Annual Report — Small Business — Form 10-KSB Filing Table of Contents
Document/ExhibitDescriptionPagesSize
1: 10KSB Annual Report -- Small Business HTML 488K
2: EX-3.3 Articles of Incorporation/Organization or By-Laws HTML 9K
3: EX-10.13 Material Contract 33± 130K
4: EX-10.14 Material Contract 14 47K
5: EX-10.15 Material Contract 21 88K
6: EX-10.16 Material Contract HTML 51K
7: EX-14.1 Code of Ethics 15 72K
8: EX-23.1 Consent of Experts or Counsel HTML 8K
9: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) HTML 12K
10: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) HTML 12K
11: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) HTML 9K
12: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) HTML 9K
13: EX-99.1 Miscellaneous Exhibit HTML 37K
From time to time, TASER International, Inc. (“TASER”
or the “Company”), through its management, may make
forward-looking public statements with respect to the Company
regarding, among other things, expected future revenues or
earnings, projections, plans, future performance, product
development and commercialization, and other estimates relating
to the Company’s future operations. Forward-looking
statements may be included in reports filed under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
in press releases, other written statements, or in oral
statements. The words or phrases “will likely
result,”“are expected to,”“intends,”“is anticipated,”“estimates,”“believes,”“projects” or similar
expressions are intended to identify “forward-looking
statements” within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933,
as amended, as enacted by the Private Securities Litigation
Reform Act of 1995.
Forward-looking statements are subject to a number of risks and
uncertainties. The Company cautions investors not to place undue
reliance on its forward-looking statements, which speak only as
of the date on which they are made. TASER’s actual results
may differ materially from those described in the
forward-looking statements as a result of various factors,
including those listed below. The Company disclaims any
obligation subsequently to revise or update forward-looking
statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or
unanticipated events.
Pursuant to the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995, TASER hereby
files the following cautionary statements identifying certain
factors that could cause its actual results to differ materially
from those described in its forward-looking statements.
WE ARE MATERIALLY DEPENDENT ON ACCEPTANCE OF OUR PRODUCTS BY THE
LAW ENFORCEMENT AND CORRECTIONS MARKET, AND IF LAW ENFORCEMENT
AND CORRECTIONS AGENCIES DO NOT PURCHASE OUR PRODUCTS, OUR
REVENUES WILL BE ADVERSELY AFFECTED AND WE MAY NOT BE ABLE TO
EXPAND INTO OTHER MARKETS.
A substantial number of law enforcement and corrections agencies
may not purchase our conducted energy, non-lethal devices. In
addition, if our products are not widely accepted by the law
enforcement and corrections market, we may not be able to expand
sales of our products into other markets. Law enforcement and
corrections agencies may be influenced by claims or perceptions
that conducted energy weapons are unsafe or may be used in an
abusive manner. In addition, earlier generation conducted energy
devices may have been perceived as ineffective. Sales of our
products to these agencies may also be delayed or limited by
these claims or perceptions.
WE SUBSTANTIALLY DEPEND ON SALES OF THE ADVANCED TASER PRODUCTS
AND TASER X26 PRODUCTS, AND IF THESE PRODUCTS ARE NOT WIDELY
ACCEPTED, OUR GROWTH PROSPECTS WILL BE DIMINISHED.
In 2004 and 2003, we derived our revenues predominantly from
sales of the TASER brand devices and related cartridges, and
expect to depend on sales of these products for the foreseeable
future. A decrease in the prices of or demand for these products
, or their failure to achieve broad market acceptance, would
significantly harm our growth prospects, operating results and
financial condition.
IF WE ARE UNABLE TO MANAGE OUR PROJECTED GROWTH, OUR GROWTH
PROSPECTS MAY BE LIMITED AND OUR FUTURE PROFITABILITY MAY BE
ADVERSELY AFFECTED.
We intend to expand our sales and marketing programs. Any
significant expansion may strain our managerial, financial and
other resources. If we are unable to manage our growth, our
business, our operating results and financial condition could be
adversely affected. We will need to continually improve our
operations, financial and other internal systems to manage our growth
effectively, and any failure to do so may lead to inefficiencies
and redundancies, and result in reduced growth prospects and
profitability.
WE MAY FACE PERSONAL INJURY, WRONGFUL DEATH AND OTHER LIABILITY
CLAIMS THAT HARM OUR REPUTATION AND ADVERSELY AFFECT OUR SALES
AND FINANCIAL CONDITION.
Our products are often used in aggressive confrontations that
may result in serious, permanent bodily injury or death to those
involved. Our products may cause or be associated with these
injuries. A person injured in a confrontation or otherwise in
connection with the use of our products may bring legal action
against us to recover damages on the basis of theories including
personal injury, wrongful death, negligent design, dangerous
product or inadequate warning. We are currently subject to a
number of such lawsuits. We may also be subject to lawsuits
involving allegations of misuse of our products. If successful,
personal injury, misuse and other claims could have a material
adverse effect on our operating results and financial condition.
Although we carry product liability insurance, significant
litigation could also result in a diversion of management’s
attention and resources, negative publicity and an 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.
PENDING LITIGATION MAY SUBJECT US TO SIGNIFICANT LITIGATION
COSTS, JUDGEMENTS IN EXCESS OF INSURANCE COVERAGE, AND DIVERT MANAGEMENT ATTENTION FROM OUR BUSINESS.
The Company is involved in several litigation matters relating
to its products or the use of such products, as well as
shareholder class actions and an informal inquiry by the
Securities and Exchange Commission. Such matters could result in
substantial costs to the Company and a likely diversion of our
management’s attention, which could adversely affect our
Company’s business, financial condition or operating
results.
OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO EXPAND SALES
THROUGH DISTRIBUTORS AND OUR INABILITY TO RECRUIT NEW
DISTRIBUTORS WOULD NEGATIVELY AFFECT OUR SALES.
Our distribution strategy is to pursue sales through multiple
channels with an emphasis on independent distributors. Our
inability to recruit and retain police equipment distributors
who can successfully sell our products would adversely affect
our sales. In addition, our arrangements with our distributors
are generally short-term. If we do not competitively price our
products, meet the requirements of our distributors or
end-users, provide adequate marketing support, or comply with
the terms of our distribution arrangements, our distributors may
fail to aggressively market our products or may terminate their
relationships with us. These developments would likely have a
material adverse effect on our sales. Our reliance on the sales
of our products by others also makes it more difficult to
predict our revenues, cash flow and operating results.
WE EXPEND SIGNIFICANT RESOURCES IN ANTICIPATION OF A SALE DUE TO
OUR LENGTHY SALES CYCLE AND MAY RECEIVE NO REVENUE IN RETURN.
Generally, law enforcement and corrections agencies consider a
wide range of issues before committing to purchase our products,
including product benefits, training costs, the cost to use our
products in addition to or in place of other non-lethal
products, product reliability and budget constraints. The length
of our sales cycle may range from a few weeks to as long as
several years. Adverse publicity surrounding our products or the
safety of such products has in the past and could in the future
lengthen our sales cycle with customers. We may incur
substantial selling costs and expend significant effort in
connection with the evaluation of our products by potential
customers before they place an order. If these potential
customers do not purchase our products, we will have expended
significant resources and received no revenue in return.
MOST OF OUR END-USERS ARE SUBJECT TO BUDGETARY AND POLITICAL
CONSTRAINTS THAT MAY DELAY OR PREVENT SALES.
Most of our end-user customers are government agencies. These
agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In
addition, these agencies experience political pressure that may
dictate the manner in which they spend money. As a result, even
if an agency wants to acquire our products, it may be unable to
purchase them due to budgetary or political constraints. Some
government agency orders may also be canceled or substantially
delayed due to budgetary, political or other scheduling delays
which frequently occur in connection the acquisition of products
by such agencies.
GOVERNMENT REGULATION OF OUR PRODUCTS MAY ADVERSELY AFFECT SALES.
Federal regulation of sales in the United States: Our devices
are not firearms regulated by the Bureau of Alcohol, Tobacco,
Firearms and Explosives, but are consumer products regulated by
the United States Consumer Product Safety Commission. Although
there are currently no federal laws restricting sales of our
devices in the United States, future federal regulation could
adversely affect sales of our products.
Federal regulation of international sales: Our devices are
controlled as a “crime control” product by the United
States Department of Commerce, or DOC, for export directly from
the United States. Consequently, we must obtain an export
license from the DOC for the export of our devices from the
United States other than to Canada. Our inability to obtain DOC
export licenses on a timely basis for sales of our devices to
the majority of 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 several state and local
governments. Our devices are banned from private citizen sale or
use in seven states: New York, New Jersey, Rhode Island,
Michigan, Wisconsin, Massachusetts and Hawaii. Law enforcement
use of our products is also prohibited in New Jersey, and Rhode
Island. Some municipalities, including Omaha, Nebraska and
Washington, D.C. also prohibit private citizen use of our
products. Other jurisdictions may ban or restrict the sale of
our products and our product sales may be significantly affected
by additional state, county and city governmental regulation.
Foreign regulation. Certain foreign jurisdictions, including
Japan, the United Kingdom, Australia, Italy and Hong Kong,
prohibit the sale of conducted energy devices, limiting our
international sales opportunities.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY
LOSE A COMPETITIVE ADVANTAGE OR INCUR SUBSTANTIAL LITIGATION
COSTS TO PROTECT OUR RIGHTS.
Our future success depends in part upon our proprietary
technology. Our protective measures, including patents,
trademarks and trade secret laws, may prove inadequate to
protect our proprietary rights. Our United States patent on the
construction of the gas cylinder used to store the compress
nitrogen in our cartridges expires in 2015. Our patent on the
process by which compressed gases launch the probes in our
cartridges expires in 2009. The scope of any patent to which we
have or may obtain rights may not prevent others from developing
and selling competing products. The validity and breadth of
claims covered in technology patents involve complex legal and
factual questions, and the resolution of such claims may be
highly uncertain, lengthy and expensive. In addition, our
patents may be held invalid upon challenge, others may claim
rights in or ownership of our patents.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS,
WHICH WILL CAUSE US TO INCUR LITIGATION COSTS AND DIVERT
MANAGEMENT ATTENTION FROM OUR BUSINESS.
Any intellectual property infringement claims against us, with
or without merit, could be costly and time-consuming to defend
and divert our management’s attention from our business. If
our products were found to infringe a third party’s
proprietary rights, we could be required to enter into royalty
or licensing agreements in order to be able to sell our
products. Royalty and licensing agreements, if required, may not
be available on terms acceptable to us or at all.
In early April 2001, a patent licensee sued us in the United
District Court, Central District of California. The lawsuit
alleges that certain technology used in the firing mechanism for
our devices infringes upon a patent for which the licensee holds
a license, and seeks injunctive relief and unspecified monetary
damages. While the court awarded summary judgment in our favor,
the plaintiff has filed a notice of appeal. An outcome that is
adverse to us, costs associated with defending the lawsuit, and
the diversion of management’s time and resources as a
result of the claim could harm our business and our financial
condition.
COMPETITION IN THE LAW ENFORCEMENT AND CORRECTIONS MARKET COULD
REDUCE OUR SALES AND PREVENT US FROM ACHIEVING PROFITABILITY.
The law enforcement and corrections market is highly
competitive. We face competition from numerous larger, better
capitalized and more widely known companies that make other
non-lethal devices and products. Increased competition may
result in greater pricing pressure, lower gross margins and
reduced sales. In this regard, we expect two different
competitors to introduce new products in the first quarter of
2005. We are unable to predict the impact such products will
have on our sales or our sales cycle, but existing or potential
customers may evaluate such products which could lengthen our sales
cycle and potentially reduce future sales.
DEFECTS IN OUR PRODUCTS COULD REDUCE DEMAND FOR OUR PRODUCTS AND
RESULT IN A LOSS OF SALES, DELAY IN MARKET ACCEPTANCE AND INJURY
TO OUR REPUTATION.
Complex components and assemblies used in our products may
contain undetected defects that are subsequently discovered at
any point in the life of the product. In 2002, we recalled a
series of ADVANCED TASER devices due to a defective component.
In connection with the recall, we incurred expenses of
approximately $25,000. Defects in our products may result in a
loss of sales, delay in market acceptance and injury to our
reputation and increased warranty costs.
COMPONENT SHORTAGES COULD RESULT IN OUR INABILITY TO PRODUCE
VOLUME TO ADEQUATELY SUSTAIN CUSTOMER DEMAND. THIS COULD RESULT
IN A LOSS OF SALES, DELAY IN DELIVERIES AND INJURY TO OUR
REPUTATION.
Single source components used in the manufacture of our products
may become unavailable or discontinued. Delays caused by
industry allocations, or obsolescence may take weeks or months
to resolve. In some cases, part obsolescence may require a
product re-design to ensure quality replacement circuits. These
delays could cause significant delays in manufacturing and loss
of sales, leading to adverse effects significantly impacting our
financial condition or results of operations.
OUR 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: increased raw material
expenses, changes in our operating expenses, market acceptance
of our products and services, the outcome of any existing or
future litigation, adverse publicity surrounding our products, the
safety of our products, or
the use of our products, the safety of our products, regulatory changes that may affect the
marketability of our products, and budgetary cycles of
municipal, state and federal law enforcement and corrections
agencies. As a result of these 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 SARBANES-OXLEY ACT AND OTHER RECENT AND PROPOSED CHANGES IN SECURITIES LAWS AND
REGULATIONS MAY INCREASE OUR COSTS.
The Sarbanes-Oxley Act of 2002 that became law in July 2002, as well as new rules subsequently
implemented by the Securities and Exchange Commission and the Nasdaq Stock Market, have required,
and will require, changes to some of our accounting and corporate governance practices, including a
report on our internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002. We
expect these new rules and regulations to increase our accounting, legal and other costs, and to
make some activities more difficult, time consuming and/or costly. In particular, complying with
the internal control requirements of Sarbanes-Oxley Section 404 will result in increased internal
efforts, significantly higher fees from our independent accounting firm and significantly higher
fees from third party contractors. We also expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and officer liability insurance, and we may
be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
These new rules and regulations could also make it more difficult for us to attract and retain
qualified executive officers and qualified members of our board of directors, particularly to serve
on our audit committee.
WE MAY EXPERIENCE DIFFICULTIES AND INCREASED EXPENSES IN COMPLYING WITH SARBANES-OXLEY SECTION
404.
While we believe we currently have adequate internal control over financial reporting, we are
required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and
any adverse results from such evaluation could result in a loss of investor confidence in our
financial reports and have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on
Form 10-K for the fiscal year ending December 31, 2005, we will be required to furnish a report by
our management on our internal control over financial reporting. Such report will contain among
other matters, an assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not our internal control
over financial reporting is effective. This assessment must include disclosure of any material
weaknesses in our internal control over financial reporting identified by management. Such report
must also contain a statement that our auditors have issued an attestation report on management’s
assessment of such internal controls. Public Company Oversight Board Auditing Standard No. 2
provides the professional standards and related performance guidance for auditors to attest to, and
report on, management’s assessment of the effectiveness of internal control over financial
reporting under Section 404.
While we currently believe our internal control over financial reporting is effective, we are
still performing the system and process documentation and evaluation needed to comply with Section
404, which is both costly and challenging. During this process, if our management identifies one or
more material weaknesses in our internal control over financial reporting, we will be unable to
assert such internal control is effective. If we are unable to assert that our internal control
over financial reporting is effective as of December 31, 2005 (or if our auditors are unable to
attest that our management’s report is fairly stated or they are unable to express an opinion on
the effectiveness of our internal controls), we could lose investor confidence in the accuracy and
completeness of our financial reports, which would have an adverse effect on our stock price.
While we currently anticipate being able to satisfy the requirements of Section 404 in a
timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and
any required remediation. If we are not able to comply with the requirements of Section 404 in a
timely manner or if our auditors are not able to complete the procedures required by Auditing
Standard No. 2 to support their attestation report, we could lose investor confidence in the
accuracy and completeness of our financial reports, which would have an adverse effect on our stock
price.
RECENT
REGULATIONS RELATED TO EQUITY COMPENSATION WILL LIKELY RESULT IN
SIGNIFICANTLY HIGHER EXPENSES AND COULD ADVERSELY AFFECT OUR ABILITY TO ATTRACT AND
RETAIN KEY PERSONNEL.
Stock options are a fundamental component of our employee compensation packages. We believe that
stock options directly motivate our employees to maximize long-term stockholder value and, through
the use of vesting, encourage employees to remain with us. On October 13, 2004, the Financial
Accounting Standards Board (FASB) concluded that Statement 123R, Share-Based Payment, which would
require all companies to measure compensation cost for all share-based payments (including employee
stock options) at fair value, would be effective for interim or annual periods beginning after June15, 2004. Statement 123R will negatively impact our earnings. Recording a charge for employee
stock options under SFAS No. 123 would have decreased our net income by $7.1 million in 2004. See
Note 2 to our Financial Statements. In addition, new regulations implemented by The Nasdaq Stock
Market requiring shareholder approval for all stock option plans as well as new regulations
implemented by the NYSE prohibiting NYSE member organizations from giving a proxy to vote on
equity-compensation plans unless the beneficial owner of the shares has given voting instructions
could make it more difficult for us to grant options to employees in the future. To the extent that
new regulations make it more difficult or expensive to grant options to employees, we may incur
compensation costs, change our equity compensation strategy or find it difficult to attract, retain
and motivate employees, each of which could materially and adversely affect our business.
OUR DEPENDENCE ON THIRD PARTY SUPPLIERS FOR KEY COMPONENTS OF
OUR DEVICES COULD DELAY SHIPMENT OF OUR PRODUCTS AND REDUCE OUR
SALES.
We depend on certain domestic and foreign suppliers for the
delivery of components used in the assembly of our products. Our
reliance on third-party suppliers creates risks related to our
potential inability to obtain an adequate supply of components
or subassemblies and reduced control over pricing and timing of
delivery of components and sub-assemblies. Specifically, we
depend on suppliers of sub-assemblies, machined parts, injection
molded plastic parts, printed circuit boards, custom wire
fabrications and other miscellaneous customer parts for our
products. We also do not have long-term agreements with any of
our suppliers. Any interruption of supply for any material
components of our products could significantly delay the
shipment of our products and have a material adverse effect on
our revenues, profitability and financial condition.
OUR DEPENDENCE ON FOREIGN SUPPLIERS FOR KEY COMPONENTS OF OUR
PRODUCTS COULD DELAY SHIPMENT OF OUR FINISHED PRODUCTS AND
REDUCE OUR SALES.
We depend of foreign suppliers for the delivery of components
used in the assembly of our products. Due to changes imposed for
imports of foreign products into the United States, as well as
port closures and delays created by recent terrorist threats, we
are exposed to risk of delays caused by freight carriers or
customs clearance issues for our imported parts. Delays caused
by our inability to obtain components for assembly could have a
material adverse effect on our revenues, profitability and
financial condition.
FOREIGN CURRENCY FLUCTUATIONS MAY EFFECT OUR COMPETITIVENESS AND
SALES IN FOREIGN MARKETS.
The relative change in currency values creates fluctuations in
product pricing for potential international customers. These
changes in foreign end-user costs may result in lost orders and
reduce the competitiveness of our products in certain foreign
markets. These changes may also negatively affect the financial
condition of some existing or potential foreign customers and
reduce or eliminate their future orders of our products.
USE OF ESTIMATES MAY CAUSE ACTUAL FINANCIAL RESULTS TO DIFFER.
There can be no assurance that any liability that may ultimately
result from the resolution of these matters either individually or in
the aggregate 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.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
WE FACE RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE AND NEW
COMPETING PRODUCTS.
The technology associated with non-lethal devices
is receiving significant attention and is rapidly evolving.
While we have patent protection in key areas of electro-muscular
disruption technology, it is possible that new non-lethal technology may result in competing products that
operate outside our patents and could present significant
competition for our products.
OUR FUTURE SUCCESS IS DEPENDENT UPON OUR ABILITY TO RAMP
MANUFACTURING PRODUCTION CAPACITY WHICH WILL BE ACCOMPLISHED IN
PART BY THE IMPLEMENTATION OF CUSTOMIZED MANUFACTURING
AUTOMATION EQUIPMENT.
One of our key challenges is to ramp our production capacity to
meet sales demand, while maintaining product quality. Our
primary strategies to accomplish this include increasing the
physical size of our assembly facilities, the hiring of
additional production staff, and the implementation of
customized automation equipment. The Company has no previous
experience in implementing automation equipment, and the
investments made on this equipment may not yield the anticipated
labor and material efficiencies. Our inability to meet the sales
demand or effectively manage our expansion or our planned move
to a larger facility could have a material adverse affect our
revenues, profitability and financial condition.
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 employments 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.
Dates Referenced Herein and Documents Incorporated by Reference