products.
We are also subject to environmental laws and regulations, including restrictions on the presence of certain substances in electronic
products. Reference is made to Section 1A, Risk Factors under the heading “Environmental laws and regulations subject us to a
number of risks and could result in significant liabilities and costs”.
EVIDENCE.com is subject to government regulation of the internet in many areas, including telecommunications, data protection,
user privacy and online content.
U.S. Export Regulation
CEWs are considered a crime control product by the U.S. government. Accordingly, the export of our devices is regulated under
export administration regulations. As a result, we must obtain export licenses from the Department of Commerce for all shipments to
foreign countries other than Canada. Most of our requests for export licenses have been granted, and the need to obtain these licenses
has not caused a material delay in our shipments. Export regulations also prohibit the further shipment of our products from foreign
markets in which we hold a valid export license to foreign markets in which we do not hold an export license for our products.
The Department of Commerce restricts the export of technology used in our CEWs. These regulations apply to both the technology
incorporated in our CEW systems and to the processes used to produce them. The technology export regulations do not apply to
production that takes place within the U.S. but is applicable to some sub-assemblies and controlled items manufactured outside the
U.S.
Foreign Regulation
Foreign regulations, which may affect our devices, are numerous and often unclear. We prefer to work with a distributor who is
familiar with the applicable import regulations in each of our foreign markets. Experience with foreign distributors in the past
indicates that restrictions may prohibit certain sales of our products in a number of countries. The vast majority of countries permit
TASER devices to be sold and used by law enforcement. We rely on our distributors to inform us of those countries where the TASER
device is prohibited or restricted.
Intellectual Property
We protect our intellectual property with U.S. and foreign patents and trademarks. Our patents and pending patent applications
relate to technology used by us in connection with our products. We also rely on international treaties, organizations and foreign laws
to protect our intellectual property. As of December 31, 2013, we hold 85 U.S. patents and 82 foreign patents and also have numerous
patents and trademarks pending. We continuously assess whether and where to seek formal protection for particular innovations and
technologies based on such factors as the commercial significance of our operations and our competitors’ operations in particular
countries and regions, our strategic technology or product directions in different countries and the degree to which intellectual
property laws exist and are meaningfully enforced in different jurisdictions.

14

Confidentiality agreements are used with employees, consultants and key suppliers to help ensure the confidentiality of our trade
secrets.
TASER has the exclusive rights to many internet domain names primarily including ‘TASER.com’ and ‘EVIDENCE.com.’
Research and Development
Our research and development initiatives focus on next generation technology. Internally funded research has been primarily
focused on improvements to existing TASER products, or the development of new applications for TASER technology that we
believe generally will have broad market appeal. Our investment in internally funded research and development totaled $9.9 million,
$8.1 million and $10.0 million in 2013, 2012, and 2011, respectively.
In the fourth quarter of 2013, we announced the acquisition of Familiar, Inc. The Familiar team of application developers will
conduct research and development initiatives for cloud applications and mobile technologies in law enforcement, focused specifically
on new revenue opportunities that align with the EVIDENCE.com platform strategy. The Company plans to continue to invest in
additional research and development within the EVIDENCE.com & Video segment with a focus on continuous improvement,
additional functionality for existing products and next generation product lines.
Within the TASER Weapons segment, current research and development initiatives include bio-medical research and electrical,
mechanical and software engineering. We expect that future CEW development projects will focus on extending the range, improving
the functionality and developing new delivery options for our products.
Our return on investment is intended to be realized over the long term, although new systems and technologies often can have a
more immediate impact on our business.
Employees
As of December 31, 2013, we had 379 full-time employees and 106 temporary employees. The breakdown of our full-time
employees by department is as follows: 146 direct manufacturing employees and 233 administrative and manufacturing support
employees. Of the 233 administrative and manufacturing support employees, 81 were involved in sales, marketing, communications
and training. Of the 106 temporary employees, more than 92% worked in direct manufacturing roles. Our employees are not covered
by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our relations with our
employees are good.
Available Information
We were incorporated in Arizona in September 1993 as an ICER Corporation. We changed our name to AIR TASER, Inc. in
December 1993 and to TASER International, Incorporated in April 1998. In January 2001, we reincorporated in Delaware as TASER
International, Inc.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our
website at http://www.TASER.com as soon as reasonably practicable after we electronically file such material with, or furnish such
material to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
Item 1A. Risk Factors
Because of the following factors, as well as other variables affecting our operating results, our past financial performance may not
be a reliable indicator of our future performance and historical trends should not be used to anticipate our results or trends in future
periods.

15

We are materially dependent on acceptance of our products by the law enforcement, both domestic and international, and
federal markets. If law enforcement agencies do not continue to purchase our products, our revenues will be adversely
affected.
A substantial number of law enforcement and corrections agencies may not purchase our CEWs or video products. Law
enforcement and corrections agencies may be influenced by claims or perceptions that CEWs, such as our products, are unsafe or may
be used in an abusive manner. In addition, earlier generation CEWs may have been perceived as ineffective. Sales of our products to
these agencies may be delayed or limited by these claims or perceptions.
We substantially depend on sales of our TASER X26, X26P and X2 CEWs, and if these products do not continue to be widely
accepted, our growth prospects will be diminished.
In the years ended December 31, 2013, 2012 and 2011, we derived our revenues predominantly from sales of TASER CEW brand
devices and related cartridges, and expect to depend on sales of these products for the foreseeable future. We are seeing a large
number of customers upgrade their devices to the X2 or the new X26P device, which we introduced in 2011 and 2013, respectively.
This is a trend we expect to continue. A decrease in the prices of, or demand for these products, or their failure to maintain broad
market acceptance, would significantly harm our growth prospects, operating results and financial condition.
The success of our EVIDENCE.com Software-as-a-Service (“SaaS”) delivery model is materially dependent on acceptance of
this business model by our law enforcement customers. Delayed or lengthy time to adoption by law enforcement agencies will
negatively impact our sales and profitability.
A substantial number of law enforcement agencies may be slow to adopt our EVIDENCE.com digital data evidence management
and storage solution, requiring extended periods of trial and evaluation. The hosted service delivery business model is not presently
widely adopted by our law enforcement customer base. As such, the sales cycle has additional complexity with the need to educate our
customers and address issues regarding agency bandwidth requirements, data retention policies, data security and chain of evidence
custody. Delays in successfully securing widespread adoption of EVIDENCE.com services could adversely affect our revenues,
profitability and financial condition.
If we are unable to design, introduce and sell new products or new product features successfully, our business and financial
results could be adversely affected.
Our future success will depend on our ability to develop new products or new product features that achieve market acceptance in a
timely and cost-effective manner. The development of new products and new product features is complex, time consuming and
expensive, and we may experience delays in completing the development and introduction of new products. We cannot provide any
assurance that products that we may develop in the future will achieve market acceptance. If we fail to develop new products or new
product features on a timely basis that achieve market acceptance, our business, financial results and competitive position could be
adversely affected.
Delays in product development schedules may adversely affect our revenues.
The development of software products such as EVIDENCE.com is a complex and time-consuming process. New products and
enhancements to existing products can require long development and testing periods. Our increasing focus on our SaaS platform also
presents new and complex development issues. Significant delays in new product or service releases or significant problems in
creating new products or services could adversely affect our revenue.
We face risks associated with rapid technological change and new competing products.
The technology associated with law enforcement devices is receiving significant attention and is rapidly evolving. While we have
patent protection in key areas of our CEW, video and SaaS technology, it is possible that new technology may result in competing
products that operate outside our patents and could present significant competition for our products which could adversely affect our
revenue.

16

Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and
damage to our reputation.
Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any
point in the life of the product. Defects in our products may result in a loss of sales, delay in market acceptance and damage to our
reputation and increased warranty costs, which could have a material adverse effect on profitability and financial condition.
If our security measures are breached and unauthorized access is obtained to customers’ data or our data, our service may be
perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial
exposure and liabilities.
Our service involves the storage and transmission of customers' proprietary information, and security breaches could expose us to a
risk of loss of this information, litigation and possible liability. We devote significant resources to engineer secure products and ensure
security vulnerabilities are mitigated. Despite these efforts, security measures may be breached as a result of third-party action,
employee error, and malfeasance or otherwise. Breaches could occur during transfer of data to data centers or at any time, and result in
unauthorized access to our data or our customers' data. Third parties may attempt to fraudulently induce employees or customers into
disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our
customers' data. Additionally, hackers may develop and deploy viruses, worms, and other malicious software programs that attack or
gain access to our networks and data centers. Because the techniques used to obtain unauthorized access, or to sabotage systems,
change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or
to implement adequate preventative measures. Any security breach could result in a loss of confidence in the security of our service,
damage our reputation, lead to legal liability and negatively impact our future sales.
Interruptions or delays in service from our third-party cloud storage providers for our EVIDENCE.com service, or the loss or
corruption of digitally stored evidence, would impair the delivery of our service and harm our business.
We currently serve our EVIDENCE.com customers from third-party cloud storage providers based in the U.S. and other
countries. Interruptions in our service, or loss or corruption of digital evidence, may reduce our revenue, cause us to issue credits or
pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new
customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable.
Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent sales.
Most of our end-user customers are government agencies. These agencies often do not set their own budgets and therefore, have
limited control over the amount of money they can spend. In addition, these agencies experience political pressure that may dictate the
manner in which they spend money. As a result, even if an agency wants to acquire our products, it may be unable to purchase them
due to budgetary or political constraints, particularly in challenging economic environments. Currently, many governmental agencies
are continuing to experience severe budgetary constraints. There can be no assurance that the economic and budgeting issues will not
worsen and adversely impact sales of our products. Some government agency orders may also be canceled or substantially delayed
due to budgetary, political or other scheduling delays which frequently occur in connection with the acquisition of products by such
agencies and such cancellations may accelerate or be more severe than we have experienced historically as a result of the current
economic environment.
Due to municipal government funding rules, certain of our contracts are subject to appropriation (or similar) clauses, which
could allow our customers to cancel contracts in the future.
Although TASER has entered into contracts for the delivery of products and services in the future and anticipates the contracts will
be completed, if agencies do not appropriate money in future year budgets, or if other cancellation clauses are invoked, revenue
associated with these bookings will not ultimately be recognized, and result in a reduction to bookings.
We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.
Generally, law enforcement and corrections agencies consider a wide range of issues before committing to purchase our products,
including product benefits, training costs, the cost to use our products in addition to, or in place of, other products, budget constraints
and product reliability, safety and efficacy. The length of our sales cycle may range from a few weeks to as long as several years.
Adverse publicity surrounding our products or the safety of such products has in the past, and could in the future, lengthen our sales
17

cycle with customers. In the past, we believe that the Company’s sales were adversely impacted by negative publicity surrounding our
products or the use of our products. We may incur substantial selling costs and expend significant effort in connection with the
evaluation of our products by potential customers before they place an order. If these potential customers do not purchase our
products, we will have expended significant resources and received no revenue in return.
SaaS revenue for EVIDENCE.com is recognized over the terms of the contracts, which may be several years, and, as such,
trends in new business may not be immediately reflected in our operating results.
Our SaaS product revenue is generally recognized ratably over the terms of the contracts, which generally range from one to five
years. As a result, most of the SaaS revenue we report each quarter is the result of agreements entered into during previous quarters.
Consequently, current positive or negative trends in this portion of our business may not be reflected in our revenue results for several
periods.
We may face personal injury, wrongful death and other liability claims that harm our reputation and adversely affect our
sales and financial condition.
Our CEW products are often used in aggressive confrontations that may result in serious, permanent bodily injury or death to those
involved. Our CEW products may be associated with these injuries. A person, or the family members of a person, injured in a
confrontation or otherwise in connection with the use of our products may bring legal action against us to recover damages on the
basis of theories including wrongful death, personal injury, negligent design, defective product or inadequate warning. We are
currently subject to a number of such lawsuits and we have recently been subject to significant adverse judgments and settlements. We
may also be subject to lawsuits involving allegations of misuse of our products. If successful, wrongful death, personal injury, misuse
and other claims could have a material adverse effect on our operating results and financial condition and could result in negative
publicity about our products. Although we carry product liability insurance, we do incur significant legal expenses within our selfinsured retention in defending these lawsuits and significant litigation could also result in a diversion of management’s attention and
resources, negative publicity and a potential award of monetary damages in excess of our insurance coverage. The outcome of any
litigation is inherently uncertain and there can be no assurance that our existing or any future litigation will not have a material adverse
effect on our revenues, our financial condition or financial results.
Other litigation may subject us to significant litigation costs and judgments and divert management attention from our
business.
We have been or could be in the future involved in numerous other litigation matters relating to our products, including litigation
against persons who we believe have infringed on our intellectual property, litigation against a competitor and litigation with a former
distributor. Such matters have resulted, and are expected to continue to result in, substantial costs to us and some diversion of our
management’s attention, which could adversely affect our business, financial condition or operating results. There is also a risk of
adverse judgments, as the outcome of litigation is inherently uncertain.
If we are unable to protect our intellectual property, we may lose our competitive advantage or incur substantial litigation
costs to protect our rights. We may be subject to intellectual property infringement claims, which could cause us to incur
litigation costs and divert management attention from our business.
Our future success depends upon our proprietary technology. Our protective measures, including patents, trademarks, copyrights,
trade secret protection, and internet identity registrations, may prove inadequate to protect our proprietary rights and market
advantage. The right to stop others from misusing our trademarks and service marks in commerce depends, to some extent, on our
ability to show evidence of enforcement of our rights against such misuse in commerce. Our efforts to stop improper use, if
insufficient, may lead to loss of trademark and service mark rights, brand loyalty and notoriety among our customers and prospective
customers. The scope of any patent to which we have or may obtain rights to may not prevent others from developing and selling
competing products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions,
and the resolution of such claims may be highly uncertain, lengthy and expensive. In addition, our patents may be held invalid upon
challenge, or others may claim rights in or ownership of our patents. Moreover, we are subject to litigation with parties that claim,
among other matters, that we infringed their patents or other intellectual property rights. The defense and prosecution of patent and
other intellectual property claims are both costly and time consuming and could result in a material adverse effect on our business and
financial position.

18

Also, any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend
and divert our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights, we
could be forced to enter into costly royalty or licensing agreements in order to be able to sell our products or discontinue use of the
protected technology. Such royalty and licensing agreements may not be available on terms acceptable to us or at all. There is no
guarantee that our use of conventional technology searching and brand clearance searching will identify all potential rights holders.
Rights holders may demand payment for past infringements and/or force us to accept costly license terms or discontinue use of
protected technology and/or works of authorship that may include, for example, photos, videos, and software. Our current research
and development focus on developing software-based products increases this risk.
If we face competition in foreign countries, we can enforce patent rights only in the jurisdictions in which our patent
applications have been granted.
Our U.S. patents protect us from imported infringing products coming into the U.S. from abroad. Applications for patents in a few
foreign countries have been made; however, these may be inadequate to protect markets for our products in other foreign countries.
Each foreign patent is examined and granted according to the law of the country where it was filed independent of whether a U.S.
patent on similar technology was granted. A patent in a foreign country may be subject to cancellation if the claimed invention has not
been sold in that country. Meeting the requirements of working the invention differs by country and ranges from sales in the country
to manufacturing in the country. U.S. export law, or the laws of some foreign countries, may prohibit us from satisfying the
requirements for working the invention, creating a risk that some of our foreign patents may become unenforceable.
Government regulations applied to our CEW products may affect our markets for and sales of these products.
We rely on the opinions of the Bureau of Alcohol, Tobacco and Firearms, including the determination that a device that has
projectiles propelled by the release of compressed gas in place of the expanding gases from ignited gunpowder, are not classified as
firearms. Changes in statutes, regulations, and interpretation outside of our control may result in our products being classified or
reclassified as firearms. Our private citizen market could be substantially reduced if consumers are required to obtain a registration to
own a firearm prior to purchasing our products.
Federal regulation of sales in the U.S.: With the exceptions of the TASER XREP, our CEWs are not firearms regulated by the U.S.
Bureau of Alcohol, Tobacco, Firearms and Explosives, but our consumer products are regulated by the U.S. Consumer Product Safety
Commission. Although there are currently no Federal laws restricting sales of our core CEW products in the U.S., future Federal
regulation could adversely affect sales of our products.
Federal regulation of international sales: Our CEW devices are considered a “crime control” product by the U.S. Department of
Commerce (“DOC”) for export directly from the U.S.. Consequently, we must obtain an export license from the DOC for the export of
our CEW devices from the U.S. other than to Canada. In addition, certain of our camera and software products require classifications
from the DOC before they may be shipped internationally. Our inability to obtain DOC export licenses or classifications on a timely
basis for sales of our products to our international customers could significantly and adversely affect our international sales.
State and local regulation: Our devices are controlled, restricted or their use prohibited by a number of state and local governments.
Our devices are banned from private citizen sale or use by statute in six states: District of Columbia, Hawaii, Massachusetts, New
Jersey, New York, and Rhode Island. Some cities and municipalities also prohibit private citizen possession or use of our products.
Other jurisdictions may ban or restrict the sale of our products and our product sales may be significantly affected by additional state,
county and city governmental regulation.
Foreign regulation: Certain foreign jurisdictions prohibit the importation, sale, possession or use of CEWs, limiting our
international sales opportunities.
We face unique regulatory and political challenges presented by international markets.
Our international business, including any expansion in new international markets, may be adversely affected by local laws and
customs and U.S. laws applicable to foreign operations, including the Foreign Corrupt Practices Act.
Risks inherent in international operations also include, among others:

19










Foreign countries could change laws and regulations, change tax structures, or impose currency restrictions and other
restraints;
Risks associated with the Foreign Corrupt Practices Act and local anti-bribery law compliance; 
Political changes and economic crises may lead to changes in the business environment in which we operate;
Local distributors of our products may not comply with existing laws and regulations;
Some countries impose burdensome tariffs and quotas; and
Economic sanctions may be imposed on some countries, which could disrupt the markets for products we sell, even if we do
not sell in the target country.

Environmental laws and regulations subject us to a number of risks and could result in significant liabilities and costs.
We are subject to various state, federal and international laws and regulations governing the environment, including restricting the
presence of certain substances in our products and making producers for those products financially responsible for the collection,
treatment, recycling and disposal. Environmental legislation within the European Union (“EU”) may increase our cost of doing
business internationally and impact our revenues from EU countries as we comply with and implement these requirements.
The EU has published Directives on the restriction of certain hazardous substances in electronic and electrical equipment (the
“RoHS Directive”) and on electronic and electrical waste management (the “WEEE Directive”). The RoHS Directive restricts the use
of a number of substances, including lead. The WEEE Directive directs members of the EU to enact laws, regulations, and
administrative provisions to ensure that producers of electric and electronic equipment are financially responsible for the collection,
recycling, treatment and environmentally responsible disposal of certain products sold into the EU. In addition, similar environmental
legislation has been or may be enacted in other jurisdictions, including the U.S. (under federal and state laws) and other countries, the
cumulative impact of which could be significant.
We continue to monitor the impact of specific registration and compliance activities required by the RoHS and WEEE Directives.
We endeavor to comply with applicable environmental laws, yet compliance with such laws could increase our operations and product
costs, increase the complexities of product design, procurement, and manufacturing, limit our ability to manage excess and obsolete
non-compliant inventory, limit our sales activities, and impact our future financial results. Any violation of these laws can subject us
to significant liability, including fines, penalties, and prohibiting sales of our products into one or more states or countries, and result
in a material adverse effect on our financial condition.
New regulations related to conflict minerals may force us to incur additional expenses, may make our supply chain more
complex and may result in damage to our reputation with customers.
In August 2012, the SEC adopted new requirements for companies that use certain minerals and metals, known as “conflict
minerals,” in their products, whether or not these products are manufactured by third parties. These requirements will require
companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of
Congo and adjoining countries. We will incur additional costs to comply with the disclosure requirements, including costs related to
determining the source of any of the relevant minerals and metals used in our products. In addition, these new requirements could
adversely affect the sourcing, availability and pricing of minerals used in our products. Because our supply chain is complex, we may
not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures
that we implement, which may harm our reputation. In such an event, we may also face difficulties in satisfying customers who
require that all of the components of our products are certified as conflict-free.
Our dependence on third-party suppliers for key components of our devices could delay shipment of our products and reduce
our sales.
We depend on certain domestic and foreign suppliers for the delivery of components used in the assembly of our products. Our
reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or subassemblies and reduced control over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on
suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other
miscellaneous customer parts for our products. We do not have long-term agreements with any of our suppliers and there is no
guarantee that supply will not be interrupted. Due to changes imposed for imports of foreign products into the U.S., as well as
potential port closures and delays created by terrorist attacks or threats, public health issues or national disasters, we are exposed to
risk of delays caused by freight carriers or customs clearance issues for our imported parts. Any interruption of supply for any material

20

components of our products could significantly delay the shipment of our products and have a material adverse effect on our revenues,
profitability and financial condition.
Component shortages could result in our inability to produce at a volume to adequately meet customer demand, which could
result in a loss of sales, delay in deliveries and injury to our reputation.
Single or sole-source components used in the manufacture of our products may become unavailable or discontinued. Delays caused
by industry allocations or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product
re-design to ensure quality replacement components. These delays could cause significant delays in manufacturing and loss of sales,
leading to adverse effects significantly impacting our financial condition or results of operations.
We may experience a decline in gross margins due to rising raw material and transportation costs associated with a future
increase in petroleum prices.
A significant number of our raw materials are comprised of petroleum-based products, or incur some form of landed cost associated
with transporting the raw materials or components to our facility. A significant rise in oil prices could adversely impact our ability to
sustain current gross margins by increasing component pricing.
To the extent demand for our products increases, our future success will be dependent upon our ability to manage our growth
and to increase manufacturing production capacity, which may be accomplished by the implementation of customized
manufacturing automation equipment.
To the extent demand for our products increases significantly in future periods, one of our key challenges will be to increase our
production capacity to meet sales demand while maintaining product quality. Our primary strategies to accomplish this include
introducing additional shifts, increasing the physical size of our assembly facilities, the hiring of additional production staff, and the
implementation of additional customized automation equipment. The investments we make in this equipment may not yield the
anticipated labor and material efficiencies. Our inability to meet any future increase in sales demand or effectively manage our
expansion could have a material adverse effect on our revenues, financial results and financial condition.
Our future success is dependent on our ability to expand sales through distributors and direct sales and our inability to recruit
new distributors or increase direct sales would negatively affect our sales.
Our distribution strategy is to pursue sales through multiple channels with an emphasis on independent distributors and direct sales.
Our inability to establish relationships with and retain law enforcement equipment distributors, who we believe can successfully sell
our products, would adversely affect our sales. In addition, our arrangements with our distributors are generally short-term. We are
also focusing on direct sales to larger agencies through our regional sales managers and our inability to grow sales to these agencies in
this manner could adversely affect our sales. If we do not competitively price our products, meet the requirements of our distributors
or end-users, provide adequate marketing support, or comply with the terms of our distribution arrangements, our distributors may fail
to aggressively market our products or may terminate their relationships with us. These developments would likely have a material
adverse effect on our sales. Our reliance on the sales of our products by others also makes it more difficult to predict our revenues,
cash flow and operating results.
The increased focus on direct sales compared to sales through distribution is dependent on our ability to sell into the states
that have established distributor relationships.
In certain states we have decided to pursue sales directly with law enforcement customers, rather than working through established
distribution channels. Our customers may have strong working relationships with distributors and we may face resistance to this
change. If we do not overcome this resistance and effectively build a direct relationship with our customers, sales may be adversely
affected.
Acquisitions and joint ventures may have an adverse effect on our business.
We may consider additional acquisitions or joint ventures as part of our long-term business strategy. These transactions involve
significant challenges and risks including that the transaction does not advance our business strategy, that we don’t realize a
satisfactory return on our investment, or that we experience difficulty in the integration or coordination of new employees, business

21

systems, and technology, or there is a diversion of management’s attention from our other businesses. These events could harm our
operating results or financial condition.
Catastrophic events may disrupt our business.
A disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, terrorist attack,
or other catastrophic event could cause delays in completing sales, providing services, or performing other mission-critical functions.
A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems
could harm our ability to conduct normal business operations and our operating results.
Our revenues and operating results may fluctuate unexpectedly from quarter-to-quarter, which may cause our stock price to
decline.
Our revenues and operating results have varied significantly in the past and may vary significantly in the future due to various
factors, including, but not limited to:











budgetary cycles of municipal, state and federal law enforcement and corrections agencies;
market acceptance of our products and services;
the timing of large domestic and international orders;
the outcome of any existing or future litigation;
adverse publicity surrounding our products, the safety of our products, or the use of our products;
changes in our sales mix;
new product introduction costs;
increased raw material expenses;
changes in our operating expenses; and
regulatory changes that may affect the marketability of our products;

As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not be meaningful
in the short term, and our performance in a particular period may not be indicative of our performance in any future period.
The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local
currencies.
For current and potential foreign customers whose contracts are denominated in U.S. dollars, the relative change in currency values
creates fluctuations in our product pricing. These changes in foreign end-user costs may result in lost orders and reduce the
competitiveness of our products in certain foreign markets.
For non U.S. dollar denominated sales, weakening of foreign currencies relative to the U.S. dollar generally leads the Company to
raise international pricing, potentially reducing demand for the Company’s products. Should the Company decide not to raise local
prices to fully offset the dollar’s strengthening, or at all, the U.S. dollar value of the Company’s foreign currency denominated sales
and earnings would be adversely affected. The Company does not currently engage in hedging activities. Fluctuations in foreign
currency could result in a change in the U.S. dollar value of our foreign denominated assets and liabilities including accounts
receivable. Therefore, the U.S. dollar equivalent collected on a given sales could be less than the amount invoiced causing the sales to
be less profitable than contemplated.
We also import selected components which are used in the manufacturing of some of our products. Although our purchase orders
are generally in U.S. dollars, weakness in the U.S. dollar could lead to price increases for the components.

22

We maintain all of our cash balances, some of which are not insured, at three depository institutions.
We maintain the majority of our cash accounts at three depository institutions. As of December 31, 2013, our aggregate balances in
such accounts were $42.3 million. The Company's balances with these institutions regularly exceed Federal Deposit Insurance
Corporation (“FDIC”) insured limits.
We could suffer losses with respect to the uninsured balances if the depositary institutions failed and the institution’s assets were
insufficient to cover its deposits and/or the Federal government did not take actions to support deposits in excess of existing FDIC
insurance limits. Any such losses could have a material adverse effect on our liquidity, financial condition and results of operations.
We depend on our ability to attract and retain our key management and technical personnel.
Our success depends upon the continued service of our key management personnel. Our success also depends on our ability to
continue to attract, retain and motivate qualified technical personnel. Although we have employment agreements with certain of our
officers, the employment of such persons is “at-will” and either we or the employee can terminate the employment relationship at any
time, subject to the applicable terms of the employment agreements. The competition for our key employees is intense. The loss of the
service of one or more of our key personnel could harm our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters and manufacturing facilities are based in a 100,000 square foot facility in Scottsdale, Arizona, which we
own. We also lease premises in Bellevue, Washington; Santa Barbara, California; Topsfield, Massachusetts; Rio de Janeiro, Brazil;
and Frankfurt, Germany. We believe our existing facilities are well maintained and in good operating condition. We also believe we
have adequate manufacturing capacity for our existing product lines for the foreseeable future. To the extent that we introduce new
products in the future, we will likely need to acquire additional facilities to locate the associated production lines. However, we
believe we can acquire or lease such facilities on reasonable terms. The Company continues to make investments in capital equipment
as needed to meet anticipated demand for its products.
Item 3. Legal Proceedings
See discussion of litigation in Note 9(c) to the consolidated financial statements included in Part II, Item 8 of this Annual Report on
Form 10-K, which discussion is incorporated by reference herein.
Item 4. Mine Safety Disclosures
None.

23

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted under the symbol “TASR” on The NASDAQ Global Select Market. The following table sets forth the
high and low sales prices per share for our common stock as reported by NASDAQ for each quarter of the last two fiscal years.
High
Year Ended December 31, 2013:
First quarter…………………………… $
Second quarter…………………………

9.80
9.79

Low
$

6.70
7.24

Third quarter……………………………

15.30

8.43

Fourth quarter…………………………

18.52

13.45

High

Low

Year Ended December 31, 2012:
First quarter…………………………… $

5.34

$

3.98

Second quarter…………………………

5.58

3.96

Third quarter……………………………

6.40

4.60

Fourth quarter…………………………

9.26

5.75

Holders
As of December 31, 2013, there were 318 holders of record of our common stock.
Dividends
To date, we have not declared or paid cash dividends on our common stock. We do not intend to pay cash dividends in the
foreseeable future and our revolving line of credit prohibits the payment of cash dividends.
Issuer Purchases of Equity Securities
On February 25, 2013, the Company’s board of directors authorized a stock repurchase program to acquire up to $25.0 million of
the Company’s outstanding stock subject to stock market conditions and corporate considerations. During the six months ended
June 30, 2013, we purchased 3,048,966 common shares under this program for a total cost of $25.0 million, or a weighted average
cost of $8.20 per share. The buyback was completed as of June 30, 2013. There were no repurchases of our stock by us or on our
behalf during the three months ended September 30, 2013 or December 31, 2013.

24

Stock Performance Graph
The following stock performance graph compares the performance of our common stock to the NASDAQ Stock Market (U.S.) and
the Russell 3000 Index. The graph covers the period from December 31, 2008 to December 31, 2013. The graph assumes that the
value of the investment in our stock and in each index was $100 at December 31, 2008, and that all dividends were reinvested. We do
not pay dividends on our common stock.

2008
TASER International, Inc………
NASDAQ Composite…………
Russell 3000……………………

100.00
100.00
100.00

2009

2010

82.95
144.88
128.34

25

89.02
170.58
150.07

2011
96.97
171.30
151.61

2012
169.32
199.99
176.49

2013
300.76
283.39
235.71

Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto,
and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The statement of
operations data for the years ended December 31, 2013, 2012 and 2011, and the balance sheet data as of December 31, 2013 and 2012,
have been derived from, and should be read in conjunction with, our audited consolidated financial statements and the notes thereto
included herein. The statement of operations data for the years ended December 31, 2010 and 2009, and the balance sheet data as of
December 31, 2011, 2010 and 2009, is derived from our audited consolidated financial statements and the notes thereto which are not
included in this Annual Report on Form 10-K. Dollars are in thousands, except per share amounts.
For the Year Ended December 31,
2012
2011
2010

2013
Statement of Operations Data:
Net sales……….………………………………………… $
Cost of products sold and services delivered………
Excess inventory charges………………………………
Gross margin……………………………………………
Sales, general and
administrative expenses………...……………………
Research and development expenses…………………
Litigation judgments (recoveries)………………………
Loss on impairment………………………………………
(Gain) loss on write down / disposal of
property and equipment, net…………………………
Income (loss) from operations…………………………
Interest and other income, net…………………………
Income (loss) before provision (benefit)
for income taxes………………………………………
Provision (benefit) for income taxes
Net income (loss)…………………………………………$
Net income (loss) per common
and common equivalent shares:
Basic…………………………………………………… $
Diluted………………………………………………… $
Weighted average number
of common and common
equivalent shares outstanding:
Basic……………………………………………………
Diluted…………………………………………………

137,831
51,988
85,843

$

$

90,028
41,753
3,746
44,529

$

86,930
41,563
45,367

$

104,251
40,849
63,402

46,584
9,888
1,450
-

39,086
8,139
(2,200)
-

38,001
9,989
3,301
1,354

39,022
11,412
-

43,479
20,002
-

(27)
27,948
86

161
22,529
83

2,800
(10,916)
1,287

73
(5,140)
26

(79)
170

28,034
9,790
18,244

$

22,612
7,874
14,738

$

(9,629)
(2,589)
(7,040)

$

(5,114)
(730)
(4,384)

$

91
92
(1)

0.35
0.34

$
$

0.27
0.27

$
$

(0.12)
(0.12)

$
$

(0.07)
(0.07)

$
$

(0.00)
(0.00)

51,880
54,152

53,827
54,723

2013
Balance Sheet Data:
Working capital………………………………………… $
Total assets………………………………………………
Total current liabilities…………………………………
Total long-term debt and capital leases………………
Total stockholders' equity………………………………

114,753
47,038
67,715

2009

2012

74,338
148,382
23,129
67
108,347

26

$

60,944
116,236
18,109
103
87,285

59,436
59,436

62,524
62,524

As of December 31,
2011
$

45,845
104,963
15,888
82,456

$

61,920
61,920

2010
70,378
136,187
11,948
117,564

2009
$

72,100
138,426
13,785
117,701

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a
reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition,
results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction
with the other sections of this annual report on Form 10-K, including Part I, Item 1A: “Risk Factors”; Part II, Item 6: “Selected
Financial Data”; and Part II, Item 8: “Financial Statements and Supplementary Data.” The various sections of this MD&A contain a
number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties
and risk factors described throughout this filing. The tables in the MD&A sections below are derived from exact numbers and may
have immaterial rounding differences.
Executive Overview and Key Strategic Initiatives
Our core mission is to protect life and to protect truth through technologies that make communities safer. We are a market leader in
the development and manufacture of advanced conducted electrical weapons (“CEWs”) designed for use in law enforcement, federal,
military, corrections, private security and personal defense. More recently, to address challenges faced by law enforcement officers
post-incident, we have developed a fully integrated hardware and software solution to provide our law enforcement customers the
capabilities to capture, store, manage, share and analyze video and other digital evidence.
Technological innovation is the foundation for our long-term growth and we intend to maintain our commitment to the research and
development of our technology for both new and existing products that further our mission. At the same time we have established
industry leading training services to provide our users a comprehensive overview of legal, policy, medical and risk mitigation issues
relating to our CEWs and the use of force. We have built a network of distribution channels for selling and marketing our products and
services to law enforcement agencies, primarily in North America, with ongoing focus and effort placed on expanding these programs
in international, military and other markets. Over 17,000 law enforcement agencies in nearly 150 countries have made initial
purchases of our TASER brand devices for testing or deployment. To date, we do not know of any significant sales of any competing
CEW products.
Our key strategic initiatives include:


Continue investment in development of innovative new products, which both complement and add to our existing platforms. In
January 2013 we introduced the next generation of single shot CEW hardware, the TASER X26P. Our research and
development efforts in 2013 were primarily focused on the launch of AXON body, as well as refining our EVIDENCE.com
services.
We believe that the video evidence capture and management market will grow significantly in the near future due to several
factors, including increasing recognition of the benefits of video evidence. In 2014 we expect to devote significant resources,
some of which we expect to meet the criteria for software capitalization, towards both the development of the next revenue
generating product for our EVIDENCE.com & Video segment, and additional functionality for our existing SaaS. To that end,
we acquired Familiar, Inc. in the fourth quarter of 2013. Familiar’s employees include application developers experienced in
cloud applications and mobile technology.



Increase market penetration in both international and U.S. law enforcement markets:
Internationally, there is a very significant portion of the market where officers do not carry CEWs or on-officer video devices.
We believe there is substantial opportunity for more widespread adoption of CEWs in foreign countries. In recent years, we
have seen international markets become increasingly attractive and we seek to maintain that trend as we demonstrate the
benefits of large-scale adoptions of our CEWs, using countries such as the United Kingdom and Australia as benchmarks of
successful programs. We have also decided to make focused investments in France and Brazil as we see considerable
opportunity for increased sales in those regions. Because the sales cycle to sell into a new international market can be as long
as 18 to 24 months, it is important that we continue to develop our pipeline in terms of both the number and size of
opportunities.
In the U.S., our focus is on driving deeper penetration into law enforcement agencies that do not have a CEW or on-officer
camera on every officer.

27



Focus on increasing bookings and brand awareness for EVIDENCE.com and AXON cameras. We have expanded our
EVIDENCE.com & Video sales team from 7 at the end of 2012 to 14 full-time salespeople at the end of 2013, the majority of
which were added during the fourth quarter of 2013. We expect the additional salesforce to generate increased bookings in
2014, largely in the second half of the year. In addition, during 2014, we expect to increase our concerted efforts begun in 2013
to promote the awareness of the benefits of digital evidence management in general, and EVIDENCE.com specifically,
throughout the law enforcement community. During the first quarter of 2014, we will host a technology summit at our
Scottsdale headquarters during which our employees, customers and potential customers will conduct forums to discuss,
educate and promote the benefits of cloud computing and wearable technology. We expect additional efforts will encompass
tradeshows, interaction with trade associations (such as the International Association of Chiefs of Police), and other
promotional activities.
Included in our strategy to demonstrate the benefits of EVIDENCE.com, we have optional test and evaluation periods of the
product on-site with customers. We experienced increasing volumes of trial programs in 2013 and believe these trial programs
are the best way for our customers to see the powerful capabilities, benefits and compelling value proposition of our
technology. We anticipate further increases in these trial programs in 2014, ultimately leading to increased sales. As market
acceptance grows, we anticipate fewer and/or shorter trial programs will be necessary to capture sales.



Focus on the significant opportunity of re-selling into our existing large installed base of law enforcement customers in the U.S.
TASER CEWs are sophisticated electronic devices that are regularly subjected to the harsh environment of law enforcement,
security and the military. We design and manufacture our CEWs to be as robust as we can make them. However, these
electronic systems are dropped, used in violent confrontations, and exposed to extreme heat, cold, rain and dust, all of which
contribute to expected general wear and tear. We believe there are a significant number of our customers that recognize the
need to consider either a model upgrade, or replacement CEWs to refresh the aging profile of the CEWs they have in field use.
In addition, the X26P and X2 CEWs have a number of advanced features that we think will be beneficial to our customers.



Further develop our presence in federal government and military markets. We intend to continue to place emphasis on
supporting our military customers through our team of professionals with extensive military, homeland defense and law
enforcement experience. The primary focus of this team is to support military use for our existing hardware as well as increase
technology development through contracted support.



Focus on the opportunity for EVIDENCE.com contract renewals with the goal of having all of our customers utilizing
EVIDENCE.com renew their subscriptions at the end of their contractual terms. We employ various programs and efforts to
secure renewals of existing customers.



Focus on maintaining incremental sales channels and methods including a municipal leasing program (the TASER Protection
Plan), long-term service plans and a dedicated telesales team to drive sales growth.



Continued application for patents and intellectual property rights, both in the U.S. and internationally, to protect key technology
in our products and further attempt to protect and maintain our competitive position.



Continued aggressive litigation defense to protect our brand equity. We maintain a team of world class medical experts and
internal legal resources to provide an efficient means of defending the Company against product liability claims.

28

Results of Operations
The following table presents data from our statements of operations as well as the percentage relationship to total net revenues of
items included in our statements of operations (dollars in thousands):
Year Ended December 31,
2012

2013
Net sales……….…………………………………… $ 137,831
51,988
Cost of products sold and services delivered……
Excess inventory charges…………………………
Gross margin…………………………………………

100.0 %
37.7
-

$ 114,753
47,038
-

100.0 %
41.0
-

2011
$

90,028
41,753
3,746

100.0 %
46.4
4.2

85,843

62.3

67,715

59.0

44,529

49.5

46,584
9,888
1,450
-

33.8
7.2
1.1
-

39,086
8,139
(2,200)
-

34.1
7.1
(1.9)
-

38,001
9,989
3,301
1,354

42.2
11.1
3.7
1.5

(27)

(0.0)

161

0.1

2,800

3.1

Total operating expenses…………………………

57,895

42.0

45,186

39.4

55,445

61.6

Income (loss) from operations……………………

27,948

20.3

22,529

19.6

(10,916)

(12.1)

Interest and other income, net……………………

86

0.1

83

0.1

1,287

1.4

Income (loss) before
provision (benefit) for income taxes……………
Provision (benefit) for income taxes……………..

28,034
9,790

20.3
7.1

22,612
7,874

19.7
6.9

(9,629)
(2,589)

(10.7)
(2.9)

Net income (loss)……………………………………$

18,244

13.2 %

14,738

12.8 %

Operating expenses:
Sales, general and administrative………...……
Research and development……………………
Litigation judgments (recoveries)……………
Loss on impairment……………………………
(Gain) loss on write down / disposal of
property and equipment, net…………………

$

$

(7,040)

(7.8) %

Net sales to the U.S. and other countries are summarized as follows:
Year Ended December 31,
2012

2013

2011

United States
Other Countries

$

115,674
22,157

84 %
16

$

93,427
21,326

81 %
19

$

72,261
17,767

80 %
20

Total

$

137,831

100 %

$

114,753

100 %

$

90,028

100 %

The Company’s operations are comprised of two reportable segments: the sale of CEWs, accessories and other products and
services (the “TASER Weapons” segment); and the video business, which includes the TASER Cam, AXON Video products and
EVIDENCE.com (the “EVIDENCE.com & Video” segment). The Company includes only revenues and costs directly attributable to
the EVIDENCE.com & Video segment in that segment. Included in EVIDENCE.com & Video segment costs are: costs of sales for
both products and services, selling expense for the video sales team, video product management expenses, video trade shows and
related expenses, and research and development for products included in the EVIDENCE.com & Video segment. All other costs are
included in the TASER Weapons segment. We do not allocate assets by segment as part of our financial information presented.

29

Net Sales
Net sales by product line were as follows for the years ended December 31, 2013 and 2012 (dollars in thousands):
Dollar
Change

Year Ended December 31,
2013
2012
TASER Weapons segment:
TASER X26………………………… $
TASER X2……………………………
TASER X26P………………………
TASER C2……………………………
M26…………………………………
Single Cartridges……………………
Extended Warranties………………
Other….………………………………

30,883
26,471
21,860
2,468
681
35,660
4,617
4,834

22.4 %
19.2
15.9
1.8
0.5
25.9
3.3
3.5

$

35,950
25,841
3,095
1,233
32,811
3,589
6,536

31.3 %
22.5
2.7
1.1
28.6
3.1
5.7

$

(5,067)
630
21,860
(627)
(552)
2,849
1,028
(1,702)

Percent
Change
(14.1) %
2.4
*
(20.3)
(44.8)
8.7
28.6
(26.0)

127,474

92.5

109,055

95.0

18,419

16.9

EVIDENCE.com & Video segment:
AXON/EVIDENCE.com……………
TASER Cam…………………………
Other….………………………………

5,173
4,688
496

3.8
3.4
0.4

2,453
3,055
190

2.1
2.7
0.2

2,720
1,633
306

110.9
53.5
161.1

EVIDENCE.com & Video segment…

10,357

7.5

5,698

5.0

4,659

81.8

23,078

20.1

TASER Weapons segment…………

Total net sales

$ 137,831

100.0 %

$ 114,753

100.0 %

$

* not meaningful

Net unit sales for the TASER Weapons handles and other products and EVIDENCE.com & Video segment products are as follows:
Twe lve Months Ende d Dece mbe r 31,
Unit
Change

Pe rce nt
Change

2013

2012

X26

33,769

42,340

X26P

28,107

X2

28,164

30,665

(2,501)

(8.2)

2,091

3,771

(1,680)

(44.6)

M26

-

X3

271

250

C2

8,116

11,803

(8,571)
28,107

21

(20.2) %
*

8.4

(3,687)

(31.2)
36.0

10,686

7,859

2,827

1,552,028

1,540,838

11,190

0.7

AXON flex

4,903

2,772

2,131

AXON body

1,888

-

1,888

76.9
*

StrikeLight

3,141

-

3,141

*

T ASER Cam
Cartridges

* Not meaningful

Net sales were $137.8 million and $114.8 million for the years ended December 31, 2013 and 2012, respectively, an increase of
$23.1 million or 20.1%. Net sales for the TASER Weapons segment were $127.5 million and $109.1 million for the years ended
December 31, 2013 and 2012, respectively, an increase of $18.4 million or 16.9%. Net sales for the EVIDENCE.com & Video
segment were $10.4 million and $5.7 million for the years ended December 31, 2013 and 2012, respectively, an increase of $4.7
million or 81.8%.
The increase in net sales for 2013 compared to 2012 in the TASER Weapons segment was primarily driven by the introduction of
the TASER X26P smart weapon. Growing demand is seen in the TASER Weapons segment as customers are upgrading their legacy
CEWs to the new TASER X2 and X26P smart weapons. In the EVIDENCE.com & Video segment, the increase in net sales was
driven by the continued adoption of the AXON on-officer cameras and EVIDENCE.com application in the law enforcement markets.
30

International customers continued to be a steady contributor to the results with $22.2 million in 2013 versus $21.3 million in 2012.
International sales grew slightly in 2013, although decreasing as a percentage of total revenue. We continue to invest in sales
processes, people and activities abroad to further grow the international contribution to the top line in the future.
To gain more immediate feedback regarding activity for AXON flex, AXON body and EVIDENCE.com, we also review bookings
for these products. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales) placed in
the relevant fiscal period, regardless of when the products or services ultimately will be provided. Some bookings will be invoiced in
subsequent years. Due to municipal government funding rules, certain of the future year amounts included in bookings are subject to
budget appropriation or other contract cancellation clauses. Although TASER has entered into contracts for the delivery of products
and services in the future and anticipates the contracts will be completed, if agencies do not appropriate money in future year budgets
or enact a cancellation clause, revenue associated with these bookings will not ultimately be recognized, resulting in a future reduction
to bookings. Bookings related to EVIDENCE.com and the AXON product line increased to $14.5 million during 2013, compared to
$3.8 million in 2012.
Net sales by product line were as follows for the years ended December 31, 2012 and 2011 (dollars in thousands):

Year Ended December 31,
2012
2011
TASER Weapons segment:
TASER X26………………………… $
TASER X2……………………………
TASER C2……………………………
M26…………………………………
Single Cartridges……………………
Extended Warranties………………
Other….………………………………

35,950
25,841
3,095
1,233
32,811
3,589
6,536

31.3 %
22.5
2.7
1.1
28.6
3.1
5.7

$

Dollar
Change

37,278
8,110
3,253
3,104
25,353
3,237
6,340

41.4 %
9.0
3.6
3.4
28.2
3.6
7.0

$

(1,328)
17,731
(158)
(1,871)
7,458
352
196

Percent
Change
(3.6) %
218.6
(4.9)
(60.3)
29.4
10.9
3.1

109,055

95.0

86,675

96.3

22,380

25.8

EVIDENCE.com & Video segment:
AXON/EVIDENCE.com……………
TASER Cam…………………………
Other….………………………………

2,453
3,055
190

2.1
2.7
0.2

771
2,222
360

0.9
2.5
0.4

1,682
833
(170)

218.2
37.5
(47.2)

EVIDENCE.com & Video segment…

5,698

2,345

69.9

24,725

27.5

TASER Weapons segment…………

Total net sales

5.0

$ 114,753

100.0 %

$

3,353

3.7

90,028

100.0 %

$

Net unit sales for the TASER Weapons handles and other products and EVIDENCE.com & Video segment products are as follows:
Twe lve Months Ende d De ce mbe r 31,
Unit
Change

Pe rce nt
Change

2012

2011

X26

42,340

46,068

(3,728)

X2

30,665

10,748

19,917

185.3

(8.1) %

3,771

6,974

(3,203)

(45.9)

X3

250

294

(44)

(15.0)

C2

11,803

10,280

1,523

14.8

7,859

6,031

1,828

30.3

1,540,838

1,441,296

99,542

6.9

2,792

*

M26

T ASER Cam
Cartridges
AXON flex

2,792

-

* Not meaningful

31

Net sales were $114.8 million and $90.0 million for the years ended December 31, 2012 and 2011, respectively, an increase of
$24.7 million or 27.5%. Net sales for the TASER Weapons segment were $109.1 million and $86.7 million for the years ended
December 31, 2012 and 2011, respectively, an increase of $22.4 million or 25.8%. Net sales for the EVIDENCE.com & Video
segment were $5.7 million and $3.4 million for the years ended December 31, 2012 and 2011, respectively, an increase of $2.3 million
or 69.9%.
The increase in net sales for 2012 compared to 2011 in the TASER Weapons segment was primarily driven by growing demand as
well as the continuing cycle of agencies upgrading to the TASER X2 from legacy versions of our CEWs. In the EVIDENCE.com &
Video segment, the increase in net sales was driven by the continued adoption of the AXON flex on-officer recording system and
EVIDENCE.com SaaS in the law enforcement markets. The Company also adopted new selling processes in 2012 to reach a broader
law enforcement agency market than in the past through the introduction of a municipal leasing program, the TASER Protection Plan,
as well as a dedicated telesales team. In our first full year sales cycle of the AXON flex camera system in 2012, we closed the year
with approximately $3.8 million in bookings, about 44.1% of which occurred in the fourth quarter of 2012.
Cost of Products Sold and Services Delivered
(dollars in thousands)
2013
TASER Weapons segment:
Cost of products sold………………………$
Cost as % of sales

EVIDENCE.com & Video segment:
Cost of products sold………………………
Cost of services delivered…………………
Total cost of products sold and
services delivered……………………….
Cost as % of sales

Total cost of products sold and
services delivered………………………… $
Cost as % of sales

44,025

Year Ended December 31,
Dollar
2012
Change
$

39,350

$

4,675

Percent
Change
11.9 %

34.5%

36.1%

6,074
1,889

3,773
3,915

2,301
(2,026)

61.0
(51.7)

7,963

7,688

275

3.6

76.9%

134.9%

51,988
37.7%

$

47,038

$

4,950

41.0%

10.5

2012
$

$

39,350

Year Ended December 31,
Dollar
2011
Change
$

34,213

$

5,137

Percent
Change
15.0 %

36.1%

39.5%

3,773
3,915

2,693
4,847

1,080
(932)

40.1
(19.2)

7,688

7,540

148

2.0

134.9%

224.9%

5,285

12.7

47,038
41.0%

$

41,753

$

46.4%

Cost of products sold and services delivered, was $52.0 million and $47.0 million for the years ended December 31, 2013 and 2012,
respectively, an increase of $5.0 million or 10.5%. As a percentage of net sales, cost of products sold and services delivered decreased
to 37.7% in 2013 from 41.0% in 2012. Within the TASER Weapons segment, cost of products sold increased $4.7 million, or 11.9%,
to $44.0 million in 2013, compared to $39.4 million in 2012, but decreased as a percent of sales to 34.5% from 36.1%. The net
decrease in cost of products sold as a percent of sales primarily reflects increased leverage due to higher sales and a higher average
selling price.
Within the EVIDENCE.com & Video segment, cost of products sold and services delivered were $8.0 million, an increase of $0.3
million, or 3.6% from 2012. Increased product costs related to the EVIDENCE.com & Video segment related to growing sales in this
segment were partially offset by decreased service costs, resulting in a slight overall increase for 2013 as compared to the prior year.
The decrease in service costs is comprised of cost savings due to efficiencies gained by moving to a third party cloud storage from our
data center, as well as the full depreciation of the capitalized EVIDENCE.com software development costs as of June 30, 2013. The
decrease in overall cost of products sold and services delivered as a percentage of sales was driven by higher sales and by
improvements to our EVIDENCE.com SaaS segment margins. There are a number of fixed costs for the EVIDENCE.com & Video
segment which, as we generate traction in the business, we expect to remain relatively stable and should allow for lower cost of
services delivered as a percentage of service revenue. As a percentage of net sales, cost of products sold and services delivered
decreased to 76.9% in 2013 from 134.9% in 2012.
Cost of products sold and services delivered, before excess inventory charges in 2011, was $47.0 million and $41.8 million for the
years ended December 31, 2012 and 2011, respectively, an increase of $5.3 million or 12.7%. As a percentage of net sales, cost of
products sold and services delivered decreased to 41.0% in 2012 from 46.4% in 2011.
Within the TASER Weapons segment, cost of products sold increased $5.1 million in 2012 from 2011, but decreased as a percent of
sales to 36.1% from 39.5%, respectively. The net decrease in cost of products sold and services delivered as a percent of sales was
32

driven by several factors in 2012 including: (i) a more favorable product sales mix with a further increased contribution by the X2
CEW, replacing lower contribution margin CEWs such as the X26, M26 and XREP.; (ii) improved leverage on fixed manufacturing
costs resulting from a 25.8% overall increase in sales in the TASER Weapons segment; and (iii) increased average selling price,
without a corresponding increase in cost of products sold, in those states where the Company began selling direct. These efficiencies
were partially offset by the continuation of the upgrade program for the TASER X2 CEW. This provided customers purchasing the
TASER X2 with a $160 to $300 trade-in credit, depending on the quarter purchased, to replace any existing CEW. This offer
generated $3.5 million of trade-in credits during the year ended December 31, 2012, compared to $2.1 million of trade-in credits in
the second, third and fourth quarters of 2011. Also, 2011 had a $3.7 million charge for excess inventory which did not reoccur in
2012.
In the EVIDENCE.com & Video segment, cost of products sold and delivered increased $0.2 million from $7.5 million to $7.7
million and as a percent of sales decreased to 134.9% for the year ended December 31, 2012, as compared to 224.9% in the prior year.
Within this segment, the cost of products sold decreased as a percentage of sales in 2012 from 2011 due to the increased leverage on
fixed manufacturing costs resulting from the 69.9% overall increase in sales as noted above. In 2012, the cost of services delivered
was $3.9 million compared to $4.8 million in 2011, a reduction of $0.9 million or 19.2%. This decrease is due to the Company’s
decision in 2012 to discontinue operations of its data center in favor of moving the data storage piece of the video business to a third
party provider. This change reduced total operating and software maintenance costs included in cost of services delivered.
Excess Inventory Charges
Excess inventory charges specific to two of our product lines were $3.7 million for 2011. The success of the new TASER X2 in
2011 led the Company to conclude that it would not sell through its then current level of TASER X3 inventory, even though the
Company would continue to sell and support the TASER X3 product line as part of its TASER Weapons Segment. These factors
resulted in an excess inventory charge of $1.7 million. Similarly, with the launch of the Company’s new AXON flex system for our
EVIDENCE.com & Video segment in 2011, the Company concluded it would not sell through existing first generation AXON
inventory. These factors resulted in an excess inventory charge of $2.0 million. There were no unusual excess inventory charges in
2013 or 2012.
Gross Margin
(dollars in thousands)
2013

Year Ended December 31,
Dollar
2012
Change

Percent
Change

2012

Year Ended December 31,
Dollar
2011
Change

Percent
Change

TASER Weapons segment……………… $
EVIDENCE.com & Video segment………

83,449
2,394

$

69,705
(1,990)

$

13,744
4,384

19.7 %
*

$

69,705
(1,990)

$

50,713
(6,184)

$

18,992
4,194

37.4 %
*

Total Company…………………………… $

85,843

$

67,715

$

18,128

26.8

$

67,715

$

44,529

$

23,186

52.1

Gross margin as % of sales

62.3%

59.0%

59.0%

49.5%

*Not meaningful

Gross margin increased $18.1 million to $85.8 million for 2013 compared to $67.7 million for 2012. As a percentage of net sales,
gross margin increased to 62.3% for 2013 compared to 59.0% for 2012. The increase in gross margin as a percentage of net sales for
2013 is primarily attributable to the move of the EVIDENCE.com data center to a third party provider, the full depreciation of the
capitalized EVIDENCE.com software development costs, increased sales of higher margin products and the operational efficiencies
discussed previously. In the fourth quarter of 2013, we introduced a new pricing program reducing the price of the AXON flex
camera and separately pricing the EVIDENCE.com service. In previous years, the cameras and the service were primarily sold
together with one price for both. We believe lowering the price of the cameras and offering separately-priced EVIDENCE.com SaaS
contracts at various levels of functionality, promotes pricing transparency to our customers. As a result, the gross margins in the
EVIDENCE.com & Video segment is expected to be lower in the near-term as the service portion is deferred and recognized over the
contract term. The AXON flex and the AXON body are currently being sold at low gross margins in an effort to continue to
accelerate the Company’s traction in the market.
Gross margin increased $23.2 million to $67.7 million for 2012 compared to $44.5 million for 2011. The 2011 gross margin
includes the excess inventory charge of $3.7 million specific to two of our previous product lines. Excluding the $3.7 million excess
inventory charges, gross margin increased $19.4 million, or 40.3% in 2012 as compared to 2011. As a percentage of net sales, gross
margin increased to 59.0% for 2012 compared to 49.5% for 2011. Excluding the excess inventory charges, gross margin as a
33

percentage of sales for 2011 was 53.6%. The increase in gross margin as a percentage of net sales for 2012 is primarily attributable to
the excess inventory charge in 2011 as well as the move of the EVIDENCE.com data center to a third party provider, increased sales
of higher margin products and the operational efficiencies as discussed above.
Sales, General and Administrative Expenses
Sales, general and administrative expenses were comprised as follows for 2013 and 2012 (dollars in thousands):
Dollar
Change

Year Ended December 31,
2013
2012
Salaries, benefits and bonus……………………………………… $
Stock-based compensation…………………………………………
Legal, professional and accounting………………………………
Sales and marketing…………………………………………………
Consulting and lobbying services…………………………………
Travel and meals……………………………………………………
Building………………………………………………………………
Supplies………………………………………………………………
Depreciation and amortization………………………………………
D&O and liability insurance…………………………………………
Other….………………………………………………………………

14,723
3,158
7,323
6,025
2,097
3,305
3,160
1,462
1,230
2,012
2,089

$

11,385
2,629
6,427
4,284
2,542
3,020
2,979
1,340
1,492
1,821
1,167

$

3,338
529
896
1,741
(445)
285
181
122
(262)
191
922

Total sales, general and administrative expenses…………………$

46,584

$

39,086

$

7,498

Sales, general, and administrative as a percentage of net sales

33.8%

Percent
Change
29.3 %
20.1
13.9
40.6
(17.5)
9.4
6.1
9.1
(17.6)
10.5
79.0
19.2

34.1%

Of the increase in SG&A above, approximately $2.8 million results from increased expense associated with customer facing
positions, including: salaries, benefits, bonus and stock-based compensation, as well as sales commissions, which are included in the
sales and marketing line item in the table above. Positions were added throughout the year, with the following headcount as of the end
of each year:
2013
TASER Weapons sales representatives…………
EVIDENCE.com & Video sales representatives…
International sales representatives………………
Support sales staff…………………………………
Telesales……………………………………………
Other customer-facing roles………………………
Total customer-facing roles………………………

8
14
5
8
11
14
60

As of December 31,
2012
8
7
3
5
8
12
43

2011
7
6
3
6
9
31

Sales, general and administrative (“SG&A”) expenses were $46.6 million and $39.1 million for the years ended December 31, 2013
and 2012, respectively, an increase of $7.5 million or 19.2%. As a percentage of total net sales, SG&A expenses decreased to 33.8%
for 2013 compared to 34.1% for 2012.
Within the TASER Weapons segment, SG&A increased $4.6 million, or 13.0%, to $40.2 million from $35.6 million in 2012.
Salaries, benefits, bonus and stock compensation in the TASER Weapons increased approximately $2.6 million in 2013 compared to
2012 partially due to increased international, telesales, and support sales staff. Incremental administrative functions were also added
in 2013 in order to support the growing business. Sales and marketing expenses, many of which are variable, also increased
approximately $0.9 million within the TASER Weapons segment compared to the prior year, due to higher commissions of $0.8
million on higher overall sales. Legal fees increased within the TASER Weapons segment compared to 2012 by approximately $0.3
million as the Company works through its pre-2009 litigation. This was partially offset by a benefit of $0.5 million from the
reimbursement of legal expenses due to insurance coverage after the Turner reversal. Although the Company expects litigation related
expenses to decrease in the second half of 2014, these savings are expected to be reinvested in customer-facing initiatives.
Accounting and audit fees within the TASER Weapons segment are also up year over year by approximately $0.4 million. Included in
“Other” are higher expenses related to litigation activities and credit card processing fees. Reductions were seen in depreciation
expense and consulting costs.
34

Within the EVIDENCE.com & Video segment, SG&A increased $2.9 million, or 81.9%, to $6.4 million in 2013 in comparison to
the prior year. Salaries, benefits, bonus and stock compensation in the EVIDENCE.com & Video segment increased $1.2 million
primarily as a result of the Company doubling its video salesforce and hiring incremental functions such as customer service and
account management and other customer-facing roles. Sales and marketing expenses in the EVIDENCE.com & Video segment also
increased approximately $0.8 million in comparison to 2012 as a result of EVIDENCE.com promotions and advertising efforts during
the year, including a large presence and a hosted booth at the International Association of Chiefs of Police. We believe these increases
in marketing activities will increase customer awareness of the benefits of EVIDENCE.com and ultimately lead to sales growth in
future periods. Sales and marketing expenses also include increases of approximately $0.3 million in commissions.
The Company expects to see 2014 SG&A increase from the current level of spend as continued investments are made in the
EVIDENCE.com & Video segment as well as internationally and in incremental administrative functions to support the growing
business.
Sales, general and administrative expenses were comprised as follows for 2012 and 2011 (dollars in thousands):
Year Ended December 31,
2012
2011

Dollar
Change

Salaries, benefits and bonus……………………………………… $
Stock-based compensation…………………………………………
Legal, professional and accounting………………………………
Sales and marketing…………………………………………………
Consulting and lobbying services…………………………………
Travel and meals……………………………………………………
Building……………………………………………………………
Supplies……………………………………………………………
Depreciation and amortization………………………………………
D&O and liability insurance…………………………………………
Other….………………………………………………………………

11,385
2,629
6,427
4,284
2,542
3,020
2,979
1,340
1,492
1,821
1,167

$

10,628
2,308
6,604
3,459
2,754
2,946
2,989
1,526
2,136
1,816
835

$

757
321
(177)
825
(212)
74
(10)
(186)
(644)
5
332

Total sales, general and administrative expenses…………………$
Sales, general, and administrative as a percentage of net sales
* less than 1%, or not meaningful

39,086
34.1%

$

38,001
42.2%

$

1,085

Percent
Change
7.1 %
13.9
(2.7)
23.9
(7.7)
2.5
*
(12.2)
(30.2)
*
39.8
2.9

Sales, general and administrative (“SG&A”) expenses were $39.1 million and $38.0 million for the years ended December 31, 2012
and 2011, respectively, an increase of $1.1 million or 2.9%. As a percentage of total net sales, SG&A expenses decreased to 34.1% for
2012 compared to 42.2% for 2011. The overall increase for 2012 compared to 2011 is partially attributable to an increase in sales and
marketing costs, many of which are variable, which increased due to our higher overall sales. These include increases of $1.0 million
in direct commissions and $0.3 million in distributor commissions. Part of the increase in salaries of $0.5 million is a result of
increased headcount, particularly in customer-facing roles. During the year, there was also an increase in stock compensation expense
of $0.3 million due to factors such as a new performance-based stock compensation plan and increased headcount. Within the “Other”
category in the table above, expense related to litigation settlements increased $1.0 million, and was partially offset by a $0.5 million
decrease in bad debt expense. Included in the litigation settlement expense is the accrual of $0.8 million related to a settlement offer to
AA & Saba Consultants, Inc. which is discussed further in Note 9(c). The favorable variance in bad debt expense stemmed from the
reversal of a previously reserved account. During 2012, as cash was collected, the bad debt expense was reversed, resulting in a net
credit to bad debt expense for the year. Depreciation expense also decreased as a result of some of the headquarters’ furniture and
fixtures being fully depreciated during 2012. Efficiencies were seen in legal fees, bad debt expense, and consulting costs.

35

Research and Development Expenses
Research and development (“R&D”) expenses were $9.9 million and $8.1 million for the years ended December 31, 2013 and 2012,
respectively, an increase of $1.7 million, or 21.5%. As a percentage of net sales, R&D increased to 7.2% in 2013 in comparison to
7.1% in 2012.
Within the TASER Weapons segment, R&D expenses increased $0.4 million, or 9.5%, to $4.3 million in 2013, which is primarily
driven by increased headcount, professional fees and indirect materials. Reductions were realized in depreciation expense.
Within the EVIDENCE.com & Video segment, R&D expenses increased $1.4 million, or 32.8%, to $5.6 million in 2013 from the
prior year. The increase for 2013 compared to 2012 is driven by additional headcount, partially related to the Familiar acquisition that
occurred in the fourth quarter of 2013. These individuals joined the Company to research and develop the next products for TASER
in the EVIDENCE.com & Video segment. Offsetting these increases was the one-time benefit in 2013 for an Arizona sales and use
tax refund of approximately $0.3 million. We expect to see increased R&D expenses in 2014, after capitalization of eligible costs, as
new product development initiatives take place in the EVIDENCE.com & Video segment. It is our plan to capitalize eligible R&D
expenses in 2014 related to the new product line development during the applicable development stage. Because we are in the early
stages of several large R&D projects, we cannot predict with certainty the timing and total costs that will eligible for capitalization as
software development costs. Any costs that do not meet the criteria for capitalization will be expensed as incurred.
Research and development expenses were $8.1 million and $10.0 million for the years ended December 31, 2012 and 2011,
respectively, a decrease of $1.9 million, or 18.5%. The reduction for 2012 compared to 2011 was driven by a continued reduction in
headcount, consulting costs, and supplies costs.
Litigation Judgment Expense and Recovery
On February 28, 2014, the jury in the commercial litigation case of AA & Saba Consultants, Inc. vs. TASER International, Inc.
returned a verdict of $3.3 million against the Company. Judgment has not yet been entered and the judgment is subject to an award of
attorneys’ fees. The Company believes the verdict is not supported by the evidence and intends to appeal. The Company had
previously reserved $0.8 million, included in SG&A for the year ended December 31, 2012, related to this case based on a previous
settlement offer to plaintiff; as such, in accordance with generally accepted accounting principles, the Company recorded additional
expense of approximately $2.6 million in the fourth quarter of 2013. The additional expense was recorded in the litigation judgment
line item on the income statement. Should the plaintiff be awarded reimbursement of legal fees, additional expense will be recorded by
the Company.
During the second quarter of 2011, the Company recorded a $3.3 million litigation judgment expense, which represented a charge
for an adverse jury verdict received in the Turner case. For more information please see Note 9(c). This charge represented
management’s best estimate of the Company’s uninsured portion of the judgment after consideration of available insurance coverage.
During 2011, management estimated the range of loss in the Turner case to be $0 to $3.8 million. During March 2012, the Federal
District Court for the Western District of North Carolina granted the Company’s motion for remittitur and ordered the reduction of the
original jury award from $10.0 million to approximately $4.4 million after offsets. On April 20, 2012, the court issued another order,
which adjusted the award to $5.5 million. Based on this action by the court, the Company reversed a portion of the previously accrued
litigation judgment expense during the three months ended March 31, 2012, which resulted in a benefit of $2.2 million at such time,
with a reserve of $1.1 million recorded as of December 31, 2012. During the fourth quarter of 2013, the Company reversed the $1.1
million reserve due to a new trial being granted for the determination of damages. At December 31, 2013 there was no remaining
reserve on the Company’s books.
Loss on Impairment
Loss on impairment for 2011 represents a $1.4 million asset impairment charge that was recorded in the second quarter of 2011
following our determination to abandon our Protector product line.

36

Loss on Write-Down / Disposal of Property and Equipment, Net
(Gain)/loss on write-down / disposal of property and equipment for 2011 was $2.8 million and consisted of $2.2 million related to
the EVIDENCE.com & Video segment comprised of the following: (i) $1.4 million for tooling relative to the first generation AXON
equipment; (ii) $0.8 million relative to the decision to dispose of surplus equipment and billing software for EVIDENCE.com
operations. The remaining $0.6 million related to tooling for the TASER X3, which is included in the TASER Weapons segment.
Interest and Other Income, Net
Interest and other income was less than $0.1 million for each of the years ended December 31, 2013 and 2012. Other income for
2013 and 2012 consisted primarily of investment interest income.
Provision (Benefit) for Income Taxes
The provision for income taxes was $9.8 million for the year ended December 31, 2013. The effective income tax rate for 2013 was
34.9%. The effect of state income tax of $1.3 million was largely offset by a benefit of $0.5 million from incentive stock option
deductions as well as $0.4 million of research and development credits and a $0.4 million favorable return to provision adjustment in
the current year. When an employee exercises ISOs and sells the related stock prior to the mandatory holding period, the associated
expense becomes a reduction to the Company’s taxable income. The 2013 return to provision adjustment was driven by the domestic
production activities deduction which decreased taxable income, and therefore, reduced the effective tax rate.
The provision for income taxes was $7.9 million for the year ended December 31, 2012. The effective income tax rate for 2012 was
34.8%. During 2012, the Company reversed a $1.4 million valuation allowance originally established in 2011. The valuation
allowance related to a portion of the Arizona R&D tax credit that was expected to expire unused. Due to the Company’s return to
profitability in 2012, among other things, management believes it is more likely than not the tax credit will be realized. The reversal
of the $1.4 million valuation allowance resulted in a reduction to the Company’s effective tax rate. However, this favorable result was
more than offset by the effects of state income tax and the change in the liability for unrecognized tax benefits of $1.0 million and $0.9
million, respectively. Other items combined for a net favorable impact in the Company’s effective tax rate. Excluding the effect of the
reversal of the valuation allowance, the Company’s effective tax rate would have been 41.1%.
The benefit for income taxes was $2.6 million the year ended December 31, 2011. The effective income tax rate for 2011 was
26.9%. The 2011 effective tax rate was driven by the established valuation allowance of $1.4 million for a portion of the Arizona
R&D tax credit that management then believed would not be realized before expiration in fifteen years as well as the impact of nondeductible expenses for items such as incentive stock option expense, meals and entertainment and lobbying expenses, making the
income for tax purposes higher than the book pre-tax loss for 2011. Excluding the effect of the establishment of the $1.4 million
valuation allowance, the effective tax rate would have been 41.7%. Further, in 2011 we recorded a tax benefit related to a 2010 tax
return to provision true-up adjustment, primarily driven by higher than expected research and development tax credits, which
increased the total tax benefit and consequently, the effective tax rate.
Net Income (Loss)
Due to factors discussed above, our net income improved by $3.5 million to $18.2 million for 2013 compared to $14.7 million for
2012. Net income per basic share was $0.35 and $0.34 per diluted share for 2013 compared to $0.27 per basic and diluted share for
2012.
Our net income improved by $21.8 million to $14.7 million of income for 2012 compared to a net loss of $7.0 million for 2011. Net
income per basic and diluted share was $0.27 for 2012 compared to a loss of $0.12 per basic and diluted share for 2011.

37

Liquidity and Capital Resources
Summary
As of December 31, 2013, we had $42.3 million of cash and cash equivalents, an increase of $6.1 million from the end of 2012.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for each of the past three years
(dollars in thousands):
Year Ended December 31,
2013
2012
2011
Operating activities………………………………………………………$
Investing activities………………………………………………………
Financing activities………………………………………………………
Effect of exchange rate changes on cash and cash equivalents……

32,426
(23,062)
(3,189)
(31)

$

26,517
1,681
(13,363)
(9)

$

17,266
(7,597)
(31,062)
10

Increase (decrease) in cash and cash equivalents……………………$

6,144

$

14,826

$

(21,383)

Operating activities
Net cash provided by operating activities in 2013 of $32.4 million consists of $18.2 million in net income, the net add-back of noncash income statement items totaling $5.6 million and a positive $8.6 million net change in operating assets (net of operating
liabilities). Included in the non-cash items are $5.1 million in depreciation and amortization expense and $4.3 million in stock-based
compensation expense. These additions were partially offset by a $6.8 million reduction related to excess tax benefit from stockbased compensation that is treated as a financing activity for cash flow purposes. The most significant increase to cash from operating
activities related to the changes in operating assets and liabilities is an $8.1 million increase to deferred revenue. Of the increase in
deferred revenue, $5.1 million results from additional extended warranty sales and the remainder is primarily a result of prepayments
for our EVIDENCE.com SaaS. In addition, the $5.6 million increase to cash from operating activities related to increases in accounts
payable and accrued liabilities was primarily caused by current income tax expense, which would have resulted in an increase to
income tax payable, if it had not been reduced by the excess tax benefit from stock-based compensation discussed above. These
increases to operating cash flow were partially offset by an increase in accounts and notes receivable of $4.4 million. The fluctuation
in accounts and notes receivable was primarily driven by sales, which increased 20.1% during the year as compared to the prior year,
and 24.6% in the three months ended December 31, 2013, as compared to the same three-month period in the prior year.
Net cash provided by operating activities in 2012 of $26.5 million consists of $14.7 million in net income, the net add-back of noncash income statement items totaling $9.1 million and a $2.7 million net change in operating assets (net of operating liabilities).
Included in the non-cash items are $6.5 million in depreciation and amortization expense and $3.4 million in stock-based
compensation expense. These additions were partially offset by a reduction to operating cash flows of $4.7 million related to excess
tax benefit from stock-based compensation that is included in financing activities. The most significant changes in operating assets
and liabilities for the twelve-month period include an increase of $4.2 million related to a change in deferred revenue. Deferred
revenue increased $4.2 million due to increased sales of extended warranties as well as sales of EVIDENCE.com service and
maintenance. In addition, the $4.4 million increase to cash from operating activities related to increases in accounts payable and
accrued liabilities was primarily caused by current income tax expense, which would have resulted in an increase to income tax
payable, if it had not been reduced by the excess tax benefit from stock-based compensation discussed above. These changes were
partially offset by an increase in accounts and notes receivable of $6.1 million. The fluctuation in accounts and notes receivable was
primarily driven by sales, which increased 27.5% during the year as compared to the prior year, and 50.6% in the three months ended
December 31, 2012, as compared to the same three-month period in the prior year. The net $0.5 million positive change in accounts
payable and other accrued liabilities resulted from increases in accrued liabilities including a $1.6 million increase due to supply
purchases to support higher sales activity, as well as $1.0 million in accrued legal settlements during the year, and a $0.9 million
increase in accrued payroll, offset by the $2.2 million reversal of the Turner legal judgment.
Net cash provided by operating activities in 2011 of $17.3 million includes a loss of $7.0 million, which was more than offset by the
add-back of non-cash expenses totaling $18.1 million, and the positive impact on cash of changes in operating assets (net of operating
38

liabilities) of $6.2 million. Included in the add-back of non-cash expenses is stock-based compensation expense of $3.0 million,
depreciation and amortization expense of $8.1 million, asset impairment charges of $1.4 million and a loss on write-down / disposal of
fixed assets of $2.8 million. Changes in operating assets (net of operating liabilities) include a $3.4 million increase $3.4 million
addition related to increased accounts payable and accrued liabilities, primarily due to the Turner litigation judgment, a $1.5 million
reduction in accounts receivable due to timing of collections, and a $1.3 million reduction in inventory as we actively worked to
reduce the levels of raw material and finished goods on hand during the 2011 period.
Investing activities
Primarily as a result of investing cash generated from operating activities, we used $23.1 million for investing activities in 2013.
Purchases of investments, net of calls and maturities, were $19.7 million. The Company also invested $2.1 million in the purchase of
property and equipment and intangibles, as well as $1.3 million, net, to purchase Familiar, Inc.
We generated $1.7 million from investing activities in 2012, comprised principally of $3.4 million of net proceeds from
call/maturity of short-term investments offset by $1.7 million for the acquisition of various production and computer equipment and
intangible assets, net of proceeds from asset disposals.
We used $7.6 million for investing activities in 2011, comprised principally of $5.5 million used for the net purchase of short-term
investments and $2.1 million for the acquisition of various production and computer equipment and intangible assets, net of proceeds
from asset disposals.
Financing activities
Net cash used by financing activities was $3.2 million for the year ended December 31, 2013. The repurchase of $25.0 million of
the Company’s common stock, which was purchased for a weighted average cost of $8.20 per share, was offset by $15.4 million of
proceeds from the exercise of stock options, and $6.8 million of excess tax benefit from stock proceeds. The purchase of common
stock was made under a stock repurchase program authorized by TASER’s Board of Directors. We completed the authorized
repurchases as of June 2013.
During 2013, the Company recorded $6.8 million for excess tax benefits related to stock-based compensation. The tax benefit
relates to exercises occurring from the years 2004 through 2013.
During 2012, net cash used by financing activities was $13.4 million, primarily attributable to the repurchase of $20.0 million of the
Company’s common stock, which was purchased for an average of $5.22 per share, offset by $1.9 million of proceeds from the
exercise of stock options. The purchase of common stock was made under a stock repurchase program authorized by TASER’s Board
of Directors.
During 2012, the Company recorded $4.7 million for excess tax benefit related to stock-based compensation. The tax benefit relates
to exercises occurring from the years 2006 through 2012 which gave rise to tax attribute carry forwards such as net operating losses
and tax credits. The Company was able to recognize this benefit in 2012 due to its positive taxable income during the period that
allowed for the utilization of those tax attributes for which no benefit had previously been recorded.
During 2011, net cash used by financing activities was $31.1 million, primarily attributable to the repurchase of $32.5 million of the
Company’s common stock, which was purchased for an average of $4.35 per share, offset by $1.4 million of proceeds from the
exercise of stock options.
Liquidity and Capital Resources
Our most significant sources of liquidity continue to be funds generated by operating activities and available cash and cash
equivalents. In addition, our $10.0 million revolving credit facility is available for additional working capital needs or investment
opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. The line is
secured by our accounts receivable and inventory, and bears interest at varying rates currently LIBOR plus 1.5% to prime. As of
December 31, 2013, we had letters of credit outstanding of $0.6 million, leaving the net amount available for borrowing of $9.4
million. The facility matures on June 30, 2015. There can be no assurance that we will continue to generate cash flows at or above
current levels or that we will be able to maintain our ability to borrow under our revolving credit facility. At December 31, 2013 and
2012, there were no borrowings under the line.
39

Our agreement with the bank requires us to comply with certain financial and other covenants including maintenance of minimum
tangible net worth and a fixed charge coverage ratio. The ratio of total liabilities to tangible net worth can be no greater than 1:1, and
the fixed coverage charge ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At December 31, 2013, the
Company's tangible net worth ratio was 0.39:1 and its fixed charge coverage ratio was 3.18:1. Accordingly, the Company was in
compliance with these covenants.
Based on our strong balance sheet and the fact that we had just $0.1 million in total long-term debt and capital lease obligations at
December 31, 2013, we believe financing will be available, both through our existing credit line and possible additional financing.
However, there is no assurance that such funding will be available on terms acceptable to us, or at all.
We believe funds generated from our expected results of operations, as well as available cash and investments, will be sufficient to
finance our operations and strategic initiatives for 2014 and the foreseeable future. From time to time, our board of directors considers
repurchases of our common stock. Further repurchases of our common stock will take place on the open market, will be financed with
available cash and are subject to authorization as well as market and business conditions.
Contractual Obligations
The following table outlines our future contractual financial obligations by period in which payment is expected, as of
December 31, 2013 (dollars in thousands):
Less than
1 Year

Total

1 - 3 Years

4 - 5 Years

More than
5 Years

Non-cancelable operating leases…………………… $
Capital leases including interest……………………
Open purchase orders…………………………………

689
112
11,934

$

374
41
11,934

$

261
71
-

$

54
-

$

-

Total contractual obligations…………………………$

12,735

$

12,349

$

332

$

54

$

-

Open purchase orders in the above table primarily represent non-cancelable purchase orders with key vendors, which are included in
this table due to the Company's strategic relationships with these vendors.
We are subject to U.S. Federal income tax as well as income taxes imposed by several states and foreign jurisdictions. As of
December 31, 2013, we had $3.1 million of unrecognized tax benefits related to uncertain tax positions. The settlement period for our
long-term income tax liabilities cannot be determined; however, the liabilities are not expected to significantly increase or decrease
within the next 12 months.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements as of December 31, 2013.
Critical Accounting Estimates
We have identified the following accounting estimates as critical to our business operations and the understanding of our results of
operations. The preparation of this Annual Report on Form 10-K 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 consolidated financial
statements, and the reported amounts of revenue and expenses during the reporting period. While we don’t believe that a change in
these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates. The effect of
these policies on our business operations is discussed below.
Product Warranties
The Company warrants its CEWs, StrikeLight, AXON cameras and ETM from manufacturing defects on a limited basis for a period
of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for our standard warranty are
40

charged to cost of products sold and services delivered when revenue is recorded for the related product. We estimate future warranty
costs based on historical data related to returns and warranty costs on a quarterly basis and apply this rate to current product
anticipated returns from our customers. We have also historically increased our reserve amount if we become aware of a component
failure that could result in larger than anticipated returns from our customers. The accrued warranty liability expense is reviewed
quarterly to evaluate whether it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the
balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates.
As of December 31, 2013 and 2012, our reserve for warranty returns was approximately $1.0 million and $0.5 million, respectively.
Warranty expense in the years ended December 31, 2013, 2012 and 2011 was $1.0 million, $0.5 million and $0.3 million,
respectively.
Revenue related to separately-priced extended warranties is recorded as deferred revenue and subsequently recognized in net sales
on a straight-line basis over the delivery period. Costs related to extended warranties are charged to cost of products sold and services
delivered when incurred.
Inventory
Inventories are stated at the lower of cost or market, with cost determined using the weighted average cost of raw materials, which
approximates the first-in, first-out (“FIFO”) method, and an allocation of manufacturing labor and overhead costs. The allocation of
manufacturing labor and overhead costs includes management’s judgments of what constitutes normal capacity of our production
facilities and a determination of what costs are considered to be abnormal fixed production costs, which are expensed as current period
charges. Provisions are made to reduce potentially excess, obsolete or slow-moving inventories to their net realizable value. These
provisions are based on our best estimates after considering historical demand, projected future demand, inventory purchase
commitments, industry and market trends and conditions and other factors. Our reserve for excess and obsolete inventory decreased to
$1.0 million at December 31, 2013, compared to $2.3 million at December 31, 2012. This decrease is attributable primarily to the
disposal of some of the previously reserved for X3 CEW inventory during the year ended December 31, 2013. In the event that actual
excess, obsolete or slow-moving inventories differ from these estimates, changes to inventory reserves may be necessary.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable
We derive our revenue from two primary sources: (1) the sale of physical products, including our CEWs, AXON cameras,
corresponding extended warranties, and related accessories such as cartridges and batteries, and (2) subscription to our
EVIDENCE.com digital evidence management SaaS (including data storage fees and other ancillary services), which includes varying
levels of support. To a lesser extent, we also recognize training and other revenue. Revenue is recognized when persuasive evidence
of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is fixed and
collectability is reasonably assured. Extended warranty revenue, SaaS revenue and related data storage revenue are recognized ratably
over the term of the contract beginning on the commencement date of each contract.
Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling
price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendorspecific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence
exists, management uses its best estimate of selling price.
EVIDENCE.com and AXON cameras are sold separately, but in most instances are sold together. In these instances, customers
typically purchase and pay for the equipment and one year of EVIDENCE.com in advance. Additional years of service are generally
billed annually over a specified service term, which has typically ranged from one to five years. AXON equipment represents a
deliverable that is provided to the customer at the time of sale, while EVIDENCE.com services are provided over the specified term of
the contract. The Company recognizes revenue for the AXON equipment at the time of the sale consistent with the discussion of
multiple deliverable arrangements above. Revenue for EVIDENCE.com is deferred at the time of the sale and recognized over the
service period. In certain circumstances, not all requirements are met for the recognition of revenue relative to equipment sold in
conjunction with EVIDENCE.com at the time the equipment is provided to customers. In such circumstances, based on limitations
associated with the consideration, the revenue may be recognized ratably over the specified term of the contract, or when all
conditions for revenue recognition are met, if sooner.
Deferred revenue consists of billings and/or payments received in advance related to products and services for which the criteria for
revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is

41

recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future
revenue from multi-year contracts for which no invoice has yet been created. We generally bill customers in annual installments.
Sales are typically made on credit and we generally do not require collateral. We perform ongoing credit evaluations of our
customers’ financial condition and maintain an allowance for estimated potential losses. Uncollectible accounts are written off when
deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful accounts. This allowance
represents our best estimate and is based on our judgment after considering a number of factors including third-party credit reports,
actual payment history, customer-specific financial information and broader market and economic trends and conditions. In the event
that actual uncollectible amounts differ from our estimates, additional expense could be necessary.
Valuation of Goodwill, Intangibles and Long-lived Assets
In the fourth quarter of 2013, we recorded goodwill related to the Familiar business acquisition. The recoverability of the goodwill
will be evaluated and tested for impairment at least annually during the fourth quarter or more often, if and when circumstances
indicate that goodwill may not be recoverable. Finite-lived intangible assets and other long-lived assets are amortized over their
useful lives. We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of longlived assets and intangible assets may warrant revision or that the remaining balance of these assets, including intangible assets with
indefinite lives, may not be recoverable.
Circumstances that might indicate long-lived assets might not be recoverable could include, but are not limited to, a change in the
product mix, a change in the way products are created, produced or delivered, or a significant change in the way our products are
branded and marketed. When performing a review for recoverability, we estimate the future undiscounted cash flows expected to
result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is calculated
based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows.
During 2011, we recognized an impairment charge of $1.4 million relative to our Protector product line following our decision to
abandon ongoing operations for this product line. Further, we recognized a charge of $2.8 million during 2011, relative to the writedown / disposal of property and equipment. This charge relates to the disposal of surplus equipment for EVIDENCE.com operations,
and impairment of production tooling related to the first generation AXON video product line and the TASER X3 CEW product line.
No impairment losses were recorded in 2013 or 2012.
Income Taxes
We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the
current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities, as appropriate, for
our estimate of future tax effects attributable to temporary differences and carry forwards.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions
are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
Management must also assess whether uncertain tax positions as filed could result in the recognition of a liability for possible interest
and penalties if any. We have completed research and development tax credit studies which identified approximately $9.8 million in
tax credits for federal, Arizona and California income tax purposes related to the 2003 through 2013 tax years, net of the federal
benefit on the Arizona and California research and development tax credits. Management determined that it was more likely than not
that the full benefit of the research and development tax credit would not be sustained on examination and accordingly, has established
a liability for unrecognized tax benefits of $3.1 million as of December 31, 2013. In addition, we established a $0.1 million liability
related to uncertain tax positions for certain state income tax liabilities, for a total unrecognized tax benefit at December 31, 2013 of
$3.1 million. As of December 31, 2013, management does not expect the amount of the unrecognized tax benefit liability to increase
or decrease significantly within the next 12 months. Should the unrecognized tax benefit of $3.1 million be recognized, the
Company’s effective tax rate would be favorably impacted. Our estimates are based on the information available to us at the time we
prepare the income tax provisions. Our income tax returns are subject to audit by federal, state, and local governments, generally years
after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.
Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing
with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets and liabilities may change
based, in part, on added certainty or finality to an anticipated outcome, changes in accounting or tax laws in the U.S. and overseas, or
42

changes in other facts or circumstances. In addition, we recognize liabilities for potential U.S. tax contingencies based on our estimate
of whether, and the extent to which, additional taxes may be due. If we determine that payment of these amounts is unnecessary, or if
the recorded tax liability is less than our current assessment, we may be required to recognize an income tax benefit, or additional
income tax expense, respectively, in our consolidated financial statements.
In preparing our consolidated financial statements, management assesses the likelihood that our deferred tax assets will be realized
from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available
positive and negative evidence, including operating results, ongoing tax planning and forecasts of future taxable income on a
jurisdiction by jurisdiction basis. A valuation allowance is established if we determine that it is more likely than not that some portion
or all of the net deferred tax assets will not be realized.
Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments
that could become subject to audit by tax authorities in the ordinary course of business. As of December 31, 2013, the Company
would need to generate approximately $38.1 million of pre-tax book income in order to realize the net deferred tax assets for which a
benefit has been recorded. This estimate considers the reversal of approximately $6.1 million of gross deferred tax liabilities, $2.4
million tax-effected. We also have gross deferred tax assets of $2.6 million, $124,000 tax-effected, related to state NOLs which expire
at various dates between 2016 and 2031. We anticipate the Company’s future income to continue to trend upward from our 2013
results, with sufficient pre-tax book income to realize our deferred tax assets. As such, we have not recorded a valuation allowance on
our deferred tax assets.
Stock-Based Compensation
We have historically granted stock-based compensation for key employees and non-employee directors as a means of attracting and
retaining quality personnel. We have utilized restricted stock units and stock options; however, no stock options were issued during
2013 or 2012. The fair value of restricted stock units is estimated as the closing price of our common stock on the date of grant. We
estimate the fair value of granted stock options by using the Black-Scholes-Merton option pricing model, which requires the input of
highly subjective assumptions. These assumptions include estimating the length of time employees will retain their stock options
before exercising them (expected term), the estimated volatility of our common stock price over the expected term and the number of
options that will ultimately not vest (forfeitures). The expense for both restricted stock units and stock options is recorded over the
life of the grant, net of forfeitures.
We have granted a total of approximately 1.4 million performance-based awards (options and restricted stock units) of which
approximately 0.8 million are outstanding as of December 31, 2013, the vesting of which is contingent upon the achievement of
certain performance criteria including the successful development and market acceptance of future product introductions as well as
our future sales targets and operating performance. These awards will vest and compensation expense will be recognized based on
management’s best estimate of the probability of the performance criteria being satisfied using the most currently available projections
of future product adoption and operating performance, adjusted at each balance sheet date. Changes in the subjective and probabilitybased assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount
recognized in our statements of operations. Refer to Note 1 (q) to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K for further discussion of our valuation assumptions.
Contingencies and Accrued Litigation Expense
We are subject to the possibility of various loss contingencies including product-related litigation, arising in the ordinary course of
business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to
reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is
probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We
regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals
are required. Refer to Note 9(c) of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
further discussion of our contingencies and accrued litigation expense.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts,
43

certificates of deposit and corporate and municipal bonds with a typical long-term debt rating of “AA” or better by any nationally
recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents and investments are treated as
“held-to-maturity.” Investments in fixed-rate interest-earning instruments carry a degree of interest rate risk as their market value may
be adversely impacted due to a rise in interest rates. As a result, we may suffer losses in principal if we sell securities that have
declined in market value due to changes in interest rates. However, because we classify our debt securities as “held-to-maturity” based
on our intent and ability to hold these instruments to maturity, no gains or losses are recognized due to changes in interest rates. These
securities are reported at amortized cost. As of December 31, 2013, we estimate that a 10 basis point increase or decrease in interest
rates would result in a change in the fair market value of these instruments of less than $0.1 million and would result in a change in
annual interest income of less than $0.1 million.
Additionally, we have access to a line of credit borrowing facility which bears interest at varying rates, currently at LIBOR plus
1.5% to prime. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled
$0.6 million at December 31, 2013. At December 31, 2013, there was no amount outstanding under the line of credit and the available
borrowing under the line of credit was $9.4 million. We have not borrowed any funds under the line of credit since its inception;
however; should we need to do so in the future, such borrowings could be subject to adverse or favorable changes in the underlying
interest rate.
Exchange Rate Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly
changes in the Euro related to transactions by TASER Europe. To date, we have not engaged in any currency hedging activities,
although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.
The majority of our sales to international customers is transacted in U.S. dollars and therefore, is not subject to exchange rate
fluctuations. However, the cost of our products to our customers increases when the U.S. dollar strengthens against their local
currency and the Company may have more sales and expenses denominated in foreign currencies in 2014 which would increase its
foreign exchange rate risk.

44

Item 8. Financial Statements and Supplementary Data

TASER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
2013

2012

AS S ETS
Current assets:
Cash and cash equivalents…………………………………………………………………………$
Short-term investments……...……………………………………………………………………
Accounts and notes receivable, net of allowance of $200 as of
December 31, 2013 and 2012, respectively……………………………………………………
Inventory, net……………………………………………………………………………………
Prepaid expenses and other current assets………………………………….……………………
Deferred income tax assets, net……………………………………………………………………

22,488
11,109
5,397
7,101

18,101
10,993
2,755
9,396

Total current assets……………………………………………………………………………

97,467

79,053

Property and equipment, net………………………………………………………………………
Deferred income tax assets, net……………………………………………………………………
Intangible assets, net………………………………………………………………………………
Goodwill, net…………………………………………………………………………………….
Long-term investments…………………………………………………………………………..
Other assets………………….……………………………………………………………………

19,043
13,679
3,317
2,235
12,023
618

21,952
11,606
3,317
308

Total assets…………………………………………………………………………………… $

148,382

$

116,236

6,221
8,840
6,878
1,154
36

$

6,223
7,065
4,287
500
34

42,271
9,101

$

36,127
1,681

LIABILITIES AND S TOCKHOLDERS ' EQUITY
Current liabilities:
Accounts payable…………….……...…………………………………………………………… $
Accrued liabilities…………………………………………………………………………………
Current portion of deferred revenue……...………………………………………………………
Customer deposits…...……………………………………………………………………………
Current portion of capital lease payable…………………………………………………………
Total current liabilities…………………………………………………………………………

23,129

18,109

Deferred revenue, net of current portion…………………………………………………………
Liability for unrecognized tax benefits……………………………………………………………
Long-term deferred compensation…………………………………………………………………
Long-term portion of capital lease payable………………………………………………………

13,341
3,122
376
67

7,836
2,903
103

Total liabilities…………………………………………………………………………………

40,035

28,951

-

-

Commitments and contingencies
S tockholders' equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares
issued and outstanding as of December 31, 2013 and 2012……………………………………
Common stock, $0.00001 par value; 200,000,000 shares authorized;
52,725,247 and 52,770,392 shares issued and outstanding as of December 31, 2013
and 2012, respectively…………………………………………………………………………
Additional paid-in capital…………………………………………………………………………
Treasury stock at cost, 16,412,755 and 13,363,789 shares as of December 31, 2013
and 2012, respectively…………………………………………………………………………
Retained earnings…………………………………………………………………………………
Accumulated other comprehensive loss…………………………….……………………………

1
139,424

1
111,661

(92,203)
61,127
(2)

(67,203)
42,883
(57)

Total stockholders' equity……………………………………………………………………

108,347

Total liabilities and stockholders' equity……………………………………………………$

148,382

87,285
$

116,236

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

45

TASER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)

For the Years Ended December 31,
2013
2012
2011
Net sales……….……………………………………………………………………$
Cost of products sold and services delivered…………………………………
Excess inventory charges…………………………………………………………
Gross margin………………………………………………………………………

137,831
51,988
85,843

$

114,753
47,038
67,715

$

Operating expenses:
Sales, general and administrative………...……………………………………
Research and development……………………………………………………
Litigation judgments (recoveries)……………………………………………
Loss on impairment……………………………………………………………
(Gain) loss on write down / disposal of property and equipment, net….

46,584
9,888
1,450
(27)

39,086
8,139
(2,200)
161

38,001
9,989
3,301
1,354
2,800

Total operating expenses…………………………………………………………

57,895

45,186

55,445

Income (loss) from operations……………………………………………………

27,948

22,529

(10,916)

Interest and other income, net……………………………………………………

86

83

1,287

Income (loss) before provision (benefit) for income taxes……………………
Provision (benefit) for income taxes……………..………………………………

28,034
9,790

22,612
7,874

(9,629)
(2,589)

Net income (loss)………………………………………………………………… $

18,244

$

14,738

$

(7,040)

Net income (loss) per common and common equivalent shares:
Basic…………………………………………………………………………… $
Diluted……………………………………………………………………………$

0.35
0.34

$
$

0.27
0.27

$
$

(0.12)
(0.12)

Weighted average number of common and common
equivalent shares outstanding:
Basic……………………………………………………………………………
Diluted……………………………………………………………………………

51,880
54,152

53,827
54,723

90,028
41,753
3,746
44,529

59,436
59,436

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)………………………………………………………………… $
Foreign currency translation adjustments………………………………………

18,244
55

$

14,738
24

$

(7,040)
(45)

Comprehensive income (loss)…………………………………………………… $

18,299

$

14,762

$

(7,085)

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

46

TASER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Additional
Paid-in
Capital

Common Stock
Share s
Amount
Balance, December 31, 2010……………………
Stock options exercised…………………………
Stock-based compensation………………………
Excess tax benefit from stock-based
compensation…………………………………
Purchase of treasury stock………………………
Net loss……………………………………………
Foreign currency
translation adjustments………………………

62,621,268
539,923
-

Balance, December 31, 2011……………………
Stock options exercised and RSUs vested……
Stock-based compensation………………………
Excess tax benefit from stock-based
compensation…………………………………
Purchase of treasury stock………………………
Net income…………………………………………
Foreign currency
translation adjustments………………………

55,696,608
881,390
(3,807,606)
-

Balance, December 31, 2012……………………
Stock options exercised and RSUs vested,
net of withholdings……………………………
Stock-based compensation………………………
Excess tax benefit from stock-based
compensation…………………………………
Purchase of treasury stock………………………
Shares issued related to business acquisition……
Net income…………………………………………
Foreign currency
translation adjustments………………………

52,770,392

Balance, December 31, 2013……………………

52,725,247

$

(7,464,583)
-

1

$

2,091,600
-

-

10
-

7,464,583
-

-

(45)

-

-

101,597
1,929
3,422

9,556,183
-

(47,207)
-

(81)
-

28,145
-

82,455
1,929
3,422

-

4,713
-

3,807,606
-

(19,996)
-

-

14,738

4,713
(19,996)
14,738

-

-

1

111,661

2,896,072
-

-

15,048
4,340

(3,048,966)
107,749
-

-

6,797
1,578
-

-

-

$

1

$

139,424

(14,708)
-

$

(32,499)
-

-

13,363,789
-

(36)
-

$

Total
Stockholders'
Equity

97,122
1,427
3,038

1

$

Retained
Earnings

-

-

-

Treasury Stock
Shares
Amount

Accumulated
O ther
Comprehe nsive
Loss

-

117,564
1,427
3,038

(7,040)

10
(32,499)
(7,040)
(45)

-

24

-

(67,203)

(57)

42,883

87,285

24

-

-

-

15,048
4,340

(25,000)

-

-

-

-

-

18,244

6,797
(25,000)
1,578
18,244

-

-

3,048,966

16,412,755

$

(92,203)

55
$

(2)

$

The accompanying notes are an integral part of these consolidated financial statements.
47

35,185
-

61,127

55
$

108,347

TASER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2013
2012
2011
Cash flows from operating activities:
Net income (loss)………………………………………………………………………$
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization………………………………………………………
Loss on impairment…………………………………………………………………
(Gain) loss on write down / disposal of property and equipment, net
Loss on disposal of intangibles……………………………………………………
Bond premium amortization…………………………………………………………
Provision (recovery) for doubtful accounts………………………………………
Provision for excess and obsolete inventory……………………………………
Provision for warranty………………………………………………………………
Stock-based compensation expense………………………………………………
Deferred income taxes.………………………………………………………………
Provision for unrecognized tax benefits………..…………………………………
Excess tax benefit from stock-based compensation………………………………
Change in assets and liabilities:
Accounts and notes receivable……………………………………………………
Inventory……………………………………………………………………………
Prepaid expenses and other current assets………………………………………
Accounts payable and accrued liabilities…………………………………………
Deferred revenue……………………………………………………………………
Customer deposits…………………………………………………………………
Net cash provided by operating activities…………………………………………

18,244

$

14,738

$

(7,040)

5,131
(27)
168
289
24
595
1,001
4,340
621
219
(6,797)

6,519
161
195
29
(242)
554
527
3,422
1,683
920
(4,713)

8,097
1,354
2,800
54
371
296
4,610
310
3,038
(2,481)
(299)
(10)

(4,411)
(711)
(569)
5,559
8,096
654
32,426

(6,080)
(62)
177
4,433
4,169
87
26,517

1,463
1,328
(374)
3,412
296
41
17,266

Cash flows from investing activities:
Purchases of investments…………………………………………………………
Proceeds from call / maturity of investments……………………………………
Purchases of property and equipment……………………………………………
Proceeds from disposal of fixed assets……………………………………………
Purchases of intangible assets……………………………………………………
Business acquisition, net of cash acquired………………………………………
Net cash (used in) provided by investing activities………………………………

(29,112)
9,380
(1,783)
34
(323)
(1,258)
(23,062)

(6,242)
9,640
(1,334)
46
(429)
1,681

(11,479)
6,000
(1,854)
149
(413)
(7,597)

Cash flows from financing activities:
Repurchase of common stock………………………………………………………
Proceeds from options exercised…………………………………………………
Payroll tax payments for net-settled stock awards………………………………
Payments on capital lease obligation………………………………………………
Excess tax benefit from stock-based compensation………………………………
Net cash used in financing activities………………………………………………

(25,000)
15,357
(309)
(34)
6,797
(3,189)

(19,996)
1,929
(9)
4,713
(13,363)

(32,499)
1,427
10
(31,062)

Effect of exchange rate changes on cash and cash equivalents…………………

(31)

(9)

10

Net increase (decrease) in cash and cash equivalents……………………………
Cash and cash equivalents, beginning of year……………………………………
Cash and cash equivalents, end of year…………………………………………… $

6,144
36,127
42,271

14,826
21,301
36,127

(21,383)
42,684
21,301

$

$

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

48

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced conducted electrical
weapons (“CEWs”) designed for use in law enforcement, federal, military, corrections, private security and personal defense. In
addition, the Company has developed full technology solutions for the capture, storage and management of video/audio evidence as
well as other tactical capabilities for use in law enforcement. The Company sells its products worldwide through its direct sales force,
distribution partners, online store and third-party resellers. The Company was incorporated in Arizona in September 1993, and
reincorporated in Delaware in January 2001. The Company’s corporate headquarters and manufacturing facilities are located in
Scottsdale, Arizona. The Company’s software development division facilities are located in Santa Barbara, California, and Bellevue,
Washington.
The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries,
including TASER International Europe SE (“TASER Europe”). TASER Europe was established in 2009 to facilitate sales and provide
customer service to our customers in the European region. All material intercompany accounts, transactions, and profits have been
eliminated.
a. Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the U.S. of America (“U.S. GAAP”). The preparation of these consolidated financial statements 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant estimates and assumptions in these consolidated financial statements include:








product warranty reserves,
inventory valuation reserves,
revenue recognition allocated in multiple-deliverable revenue recognition,
valuation of goodwill, intangibles and long-lived assets,
recognition, measurement and valuation of current and deferred income taxes,
fair value of stock awards issued, the estimated vesting period for performance-based stock awards and forfeiture rates, and
recognition and measurement of contingencies and accrued litigation expense.

Actual results could differ materially from those estimates.
b. Cash, Cash Equivalents and Investments
Cash, cash equivalents and investments include cash, money market funds, certificates of deposit, state and municipal obligations
and corporate bonds. The Company places its cash and cash equivalents with high quality financial institutions. Balances with these
institutions regularly exceed FDIC insured limits; however, to manage the related credit exposure, the Company continually monitors
the credit worthiness of the financial institutions where it has deposits.
Cash and cash equivalents include funds on hand and highly liquid investments purchased with initial maturity of three months or
less. Short-term investments include securities with an expected maturity date within one year of the balance sheet date that do not
meet the definition of a cash equivalent, and long-term investments are securities with an expected maturity date greater than one year.
Based on management’s intent and ability, the Company’s investments are classified as held to maturity investments and are recorded
at amortized cost. Held-to-maturity investments are reviewed quarterly for impairment to determine if other-than-temporary declines
in the carrying value have occurred for any individual investment. Other-than-temporary declines in the value of held-to-maturity
investments are recorded as expense in the period the determination is made.

49

c. Inventory
Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials which
approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Provisions are
made to reduce potentially excess, obsolete or slow-moving inventories to their net realizable value. These provisions are based on
management’s best estimate after considering historical demand, projected future demand, inventory purchase commitments, industry
and market trends and conditions and other factors. Management evaluates inventory costs for abnormal costs due to excess
production capacity and treats such costs as period costs.
d. Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. 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.
e. Capitalized Software Development Costs
The Company capitalizes qualifying computer software costs incurred during the application development stage for internally
developed software. Additionally, the Company capitalizes qualifying costs incurred for upgrades and enhancements to existing
software that result in additional functionality. Costs related to preliminary project planning activities, post-implementation activities,
maintenance and minor modifications are expensed as incurred. Internal-use software is amortized on a straight line basis over its
estimated useful life. There were no software development costs capitalized for the years ending December 31, 2013, 2012 or 2011.
Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in
circumstances occur that could impact the recoverability of these assets. During 2011, the Company recognized an impairment charge
related to the development of the TASER Protector Platform that included $0.8 million of capitalized software development costs,
following the Company’s decision to abandon this product line.
Amortization of capitalized software development costs related to the Company’s software as a service (“SaaS”) product,
EVIDENCE.com, was $0.6 million, $1.2 million and $1.3 million for the years ended December 31, 2013, 2012 and 2011,
respectively. As of December, 31, 2013, no capitalized software development costs remain to be amortized.
f. Valuation of Goodwill, Intangibles and Long-lived Assets
In the fourth quarter of 2013, the Company recorded goodwill related to the Familiar business acquisition. The recoverability of
goodwill will be evaluated and tested for impairment at least annually during the fourth quarter or more often, if and when
circumstances indicate that goodwill may not be recoverable. Finite-lived intangible assets and other long-lived assets are amortized
over their useful lives. Management evaluates whether events and circumstances have occurred that indicate the remaining estimated
useful life of long-lived assets and intangible assets may warrant revision or that the remaining balance of these assets, including
intangible assets with indefinite lives, may not be recoverable.
Circumstances that might indicate long-lived assets might not be recoverable could include, but are not limited to, a change in the
product mix, a change in the way products are created, produced or delivered, or a significant change in the way our products are
branded and marketed. When performing a review for recoverability, management estimates the future undiscounted cash flows
expected to result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is
calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash
flows.
During 2011, the Company recognized an impairment charge of $1.4 million relative to its Protector product line following the
Company’s decision to abandon ongoing operations for this product line. Further, the Company recognized a charge of $2.8 million
during 2011, relative to the write-down / disposal of property and equipment. This charge relates to the disposal of surplus equipment
for EVIDENCE.com operations, and impairment of production tooling related to the first generation AXON video product line and the
TASER X3 CEW product line. No impairment losses were recorded in 2013 or 2012.

50

g. Customer Deposits
The Company requires deposits in advance of shipment for certain customer sales orders. Customer deposits are recorded as a
current liability in the accompanying consolidated balance sheets.
h. Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable
The Company derives revenue from two primary sources: (1) the sale of physical products, including our CEWs, AXON cameras,
corresponding extended warranties, and related accessories such as cartridges and batteries, and (2) subscription to our
EVIDENCE.com digital evidence management SaaS (including data storage fees and other ancillary services), which includes varying
levels of support. To a lesser extent, the Company also recognizes training and other revenue. Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is
fixed and collectability is reasonably assured. Extended warranty revenue, SaaS revenue and related data storage revenue are
recognized ratably over the term of the contract beginning on the commencement date of each contract.
Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling
price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendorspecific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence
exists, management uses its best estimate of selling price.
The Company offers customers the right to purchase extended warranties that include additional services and coverage beyond the
limited warranty for certain products. Revenue for extended warranty purchases is deferred at the time of sale and recognized over the
warranty period commencing on the date of sale. Extended warranties range from one to five years.
EVIDENCE.com and AXON cameras are sold separately, but in most instances are sold together. In these instances, customers
typically purchase and pay for the equipment and one year of EVIDENCE.com in advance. Additional years of service are generally
billed annually over a specified service term, which has typically ranged from one to five years. AXON equipment has stand-alone
value and represents a deliverable that is provided to the customer at the time of sale, while EVIDENCE.com services are provided
over the specified term of the contract. The Company recognizes revenue for the AXON equipment at the time of the sale consistent
with the discussion of multiple deliverable arrangements above. Revenue for EVIDENCE.com is deferred at the time of the sale and
recognized over the service period. In certain circumstances, not all requirements are met for the recognition of revenue relative to
equipment sold in conjunction with EVIDENCE.com at the time the equipment is provided to customers. In such circumstances,
based on limitations associated with the consideration, the revenue may be recognized ratably over the specified term of the contract,
or when all conditions for revenue recognition are met, if sooner.
In 2012, the Company introduced a program, the TASER Assurance Program (“TAP”) whereby a customer purchasing a product
and joining the program will have the right to trade-in the original product for a new product of the same or like model in the future.
Upon joining TAP, customers also receive an extended warranty for the initial products purchased and spare inventory. Under this
program the customer generally pays additional annual installments over the contract period, generally three to five years. The
Company records consideration received related to the future purchase as deferred revenue until all revenue recognition criteria are
met, which is generally at the end of the contract period.
Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. Training revenue is recorded
as the service is provided.
Deferred revenue consists of billings and/or payments received in advance related to products and services for which the criteria for
revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is
recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future
revenue from multi-year contracts for which no invoice has yet been created. Generally, customers are billed in annual installments.
See Note 7 for further discussion of the Company’s deferred revenue.
Sales are typically made on credit and the Company generally does not require collateral. Management performs ongoing credit
evaluations of its customers’ financial condition and maintains an allowance for estimated potential losses. Uncollectable accounts are
charged to expense when deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful
accounts. This allowance represents management’s best estimate and is based on their judgment after considering a number of factors,

51

including third-party credit reports, actual payment history, cash discounts, customer-specific financial information and broader
market and economic trends and conditions.
The Company may, from time to time, enter into agreements with its customers to finance their purchases with a note receivable
that may range in terms up to five years. Sales are recorded at the fair value of the note, which is generally sold and assigned to a
third-party financing company. The terms of the assignments are such that the Company expects to receive payment within 30 days of
the original sale. The assignments are non-recourse and the Company has no obligations or continuing involvement with the notes
receivable. Prior to entering into an assignment, the Company evaluates the credit quality and financial condition of the third-party
financing company. As of December 31, 2013, there was no balance in accounts and notes receivable related to such arrangements.
As of December 31, 2012, there was a balance of $3.1 million, which was collected subsequent to year end, included in accounts and
notes receivable related to such arrangements. The Company did not record any interest income on notes receivable due to minimal
holding periods, nor has the Company recognized gains or losses upon the assignment of the notes.
i. Cost of Products Sold and Services Provided
Cost of products sold represents manufacturing costs, consisting of 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. Cost of services provided
includes third party cloud services, and software maintenance costs, including personnel costs, associated with providing
EVIDENCE.com.
j. Advertising Costs
The Company expenses advertising costs in the period in which they are incurred. The Company incurred advertising costs of $0.2
million, $0.2 million and $0.3 million in the years ended December 31, 2013, 2012 and 2011, respectively. Advertising costs are
included in sales, general and administrative expenses in the accompanying statements of operations.
k. Standard Warranties
The Company warrants its CEWs, StrikeLight, AXON cameras and ETMs from manufacturing defects on a limited basis for a
period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for the standard warranty
are charged to cost of products sold and services delivered when revenue is recorded for the related product. Future warranty costs are
estimated based on historical data related to returns and warranty costs on a quarterly basis and this rate is applied to current product
sales. Historically, reserve amounts have been increased if management becomes aware of a component failure that could result in
larger than anticipated returns from customers. The accrued warranty liability expense is reviewed quarterly to verify that it
sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty
obligation period, and adjustments are made when actual warranty claim experience differs from estimates. Costs related to extended
warranties are charged to cost of products sold and services delivered when incurred.
The reserve for warranty returns is included in accrued liabilities on the condensed consolidated balance sheet. For the twelve
months ended December 31, 2013, the warranty expense increased compared to the same period in the prior year primarily due to a
specific reserve for a production run of Smart cartridges that had a higher than expected failure rate. During the third quarter of 2013,
the Company recorded an increase in estimate related to the AXON flex on-officer camera, introduced in 2012, based on the analysis
of actual return data. The X26P and AXON body were launched during 2013, which attributed to an increase in warranty expense
because return estimates are less predictable than for product lines that have been in existence for more than one year. Additionally,
during 2013 the Company’s product mix included products with a higher warranty cost as a percent of sales.
Changes in the Company’s estimated product warranty liabilities are as follows (in thousands):
Warranty Costs
2013

2012

2011

Balance, January 1……………………………………………… $
Utilization of accrual………………………………………………
Warranty expense…………………………………………………

484
(530)
1,001

$

427
(470)
527

$

646
(529)
310

Balance, December 31…………………………………………… $

955

$

484

$

427

52

l. Research and Development Expenses

The Company expenses as incurred research and development costs that do not meet the qualifications to be capitalized. The
Company incurred research and development expense of $9.9 million, $8.1 million and $10.0 million in 2013, 2012 and 2011,
respectively.
m. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment
date. Deferred tax assets are reduced through the establishment of a valuation allowance if, based upon available evidence, it is
determined that it is more likely than not that the deferred tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate resolution. Management also assesses whether uncertain tax positions, as filed, could result in the
recognition of a liability for possible interest and penalties. The Company’s policy is to include interest and penalties related to
unrecognized tax benefits as a component of income tax expense. Refer to Note 10 for additional information regarding the change in
unrecognized tax benefits.
n. Concentration of Credit Risk and Major Customers / Suppliers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts and notes receivable
and cash. Sales are typically made on credit and the Company generally does not require collateral. Management performs ongoing
credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Uncollectable accounts are
written off when deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts, which totaled
$0.2 million as of December 31, 2013 and 2012. Historically, the Company has experienced a low level of write-offs related to
doubtful accounts. During the year ended 2011, the Company recorded a reserve for bad debt expense of $0.3 million related to an
account receivable from a distributor. Due to a modification of the business relationship between the Company and the distributor, the
Company determined the receivable had been impaired and the entire balance should be reserved. During 2012, the balance on the
account was collected. As the cash was collected, the Company reversed the allowance, resulting in a net credit to bad debt expense
for the year ended December 31, 2012.
We maintain the majority of our cash, cash equivalents and investment accounts at three depository institutions. As of December 31,
2013, our aggregate balances in such accounts were $63.4 million. The Company's balances with these institutions regularly exceed
FDIC insured limits; however, to manage the related credit exposure, we continually monitor the credit worthiness of the financial
institutions where we have deposits.
The Company sells its products primarily through a network of unaffiliated distributors. The Company also reserves the right to sell
directly to the end user to secure the customer’s account. In 2013, 2012 and 2011 one distributor represented 12.2%, 12.8% and
12.7%, respectively, of total net sales with no other customers exceeding 10%.
At December 31, 2013, the Company had a trade receivable from one unaffiliated customer comprising 17.4% of the aggregate
accounts receivable balance. At December 31, 2012, the Company had a trade note receivable from one unaffiliated customer
comprising 17.2% of the aggregate accounts receivable balance. These customers are unaffiliated distributors of the Company’s
products.
The Company currently purchases finished circuit boards and injection-molded plastic components from suppliers located in the
U.S.. Although the Company currently obtains many of these components from single source suppliers, the Company owns the
injection molded component tooling used in their production. As a result, management believes it could obtain alternative suppliers in
most cases without incurring significant production delays. The Company also purchases small, machined parts from a vendor in
53

Taiwan, custom cartridge assemblies from a proprietary vendor in the U.S., and electronic components from a variety of foreign and
domestic distributors. Management believes that there are readily available alternative suppliers in most cases who can consistently
meet its needs for these components. The Company acquires most of its components on a purchase order basis and does not have longterm contracts with suppliers.
o. Fair Value of Financial Instruments
The Company uses the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and
liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is
considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the
measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value
are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the
lowest level input that is significant to the fair value measurement in its entirety. These levels are:





Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or
liabilities that are identical to the assets or liabilities being measured.
Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that
are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to
the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.
Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Unobservable inputs are valuation technique inputs that reflect our own assumptions about the assumptions that market
participants would use in pricing an asset or liability.

The Company has cash equivalents and investments, which at December 31, 2013 and 2012, were comprised of money market
funds, state and municipal obligations, corporate bonds, and certificates of deposits. See additional disclosure regarding the fair value
of the Company’s cash equivalents and investments in Note 2. Included in the balance of other assets as of December 31, 2013 is $0.4
million related to corporate-owned life insurance policies which are used to fund the Company’s deferred compensation plan. The
Company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a
Level 2 valuation technique.
The Company’s financial instruments also include accounts and notes receivable, accounts payable and accrued liabilities. Due to
the short-term nature of these instruments, their fair values approximate their carrying values on the balance sheet.
p. Segment and Geographic Information
The Company is comprised of two reportable segments: the sale of CEWs, accessories and other products and services (the
“TASER Weapons” segment); and the video business which includes the TASER Cam, AXON Video products and EVIDENCE.com
(the “EVIDENCE.com & Video” segment). Reportable segments are determined based on discrete financial information reviewed by
the Company’s Chief Executive Officer who is the Chief Operating Decision Maker (the “CODM”) for the Company. The Company
organizes and reviews operations based on products and services, and currently there are no operating segments that are aggregated.
The Company performs an annual analysis of its reportable segments. Additional information related to the Company’s business
segments is summarized in Note 17.
For the three years ended December 31, 2013, 2012 and 2011, net sales by geographic area were as follows (in thousands):
Year Ended December 31,
2012

2013

2011

United States
Other Countries

$

115,674
22,157

84 %
16

$

93,427
21,326

81 %
19

$

72,261
17,767

80 %
20

Total

$

137,831

100 %

$

114,753

100 %

$

90,028

100 %

54

Sales to customers outside of the U.S. are typically denominated in U.S. dollars and are attributed to each country based on the
shipping address of the distributor or customer. For the three years ended December 31, 2013, 2012 and 2011, no individual country
outside the U.S. represented more than 10% of net sales. Substantially all of the Company’s assets are located in the U.S.

q. Stock-Based Compensation
The Company calculates the fair value of stock options using the Black-Scholes-Merton option pricing valuation model, which
incorporates various assumptions including volatility, expected life and risk-free interest rates. The fair value of restricted stock units
is estimated as the closing price of our common stock on the date of grant.
No options were awarded during the years ended December 31, 2013 or 2012. The assumptions used for the year ended December
31, 2011 and the resulting estimates of weighted-average fair value per share of options granted during that period, excluding the
effects of a prior exchange program, are as follows:
2011
Weighted average / range of volatility…………………………………
Risk-free interest rate………………………………………………………
Dividend rate………………………………………………………………
Expected life of options……………………………………………………
Weighted average fair value of options granted……………………… $

56 %
1.6
4.5 years
2.16

The expected life of the options represents the estimated period of time from grant date until exercise and is based on historical
experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee
behavior. Expected stock price volatility is based on a combination of historical volatility of the Company’s stock and the one-year
implied volatility of its publicly traded options for the related vesting periods. The risk-free interest rate is based on the implied yield
available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past
and does not plan to pay any dividends in the near future.
The estimated fair value of stock-based compensation awards is amortized to expense on a straight-line basis over the requisite
service periods. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for
estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which
ultimately vested. See Note 12 for further discussion of the Company’s stock-based compensation.

55

r. Income (Loss) per Common Share
Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the periods presented. Diluted income per share reflects the potential dilution that would occur if
outstanding stock options were exercised utilizing the treasury stock method. The calculation of the weighted average number of
shares outstanding and earnings per share are as follows (in thousands except per share data):
For the Year Ended December 31,
2013
2012
2011
Numerator for basic and diluted earnings per share:
Net income (loss)………………………………………………………$
Denominator:
Weighted average shares outstanding - basic……………………
Dilutive effect of stock-based awards………………………………
Diluted weighted average shares outstanding……………………
Anti-dilutive stock-based awards excluded

(1)

Net income (loss) per common share:
Basic…………………………………………………………………… $
Diluted…………………………………………………………………

18,244

$

14,738

$

(7,040)

51,880
2,272

53,827
896

59,436
-

54,152

54,723

59,436

507

3,205

6,972

0.35
0.34

$

0.27
0.27

$

(0.12)
(0.12)

(1) For the year ended December 31, 2011, all outstanding awards were excluded from the computation of diluted
net loss per common share because inclusion would be anti-dilutive, reducing the net loss per share.
These figures also include performance-based options and RSUs for which the performance criteria have not been met.

s. Recently Issued Accounting Guidance
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) to standardize the
balance sheet presentation of unrecognized tax benefits. This update applies to all entities that have unrecognized tax benefits when a
net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The new guidance is
effective for fiscal years beginning after December 15, 2013, and early adoption is allowed. The adoption of this guidance will result
in a reclassification on the Company’s consolidated balance sheet. Had the company adopted this guidance as of December 31, 2013,
the balance of our long-term deferred tax asset would have decreased by approximately $1.5 million and the liability for unrecognized
tax benefits would have decreased by the same amount.
In February 2013, the FASB issued an ASU requiring entities to provide information about the amounts reclassified out of
accumulated other comprehensive income (loss) (“OCI”) by component. In addition, an entity is required to present, either on the face
of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated OCI by the
respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in
its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to
net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. The new guidance is effective for fiscal years beginning after December 15, 2012. The amendments do not change
the current requirements for reporting net income or OCI in financial statements and our adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
In July 2012, the FASB issued an ASU to simplify the impairment testing for indefinite-lived intangibles by allowing an entity to
first assess qualitative factors, considering the totality of events and circumstances, to determine that it is more likely than not that the
carrying amount of a reporting unit is less than its fair value. If it is not, then the entity is not required to take further action. However,
if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the
quantitative impairment test. The new guidance was effective for annual and interim impairment tests for fiscal years beginning after
September 15, 2012. The adoption of this guidance did not have a material impact on the Company’s consolidated financial
statements.

56

t. Foreign Currency Translation
The Company’s foreign subsidiary uses the local currency as its functional currency. Assets and liabilities are translated at exchange
rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the
year. Resulting translation adjustments are recorded as a component of accumulated OCI on the consolidated balance sheets.
2. Cash, Cash Equivalents and Investments
The following is a summary of cash, cash equivalents and held-to-maturity investments by type at December 31 (in thousands):
December 31, 2013
Gross
Gross
Unrealized
Unrealized
Gains
Losses

Amortized Cost

Fair
Value

Amortized Cost

December 31, 2012
Gross
Gross
Unrealized
Unrealized
Gains
Losses

Cash and money market funds……………………………$
State and municipal obligations…………………………
Corporate bonds…………………………………………
Certificate of deposit………………………………………

42,226
10,807
7,743
2,619

$

14
2
-

$

(14)
-

$

42,226
10,821
7,731
2,619

$

36,127
1
1,680

$

-

$

Total cash, cash equivalents and investments…………$

63,395

$

16

$

(14)

$

63,397

$

37,808

$

-

$

-

Fair
Value
$

36,127
1
1,679

$

37,807

(1)
(1)

The Company believes the unrealized losses on the Company’s investments are due to interest rate fluctuations. As these
investments are either short-term in nature, are expected to be redeemed at par value and/or because the Company has the ability and
intent to hold these investments to maturity, the Company does not consider these investments to be other than temporarily impaired at
December 31, 2013. None of Company’s investments have been in an unrealized loss position for more than one year
The following table summarizes the amortized cost and fair value of the short-term and long-term investments held by the
Company at December 31, 2013 by contractual maturity (in thousands):
Amortized Cost

Fair Value

Due in less than one year
Due after one year, through two years

$

9,101
12,023

$

9,103
12,022

Total short-term and long-term investments

$

21,124

$

21,125

57

Fair Value Measurement
During the year ended December 31, 2013, the Company changed how it categorizes certain instruments within the fair value
hierarchy. Municipal bonds and certificates of deposits are now reported as valued using Level 2 valuation techniques, due to less
than active trading for these instruments. Money market funds and corporate bonds are valued using Level 1 techniques. In prior
periods, the Company considered all instruments as valued using Level 1 valuation techniques.
The following table presents information about the Company’s investments that are measured at fair value as of December 31, 2013,
and indicates the fair value hierarchy of the valuation (in thousands):

Amortized Cost

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Siginificant
Other
Observable
Inputs
(Level 2)

Significant
Unbservable
Inputs
(Level 3)

Total Fair Value

Cash…………………………………………………………$
Money market funds………………………………………
Certificates of deposit……………………………………
Corporate bonds…………………………………………
State and municipal obligations…………………………

37,196
5,030
2,619
7,743
10,807

$

37,196
5,030
7,732
-

$

2,619
10,820

$

-

$

37,196
5,030
2,619
7,732
10,820

Total cash, cash equivalents and investments…………$

63,395

$

49,958

$

13,439

$

-

$

63,397

3. Inventory
Inventories consisted of the following at December 31 (in thousands):
2013

2012

Raw materials…………………………………………… $
Work-in-process…………………………………………
Finished goods…………………………………………
Reserve for excess and obsolete inventory……………

7,376
44
4,688
(999)

$

9,690
131
3,492
(2,320)

Total inventory………………………………………… $

11,109

$

10,993

58

4. Property and Equipment
Property and equipment consisted of the following at December 31 (in thousands):
Estimated
Useful Life
Land………………………………………………………………………
Building and leasehold improvements………………………………
Production equipment…………………………………………………
Computer equipment……………………………………………………
Furniture and office equipment………………………………………
Vehicles…………………………………………………………………
Website development costs…………………………………………
Capitalized software development costs……………………………
Construction-in-process………………………………………………

N/A
39 years
3-7 years
3-5 years
5-7 years
5 years
3 years
3 years
N/A

2013
$

Total cost………………………………………………………………………………………
Less: Accumulated depreciation……………………………………………………………
Property and equipment, net………………………………………………………………… $

2,900
13,922
18,047
7,789
2,646
270
601
3,670
576

2012
$

50,421
(31,378)
19,043

2,900
13,862
18,180
7,481
3,359
270
601
3,670
522
50,845
(28,893)

$

21,952

During the year ended December 31, 2013 the Company recognized a net gain of $27,000 in write-down and disposal of property
and equipment. During the years ended December 31, 2012 and 2011 the Company recognized $0.2 million and $2.8 million in the
write-down and disposal of property and equipment, net. The 2011 amount consisted of the following: (i) $1.4 million for tooling
relative to the first generation AXON equipment, which is discussed further above; (ii) $0.8 million relative to the decision to dispose
of surplus equipment and billing software for EVIDENCE.com operations; and (iii) $0.6 million for tooling relative to the TASER X3.
Also in 2011, the Company recognized an impairment charge of $1.4 million following the Company’s determination to abandon
the Protector product line, of which $0.7 million related to property and equipment. The write-off of the Protector product line is
included in the loss on impairment line item in the accompanying consolidated statement of operations for the year ended December
31, 2011.
Depreciation and amortization expense relative to property and equipment, including equipment under capital lease, was $4.8
million, $6.3 million and $7.5 for the years ended December 31, 2013, 2012 and 2011, respectively, of which $3.7 million, $4.7
million and $5.2 million is included in cost of products sold and services provided for the respective years.

59

5. Goodwill and Intangible Assets
In the fourth quarter of 2013, the Company recorded goodwill related to the Familiar business acquisition. Goodwill is calculated as
the excess of the purchase price over the fair value of the identifiable tangible and intangible assets. The balance of goodwill at
December 31, 2013 was $2.2 million. The Company did not have goodwill at December 31, 2012.
Intangible assets (other than goodwill) consisted of the following (in thousands):
December 31, 2013
Useful
Life

Gross
Carrying
Amount

Amortized:
Domain names……………… 5 years $
Issued patents…………… 4-15 years
Issued trademarks…………9-11 years
Total amortized…………………………

125
1,529
437
2,091

Not amortized:
TASER trademark………………………
Patents and trademarks pending………
Total not amortized………………………

900
1,015
1,915

Total intangible assets……………………$

4,006

Accumulated
Amortization
$

(102)
(441)
(147)
(690)

December 31, 2012
Net
Carrying
Amount

$

23
1,088
290
1,401

Gross
Carrying
Amount
$

900
1,015
1,915
$

(690)

$

3,316

139
1,529
362
2,030

Accumulated
Amortization
$

(104)
(361)
(102)
(567)

Net
Carrying
Amount
$

900
954
1,854
$

3,884

35
1,168
260
1,463
900
954
1,854

$

(567)

$

3,317

Amortization expense relative to intangible assets was $0.2 million, $0.1 million and $0.2 million for the years ended December 31,
2013, 2012 and 2011, respectively. Estimated amortization for intangible assets with definitive lives for the next five years is as
follows for the year ended December 31(in thousands):
2014……………………………………………………… $
2015………………………………………………………
2016………………………………………………………
2017………………………………………………………
2018………………………………………………………
Thereafter…………………………………………………

156
148
141
137
127
692

Total…………………………………..……………………$

1,401

6. Other Long-Term Assets
Other long-term assets include the cash surrender value of corporate-owned life insurance policies, long-term prepaid licenses and
training equipment used on a recurring basis for the Company’s training programs.

60

7. Deferred Revenue
Deferred revenue consisted of the following at December 31 (in thousands):
Year Ended December 31,
2013
2012
Warranty
EVIDENCE.com
Other

$

Total deferred revenue
Total current portion of deferred revenue
Total long-term portion of deferred revenue

$

15,889
4,026
304

$

10,831
1,292
-

20,219

12,123

6,878

4,287

13,341

$

7,836

Included in the current portion of deferred revenue is approximately $2.0 million related to EVIDENCE.com and $4.9 million related
to warranties. For more information relating to the Company’s revenue recognition policies please refer to Note 1(h).
8. Accrued Liabilities
Accrued liabilities consisted of the following at December 31 (in thousands):
2013

2012

Accrued salaries and benefits…………………………………………… $
Accrued judgments and settlements……………………………………
Accrued warranty expense…………………………………………………
Accrued income and other taxes…………………………………………
Other accrued expenses……………………………………………………

2,328
3,350
955
233
1,974

$

2,415
2,090
484
296
1,780

Accrued liabilities………………………………………………………… $

8,840

$

7,065

61

9. Commitments and Contingencies
a. Operating and capital lease obligations
The Company has entered into operating leases for various office space, storage facilities and equipment. Rent expense under all
operating leases, including both cancelable and non-cancelable leases, was $1.5 million, $1.4 million and $1.8 million for the years
ended December 31, 2013, 2012, and 2011, respectively.
Included in property and equipment in the consolidated balance sheet as of December 31, 2013, is approximately $103,000 of office
equipment the Company acquired under a capital lease during 2012. The leased equipment has an original cost of approximately
$147,000 and associated accumulated amortization of approximately $44,000 as of December 31, 2013. The Company’s capital lease
obligation as of December 31, 2013, was approximately $103,000 and bears an interest rate of 6.2%.
Future minimum lease payments under non-cancelable leases at December 31, 2013, are as follows (dollars in thousands):
Operating
2014……………………………………………………………… $
374
2015………………………………………………………………
172
2016………………………………………………………………
89
2017………………………………………………………………
54
2018………………………………………………………………
Thereafter…………………………………………………………
Total minimum lease payments…………………………………$

$

689

98
5

Less: Amount representing interest……………………………
Capital lease obligation…………………………………………

Capital
38
38
22
-

$

103

b. Purchase commitments
The Company routinely enters into cancelable purchase orders with many of its key vendors. Based on the strategic relationships
with many of these vendors, the Company's ability to cancel these purchase orders and maintain a favorable relationship would be
limited. As of December 31, 2013, the Company has $11.9 million of open purchase orders.
c. Litigation
Product Litigation
The Company is currently named as a defendant in 16 lawsuits in which the plaintiffs allege either wrongful death or personal injury
in situations in which a TASER CEW was used (or present) by law enforcement officers in connection with arrests or during training
exercises. In addition, two other product litigation matters in which the Company is involved are currently on appeal. While the facts
vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually
involving a failure to warn, and the plaintiffs are seeking monetary damages. The information throughout this note is current through
the filing date of this Annual Report on Form 10-K.
As a general rule, it is the Company’s policy not to settle suspect injury or death cases. Exceptions are sometimes made where the
settlement is strategically beneficial to the Company. Also, on occasion, the Company’s insurance company has settled such lawsuits
over the Company’s objection where the risk is over the Company’s liability insurance deductibles. Due to the confidentiality of our
litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or
comment on which specific lawsuits have been settled or the amount of any settlement.
In 2009, the Company implemented new risk management strategies, including revisions to product warnings and training to better
protect both the Company and its customers from litigation based on ‘failure to warn’ theories – which comprise the vast majority of
the cases against the Company. These risk management strategies have been highly effective in reducing the rate and exposure from

62

litigation post-2009. From the third quarter of 2011 to the fourth quarter of 2013, product liability cases have been reduced from 55
active to 16 active cases, with one new lawsuit filed in the fourth quarter of 2013.
Management believes that pre-2009 cases have a different risk profile than cases which have occurred since the risk management
procedures were introduced in 2009. Therefore, the Company necessarily treats certain pre-2009 cases as exceptions to the Company’s
general no settlement policy in order to reduce caseload, legal costs and exposure. In November 2013, the Company agreed to settle
two pre-2009 product liability lawsuits, where the Company had litigation exposure in excess of insurance coverage and the risk of
potential high jury verdicts, for a combined total of $2.3 million. The costs of these settlements will be covered by insurance. The
Company intends to continue its successful practice of aggressively defending and generally not settling litigation except in very
limited and unusual circumstances as described above.
Turner (NC) lawsuit
The Turner (NC) lawsuit was tried in July 2011 and resulted in a jury verdict of $10.0 million against the Company. The Company
filed post-trial motions seeking judgment as a matter of law notwithstanding the verdict and in the alternative, a new trial or
alternatively, a remittitur of the jury award. Based on this verdict, the Company recorded litigation judgment expense of $3.3 million
in 2011. During March 2012, the Federal District Court for the Western District of North Carolina granted the Company’s motion for
remittitur and ordered the reduction of the original jury award from $10.0 million to approximately $4.4 million after offsets. On April
20, 2012, the court issued an order which adjusted the award to $5.5 million. On May 4, 2012, the court issued another order which
entered judgment in the amount of $5.5 million plus costs and post-judgment interest. Based on this action by the court, the Company
reversed a portion of the previously accrued litigation judgment during the year ended December 31, 2012, which resulted in a benefit
of $2.2 million during the twelve months ended December 31, 2012, and leaving a reserve of $1.1 million on the Company’s balance
sheet as of December 31, 2012.
The Company appealed this verdict. On November 11, 2013, the U.S. Court of Appeals for the Fourth Circuit issued its opinion
affirming the district court’s judgment upholding the jury verdict imposing liability on the Company for its negligence and vacating
the district court’s judgment with respect to the remitted award of compensatory damages. The Court of Appeals remanded the case to
the district court for a new trial limited to the issue of damages. As such, the appellate bond previously required, was subsequently
released. The Company subsequently requested a rehearing en banc which was denied by the Court of Appeals. The remanded issues
are currently pending in the Federal District Court for the Western District of North Carolina. As of December 31, 2013, the
Company’s reserve related to this case was reduced to zero. Although there is approximately $2.6 million of insurance coverage
remaining for the 2008 policy year, which includes the Turner lawsuit, the outcome of any litigation is inherently uncertain. Should
legal costs and other litigation activities related to the 2008 policy year exceed the remaining insurance coverage, the Company would
incur additional expense, which could be material.

63

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
With respect to each of the pending lawsuits, the following table lists the name of plaintiff, the date the Company was served with
process, the jurisdiction in which the case is pending, the type of claim and the status of the matter.
Grable
Koon
Derbyshire
Thompson

Aug-08
Dec-08
Nov-09
Mar-10

6th Judicial Circuit Court, Pinellas County, FL
17th Judicial Circuit Court, Broward County, FL
Ontario, Canada Superior Court of Justice
11th Judicial Circuit Court, Miami-Dade County, FL

Doan
Shymko
Juran
Wilson

Apr-10
Dec-10
Dec-10
May-11

The Queens Bench Alberta, Red Deer Judicial Dist.
The Queens Bench, Winnipeg Centre, Manitoba
Hennepin County District Court, 4th Judicial District
US District Court, ED MO

Training Injury
Training Injury
Officer Injury
Suspect Injury During
Arrest
Wrongful Death
Wrongful Death
Officer Injury
Wrongful Death

Ramsey
Mitchell

Jan-12
Apr-12

17th Judicial Circuit Court, Broward County, FL
US District Court, ED MI

Wrongful Death
Wrongful Death

Firman
Ricks
Miller
Salgado
Slade
Turner

Apr-12
May-12
Jan-13
Feb-13
Dec-13
Feb-10

Ontario, Canada Superior Court of Justice
US District Court, WD LA
New Castle County Superior Court, DE
US District Court, SD FL
US District Court, ED TX
US District Court, ED NC

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

Discovery Phase
Discovery Phase
Discovery Phase
Discovery Phase
Discovery Phase
Pleading Phase
Discovery Phase
Discovery Phase; trial
scheduled for November
2014
Discovery Phase
Discovery Phase,;trial
scheduled June 2014
Pleading Phase
Motion Phase
Discovery Phase
Pleading Phase
Pleading Phase
Appeal fully briefed; Oral
argument held September
2013; remanded to trial on
damages only.

In addition, other product litigation matters in which the Company is involved that are currently on appeal are listed below:
Bachtel
Glowczenski

Aug-11
Oct-04

14th Judicial Circuit Court, Randolph
County, MO

Wrongful Death

Appeal fully briefed; Oral Argument held on
January 14, 2014.

US District Court, ED NY

Wrongful Death

Notice of Appeal filed Septemebr 2013;
Opening Brief was filed January 2014;
Answering Brief is due April 2014.

64

Cases that were dismissed or judgment entered during the fourth quarter of 2013 and through the filing date of this Annual Report
on Form 10-K are listed in the table below. Cases that were dismissed or judgment entered in prior fiscal quarters are not included in
this table.
Month
Served

Plaintiff

Jurisdiction

Claim Type

Status

Armstrong
Barnes

Apr-13
Apr-13

US District Court, MD NC
US District Court, WD PA

Wrongful Death
Wrongful Death

Voluntary Dismissal
Voluntary Dismissal

Athetis

May-09

Superior Court, AZ

Wrongful Death

Motion for Summary Judgment

Duensing
Rich
Peppler
Wingard

Feb-12
Feb-10
Apr-09
Oct-12
Nov-12

US District Court, NV
US District Court, NV
5th Judicial Court for Sumter CO, FL
US District Court, WD PA

Manjares

Suspect Injury During
Arrest
Wrongful Death
Training Injury
Wrongful Death
Suspect Injury During
Arrest

US District Court, ED WA

Motion to Dismiss
Voluntary Dismissal
Voluntary Dismissal
Voluntary Dismissal
Voluntary Dismissal

The claims, and in some instances the defense, of each of these lawsuits have been submitted to the Company’s insurance carriers
that maintained insurance coverage during the applicable periods. The Company continues to maintain product liability insurance
coverage with varying limits and deductibles. The following table provides information regarding the Company’s product liability
insurance. Remaining insurance coverage is based on information received from the Company’s insurance provider (in millions).

Policy Year
2004
2005
2006
2007
2008
2009
2010
2011
Jan - Jun 2012
Jul - Dec 2012
2013
2014

Policy Start
Date
12/01/03
12/01/04
12/01/05
12/01/06
12/01/07
12/15/08
12/15/09
12/15/10
12/15/11
06/25/12
12/15/12
12/15/13

Policy End
Date
12/01/04
12/01/05
12/01/06
12/01/07
12/15/08
12/15/09
12/15/10
12/15/11
06/25/12
12/15/12
12/15/13
12/15/14

Defense
Insurance Deductible Costs
Coverage Amount
Covered
$
2.0 $
0.1
N
10.0
0.3
Y
10.0
0.3
Y
10.0
0.3
Y
10.0
0.5
Y
10.0
1.0
N
10.0
1.0
N
10.0
7.0
12.0
12.0
12.0

1.0
1.0
1.0
1.0
4.0

N
N
N
N
N

Remaining
Insurance
Coverage
$
2.0
7.0
3.7
8.0
2.6
10.0
10.0
10.0
7.0
12.0
12.0
12.0

Active Cases and Cases on
Appeal
Glowczenski
n/a
n/a
n/a
Grable, Koon, Turner
Derbyshire
Thompson, Shymko, Doan, Juran
Wilson, Bachtel
Ramsey, Mitchell, Firman, Ricks
n/a
Miller, Salgado
Slade

Other Litigation
In January 2011, the Company was served with a complaint in the matter of GEOTAG, Inc. v. TASER International, et. al. that was
filed in the U.S. District Court for the Eastern District of Texas, Marshall Division, which alleges that a dealer geographical locator
feature on TASER’s website infringes upon plaintiff’s US Patent No. 5,930,474. The complaint seeks a judgment of infringement, a
permanent injunction against infringement, an award for damages, costs, expenses and prejudgment and post-judgment interest, and an
award for enhanced damages and attorneys’ fees. TASER licensed this locator feature from a third party and has denied liability for
infringement.
In July 2011, the Company filed a complaint against Karbon Arms, LLC for infringement of TASER’s U.S. Patent Nos. 7,800,885
and 7,782,592 in U.S. District Court for the District of Delaware seeking damages, injunctive relief and an award of attorneys’ fees.
Karbon Arms filed a counterclaim on July 18, 2011, alleging invalidity and non-infringement of four of TASER’s patents, tortious
interference with prospective contractual relations and false advertising under the Lanham Act. TASER thereafter filed counter65

counterclaims for infringement of U.S. Patent Nos. 7,602,597 and 6,999,295. On January 10, 2014, a Judgment and Permanent
Injunction were entered against Karbon Arms, LLC. This Judgment confirms that Karbon Arm’s accused products infringe the
asserted claims of U.S. Patent Nos. 6,999,295; 7,782,592; and 7,800,885 and that these three patents are valid and enforceable. The
Judgment also awarded TASER the sum of $2.4 million in damages. The Company has not recorded a receivable as of December 31,
2013 due to the uncertainty of collectability. Should the Company receive the funds from the award, a gain will be recognized at that
time.
In February 2012, the Company was served with a complaint in the matter of AA & Saba Consultants, Inc. v. TASER International,
Inc. that was filed in the Superior Court for the County of Maricopa, Arizona, which alleges that the Company breached a contract by
unilaterally terminating a distributor agreement between the Company and plaintiff without good cause. The complaint seeks an award
for damages, costs, expenses and attorneys’ fees. TASER filed a counterclaim for breach of contract and fraud. During 2012, the
Company made a settlement offer of $0.8 million to plaintiff which was recorded as an expense in SG&A. The offer was not accepted
and thereafter was withdrawn. On February 28, 2014, the jury returned a verdict of $3.3 million against the Company. Judgment had
not been entered at the time of this filing and the judgment is subject to an award of attorney’s fees. The Company believes the
verdict is not supported by the evidence and intends to appeal. The Company recorded an additional $2.6 million of expense in the
fourth quarter of 2013 in the litigation judgment line item on the income statement. Should the plaintiff be awarded reimbursement of
legal fees, additional expense will be recorded by the Company.
General
From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the
Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served
on the Company. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the
damages or relief demanded, we vigorously defend any lawsuit filed against the Company. The Company does not expect these
lawsuits to individually, or in the aggregate, materially affect our business, results of operations or financial condition. However, the
outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may
ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts provided by
insurance coverage and will not have a material adverse effect on our business, operating results or financial condition.
d. Employment Agreements
The Company has employment agreements with certain key executives. The Company may terminate the agreements with or
without cause. Should the Company terminate the agreements without cause, or upon a change of control of the Company or death of
the employee, the employee, or family of the employee, are entitled to additional compensation. Under these circumstances, these
officers and employees may receive the amounts remaining under their contracts upon termination, which would total $0.8 million in
the aggregate at December 31, 2013.

66

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. Income Taxes
Significant components of the Company’s deferred income tax assets and liabilities are as follows at December 31:
2013

2012

Deferred income tax assets:
Net operating loss carryforward……………………………………………………………… $
Deferred warranty revenue……………………………………………………………………
Inventory reserve………………………………………………………………………………
Non-qualified and non-employee stock option expense……………………………………
Capitalized research and development………………………………………………………
Alternative minimum tax carryforward…………………………………………………………
Research and development tax credit carryforward…………………………………………
Deferred legal settlement…………………………………………………………………….
IRC section 481(a) adjustment - tangible property…………………………………………
Reserves, accruals, and other…………………………………………………………………

513
2,837
389
3,518
6,588
1,466
3,165
1,294
1,316
2,066

Total deferred income tax assets………………………………………………………………

23,152

Deferred income tax liabilities:
Depreciation……………...………………………………………………………………………
Amortization……………………………………………………………………………………

(2,136)
(236)

(662)
(142)

Total deferred income tax liabilities……………………………………………………………

(2,372)

(804)

Net deferred income tax assets………………………………………………………………… $

20,780

$

47
1,759
906
3,682
8,191
1,406
2,936
723
2,156
21,806

$

21,002

2013

2012

Current deferred tax assets, net………………………………………………………………… $
Long-term deferred tax assets, net………………………………………………………………

7,101
13,679

$

9,396
11,606

Total…………………………………………………………………………………………………$

20,780

$

21,002

The Company’s net deferred tax assets are presented as follows on the accompanying consolidated balance sheets at December 31:
2013

2012

Current deferred tax assets, net………………………………………………………………… $
Long-term deferred tax assets, net………………………………………………………………

7,101
13,679

$

9,396
11,606

Total…………………………………………………………………………………………………$

20,780

$

21,002

The Company has deferred tax assets of $0.1 million related to state NOLs which expire at various dates between 2016 and 2031.
The Company also has deferred tax assets of approximately $0.4 million related to federal NOLs which expire between 2031 and
2033, and are subject to limitation under IRC Section 382. The Company has Arizona R&D credit carry forwards for financial
reporting purposes of $2.8 million, which expire at various dates between 2018 and 2028, and California R&D credit carry forwards
for financial reporting purposes of $0.3 million which do not expire. The Company has a minimum tax credit carryover of $1.5 million
which does not expire.
The Company recognizes the income tax benefits associated with certain stock compensation deductions only when such deductions
produce a reduction to the Company's actual tax liability. Accordingly, in 2013 and 2012, the Company recognized benefits of $6.8
million and $4.7 million, respectively, for the reduction of federal and state taxes payable, which was recorded as a credit to additional
paid-in capital. At December 31, 2013 and 2012, the Company had income tax receivable of $2.3 million and $0.8 million,
respectively.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. The
American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. Because a change in tax law is accounted
for in the period of enactment, certain provisions of the Act benefitting the Company’s 2012 federal taxes, including the R&D credit,

67

were not recognized in the Company’s 2012 financial results and instead are reflected in the Company’s 2013 financial results. A
benefit of approximately $55,000 was accounted for in the tax provision for the year ended December 31, 2013.
In preparing the Company's consolidated financial statements, management has assessed the likelihood that deferred income tax
assets will be realized from future taxable income. In evaluating the ability to recover its deferred income tax assets, management
considers all available evidence, positive and negative; including the Company's operating results, ongoing tax planning and forecasts
of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more
likely than not that some portion or all of the net deferred income tax assets will not be realized. Management exercises significant
judgment in determining the Company's provisions for income taxes, its deferred income tax assets and liabilities and its future
taxable income for purposes of assessing its ability to utilize any future tax benefit from its deferred income tax assets.
Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments
that could become subject to audit by tax authorities in the ordinary course of business. As of each reporting date, management
considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of
deferred tax assets. As of December 31, 2012, in part because in that year the Company achieved three years of cumulative pre-tax
income in the U.S. federal and Arizona tax jurisdictions, management determined that sufficient positive evidence existed to conclude
that it is more likely than not that additional deferred taxes related to Arizona R&D credits are realizable, and therefore, reversed in
full the valuation allowance related to that item. As of December 31, 2013, the Company continues to demonstrate three-year
cumulative pre-tax income in the U.S. federal and Arizona tax jurisdictions, and based on that and other available evidence,
management has concluded that it is more likely than not that the Company’s deferred tax assets will be realized.
Significant components of the provision (benefit) for income taxes are as follows for the years ended December 31:
2013

2012

2011

Current:
Federal…………………………………………………………………$
State……………………………………………………………………

7,963
987

Total current…………………………………………………………

8,950

5,271

192

Deferred:
Federal…………………………………………………………………
State……………………………………………………………………

764
(143)

3,168
(1,485)

(3,253)
771

Total deferred…………………………………………………………

621

1,683

(2,482)

Tax provision (benefit) recorded as an increase (decrease)
in liability for unrecorded tax benefits………………………………

219

920

(299)

Provision (benefit) for income taxes………………………………… $

9,790

$

$

4,605
666

7,874

$

$

133
59

(2,589)

The Company recorded a tax benefit in 2013, 2012, and 2011 of $6.8 million, $4.7 million, and $10,000, respectively, to offset
taxes payable related to the non-qualified disposition of ISOs exercised and sold.

68

The Company is subject to federal, state, local and foreign taxes; however, no separate calculation of the foreign provision for
deferred tax assets was calculated for the periods presented due to the minimal amount of book income in the Company’s foreign
subsidiary and the comparability of the foreign tax rate to the tax rate in the U.S. A reconciliation of the Company’s effective income
tax rate to the federal statutory rate for the years ended December 31, 2013, 2012 and 2011 is as follows:
2013

(i)
(ii)

2012

2011

Federal income tax at the statutory rate………………………………$
State income taxes, net of federal benefit……………………………
Permanent differences (i)………………………………………………
Research and development……………………………………………
Return to provision adjustment (ii)……………………………………
Change in liability for unrecognized tax benefits……………………
Incentive stock option detriment/(benefit)…………………………
Change in valuation allowance………………………………………
Other……………………………………………………………………

9,812
1,283
(96)
(386)
(361)
219
(538)
(143)

$

7,914
969
156
(327)
(270)
921
174
(1,429)
(234)

$

(3,370)
(357)
231
(230)
(458)
(299)
449
1,429
16

Povision (benefit) for income taxes……………..…………………… $

9,790

$

7,874

$

(2,589)

Effective tax rate…………………………………………………………

34.9%

34.8%

26.9%

Permanent differences include certain expenses that are not deductible for tax purposes including lobbying fees as well as
favorable items including the domestic production activities deduction
The 2011 return to provision adjustment was driven by higher than estimated 2010 R&D tax credits, which increased the
net tax benefit and therefore, reduced the effective tax rate. The 2012 return to provision adjustment was driven by higher
than estimated 2011 R&D tax credits which increased the net tax benefit and therefore, reduced the effective tax rate. The
2013 return to provision adjustment was driven by the domestic production activities deduction which decreased taxable
income, and therefore, reduced the effective tax rate.

The Company has completed research and development tax credit studies which identified approximately $9.8 million in tax credits
for federal, Arizona and California income tax purposes related to the 2003 through 2013 tax years. Management has made the
determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and
recorded a liability for unrecognized tax benefits of $3.0 million as of December 31, 2013. In addition, management accrued
approximately $0.1 million for estimated uncertain tax positions related to certain state income tax liabilities. As of December 31,
2013, management does not expect the amount of the unrecognized tax benefit liability to increase or decrease significantly within the
next 12 months. Should the unrecognized tax benefit of $3.1 million be recognized, the Company’s effective tax rate would be
favorably impacted.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the
accompanying Consolidated Statement of Operations. As of December 31, 2013 and 2012, respectively, the Company had accrued
interest of $12,000 and $0.
The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest, as of
December 31:
2013

2012

2011

Balance, beginning of period…………………………………………………………………… $
Increase in previous year tax positions…………………………………………………………
Increase in current year tax positions……………………………………………………………
Increase (decrease) related to adjustment of previous estimates of activity………………

2,903
57
144
6

$

1,982
659
151
111

$

2,282
83
(383)

Balance, end of period…………………………………………………………………………… $

3,110

$

2,903

$

1,982

69

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Federal income tax returns for 2004 through 2012 remain open to examination by the U.S. Internal Revenue Service (the “IRS”),
while state and local income tax returns for 2004 through 2012 also remain open to examination. The 2004 through 2009 income tax
returns are only open to the extent that net operating loss or other tax attributes carrying forward from those years were utilized in
2010 through 2013. The foreign tax returns for 2010 through 2012 also remain open to examination. The Company has not been
notified by any major state tax jurisdiction that it will be subject to examination.
On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of
expenditures related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. Several of
the provisions within the regulations will require a tax accounting method change to be filed with the IRS, resulting in a cumulative
effect adjustment. To account for the adoption of these regulations and other related items, tangible property-related, long-term
deferred tax liabilities increased by $1.3 million, with the offsetting increase to current deferred income tax assets.
11. Line of Credit
The Company has a $10.0 million revolving line of credit with a domestic bank. At December 31, 2013 and 2012, there were no
borrowings under the line. As of December 31, 2013, the Company had letters of credit outstanding of $0.6 million under the facility
and available borrowing of $9.4 million. The line is secured by the Company’s accounts receivable and inventory, and bears interest at
varying rates (currently LIBOR plus 1.5% to prime). The line of credit matures on June 30, 2015, and requires monthly payments of
interest only. The Company’s agreement with the bank requires it to comply with certain financial and other covenants including
maintenance of minimum tangible net worth and a fixed charge coverage ratio. The ratio of total liabilities to tangible net worth can be
no greater than 1:1, and the fixed charge coverage ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At
December 31, 2013, the Company's tangible net worth ratio was 0.39:1 and its fixed charge coverage ratio was 3.18:1. Accordingly,
the Company was in compliance with these covenants.
12. Stockholders’ Equity
a. Common Stock and Preferred Stock
The Company has authorized the issuance of two classes of stock designated as “common stock” and “preferred stock,” each having
a par value of $0.00001 per share. The Company is authorized to issue 200 million shares of common stock and 25 million shares of
preferred stock.
b. Stock Repurchase
In February 2013, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up
to $25.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. Under
this program, which was completed in the second quarter of 2013, the Company purchased approximately 3.0 million common shares
under this program for a total cost of approximately $25.0 million, or a weighted average cost, including commissions, of $8.20 per
share.
On April 25, 2012, TASER’s Board of Directors authorized a stock repurchase program to acquire up to $20.0 million of the
Company’s outstanding common stock subject to stock market conditions and corporate considerations. The Company purchased
approximately 3.8 million common shares under this program for a total cost of $20.0 million, or a weighted average cost, including
commissions, of $5.22 per share. The buyback was completed in the third quarter of 2012.
In March 2011 and July 2011, TASER’s Board of Directors authorized two stock repurchase programs to acquire up to $12.5
million and $20.0 million, respectively, of the Company’s outstanding common stock subject to stock market conditions and corporate
considerations. During 2011, the Company repurchased approximately 7.5 million shares under these programs for a total cost of
$32.5 million, or a weighted average cost, including commissions, of $4.35 per share.
The Company does not currently have an open stock repurchase program.
c. Stock-based Compensation Plans
The Company has historically utilized stock-based compensation, consisting of restricted stock units (“RSUs”) and stock options,
for key employees and non-employee directors as a means of attracting and retaining quality personnel. Service-based grants generally
70

have a vesting period of three to four years and a contractual maturity of ten years. Performance-based grants generally have vesting
periods ranging from one to four years and a contractual maturity of ten years.
On February 25, 2013, the Company’s Board of Directors approved the 2013 Stock Incentive Plan (the “2013 Plan) which was
subsequently approved by stockholders at the Annual Meeting of Stockholders on May 23, 2013. Under the 2013 Plan, the Company
reserved for future grants: (i) 1.6 million shares of common stock, plus (ii) the number of shares of common stock that were
authorized but unissued under the Company’s 2009 Stock Incentive Plan (the “2009 Plan”) as of the effective date of the 2013 Plan,
and (iii) the number of shares of stock that have been granted under the 2009 Plan that either terminate, expire or lapse for any reason
after the effective date of the 2013 Plan. As of December 31, 2013, 2.3 million shares remain available for future grants. Shares
issued upon exercise of stock awards from these plans have historically been issued from the Company’s authorized unissued shares.
d. Performance-based stock awards
The Company has issued performance-based stock options and performance-based RSUs, the vesting of which is contingent upon
the achievement of certain performance criteria related to the operating performance of the Company as well as successful and timely
development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional
service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit
service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on
management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.
e. Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31, 2013, 2012 and 2011:

2013
Number
of
Units
Units outstanding,
beginning of year…………………………
Granted………………………………………
Released………………………………………
Forfeited………………………………………

582,212
1,054,293
(257,693)
(99,689)

Units outstanding,
end of year…………………………………

1,279,123

Aggregate intrinsic value at year end

2012
Weighted
Average
Grant-Date
Fair Value

$

Number
of
Units

5.42
10.72
5.44
6.86

1,096
713,148
(97,007)
(35,025)

9.67

582,212

2011
Weighted
Average
Grant-Date
Fair Value

$

Number
of
Units

4.76
5.40
5.30
5.29

50
1,046
-

5.42

1,096

Weighted
Average
Grant-Date
Fair Value

$

4.24
4.78

4.76

$ 20,312,473

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $15.88 per
share, multiplied by the number of restricted stock units. In 2013 and 2012, the Company granted approximately 0.3 million and 0.2
million performance-based RSUs, respectively (included in the table above). As of December 31, 2013, the performance criteria has
been met for approximately 0.2 million of the 0.3 million performance-based RSUs outstanding. The Company recognized $1.4
million and $0.7 million of compensation expense related to performance-based RSUs during the twelve months ended December
2013 and 2012, respectively.
Certain RSUs that vested in 2013 were net-share settled such that the Company withheld shares with value equivalent to the
employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the
appropriate taxing authorities. Total shares withheld were approximately 33,000 and had a value of approximately $0.3 million on
their respective vesting dates as determined by the Company’s closing stock price. Payments for the employees’ tax obligations are
reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by
the Company as they reduced the amount of shares that would have otherwise been issued as a result of the vesting.

71

f. Stock Option Activity
The following table summarizes stock option activity for the years ended December 31, 2013, 2012 and 2011:
2013
Weighted
Number
Average
of
Exercise
Options
Price

2012
Weighted
Number
Average
of
Exercise
Options
Price

2011
Weighted
Number
Average
of
Exercise
Options
Price

5.75
7.83

7,576,493
(784,383)
(471,034)

2.46
7.15

7,507,236
1,018,182
(539,923)
(409,002)

Options outstanding,
end of year……………………………… 3,365,692

6.15

6,321,076

6.05

7,576,493

5.75

Options exercisable,
end of year……………………………… 3,217,146

6.22

5,278,243

6.31

6,432,667

6.02

Options expected to vest,
end of year……………………………… 103,362

4.54

Options outstanding,
beginning of year……………………… 6,321,076
Granted……………………………………
Exercised………………………………… (2,671,058)
Expired / terminated……………………… (284,326)

$

6.05

$

5.75

$

5.71
4.65
2.64
6.38

The weighted average grant-date fair value of options granted for the year ended December 31, 2011was $2.16. No stock options
were granted in 2013 or 2012. Total intrinsic value of options exercised was $15.7 million, $3.2 million and $1.6 million for the years
ended December 31, 2013, 2012 and 2011, respectively. The intrinsic value for options exercised was calculated as the difference
between the exercise price of the underlying stock option awards and the market price of the Company’s common stock on the date of
exercise.
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2013:

Range of
Exercise Price

Options Outstanding
Weighted
Weighted
Average
Number of
Average
Remaining
Options
Exercise
Contractual
Outstanding
Price
Life (Years)

$3.53 - $5.00
$5.01 - $7.00
$7.01 -$10.00
$10.01 - $15.00
$15.01 - $29.83

1,886,679
528,221
649,381
194,763
106,648

$3.53 - $29.83

3,365,692

$

Options Exercisable

Number of
Options
Exercisable

4.62
5.60
7.72
10.31
18.69

5.9
5.2
3.0
3.4
0.4

1,739,833
526,521
649,381
194,763
106,648

6.15

4.9

3,217,146

Weighted
Average
Exercise
Price
$

Weighted
Average
Remaining
Contractual
Life (Years)

4.63
5.60
7.72
10.31
18.69

5.8
5.1
3.0
3.4
0.4

6.22

4.8

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2013, was $33.1 million and $31.4
million, respectively. Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option
awards and the closing market price of the Company’s common stock of $15.88 on December 31, 2013.
At December 31, 2013, the Company had 0.1 million unvested options outstanding with a weighted average exercise price of $4.58
per share, weighted average fair value of $2.18 per share and weighted average remaining contractual life of 6.8 years. The aggregate
intrinsic value of unvested options at December 31, 2013 was $1.7 million.
The Company granted approximately 1.0 million performance-based stock options (included in the table above) from 2008 through
2011. As of December 31, 2013, approximately 0.4 million performance-based stock options are outstanding, of which less than
50,000 are unvested. Of the unvested performance options, 17,000 are expected to vest. The aggregate grant-date fair value of the 0.4
million performance-based stock options vested and expected to vest as of December 31, 2013 is approximately $1.0 million. The

72

Company recognized $0.1 million, $0.1 million and $0.3 million of stock-based compensation expense related to performance-based
stock options during 2013, 2012 and 2011, respectively.
g. Stock-based Compensation Expense
The Company accounts for stock-based compensation using the fair-value method. Reported stock-based compensation was
classified as follows for the years ended December 31 (in thousands):
2013

2012

2011

Cost of products sold………………………………………………… $
Sales, general and administrative expenses…………………………
Research and development expenses…………………………………

175
3,158
1,007

$

172
2,647
603

$

121
2,291
626

Total stock-based compensation…………………………………… $

4,340

$

3,422

$

3,038

Total stock-based compensation expense recognized in the statements of operations for the years ended December 31, 2013, 2012
and 2011 includes $0.1 million, $0.5 million and $1.3 million, respectively, related to ISOs for which no tax benefit is recognized. The
Company recorded a tax benefit in 2013, 2012, and 2011 of $6.8 million, $4.7 million, and $10,000, respectively, to offset taxes
payable related to the non-qualified disposition of ISOs exercised and sold. The total future tax benefits related to non-qualified and
restricted stock units was $3.5 million and $3.7 million as of December 31, 2013 and 2012, respectively.
As of December 31, 2013, there was $8.6 million in unrecognized compensation costs related to RSUs and $0.1 million of
unrecognized compensation expense related to stock options granted under our stock plans. We expect to recognize the cost related to
the RSUs and stock options over weighted average periods of 31 months and 12 months, respectively.
13. Related Party Transactions
The Company engages Mark Kroll, a member of the Board of Directors, to provide consulting services. The expenses related to
these services were $0.2 million for each of the years ended December 31, 2013, 2012 and 2011. At December 31, 2013 and 2012, the
Company had accrued liabilities of approximately $12,000 and $6,000, respectively, related to these services.
14. Employee Benefit Plans
The Company has a defined contribution profit sharing 401(k) plan for eligible employees, which is qualified under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the
maximum allowed by law of their eligible compensation.
In addition, during the third quarter of 2013, the Company implemented a non-qualified deferred compensation plan for certain
executives, key employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a
portion of their compensation, including stock-based compensation, received from the Company. The non-qualified deferred
compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation.
The plan also allows for (i) matching and discretionary employer contributions and (ii) the deferral of vested RSU awards. Employee
deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of
service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from
lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments
available under the plan and are allocated gains or losses based upon the performance of the investments selected by the
participant. All gains or losses are allocated fully to plan participants and the Company does not guarantee a rate of return on deferred
balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the
consolidated balance sheets. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the
claims of the Company’s general creditors.
Contributions to the plans are made by both the employee and the Company. Company contributions are based on the level of
employee contributions and are immediately vested. The Company's matching contributions to the plan for the years ended December
31, 2013 and 2012, were approximately $0.7 million and $0.5 million, respectively. The Company expects to make matching
contributions to the non-qualified deferred compensation plan related to the year ended December 31, 2013, of approximately
$13,000. Future matching or profit sharing contributions to the plans are at the Company's sole discretion.
73

15. Business Acquisition
On October 7, 2013, the Company entered into a definitive agreement to acquire Familiar, Inc. (“Familiar”) for $1.3 million in cash,
net of cash acquired, and 107,749 shares of common stock. Familiar’s employees include application developers experienced in
digital video management. The Familiar employees will conduct research and development initiatives for technologies in law
enforcement, focused specifically on new revenue opportunities within the EVIDENCE.com & Video segment. The Company will
not continue to develop or market products and services previously provided by Familiar.
The aggregate purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired, which totaled $2.2 million,
has been allocated to goodwill. The estimated fair values of acquired assets and liabilities could change as additional information is
received and certain tax returns are finalized. The Company expects to finalize the valuation as soon as practicable, but not later than
one-year from the acquisition date. Any subsequent changes to the purchase price allocations will result in a corresponding
adjustment to goodwill. The Company does not consider the acquisition to be material and is not providing pro-forma disclosures to
disclose the impact of the acquired business on operations.
16. Joint Venture Agreement
On January 13, 2010, the Company entered into a Joint Venture Agreement (the “Protector Group Agreement”) with RouteCloud,
LLC (“RouteCloud”) and certain other parties to establish the TASER Protector Group to exclusively develop, market, sell and
support a new suite of products (“Protector Products”). During 2010, $1.2 million was funded under the Joint Venture agreement prior
to revision on November 2, 2010.
On November 2, 2010, the Company entered into a revised agreement with RouteCloud and the other parties to the Protector Group
Agreement, pursuant to which, among other things, the original Protector Group Agreement was terminated retroactively, effective as
of September 29, 2010. The new agreement also provided that the Company would (i) reimburse RouteCloud the sum of $75,000 for
certain transition expenses, (ii) assume responsibility for the ongoing development, marketing, sale and support of Protector Products,
(iii) offer employment or consulting arrangements to certain RouteCloud personnel, and (iv) pay RouteCloud royalties on the sale of
Protector Products.
During the second quarter of 2011, the Company recognized an impairment charge of $1.4 million relative to its Protector Product
line following the Company’s decision to abandon the development of this product line. Included in the impairment charges were
charges for capitalized software development, prepaid royalties, and presale inventory. As such, the Company intends to not pursue
any further business with RouteCloud relating to the Protector Products.

74

17. Segment Data
The Company’s operations are comprised of two reportable segments: the sale of CEWs, accessories and other products and
services (the “TASER Weapons” segment); and the video business, which includes the TASER Cam, AXON video products and
EVIDENCE.com (the “EVIDENCE.com & Video” segment). The Company includes only revenues and costs directly attributable to
the EVIDENCE.com & Video segment in that segment. Included in EVIDENCE.com & Video segment costs are: costs of sales for
both products and services, overhead allocation based on direct labor, selling expense for the video sales team, video product
management expenses, video trade shows and related expenses, and research and development for products included in the
EVIDENCE.com & Video segment. All other costs are included in the TASER Weapons segment. The CODM does not review
assets by segment as part of the financial information provided; therefore, no asset information is provided in the following tables.

Information relative to the Company’s reportable segments is as follows (in thousands):
2013
TASER
Weapons
Product sales…………………………………………………………………$
Service revenue………………………………………………………………
Net sales………………………………………………………………………
Cost of products sold…………………………………………………

EVIDENCE.com
& Video

127,474

$

-

8,649

Total
$

136,123

1,708

1,708

127,474

10,357

137,831

44,025

6,074

50,099

Cost of services delivered………………….………………………………

-

1,889

1,889

Gross margin…………………………………………………………………

83,449

2,394

85,843

Sales, general & administrative……………………………………………

40,201

6,383

46,584

Research & development………………………………………………..

4,311

5,577

9,888

Litigation judgment recovery………………………………………………

1,450

-

1,450

(27)

-

Gain on write down / disposal of property and equipment, net………

(27)

Income (loss) from operations………………………………………………$

37,514

$

(9,566)

$

27,948

Purchase of property and equipment………………………………………$

1,324

$

459

$

1,783

Purchase of intangible assets………………………………………………

307

16

323

Depreciation and amortization………………………………………………

4,011

1,120

5,131

75

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2012
TASER
Weapons
Product sales…………………………………………………………………$
Service revenue………………………………………………………………
Net sales………………………………………………………………………
Cost of products sold…………………………………………………

EVIDENCE.com
& Video

109,055

$

5,071

-

Total
$

114,126

627

627

109,055

5,698

114,753
43,123

39,350

3,773

Cost of services delivered………………….………………………………

-

3,915

3,915

Gross margin…………………………………………………………………

69,705

(1,990)

67,715

Sales, general & administrative……………………………………………

35,576

3,510

39,086

3,938

4,201

8,139

(2,200)

-

(2,200)

Research & development………………………………………………..
Litigation judgment…………………………………………………………
Loss on write down / disposal of property and equipment, net….

161

-

161

Income (loss) from operations………………………………………………$

32,230

$

(9,701)

$

22,529

$

412

$

1,334

Purchase of property and equipment………………………………………$

922

Purchase of intangible assets………………………………………………

429

Depreciation and amortization………………………………………………

4,327

-

429

2,192

6,519

.

2011
TASER
Weapons
Product sales…………………………………………………………………$

86,675

Service revenue………………………………………………………………

-

Net sales………………………………………………………………………

86,675

Cost of products sold…………………………………………………

EVIDENCE.com
& Video
$

3,001

Total
$

89,676

352

352

3,353

90,028
36,906

34,213

2,693

Cost of services delivered………………….………………………………

-

4,847

4,847

Excess inventory charges……………………………………………………

1,749

1,997

3,746

Gross margin…………………………………………………………………

50,713

(6,184)

44,529

Sales, general & administrative……………………………………………

38,001

34,794

3,207

Research & development………………………………………………..

5,445

4,544

9,989

Litigation judgment…………………………………………………………

3,301

-

3,301

Loss on impairment…………………………………………………………

1,354

-

1,354

Loss on write down / disposal of property and equipment, net….

643

2,157

2,800

Income (loss) from operations………………………………………………$

5,176

$

(16,092)

$

(10,916)

Purchase of property and equipment………………………………………$

1,501

$

353

$

1,854

Purchase of intangible assets………………………………………………

413

Depreciation and amortization………………………………………………

5,409

.

76

2,688

413
8,097

18. Selected Quarterly Financial Data (unaudited)
Selected quarterly financial data for years ended December 31, 2013 and 2012 follows (in thousands):
Quarter Ended
June 30,
September 30, December 31,
2013
2013
2013

March 31,
2013
Net sales…………………………………………………… $
Gross margin………………………………………………
Net income…………………………………………………
Basic net income per share……………………………… $
Diluted net income per share………………………………

30,434
18,451
3,298
0.06
0.06

$

$

25,641
15,241
3,804
0.07
0.07

$

35,197
22,096
5,114
0.10
0.10

$

$

$

40,025
25,554
5,375
0.10
0.10

Quarter Ended
June 30,
September 30, December 31,
2012
2012
2012

March 31,
2012
Net sales…………………………………………………… $
Gross margin………………………………………………
Net income…………………………………………………
Basic net income per share……………………………… $
Diluted net income per share………………………………

32,175
19,742
4,457
0.09
0.08

$

$

28,223
16,503
3,442
0.06
0.06

$

28,773
16,803
3,677
0.07
0.07

$

$

$

32,116
19,168
3,815
0.07
0.07

The following significant charges were incurred during 2013:



Reversal of litigation judgment reserve of $1.1 million, recorded in the fourth quarter of 2013.
Accrual of litigation judgment expense of $2.6 million, recorded in the fourth quarter of 2013.

The following significant charges were incurred during 2012:


Reversal of litigation judgment reserve of $2.2 million, recorded in the first quarter of 2012.

19. Supplemental Disclosure to Cash Flows
Supplemental non-cash and other cash flow information are as follows for the years ended December 31 (in thousands),

Cash paid for income taxes - net…………………………………………………… $

2013
3,625

Non Cash Transactions:
Stock issued for business acquisition…………………………………………… $
Property and equipment purchases in accounts payable………………………
Purchase of assets under capital lease obligations………………………………

1,578
279
-

77

$

$

2012
1,079

113
147

2011
$

52

$

81
-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
TASER International, Inc.
We have audited the accompanying consolidated balance sheets of TASER International, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations and
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013.
Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under
Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of
TASER International, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and
our report dated March 10, 2014, expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Phoenix, AZ
March 10, 2014

78

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation
referred to in the certifications. This section should be read in conjunction with the certifications and the Grant Thornton LLP
attestation report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we evaluated under the supervision of our CEO and our
CFO, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act).
Based on this evaluation, our CEO and our CFO have concluded that as of December 31, 2013 our disclosure controls and procedures
were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms, and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely
decisions regarding required disclosure.
Management Report On Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that:
(i) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the company;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the consolidated financial statements.
Management assessed our internal control over financial reporting as of December 31, 2013, the end of our fiscal year. Management
based its assessment on criteria established in the 1992 Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the
design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall
control environment. This assessment was supported by testing and monitoring performed by our Internal Audit organization.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of
the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s
assessment with the Audit Committee of our Board of Directors.
Our independent registered public accounting firm, Grant Thornton LLP, who also audited our consolidated financial statements,
assessed the effectiveness of our internal control over financial reporting. Grant Thornton LLP has issued their attestation report,
which is included herein.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2013, there was no change in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

79

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
TASER International, Inc.
We have audited the internal control over financial reporting of TASER International, Inc. (a Delaware corporation) and subsidiaries
(the “Company”) as of December 31, 2013, based on criteria established in the 1992 Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on criteria established in the 1992 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of the Company as of and for the year ended December 31, 2013, and our report dated March 10,
2014, expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Phoenix, Arizona
March 10, 2014

80

Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required to be disclosed by this item is incorporated herein by reference to our definitive proxy statement for the
2014 Annual Meeting of Stockholders (the “2014 Proxy Statement”) which proxy statement we expect to file with the Securities and
Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013.
Item 11. Executive Compensation
The information required to be disclosed by this item is incorporated herein by reference to our 2014 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
A description of our equity compensation plans approved by our stockholders is included in Note 12 (c) to the Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following table provides details of our
equity compensation plans at December 31, 2013:
Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
(a)

Plan Category
Equity compensation plans
approved by security holders……………
Equity compensation plans not
approved by security holders……………

4,644,815

Total…………………………………………

4,644,815

Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b) (1)
$

6.15

-

Number of Securities
Remaining Under Equity
Compensation Plans for
Future Issuance
(c)
2,297,019
-

$

6.15

2,297,019

(1) The weighted average exercise price is calculated based solely on the exercise prices of the outstanding options and does
not reflect the shares that will be issued upon the vesting of outstanding awards of restricted stock units which have no
exercise price.

All other information required to be disclosed by this item is incorporated herein by reference to our 2014 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be disclosed by this item is incorporated herein by reference to our 2014 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required to be disclosed by this item is incorporated herein by reference to our 2014 Proxy Statement.

81

PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.

Consolidated financial statements: All consolidated financial statements as set forth under Part II, Item 8 of this report.

2.

Supplementary Financial Statement Schedules: Schedule II — Valuation and Qualifying Accounts
Other schedules have not been included because they are not applicable or because the information is included elsewhere in this
report. (Dollars in thousands)
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Description

Balance at
Beginning
of Period

Charged to
Costs and
Expenses

Allowance for doubtful accounts:
Year ended December 31, 2013…………$
Year ended December 31, 2012…………
Year ended December 31, 2011.…………

200
450
200

$

Allowance for excess and
obsolete inventory:
Year ended December 31, 2013…………$
Year ended December 31, 2012…………
Year ended December 31, 2011.…………

2,320
4,431
351

$

Warranty reserve:
Year ended December 31, 2013…………$
Year ended December 31, 2012…………
Year ended December 31, 2011.…………

484
427
646

$

82

24
(242)
296

Charged to
Other
Accounts

Deductions

Balance at
End of
Period

$

-

$

(24)
(8)
(46)

$

200
200
450

595
554
4,610

$

-

$

(1,916)
(2,665)
(530)

$

999
2,320
4,431

1,001
527
310

$

-

$

(530)
(470)
(529)

$

955
484
427

3.

Exhibits:
Exhibit
Num ber

Description

3.1
3.2
3.3
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7
10.8
10.9*
10.10*
10.11*
10.12*
10.13
10.14
10.15*
10.16*
10.17*
10.21
21.1**
23.1**
24.1
31.1**
31.2**
32**
101
101
101
101
101

Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to Registration Statement on Form SB-2, effective
May 11, 2001 (Registration No. 333-55658))
Bylaws, as amended (incorporated by reference to Exhibit 3.2 to Registration Statement on Form SB-2, effective May 11, 2001
(Registration No. 333-55658))
Certificate of Amendment to Certificate of Incorporation dated September 1, 2004 (incorporated by reference to Exhibit 3.3 to the
Annual Report on Form 10-KSB, filed March 31, 2005)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Registration Statement on Form SB-2, effective
May 11, 2001 (Registration No. 333-55658))
Executive Employment Agreement with Patrick W. Smith, dated July 1, 1998 (incorporated by reference to Exhibit 10.1 to
Registration Statement on Form SB-2 effective May 11, 2001 (Registration No. 333-55658))
Form of Indemnification Agreement between the Company and its directors (incorporated by reference to Exhibit 10.2 to Registration
Statement on Form SB-2 effective May 11, 2001 (Registration No. 333-55658))
Form of Indemnification Agreement between the Company and its officers (incorporated by reference to Exhibit 10.3 to Registration
Statement on Form SB-2 effective May 11, 2001 (Registration No. 333-55658))
1999 Stock Option Plan (incorporated by reference to Exhibit 10.4 to Registration Statement on Form SB-2, effective May 11, 2001
(Registration No. 333-55658))
2001 Stock Option Plan (incorporated by reference to Exhibit 10.5 to Registration Statement on Form SB-2, effective May 11, 2001
(Registration No. 333-55658))
Executive Employment Agreement with Douglas E. Klint, dated December 15, 2002 (incorporated by reference to Exhibit 10.6 to the
Annual Report on Form 10-KSB, filed March 14, 2003)
Credit Agreement dated June 22, 2004, between the Company and Bank One (incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10-KSB, filed March 31, 2005)
Amendment to Credit Agreement dated as of October 31, 2006 between the Company and JP Morgan Chase Bank, N.A.
(incorporated by reference to Exhibit 10.8 to Form 8-K, filed November 6, 2006)
Executive Employment Agreement with Daniel Behrendt, dated April 28, 2004 (incorporated by reference to Exhibit 10.9 to the Annual
Report on Form 10-KSB, filed March 31, 2005)
2004 Stock Option Plan (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-KSB, filed March 31, 2005)
2004 Outside Director Stock Option Plan, as amended (incorporated by reference to exhibit 10.11 to the Annual Report on Form 10KSB, filed March 31, 2005)
2009 Stock Incentive Plan. (incorporated by reference to Appendix A to the 2009 Proxy Statement, filed April 15, 2009)
Amendment to Credit Agreement dated as of June 23, 2011 between the Company and JP Morgan Chase Bank, N.A (incorporated by
reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q, filed August, 8, 2011)
Amendment to Credit Agreement dated as of June 20, 2012 between the Company and JP Morgan Chase Bank, N.A. (incorporated
by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q, filed August 9, 2012)
Executive Employment Agreement with Jeff Kukowski, dated August 9, 2010 (incorporated by reference to Exhibit 10.15 to the
Annual Report on Form 10-K, filed March 8, 2013)
2013 Stock Incentive Plan (incorporated by reference to Appendix of the 2013 Proxy Statement, filed on April 3, 2013)
TASER International, Inc. Deferred Compensation Plan (incorporated by reference to exhibit 1-.1 to Form 8K, filed on July 12, 2013)
Note Modification Agreement dated as of August 15, 2013, between the Company and JP Morgan Chase Bank, N.A. (incorporated by
reference to Exhibit 10.1 to Form 10-Q, filed November 5, 2013)
List of Subsidiaries
Consent of Grant Thornton, LLP, independent registered public accounting firm
Powers of attorney (see signature page)
Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
SBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document

83

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
TASER INTERNATIONAL, INC.
Date: March 10, 2014
By:

/s/ PATRICK W. SMITH
Chief Executive Officer, Director

By:

/s/ DANIEL M. BEHRENDT
Chief Financial Officer
(Principal Financial and
Accounting Officer)

Date: March 10, 2014

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick
W. Smith his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to
file the same, including all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he or she might or could do in
person hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature

Title

Date

/s/ MATTHEW R. MCBRADY
Matthew R. McBrady

Director

March 10, 2014

/s/ HADI PARTOVI
Hadi Partovi

Director

March 10, 2014

/s/ JUDY MARTZ
Judy Martz

Director

March 10, 2014

/s/ MARK W. KROLL
Mark W. Kroll

Director

March 10, 2014

/s/ MICHAEL GARNREITER
Michael Garnreiter

Director

March 10, 2014

/s/ JOHN S. CALDWELL
John S. Caldwell

Director

March 10, 2014

/s/ RICHARD H. CARMONA
Richard H. Carmona

Director

March 10, 2014

84

EXHIBIT 21.1
List of Subsidiaries
TASER International Europe SE
Familiar, Inc.

85

EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 10, 2014 , with respect to the consolidated financial statements, schedule, and internal control
over financial reporting included in the Annual Report of TASER International, Inc. on Form 10-K for the year ended December 31,
2013. We hereby consent to the incorporation by reference of said reports in the Registration Statements of TASER International, Inc.
on Forms S-8 (File No. 333-190442, effective August 7, 2013; File No. 333-190441, effective August 7, 2013; File No. 333-125455,
effective June 2, 2005; File No. 333-89434, effective May 31, 2002).

/s/ GRANT THORNTON LLP

Phoenix, AZ
March 10, 2014

86

EXHIBIT 31.1
CERTIFICATION PURSUANT TO
Rule 13a-14(a) or Rule 15d-14(a) of Chief Executive Officer
I, Patrick W. Smith, certify that:
1. I have reviewed this Annual Report on Form 10-K of TASER International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)

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

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

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

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

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

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

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Date: March 10, 2014

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

87

EXHIBIT 31.2
CERTIFICATION PURSUANT TO
Rule 13a-14(a) or Rule 15d-14(a) of Chief Financial Officer
I, Daniel M. Behrendt, certify that:
1. I have reviewed this Annual Report on Form 10-K of TASER International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)

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

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

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

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

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

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

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

Date: March 10, 2014

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

88

EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of TASER International, Inc. (the “Company”) for the year ended December 31,
2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick W. Smith, Chief Executive
Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

/s/ Patrick W. Smith
Patrick W. Smith
Chief Executive Officer
March 10, 2014
In connection with the Annual Report on Form 10-K of TASER International, Inc. (the “Company”) for the year ended December 31,
2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel M. Behrendt, Chief Financial
Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

/s/ Daniel M. Behrendt
Daniel M. Behrendt
Chief Financial Officer
March 10, 2014

89

Annual Report

13

TASER International, Inc.
17800 North 85th Street
Scottsdale, Arizona 85255 USA
480-905-2000
480-991-0791 fax
IR@TASER.com
www.TASER.com (NASDAQ: TASR)

X26P, X2, TASER CAM HD and AXON Flex are trademarks of TASER International, Inc., and TASER® and © are registered trademarks of TASER International, Inc., registered in the U.S. © 2014 TASER International, Inc. All rights reserved.