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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

This Offering

      The number of shares of common stock outstanding after this offering is based on 1,510,754 shares outstanding as of March 15, 2001. The number of shares of common stock outstanding after this offering assumes no exercise of the representative’s over-allotment option and does not include an aggregate of 1,807,049 shares of common stock that may become outstanding as follows:

	•	434,322 shares of common stock issuable upon exercise of stock options outstanding as of March 15, 2001, with a weighted average exercise price of $5.96;
	•	52,727 shares of common stock issuable upon exercise of warrants outstanding as of March 15, 2001, with a weighted average exercise price of $4.71;
	•	1,100,000 shares of common stock issuable upon exercise of the public warrants; and
	•	110,000 shares of common stock issuable upon exercise of the representative’s warrants and 110,000 shares of common stock issuable upon exercise of the public warrants underlying the representative’s warrants.

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SUMMARY FINANCIAL INFORMATION

      The as adjusted balance sheet data reflects:

	•	the receipt of approximately $9,080,000 as the estimated net proceeds from the sale of 1,100,000 units offered by us in this offering at an assumed public offering price of $10.00 per unit, after deducting the underwriting discount, expense allowance and estimated offering expenses; and
	•	our planned use of the net proceeds of this offering.

      We have rights to the following registered trademarks: TASER ® and AIR TASER ® . We also have the following unregistered trademarks: TASER Wave ™ , T-Wave ™ , AUTO TASER ™ , ADVANCED TASER ™ and AFID ™ . Each other trademark, trade name or service mark appearing in this prospectus belongs to its respective holder.

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RISK FACTORS

      This offering involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing any units. Any of the following risks could materially harm our business, operating results and financial condition, and could result in a decrease in the trading price of our units, common stock or public warrants, or in a complete loss of your investment .

Risks Related to Our Business

We have no history of profitable operations and may incur future losses.

      Since our inception in 1993, we have incurred significant losses. Our net losses for the years ended December 31, 1999 and 2000 were $1.7 million and $406,000, respectively. We may never achieve or sustain profitability. At December 31, 2000, we had an accumulated deficit of approximately $6.7 million and negative stockholders’ equity of $3.6 million. We also had a net working capital deficit of $2.4 million and $1.1 million at December 31, 1999 and 2000, respectively. In addition, we expect our operating expenses to increase significantly as we expand our sales and marketing efforts and otherwise support our expected growth. Given these planned expenditures, we may incur additional losses in the near future.

Our business is difficult to evaluate because we have a limited operating history in the law enforcement and corrections market and have been focused on our current business strategy for only approximately one and one-half years.

      We revised our business strategy in late 1999 to concentrate on the law enforcement and corrections market. Accordingly, we have a limited operating history based on which you can evaluate our present business and future prospects. We face risks and uncertainties relating to our ability to implement our business plan successfully. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by newly-public companies that have recently changed their business strategies. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations, financial condition and prospects will be materially harmed.

We are materially dependent on acceptance of our products by the law enforcement and corrections market, but cannot predict the rate at which law enforcement and corrections agencies will accept our products.

      Although we have recently devoted significant resources to sales opportunities in the law enforcement and corrections market, a substantial number of law enforcement and corrections agencies may not purchase our conducted energy, less-lethal weapons. In addition, if our products are not widely accepted by the law enforcement and corrections market, we may not be able to expand sales of our products into other markets. Despite the absence of reported long-term, adverse after-effects from the use of our products, law enforcement and corrections agencies may be influenced by claims or perceptions that conducted energy weapons are unsafe or may be used in an abusive manner. In addition, earlier generation conducted energy weapons may have been perceived as ineffective. Sales of our products to these agencies may also be delayed or limited by these claims or perceptions.

We substantially depend on sales of the ADVANCED TASER, and if this product is not widely accepted, our growth prospects will be diminished.

      In 2000, we derived the majority of our revenues from sales of ADVANCED TASERs and related cartridges, and expect to depend on sales of this product for the foreseeable future. A decrease in the prices of or demand for this product line, or its failure to achieve broad market acceptance, would significantly harm our growth prospects, operating results and financial condition.

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If we are unable to manage our projected growth, our growth prospects may be limited and our future profitability may be adversely affected.

      We intend to expand our sales and marketing programs and our manufacturing capability. Rapid expansion may strain our managerial, financial and other resources. If we are unable to manage our growth, our business, operating results and financial condition could be adversely affected. Our systems, procedures, controls and management resources also may not be adequate to support our future operations. We will need to continually improve our operational, financial and other internal systems to manage our growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability.

We may face personal injury and other liability claims that harm our reputation and adversely affect our operating results and financial condition.

      Our products are often used in aggressive confrontations that may result in serious, permanent bodily injury to those involved. Although there have been no reported long-term, adverse after-effects from the use of our products, our products may cause or be associated with these injuries. A person injured in a confrontation or otherwise in connection with the use of our products may bring legal action against us to recover damages on the basis of theories including personal injury, wrongful death, negligent design, dangerous product or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our products. If successful, personal injury, misuse and other claims could have a material adverse effect on our operating results and financial condition. Although we carry product liability insurance, significant litigation could also result in a diversion of management’s attention and resources, negative publicity and an award of monetary damages in excess of our insurance coverage.

We recently relocated our product assembly operations from Mexico to the United States, which may adversely affect product availability.

      We have terminated assembly operations with our turnkey supplier in Guaymas, Mexico and are in process of relocating some production equipment from Mexico to the United States. We have also installed a new production line in our facility in Scottsdale, Arizona. If we encounter delays or unforeseen problems in completing the termination of our relationship with our prior supplier or relocating our equipment, they may significantly adversely affect our ability to produce and ship product and generate short-term sales and cash flow.

Our future success is dependent on our ability to expand sales through distributors.

      Our distribution strategy is to pursue sales through multiple channels with an emphasis on independent distributors. Our inability to recruit and retain police equipment distributors who can successfully sell our products would adversely affect our business. In addition, our arrangements with our distributors are generally short-term. If we do not competitively price our products, meet the requirements of our distributors or end-users, provide adequate marketing support, or comply with the terms of our distribution arrangements, our distributors may fail to aggressively market our products or may terminate their relationships with us. These developments would likely have a material adverse effect on our sales. Our reliance on the sales of our products by others also makes it more difficult to predict our revenues, cash flow and operating results.

We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.

      Generally, law enforcement and corrections agencies consider a wide range of issues before committing to purchase our products, including product benefits, training costs, the cost to use our products in addition to or in place of other less-lethal products, product reliability and budget constraints. The length of our sales cycle may range from 60 days to a year or more. We may incur substantial selling costs and expend significant effort in connection with the evaluation of our products by potential customers

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Most of our end-users are subject to budgetary and political constraints which may delay or prevent sales.

      Most of our end-user customers are government agencies. These agencies often do not set their own budgets and therefore have little control over the amount of money they can spend. In addition, these agencies experience political pressure that may dictate the manner in which they spend money. As a result, even if an agency wants to acquire our products, it may be unable to purchase them due to budgetary or political constraints. Some government agency orders may also be canceled or substantially delayed due to budgetary, political or other scheduling delays which frequently occur in connection with the acquisition of products by such agencies.

Government regulation of our products may adversely affect sales.

      Federal regulation of sales in the United States. Our weapons are not firearms regulated by the Bureau of Alcohol, Tobacco and Firearms, but are consumer products regulated by the United States Consumer Product Safety Commission. Although there are currently no federal laws restricting sales of our weapons in the United States, future federal regulation could adversely affect sales of our products.

      Federal regulation of international sales. Our weapons are controlled as a “crime control” implement by the United States Department of Commerce, or DOC, for export directly from the United States. Consequently, we must obtain an export license from the DOC for the export of our weapons from the United States other than to Canada. While we have a history of timely obtaining DOC export licenses for sales of our weapons to the majority of our international customers, unforeseen changes in U.S. export regulations could significantly and adversely affect our international sales.

      State and local regulation. Our weapons are currently controlled, restricted or their use prohibited by several state and local governments. Our weapons are banned from consumer sale or use in seven states: New York, New Jersey, Rhode Island, Michigan, Wisconsin, Massachusetts and Hawaii. Law enforcement use of our products is also restricted in Michigan, New Jersey, Rhode Island and Hawaii. Some municipalities, including Omaha, Nebraska and Washington, D.C., also prohibit consumer use of our products. Other jurisdictions may ban or restrict the sale of our products, and our product sales may be significantly affected by additional state, county and city governmental regulation.

      Foreign regulation. Certain foreign jurisdictions, including Japan, the United Kingdom, Australia, Italy and Hong Kong, prohibit the sale of conducted energy weapons, limiting our international sales opportunities.

If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights.

      Our future success depends in part upon our proprietary technology. Our protective measures, including a patent, trademarks and trade secret laws, may prove inadequate to protect our proprietary rights. Our United States patent on the construction of the gas cylinder used to store the compressed nitrogen in our cartridges expires in 2015. The holder of the patent on the process by which compressed gases launch the probes in our cartridges has licensed the technology covered by the patent for use in electronic weapons only to us and to two other companies. This patent expires in 2009. The scope of any patent to which we have or may obtain rights may not prevent others from developing and selling competing products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, lengthy, and expensive. In addition, our patents may be held invalid upon challenge, others may claim rights in or ownership of our patents.

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If we become subject to intellectual property infringement claims, we may incur litigation costs and divert management attention from our business.

      Any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business. If our products were found to infringe a third party’s proprietary rights, we could be required to enter into royalty or licensing agreements in order to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all.

      In late February 2001, Taser received notice from a patent licensee with regard to alleged infringement of a patent by us related to the firing mechanism for our weapons. Although we believe we do not infringe this patent, we have discussed resolution of this claim with the licensee and may elect to arbitrate the dispute. An outcome that is adverse to us, costs associated with defending any lawsuit that may result, and the diversion of management’s time and our resources as a result of this claim could harm our business and our financial condition.

Competition in the law enforcement and corrections market could reduce our sales and prevent us from achieving profitability.

      The law enforcement and corrections market is highly competitive. We face competition from numerous larger, better capitalized and more widely known companies that make other less-lethal weapons and products, as well as from a small company that also sells conducted energy less-lethal weapons. Increased competition may result in greater pricing pressure, lower gross margins and reduced sales, and prevent us from achieving profitability.

Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and injury to our reputation.

      Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product. In 2000, we recalled a series of ADVANCED TASERs due to a defective component in connection with which we incurred expenses of approximately $9,000 and recorded an additional charge of approximately $41,000 to account for related future expenses. Defects in our products may result in a loss of sales, delay in market acceptance, injury to our reputation and increased warranty costs.

Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to decline.

      Our revenues and operating results have varied significantly in the past and may vary significantly in the future due to various factors, including changes in our operating expenses, market acceptance of our products and services, regulatory changes that may affect the marketability of our products, and budgetary cycles of municipal, state and federal law enforcement and corrections agencies. As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not be meaningful in the near term and that you should not rely upon our performance in a particular period as indicative of our performance in any future period.

Our dependence on third-party suppliers for key components of our weapons could materially harm our business.

      We depend on certain domestic and foreign suppliers for the delivery of components used in the assembly of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or subassemblies and reduced control over pricing and timing of delivery of components and subassemblies. Specifically, we depend on suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other miscellaneous custom parts for our products. The final assembly of the cartridges used in the firing of our weapons was prevented for four weeks beginning in November 2000 by a supplier’s receipt of

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Foreign currency fluctuations may reduce our competitiveness and sales in foreign markets.

      Although our policy of entering into dollar-denominated sales contracts eliminates our risk of foreign exchange losses, the relative change in currency values creates fluctuations in product pricing for potential international customers. These changes in foreign end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets. These changes may also negatively affect the financial condition of some foreign customers and reduce or eliminate their future orders of our products.

A lawsuit involving the rights of a former distributor of our products may subject us to significant litigation costs and divert management attention from our business.

      A former distributor of our products has filed a lawsuit in the state of New York asserting certain rights of exclusive sales representation with respect to our products. The former distributor claims that he has the exclusive right to market and sell our products to an extensive list of our current and potential customers throughout the United States. The suit was dismissed in February 2001 for lack of personal jurisdiction of the New York court. In March 2001, the former distributor appealed the dismissal. An outcome that is adverse to us, costs associated with defending the lawsuit and the diversion of our management’s time and our resources as a result of the claim could harm our business or financial condition.

Risks Related to This Offering

We may use the proceeds of this offering in ways that do not improve our operating results or the market value of our securities.

      We intend to use the net proceeds from this offering for increased sales and marketing efforts, purchases of inventory, repayment of a portion of our stockholder and other debt, general corporate purposes, research and development, and purchases of production tooling and equipment. Repayment of our debt will not directly improve our operating results. Our management will retain broad discretion and significant flexibility in applying the net proceeds from this offering. If our management does not apply the proceeds effectively, our business will be harmed.

You will suffer immediate and substantial dilution of your investment.

      We anticipate that the initial public offering price of the units will be substantially higher than the net tangible book value per share of our common stock after this offering. As a result, you will incur immediate dilution of approximately $7.91, or 79%, in net tangible book value for each share of our common stock included in the units you purchase.

There has been no prior market for our securities and a public market for our securities may not develop or be sustained.

      Prior to this offering, you could not buy or sell our securities publicly. If an active public market for our securities does not develop after this offering, the market price of our securities may fall below their initial public offering price, and the liquidity of your investment may be significantly limited.

The initial public offering price of our units may not accurately reflect their future market performance.

      The initial public offering price of the units has been determined based on negotiations between the underwriters’ representative and us. The initial public offering price may not be indicative of future market

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The price of our securities may be volatile, which may lead to losses by investors.

      The stock market has recently experienced significant price and volume fluctuations. You may not be able to resell our securities at or above the initial public offering price. The price of our securities may fluctuate significantly in response to a number of factors, including:

	•	Our quarterly operating results;
	•	Changes in earnings estimates by analysts and whether our earnings meet or exceed such estimates;
	•	Announcements of technological innovations by us or our competitors;
	•	Additions or departures of key personnel; and
	•	Other events or factors that may be beyond our control.

      Volatility in the market price of our securities could lead to claims against us. Defending these claims could result in significant litigation costs and a diversion of our management’s attention and resources.

Future sales of our common stock by our existing stockholders could decrease the trading price of our common stock.

      Sales of a large number of shares of our common stock in the public markets after this offering, or the potential for such sales, could decrease the trading price of our common stock and could impair our ability to raise capital through future sales of our common stock. Upon completion of this offering, there will be 2,610,754 shares of our common stock outstanding. The 1,100,000 shares of common stock sold in this offering and the 1,100,000 shares of common stock reserved for issuance upon exercise of the public warrants sold in this offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, unless such shares are purchased by our “affiliates,” as that term is defined in such act. An additional 1,807,049 shares of common stock, including shares issuable upon exercise of the representative’s warrants, may become outstanding upon exercise or conversion of options or warrants currently outstanding or sold in this offering, subject to various lock-up agreements prohibiting the sale of such shares for one year following completion of this offering.

The exercise of previously issued options and warrants may dilute your investment in our shares and impair our ability to obtain equity financing.

      As of March 15, 2001, in addition to the 1,510,754 shares outstanding, there were currently outstanding options to purchase 434,322 shares of our common stock, 119,055 of which were currently exercisable. We have reserved an additional 259,000 shares of our common stock for issuance pursuant to options that may be granted in the future to key employees, and others, under our 2001 Stock Option Plan. In addition, we have issued warrants to acquire up to 52,727 shares of our common stock. While such options and warrants are outstanding, the holders of such securities have the opportunity to profit from a rise in the value or market price of our common stock, and the exercise of these options and warrants could dilute the then book value per share of our common stock. The existence of these options and warrants could adversely affect the terms at which we could obtain additional equity financing. Moreover, the holders of the options and warrants may be expected to exercise them at a time when we could obtain equity capital on terms more favorable than those provided by the options and warrants.

We will need to comply with federal and state securities laws to maintain the tradeability of our securities.

      We must maintain in effect the registration statement filed with the Securities and Exchange Commission with respect to the units and must also comply with the securities laws of a state for the units, common stock and public warrants to be tradeable in that state. If we do not comply with federal or

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Certain of our directors or investors will personally benefit from the use of the proceeds of this offering.

      We will use the proceeds from this offering to repay approximately $100,000 of unreimbursed business expenses to our chairman and to retire the interest accrued through March 1, 2001 on our outstanding stockholder notes. In addition, if the over-allotment option granted to the representative of the underwriters is exercised in full, approximately $1.3 million in stockholder notes, including a note issued to our chairman, will be retired. This debt matures July 1, 2002, unless extended.

Our directors and executive officers will continue to control us after this offering, which may lead to conflicts with stockholders over corporate governance.

      Following completion of this offering, our directors and executive officers will beneficially own approximately 55% of our outstanding common stock. These stockholders, acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions. This control may have the effect of delaying or preventing a third party from acquiring or merging with us. In addition, prior to the appointment of disinterested, independent directors to our board of directors in January 2001, certain past transactions, including issuances of stock and options to and borrowings from officers and directors, were not approved by two disinterested, independent directors at the time of the transaction.

We do not intend to pay cash dividends in the foreseeable future.

      Any investors who have or anticipate any need for immediate income from their investment should not purchase any of the units offered hereby.

Provisions of our charter documents and Delaware law may have anti-takeover effects that could hinder a change in our corporate control.

      Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:

	•	authorizing our board of directors to issue preferred stock without stockholder approval;
	•	providing for a classified board of directors with staggered, three-year terms; and
	•	allowing written stockholder actions only by unanimous consent.

      Provisions of Delaware law, including provisions that prohibit business combinations with entities holding greater than a threshold amount of voting stock, also may discourage, delay or prevent someone from acquiring or merging with us, which may cause the market price of our securities to decline.

You should not rely upon our forward-looking statements.

      Some of the statements made in this prospectus discuss future events and developments, including our future business strategy and our ability to generate revenue, income and cash flow. In some cases, you can identify forward-looking statements by words or phrases such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “our future success depends,” “seek to continue,” or the negative of these words or phrases, or comparable words or phrases. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various facts, including the risks outlined under “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results.

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USE OF PROCEEDS

      We estimate that the net proceeds from the sale of the 1,100,000 units that we are selling in this offering will be approximately $9,080,000, or $10,532,000 if the representative exercises its over-allotment option in full, based on an assumed public offering price of $10.00 per unit, and after deducting the underwriting discount, expense allowance, and estimated offering expenses of $650,000 payable by us.

      We expect to allocate the net proceeds of this offering as follows:

      The debt we intend to repay includes:

	•	a $99,794 note at an interest rate of 10% payable to Phillips Smith, our chairman and a stockholder, for unreimbursed business expenses;
	•	$300,400 of accrued interest on notes payable to Bruce Culver, a director and stockholder, and Phillips Smith;
	•	$611,500 of notes and accrued interest at interest rates ranging from 11% to 18%, payable to an unrelated private lender; and
	•	a $189,980 note at an interest rate of 10% payable to a third-party vendor.

Further, if the representative exercises its over-allotment option in full, we will repay the principal on other outstanding stockholder notes of approximately $1.3 million which currently mature in July 2002.

      We may use the portion of the net proceeds of this offering currently allocated to other working capital/general corporate purposes to take advantage of early payment discounts which may be available from our suppliers, prepay some of our capital leases or reduce our current liabilities other than amounts owing to related parties. Although we currently have no agreements or commitments to do so, we may also use a portion of the net proceeds to license or acquire new products, technologies or intellectual property or to acquire or invest in businesses complimentary to ours. We have no current plans or proposals pending for any such acquisitions or investments. Pending application of the net proceeds, we intend to invest the net proceeds in interest-bearing, investment grade securities.

      The foregoing discussion is merely an estimate based on our current business plan. Our actual expenditures may vary depending upon circumstances not yet known, such as the time actually required to reach a positive cash flow or to successfully expand the market for our products.

DIVIDEND POLICY

      We have never declared or paid any cash dividends on our shares of common stock and do not anticipate paying any cash dividends in the foreseeable future. Currently, we intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay cash dividends

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CAPITALIZATION

      The following table sets forth our capitalization at December 31, 2000 on an actual basis and on a pro forma basis, after giving effect to our reincorporation in Delaware, our related 1-for-6 reverse stock split, and the sale of 1,100,000 units offered hereby at an estimated price of $10.00 per unit and the proposed application of the estimated net proceeds therefrom. This table should be read in conjunction with, and is qualified by, the financial statements and notes thereto included elsewhere in this prospectus.

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DILUTION

      If you invest in our units, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering. For purposes of the dilution computation and the following tables, we have allocated the full purchase price of a unit to the share of common stock included in the unit and nothing to the warrant included in the unit. As of December 31, 2000, our net tangible book value was a negative $3,617,215, or a deficiency of $2.39 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share paid by the purchasers of our units in this offering and the net tangible book value per share of our common stock immediately afterwards. Without taking into effect any changes in the net tangible book value after December 31, 2000, other than to give effect to the sale of 1,100,000 units in this offering at the assumed initial public offering price of $10.00 per unit and the application of the net proceeds of this offering, the net tangible book value of TASER as of December 31, 2000 would have been $5,462,785, or $2.09 per share. This represents an immediate increase of $4.48 per share of common stock to existing stockholders and an immediate dilution of $7.91 per share of common stock to the new investors who purchase units in this offering. The following table illustrates this per share dilution:

      The following table summarizes as of December 31, 2000 the differences between the existing stockholders and the new investors with respect to the number of shares of common stock purchased, the total consideration paid, and the average price per share paid:

      The above computations assume no exercise of outstanding options or warrants to purchase common stock, the representative’s over-allotment option, the public warrants included in units sold in this offering or the representative’s warrants. If the representative’s over-allotment option is exercised in full, dilution per share to new investors would be $7.51 per share of common stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

      The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this prospectus. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others, those listed under “Risk Factors” and those included elsewhere in this prospectus.

Overview

      We began operations in Arizona in 1993 for the purpose of developing and manufacturing less-lethal self-defense devices. From inception until the introduction of our first product, the AIR TASER, in 1994, we were in the development stage and focused our efforts on product development, raising capital, hiring key employees and developing marketing materials to promote our product line.

      In 1995 and 1996, we focused our efforts on promoting retail sales and establishing distribution channels for the AIR TASER product line. However, our marketing efforts were limited by a non-compete agreement prohibiting the company from marketing or selling our products to the U.S. law enforcement and military markets. Accordingly, initial sales of the AIR TASER were limited to the consumer market. While early sales in this market were promising, by the end of 1996 we were unable to establish consistent sales channels in the consumer marketplace and sales declined. In late 1996, we relocated our production facilities to Mexico to reduce production costs.

      In 1997, we introduced our second product line, the AUTO TASER. The initial market response to the AUTO TASER suggested the demand for this product would more than compensate for the declining AIR TASER sales. Because of strong pressure from pre-production orders, we accelerated the development of the AUTO TASER. As a result of this acceleration, production costs of the AUTO TASER far exceeded initial projections, and we experienced a substantial amount of AUTO TASER returns due to product defects.

      The non-compete agreement that had precluded sales to the law enforcement and military markets expired in 1998. During this year, we focused our development efforts on the ADVANCED TASER product line, a redesigned and enhanced version of the AIR TASER, targeted primarily to the U.S. law enforcement and corrections market. During 1998, in addition to $66,000 paid to outside research and development consultants, we also incurred substantial internal unallocated expenses associated with the development of the ADVANCED TASER. Further, end-user sales of the AUTO TASER continued to decline, and product returns remained higher than expectations.

      In August 1999, the AUTO TASER product line was discontinued and we closed our production facility in Mexico. We sold all remaining finished goods associated with the AUTO TASER product line by the end of the first quarter of 2000. Following closure of our Mexican facility, we outsourced the production of the AIR TASER and certain non-proprietary assemblies to a third-party assembler. We shifted our focus to completion of the ADVANCED TASER development project and introduced the first ADVANCED TASER units for sale to law enforcement customers in December 1999. As a result of these activities and product development expenses, we had accumulated a deficit of $6.3 million by December 31, 1999.

      The first full year of the ADVANCED TASER product line sales was 2000. We spent the year focusing on building the distribution channel for marketing the product line and developing a nationwide training campaign to introduce the product line to law enforcement agencies, primarily in North America.

      In the first quarter of 2001, we discontinued the outsourcing of the final assembly of our products and moved such final assembly to our facility in Scottsdale, Arizona. As a result of this change, we anticipate

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      Net sales. Net sales increased $1.2 million, or 54.5%, from $2.2 million for the year ended December 31, 1999 to $3.4 million for the year ended December 31, 2000. The increase was due almost entirely to the first full year of sales of the ADVANCED TASER, primarily to law enforcement agencies. The increase in sales was partially offset by the decline in AUTO TASER sales due to the discontinuation of this product line and somewhat lower sales of the AIR TASER to consumers.

      For the years ended December 31, 1999 and 2000, sales by product line were as follows:

      Cost of products sold. Cost of products sold decreased from $2.1 million in 1999, or 94.5% of net sales, to $1.8 million in 2000, or 53.9% of net sales. The decrease in cost of products sold as a percentage of net sales was due primarily to the lower direct production costs associated with the AIR and ADVANCED TASERs, which averaged 29.8% of gross sales as compared to 59.8% of gross sales for the AUTO TASER, and a one-time charge related to the phase out of the AUTO TASER product line of approximately $355,000 in 1999 included in indirect manufacturing expense. In 2001, we anticipate our cost of products sold will decrease as a percentage of net sales due to lower labor costs, greater labor productivity, lower materials cost and greater operating control, all in connection with the transfer of our product assembly operations from Mexico to the United States.

      For the two years ended December 31, 2000, our principal product costs included the following:

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		included our purchase price of finished goods from our contract manufacturer and raw materials. Direct materials represented the majority of our direct manufacturing expense.
	•	Direct labor: Direct labor represented the expenses incurred in our Scottsdale, Arizona facility for the assembly and packaging of sub-assemblies. Once finished, these sub-assemblies were transferred to our contract manufacturer for insertion into our finished products. In the first eight months of 1999, direct labor included wages paid to employees in our Mexican production facility.
	•	Shipping expense: Shipping expense included those costs associated with shipping finished products to our customers. These costs included freight paid to ship orders, special handling charges and related transaction fees.
	•	Indirect manufacturing expense: Indirect manufacturing expense included the indirect costs associated with producing our products, such as rent on production facilities, depreciation on production equipment and tooling, engineering and support salaries and other indirect manufacturing costs.

      In 2001, our product cost structure will be significantly different than in 1999 and 2000 primarily due to the discontinuation of our use of our contract assembler. Specifically, our cost of direct materials will include only the cost of components and supplies required to manufacture our finished goods. Our direct labor and manufacturing costs will continue to be allocated to cost of products sold, but should be lower than in 2000 due to the consolidation of our product manufacturing and assembly operations at our new facility in Scottsdale, Arizona.

      Gross margin. Gross margin increased $1.5 million, or 1211.8%, from $120,000 in 1999 to $1.6 million in 2000. Our gross profit margin was 5.4% of net sales in 1999 compared to 46.1% in 2000 due to increased sales of higher margin ADVANCED TASER products and the one-time write off of $355,000 taken in 1999 as a result of the phase out of the AUTO TASER. We anticipate our gross margin will increase to approximately 60% of net sales in 2001 primarily due to increased sales of higher margin ADVANCED TASER products, partially offset by relocation costs associated with the transfer of our product assembly operations from Mexico to the United States.

      Sales, general and administrative expenses. Sales, general and administrative expenses increased by $171,000, or 11.9%, from $1.4 million in 1999 to $1.6 million in 2000. Sales, general and administrative expenses were 65.3% of net sales in 1999 compared to 47.3% of net sales in 2000. These costs increased to support the sales of the ADVANCED TASER and include sales commissions and product demonstration costs. However, sales, general and administrative expenses declined as a percentage of sales in 2000 due to the fixed nature of certain of these costs and increased gross margins attributable to the ADVANCED TASER product line.

      Interest expense. Interest expense increased by $79,000, or 28.4%, from $280,000 in 1999 to $359,000 in 2000. The increase reflects the cost of the higher level of related party debt in 2000 over 1999, primarily used to fund working capital. In addition, we issued warrants and options in 2000 valued at $26,880 to certain stockholders in return for providing loans to us.

      Corporate tax status. Prior to our reincorporation in Delaware in February 2001, we were an S-corporation, which allowed all the tax attributes to flow through to the stockholders. In February 2001, we changed our tax reporting status to that of a C-corporation. When we changed our reporting status, our accumulated shareholder deficit was converted to additional paid-in capital. As a result, there are also no net operating loss carry forwards available to us.

      Net loss. Our net loss decreased $1.3 million, or 75.6%, from $1.7 million in 1999 to $406,000 in 2000. Basic and diluted net loss per common share was $0.54 in 1999 compared to $0.16 in 2000. The reduced net loss in 2000 resulted primarily from increased sales volume and increased gross margins attributable to sales of the ADVANCED TASER line.

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Liquidity and Capital Resources

      We have sustained significant operating losses since our inception. In 1999 and 2000, we financed our operations through advances from and investments by major stockholders, and bank financing guaranteed by major stockholders.

      Liquidity. We had a working capital deficiency of $2.4 million at December 31, 1999 and $1.0 million at December 31, 2000. The improvement in working capital from 1999 to 2000 was largely due to the extension of short-term related party debt in 1999 to long-term debt in 2000. In both 1999 and 2000, cash was used primarily to fund operating losses and for investment in property and equipment.

      In 2000 we generated cash from operations of $75,000, primarily as a result of a significant customer deposit of $440,000 received in December 2000. In 1999, operations consumed $704,000 in cash. We have not historically generated sufficient cash from operations to fund future growth or to repay our long-term debt that principally comes due July 1, 2002. However, we anticipate that our cash flow from operations will be at least break-even in 2001 because we expect our sales will increase and our cost of products sold will decrease as a percentage of our total revenues, generating both positive cash flow and net income. We believe that, with anticipated cash flow from operations for 2001 and the completion of this offering, our cash resources will be adequate to meet our expected future liquidity needs for approximately the next two years.

      Capital resources. We have funded our operating deficits primarily through loans from two major stockholders, Phillips Smith and Bruce Culver. Our indebtedness to these stockholders totaled $2.9 million at December 31, 2000. The majority of this debt matures in July 2002 and bears interest at a rate of 10%.

      In the event this offering is not completed, we have an agreement with Messrs. Smith and Culver whereby we may extend the maturity date of their outstanding notes for a period not to exceed 24 months. We also may retire the debt at any time without penalty. In addition, Mr. Culver has established a non-revocable letter of credit in the amount of $500,000 on our behalf through December 31, 2001 that we can use to fund any shortfalls in our monthly capital requirements until we can make other financing arrangements.

      Subsequent to December 31, 2000, an unrelated private lender loaned us $500,000 to fund working capital. The related promissory note carries interest at 18% and matures at the earlier of the completion of this offering or July 2002. In return for his loan, we granted him 5,000 ten-year warrants with an exercise price of $10 per share. The fair value of these warrants is approximately $9,600.

      Capital commitments. At December 31, 2000, we had no material commitments for capital expenditures. Other commitments include rental payments under operating leases for office space and equipment, and commitments under employment contracts with our chief executive officer, president, and chief financial officer.

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BUSINESS

Company overview

      We develop, assemble and market less-lethal, conducted energy weapons primarily for use in the law enforcement and corrections market. Over 400 police departments in the United States have made initial purchases of our products and 15 police departments, including San Diego, Sacramento, and Albuquerque, have purchased our products for every patrol officer. As of February 1, 2001, more than 200 additional police departments were evaluating our newest product, the ADVANCED TASER.

      We sell two principal products. We introduced the AIR TASER in 1994 and targeted it primarily at the consumer market. We designed the AIR TASER to look like a cellular telephone or other consumer electronic item, rather than a weapon. The terms of an agreement we signed with Electronic Medical Laboratories, Inc., doing business as Tasertron, the original licensee of a patent on certain technology used in our weapons, precluded us from selling our products to United States law enforcement, corrections and military agencies until February 1998. After expiration of this agreement, we introduced the ADVANCED TASER, an upgraded and redesigned version of the AIR TASER, to appeal to the law enforcement and corrections market. It uses the same basic operating principle as the AIR TASER but produces four times the AIR TASER’s power output. It is also pistol-shaped to make it easier for police officers to use. The ADVANCED TASER can be sold with an integrated laser sight and a built-in memory option to record the time and date of up to 585 firings. We believe the ADVANCED TASER will also appeal to the private security, military and consumer markets, and intend to pursue sales in these markets after further penetrating the law enforcement and corrections market.

Industry background

      The market for less-lethal weapons includes law enforcement agencies, correctional facilities, military agencies, private security guard companies and retail consumers. We believe law enforcement officials are the opinion leaders regarding market acceptance of new security products. In recent years, successful new security products — such as the GLOCK handgun and the Mag-Lite flashlight — were first marketed to and accepted by police departments. We therefore focus on the law enforcement agency segment of the market for less-lethal weapons.

      Generally, each police force has a use-of-force policy that dictates the level of force its officers can use to respond to various situations. A police officer is trained to use only the minimum force necessary to overcome the threat of injury or violence posed by a suspect. For example, under most policies, an officer may not use lethal force unless a subject poses a threat of significant bodily injury or fatality to the officer or other persons.

      In fact, most police officers never deploy lethal force in the course of their careers. While the vast majority of law enforcement officers around the world are armed with firearms, only a small percentage will actually ever use them. Many police officers, however, must use less-lethal force on a regular basis. Less-lethal force can range from a control hold to the use of a baton, chemical spray, or other means to control a subject that is actively resisting the officer.

      Police officers are often injured while trying to subdue a suspect with less-lethal force. Traditional tactics such as using a baton or fist to control a suspect result not only in a significant risk of injury to the suspect, but also a significant risk that the officer will be injured. If an officer can subdue a suspect from a safe distance using effective less-lethal weapons, he greatly reduces the probability that he or the suspect, as well as bystanders, will be injured during a confrontation.

      A variety of new less-lethal weapons have been developed to address the need to temporarily incapacitate an attacker without causing permanent injury or fatality. These weapons vary in approach, but generally include stun guns, batons and clubs, chemical sprays, rubber bullets, pepper balls and other impact munitions. Each weapon has distinct advantages and disadvantages, and law enforcement agencies

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	•	Effectiveness: temporary incapacitation of aggressive suspects;
	•	Range: variable distance over which the weapon is effective;
	•	Safety: low risk of injury or death;
	•	Ease of use: simple operation, low maintenance and no contamination;
	•	Dependability: reliability in many environments, product durability;
	•	Accountability: tracking to reduce misuse of the weapon; and
	•	Cost: low cost per use and possible reduction of litigation expense.

The ADVANCED TASER solution

      All our products are designed to perform well in terms of the above characteristics. We believe the ADVANCED TASER, however, offers the best combination of these characteristics currently available in a less-lethal weapon. This superior performance could make the ADVANCED TASER the less-lethal weapon of choice in many situations for law enforcement agencies and other security services.

	•	Effectiveness

      Most less-lethal weapons rely upon a pain response for effect. A less-lethal weapon that inflicts only pain may not stop the most dangerous and aggressive suspects. The ADVANCED TASER is designed to cause complete yet temporary physical incapacitation, not just discomfort or distraction. In police testing and field use, the ADVANCED TASER has incapacitated even highly focused individuals who have demonstrated the ability to fight through other less-lethal weapons that rely only on pain.

	•	Range

      Batons and chemical sprays can only be used from close distances, usually less than five feet. Rubber bullets, beanbag rounds, and similar less-lethal impact weapons must be used at distances greater than 30 feet to minimize suspects’ injuries. Therefore, we believe that other less-lethal weapons as a group are generally ineffective between five and thirty feet. The ADVANCED TASER is designed to operate within this range. Since it is equally effective at very close range, we believe the ADVANCED TASER represents a more versatile less-lethal weapon for encounters taking place within 21 feet.

	•	Safety

      In tests involving over 1,000 human volunteers and in hundreds of field applications, the ADVANCED TASER has had no reported long-term, adverse after-effects. In field uses, our technology has been found to have a comparable or lower risk of injury to officers and suspects than other less-lethal technologies. Further, the recovery time from an application of the ADVANCED TASER is generally less than one minute. In contrast, recovery time from the application of chemical sprays can range from ten minutes to one hour. Recovery time from the effect of impact rounds can vary from hours to weeks, depending on bruising and bone breakage.

	•	Ease of Use

      The ADVANCED TASER is shaped and designed to function like a standard handgun. Accordingly, it is easy for law enforcement officers to use during stressful situations, since their firearms training familiarizes them with the muscle movements required for its operation. It can be reloaded and fired again as quickly as a spent cartridge can be removed and a replacement cartridge inserted, typically in less than five seconds. Further, the weapon requires no maintenance other than a periodic battery check. The ADVANCED TASER also does not leave contaminating residues, unlike chemical sprays that may contaminate buildings, vehicles or other closed facilities or officer uniforms.

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	•	Dependability

      The ADVANCED TASER operates effectively under a variety of unfavorable conditions, such as wind and rain, that render chemical sprays less effective. The ADVANCED TASER housing is constructed of high tensile-strength polycarbonate to withstand the rigors of typical police use.

	•	Accountability

      The ADVANCED TASER incorporates features designed to reduce inappropriate use. Our cartridges contain numerous confetti-like Anti-Felon Identification tags, or AFIDs, which are scattered when the unit is fired. AFID tags recovered from usage sites can thus help identify the owner of the cartridge used. The ADVANCED TASER we market to law enforcement and corrections agencies also comes with a data port that records the exact time, date and duration of up to 585 firings.

	•	Cost

      The ADVANCED TASER is sold to law enforcement agencies for approximately $400 per unit. The air cartridge ammunition is priced under $18 per shot. These prices are competitive with impact munitions and most other specialized less-lethal weapons, with the exception of the least expensive chemical sprays. However, the indirect costs of decontaminating buildings, vehicles, and uniforms resulting from the use of chemical sprays can place the ADVANCED TASER at an overall cost advantage per use.

      In addition, litigation costs for law enforcement agencies can be significant. Reducing the number of injuries and fatalities caused by law enforcement officers may reduce the number of suits filed against agencies for excessive use of force, wrongful death and injury. Further, reducing officer injuries minimizes medical claims and lost time for work-related injuries.

      As with other less-lethal weapons, these characteristics, particularly safety, may also have the benefit of increasing goodwill between law enforcement agencies and their communities. Community relations considerations can be particularly important at a time when almost any interaction with police can be videotaped and scrutinized by the media and the public.

Our strategy

      Key elements of our strategy for growth include the following:

	•	Fully exploit the expanding law enforcement and corrections market .

      Our goal is to make the ADVANCED TASER the dominant less-lethal weapon for use by law enforcement and corrections agencies. Law enforcement officials are often viewed as experts with regard to weapons and other security products. As a result, we believe that widespread acceptance of the ADVANCED TASER in this market will enhance its credibility and represent a necessary first step toward expanding sales of our products in additional markets.

	•	Expand into private security, military, and consumer markets .

      After increasing our presence in the law enforcement and corrections market, we intend to expand our penetration in the private security, military and consumer self-defense markets. We believe the same performance characteristics that will enable our products to succeed in the law enforcement and corrections market will also appeal to potential customers in these additional markets.

	•	Develop enhanced less-lethal weapon technologies .

      We intend to improve our less-lethal weapons technology to provide further growth and market opportunities. Among other things, we intend to develop multiple shot capability and greater effective range. These innovations may increase our revenues by allowing us to sell upgraded less-lethal weapons and accessories, both to existing and potential new customers.

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	•	Acquire businesses that enhance our strategic position .

      We may acquire businesses that will complement our growth strategy and enhance our competitive position in our markets. However, we have no current plans for such acquisitions.

Markets

   Law enforcement and corrections

      Federal, state and local law enforcement agencies in the United States currently represent the primary target market for the ADVANCED TASER. According to United States Bureau of Justice statistics, there were nearly 19,000 of these agencies in the United States in 1996 that employed about 740,000 full-time, sworn law enforcement officers. In 1995, industry analysts estimated that the total number of non-administrative correctional officers in the United States was approximately 450,000.

      Acceptance of the ADVANCED TASER by United States police departments has been fairly rapid since its introduction in December 1999. We believe it could prove equally suitable for use in correctional facilities. The ADVANCED TASER is particularly useful in these confined and crowded settings since it provides a means of bringing virtually any individual under control without requiring the use of lethal force. We anticipate that some correctional officers will be armed with ADVANCED TASERs, particularly as its performance attributes become more familiar to the wider law enforcement community.

      In the law enforcement market, over 400 police departments have made initial purchases of the ADVANCED TASER for testing or deployment. In addition, 15 police departments, including San Diego, Sacramento, and Albuquerque, purchased enough of our weapons to issue one to each of their patrol officers.

   Private security firms and guard services

      A report of the Security Industry Association for 1999-2000 estimated that there were over 1.7 million privately employed security guards or personnel in the United States. They represent a broad range of individuals, including bodyguards, commercial and government building security guards, commercial money carrier employees, and many others. We believe that security personnel armed with ADVANCED TASERs could be as effective in many circumstances as those armed with conventional firearms. At the same time, arming guards with ADVANCED TASERs may reduce the potential liability of private security companies and personnel.

      A number of environments can prove problematic for the use of conventional firearms. The use of conventional firearms in airplanes, for example, poses a significant threat to the integrity of the aircraft and the safety of the passengers. Conventional firearms may also be inappropriate in subways, buses, transit systems, banks and casinos. In many of these crowded environments, the contamination associated with the use of chemical sprays could also pose significant problems.

      One large private security force overseas has ordered over 1,000 ADVANCED TASERs for delivery in Spring 2001. We are in the early stage of pursuing additional opportunities for sales of the ADVANCED TASER in private security markets, and have made only limited sales to date.

   Consumer/personal protection

      In the late 1990s, industry sources estimated that 30-35 million Americans owned handguns. We believe these handgun owners represent one segment of a potentially large consumer market for our products.

      As a result of our shift in focus, the share of our sales made to consumer markets fell sharply from 1999 to 2000. In 1999, sales to consumers represented 88% of total sales while these sales dropped to only 32% of total sales in 2000. We expect the relative share of sales to consumer markets to remain small in the next few years. Given the size of the potential consumer market, however, we believe consumer sales

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   Military

      Military police forces may use the ADVANCED TASER for purposes similar to those of civilian police units. Military peace-keeping forces also perform policing functions, and the ADVANCED TASER may prove an effective tool for these operations. The ADVANCED TASER may also be used by armed forces to reduce the possibility of civilian casualties resulting from combat operations on battlefields consisting of both civilians and combatants. We have yet to pursue sales opportunities in the military market.

Products

      Our weapons use compressed nitrogen to shoot two small electrified probes up to a maximum distance of 21 feet. The probes and compressed nitrogen are stored in a replaceable cartridge attached to the base of the weapon. Our proprietary replacement cartridges are sold separately.

      After firing, the probes discharged from our cartridges remain connected to the weapon by high-voltage insulated wires that transmit electrical pulses into the target. These electrical pulses, which we call TASER-Waves or T-Waves, are transmitted through the body’s nerves in a manner similar to the transmission of signals used by the brain to communicate with the body. The T-Waves temporarily overwhelm the normal electrical signals within the body’s nerve fibers, impairing subjects’ ability to control their bodies or perform coordinated actions. T-Waves can penetrate up to two inches of clothing and up to a class 3 bullet resistant vest. The initial effect lasts up to five seconds and the charge can be repeated for up to approximately ten minutes by repeatedly firing the weapon.

      Since all our weapons use the same cartridges, we can support multiple platforms and still achieve economies of scale in cartridge production. Our cartridges contain numerous colored, confetti-like tags bearing the cartridge’s serial number. These tags, referred to as Anti-Felon Identification tags, or AFIDs, are scattered when one of our weapons is fired. We require sellers of our products to participate in the AFID program by registering buyers of our cartridges. In many cases, we can use AFIDs to identify the registered owner of cartridges fired.

      We introduced our initial product, the AIR TASER, in 1994. We designed the AIR TASER to look like a cellular telephone rather than a weapon to target the consumer electronics market. Currently, the AIR TASER product line consists of the AIR TASER, a cartridge that shoots two small electrified probes up to 15 feet, an optional laser sight, and a number of holstering accessories. We continue to target the AIR TASER line to the consumer market.

      We developed the ADVANCED TASER product line, launched in December 1999, primarily for the law enforcement and corrections market. The ADVANCED TASER M26 is our primary product in this market and is sold exclusively to law enforcement and corrections agencies. The ADVANCED TASER M26 offers the following improvements over the AIR TASER:

	•	Increased effectiveness: the ADVANCED TASER has four times the power of the AIR TASER and has proven effective in incapacitating over 99% of volunteers tested.
	•	Better accountability: the ADVANCED TASER’s memory system records the time, date, and duration of up to 585 firings. By downloading this information periodically, law enforcement and corrections agencies can track every use of the ADVANCED TASER. These agencies can use this data to investigate potential misuse.
	•	Ease of use: the ADVANCED TASER’s familiar pistol shape and integrated laser sight minimize the training required for law enforcement and corrections officers and make it easier to use.

      Our products are sold primarily through our network of distributors at a wide range of prices. Our most inexpensive consumer product is the entry-level consumer AIR TASER, with a retail price of $99.

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      In addition to weapons and cartridges, we sell holsters, attachments, cases and other accessories that complement our core products. Although to date these accessories have generated limited sales, they offer additional revenue opportunities and attractive margins.

      We offer a lifetime warranty on the AIR TASER. Under this warranty, we will replace any AIR TASER that fails to operate properly for a $25 fee. The AIR TASER is designed to disable an attacker for up to 30 seconds, and we encourage users to leave the unit and flee after firing it. As a result, we also provide free replacement units to consumers who follow this suggested procedure. To qualify for the replacement unit, users must file a police report that describes the incident and confirms the use of the AIR TASER. Historically, approximately 2% of the AIR TASERs sold by us have been returned by end users in connection with a warranty claim. Warranty costs under the AIR TASER replacement policy have been minimal to date.

      We offer a no-questions-asked lifetime replacement policy on the ADVANCED TASER. If the weapon fails to operate properly for any reason, we will replace it for a fee of $25. The fee is intended to help defray the handling and repair costs associated with product returns. This policy is attractive to our law enforcement and corrections agency customers. In particular, it avoids disputes regarding the source or cause of any defect. Due to our recent introduction of the ADVANCED TASER, we have created a reserve for product returns based on a 7% return rate. In 2000, we recalled a series of ADVANCED TASERs due to a defective component in connection with which we incurred expenses of approximately $9,000 and recorded an additional charge of approximately $41,000 to account for related future expenses.

Sales and marketing

      Law enforcement and corrections agencies represent our primary target market. In this market, the decision to purchase the ADVANCED TASER is normally made by a group of people including the agency head, his training staff, and weapons experts. The decision sometimes involves political decision-makers such as city council members. The decision-making process can take as little as a few weeks or as long as several years.

      United States distribution. With the exception of several accounts to which we sell directly, the vast majority of our law enforcement agency sales in the United States occur through our network of more than 25 independent regional police equipment distributors. To service these distributors and assist us in expanding sales to new ones, we retain two manufacturer’s representatives that call on potential distributors. We compensate our manufacturer’s representatives solely on a commission basis, calculated as a percentage of the sales they complete. Sales in the consumer market are made through different independent distributors, dealers, and retailers. We provide our distributors with performance-based incentive programs.

      International distribution. As a result of our shift in focus to the United States law enforcement and corrections market, our international sales efforts are currently limited to presentations and training seminars conducted by TASER personnel. We recently began introducing the ADVANCED TASER in Europe and parts of the Middle East, South America and Asia, but have yet to devote significant resources to these markets. Sales outside the United States and Canada accounted for 48% and 18% of total revenues in 1999 and 2000, respectively. In 2001, we expect international sales to account for approximately 10% of our total sales.

      We have worked in the past with more than 20 foreign distributors. These foreign distributors purchase products from us and resell them to sub-distributors, retail dealers or end users. We continue to provide most foreign distributors with short-term exclusive contracts to sell our products in a designated region. Although many of these relationships are inactive, we continue to ship products as ordered.

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      Training Programs. Most law enforcement and corrections agencies will not purchase new weapons until a training program is in place to certify all officers in their proper use. We offer an eight-hour class that certifies law enforcement and corrections agency trainers as instructors in the use of the ADVANCED TASER. We have certified over 2,500 law enforcement training officers as ADVANCED TASER instructors. Our certification program is designed to make it easier for departments to comply with these training requirements.

      Fifty of our certified instructors have undergone further training and become certified as master instructors. We authorize these individuals to train other law enforcement and corrections agency trainers, not just end-users within these organizations. Twenty-five of our master instructors have agreed to conduct ADVANCED TASER training classes on a regular basis. These instructors independently organize and promote their own training sessions, and we provide them with logistical support. They are independent professional trainers, serve as local area TASER experts, and assist our distributors in conducting TASER demonstrations at other police departments within their regions. Through the end of 2000, we did not charge for attendance at these classes but now charge $195 per attendee. We pay master instructors a per-session training fee and a share of the attendance fees collected at each session that they conduct. These training sessions have led directly to the sale of ADVANCED TASERs to a number of police departments.

      Communications. In addition to our training programs, we regularly participate in a variety of trade shows and conferences. Our marketing efforts also benefit from significant free news coverage. Other marketing communications include video e-mails, press releases, and conventional print advertising in law enforcement trade publications. Our website also contains similar marketing information.

Manufacturing

      After a review of our operating costs and changes in regulations pertaining to the export of the technology used to produce our weapons, we elected to move our final assembly operations from our subcontractor in Guaymas, Mexico to our new facility in Scottsdale, Arizona. We own all of the production equipment used for the final assembly of our products in the Guaymas facility, and expect to reinstall it in Scottsdale no later than April 2001. We currently assemble the compressed nitrogen containers used inside our air cartridges in our Scottsdale facility.

      Our Scottsdale facility has approximately 6,000 square feet of assembly and warehouse space. We plan to employ between 15 and 25 assembly personnel by the end of 2001. After the move, our production capabilities will support the assembly of 2,000 ADVANCED TASERs, 1,000 AIR TASERs, and 24,000 cartridges per month on a single shift. We can expand our production capabilities by adding additional personnel and a second shift with negligible new investment in tooling and equipment. We expect our Scottsdale facility and tooling to be sufficient to support our current growth projections at least through 2003.

      We currently purchase finished circuit boards and injection-molded plastic components from third-party suppliers located in Phoenix. Although we currently obtain these components from single source suppliers, we own the injection-molded component tooling used in their production. As a result, we believe we could obtain alternative suppliers without incurring significant production delays. We acquire most of our components on a purchase order basis and do not have long-term contracts with suppliers. We believe that our relations with our suppliers are good.