Form 10-Q
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
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| o |
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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)
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DELAWARE
(State or other jurisdiction
of incorporation or organization)
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86-0741227
(I.R.S. Employer
Identification Number) |
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17800 N. 85th St., SCOTTSDALE, ARIZONA
(Address of principal executive offices)
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85255
(Zip Code) |
(480) 991-0797
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, 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 o No o
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 o |
Accelerated filer þ |
Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
There were 62,613,212 shares of the issuer’s common stock, par value $0.00001 per share,
outstanding as of November 3, 2010.
TASER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER, 2010
TABLE OF CONTENTS
Items 2, 3 and 4 are not applicable.
PART I — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TASER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, 2010 |
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December 31, 2009 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
40,281,074 |
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$ |
45,505,049 |
|
Accounts receivable, net of allowance of $200,000 at September 30, 2010 and
December 31,
2009, respectively |
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12,956,799 |
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15,384,993 |
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Inventory |
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18,025,815 |
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15,085,750 |
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Prepaid expenses and other current assets |
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2,168,354 |
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1,461,539 |
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Deferred income tax assets, net |
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9,872,614 |
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8,447,915 |
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Total current assets |
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83,304,656 |
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85,885,246 |
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Property and equipment, net |
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33,111,506 |
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36,323,341 |
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Capitalized software, net |
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4,209,079 |
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2,349,724 |
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Deferred income tax assets, net |
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10,997,093 |
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10,997,093 |
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Intangible assets, net |
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2,920,576 |
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2,765,701 |
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Other long-term assets |
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814,833 |
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104,812 |
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Total assets |
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$ |
135,357,743 |
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$ |
138,425,917 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
4,001,265 |
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$ |
6,357,195 |
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Accrued liabilities |
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3,544,053 |
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4,252,577 |
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Current portion of deferred revenue |
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3,303,590 |
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2,819,155 |
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Customer deposits |
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231,303 |
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355,926 |
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Total current liabilities |
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11,080,211 |
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13,784,853 |
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Deferred revenue, net of current portion |
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4,602,484 |
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4,675,089 |
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Liability for unrecorded tax benefits |
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2,261,631 |
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2,264,779 |
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Total liabilities |
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17,944,326 |
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20,724,721 |
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Commitments and Contingencies |
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Stockholders’ Equity |
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Preferred stock, $0.00001 par value per share; 25 million shares
authorized; no shares issued and outstanding at September 30, 2010 and
December 31, 2009, respectively |
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— |
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— |
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Common stock, $0.00001 par value per share; 200 million shares authorized;
62,610,712 and 62,119,063 shares issued and outstanding at September 30,
2010 and December 31, 2009, respectively |
|
|
647 |
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|
642 |
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Additional paid-in capital |
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96,744,344 |
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92,839,165 |
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Treasury stock, 2,091,600 shares at September 30, 2010 and December 31, 2009 |
|
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(14,708,237 |
) |
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|
(14,708,237 |
) |
Retained earnings |
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35,382,154 |
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39,569,626 |
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Accumulated other comprehensive income/(loss) |
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(5,491 |
) |
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— |
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Total stockholders’ equity |
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117,413,417 |
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117,701,196 |
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Total liabilities and stockholders’ equity |
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$ |
135,357,743 |
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$ |
138,425,917 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
TASER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Net sales |
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$ |
21,084,081 |
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$ |
23,310,457 |
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$ |
64,048,507 |
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$ |
69,748,635 |
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Total cost of products sold |
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10,668,399 |
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10,044,645 |
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30,519,891 |
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28,114,844 |
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Gross margin |
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10,415,682 |
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13,265,812 |
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33,528,616 |
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41,633,791 |
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Sales, general and administrative expenses |
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9,454,353 |
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11,419,527 |
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29,756,705 |
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33,689,688 |
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Research and development expenses |
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1,686,062 |
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6,656,536 |
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8,881,027 |
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15,246,764 |
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Loss from operations |
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(724,733 |
) |
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(4,810,251 |
) |
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(5,109,116 |
) |
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(7,302,661 |
) |
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Interest and other income, net |
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10,364 |
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19,994 |
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24,466 |
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162,044 |
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Loss before provision (benefit) for income taxes |
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(714,369 |
) |
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(4,790,257 |
) |
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(5,084,650 |
) |
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(7,140,617 |
) |
Provision (benefit) for income taxes |
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1,621,109 |
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(1,614,241 |
) |
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(897,178 |
) |
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(2,773,438 |
) |
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Net loss |
|
$ |
(2,335,478 |
) |
|
$ |
(3,176,016 |
) |
|
$ |
(4,187,472 |
) |
|
$ |
(4,367,179 |
) |
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Loss per common and common equivalent shares |
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Basic |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
Diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
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Weighted average number of common and common
equivalent shares outstanding |
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Basic |
|
|
62,342,775 |
|
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|
61,937,769 |
|
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|
62,495,957 |
|
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|
61,891,638 |
|
Diluted |
|
|
62,342,775 |
|
|
|
61,937,769 |
|
|
|
62,495,957 |
|
|
|
61,891,638 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TASER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Nine Months Ended September 30, |
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2010 |
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2009 |
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Cash Flows from Operating Activities: |
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Net loss |
|
$ |
(4,187,472 |
) |
|
$ |
(4,367,179 |
) |
Adjustments to reconcile net loss to net cash (used)
provided by operating activities: |
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Depreciation and amortization |
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5,243,225 |
|
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2,408,269 |
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Loss on disposal of fixed assets |
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83,179 |
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|
63,113 |
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Provision for doubtful accounts |
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2,764 |
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|
3,000 |
|
Provision / write-off of excess and obsolete inventory |
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1,086,795 |
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|
290,353 |
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Provision for warranty |
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594,196 |
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(31,140 |
) |
Stock-based compensation expense |
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2,838,998 |
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3,782,181 |
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Excess tax benefits from stock-based compensation |
|
|
(97,273 |
) |
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— |
|
Deferred income taxes |
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|
(1,327,426 |
) |
|
|
(3,758,068 |
) |
Provision for unrecognized tax benefits |
|
|
(3,148 |
) |
|
|
443,321 |
|
Change in assets and liabilities: |
|
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Accounts receivable |
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2,425,430 |
|
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|
471,900 |
|
Inventory |
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(4,026,860 |
) |
|
|
(50,623 |
) |
Prepaids and other assets |
|
|
(1,617,257 |
) |
|
|
654,798 |
|
Accounts payable and accrued liabilities |
|
|
(3,715,501 |
) |
|
|
1,831,628 |
|
Deferred revenue |
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|
411,830 |
|
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|
3,737,716 |
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Customer deposits |
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(124,623 |
) |
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(19,176 |
) |
|
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Net cash (used) provided by operating activities |
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(2,413,143 |
) |
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|
5,460,093 |
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Cash Flows from Investing Activities: |
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Proceeds from maturity of investments |
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— |
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|
2,500,000 |
|
Disposal of capital assets |
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|
26,020 |
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|
— |
|
Capital expenditures |
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(3,601,501 |
) |
|
|
(9,291,237 |
) |
Purchases of intangible assets |
|
|
(275,988 |
) |
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|
(242,553 |
) |
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Net cash used by investing activities |
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(3,851,469 |
) |
|
|
(7,033,790 |
) |
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Cash Flows from Financing Activities: |
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Excess tax benefits from stock-based compensation |
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|
97,273 |
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|
— |
|
Proceeds from stock options exercised |
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|
968,913 |
|
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|
107,831 |
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Net cash provided by financing activities |
|
|
1,066,186 |
|
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|
107,831 |
|
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Effect of exchange rate change on cash and cash equivalents |
|
|
(25,549 |
) |
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|
— |
|
Net decrease in cash and cash equivalents |
|
|
(5,198,426 |
) |
|
|
(1,465,866 |
) |
Cash and cash equivalents, beginning of period |
|
|
45,505,049 |
|
|
|
46,880,435 |
|
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|
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|
Cash and cash equivalents, end of period |
|
$ |
40,281,074 |
|
|
$ |
45,414,569 |
|
|
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Supplemental Disclosure: |
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Cash paid for income taxes — net |
|
$ |
703,982 |
|
|
$ |
878,063 |
|
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|
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|
The accompanying notes are an integral part of these consolidated financial statements.
5
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The Company and Summary of Significant Accounting Policies
TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced
electronic control devices (“ECDs”) designed for use in law enforcement, 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 internet services and software development division facilities are located in
Carpenteria, California.
The accompanying consolidated financial statements include the accounts of the Company, and its
wholly owned subsidiary, 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, preparation and use of estimates
The accompanying unaudited consolidated financial statements of TASER include all adjustments
(consisting only of normal recurring accruals) that in the opinion of management are necessary for
the fair presentation of the Company’s operating results, financial position and cash flows as of
September 30, 2010 and for the three months and nine months ended September 30, 2010 and 2009. The
preparation of these consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) requires management to make
estimates and assumptions that affect the amounts reported in these consolidated financial
statements and accompanying notes. Actual results could differ materially from those estimates.
Certain information and note disclosures normally included in consolidated financial statements
prepared in accordance with U.S. GAAP have been omitted from these unaudited consolidated financial
statements in accordance with applicable rules. The results of operations for the three and nine
month periods ended September 30, 2010 and 2009 are not necessarily indicative of the results to be
expected for the full year (or any other period) and all results of operations included herein
should be read in conjunction with the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
b. Segment information and major customers
Management has determined that its operations are comprised of one reportable segment,
however, based on the introduction of new product offerings, management is presently in the process
of evaluating how the operating results of the Company will be reviewed internally on a go forward
basis in order to improve the level of resource decision making and assessment of segment
performance. Based on this evaluation, management will make the necessary changes to its internal
management reporting system and, subsequently, will perform a review to determine if the Company
will redefine its reportable operating segments in accordance with U.S. GAAP. For the three months
and nine months ended September 30, 2010 and 2009, sales by geographic area were as follows:
| |
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| |
|
Three Months Ended September 30, |
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|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
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|
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|
|
|
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|
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|
United States |
|
|
89 |
% |
|
|
81 |
% |
|
|
82 |
% |
|
|
75 |
% |
Other Countries |
|
|
11 |
% |
|
|
19 |
% |
|
|
18 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to customers outside of the United States are typically denominated in U.S. dollars and
are attributed to each country based on the billing address of the distributor or customer. For the
three months ended September 30, 2010, no individual country outside of the U.S. represented a
material amount of total net sales. For the three months ended September 30, 2009, sales to
Australia represented approximately 15% of total net sales. For the nine months ended September 30,
2010 and 2009, no individual country outside of the US represented a material amount of net sales.
Substantially all assets of the Company are located in the United States.
6
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
In the three months ended September 30, 2010, three distributors represented approximately 18%,
14%, and 11% of total net sales. In the three months ended September 30, 2009, two distributors
represented approximately 25% and 15% of total net sales. In the nine months ended September 30,
2010, one distributor represented approximately 10% of total net sales. In the nine months ended
September 30, 2009, one distributor represented approximately 12% of total net sales. At September
30, 2010, the Company had receivables from three distributors comprising 25%, 15%, and 11% of its
aggregate accounts receivable balance. At December 31, 2009, the Company had receivables from one
customer comprising 13% of its aggregate accounts receivable balance. These customers are
unaffiliated distributors of the Company’s products.
c. Loss per common share
Basic loss per share is computed by dividing net loss by the weighted average number of common
shares outstanding during the periods presented. The calculation of the weighted average number of
shares outstanding and earnings per share are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator for basic and diluted loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,335,478 |
) |
|
$ |
(3,176,016 |
) |
|
$ |
(4,187,472 |
) |
|
$ |
(4,367,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share — weighted average shares outstanding |
|
|
62,342,775 |
|
|
|
61,937,769 |
|
|
|
62,495,957 |
|
|
|
61,891,638 |
|
Dilutive effect of shares issuable under stock options outstanding |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted loss per share — adjusted weighted average shares outstanding |
|
|
62,342,775 |
|
|
|
61,937,769 |
|
|
|
62,495,957 |
|
|
|
61,891,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
Diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
As a result of the net loss for the three and nine months ended September 30, 2010, we
excluded 7,440,030 and 5,662,688 stock options, respectively, from the calculation as their effect
would have been to reduce the net loss per share. As a result of the net loss for the three and
nine months ended September 30, 2009, we excluded 6,560,918 and 8,171,700 stock options,
respectively, from the calculation as their effect would have been to reduce the net loss per
share.
d. Revenue Recognition
On July 27, 2009, the Company announced a temporary trade-in program to enable agencies who
purchase a TASER X26 ECD for deployment in the United States the opportunity to upgrade the product
in exchange for a partial credit against the purchase of the newly announced semi-automatic TASER
X3 ECD. The Company has accounted for the trade-in right on new sales as a separate element, which
has been deferred based on the relative fair value of the credit to the arrangement as a whole. The
trade-in offer, which expires on December 31, 2009, resulted in deferred revenue of $3.5 million at
September 30, 2009, which is included in current deferred revenue in the accompanying consolidated
balance sheet. The Company recognized the deferred revenue during the fourth quarter of 2009 upon
expiration of the offer on December 31, 2009.
e. Warranty costs
The Company warrants its X3, X26, Advanced, TASER Cam, XREP, and Shockwave products from
manufacturing defects on a limited basis for a period of one year after purchase. The C2 and AXON
products are warranted for a period of 90 days after purchase. In the event that an X26 device
fails to operate properly for any reason following the expiration of the standard warranty, the
Company will replace the X26 for a prorated price depending on when the product was placed into
service and similarly replace the ADVANCED TASER device for a fee of $75. These fees are intended
to cover the handling and repair costs and provide a profit for the Company. The Company also sells
extended warranties, primarily for the X26, X3, and AXON for periods of up to four years after the
expiration of the limited warranty. Management tracks historical data related to returns and
warranty costs on a quarterly basis, and estimates future warranty claims based upon historical
experience. If management becomes aware of a component failure that could result in larger than
anticipated returns from its customers, the reserve would be increased. The reserve for warranty
returns is included in accrued liabilities on the consolidated balance sheet. The following table
summarizes the changes in the estimated product warranty liabilities for the nine months ended
September 30, 2010 and 2009.
7
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
2010 |
|
|
2009 |
|
| |
Balance at January 1, |
|
$ |
369,311 |
|
|
$ |
615,031 |
|
Utilization of accrual |
|
|
(328,135 |
) |
|
|
(286,138 |
) |
|
|
|
|
|
|
|
|
|
Warranty expense |
|
|
594,196 |
|
|
|
(30,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, |
|
$ |
635,372 |
|
|
$ |
298,453 |
|
|
|
|
|
|
|
|
f. Capitalized software development costs
For development costs related to EVIDENCE.com, the Company’s Software as a Service (SaaS) product,
the Company capitalized qualifying computer software costs that were incurred during the
application development stage. Costs related to preliminary project planning activities and
post-implementation activities are expensed as incurred. For the nine months ended September 30,
2010, the Company capitalized $1,320,000, respectively, of qualifying software development costs.
No costs were capitalized in the third quarter of 2010. For the three and nine months ended
September 30, 2009, the Company capitalized $852,000 and $1,500,000 (no costs were capitalized in
the first quarter of 2009). Amortization of capitalized software development costs commenced during
the third quarter of 2010.
For development costs related to the TASER Protector Platform (See Note 12), the Company
capitalized a portion of the development costs paid to RouteCloud LLC for development of the
Protector Platform technology under the terms of the joint venture agreement. For the three and
nine months ended September 30, 2010, the Company capitalized approximately $204,000 and $845,000,
respectively, of qualifying development costs. The Company will begin amortizing capitalized
development costs once the first product has launched, which is expected to occur in the fourth
quarter of 2010.
g. Fair value of financial instruments
The Company uses the fair value framework for measuring financial assets and liabilities measured
on a recurring basis and for non-financial assets and liabilities when these items are
re-measured, The Company’s financial instruments also include accounts receivable,
accounts payable and accrued liabilities. Due to the short-term nature of these instruments, their
fair value approximates their carrying value on the balance sheet. 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. |
h. Recently adopted accounting guidance
In October 2009, the FASB issued authoritative guidance on revenue recognition that the Company has
adopted early, effective January 1, 2010. Under the new guidance on arrangements that include
software elements, tangible products that have software components that are essential to the
functionality of the tangible product will no longer be within the scope of the software revenue
recognition guidance, and software-enabled products will now be subject to other relevant revenue
recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software revenue recognition guidance.
Under the new guidance, when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using the relative selling
price method. The new guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue recognition. Adoption of
this new guidance did not have a material impact on the Company’s consolidated financial
statements.
8
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest
entities, which the Company adopted, effective January 1, 2010. The new guidance requires revised
evaluations of whether entities represent variable interest entities, ongoing assessments of
control over such entities, and additional disclosures for variable interests. Adoption of
this new guidance did not have a material impact on the Company’s consolidated financial
statements.
2. Cash, cash equivalents and investments
Cash and cash equivalents include funds on hand and short-term investments with original maturities
of three months or less. Short-term investments include securities generally having maturities of
90 days to one year. At September 30, 2010, the entire $40.3 million of the Company’s cash and cash
equivalents was comprised of cash and money market funds.
The Company valued its cash equivalents in money market accounts using observable inputs that
reflect quoted prices for securities with identical characteristics, and accordingly, management
classified the valuation techniques that use these inputs as Level 1.
3. Inventory
Inventory is 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 an allocation
of manufacturing labor and overhead. Provisions are made to reduce excess, obsolete or slow-moving
inventories to their net realizable value. Inventories as of September 30, 2010 and December 31,
2009 consisted of the following:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Raw materials and work-in-process |
|
$ |
11,014,946 |
|
|
$ |
10,387,229 |
|
Finished goods |
|
|
7,195,226 |
|
|
|
5,172,595 |
|
Reserve for excess and obsolete inventory |
|
|
(184,357 |
) |
|
|
(474,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,025,815 |
|
|
$ |
15,085,750 |
|
|
|
|
|
|
|
|
4. Intangible assets
Intangible assets consisted of the following at September 30, 2010 and December 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
| |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
| |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
| |
|
Useful Life |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names |
|
5 Years |
|
$ |
237,911 |
|
|
$ |
63,032 |
|
|
$ |
174,879 |
|
|
$ |
230,991 |
|
|
$ |
60,000 |
|
|
$ |
170,991 |
|
Issued patents |
|
4 to 15 Years |
|
|
968,735 |
|
|
|
248,266 |
|
|
|
720,469 |
|
|
|
869,309 |
|
|
|
206,907 |
|
|
|
662,402 |
|
Issued trademarks |
|
9 to 11 Years |
|
|
192,313 |
|
|
|
32,137 |
|
|
|
160,176 |
|
|
|
131,058 |
|
|
|
19,183 |
|
|
|
111,875 |
|
Non compete agreements |
|
5 to 7 Years |
|
|
150,000 |
|
|
|
125,000 |
|
|
|
25,000 |
|
|
|
150,000 |
|
|
|
106,429 |
|
|
|
43,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,548,959 |
|
|
|
468,435 |
|
|
|
1,080,524 |
|
|
|
1,381,358 |
|
|
|
392,519 |
|
|
|
988,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TASER Trademark |
|
|
|
|
900,000 |
|
|
|
|
|
|
|
900,000 |
|
|
|
900,000 |
|
|
|
|
|
|
|
900,000 |
|
Patents and trademarks
pending |
|
|
|
|
940,052 |
|
|
|
|
|
|
|
940,052 |
|
|
|
876,862 |
|
|
|
|
|
|
|
876,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,840,052 |
|
|
|
|
|
|
|
1,840,052 |
|
|
|
1,776,862 |
|
|
|
|
|
|
|
1,776,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,389,011 |
|
|
$ |
468,435 |
|
|
$ |
2,920,576 |
|
|
$ |
3,158,220 |
|
|
$ |
392,519 |
|
|
$ |
2,765,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
Amortization expense for the three and nine months ended September 30, 2010 was approximately
$28,000 and $76,000, respectively. Amortization expense for the three and nine months ended
September 30, 2009 was approximately $21,000 and $58,000, respectively. Estimated amortization
expense of intangible assets for the remaining three months of 2010, the next five years ended
December 31, and thereafter is as follows:
| |
|
|
|
|
|
2010 (remainder of year) |
|
$ |
29,374 |
|
2011 |
|
|
84,509 |
|
2012 |
|
|
89,490 |
|
2013 |
|
|
89,492 |
|
2014 |
|
|
88,574 |
|
2015 |
|
|
79,828 |
|
Thereafter |
|
|
619,257 |
|
|
|
|
|
|
|
$ |
1,080,524 |
|
|
|
|
|
5. Accrued liabilities
Accrued liabilities consisted of the following at September 30, 2010 and December 31, 2009:
| |
|
|
|
|
|
|
|
|
| |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Accrued salaries and benefits |
|
$ |
1,390,651 |
|
|
$ |
1,691,303 |
|
Accrued expenses |
|
|
1,518,030 |
|
|
|
2,191,963 |
|
Accrued warranty expense |
|
|
635,372 |
|
|
|
369,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,544,053 |
|
|
$ |
4,252,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Income taxes
Deferred Tax Assets
The net deferred income tax assets at September 30, 2010 are comprised of capitalized research and
development costs, research and development tax credits, non-qualified stock-based compensation
expense, deferred warranty revenue, warranty and inventory reserves and accrued vacation. The
Company’s total current and long term deferred tax assets balance at September 30, 2010 is $20.9
million.
In preparing the Company’s consolidated financial statements, management assesses the likelihood
that its deferred tax assets will be realized from future taxable income. In evaluating the
Company’s ability to recover its deferred income tax assets, management considers all available
positive and negative evidence, including its 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 tax assets will not be realized. Management exercises significant judgment in determining
its provisions for income taxes, its deferred tax assets and liabilities, and its future taxable
income for purposes of assessing its ability to utilize any future tax benefit from its deferred
tax assets. Although management believes that its tax estimates are reasonable, the ultimate tax
determination involves significant judgment that could become subject to audit by tax authorities
in the ordinary course of business, as well as the generation of sufficient future taxable income.
Management believes that, as of September 30, 2010, based on an evaluation and projections of
future sales and profitability for fiscal 2010, no valuation allowance is necessary. However, such
deferred tax assets could be reduced in the future if projections
of future taxable income during the carryforward period are reduced.
The Company has completed research and development tax credit studies which identified
approximately $5.9 million in tax credits for Federal and Arizona income tax purposes related to
the 2003 through 2009 tax years, net of the federal benefit on the Arizona research and development
tax credits. Management has made the determination that it is more likely than not that the full
benefit of the research and development tax credit will not be sustained on examination and
accordingly has established a cumulative liability for unrecognized tax benefits of $2.3 million as
of September 30, 2010. As of September 30, 2010, 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 $2.3 million be recognized, the Company’s effective tax rate
would be favorably impacted.
10
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
The following presents a rollforward of our liability for unrecognized tax benefits as of
September 30, 2010:
| |
|
|
|
|
| |
|
Unrecognized |
|
| |
|
Tax Benefits |
|
|
|
|
|
|
Balance at January 1, 2010 |
|
$ |
2,264,779 |
|
Decrease in prior year tax positions |
|
|
|
|
Decrease in current year tax positions |
|
|
— |
|
Decrease related to adjustment of previous estimates of activity |
|
|
(3,148 |
) |
Decrease related to settlements with taxing authorities |
|
|
— |
|
Decrease related to lapse in statute of limitations |
|
|
— |
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
2,261,631 |
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
Our estimated full year effective tax rate, before discrete period adjustments is 22.1% which is
below the statutory rate due to the impact of non-deductible expenses for items such as ISO stock
option expense, meals and entertainment and lobbying fees, which make our net loss for tax purposes
significantly lower than our book pre-tax loss. In addition, the estimated full year effective tax
rate was impacted by management’s change in its 2010 book and tax loss estimates compared to prior
quarter. Additionally, we recorded a discrete tax provision amount in the third quarter of 2010
related to a 2009 tax return to provision true up adjustment, primarily driven by lower than
expected research and development tax credits, which also reduced the net tax benefit and therefore
the effective tax rate. Since the quarterly tax provision is computed from the year-to-date
provision less the cumulative tax provision recognized through the previous quarter end, the
effective tax rate for the three months ended September 30, 2010 reflects the required year to date
true up adjustment to the Company’s provision for income taxes which experienced some variability
due to management’s change in estimate of projected 2010 results and the relative impact of
non-deductible expenses.
7. Stockholders’ equity
Stock Option Activity
At September 30, 2010, the Company had four stock-based compensation plans, three of which are
described more fully in Note 10 to the consolidated financial statements included in the Company’s
Annual Report on Form 10-K.
The following table summarizes the stock options available and outstanding as of September 30,
2010, as well as activity during the three months then ended:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Outstanding Options |
|
| |
|
Options Available for |
|
|
|
|
|
|
Weighted Average |
|
| |
|
Grant |
|
|
Number of options |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
1,708,192 |
|
|
|
8,780,067 |
|
|
$ |
5.94 |
|
Granted |
|
|
(926,441 |
) |
|
|
926,441 |
|
|
$ |
5.17 |
|
Exercised |
|
|
— |
|
|
|
(491,649 |
) |
|
$ |
1.97 |
|
Expired/terminated |
|
|
1,130,803 |
|
|
|
(1,130,803 |
) |
|
$ |
6.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
|
1,912,554 |
|
|
|
8,084,056 |
|
|
$ |
6.03 |
|
|
|
|
|
|
|
|
|
|
|
|
11
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
The options outstanding as of September 30, 2010 have been segregated into five ranges for
additional disclosure as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
|
Options Exercisable |
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
Weighted Average |
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Exercise |
|
|
Remaining |
|
|
Number |
|
|
Exercise |
|
| Range of Exercise Price |
|
Number Outstanding |
|
|
Price |
|
|
Contractual Life |
|
|
Exercisable |
|
|
Price |
|
$0.28 - $0.99
|
|
|
480,002 |
|
|
$ |
0.37 |
|
|
|
2.4 |
|
|
|
480,002 |
|
|
$ |
0.37 |
|
$1.03 - $2.41
|
|
|
651,547 |
|
|
$ |
1.62 |
|
|
|
2.0 |
|
|
|
651,547 |
|
|
$ |
1.62 |
|
$3.53 - $9.93
|
|
|
6,161,755 |
|
|
$ |
6.04 |
|
|
|
6.9 |
|
|
|
4,239,421 |
|
|
$ |
6.49 |
|
$10.07 - $19.76
|
|
|
737,752 |
|
|
$ |
12.23 |
|
|
|
5.5 |
|
|
|
727,510 |
|
|
$ |
12.23 |
|
$20.12 - $29.98
|
|
|
53,000 |
|
|
$ |
24.25 |
|
|
|
3.8 |
|
|
|
53,000 |
|
|
$ |
24.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,084,056 |
|
|
$ |
6.03 |
|
|
|
6.1 |
|
|
|
6,151,480 |
|
|
$ |
6.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of options exercisable at September 30, 2010 and 2009 was $20.3 million
and $18.5 million, respectively. The aggregate intrinsic value of options outstanding and options
exercisable was $3.2 million at September 30, 2010. Aggregate intrinsic value represents the
difference between the Company’s closing stock price on the last trading day of the fiscal period,
which was $3.88 per share, and the exercise price multiplied by the number of options outstanding.
Total intrinsic value of options exercised for the three and nine month periods ended September 30,
2010 was approximately $89,000 and $2,217,000 respectively. Total intrinsic value of options
exercised for the three and nine month periods ended September 30, 2009 was approximately $193,000
and $721,000, respectively.
At September 30, 2010, the Company had approximately 1.9 million unvested options outstanding with
a weighted average exercise price of $5.19 per share, weighted average grant date fair value of
$2.69 per share and a weighted average remaining contractual life of 8.6 years. Of these unvested
options outstanding, management estimates that approximately 1.85 million options will ultimately
vest based on its historical experience.
As of September 30, 2010, total unrecognized stock-based compensation expense related to unvested
stock options was approximately $5.1 million, which is expected to be recognized over a remaining
weighted average period of approximately 12 months.
Stock-Based Compensation Expense
The Company calculates the fair value of stock-based awards using the Black-Scholes-Merton option
valuation model, which incorporates various assumptions including volatility, expected life, and
interest rates. The assumptions used for the three and nine month periods ended September 30, 2010
and 2009, and the resulting estimates of weighted-average fair value per share of options granted
during those periods, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
| |
Expected life of options |
|
4.5 years |
|
|
4.5 years |
|
|
4.5 years |
|
|
4.5 years |
Weighted average volatility |
|
|
58.9 |
% |
|
|
64.9 |
% |
|
|
61.2 |
% |
|
|
73.0 |
% |
Weighted average risk-free interest rate |
|
|
1.3 |
% |
|
|
2.3 |
% |
|
|
2.0 |
% |
|
|
1.9 |
% |
Dividend rate |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Weighted average fair value of options granted |
|
$ |
1.87 |
|
|
$ |
2.66 |
|
|
$ |
2.62 |
|
|
$ |
2.62 |
|
The expected life of options represents the estimated period of time until exercise and is
based on the Company’s historical experience of similar awards, giving consideration to the
contractual terms, vesting schedules and expectations of employee exercise patterns. 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 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 foreseeable future. As stock-based compensation expense is recognized on
awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are
required to be 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.
12
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)
Reported share-based compensation was classified as follows for the three and nine months
ended September 30, 2010 and 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Products Sold |
|
$ |
107,947 |
|
|
$ |
62,154 |
|
|
$ |
259,932 |
|
|
$ |
260,517 |
|
Sales, general and administrative expenses |
|
|
692,420 |
|
|
|
814,159 |
|
|
|
2,215,010 |
|
|
|
2,441,178 |
|
Research and development expenses |
|
|
112,411 |
|
|
|
146,550 |
|
|
|
364,056 |
|
|
|
1,080,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
912,778 |
|
|
$ |
1,022,863 |
|
|
$ |
2,838,998 |
|
|
$ |
3,782,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense recognized in the income statement for the three and
nine months ended September 30, 2010 includes approximately $414,000 and $1.7 million,
respectively, related to Incentive Stock Options (“ISO“s) for which no tax benefit is recognized.
Total share-based compensation expense recognized in the income statement for the three and nine
months ended September 30, 2009 includes approximately $480,000 and $2.0 million, respectively,
related to ISOs for which no tax benefit is recognized. The Company did not tax effect the
share-based compensation expense for tax purposes related to the non-qualified disposition of ISOs
exercised and sold as the benefit will be recorded when the Company is in a position to realize the
benefit with an offset to taxes payable in future periods. The total unrecognized tax benefit
related to the non-qualified disposition of stock options in the three and nine months ended
September 30, 2010 was approximately $89,000 and $2,216,000, respectively. The total unrecognized
tax benefit related to non-qualified disposition of stock options in the three and nine months
ended September 30, 2009 was approximately $193,000 and $721,000, respectively.
The Company has granted a cumulative total of 926,000 performance-based stock options in 2008, 2009
and the first quarter of 2010, the vesting of which is contingent upon the achievement of certain
performance criteria related to the successful and timely development and market acceptance of
future product introductions, as well as the future sales and operating performance of the Company.
Compensation expense is recognized over the implicit service period (the date the performance
condition is expected to be achieved) based on management’s estimate of the probability of the
performance criteria being satisfied, adjusted at each balance sheet date. At September 30, 2010,
246,977 unvested performance options with a fair value of approximately $624,000 remain
outstanding. During the nine months ended September 30, 2010, 225,000 of these options were
forfeited, resulting in the reversal of approximately $346,000, of previously recognized
compensation expense. No options were forfeited during the three months ended September 30, 2010.
During the three and nine months ended September 30, 2009, 100,000 of these options were forfeited,
resulting in the reversal of $164,000 of previously recognized compensation expense.
8. Line of credit
The Company has a line of credit agreement with a bank which provides for a total availability of
$10.0 million. The line is secured by the Company’s accounts receivable and inventory and bears
interest at varying rates of interest, ranging from LIBOR plus 1.5% to prime (3.25% at September
30, 2010). The availability under this line is computed on a monthly borrowing base, which is based
on the Company’s eligible accounts receivable and inventory. The line of credit, which was renewed
in the second quarter of 2010, matures on September 30, 2011 and requires monthly payments of
interest only. At September 30, 2010, there was no amount outstanding under the line of credit and
the available borrowing was $4.8 million. There have been no borrowings under the line of credit to
date.
The Company’s agreement with the bank requires compliance 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
September 30, 2010, the Company’s tangible net worth ratio was 0.16:1 and its fixed charge coverage
ratio was 6.43:1. Accordingly, the Company was in compliance with those covenants.
13
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. Commitments and Contingencies
Legal proceedings
Product Litigation
The Company is currently named as a defendant in 45 lawsuits in which the plaintiffs allege either
wrongful death or personal injury in situations in which the TASER device was used (or present) by
law enforcement officers in connection with arrests or during training exercises. Companion cases
arising from the same incident have been combined into one for reporting purposes.
In addition, 117 other lawsuits have been dismissed or judgment entered in favor of the Company
which are not included in this number. An appeal was filed by the plaintiff in the Lee (TN),
Thompson (MI), Marquez (AZ) and Rosa (CA) cases where judgment was entered in favor of the Company.
These cases are not included in this number.
Also not included in the number of pending lawsuits is the Heston lawsuit in which a jury verdict
was entered against the Company on June 6, 2008, and judgment was entered against the Company on
January 30, 2009 in the amount of $153,150 as compensatory damages, $1,423,127 as attorney fees,
and $182,000 as costs. These damages, fees and costs are covered by the Company’s insurance
policies. The jury found that Mr. Heston’s own actions were 85 percent responsible for his death.
The jury assigned 15 percent of the responsibility to TASER for a “negligent failure to warn” that
extended or multiple TASER ECD applications could cause muscle contractions that could potentially
contribute to acidosis to a degree that could cause cardiac arrest. Prior to the January 2009
judgment, the jury had previously inappropriately awarded $5,200,000 in punitive damages against
TASER, which were subsequently disallowed by the Court on October 24, 2008. The Court denied the
balance of the Company’s motion for judgment as a matter of law on all other grounds. The Company
has filed a notice of appeal with respect to the judgment and plaintiffs have filed a notice of
cross appeal.
With respect to each of the pending 45 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. 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. This table
also lists those cases that were dismissed or judgment entered during the most recent fiscal
quarter. Cases that were dismissed or judgment entered in prior fiscal quarters are not included in
this table. In each of the pending lawsuits, the plaintiff is seeking monetary damages from the
Company. The claims and in some instances, the defense of each of these lawsuits has been submitted
to our insurance carriers that maintained insurance coverage during these applicable periods and we
continue to maintain product liability insurance coverage with varying limits and deductibles. Our
product liability insurance coverage during these periods ranged from $5,000,000 to $10,000,000 in
coverage limits and from $10,000 to $1,000,000 in per incident deductibles. We are defending each
of these lawsuits vigorously and do not expect these to individually and in the aggregate,
materially affect our business, results of operations or financial condition.
14
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -Continued
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Month |
|
|
|
|
|
|
|
|
| Plaintiff |
|
Served |
|
|
Jurisdiction |
|
Claim Type |
|
|
Status |
| |
Glowczenski |
|
Oct-04 |
|
US District Court, ED NY |
|
Wrongful Death |
|
Trial rescheduled, date to be determined |
Washington |
|
May-05 |
|
US District Court, ED CA |
|
Wrongful Death |
|
Stayed |
Graff |
|
Sep-05 |
|
Maricopa County Superior Court, AZ |
|
Wrongful Death |
|
Dismissed |
Rosa |
|
Nov-05 |
|
US District Court, ND CA |
|
Wrongful Death |
|
Dismissed, Summary Judgment Granted, Appeal Pending |
Bagnell |
|
Jul-06 |
|
Supreme Court for British Columbia, Canada |
|
Wrongful Death |
|
Discovery Phase |
Hollman |
|
Aug-06 |
|
US District Court, ED NY |
|
Wrongful Death |
|
Discovery Phase |
Oliver |
|
Sep-06 |
|
US District Court, MD FL, Orlando Division |
|
Wrongful Death |
|
Discovery Phase, trial scheduled June 2011 |
Augustine |
|
Jan-07 |
|
11th Judicial Circuit Court, Miami-Dade, FL |
|
Wrongful Death |
|
Discovery Phase, trial off calendar |
Wendy Wilson, Estate of Ryan
Wilson |
|
Aug-07 |
|
District Court Boulder County, CO |
|
Wrongful Death |
|
Trial scheduled August 2011 |
Jack Wilson, Estate of Ryan
Wilson
(Companion to Wendy Wilson) |
|
Nov-07 |
|
District Court Boulder County, CO |
|
Wrongful Death |
|
Trial scheduled August 2011 |
Marquez |
|
Jun-08 |
|
US District Court, AZ |
|
Wrongful Death |
|
Dismissed, appeal filed |
Salinas |
|
Aug-08 |
|
US District Court, ND CA |
|
Wrongful Death |
|
Motion Phase, trial scheduled February 2011 |
Thomas (Pike) |
|
Oct-08 |
|
US District Court, WD Louisiana, Alexandria |
|
Wrongful Death |
|
Stayed |
Carroll |
|
Mar-09 |
|
US District Court, SD TX |
|
Wrongful Death |
|
Trial scheduled February 2011 |
Shrum |
|
May-09 |
|
Allen County District Court, Iola, KS |
|
Wrongful Death |
|
Trial Scheduled June 2011 |
Athetis |
|
May-09 |
|
US District Court, AZ |
|
Wrongful Death |
|
Discovery Phase |
Hagans |
|
May-09 |
|
US District Court, SD OH |
|
Wrongful Death |
|
Dismissed |
Abrahams |
|
Jul-09 |
|
CA Superior Court, Yolo County |
|
Wrongful Death |
|
Discovery Phase-trial scheduled May - 2011 |
Humphreys |
|
Oct-09 |
|
CA Superior Court, San Joaquin County |
|
Wrongful Death |
|
Discovery Phase |
Forbes |
|
Dec-09 |
|
US District Court, MS |
|
Wrongful Death |
|
Dismissed |
Terriquez |
|
Feb-10 |
|
Superior Court of CA, Orange County |
|
Wrongful Death |
|
Discovery Phase, trial scheuduled February 2011 |
Rich |
|
Feb-10 |
|
US District Court, NV |
|
Wrongful Death |
|
Pleading Phase |
McKenzie |
|
Feb-10 |
|
US Disctrict Court, ED CA |
|
Wrongful Death |
|
Discovery Phase, trial scheduled January 2012 |
Turner |
|
Feb-10 |
|
General Court of Justice, Superior Court Div, Mecklenburg County, NC |
|
Wrongful Death |
|
Discovery Phase, trial scheduled July 2011 |
Dang |
|
Mar-10 |
|
CA Superior Court, Orange County |
|
Wrongful Death |
|
Dismissed |
Doan |
|
Apr-10 |
|
Queens Bench Alberta, Red Deer Judicial Dist. |
|
Wrongful Death |
|
Pleading Phase |
Piskkura |
|
May-10 |
|
US District Court, OH |
|
Wrongful Death |
|
Discovery Phase, trial scheuduled March 2012 |
Winfield |
|
May-10 |
|
CA Superior Court, LA |
|
Wrongful Death |
|
Dismissed |
Corbin |
|
Jun-10 |
|
Houston County Court, AL |
|
Wrongful Death |
|
Discovery Phase, trial scheuduled October 2011 |
Swayzer |
|
Jun-10 |
|
CA Superior Court, Santa Clara County |
|
Wrongful Death |
|
Discovery Phase |
DuBoise |
|
Aug-10 |
|
US District Court, ED MO |
|
Wrongful Death |
|
Pleading Phase |
Vaugn |
|
Sep-10 |
|
US District Court, ND CA |
|
Wrongful Death |
|
Pleading Phase |
Kelly |
|
Oct-10 |
|
District Court for Harris County, TX |
|
Wrongful Death |
|
Pleading Phase |
Jacobs |
|
Oct-10 |
|
District Court for Travis County, TX |
|
Wrongful Death |
|
Pleading Phase |
Stewart |
|
Oct-05 |
|
Circuit Court for Broward County, FL |
|
Training Injury |
|
Discovery Phase |
Lewandowski |
|
Jan-06 |
|
US District Court, NV |
|
Training Injury |
|
Dismissal Pending |
Husband |
|
Mar-06 |
|
British Columbia Supreme Court, Canada |
|
Training Injury |
|
Discovery Phase |
Grable |
|
Aug-08 |
|
FL 6th Judicial Circuit Court, Pinellas County |
|
Training Injury |
|
Discovery Phase |
Koon |
|
Dec-08 |
|
17th Judicial Circuit Court, Broward County, FL |
|
Training Injury |
|
Discovery Phase |
Bickle |
|
Mar-09 |
|
18th Judicial District Court, Gallatin County, MT |
|
Training Injury |
|
Discovery Phase |
Foley |
|
Mar-09 |
|
US District Court, MA |
|
Training Injury |
|
Discovery Phase |
Peppler |
|
Apr-09 |
|
Circuit Court 5th Judicial Dist., Sumter City, FL |
|
Training Injury |
|
Discovery Phase |
Kandt |
|
Jun-09 |
|
US District Court, ND NY |
|
Training Injury |
|
Discovery Phase |
Ginger |
|
Apr-10 |
|
Iowa District Court, Marion County |
|
Training Injury |
|
Discovery Phase |
Maynard |
|
Nov-10 |
|
Superior Court, Hartford Judicial District, CT |
|
Training Injury |
|
Pleading Phase |
Butler |
|
Sep-08 |
|
CA Superior Court, Santa Cruz County |
|
Injury During Arrest |
|
Dismissed |
Reston |
|
Apr-09 |
|
Circuit Court 4th Judicial Dist., Duval Cty, FL |
|
Injury During Arrest |
|
Dismissed |
Lucas |
|
Jun-09 |
|
US District Court, ED CA |
|
Injury During Arrest |
|
Discovery Phase, trial scheduled May 2012 |
Spence |
|
Jul-09 |
|
CA Superior Court, Marin County |
|
Injury During Arrest |
|
Dismissed |
Wheat |
|
Jul-09 |
|
CA Superior Court, Los Angeles County |
|
Injury During Arrest |
|
Discovery Phase, trial scheduled April 2011 |
Derbyshire |
|
Nov-09 |
|
Ontario Superior Court of Justice |
|
Officer Injury |
|
Discovery Phase |
Fahy |
|
Dec-09 |
|
Circuit Court of City of St. Louis |
|
Injury During Arrest |
|
Discovery Phase |
Tylecki |
|
Jan-10 |
|
US District Court, DE |
|
Injury During Arrest |
|
Discovery Phase |
Thompson |
|
Mar-10 |
|
11th Judicial Circuit Court Miami-Dade County, FL |
|
Injury During Arrest |
|
Discovery Phase |
Wilson |
|
Apr-10 |
|
US District Court, ND IL, ED |
|
Injury During Arrest |
|
Discovery Phase |
Patterson |
|
Jun-10 |
|
Circuit Court Pontotoc County, MS |
|
Injury During Arrest |
|
Discovery Phase, trial scheduled January 2012 |
Hadnot |
|
Sep-10 |
|
US District Court, ED TX |
|
Injury During Arrest |
|
Pleading Phase |
Other Litigation
In January 2007, we filed a lawsuit in the U.S. District Court for Arizona against Stinger Systems,
Inc. alleging patent infringement, patent false marking, and false advertising. Defendant filed an
answer and counterclaim for false advertising and punitive damages. More specifically, the
counterclaim seeks judgment; invalidating U.S. Patent 7,145,762; holding patent 7,145,762 not
infringed; granting permanent injunction to prohibit false advertising and labeling; granting
unspecified punitive damages for false advertising and/or unfair competition and injuries
proximately caused; and to pay defendants’ reasonable attorneys’ fees. On February 2, 2009, the
court issued an order based on a Markman hearing (patent claims construction hearing) held on May
7, 2008 in which the Court adopted TASER’s claim construction on the disputed patent claim term in
TASER’s U.S. patent number 7,102,870 and all of TASER’s claim construction on all of the disputed
patent claim terms in TASER’s U.S. patent number 7,234,262. In addition, the Court adopted TASER’s
claim construction on one of the disputed
15
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
patent claim terms in TASER’s U.S. patent number
6,999,295 (“295 Patent”) and rejected both parties’ claim construction in the other disputed claim
term in this patent. Both parties filed motions for summary judgment and on March 31, 2010, the
Court entered an order granting TASER’s motion for summary judgment against Stinger for literal
patent infringement of TASER’s U.S. 295 Patent. The Court also granted Stinger summary judgment on
its motion that claim 3 of TASER’s U.S. Patent 7,102,870 is invalid as obvious but denied summary
judgment on the rest of grounds for relief in Stinger’s motion. On August 30, 2010 the court
entered the final judgment, final order, and permanent injunction against Stinger in this matter.
In October 2007, we filed a lawsuit in Arizona Superior Court for Maricopa County against Steve
Ward and Mark Johnson, both former TASER employees and VIEVU LLC, et. al. for breach of duty of
loyalty, breach of contract, breach of fiduciary duty, and conversion. This lawsuit does not
involve our electronic control device business and we do not expect this litigation to have a
material impact on our financial results. Defendants Ward and VIEVU LLC filed an answer and
counterclaim for declaration of non-infringement, tortious interference with contractual relations,
tortious interference with business expectancy, and abuse of process. The lawsuit seeks
compensatory damages, constructive trust, exemplary damages, injunctive relief attorneys’ fees,
costs and disbursements. Cross motions for summary judgment were filed and on March 4, 2009, the
Court denied Defendants’ motion for summary judgment on the trade secret claim on April 9, 2009;
and granted TASER’s motion for summary judgment against Ward on the breach of fiduciary duty and
the breach of duty of loyalty claims. We filed a Motion to Extend Discovery Period by and to
reconvene the Deposition of Steve Ward, and Defendants have filed Defendant’s Response in
Opposition to this motion. In addition, Defendants Steve Ward and VIEVU LLC have filed a Motion for
Reconsideration or in the alternative to make the Court’s Ruling a Final Judgment and Stay
Proceeding Pending Outcome of Appeal. The Court denied the Motion for Reconsideration, but granted
the motion to make the Court’s Ruling a Final Judgment and Stayed the Proceeding Pending Outcome of
Appeal. An appeal has been filed by Defendants Ward and VIEVU LLC to the Arizona State Court of
Appeals. The appellate court reversed the Superior Court and remanded the case back to Superior
Court for trial. On June 14, 2010 TASER filed a petition for review with the Arizona Supreme Court
and Ward filed a cross petition for review on June 29, 2010. To date, the Arizona Supreme Court
has not ruled on either petition for review. No trial date has been set.
In June 2008, we filed an amended complaint in the State Court of Fulton County, Georgia joining as
a plaintiff in an existing lawsuit previously filed by certain current and former stockholders of
the Company against Morgan Stanley & Co., Inc., and ten other brokerage firms alleging a conspiracy
to unlawfully, deceptively, and fraudulently manipulate the price of the Company’s common stock in
the context of illegal naked shorting. Specifically, the amended complaint alleges that the
defendants committed conspiracy and endeavored to violate the Georgia Racketeer Influenced and
Corrupt Organization Act; Securities Fraud; Theft By Taking; Theft By Deception; Violation of The
Georgia Computer Systems Protection Act; Violation of the Georgia Securities Act; Violation of the
Georgia Computer Systems Protection Act; and Conversion. The lawsuit seeks compensatory and
punitive damages as well as expenses of litigation including attorneys’ fees and costs. Defendants
have filed motions to dismiss or alternatively a motion for a more definite statement and, on July
29, 2009, the Court entered an order denying Defendants’ motion to dismiss and alternatively a
motion for a more definite statement. Discovery has begun in this litigation and no trial date has
been set. Defendants removed the case to United States District Court for the District of Georgia
and Plaintiffs have filed a motion to remand the case back to state court. The court has not yet
ruled on this motion to remand.
In February 2009, we filed a complaint in the United States District Court for the District of
Nevada against James F. McNulty, Jr., Robert Gruder, and Stinger Systems, Inc. alleging securities
fraud under 15 U.S.C. § 78j, trade libel, unfair competition under the Lanham Act, 15 U.S.C. §
1125, abuse of process, and deceptive trade practices. Our complaint seeks compensatory damages,
punitive damages, injunctive relief, attorneys’ fees and costs. Defendants filed motions to
dismiss and on March 25, 2010 the Court denied Defendants’ motion on all claims except the
securities fraud claim. Defendant McNulty filed a counterclaim on August 2, 2010 alleging that
TASER’s XREP product infringes U.S. Patents 5,831,199 and 6,877,434. The counterclaim seeks
declaratory and injunctive relief, compensatory, treble and punitive damages, and attorneys fees.
On August 26, 2010 we filed a motion to strike immaterial, impertinent and scandalous matter in the
counterclaim and to dismiss claims for indirect infringement
from Defendant McNulty’s counterclaim. To date, the court has not yet ruled on this motion. No
trial date has been set.
In December 2009, we filed a complaint in Maricopa County Superior Court, Arizona against
Interwoven Inc. et. al. alleging breach of contract, misrepresentation and fraud for failure to
comply with a settlement agreement regarding an e-discovery services dispute. Our complaint seeks
compensatory damages, attorneys’ fees and costs. Defendant filed a motion to compel arbitration and
on April 7, 2010 the Court entered an order compelling arbitration and staying the litigation. On
April 26, 2010, we filed a motion to certify this order as a final order in order to file an appeal
from the Court’s ruling. On June 21, 2010 the Arizona Superior Court ordered this matter to
arbitration and stayed the matter pending the arbitration.
In February 2010, we were served with a summons and complaint in the lawsuit entitled General
Employment vs. TASER International, Inc. which was filed in Arizona Superior Court for Maricopa
County alleging breach of contract of a recruiting contract and seeking money damages, including
attorney’s fees and costs. We have filed an answer to this complaint. On August 5, 2010 this matter
was settled for a nominal amount and was dismissed with prejudice.
16
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
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, we vigorously
defend and pursue any lawsuit filed against or by the Company. Although we do not expect the
outcome in any pending individual case to be material, 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. In addition, the Company has two lawsuits where
the costs of legal defense incurred are in excess of its liability insurance deductibles. As of
September 30, 2010, the Company has been fully reimbursed by its insurance company for these legal
costs. The Company may settle a lawsuit in situations where a settlement can be obtained for
nuisance value and for an amount that is expected to be less than the cost of defending a lawsuit.
The number of product liability lawsuits dismissed includes a small number of police officer
training injury lawsuits that were settled by the Company and dismissed in cases where the
settlement economics to the Company were significantly less than the cost of litigation. In
addition, it is the Company’s policy to not settle suspect injury or death cases, although the
Company’s insurance carrier may settle such lawsuits over the Company’s objection where the case 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.
10. Related Party Transactions
Aircraft charter
The Company reimburses Thomas P. Smith, Chairman of the Company’s Board of Directors, and Patrick
W. Smith, the Company’s Chief Executive Officer, for business use of their personal aircraft. For
the three and nine months ended September 30, 2010, the Company incurred expenses of approximately
$16,000 and $162,000, respectively, to Thomas P. Smith. For the three and nine months ended
September 30, 2009, the Company incurred expenses of approximately $88,000 and $238,000,
respectively, to Thomas P. Smith. There were no expenses incurred to Patrick W. Smith for the three
and nine months ended September 30, 2010. For the nine months ended September 30, 2009, the Company
incurred expenses of approximately $10,000 to Patrick W. Smith. At September 30, 2010 and December
31, 2009, the Company had outstanding payables of zero and approximately $15,000, respectively, due
to Thomas P. Smith. At September 30, 2010 and December 31, 2009, the Company had no outstanding
payables due to Patrick W. Smith. Management and the Audit Committee believes that the rates
charged by Thomas P. Smith and Patrick W. Smith are equal to or below commercial rates the Company
would pay to charter similar aircraft from independent charter companies.
In the first quarter of 2007, the Company also entered into a charter agreement for future use of
an aircraft for business travel from Thundervolt, LLC, a company owned by Patrick W. Smith. For the
three months ended September 30, 2010 and 2009, the Company did not incur any direct charter
expenses pursuant to its relationship with Thundervolt, LLC. Management and the Audit Committee
believes that the rates charged by Thundervolt, LLC are equal to or below commercial rates the
Company would pay to charter similar aircraft from independent charter companies.
The Company performed a review of the above relationship with Thundervolt, LLC in accordance with
recently adopted guidance on consolidation of variable interest entities (VIE’s), and determined
that the relationship did not meet the definition of a VIE as Thundervolt, LLC is adequately
capitalized, its owners possess all of the essential characteristics of a controlling financial
interest, the Company does not have any voting rights in the entity and the Company doesn’t have
any obligation or right to absorb losses of or receive benefits from the entity. Therefore, the
entity is not required to be consolidated into the Company’s results.
TASER Foundation
In November 2004, the Company established the TASER Foundation. The TASER Foundation is a 501(c)(3)
non-profit corporation and has been granted tax exempt status by the IRS. The TASER Foundation’s
mission is to honor the service and sacrifice of local and federal law enforcement officers in the
United States and Canada lost in the line of duty by providing financial support to their families.
Over half of the initial $1 million endowment was contributed directly by TASER International, Inc.
employees. The Company bears all administrative costs of the TASER Foundation in order to ensure
100% of all donations are distributed to the families of fallen officers. For the three and nine
months ended September 30, 2010, the Company incurred approximately $17,000 and $93,000,
respectively, in such administrative costs. For the three and nine months ended September 30, 2009,
the Company incurred approximately $66,000 and $184,000, respectively, in such administrative
costs. The Company is authorized by its Board of Directors to make a discretionary contribution up
to a maximum of $200,000 per quarter. For the three and nine months ended September 30 2010 and
2009, the Company did not make a discretionary contribution to the TASER Foundation.
17
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
Consulting services
Beginning in August 2005, the Company agreed to pay Mark Kroll, a member of the Board of Directors
of the Company (“Board”), for consultancy services. Consulting expenses to Mr. Kroll for the three
and nine months ended September 30, 2010 were approximately $53,000 and $109,000, respectively.
Consulting expenses to Mr. Kroll for the three and nine months ended September 30, 2009 were
approximately $57,000 and $202,000, respectively. At September 30, 2010 and December 31, 2009, the
Company had approximately $27,000 and $14,000, recorded as a payable for these services.
Settlement agreement
On May 15, 2009, Bruce and Donna Culver, husband and wife (the “Culvers”), and the Company, entered
into a settlement and release agreement (the “Agreement”), the background and material terms of
which are described below. Mr. Culver served as a director of the Company from January 1994 until
his retirement on April 9, 2010
In July 2000, the Culvers provided a loan to the Company in exchange for a promissory note and
warrants to purchase 136,364 shares of the Company’s common stock for $0.55 per share. In October
2004, the Culvers exercised the warrants, and the Company issued them a Form 1099, which included
the in-the-money value of the warrants as stock compensation based upon the advice of the Company’s
then-current outside tax advisors. In 2007, the Culvers informed the Company that their personal
tax advisors had determined that the 2004 Form 1099 was not the proper tax treatment for the
transaction, and that the value of the warrants should not have been included as compensation
because the warrants were issued in connection with the loan rather than services. The Company
responded by issuing an amended Form 1099 excluding the value of the warrants, and the Culvers
filed an amended 2004 federal tax return seeking a refund. The Culvers are also seeking a refund
with respect to their 2004 California tax return.
The parties entered into the Agreement to settle any disputes that the Culvers might have with the
Company in connection with the original Form 1099 that was issued in October 2004 and the Culvers’
resulting tax liability. Pursuant to the Agreement, the Company agreed to pay the Culvers $350,000
upon execution in exchange for a full release. The Agreement also contains a claw-back provision,
pursuant to which the Culvers agreed to pay to the Company the amount of any refund they receive
from the federal government and/or the State of California, up to the $350,000 amount of the
settlement payment. The Culvers will be entitled to keep 100% of any refund(s) they receive in
excess of $350,000. The Culvers received a refund from the Internal Revenue Service in February
2010 and they continue to seek a refund with respect to the State of California. The Company is
working with the Culvers regarding the timing and the form of this payment. The Company expects to
record the $350,000 under the claw-back provision as a credit to sales, general and administrative
expense once the cash has been received.
11. Employee Benefit Plan
The Company has a defined contribution profit sharing 401(k) plan (the “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, but not exceeding $16,500. The Company currently
matches 100% of the first 3% of eligible compensation contributed to the Plan by each participant
and 50% of the next 2% of eligible compensation contributed to the plan by each participant.
Beginning January 1, 2008, the Company’s matching contributions are immediately vested. The
Company’s matching contributions to the Plan for the three and nine months ended September 30, 2010
were approximately $116,000 and $382,000, respectively. The Company’s matching contributions to the
Plan for the three and nine months ended September 30, 2009 were approximately $119,000 and
$348,000, respectively. Future matching or profit sharing contributions to the Plan are at the
Company’s sole discretion.
12. Joint Venture Agreement
As previously disclosed, on January 13, 2010, the Company entered into a Joint Venture Agreement
(the “Protector Group Agreement”) with RouteCloud, LLC
(“RouteCloud”) and certain other RouteCloud affiliated parties to
establish the TASER Protector Group joint venture to exclusively develop, market, sell and support a new suite of
products (“Protector Products”) that give parents the ability to manage their children’s mobile
phone usage and driving behaviors though a simple-to-use interface on a mobile phone, computer or
TV. The Company agreed to provide RouteCloud development funding up to $1.725 million, $0.3 million
of which
was funded in the fourth quarter of 2009 under a letter of understanding between the
parties. During the three and nine months ended September 30, 2010, $185,000 and $1,085,000,
respectively, was funded. Refer to Note 1(f) for more information about such development funding.
18
TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(unaudited)
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, effective as of September 29, 2010. The
new agreement also provides that the Company will (i) reimburse
RouteCloud the sums of $75,000 and $10,000 for
certain transition expenses and transferred equipment, respectively, (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.
Under the new agreement, royalties are to be paid at a 7% rate for the first 12 months after
revenues are first generated from the sale of Protector Products. The royalty rate will be reduced
by 1% per year in each of the four 12-month periods thereafter. After five years, the Company will
not owe any royalties on its sale of Protector Products (if any). The Company agreed to advance
RouteCloud $180,000 in royalties, which advance will be offset against royalties otherwise payable
to RouteCloud beginning in the second year following the first revenues from the sale of Protector
Products. In addition, RouteCloud agreed to a non-compete stipulation
for the ten-year period following the termination of the agreement or
for as long as the Company is in the business of selling the
Protector Products.
During the three months ended September 30, 2010, the Company incurred approximately $0.1 million
of salary and consulting related costs related to the internal development of Protector Products.
19
|
|
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| ITEM 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following is a discussion of the Company’s financial condition as of September 30, 2010, and
results of operations for the three and nine months ended September 30, 2010 and 2009. The
following discussion may be understood more fully by reference to the consolidated financial
statements, notes to the consolidated financial statements, and Management’s Discussion and
Analysis of Financial Condition and Results of Operations section contained in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009.
Certain statements contained in this report may be deemed to be forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking
statements may relate to, among other things: the impact of recently adopted accounting standards
and guidance; estimated amortization charges in future years and our projected tax rate for 2010;
our dividend policy; our expectations about unrecognized tax benefits and deferred income taxes;
assumptions about the future vesting of outstanding stock options and the amortization of costs
relating thereto; our litigation strategy; the outcome of pending litigation against us; the
sufficiency of our capital resources and the availability of financing to the Company and our
strategy with respect to hedging activities. We caution that these statements are qualified by
important factors that could cause actual results to differ materially from those reflected by the
forward-looking statements herein. Such factors include, but are not limited to: market acceptance
of our products; financial and budgetary constraints of prospects and customers; litigation risks
resulting from alleged product-related injuries and media publicity concerning allegations of
deaths occurring after use of the TASER device and the negative impact this publicity could have on
sales; our dependence on sales of our TASER X26 products; our ability to manage our growth; our
ability to ramp manufacturing production to meet demand; establishment and expansion of our direct
and indirect distribution channels; our ability to design, introduce and sell new products; delays
in development schedules; risks relating to acquisitions and joint ventures; the length of our
sales cycle and our ability to realize benefits from our marketing and selling efforts; risks of
governmental regulations, including regulations of our products by the U.S Consumer Product Safety
Commission; regulation of our products as a “crime control” product by the Federal government;
state and local government regulation and foreign regulation; our compliance with regulations
governing the environment, including but not limited to, regulations within the European Union; our
ability to protect our intellectual property; intellectual property infringement claims and
relating litigation costs; competition in foreign countries relating to foreign patents; the
adverse effects that could result from our products being classified as firearms by the United
States Bureau of Alcohol and Firearms; product defects; our dependence on third party suppliers for
key components of our products; component shortages; our dependence on foreign suppliers for key
components; rising costs of raw materials relating to petroleum prices; catastrophic events;
service outages and disruptions relating to our EVIDENCE.com service; fluctuations in quarterly
operating results; difficulties in complying with Sarbanes-Oxley Section 404; foreign currency
fluctuations; counterparty risks relating to cash balances held in excess of FDIC insurance limits;
rapid technological change; employee retention risks and other factors identified in documents
filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K
for the year ended December 31, 2009 under the caption ‘Risk Factors.”
Overview
Our mission is to protect life by providing less dangerous, more effective use of force options and
technologies. We are a market leader in the development and manufacture of advanced electronic
control devices (ECDs) designed for use in law enforcement, military, corrections, private security
and personal defense.
Our mission to protect life has also been extended to protect truth. We have learned that bringing
a subject into custody is not the end of the challenge for law enforcement. In fact, it is
typically just the beginning since a significant number of incidents that start as a physical
conflict, transition into a legal conflict. Whether it’s prosecuting and convicting the individual
arrested, or responding to excessive use of force allegations, the post incident legal process is a
considerable part of the challenge law enforcement faces on a continual basis and can often take
years and millions of litigation dollars to resolve in the courtroom. To help law enforcement
address these challenges, in AXON and EVIDENCE.com, we have developed a fully integrated hardware
and software solution that will provide our law enforcement customers the capabilities to capture,
store, manage and analyze video and other digital evidence. This provides the Company entry into a
potentially significant new market space and the opportunity to diversify its sources of revenue.
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 and policy issues, medical information and
risk mitigation relating to our ECDs 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 15,000 law enforcement agencies in over 50
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 ECD products.
20
Results of Operations
Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009
The following table sets forth, for the periods indicated, our consolidated statements of
operations as well as the percentage relationship to total net sales of items included in our
consolidated statements of operations (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
Increase / (Decrease) |
|
| |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
21,084 |
|
|
|
100.0 |
% |
|
$ |
23,310 |
|
|
|
100.0 |
% |
|
$ |
(2,226 |
) |
|
|
-9.6 |
% |
Cost of products sold |
|
|
10,668 |
|
|
|
50.6 |
% |
|
|
10,044 |
|
|
|
43.1 |
% |
|
|
624 |
|
|
|
6.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
10,416 |
|
|
|
49.4 |
% |
|
|
13,266 |
|
|
|
56.9 |
% |
|
|
(2,851 |
) |
|
|
-21.5 |
% |
Sales, general and administrative expenses |
|
|
9,454 |
|
|
|
44.8 |
% |
|
|
11,420 |
|
|
|
49.0 |
% |
|
|
(1,966 |
) |
|
|
-17.2 |
% |
Research and development expenses |
|
|
1,686 |
|
|
|
8.0 |
% |
|
|
6,656 |
|
|
|
28.6 |
% |
|
|
(4,970 |
) |
|
|
-74.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(724 |
) |
|
|
-3.4 |
% |
|
|
(4,810 |
) |
|
|
-20.6 |
% |
|
|
4,086 |
|
|
|
-85.0 |
% |
Interest and other income, net |
|
|
10 |
|
|
|
0.0 |
% |
|
|
20 |
|
|
|
0.1 |
% |
|
|
(10 |
) |
|
|
-50.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision (benefit) for income taxes |
|
|
(714 |
) |
|
|
-3.4 |
% |
|
|
(4,790 |
) |
|
|
-20.5 |
% |
|
|
4,076 |
|
|
|
-85.1 |
% |
Provision (benefit) for income taxes |
|
|
1,621 |
|
|
|
7.7 |
% |
|
|
(1,614 |
) |
|
|
-6.9 |
% |
|
|
3,235 |
|
|
|
-200.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(2,335 |
) |
|
|
-11.1 |
% |
|
|
(3,176 |
) |
|
|
-13.6 |
% |
|
$ |
841 |
|
|
|
-26.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
For the three months ended September 30, 2010 and 2009, sales by product line and by geography were as follows (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Sales by Product Line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TASER X26 |
|
$ |
11,600 |
|
|
|
55.0 |
% |
|
$ |
14,870 |
|
|
|
63.8 |
% |
TASER C2 |
|
|
767 |
|
|
|
3.6 |
% |
|
|
1,103 |
|
|
|
4.7 |
% |
TASER Cam |
|
|
545 |
|
|
|
2.6 |
% |
|
|
749 |
|
|
|
3.2 |
% |
ADVANCED TASER |
|
|
237 |
|
|
|
1.1 |
% |
|
|
281 |
|
|
|
1.2 |
% |
Single Cartridges |
|
|
5,145 |
|
|
|
24.4 |
% |
|
|
6,932 |
|
|
|
29.7 |
% |
XREP |
|
|
168 |
|
|
|
* |
|
|
|
364 |
|
|
|
1.6 |
% |
AXON/EVIDENCE.com |
|
|
137 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
Other products |
|
|
216 |
|
|
|
1.0 |
% |
|
|
49 |
|
|
|
* |
|
Other |
|
|
2,269 |
|
|
|
10.8 |
% |
|
|
2,428 |
|
|
|
10.4 |
% |
Trade-In Deferral |
|
|
— |
|
|
|
— |
|
|
|
(3,466 |
) |
|
|
-14.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,084 |
|
|
|
100.0 |
% |
|
$ |
23,310 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
United States |
|
|
89 |
% |
|
|
81 |
% |
Other Countries |
|
|
11 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales decreased $2.2 million, or 10%, to $21.1 million for the third quarter of 2010
compared to $23.3 million for the third quarter of 2009. The decrease in sales versus the prior
year quarter was primarily driven by fewer individually significant orders to international and
Federal customers as sales in the third quarter of 2009 included sales to U.S. Customs and Border
Patrol and a follow-on order to a customer in Australia. Domestically, sales to law enforcement
customers improved over the prior year quarter driven by a sizeable sale to Texas DPS, however
municipal spending in the U.S. generally still remains constrained, as agencies reassign budget
dollars due to the ongoing challenging economic conditions. During the third quarter of 2009, $3.5
million of revenue was deferred related to our temporary trade-in program which enabled agencies
who purchased a X26 ECD for deployment in the United States the opportunity to upgrade the product
in exchange for a partial trade-in credit against the purchase of the newly announced X3 ECD.
Sales of our X26 ECDs, before excluding the $3.5 million impact of the trade-in deferral,
decreased $3.3 million, or 22%, while sales of single cartridges decreased $1.8 million, or
26%, compared to the prior year. Sales of new products, AXON / EVIDENCE.com, XREP, X3 and
Shockwave, contributed $0.5 million in sales in the third quarter of 2010. Other sales include
extended warranty revenue, out of warranty repairs, government research grants, training and
shipping revenues.
21
International sales for the third quarter of 2010 and 2009 represented approximately $2.3 million,
or 11%, and $4.5 million, or 19%, of total net sales, respectively.
Cost of Products Sold
Cost of products sold increased by $0.6 million, or 6%, to $10.7 million for the third quarter of
2010 compared to $10.0 million for the third quarter of 2009. As a percentage of net sales, cost of
products sold increased to 50.6% in the third quarter of 2010 compared to 43.1% in the third
quarter of 2009. The trade-in deferral which resulted in a $3.5 million reduction in net sales
reduced gross margin by 560 basis points in the third quarter of 2009. The increase in costs as a
percent of sales is driven by a combination of factors. Approximately $1.8 million, representing an
8.7% increase in cost as a percentage of sales, of EVIDENCE.com datacenter operating and software
maintenance costs are included in costs of product sold in the third quarter following the
commercial availability of the service. These costs were considered as part of research and
development in the prior year. Our pool of indirect manufacturing expenses also increased in the
third quarter of 2010 due to depreciation expense on our cartridge automation production equipment
as well as some one-time charges for obsolete inventory and warranty reserves and some value
engineering costs. These indirect manufacturing costs have also increased as a percentage of sales
due to reduced leverage resulting from the decrease in sales. Partially offsetting these factors,
our direct manufacturing costs improved as a percentage of sales on reduced production material
costs and labor efficiencies resulting from cartridge automation.
Gross Margin
Gross margin decreased $2.9 million, or 22%, to $10.4 million for the third quarter of 2010
compared to $13.3 million for the third quarter of 2009. As a percentage of net sales, gross margin
decreased to 49.4% for the third quarter of 2010 compared to 56.9% for the third quarter of 2009, a
result of the factors discussed above under cost of products sold.
Sales, General and Administrative Expenses
For the three months ended September 30, 2010 and 2009, sales, general and administrative (“SG&A”)
expenses were comprised of the following (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
| |
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
| |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Salaries, benefits and bonus |
|
$ |
2,538 |
|
|
$ |
3,192 |
|
|
$ |
(654 |
) |
|
|
-20.5 |
% |
Legal, professional and accounting fees |
|
|
1,469 |
|
|
|
1,112 |
|
|
|
357 |
|
|
|
32.1 |
% |
Travel and meals |
|
|
784 |
|
|
|
968 |
|
|
|
(184 |
) |
|
|
-19.0 |
% |
Stock-based compensation |
|
|
692 |
|
|
|
814 |
|
|
|
(122 |
) |
|
|
-14.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and lobbying |
|
|
787 |
|
|
|
911 |
|
|
|
(124 |
) |
|
|
-13.6 |
% |
Depreciation and amortization |
|
|
533 |
|
|
|
510 |
|
|
|
23 |
|
|
|
4.5 |
% |
Sales and Marketing |
|
|
791 |
|
|
|
1,659 |
|
|
|
(868 |
) |
|
|
-52.3 |
% |
D&O and liability insurance |
|
|
410 |
|
|
|
449 |
|
|
|
(39 |
) |
|
|
-8.7 |
% |
Other |
|
|
1,450 |
|
|
|
1,805 |
|
|
|
(354 |
) |
|
|
-19.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,454 |
|
|
$ |
11,420 |
|
|
$ |
(1,966 |
) |
|
|
-17.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, general and administrative as % of net sales |
|
|
44.8 |
% |
|
|
49.0 |
% |
|
|
|
|
|
|
|
|
Sales, general and administrative expenses were $9.5 million and $11.4 million in the third quarter
of 2010 and 2009, respectively, a decrease of $2.0 million, or 17.2%. As a percentage of total net
sales, SG&A expenses decreased to 44.8% for the third quarter of 2010 compared to 49.0% for the
third quarter of 2009. The dollar decrease for the third quarter of 2010 compared to the same
period in 2009 is attributable to a $0.8 million reduction in salaries, benefits, bonus and stock
based compensation primarily driven by measures taken to reduce our salaried headcount and fixed
cost infrastructure. A focus on rationalizing discretionary spending also resulted in reductions in
travel expenses and sales and marketing related costs including advertising and tradeshows and
consulting fees. In particular, sales and marketing costs in the prior year included elevated
spending for efforts to support new product launches as well as the annual TASER Conference, which
was held on a much reduced budget in the third quarter of 2010. These decreases in SG&A expense
were partially offset by a $0.4 million increase in legal, professional and accounting fees driven
by higher legal activity including a patent infringement claim.
22
Research and Development Expenses
Research and development expenses were $1.7 million and $6.7 million for the third quarter of 2010
and 2009, respectively, a decrease of $5.0 million, or 75%, compared to the prior period. The net
decrease is a combination of a $2.5 million reduction in indirect supplies and tooling attributable
to the intensive hardware development for X3 and AXON conducted in the third quarter of 2009 in
order to expedite development for product demonstrations at the TASER Conference and the IACP trade
shows. Approximately $1.8 million of EVIDENCE.Com data center and software maintenance related
costs, including salary related costs, consulting, equipment leasing, rent and other overheads,
were included in cost of products sold in the third quarter of 2010 following the commercial
availability of the platform. These costs were included in research and development in the prior
year while the platform was in the development phase. Salary and stock-based compensation expense
have also generally been reduced following some headcount reductions while consulting and travel
expenses have decreased in line with cost containment efforts.
Provision / (Benefit) from Income Taxes
The provision for income taxes increased by $3.2 million to a provision of $1.6 million for the
third quarter of 2010 compared to a benefit of $1.6 million for the third quarter of 2009. The tax
provision for the three months ended September 30, 2010 is driven by a combination of factors.
During the third quarter of 2010 a provision for income taxes was recorded despite the net pre-tax
loss since the quarterly tax provision is computed from the year-to-date provision less the
cumulative tax provision recognized through the previous quarter end. As such, the year to date tax
provision such reflects our expected annual effective tax rate based on projected 2010 results. Our
estimated full year effective tax rate, before discrete period adjustments is a 22.1% benefit which
is below the statutory rate due to the impact of non-deductible expenses for items such as ISO
stock option expense, meals and entertainment and lobbying fees, which make our net loss for tax
purposes significantly lower than our book pre-tax loss. Additionally, we recorded a discrete tax
provision amount in the third quarter of 2010 related to a 2009 tax return to provision true up
adjustment, primarily driven by lower than expected research and development tax credits.
Net Loss
Our net loss decreased to $2.3 million, or $0.04 per basic and diluted share, for the third quarter
of 2010 compared to $3.2 million, or $0.05 per basic and diluted share, for the third quarter of
2009.
Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
The following table sets forth, for the periods indicated, 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):
Net Sales
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
|
Increase / (Decrease) |
|
| |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
64,049 |
|
|
|
100.0 |
% |
|
$ |
69,749 |
|
|
|
100.0 |
% |
|
$ |
(5,700 |
) |
|
|
-8.2 |
% |
Cost of products sold |
|
|
30,520 |
|
|
|
47.7 |
% |
|
|
28,115 |
|
|
|
40.3 |
% |
|
|
2,405 |
|
|
|
8.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
33,529 |
|
|
|
52.3 |
% |
|
|
41,634 |
|
|
|
59.7 |
% |
|
|
(8,105 |
) |
|
|
-19.5 |
% |
Sales, general and administrative expenses |
|
|
29,757 |
|
|
|
46.5 |
% |
|
|
33,690 |
|
|
|
48.3 |
% |
|
|
(3,933 |
) |
|
|
-11.7 |
% |
Research and development expenses |
|
|
8,881 |
|
|
|
13.9 |
% |
|
|
15,246 |
|
|
|
21.9 |
% |
|
|
(6,365 |
) |
|
|
-41.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(5,109 |
) |
|
|
-8.0 |
% |
|
|
(7,302 |
) |
|
|
-10.5 |
% |
|
|
2,193 |
|
|
|
-30.0 |
% |
Interest and other income, net |
|
|
24 |
|
|
|
0.0 |
% |
|
|
162 |
|
|
|
0.2 |
% |
|
|
(138 |
) |
|
|
-85.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes |
|
|
(5,085 |
) |
|
|
-7.9 |
% |
|
|
(7,140 |
) |
|
|
-10.2 |
% |
|
|
2,054 |
|
|
|
-28.8 |
% |
Benefit for income taxes |
|
|
(897 |
) |
|
|
-1.4 |
% |
|
|
(2,773 |
) |
|
|
-4.0 |
% |
|
|
1,876 |
|
|
|
-67.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,188 |
) |
|
|
-6.5 |
% |
|
$ |
(4,367 |
) |
|
|
-6.3 |
% |
|
$ |
179 |
|
|
|
-4.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
23
For the nine months ended September 30, 2010 and 2009, sales by product line and by geography
were as follows (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
Sales by Product Line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TASER X26 |
|
$ |
32,279 |
|
|
|
50.4 |
% |
|
$ |
37,976 |
|
|
|
54.4 |
% |
TASER C2 |
|
|
2,848 |
|
|
|
4.4 |
% |
|
|
3,732 |
|
|
|
5.4 |
% |
TASER Cam |
|
|
3,360 |
|
|
|
5.2 |
% |
|
|
2,179 |
|
|
|
3.1 |
% |
ADVANCED TASER |
|
|
782 |
|
|
|
1.2 |
% |
|
|
2,245 |
|
|
|
3.2 |
% |
Single Cartridges |
|
|
15,640 |
|
|
|
24.4 |
% |
|
|
20,151 |
|
|
|
28.9 |
% |
XREP |
|
|
1,130 |
|
|
|
1.8 |
% |
|
|
389 |
|
|
|
* |
|
AXON/EVIDENCE.com |
|
|
181 |
|
|
|
* |
|
|
|
— |
|
|
|
0.0 |
% |
Other products |
|
|
783 |
|
|
|
1.2 |
% |
|
|
53 |
|
|
|
* |
|
Other |
|
|
7,046 |
|
|
|
11.0 |
% |
|
|
6,490 |
|
|
|
9.3 |
% |
Trade-In Deferral |
|
|
— |
|
|
|
— |
|
|
|
(3,466 |
) |
|
|
-5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,049 |
|
|
|
100.0 |
% |
|
$ |
69,749 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
United States |
|
|
82 |
% |
|
|
75 |
% |
Other Countries |
|
|
18 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
Net sales decreased $5.7 million, or 8%, to $64.0 million for the first nine months of 2010
compared to $69.7 million for the first nine months of 2009. The decrease in sales versus the prior
year quarter was primarily driven by fewer individually significant international and Federal
orders as sales in the first nine months of 2009 included follow-on orders to larger customers in
the U.K, Brazil, Australia and Korea and domestically to Customs and Border Patrol. The reduction
in international business was partially offset by an overall improvement in domestic sales during
the first nine months of 2010, which we believe reflected an increase in municipal spending in the
U.S in the first quarter of 2010, partially attributable to the impact of Federal stimulus funding.
The net result of the above on sales by product line was that, compared to the prior year, sales of
X26, before excluding the $3.5 million impact of the trade-in deferral, decreased $5.7 million, or
15%, single cartridges decreased $4.5 million, or 22%, and ADVANCED TASER Sales declined $1.5
million, or 65%. Sales of our TASER C2 consumer product also declined by $0.9 million, or 24%, due
to the negative impact of the economic downturn on consumer spending. Offsetting these decreases,
TaserCam sales increased $1.2 million due to a large international order in the first quarter of
2010. Sales of new products, including AXON, EVIDENCE.com, XREP, X3 and Shockwave, also contributed
$2.1 million in sales in the first nine months of 2010. The increase in other sales is primarily
driven by growth in training, extended warranty and out of warranty repair revenues.
International sales for the first nine months of 2010 and 2009 represented approximately $11.4
million, or 18%, and $17.6 million or 25% of total net sales, respectively.
Cost of Products Sold
Cost of products sold increased by $2.4 million, or 9%, to $30.5 million for the first nine months
of 2010 compared to $28.1 million for the first nine months of 2009. As a percentage of net sales,
cost of products sold increased to 47.7% in the first nine months of 2010 compared to 40.3% in the
first nine months of 2009. The increase in cost of products sold as a percentage of net sales for
the first nine months of 2010 compared to the first nine months of 2009 was driven by a combination
of factors. Approximately $2.1 million, representing a 3.2% increase in cost as a percentage of
sales, of EVIDENCE.com datacenter operating and software maintenance costs are included in costs of
product sold in the first nine months of 2010 following the commercial availability of the service.
Manufacturing costs increased due to a less favorable product and segment sales mix combined with
lower initial margins on the AXON, XREP and X3 product lines, an increase in rework related costs
and increases in freight and packaging material costs. Direct labor also increased as a percentage
of sales due to the overall higher cost of using temporary labor in the first nine months of 2010,
while leverage on indirect manufacturing expenses has been reduced as sales decreased 8% compared
to the prior year. In addition to reduced leverage, the total pool of indirect manufacturing
expenses increased in the first nine months of 2010 compared to the prior year due to higher
depreciation expense for our automated cartridge and new product production equipment, inventory
write-off charges related to parts made obsolete from the move to automated cartridge production
and some employee severance charges. Additionally, the X26 trade-in program, which resulted in a
$3.5 million deferral in net sales reduced gross margin in the third quarter of 2009 by 190 basis
points.
24
Gross Margin
Gross margin decreased $8.1 million, or 19%, to $33.5 million for the first nine months of 2010
compared to $41.6 million for the first nine months of 2009. As a percentage of net sales, gross
margins decreased to 52.3% for the first nine months of 2010 compared to 59.7% for the first nine
months of 2009. The decline in gross margin as a percentage of net sales for the first nine months
of 2010 reflects a decrease in leverage on lower sales levels as well as the other factors noted
above under the discussion of cost of products sold.
Sales, General and Administrative Expenses
For the nine months ended September 30, 20010 and 2009, sales, general and administrative expenses
were comprised as follows (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
| |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and bonus |
|
$ |
8,329 |
|
|
$ |
8,811 |
|
|
$ |
(482 |
) |
|
|
-5.5 |
% |
Legal, professional and accounting fees |
|
|
3,930 |
|
|
|
4,630 |
|
|
|
(700 |
) |
|
|
-15.1 |
% |
Sales and Marketing |
|
|
2,882 |
|
|
|
4,141 |
|
|
|
(1,259 |
) |
|
|
-30.4 |
% |
Travel and meals |
|
|
2,317 |
|
|
|
2,646 |
|
|
|
(329 |
) |
|
|
-12.4 |
% |
Stock-based compensation |
|
|
2,215 |
|
|
|
2,441 |
|
|
|
(226 |
) |
|
|
-9.3 |
% |
Consulting and lobbying services |
|
|
2,107 |
|
|
|
3,194 |
|
|
|
(1,087 |
) |
|
|
-34.0 |
% |
Depreciation and amortization |
|
|
1,580 |
|
|
|
1,397 |
|
|
|
183 |
|
|
|
13.1 |
% |
D&O and liability insurance |
|
|
1,245 |
|
|
|
1,415 |
|
|
|
(170 |
) |
|
|
-12.0 |
% |
Other |
|
|
5,152 |
|
|
|
5,015 |
|
|
|
137 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,757 |
|
|
$ |
33,690 |
|
|
$ |
(3,933 |
) |
|
|
-11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, general and administrative as % of net sales |
|
|
46.5 |
% |
|
|
48.3 |
% |
|
|
|
|
|
|
|
|
Sales, general and administrative expenses were $29.8 million and $33.7 million in the first nine
months of 2010 and 2009, respectively, a decrease of $3.9 million, or 12%. As a percentage of total
net sales, sales, general and administrative expenses decreased to 46.5% for the first nine months
of 2010 compared to 48.3% for the first nine months of 2009. The dollar decrease for the first
nine months of 2010 over the same period in 2009 is attributable to a $1.1 million decrease in
consulting and lobbying primarily related to strategic marketing and IT efforts incurred in the
prior year; a $0.7 million decrease in legal, professional and accounting fees driven by the timing
of outstanding litigation in progress; and general reductions in discretionary spending in sales
and marketing and travel as we have focused on controlling costs and salaries, benefits and bonus
due to the impact of headcount reductions. These decreases in SG&A expense were partially offset by
a charge of approximately $1.0 million relating to a litigation settlement for an officer injury
during arrest claim, included in other expense, and $0.4 million of employee severance costs,
included in salaries, benefits and bonuses, as we took measures to reduce our salaried headcount
and fixed cost infrastructure. Other expense in 2009 included a $0.35 million settlement payment
paid to the Culvers as described in footnote 10 under the heading “settlement agreement”.
Research and Development Expenses
Research and development expenses decreased $6.4 million, or 42%, to $8.9 million for the first
nine months of 2010 compared to $15.2 million for the first nine months of 2009. The net decrease
is a combination of a $4.1 million reduction in indirect supplies and tooling attributable to the
intensive hardware development for X3 and AXON conducted in 2009 in order to expedite
development for product demonstrations at the TASER Conference and the IACP trade shows.
Approximately $2.1 million of EVIDENCE.Com data center and software maintenance related costs,
including salary related costs, consulting, equipment leasing, rent and other overheads, were
included in cost of products sold in the third quarter of 2010 following the commercial
availability of the platform. These costs were included in research and development in the prior
year while the platform was in the development phase. Salary and stock-based compensation expense
have also generally been reduced following some headcount reductions and cancellation and
forfeiture of performance related stock options, while consulting and travel expenses have
decreased in line with cost containment efforts.
25
Benefit for Income Taxes
The benefit from income taxes decreased by $1.9 million to a benefit of $0.9 million for the first
nine months of 2010 compared to a benefit of $2.8 million for the first nine months of 2009. The
effective income tax rate for the first nine months of 2010 was 17.6% compared to 38.8% for the
first nine months of 2009. Our estimated full year effective tax rate, before discrete period
adjustments is 22.1% which is below the statutory rate due to the impact of non-deductible expenses
for items such as ISO stock option expense, meals and entertainment and lobbying fees, which make
our net loss for tax purposes significantly lower than our book pre-tax loss. Additionally, we
recorded a discrete tax provision amount in the third quarter of 2010 related to a 2009 tax return
to provision true up adjustment, primarily driven by lower than expected research and development
tax credits, which also reduced the net tax benefit and therefore the effective tax rate.
Net Loss
The net loss decreased by $0.2 million to $4.2 million for the first nine months of 2010 compared
to a net loss of $4.4 million for the first nine months of 2009. Net loss per basic and diluted
share was $0.07 for the first nine months of 2010 and the first nine months of 2009.
Liquidity and Capital Resources
Summary
As of September 30, 2010, we had $40.3 million in cash and cash equivalents; a decrease of $5.2
million from the end of 2009, which is a function of cash used in operations, investments in
property and equipment and capitalized software development, partially offset by funds received
from stock option exercise activity. While our net cash balance decreased, our overall net working
capital remained relatively flat at $72.2 million at September 30, 2010 compared to $72.1 million
at December 31, 2009.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities
for nine months ended September 30, 2010 and 2009 ($ in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
Net cash (used) provided by operating activities |
|
$ |
(2,413 |
) |
|
$ |
5,460 |
|
Net cash used by investing activities |
|
|
(3,851 |
) |
|
|
(7,034 |
) |
Net cash provided by financing activities |
|
$ |
1,066 |
|
|
$ |
108 |
|
Operating activities
Net cash used by operating activities for the nine months ended September 30, 2010 was $2.4 million
in 2010, compared with net cash provided by operations of $5.5 million for the nine months ended
September 30, 2009.
Net
cash used by operating activities in the first nine months of 2010 of $2.4 million was primarily
driven by changes in working capital including a $3.7 million reduction in accounts payable and
accrued liabilities due to a reduction in spending, timing of period end check runs and a vendor
payment of $1.0 million for the final installment on the cartridge automation equipment; a $4.0
million increase in inventory attributable to build of ECD finished goods for future orders as well
as raw materials acquired for production of new products; and a $1.6 million increase in prepaid
and other assets from the funding of our annual liability insurance premiums and an increase in our
income taxes receivable position at September 30, 2010. These net uses of cash were partially
offset by a $2.4 million reduction in accounts receivable due to timing of collections and lower
sales levels as well the net loss for the period of $4.2 million adjusted for the add-back of
non-cash expenses including stock-based compensation expense of $2.8 million and depreciation and
amortization expense of $5.2 million.
Net cash provided by operating activities for the first nine months of 2009 of $5.5 million was
driven by the net loss for the period adjusted for the add back of non-cash expenses including
stock-based compensation expense of $3.8 million and depreciation and amortization expense of $2.4
million partially offset by a $3.8 million net increase in deferred tax assets related to the
benefit recognized in the first nine months of 2009. In addition, deferred revenue increased $3.8
million, $3.5 million of which relates to
the deferral of revenue in the third quarter of 2009 related to the X26 trade-in program. Changes
in working capital included a $0.5 million decrease in accounts receivable and a $1.8 million
increase in accounts payable and accrued liabilities.
26
Investing activities
We used $3.9 million for investing activities in the first nine months of 2010, comprised
principally of $2.2 million for capitalized software development costs related to EVIDENCE.com and
our Protector technology platform and $1.5 million for the acquisition of various production and
computer equipment.
Net cash used by investing activities was $7.0 million during the nine months ended September 30,
2009, which was comprised of $7.8 million to purchase property and equipment mainly related to new
automation production equipment and Evidence.com data center hardware as well as $1.5 million of
capitalized software development. In addition, we invested $243,000 in intangible assets, primarily
consisting of patent and trademark costs. This net use was partially offset by $2.5 million in net
proceeds from called investments.
Financing activities
During the first nine months of 2010 and 2009, net cash provided by financing activities was $1.1
million and $0.1 million, respectively, attributable to proceeds from stock options exercised.
Liquidity
Our most significant sources of liquidity continue to be funds generated by operating activities
and available cash and cash equivalents. We believe funds generated from our expected results of
operation as well as available cash and cash equivalents will be sufficient to finance our
operations and strategic initiatives for 2010. In addition, our revolving credit facility, which we
renewed through September 30, 2011, is available for additional working capital needs or investment
opportunities. There can be no assurance, however, 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.
Capital Resources
We have a revolving line of credit with a domestic bank with a total availability of $10.0 million.
The line is secured by substantially all of our assets, other than intellectual property, and bears
interest at varying rates, ranging from LIBOR plus 1.5% to prime. The line of credit matures on
September 30, 2011, and requires monthly payments of interest only. At September 30, 2010, there
were no borrowings under the line and $4.8 million was available based on the defined borrowing
base, which is calculated based on our eligible accounts receivable and inventory. 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 September 30, 2010, the
Company’s tangible net worth ratio was 0.16:1 and its fixed charge coverage ratio was 6.43:1.
Accordingly, the Company was in compliance with those covenants.
Based on our strong balance sheet and the fact that we had no outstanding debt at September, 2010,
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. Capital markets in the United States and throughout the world, while
showing signs of recovery, continue to be under stress. Reflecting this situation, many lenders and
capital providers have reduced, and in some cases ceased to provide, debt funding to borrowers. The
resulting lack of available credit could materially and adversely affect our ability to obtain
additional or alternative financing should the need arise for us to access the debt markets.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements as of September 30, 2010.
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 Quarterly Report on Form
10-Q 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.
There can be no assurance that actual results will not differ from those estimates. The effect of
these policies on our business operations is discussed below.
27
Standard Product Warranty Reserves
We warrant our law enforcement ECDs from manufacturing defects on a limited basis for a period of
one year after purchase and thereafter, will replace any defective TASER unit for a fee. We warrant
our TASER C2 and AXON products for 90 days. We track historical data related to returns and
warranty costs on a quarterly basis, and estimate future warranty claims based upon our historical
experience. 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. As of
September 30, 2010, our reserve for warranty returns increased to $635,000 compared to a $369,000
reserve at December 31, 2009, driven by reserves for new product sales as well as some specifically
identified warranty replacement requirements. In the event that product returns under warranty
differ from our estimates, changes to warranty reserves might become necessary.
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 $184,000 at September 30, 2010,
compared to $474,000 at December 31, 2009. In the event that actual excess, obsolete or slow-moving
inventories differ from these estimates, changes to inventory reserves might become necessary.
Accounts Receivable
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
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. Our allowance for doubtful accounts was $200,000
at September 30, 2010 and December 31, 2009. In the event that actual uncollectible amounts differ
from these estimates, changes in allowances for doubtful accounts might become necessary.
Valuation of Long-lived Assets
We review long-lived assets, such as property and equipment and intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. We utilize a two-step approach to testing long-lived assets for
impairment. The first step tests for possible impairment indicators. If an impairment indicator is
present, the second step measures whether the asset is recoverable based on a comparison of the
carrying amount of the asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Our review requires the use of judgment and estimates. Management
believes that no such impairments have occurred to date. However, future events or circumstances
may result in a charge to earnings if we determine that the carrying value of a long-lived asset is
not recoverable.
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 carryforwards.
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 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 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 $5.9 million in tax credits for Federal and Arizona income tax purposes
related to the 2003 through 2009 tax years, net of the federal benefit on the Arizona research and
development tax credits. Management made the determination 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
cumulative liability for unrecognized tax benefits of $2.3 million as of September 30, 2010. Also
included as
28
part of the $2.3 million liability for unrecognized tax benefits is a management
estimate of $106,000 related to uncertain tax positions for certain state income tax liabilities.
As of September 30, 2010, 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 $2.3 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 United
States, or changes in other facts or circumstances. In addition, we recognize liabilities for
potential United States 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 the Company’s consolidated financial statements, management assesses the likelihood
that its deferred tax assets will be realized from future taxable income. In evaluating the
Company’s ability to recover its deferred income tax assets, management considers all available
positive and negative evidence, including its 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 tax assets will not be realized. Management exercises significant judgment in determining
its provisions for income taxes, its deferred tax assets and liabilities and its future taxable
income for purposes of assessing its ability to utilize any future tax benefit from its deferred
tax assets. Management believes that as of September 30, 2010, based on an evaluation and
projections of future sales and profitability, no valuation allowance was deemed necessary.
However, such deferred tax assets could be reduced in the future if projections of future taxable
income during the carryforward period are reduced.
Stock Based Compensation
We estimate the fair value of our stock-based compensation 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”). We have granted a combined
total of 926,000 performance-based stock options in 2008, 2009 and the first quarter of 2010, 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 options 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 probability-based
assumptions can materially affect the estimate of fair value of stock-based compensation and
consequently, the related amount recognized on our statements of operations. Refer to Note 7 to our
consolidated financial statements for further discussion of how we determined our valuation
assumptions and performance-based stock options.
Contingencies
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.
29
|
|
|
| ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
We invest in a limited number of financial instruments, which at September 30, 2010 consisted
entirely of investments in money market accounts, denominated in United States dollars. At
September 30, 2010, we did not hold any investments in fixed rate interest earning investments
which would be subject to market value adjustments resulting from fluctuations in interest rates.
Additionally, we have access to a line of credit borrowing facility which bears interest at varying
rates, ranging from LIBOR plus 1.5% to prime. At September 30, 2010, there was no amount
outstanding under the line of credit and the available borrowing under the line of credit was $4.8
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 performed 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 our international customers are transacted in United States dollars
and therefore, are not subject to exchange rate fluctuations. However, the cost to our customers
increases when the U.S. dollar strengthens against their local currency. In this difficult economy
this risk of loss becomes a potential credit-risk for non-payment.
|
|
|
| ITEM 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of September 30,
2010 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 the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure
controls and procedures are designed to provide reasonable assurance that such information is
accumulated and communicated to our management. Our disclosure controls and procedures include
components of our internal control over financial reporting. Management’s assessment of the
effectiveness of our internal control over financial reporting is expressed at the level of
reasonable assurance because a control system, no matter how well designed and operated, can
provide only reasonable, but not absolute, assurance that the control system’s objectives will be
met.
Changes in internal control over financial reporting
There was no change in our internal control over financial reporting during the fiscal quarter
ended September 30, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
30
PART II—OTHER INFORMATION
|
|
|
| ITEM 1. |
|
LEGAL PROCEEDINGS |
See discussion of legal proceedings in Note 9 to the consolidated financial statements included in
PART I, ITEM 1 of this Form 10-Q.
There have been no material changes to the factors disclosed in ITEM 1A — RISK FACTORS of our
Annual Report on Form 10-K for the year ended December 31, 2009.
Pursuant to guidance provided by the SEC Division of Corporation Finance, the following information
is provided pursuant to the following Item of Form 8-K: Item 1.01 Entry into a Material Definitive
Agreement and Item 1.02 Termination of a Material Definitive Agreement.
On November 2, 2010, the Company entered into an agreement with RouteCloud, LLC and certain other
parties relating to the development, marketing, sale and support of a new suite of products
(“Protector Products”) that give parents the ability to manage their children’s mobile phone usage
and driving behaviors though a simple-to-use interface on a mobile phone, computer or TV. Pursuant
to the agreement, the parties’ previous Joint Venture Agreement relating to the development of
Protector Products was terminated, effective as of September 29, 2010. For more information about
the terms and conditions of the new agreement, please refer to Note 12 to the Company’s
consolidated financial statements, which is incorporated herein by reference.
| 10.1 |
|
Agreement with RouteCloud LLC, William D. Kennedy and WDK Enterprises, LLC, dated November 2, 2010. |
| |
| 31.1 |
|
Principal Executive Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| |
| 31.2 |
|
Principal Financial Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| |
| *32 |
|
Principal Executive Officer and Principal Financial Officer Certifications pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
TASER INTERNATIONAL, INC.
|
|
| Date: November 8, 2010 |
/s/ Patrick W. Smith
|
|
| |
Patrick W. Smith |
|
| |
Chief Executive Officer
(Principal Executive Officer) |
|
| |
| |
|
|
| Date: November 8, 2010 |
/s/ Daniel M. Behrendt
|
|
| |
Daniel M. Behrendt |
|
| |
Chief Financial Officer
(Principal Financial and
Accounting Officer) |
|
| |
Index to Exhibits
Exhibits:
| 10.1 |
|
Agreement with RouteCloud LLC, William D. Kennedy and WDK Enterprises, LLC, dated November 2, 2010. |
| |
| 31.1 |
|
Principal Executive Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| |
| 31.2 |
|
Principal Financial Officer Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| |
| *32 |
|
Principal Executive Officer and Principal Financial Officer Certifications pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32