Axon Enterprise (AXON) 10-K risk factor changes: FY2016 vs FY2015

In the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] we derived our revenues predominantly from sales of TASER CEW brand devices and related cartridges, and expect to depend on sales of these products for the foreseeable future.

A decrease in the [added: selling] prices of, or demand for these products, or their failure to maintain broad market acceptance, would significantly harm our growth prospects, operating results and financial condition.

[removed: Third parties] [added: Third-parties] may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data or our customers’ data.

SaaS revenue for Evidence.com is recognized over the terms of the contracts, which may be several years, and, as such, trends in new business [removed: are] [added: may] not be immediately reflected in our operating results.

Consequently, current positive or negative trends in this portion of our business [removed: are] [added: may] not [added: be] fully reflected in our revenue results for several periods.

We utilize multiple [removed: third party] [added: third-party] cloud-based storage providers to host the Axon Evidence.com platform.

Utilizing and administering multiple cloud-based storage providers [removed: can mean] [added: may result in] duplication of efforts and resources, increased cost structure, and organization complexities.

A person, or the family members of a person, injured in a confrontation or otherwise in connection with the use of our [removed: products] [added: products,] may bring legal action against us to recover damages on the basis of theories including wrongful death, personal injury, negligent design, defective product or inadequate warning.

We have been or could [removed: be] in the future [added: be] involved in numerous other litigation matters relating to our products, contracts and business relationships, including litigation against persons who we believe have infringed on our intellectual property, infringement litigation filed against the Company, litigation against a competitor and litigation filed by a former distributor against the Company.

[added: The defense and] prosecution of patent and other intellectual property claims are both costly and time consuming and could result in a material adverse effect on our business and financial position.

If our products were found to infringe a [removed: third party’s] [added: third-party’s] proprietary rights, we could be forced to enter into costly royalty or licensing agreements in order to be able to sell our products or discontinue use of the protected technology.

We rely on the opinions of the [added: U.S.] Bureau of Alcohol, [removed: Tobacco] [added: Tobacco, Firearms] and [removed: Firearms,] [added: Explosives,] including the determination that a device that has projectiles propelled by the release of compressed gas in place of the expanding gases from ignited gunpowder, are not classified as firearms.

State and local regulation: Our [added: CEW] devices are controlled, restricted or their use prohibited by a number of state and local governments.

Our [added: CEW] devices are banned from private citizen purchase or use by statute in five states: Hawaii, Massachusetts, New Jersey, New York, and Rhode [removed: Island] [added: Island,] as well as in the District of Columbia.

Some cities and municipalities also prohibit private citizen possession or use of our [added: CEW] products.

Other jurisdictions may ban or restrict the sale of our [added: CEW] products and our product sales may be significantly affected by additional state, county and city governmental regulation.

In the U.S., the Federal Communications Commission (“FCC”) regulates spectrum use by non-federal entities and federal [removed: entities, respectively.][added: entities.]

The U.S. Securities and Exchange Commission ("SEC") has enacted disclosure requirements for companies that use certain minerals and metals, known as “conflict minerals,” in their products, whether or not these products are manufactured by [removed: third parties.][added: third-parties.]

We have incurred and will likely continue to incur costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and [removed: metals used in our products.]

A significant rise in oil prices could adversely impact our ability to sustain current gross margins by increasing component [removed: pricing.][added: pricing and transportation costs.]

[removed: 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.

We maintain most of our cash balances, some of which are not insured, at [removed: three] [added: five] depository institutions.

As of December 31, [removed: 2015, our] [added: 2016, the] aggregate balances in such accounts were [removed: $57.1] [added: $33.2] million.

The Company’s balances with these institutions regularly exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits for domestic deposits and various deposit insurance programs covering our deposits in the Netherlands, the United [removed: Kingdom] [added: Kingdom, Australia] and Germany.

| • | announcements by us or estimates by [removed: third parties] [added: third-parties] of actual or anticipated changes in the size of our user base, addressable market or the effectiveness of our products; |

At any point, due to external factors and opinions not related to product performance, law enforcement agencies may elect to no longer purchase our CEWs or video products

An attempt by the President's administration to withdraw from or materially modify the North American Free Trade Agreement ("NAFTA") and certain other international trade agreements could adversely affect our business, financial condition and results of operations.

A portion of our business activities are conducted in foreign countries.

The President's administration has made comments suggesting that it was not supportive of certain existing international trade agreements, including NAFTA.

At this time, it remains unclear what the administration would or would not do with respect to these international trade agreements.

If action is taken to withdraw from, or materially modify NAFTA or certain other international trade agreements, our business, financial condition and results of operations could be adversely affected.

United Kingdom Vote to Exit the European Union

On June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit”.

As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions and potential increased costs, as well as increased regulatory complexities.

These changes may adversely affect our operations and financial results.

metals used in our products.

If we do not competitively price our products, meet the

We maintain the majority of its cash and cash equivalents accounts at five depository institutions.

A substantial number of law enforcement and corrections agencies may not continue to purchase our CEWs or video products.

Law enforcement and corrections agencies may be influenced by claims or perceptions that CEWs, such as our products, are unsafe or may be used in an abusive manner.

Sales of our products to these agencies may be delayed or limited by these claims or perceptions.

The defense and

The Company was served with a first amended complaint filed by Digital Ally in the Federal District Court for the District of Kansas alleging that the Company’s Signal technology infringes their patents.

The Company believes this litigation is frivolous and the Company will vigorously defend this litigation.

We maintain most of our cash accounts at three depository institutions.

[added: Devices -] Our TASER [removed: conducted electrical weapons (“CEWs”)] [added: CEWs] are one of the few weapons which can truly incapacitate a person without requiring death or serious injury.

[added: People -] With our TASER weapons and Axon platform, we have created relationships with over 20,000 public safety agencies around the world.

[removed: However, the] [added: The] real opportunity is to leverage this connected platform to enable a broad suite of mobile, wearable, and data management capabilities to bring modern information technology capabilities to every law enforcement officer.

Execution of Our [removed: Mission][added: Strategy]

| | 2015 | | | | [removed: | | |] 2014 | | | | | | | [removed: 2013] | | | [removed: | | |]

| Net sales | $ | [removed: 197,892] [added: 268,245] | | | 100.0 | % | | $ | [removed: 164,525] [added: 197,892] | | | 100.0 | % | | $ | [removed: 137,831] [added: 164,525] | | | 100.0 | % |

| Cost of products sold and services delivered | [removed: 69,245] [added: 97,709] | | | | [removed: 35.0] [added: 36.4] | | | [removed: 62,977] [added: 69,245] | | | | [removed: 38.3] [added: 35.0] | | | [removed: 51,988] [added: 62,977] | | | | [removed: 37.7] [added: 38.3] | |

| Gross margin | [removed: 128,647] [added: 170,536] | | | | [removed: 65.0] [added: 63.6] | | | [removed: 101,548] [added: 128,647] | | | | [removed: 61.7] [added: 65.0] | | | [removed: 85,843] [added: 101,548] | | | | [removed: 62.3] [added: 61.7] | |

| Sales, general and administrative | [removed: 69,698] [added: 108,076] | | | | [removed: 35.2] [added: 40.3] | | | [removed: 54,158] [added: 69,698] | | | | [removed: 32.9] [added: 35.2] | | | [removed: 46,557] [added: 54,158] | | | | [removed: 33.8] [added: 32.9] | |

| Research and development | [removed: 23,614] [added: 30,609] | | | | [removed: 11.9] [added: 11.4] | | | [removed: 14,885] [added: 23,614] | | | | [removed: 9.0] [added: 11.9] | | | [removed: 9,888] [added: 14,885] | | | | [removed: 7.2] [added: 9.0] | |

| Total operating expenses | [removed: 93,312] [added: 138,685] | | | | [removed: 47.2] [added: 51.7] | | | [removed: 69,043] [added: 93,312] | | | | [removed: 42.0] [added: 47.2] | | | [removed: 57,895] [added: 69,043] | | | | 42.0 | |

| Income from operations | [removed: 35,335] [added: 31,851] | | | | [removed: 17.9] [added: 11.9] | | | [removed: 32,505] [added: 35,335] | | | | [removed: 19.8] [added: 17.9] | | | [removed: 27,948] [added: 32,505] | | | | [removed: 20.3] [added: 19.8] | |

| Interest and other income (expense), net | [removed: 26] [added: (354] | | [added: )] | | [removed: —] [added: (0.1] | [added: )] | | [removed: (194] [added: 26] | | [removed: )] | | [removed: (0.1] [added: —] | [removed: )] | | [removed: 86] [added: (194] | | [added: )] | | [removed: 0.1] [added: (0.1] | [added: )] |

| Income before provision for income taxes | [removed: 35,361] [added: 31,497] | | | | [removed: 17.9] [added: 11.7] | | | [removed: 32,311] [added: 35,361] | | | | [removed: 19.6] [added: 17.9] | | | [removed: 28,034] [added: 32,311] | | | | [removed: 20.3] [added: 19.6] | |

| Provision for income taxes | [removed: 15,428] [added: 14,200] | | | | [removed: 7.8] [added: 5.3] | | | [removed: 12,393] [added: 15,428] | | | | [removed: 7.5] [added: 7.8] | | | [removed: 9,790] [added: 12,393] | | | | [removed: 7.1] [added: 7.5] | |

| Net income | $ | [removed: 19,933] [added: 17,297] | | | [removed: 10.1] [added: 6.4] | % | | $ | [removed: 19,918] [added: 19,933] | | | [removed: 12.1] [added: 10.1] | % | | $ | [removed: 18,244] [added: 19,918] | | | [removed: 13.2] [added: 12.1] | % |

| | 2015 | | | | | | | 2014 | | | | | | | [removed: 2013] | | | | | |

| United States | $ | [removed: 161,803] [added: 218,757] | | | [removed: 81.8] [added: 81.6] | % | | $ | [removed: 132,205] [added: 161,803] | | | [removed: 80.4] [added: 81.8] | % | | $ | [removed: 115,674] [added: 132,205] | | | [removed: 83.9] [added: 80.4] | % |

| Other Countries | [removed: 36,089] [added: 49,488] | | | | [removed: 18.2] [added: 18.4] | | | [removed: 32,320] [added: 36,089] | | | | [removed: 19.6] [added: 18.2] | | | [removed: 22,157] [added: 32,320] | | | | [removed: 16.1] [added: 19.6] | |

| Total | $ | [removed: 197,892] [added: 268,245] | | | 100.0 | % | | $ | [removed: 164,525] [added: 197,892] | | | 100.0 | % | | $ | [removed: 137,831] [added: 164,525] | | | 100.0 | % |

The Company’s operations are comprised of two reportable segments: the [removed: manufacture and] sale of CEWs, accessories and other related products and services (the “TASER Weapons” segment); and the [removed: video business, which includes the TASER Cam,] Axon [removed: products, Evidence.com,] [added: business, focused on devices, wearables, applications, cloud] and [removed: MediaSolv] [added: mobile products] (the [removed: “Axon”] [added: "Axon"] segment).

[removed: Included in] [added: Within the] Axon [removed: segment] [added: segment, the Company includes only revenues and] costs [removed: are:] [added: attributable to that segment which include:] costs of sales for both products and services, [removed: overhead allocation based on] direct labor, selling expense for the [removed: Axon] sales team, [removed: Axon] product management [added: and marketing] expenses, trade shows and related expenses, [added: finance] and [added: accounting expenses, and] research and development for products [removed: included in] [added: included, or to be included, within] the Axon segment.

| TASER [removed: C2] [added: Pulse and Bolt] | 2,146 | | | | 1.1 | | | 2,084 | | | | 1.3 | | | 62 | | | | 3.0 | |

| [removed: E-Dock] [added: Axon Dock] | 4,022 | | | | 2.0 | | | 1,719 | | | | 1.0 | | | 2,303 | | | | 134.0 | |

| TASER [removed: C2] [added: Pulse and Bolt] | 8,121 | | | 7,249 | | | 872 | | | 12.0 | |

| [removed: E-Dock] [added: Axon Dock] | 6,979 | | | 4,219 | | | 2,760 | | | 65.4 | |

International [removed: customers continued to be a steady contributor to the results with] [added: sales were] $36.1 million in 2015 [removed: versus] [added: compared to] $32.3 million in 2014, an increase of 11.7%.

Bookings related to Evidence.com and [removed: the] Axon [removed: product line] [added: products and services, net of cancellations,] increased to [removed: $135.1] [added: $254.1] million during [removed: 2015,] [added: 2016,] compared to [removed: $57.1] [added: $135.1] million in [removed: 2014,] [added: 2015,] an increase of [removed: 136.7%.][added: 88.0%.]

The chart below illustrates the Company's quarterly [added: Axon] bookings for each of the previous six fiscal quarters (in thousands):

[removed: ][added: ]

Net Sales - Three Months Ended December 31, [removed: 2015] [added: 2016] Compared to September 30, [removed: 2015][added: 2016]

Net sales by product line were as follows for the three months ended December 31, [removed: 2015] [added: 2016] and September 30, [removed: 2015] [added: 2016] (dollars in thousands):

| | Three Months Ended December 31, [removed: 2015] [added: 2016] | | | | | | | Three Months Ended September 30, [removed: 2015] [added: 2016] | | | | | | | Dollar Change | | | | Percent Change | |

| | [removed: 12/31/2015] [added: 2016] | | | [removed: 9/30/2015] [added: 2015] | | | Unit Change | | | Percent Change | |

Net sales were [removed: $56.0] [added: $82.1] million and [removed: $50.4] [added: $71.9] million for the three months ended December 31, [removed: 2015] [added: 2016] and September 30, [removed: 2015,] [added: 2016,] respectively, an increase of [removed: $5.7] [added: $10.2] million or [removed: 11.2%.][added: 14.2%.]

Net sales for the TASER Weapons segment were [removed: $46.7] [added: $58.3] million and [removed: $39.5] [added: $52.9] million for the three months ended December 31, [removed: 2015] [added: 2016] and September 30, [removed: 2015,] [added: 2016,] respectively, an increase of [removed: $7.2] [added: $5.4] million or [removed: 18.1%.][added: 10.2%.]

Net sales for the Axon segment were [removed: $9.4] [added: $23.7] million and [removed: $10.9] [added: $18.9] million for the three months ended December 31, [removed: 2015] [added: 2016] and September 30, [removed: 2015,] [added: 2016,] respectively, [removed: a decrease] [added: an increase] of [removed: $1.5] [added: $4.8] million or [removed: 13.9%.][added: 25.3%.]

The increase in net sales in the TASER Weapons segment on a quarterly sequential basis was primarily driven by the [removed: continued adoption] [added: Company's ability to increase the frequency] of [added: upgrades through trade-in programs along] the [removed: TASER X26P] [added: increased demand in the Company's installment payment plans, OSP] and [removed: X2 Smart Weapons.][added: TASER 60.]

During the fourth quarter of [removed: 2015,] [added: 2016,] the Company publicly announced the introduction of its next generation [removed: on-officer] [added: point of view] camera, [removed: the Axon Body] [added: Flex] 2.

This introduction led to an increase in bookings for the quarter ended December 31, [removed: 2015] [added: 2016] as compared to September 30, [removed: 2015,] [added: 2016,] as many agencies placed orders for the new model, but this adversely impacted recognized revenues, as many agencies opted to order [removed: Body] [added: Flex] 2 instead of the original [removed: Axon body and Axon flex] [added: Flex] units.

Our core mission is to protect life through innovative technologies that make communities safer.

We are the market leader in the development, manufacture and sale of conducted electrical weapons (“CEWs”) designed for use by law enforcement, corrections, military forces, private security personnel and by private individuals for personal defense.

We are also the market leader in connected wearable on-officer cameras which utilize our cloud-based digital evidence management solution which is part of our Axon network that connects devices, apps and people to serve law enforcement.

Our core goal is to have every officer in the world carry a TASER, deploy an Axon camera and be connected to the Axon network.


Our key strategies going into Fiscal 2017 are as follows:

| | |

| --- | --- |

| • | Devices: Launch innovative new products, scale Axon Fleet, scale existing Axon cameras and devices |

| | |

| --- | --- |

| • | Apps: Drive incremental usage, expand the product platform and deliver quality at scale |

| | |

| --- | --- |

| • | People: Drive network adoption, achieve full deployment, grow global markets and maximize service plans and product bundles. |

Our Axon hardware products currently consist of our on-officer cameras that capture critical digital evidence aimed at protecting truth, a host of related accessory devices and an in-car camera variant which is in field testing preparing for 2017 launch.

We believe our CEWs and Axon cameras should be standard issue equipment for all patrol officers domestically and internationally.

We have created and are continuing to create service plans and product bundles to ensure agencies have the latest devices and technology at predictable annual costs.

Apps - The Axon Evidence.com platform is a central place for all agencies' digital evidence.

It is an end-to-end solution for not only storing data, but also for efficiently managing and sharing that data.

We are continuously seeking to develop new features such as secure sharing, audit trails, integration of other data sources, transcription and redaction services, among others.

These feature sets are designed to provide the customers we serve with valuable tools to police more efficiently and effectively while enabling greater transparency with the communities in which they serve.

Our constant drive to develop innovative apps is evidenced by two recent strategic acquisitions.

In December 2016, the Company launched a new artificial intelligence ("AI") group called "Axon AI." The Company acquired certain proprietary technology and

hired a team of researchers and engineers to accelerate the introduction of new AI-powered capabilities for public safety.

The technology acquired is aimed at improving the accuracy, efficiency and speed of processing images and video to enable customers to gain more insight from video, photos and audio.

In January 2017, the Company completed another transaction which included the acquisition of a computer-vision and deep learning system to make the visual contents in video searchable in real time.

This acquisition will give customers the ability to quickly isolate and analyze the most important aspects of footage from large amounts of video data.

Our technologies will not only allow our customers to spend more time on public safety work, but will allow for a capture to courtroom workflow of information.

The ability to share files with prosecutors during discovery while maintaining a complete chain of custody and ensuring all evidence remains encrypted will provide a cohesive ecosystem that will deliver increased value to all stakeholders in the public safety and judicial communities.

| | 2016 | | | | | | | 2015 | | | | | | | | | | | | |

| TASER X26P | $ | 72,490 | | | 27.0 | % | | $ | 55,969 | | | 28.3 | % | | $ | 16,521 | | | 29.5 | % |

| TASER X2 | 52,665 | | | | 19.6 | | | 42,746 | | | | 21.6 | | | 9,919 | | | | 23.2 | |

| TASER X26 | 6,372 | | | | 2.4 | | | 7,337 | | | | 3.7 | | | (965 | | ) | | (13.2 | ) |

| TASER Pulse and Bolt | 3,580 | | | | 1.3 | | | 2,146 | | | | 1.1 | | | 1,434 | | | | 66.8 | |

| Single cartridges | 52,305 | | | | 19.5 | | | 41,674 | | | | 21.1 | | | 10,631 | | | | 25.5 | |

| Extended warranties including TAP | 9,880 | | | | 3.7 | | | 7,402 | | | | 3.7 | | | 2,478 | | | | 33.5 | |

| Other | 5,352 | | | | 2.0 | | | 5,101 | | | | 2.6 | | | 251 | | | | 4.9 | |

| TASER Weapons segment | 202,644 | | | | 75.5 | | | 162,375 | | | | 82.1 | | | 40,269 | | | | 24.8 | |

| Axon Body | 12,911 | | | | 4.8 | | | 4,029 | | | | 2.0 | | | 8,882 | | | | 220.5 | |

Our central mission is to make the world a safer place by creating technologies which reduce violence.

The best way to understand our business strategy is to understand our three strategic missions.

Our Three Strategic Missions

1.

Protect Life (safer weapons).

Throughout history, the weapon technology used by individuals to protect themselves have caused death and destruction to another person.

We believe this is because the only technologies capable of incapacitating a person to stop a threat have relied on the infliction of death or serious injury.

Dating back to the origins of our technology in the late 1960’s, we have created and continue to lead this market space world-wide.

Today, we are seeing accelerating adoption in other markets around the world.

2.

Protect Truth (wearable cameras and software).

We believe, with strong scientific support, that the presence of video recordings in incidents involving conflict can dramatically reduce the frequency of severity of such events by both documenting, and altering the behavior of the persons involved.

Studies have shown that police officers wearing video camera devices receive up to 90% fewer complaints, and are involved in approximately 60% fewer violent incidents involving the use of force.

Our Axon Platform is the market leading solution for wearable cameras with a robust software system for storing, managing, and sharing the related video data.

While we are proud of our Axon cameras and believe they are the best cameras in the law enforcement marketplace, we invested heavily to create an integrated hardware-software ecosystem specifically for public safety.

Those investments appear to have been very well placed as bookings in the Axon business exceeded $135.1 million in 2015, growing at 136.7% over 2014.

As of the date of this Annual Report on Form 10-K, 30 of the 60 major cities in the United States are now using our Axon digital evidence platform.

3.

Empower Heroes (cloud-mobile-wearable ecosystem).

Every society depends upon a professional class of public safety professionals charged with protecting the general public from threats of all kinds, including from those who would break the law and victimize others.

We have come to develop a deep organizational understanding of the challenges and opportunities in this market space.

One key insight is that law enforcement agencies around the world are significantly “behind the curve” when it comes to technology.

Many agencies still rely largely on paper based reporting systems and have limited access to modern mobile smart phone technology.

Internet enabled platforms that connect end users direct to technology providers have dramatically changed industry after industry.

These Internet enabled businesses offer accelerated speed of technology innovation, reduced cost of implementation and distribution to the end customer, and network effects enabling easy collaboration and information sharing.

We are building out our Axon platform with body cameras and video management, which are driving rapid growth and market penetration today.

With our Axon platform, and the Evidence.com service, we have built the first and largest cloud-hosted platform in the public safety space.

We will leverage this platform to roll out additional capabilities, both hardware and software, to empower the heroic men and women of public safety to be more efficient, more effective, and have access to the best information available.

There is a deep synergy across our product and service offerings and strategies.

For example, the public scrutiny around the usage of TASER devices provides a compelling reason to deploy body cameras, which they require massive amounts of storage and video management capability which is best achieved through a cloud-hosted system such as our Evidence.com service.

In fact, the Los Angeles Police Department recently announced plans to deploy TASER devices, Axon Cameras, and Evidence.com to all front line officers as an integrated suite of capabilities.

From an investor point of view, there are two distinct business segments at different levels of maturity.

Our TASER weapons business is a mature, profitable, and cash generating business with a moderate growth rate.

By comparison, our Axon platform business is a nascent software as a service (SaaS) business which is currently growing recorded bookings at greater than 100% annually, is not yet profitable, and has very different accounting treatment for revenue, which are generally recognized over a longer time horizon such as a five-year service contract.

By comparison, most TASER Weapons revenues are generally recognized when shipped and accepted by the customer.

For these reasons, and to help investors and analysts understand the dynamics and progress in both business segments, we publish separate profit and loss tables for both the TASER Weapons and the Axon segments.

The TASER segment is our “Protect Life” strategy driven segment.

The Axon segment is driven by our “Protect Truth” and “Empower Heroes” strategies to enable body cameras and video storage and sharing today, growing to a full suite of connected technologies and capabilities going forward.

Technological innovation is the foundation for our long-term growth and we intend to maintain our commitment to the research and development of our technology for both new and existing products that further our mission.

At the same time we have established industry leading training services to provide our users a comprehensive overview of legal, policy, medical and risk mitigation issues relating to our products and the use of force.

We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts, certificates of [removed: deposit and] [added: deposit,] corporate and municipal bonds with a typical long-term debt rating of “A” or better by any nationally recognized statistical rating organization, denominated in U.S. dollars.

Based on investment positions as of December 31, [removed: 2015,] [added: 2016,] a hypothetical 100 basis point increase across all maturities would result in a [removed: $0.3] [added: $0.2] million incremental decline in the fair market value of the portfolio.

Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled [removed: $3.0] [added: $2.7] million at December 31, [removed: 2015.][added: 2016.]

At December 31, [removed: 2015,] [added: 2016,] there was no amount outstanding under the line of [removed: credit] [added: credit,] and the available borrowing under the line of credit was [removed: $7.0] [added: $7.3] million.

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and the [added: British] Pound, in each case compared to the U.S. Dollar, related to transactions by TASER [added: International B.V., TASER] Europe SE, Axon Public Safety UK LTD, Axon Public Safety [removed: Canada] [added: Australia Pty Ltd,] and [removed: TASER International B.V.] [added: Axon Public Safety Canada, Inc.] To date, we have not engaged in any currency hedging activities, although we may do so in the future.

However, the cost of our products to our customers increases when the U.S. dollar strengthens against their local currency and the Company may have more sales and expenses denominated in foreign currencies in [removed: 2016] [added: future years] which would increase its foreign exchange rate risk.

TASER International, Inc.’s (the “Company” or “TASER” or “we” or “our”) core mission is to protect life [removed: and to protect truth] through innovative technologies that make communities safer.

We are also the market leader in connected wearable on-officer cameras which utilize our cloud-based digital evidence management solution which [removed: we refer to as] [added: is part of] our Axon [removed: solution.][added: network that connects devices, apps and people to serve law enforcement.]

Our products are sold directly to law enforcement agencies and through a network of distribution channels we developed for selling and marketing our products and [removed: services to law enforcement agencies.][added: services.]

Domestic law enforcement agencies are served through the Company's headquarters in Scottsdale, [removed: Arizona] [added: Arizona,] and its Axon business unit located in Seattle, Washington, with various sales [removed: reps] [added: representatives] strategically located throughout the United States.

The Company’s operations are comprised of two reportable segments: the sale of CEWs, accessories and other related products and services (the “TASER Weapons” segment); and the Axon business, focused on [added: devices,] wearables, [added: applications,] cloud and mobile [removed: products, including Axon video products, TASER Cam and Evidence.com] [added: products] (the "Axon" segment).

Within the Axon segment, the Company includes only revenues and costs attributable to that segment which include: costs of sales for both products and services, direct labor, selling expense for the [removed: segment] sales team, [removed: segment] product management and marketing expenses, [removed: segment] trade shows and related expenses, [removed: segment] finance and accounting expenses, and research and development for products included, or to be included, within the Axon segment.

We make CEWs that use our proprietary Neuro Muscular Incapacitation (“NMI”) effects for two main types of market segments: (i) the law enforcement, military, corrections and [removed: professional] [added: private] security markets; and (ii) the consumer market.

The benefits of using CEWs in the field have been [removed: undeniable and powerful.][added: significant.]

By some studies, TASER CEWs have prevented death or serious injury more than [removed: 160,000] [added: 178,000] times from the first deployment in 2000 to the end of [removed: 2015.][added: 2016.]

TASER X26P - The X26P is currently our smallest and most compact Smart Weapon for law [removed: enforcement,] [added: enforcement] and [added: military use, and] is ergonomically designed with ease of performance in mind.

TASER X2 - The X2, designed for law enforcement [added: and the military] but available to [removed: the professional consumer,] [added: general consumers,] provides users with the same Smart Weapon features as the X26P.

Additionally, the X2 incorporates [added: law enforcement] agencies' most requested features such as a backup shot, dual lasers to ensure accuracy, and a warning arc to ensure accuracy and effectiveness.

As a segment of [removed: TASER International,] [added: TASER,] we're building on a history of innovation in policing.

Axon [removed: isn’t just] [added: is more than] a collection of individual technologies; [removed: it's] [added: it is] a cohesive ecosystem.

TASER [removed: Cam] [added: CAM] HD - [removed: Is] [added: The TASER CAM is] a recording device, which integrates with Evidence.com, that captures both video and audio of potential and actual TASER use incidents as an accessory to a TASER CEW.

Axon Fleet \- Axon Fleet is a breakthrough in-car video system with advanced capabilities and a price [removed: that's 90%] [added: that is significantly] less than traditional systems.

It is also [removed: upgraded] [added: upgrades] continuously behind the scenes with new software features, and is part of a powerful platform that connects mobile, cloud, and wearable technologies.

At the end of a shift, the [added: Axon] Dock syncs video from the user's Axon Flex or Axon Body camera during routine charging.

Videos are uploaded directly to Evidence.com, eliminating manual filing [removed: processes and freeing the user to focus on more important duties.][added: processes.]

Evidence.com - As the sources of digital evidence expand, storage alone [removed: isn't] [added: is not] enough to keep track of the body-worn camera videos, photos, audio [removed: recordings,] [added: recordings] and other data that is overwhelming agency servers and systems.

Evidence Sync - [removed: Is] [added: Evidence Sync is] a desktop-based application that enables evidence in any format, from any source to be uploaded to Evidence.com.

Sources new and old—from TASER devices [removed: or other brands—are equally supported.]

Axon Capture \- [removed: Is] [added: Axon Capture is] a mobile application built specifically to allow officers to capture digital evidence right from the field.

[added: Instead, it builds upon the capabilities] of an officer's mobile phone with the security and organization needed to protect truth.

Axon View - [removed: Is] [added: Axon View is] a mobile application that wirelessly connects with an Axon camera to provide instant playback of unfolding events from the field, in the [removed: field.][added: field, and the app's live display ensures the camera is positioned correctly.]

Axon Five - [removed: Is] [added: Axon Five is] the most complete software application available to help [removed: you] [added: customers] enhance and analyze images and videos.

Since we know maintaining an evidence trail is important, Axon Convert not only produces a playable file, but also preserves the original [added: file] and creates a report detailing the exact [added: conversion/translation] changes.

Axon Detect - [removed: Is] [added: Axon Detect is] a photo analysis program for tamper detection.

Law Enforcement [removed: and Corrections]

In the law enforcement market, more than [removed: 17,000] [added: 17,800] law enforcement agencies in nearly 150 countries have made initial purchases of our TASER brand devices for testing or deployment.

[removed: Our belief is] [added: We estimate] that in the U.S., approximately two-thirds of all law enforcement patrol officers carry a TASER CEW and internationally, approximately one out of every fifty eligible law enforcement officers carries a TASER CEW.

We also target military forces, private security, [added: correctional facilities] and consumer personal protection markets to provide technologies that offer a less lethal force of protection.

Distributors are selected based upon their reputation within their respective industries, [removed: their] contacts and [removed: their] distribution network.

We have consulted with professional digital media and public relations professionals to assist us in media and press events, and editorial placements along with attending numerous [removed: tradeshows] [added: trade shows] specifically to target the consumer market.

For geographical and cultural reasons, our distributors usually have a territory defined by their country’s [removed: borders.]

For example, they may perform demonstrations, attend industry [removed: tradeshows,] [added: trade shows,] maintain country specific websites, engage in print advertising and arrange training classes.

Therefore, many components used by the Company, [removed: are] [added: could] at times [added: be] subject to industry-wide shortage, and significant pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.

However, historical seasonal patterns, municipal budgets or historical patterns of product introductions should [added: not] be considered reliable indicators of the Company’s future net sales or financial performance.

As of December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] our backlog was [removed: $183.9] [added: $384.2] million and [removed: $75.3 million ,] [added: $183.9 million,] respectively.

Included in our backlog as of December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] was deferred revenue of [removed: $51.0] [added: $85.2] million and [removed: $35.7] [added: $51.0] million, respectively.

Our core goal is to have every officer in the world carry a TASER, deploy an Axon camera and be connected to the Axon network.

Our key strategies going into Fiscal 2017 are as follows:

| • | Devices: Launch innovative new products, scale Axon Fleet, scale existing Axon cameras and devices |

| • | Apps: Drive incremental usage, expand the product platform and deliver quality at scale |

| | |

| --- | --- |

| • | People: Drive network adoption, achieve full deployment, grow global markets and maximize service plans and product bundles. |

In 2016, we continued to refine our Axon platform by developing next generation applications and devices.

In December 2016, the Company launched a new artificial intelligence ("AI") group called "Axon AI." The Company acquired certain proprietary technology, and hired a team of researchers and engineers to accelerate the introduction of new AI-powered capabilities for public safety.

The technology acquired is aimed at improving the accuracy, efficiency and speed of processing images and video to enable customers to gain more insight from video, photos and audio.

In January 2017, the Company completed another acquisition bringing the Axon AI team of researchers and engineers to nearly 20.

This transaction included the acquisition of a computer-vision and deep learning systems to make the visual contents in video searchable in real time.

This acquisition will give customers the ability to quickly isolate and analyze the most important aspects of footage from large amounts of video data.

TASER International, B.V. (the "BV"), a wholly owned subsidiary of the Company, located in Amsterdam, Netherlands, serves as a permanent international headquarters.

During 2016, the BV formed Axon Public Safety Australia Pty LTD to better facilitate growth and serve existing customers in the Australian region.

The Company also has subsidiaries located in the United Kingdom ("UK"), Germany and Canada.

In May 2015, the Company acquired all of the outstanding common stock of MediaSolv Solutions Corporation ("MediaSolv").

MediaSolv provided solutions for interview room video, closed-circuit television and on-premise digital evidence management.

The acquisition also allowed the Company to leverage MediaSolv's existing network and customer relationships.

In July 2015, the Company acquired, through one of its wholly owned subsidiaries, all of the outstanding common stock of Tactical Safety Responses Limited ("TSR"), the Company's licensed distributor in the United Kingdom ("UK").

The acquisition has allowed the Company to expand operations in the UK and grow its in-country sales and support team.

TASER C2 \- The C2 is one of the Company's consumer CEW models.

Axon Flex 2 - The Axon Flex 2 builds upon the original Axon Flex camera system and was designed with a more rugged industrial design, new mounts and advanced capabilities like unlimited HD video, a 120-degree field of view, extended battery life, improved buffering and wireless activation.

Axon Signal - Axon Signal is a technology that enables Axon Body 2, Axon Flex, Axon Flex 2 and Axon Fleet cameras to start recording automatically upon certain triggering events such as the opening of a patrol car door, activation of a patrol car lightbar or when a TASER X26P or X2 Smart Weapon is unholstered.

or other brands—are equally supported.

borders.

The Company currently purchases finished circuit boards and injection-molded plastic components from suppliers located in the U.S., Mexico and Taiwan.

Although the Company currently obtains many of these components from single source suppliers, the Company owns the injection molded component tooling used in their production.

As a result, management believes it could obtain alternative suppliers in most cases without incurring significant production delays.

The Company also purchases small, machined parts from a vendor in Taiwan, custom cartridge assemblies from a proprietary vendor in the U.S., and electronic components from a variety of foreign and domestic distributors.

Management believes that there are readily available alternative suppliers in most cases who can consistently meet the Company's needs for these components.

The Company acquires most of its components on a purchase order basis and does not have long-term contracts with suppliers.

The Axon products help agencies capture, store, utilize, manage and share digital evidence.

In 2015, we primarily focused on refining our Evidence.com services and exploring next generation hardware for our CEWs and body-worn cameras.

In addition to research and development, we are increasingly utilizing strategic partnerships and acquisitions, such as our February 2016 partnership with Amped Software and May 2015 acquisition of MediaSolv Solutions Corporation, to expand our product and services portfolio.

Our core strategy is to increase market penetration in domestic and international law enforcement markets.

| • | In the United States, our focus is on ensuring that our CEWs are standard issue for all patrol officers, and we have developed purchasing programs that allow agencies to spread the cost of ownership over extended time-periods to help alleviate the need to make large up-front capital expenditures. By doing so, our goal is to provide law enforcement officers on-going access to our latest technologies at predictable prices. |

| • | In international markets, our focus is on demonstrating the benefits of large-scale adoptions of our CEWs and Axon products. In 2014, to facilitate sales and customer service for large-scale adoptions in foreign markets, we established TASER International, B.V. located in Amsterdam, Netherlands. In 2015, the United Kingdom ("UK") and Australia became benchmarks of successful large-scale deployments of TASER technology. In 2016 and 2017, we plan to continue to develop our pipeline in both number and size of opportunities. In particular, we will be focusing investments on target countries, such as France, the UK, Canada, and Australia, where large police forces represent considerable opportunity for increased sales. |

In the near future, we expect the video evidence capture and management market to grow significantly.

Therefore, in 2016, we will be devoting significant resources towards enhancing the functionality of our existing software as a service ("SaaS") and developing our next revenue generating Axon product.

In 2014, the Company established TASER International, B.V. located in Amsterdam, Netherlands, that serves as a permanent international headquarters to facilitate transactions with existing customers as well as allow for continued expansion into other foreign markets.

During 2015, TASER International B.V. acquired Tactical Safety Responses Limited ("TSR"), its licensed distributor of TASER weapons and Axon cameras and related accessories in the UK as a way of expanding the Company's growth across the UK.

Also during 2015, the Company formed Axon Public Service Canada, Inc., a wholly owned subsidiary, to facilitate transactions for Axon products and services with new and existing customers located in Canada.

TASER C2 \- The C2 is the currently the Company's primary model for the consumer market.

Axon Body - Axon Body is a simple, low-priced body-worn camera for law enforcement, designed for customers seeking deployment at a lower price-point.

Axon Body 2 was available for shipment in limited quantities during the first quarter of 2016.

Axon Fleet is expected to ship during fiscal 2016.

Axon Signal - Body-worn cameras have been protecting the truth in agencies across the country, but they're only able to clarify events when they're activated.

With manual activation, officers are sometimes unable to hit record in intense and stressful situations.

We've developed Axon Signal, an automatic activation technology for Axon cameras.

Instead, it builds upon the capabilities

The app's live display to ensure the camera is well-placed, and the playback function helps eliminate the “he said, she said” on the spot.

Although most components essential to the Company’s business are generally available from multiple sources, a number of components are currently obtained from single or limited sources.

In addition, the Company competes for various components with other participants in our markets.

We monitor our policies and procedures with respect to our

We're investing in having the best software and technology talent because we believe this market has suffered from sub par technology for decades and we believe our leading edge gives us a well-appreciated product advantage to disrupt more established technology companies.

For the fiscal year ended December 31, [removed: 2015][added: 2016]

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the last sales price of the issuer’s common stock on June 30, [removed: 2015,] [added: 2016,] which was the last business day of the registrant’s most recently completed second fiscal quarter, as reported by NASDAQ, was approximately [removed: $1,763,000,000.][added: $1,273,000,000.]

The number of shares of the registrant’s common stock outstanding as of February [removed: 12, 2016] [added: 15, 2017] was [removed: 53,694,071][added: 52,334,648]

Parts of the registrant’s definitive proxy statement for its [removed: 2016] [added: 2017] annual meeting of stockholders to be prepared and filed with the Securities and Exchange Commission not later than 120 days after December 31, [removed: 2015] [added: 2016] are incorporated by reference into Part III of this Form 10-K.

FOR THE YEAR ENDED DECEMBER 31, [removed: 2015][added: 2016]

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| • | that we may have more sales denominated in foreign currencies in [removed: 2016;] [added: 2017;] |

| • | our plan to invest in web activities and law enforcement trade shows in [removed: 2016;] [added: 2017;] |

| • | that selling, general and administrative expense will increase in [removed: 2016;] [added: 2017;] |

| • | that research and development expenses will increase in [removed: 2016;] [added: 2017;] |

| • | our belief that customers will renew their [removed: Evidence.com.com] [added: Evidence.com] service subscriptions at the end of the contractual term; |

| • | our ability to maintain secure and consistent customer data access and storage, including the use of [removed: third party] [added: third-party] data storage providers, and the impact of a loss of customer data, a breach of security or an extended outage; |

| • | that the complaint filed by Digital Ally is frivolous; [added: and] |

Such factors include, but are not limited to, those factors detailed in [removed: ITEM] [added: Part I Item] 1A of this [removed: annual report] [added: Annual Report on Form 10-K] entitled “Risk Factors.” The risks included in the foregoing list are not exhaustive.

TASER International, Inc. owns the following trademarks: ADVANCED TASER, [removed: CHECKLOK,] [added: Axon,] TASER, XREP, [removed: C2, X2, X3, Pulse,] the bolt on West Hemisphere logo, the bolt on ball logo, the bolt on circle logo, and the bolt within circle logo, all registered in the United States.

All other trademarks and service marks including [added: Bolt, CheckLok, C2, X2, X3,] M18, M26, [added: Protect Life, Protect Truth, Pulse, Strikelight,] X26, X26C, X26P, [removed: Axon,] [added: X12, XREP,] Axon Flex, Axon Body, Axon Body 2, Axon [added: Flex 2, Axon] Interview, Axon Fleet, Axon [added: Mobile, Axon] Signal, [added: Evidence.com,] Shockwave, TASER CAM and designs belong to TASER International, Inc., except as expressly indicated as belonging to another.

10-K 1 a10ktasr123116.htm 10-K

| | [PART II](#sAD37B0C6F7B600C6F5CAB5E21F5D06E3) | |

| | [PART IV](#s7B22309EEF716101C4EDB5E228AB26D2) | |

| [Item 16.](#s0B428EE9EDFBA925395FB5E1CF21A49D) | [Form 10-K Summary](#s0B428EE9EDFBA925395FB5E1CF21A49D) | [83](#s0B428EE9EDFBA925395FB5E1CF21A49D) |

10-K 1 a10ktasr123115.htm 10-K

| | |

| --- | --- |

| | [PART II](#s31202F6EF94FBCC14C19F10E10ED71E4) | |

| | [PART IV](#s5A2D144F133C288907FCF10E190DD281) | |

| • | that Axon Fleet will ship during fiscal 2016; and |

We also lease premises in Scottsdale, Arizona; Seattle, Washington; Topsfield, Massachusetts; Amsterdam, Netherlands; Daventry, England; London, England; [removed: and] Frankfurt, [removed: Germany.][added: Germany; Brisbane, Australia and Sydney, Australia.]

We also believe we have adequate manufacturing capacity for our existing product [removed: lines for the foreseeable future.][added: lines.]

The following [removed: table sets] [added: tables set] forth the high and low sales prices per share for our common stock as reported by NASDAQ for each quarter of the last two fiscal years.

| Year Ended December 31, [removed: 2014:] [added: 2016:] | | | | | | | |

As of December 31, [removed: 2015,] [added: 2016,] there were [removed: 280] [added: 274] holders of record of our common stock.

To date, [removed: we have] [added: the Company has] not declared or paid cash dividends on [removed: our] [added: its] common stock.

[removed: We do] [added: The Company does] not intend to pay cash dividends in the foreseeable [removed: future] [added: future,] and [removed: our] [added: its] revolving line of credit prohibits the payment of cash dividends.

In [removed: May 2014,] [added: February 2016,] the Company's Board of Directors authorized a stock repurchase program to acquire up to [removed: $30.0] [added: $50.0] million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations.

During the year ended December 31, [removed: 2015,] [added: 2016,] the Company [removed: repurchased] [added: purchased, under a Rule 10b5-1 plan,] approximately [removed: 0.3] [added: 1.8] million common shares [removed: under this program] for a total cost of approximately [removed: $7.6] [added: $33.7] million, or a weighted average cost of [removed: $25.86] [added: $18.90] per share.

As of December 31, [removed: 2015, no amounts remain] [added: 2016, $16.2 million remains] available under the plan for future purchases.

The following stock performance graph compares the performance of our common stock to the NASDAQ [removed: Stock Market (U.S.)] [added: Composite Index] and the Russell 3000 Index.

The graph covers the period from December 31, [removed: 2010] [added: 2011] to December 31, [removed: 2015.][added: 2016.]

The graph assumes that the value of the investment in our stock and in each index was $100 at December 31, [removed: 2010,] [added: 2011,] and that all dividends were reinvested.

[removed: ][added: ]

| | [removed: 2010 | | | |] 2011 | | | | 2012 | | | | 2013 | | | | 2014 | | | | 2015 | | | [added: | 2016 | | |]

| First quarter | $ | 20.69 | | | $ | 13.56 | |

| Second quarter | 24.94 | | | | 17.18 | | |

| Third quarter | 30.15 | | | | 24.46 | | |

| Fourth quarter | 28.49 | | | | 21.50 | | |

The stock repurchase program does not have a stated expiration date.

The Company suspended its 10b-5 plan during the third quarter of 2016, and any future purchases will be discretionary.

| TASER International, Inc. | $ | 100.00 | | | $ | 174.61 | | | $ | 310.16 | | | $ | 517.19 | | | $ | 337.70 | | | $ | 473.44 | |

| NASDAQ Composite | 100.00 | | | | 116.41 | | | | 165.47 | | | | 188.69 | | | | 200.32 | | | | 216.54 | | |

| Russell 3000 | 100.00 | | | | 116.42 | | | | 155.47 | | | | 175.00 | | | | 175.84 | | | | 198.23 | | |

| First quarter | $ | 20.83 | | | $ | 14.89 | |

| Second quarter | 19.17 | | | | 12.55 | | |

| Third quarter | 18.76 | | | | 10.46 | | |

| Fourth quarter | 27.65 | | | | 13.40 | | |

The weighted average cost includes the average price paid per share of $25.83, plus any applicable administrative costs for the transaction.

From inception of this program, which was completed in the third quarter of 2015, the Company purchased approximately 2.0 million common shares for a total cost of approximately $30.0 million, or a weighted average cost, including commissions, of $14.85 per share.

| TASER International, Inc. | $ | 100.00 | | | $ | 108.94 | | | $ | 190.21 | | | $ | 337.87 | | | $ | 563.40 | | | $ | 367.87 | |

| NASDAQ Composite | 100.00 | | | | 100.53 | | | | 116.92 | | | | 166.19 | | | | 188.78 | | | | 199.95 | | |

| Russell 3000 | 100.00 | | | | 101.03 | | | | 117.61 | | | | 157.07 | | | | 176.79 | | | | 177.64 | | |

The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The statement of operations data for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] and the balance sheet data as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] have been derived from, and should be read in conjunction with, our audited consolidated financial statements and the notes thereto included herein.

The statement of operations data for the years ended December 31, [removed: 2012] [added: 2013] and [removed: 2011,] [added: 2012,] and the balance sheet data as of December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011,] [added: 2012,] is derived from our historical audited consolidated financial statements and the notes thereto which are not included in this Annual Report on Form 10-K.

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| [removed: Statement] [added: Statements] of Operations Data: | | | | | | | | | | | | | | | | | | | |

| Net sales | $ | [removed: 197,892] [added: 268,245] | | | $ | [removed: 164,525] [added: 197,892] | | | $ | [removed: 137,831] [added: 164,525] | | | $ | [removed: 114,753] [added: 137,831] | | | $ | [removed: 90,028] [added: 114,753] | |

| Cost of products sold and services delivered | [removed: 69,245] [added: 97,709] | | | | [removed: 62,977] [added: 69,245] | | | | [removed: 51,988] [added: 62,977] | | | | [removed: 47,038] [added: 51,988] | | | | [removed: 41,753] [added: 47,038] | | |

| Gross margin | [removed: 128,647] [added: 170,536] | | | | [removed: 101,548] [added: 128,647] | | | | [removed: 85,843] [added: 101,548] | | | | [removed: 67,715] [added: 85,843] | | | | [removed: 44,529] [added: 67,715] | | |

| Sales, general and administrative expenses | [removed: 69,698] [added: 108,076] | | | | [removed: 54,158] [added: 69,698] | | | | [removed: 46,557] [added: 54,158] | | | | [removed: 39,247] [added: 46,557] | | | | [removed: 40,801] [added: 39,247] | | |

| Research and development expenses | [removed: 23,614] [added: 30,609] | | | | [removed: 14,885] [added: 23,614] | | | | [removed: 9,888] [added: 14,885] | | | | [removed: 8,139] [added: 9,888] | | | | [removed: 9,989] [added: 8,139] | | |

| Litigation judgments (recoveries) | — | | | | — | | | | [removed: 1,450] [added: —] | | | | [removed: (2,200] [added: 1,450] | | [removed: )] | | [removed: 3,301] [added: (2,200] | | [added: )] |

| Income [removed: (loss)] from operations | [removed: 35,335] [added: 31,851] | | | | [removed: 32,505] [added: 35,335] | | | | [removed: 27,948] [added: 32,505] | | | | [removed: 22,529] [added: 27,948] | | | | [removed: (10,916] [added: 22,529] | | [removed: )] |

| Interest and other income (expense), net | [added: (354 | | ) | |] 26 | | | | (194 | | ) | | 86 | | | | 83 | | | [removed: | 1,287 | | |]

| Income [removed: (loss)] before provision [removed: (benefit)] for income taxes | [removed: 35,361] [added: 31,497] | | | | [removed: 32,311] [added: 35,361] | | | | [removed: 28,034] [added: 32,311] | | | | [removed: 22,612] [added: 28,034] | | | | [removed: (9,629] [added: 22,612] | | [removed: )] |

| Provision [removed: (benefit)] for income taxes | [removed: 15,428] [added: 14,200] | | | | [removed: 12,393] [added: 15,428] | | | | [removed: 9,790] [added: 12,393] | | | | [removed: 7,874] [added: 9,790] | | | | [removed: (2,589] [added: 7,874] | | [removed: )] |

| Net income [removed: (loss)] | $ | [removed: 19,933] [added: 17,297] | | | $ | [removed: 19,918] [added: 19,933] | | | $ | [removed: 18,244] [added: 19,918] | | | $ | [removed: 14,738] [added: 18,244] | | | $ | [removed: (7,040] [added: 14,738] | [removed: )] |

| Net income [removed: (loss)] per common and common equivalent shares: | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 0.37] [added: 0.33] | | | $ | [removed: 0.38] [added: 0.37] | | | $ | [removed: 0.35] [added: 0.38] | | | $ | [removed: 0.27] [added: 0.35] | | | $ | [removed: (0.12] [added: 0.27] | [removed: )] |

| Diluted | $ | [removed: 0.36] [added: 0.32] | | | $ | [removed: 0.37] [added: 0.36] | | | $ | [removed: 0.34] [added: 0.37] | | | $ | [removed: 0.27] [added: 0.34] | | | $ | [removed: (0.12] [added: 0.27] | [removed: )] |

| Basic | [removed: 53,548] [added: 52,667] | | | | [removed: 52,948] [added: 53,548] | | | | [removed: 51,880] [added: 52,948] | | | | [removed: 53,827] [added: 51,880] | | | | [removed: 59,436] [added: 53,827] | | |

| Diluted | [removed: 54,638] [added: 53,536] | | | | [removed: 54,500] [added: 54,638] | | | | [removed: 54,152] [added: 54,500] | | | | [removed: 54,723] [added: 54,152] | | | | [removed: 59,436] [added: 54,723] | | |

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| Working capital [removed: (i)] | $ | [removed: 123,269] [added: 99,192] | | | $ | [removed: 102,669] [added: 123,269] | | | $ | [removed: 67,237] [added: 102,669] | | | $ | [removed: 51,548] [added: 67,237] | | | $ | [removed: 35,876] [added: 51,548] | |

| Total assets | [removed: 229,881] [added: 278,163] | | | | [removed: 185,368] [added: 229,881] | | | | [removed: 148,382] [added: 185,368] | | | | [removed: 116,236] [added: 148,382] | | | | [removed: 104,963] [added: 116,236] | | |

| Total current liabilities | [removed: 38,140] [added: 78,039] | | | | [removed: 31,973] [added: 38,140] | | | | [removed: 23,129] [added: 31,973] | | | | [removed: 18,109] [added: 23,129] | | | | [removed: 15,888] [added: 18,109] | | |

| Total long-term debt and capital leases, net of current portion | [removed: 81] [added: 118] | | | | [removed: 29] [added: 81] | | | | [removed: 67] [added: 29] | | | | [removed: 103] [added: 67] | | | | [removed: —] [added: 103] | | |

| Total stockholders’ equity | [removed: 157,004] [added: 150,888] | | | | [removed: 129,106] [added: 157,004] | | | | [removed: 108,347] [added: 129,106] | | | | [removed: 87,285] [added: 108,347] | | | | [removed: 82,456] [added: 87,285] | | |

| Excess inventory charges | — | | | | — | | | | — | | | | — | | | | 3,746 | | |

| Loss on impairment | — | | | | — | | | | — | | | | — | | | | 1,354 | | |

(i) Working capital balances as of December 31, 2013, 2012 and 2011 were adjusted to reflect the Company's early adoption of Accounting Standards Update ("ASU") 2015-17 during the fourth quarter of fiscal year 2015 on a retrospective basis.

The amount of deferred tax assets reclassified to noncurrent as of December 31, 2013, 2012 and 2011 was $7.1 million, $9.4 million and $10.0 million, respectively.

| [Consolidated Balance Sheets as of December 31, [removed: 2015] [added: 2016] and [removed: 2014](#s7C1C028A5AAA3CDB3F30F10DF5E1CCC3)] [added: 2015](#s2CB47CD8E7A8BD9550B5B5E1D061A600)] | | [removed: [45](#s7C1C028A5AAA3CDB3F30F10DF5E1CCC3)] [added: [47](#s2CB47CD8E7A8BD9550B5B5E1D061A600)] |

| [Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#s7162E878B506E41B9B1FF10DF50F9B78)] [added: 2014](#s40ACACA39D446F1CD421B5E1CF62503E)] | | [removed: [46](#s7162E878B506E41B9B1FF10DF50F9B78)] [added: [48](#s40ACACA39D446F1CD421B5E1CF62503E)] |

| [Consolidated Statements of Stockholders' Equity for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#sC86EB4AB876E3900747DF10DF5210DC7)] [added: 2014](#s3BF65900FF78858EEF3CB5E1D0A6060E)] | | [removed: [47](#sC86EB4AB876E3900747DF10DF5210DC7)] [added: [49](#s3BF65900FF78858EEF3CB5E1D0A6060E)] |

| [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#s1A6C75A127F6A57776E0F10DF610B1EB)] [added: 2014](#s5BF358FC189632A79BBEB5E1CF500F72)] | | [removed: [48](#s1A6C75A127F6A57776E0F10DF610B1EB)] [added: [50](#s5BF358FC189632A79BBEB5E1CF500F72)] |

| [Notes to Consolidated Financial [removed: Statements](#sF1F361C8BC629C055A49F10DF4EE4DE5)] [added: Statements](#s1FC085D0AD1FEF109ABAB5E1CF8728EA)] | | [removed: [49](#sF1F361C8BC629C055A49F10DF4EE4DE5)] [added: [51](#s1FC085D0AD1FEF109ABAB5E1CF8728EA)] |

| [Selected Quarterly Financial Information [removed: (Unaudited)](#sEA117503D6459DF80132F10DF50344F3)] [added: (Unaudited)](#s33F099D31DAD94FA58E8B5E1CF337BD8)] | | [removed: [74](#sEA117503D6459DF80132F10DF50344F3)] [added: [77](#s33F099D31DAD94FA58E8B5E1CF337BD8)] |

| [Report of Grant Thornton LLP, Independent Registered Public Accounting [removed: Firm](#s2E29037D108993D33E5DF10DF8FA6BAA)] [added: Firm](#s2AE66483FB4FD6280619B5E1D5A0D53E)] | | [removed: [76](#s2E29037D108993D33E5DF10DF8FA6BAA)] [added: [78](#s2AE66483FB4FD6280619B5E1D5A0D53E)] |

| | [added: 2016 | | | |] 2015 | | | | 2014 | | |

| Cash and cash equivalents | $ | [removed: 59,526] [added: 40,651] | | | $ | [removed: 48,367] [added: 59,526] | |

| Short-term investments | [removed: 50,254] [added: 48,415] | | | | [removed: 32,774] [added: 50,254] | | |

| Accounts and notes receivable, net of allowance of [removed: $322] [added: $443] and [removed: $251] [added: $322] as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively | [removed: 27,701] [added: 39,466] | | | | [removed: 30,735] [added: 27,701] | | |

| Inventory | [removed: 15,763] [added: 34,841] | | | | [removed: 18,323] [added: 15,763] | | |

| Prepaid expenses and other current assets | [removed: 8,165] [added: 13,858] | | | | [removed: 4,443] [added: 8,165] | | |

| Total current assets | [removed: 161,409] [added: 177,231] | | | | [removed: 134,642] [added: 161,409] | | |

| Property and equipment, net | [removed: 21,848] [added: 24,004] | | | | [removed: 17,523] [added: 21,848] | | |

| Deferred income tax assets, net | [removed: 13,719] [added: 19,515] | | | | [removed: 16,063] [added: 13,719] | | |

| Intangible assets, net | [removed: 7,588] [added: 15,218] | | | | [removed: 3,115] [added: 7,588] | | |

| Goodwill | [removed: 9,596] [added: 10,442] | | | | [removed: 2,206] [added: 9,596] | | |

| Long-term investments | [removed: 8,525] [added: 234] | | | | [removed: 9,296] [added: 8,525] | | |

| Total assets | $ | [removed: 229,881] [added: 278,163] | | | $ | [removed: 185,368] [added: 229,881] | |

| Accounts payable | $ | [removed: 7,333] [added: 10,736] | | | $ | [removed: 7,682] [added: 7,333] | |

| Accrued liabilities | [removed: 8,643] [added: 18,248] | | | | [removed: 9,245] [added: 8,643] | | |

| Current portion of deferred revenue | [removed: 20,851] [added: 45,137] | | | | [removed: 14,020] [added: 20,851] | | |

| Customer deposits | [removed: 1,226] [added: 2,148] | | | | [removed: 988] [added: 1,226] | | |

| Total current liabilities | [removed: 38,140] [added: 78,039] | | | | [removed: 31,973] [added: 38,140] | | |

| Deferred revenue, net of current portion | [removed: 30,190] [added: 40,054] | | | | [removed: 21,668] [added: 30,190] | | |

| Liability for unrecognized tax benefits | [removed: 1,315] [added: 1,896] | | | | [removed: 1,471] [added: 1,315] | | |

| Long-term deferred compensation | [removed: 2,199] [added: 3,362] | | | | [removed: 1,121] [added: 2,199] | | |

| [removed: Long-term business acquisition] [added: Payment of] contingent consideration [added: for business acquisition] | [removed: 952] [added: (952] | | [added: )] | | — | | | [added: | — | | |]

| Total liabilities | [removed: 72,877] [added: 127,275] | | | | [removed: 56,262] [added: 72,877] | | |

| Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] | — | | | | — | | |

| Common stock, $0.00001 par value; 200,000,000 shares authorized; [removed: 53,692,192] [added: 52,325,251] and [removed: 53,000,867] [added: 53,692,192] shares issued and outstanding as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively | 1 | | | | 1 | | |

| Additional paid-in capital | [removed: 178,143] [added: 187,656] | | | | [removed: 162,641] [added: 178,143] | | |

| Treasury stock at [removed: cost,18,432,158] [added: cost, 20,220,227] and [removed: 18,139,958] [added: 18,432,158] shares as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively | [removed: (122,201] [added: (155,947] | | ) | | [removed: (114,645] [added: (122,201] | | ) |

| Retained earnings | [removed: 100,978] [added: 118,275] | | | | [removed: 81,045] [added: 100,978] | | |

| Accumulated other comprehensive income | [removed: 83] [added: 903] | | | | [removed: 64] [added: 83] | | |

| Total stockholders’ equity | [removed: 157,004] [added: 150,888] | | | | [removed: 129,106] [added: 157,004] | | |

| Total liabilities and stockholders’ equity | $ | [removed: 229,881] [added: 278,163] | | | $ | [removed: 185,368] [added: 229,881] | |

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Net sales | $ | [removed: 197,892] [added: 268,245] | | | $ | [removed: 164,525] [added: 197,892] | | | $ | [removed: 137,831] [added: 164,525] | |

| | 2016 | | | | 2015 | | |

| Long-term accounts and notes receivable, net of current portion | 17,602 | | | | 1,227 | | |

| Other assets | 13,917 | | | | 5,969 | | |

| Current portion of business acquisition contingent consideration | 1,690 | | | | — | | |

| Other current liabilities | 80 | | | | 87 | | |

| Business acquisition contingent consideration, net of current portion | 1,635 | | | | 952 | | |

| Other long-term liabilities | 2,289 | | | | 81 | | |

| Purchase of treasury stock | (1,788,069 | ) | | — | | | | — | | | | 1,788,069 | | | (33,746 | | ) | | — | | | | — | | | | (33,746 | | ) |

| Balance, December 31, 2016 | 52,325,251 | | | $ | 1 | | | $ | 187,656 | | | 20,220,227 | | | $ | (155,947 | ) | | $ | 903 | | | $ | 118,275 | | | $ | 150,888 | |

| Purchase accounting adjustments to goodwill | 520 | | | | — | | | | — | | |

| Proceeds from disposal of property and equipment | 42 | | | | 40 | | | | 10 | | |

| Payments on notes payable | (75 | | ) | | — | | | | — | | |

The Company does not amortize goodwill and intangible assets with indefinite useful lives, rather such assets are required to be tested for impairment at least annually during the fourth quarter or sooner whenever events or changes in circumstances indicate that the assets may be impaired.

In 2016, the Company introduced the TASER 60 Plan ("TASER 60") whereby a customer typically enters into a five year CEW installment purchase arrangement.

The TASER 60 plan also includes extended warranties on the CEW devices upon delivery covering the contract periods as well as on-site spares, holsters and cartridges.

Generally, the Company recognizes revenue for the amount allocated to the CEW at the time of sale for the amount of the customer receivable, net of imputed interest, and the amount allocated to the extended warranty is recognized over five years.

Deferred revenue does not include future revenue

Deferred tax assets and liabilities are measured using enacted

ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations.

Subsequently, the FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

| • | ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations. |

| • | ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing |

| | |

| --- | --- |

| • | ASUs No. 2016-12 and 2016-20, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. These ASUs do not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance. |

During Fiscal 2016, the Company established an internal implementation team and engaged a third-party advisory firm to assist in the implementation of the new standard.

The Company is also evaluating whether to adopt the guidance using the full or modified retrospective basis, and will likely make that determination during the first half of Fiscal 2017.

The Company adopted this guidance effective January 1, 2017 and does not expect this ASU to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating

leases under previous GAAP.

ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet.

ASU 2016-02 is effective for the fiscal year beginning after December 15, 2018 (including interim periods within that year) using a modified retrospective approach and early adoption is permitted.

The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (Topic 718), Compensation – Stock Compensation.

ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.

The Company adopted this guidance effective January 1, 2017.

Under this standard, all excess tax benefits and tax deficiencies related to stock compensation will be recognized as income tax expense or benefit in the consolidated statement of operations.

The Company will recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period, subject to normal valuation allowance considerations.

The standard will be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of Fiscal 2017.

The Company does not expect the provisions of this ASU to have a material impact on its consolidated financial statements.

| Other assets | 7,196 | | | | 2,523 | | |

| Current portion of notes payable and capital lease payable | 87 | | | | 38 | | |

| Long-term portion of notes payable and capital lease payable | 81 | | | | 29 | | |

| Litigation judgments | — | | | | — | | | | 1,450 | | |

| Balance, December 31, 2012 | 52,770,392 | | | $ | 1 | | | $ | 111,661 | | | 13,363,789 | | | $ | (67,203 | ) | | $ | (57 | ) | | $ | 42,883 | | | $ | 87,285 | |

| Purchase of treasury stock | (3,048,966 | ) | | — | | | | — | | | | 3,048,966 | | | (25,000 | | ) | | — | | | | — | | | | (25,000 | | ) |

| Shares issued related to business acquisition | 107,749 | | | — | | | | 1,578 | | | | — | | | — | | | | — | | | | — | | | | 1,578 | | |

| Proceeds from disposal of fixed assets | 40 | | | | 10 | | | | 34 | | |

The capitalized development costs related to the Company’s software as a service (“SaaS”) product, Evidence.com, were fully amortized as of December 31, 2013.

Amortization of capitalized software development costs was $0.6 million for the year ended December 31, 2013.

The Company recorded goodwill related to the acquisitions of Tactical Safety Responses Limited, MediaSolv Solutions Corporation and Familiar, Inc. The recoverability of goodwill is evaluated and tested for impairment at least annually during the fourth quarter or more often, if and when circumstances indicate that goodwill may not be recoverable.

formal customer acceptance is received.

The Company may, from time to time, enter into agreements with its customers to finance their purchases with a note receivable that may range in terms up to five years.

Sales are recorded at the fair value of the note, which is generally sold and assigned to a third-party financing company.

The terms of the assignments are such that the Company expects to receive payment within 30 days of the original sale.

The assignments are non-recourse and the Company has no obligations or continuing involvement with the notes receivable.

Prior to entering into an assignment, the Company evaluates the credit quality and financial condition of the third-party financing company.

The Company does not generally record interest income on notes receivable due to minimal holding periods, nor has the Company recognized gains or losses upon the assignment of the notes.

As of December 31, 2015 and 2014, there was no balance in accounts and notes receivable related to such arrangements.

In 2013 one distributor represented 12.2% of total net sales with no other customers exceeding 10%.

The core principle of ASU 2014-09 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company anticipates it will apply the guidance retrospectively to each prior period reported, and is evaluating the impact the adoption of this guidance will have on its financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”).

The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.

A reporting entity should apply existing guidance in ASC Topic No. 718, “Compensation—Stock Compensation” (“ASC 718”) as it relates to awards with performance conditions that affect vesting to account for such awards.

The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805)" ("ASU 2015-16").

The amendments require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.

The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition

date.

The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.

The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”).

The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent.

Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities.

The Company early adopted ASU 2015-17 during the fourth quarter of fiscal year 2015 on a retrospective basis.

Accordingly, the Company reclassified the current deferred taxes to noncurrent on the Consolidated Balance Sheet as of December 31, 2014, which increased noncurrent deferred tax assets $5.2 million.

| | As of December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Cash | $ | 44,260 | | | $ | — | | | $ | — | | | $ | 44,260 | | | $ | 44,260 | | | $ | — | | | $ | — | |

Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer (CEO) and [removed: Chief] [added: Principal] Financial [removed: Officer (CFO),] [added: and Accounting Officer,] which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

[removed: As of the end of the period covered by this Annual Report on Form 10-K, we evaluated under] [added: Our Chief Executive Officer and Principal Financial and Accounting Officer are responsible for] the [removed: supervision] [added: evaluation] of [removed: our CEO and our CFO,] the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) [removed: of] [added: under] the Exchange [removed: Act).][added: Act) as of the end of the period covered by this Annual Report on Form 10-K.]

[removed: Based on this evaluation, our CEO and our CFO have concluded that as of December 31, 2015 our] [added: Our] disclosure controls and procedures [removed: were effective] [added: are designed] to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act [removed: (i)] is [added: (i)] recorded, processed, summarized and reported within the time periods specified in [added: the] Securities and Exchange [removed: Commission] [added: Commission’s] rules and [removed: forms,] [added: forms] and (ii) [removed: is] accumulated and communicated to our management, including our [removed: CEO] [added: Chief Executive Officer] and our [removed: CFO,] [added: Principal Financial and Accounting Officer] as appropriate to allow timely decisions regarding required disclosure.

Management is responsible for establishing and maintaining adequate internal control over financial [removed: reporting, as] [added: reporting (as] defined in Rule 13a-15(f) [removed: of] [added: or 15d-15(f) under] the [removed: 1934 Act.][added: Exchange Act).]

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2015] [added: 2016] based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As a result of this assessment, management concluded that, as of December 31, [removed: 2015,] [added: 2016,] our internal control over financial reporting was [added: not] effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

[removed: During the quarter ended December 31, 2015,] [added: Except as noted above,] there was no change in our internal control over financial reporting [removed: identified in connection with] [added: during] the [removed: evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15] [added: fiscal quarter ended December 31, 2016,] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have audited the internal control over financial reporting of TASER International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, [removed: 2015,] [added: 2016,] based on criteria established in the 2013 Internal [removed: Control—Integrated] [added: Control-Integrated] Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying [removed: Management’s] [added: Management] Report on Internal Control Over Financial [removed: Reporting.][added: Reporting (“Management’s Report”).]

In our opinion, [added: because of] the [removed: Company maintained, in all] [added: effect of the] material [removed: respects,] [added: weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained] effective internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] based on criteria established in the 2013 Internal [removed: Control—Integrated] [added: Control-Integrated] Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, [removed: 2015, and our report dated March 3, 2016 expressed an unqualified opinion on those financial statements.][added: 2016.]

Based on that evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that because of certain material weaknesses in our internal control over financial reporting that have not yet been remediated, as further described below, our disclosure controls and procedures were not effective as of December 31, 2016 at a level that provides reasonable assurance as of the last day of the period covered by this report.

During the year ended December 31, 2016, we identified material weaknesses in our internal control over financial reporting.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Specifically, during the year ended December 31, 2016, we identified material weaknesses in our internal controls over revenue recognition, cost of goods sold and services delivered and the reporting of deferred revenue.

Further, we identified material weaknesses in our account reconciliations and monitoring processes.

These material weaknesses in internal control over financial reporting resulted from a breakdown in the operation of identified preventative and detective controls which led to the Company not initially recording some transactions correctly.

These material weaknesses arose during a period where the timing of the Company’s financial close and reporting process had been adversely impacted by the continued growth in both the volume and complexity of our business transactions.

To remediate the material weaknesses described above, we are working to design and implement new controls and procedures to properly ensure transactions are identified and recorded timely and accurately.

Specifically:

| | |

| --- | --- |

| • | we have added and will continue to add staff to support the growing operations of the Company. During the year ended December 31, 2016, we have added additional resources to our revenue accounting and general accounting teams to ensure that we have the knowledge and resources to properly execute revenue recognition in accordance with GAAP. |

| | |

| --- | --- |

| • | we have implemented and are continuing to implement additional internal reporting procedures, including those designed to add depth to our detailed review processes of revenue transactions and related accounting for deferred revenue and cost of goods sold and services delivered; |

| | |

| --- | --- |

| • | we have implemented and are continuing to implement additional system controls that would help prevent data entry errors of transactional information within the Company’s general ledger system, as well as adding and refining existing system reports that would help isolate outliers within the Company’s transactional data for further review; |

| | |

| --- | --- |

| • | we have improved and are continuing to improve communication and coordination among our finance and accounting departments and we have expanded cross-functional involvement and input into period-end accruals; and |

| | |

| --- | --- |

| • | we are in the process of documenting, assessing and testing our internal control over financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act. |

The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of these deficiencies will be completed prior to the end of fiscal year 2017.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment.

Management identified a material weakness in its account reconciliation and monitoring processes related to the identification and recording of liabilities.

Additionally, management identified material weaknesses related to revenue recognition, cost of goods sold and services delivered and the reporting of deferred revenue.

The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated March 6, 2017, which expressed an unqualified on those financial statements.

We do not express an opinion or any other form of assurance on management’s statement referring to the timing of the Company’s financial close and reporting process being adversely impacted by the Company’s continued growth in both the volume and complexity of transactions, and “Remediation” included in Management’s Report.

March 6, 2017

March 3, 2016

The information required to be disclosed by this item is incorporated herein by reference to our definitive proxy statement for the [removed: 2016] [added: 2017] Annual Meeting of Stockholders (the [removed: “2016] [added: “2017] Proxy Statement”) which proxy statement we expect to file with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, [removed: 2015.][added: 2016.]

The information required to be disclosed by this item is incorporated herein by reference to our [removed: 2016] [added: 2017] Proxy Statement.

A description of our equity compensation plans approved by our stockholders is included in Note [removed: 12 (c)] [added: 12(c)] to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The following table provides details of our equity compensation plans at December 31, [removed: 2015:][added: 2016:]

All other information required to be disclosed by this item is incorporated herein by reference to our [removed: 2016] [added: 2017] Proxy Statement.

| Equity compensation plans approved by security holders | 2,337,416 | | | $ | 5.40 | | | 2,696,536 | |

| Total | 2,337,416 | | | $ | — | | | 2,696,536 | |

| Equity compensation plans approved by security holders | 2,242,022 | | | $ | 5.37 | | | 1,301,152 | |

| Total | 2,242,022 | | | $ | — | | | 1,301,152 | |

The information required to be disclosed by this item is incorporated herein by reference to our [removed: 2016] [added: 2017] Proxy Statement.

The information required to be disclosed by this item is incorporated herein by reference to our [removed: 2016] [added: 2017] Proxy Statement.

| Year ended December 31, 2015 | [removed: $ |] 251 | | | [removed: $] | 86 | | | [removed: $] | — | | | [removed: $] | (15 | [removed: )] | [added: )] | [removed: $] | 322 | | [added: |]

| Year ended December 31, 2015 | [removed: $ |] 675 | | | [removed: $] | (62 | [removed: )] | [added: )] | [removed: $] | — | | | [removed: $] | (299 | [removed: )] | [added: )] | [removed: $] | 314 | | [added: |]

| [removed: 3.2] [added: 3.2] | | Bylaws, as amended, effective January 17, 2016 [added: (incorporated by reference to Exhibit 3.2 to Annual Report filed on Form 10-K, filed March 7, 2016)] |

| 101.SCH | | [removed: SBRL] [added: XBRL] Taxonomy Extension Schema Document |

| Year ended December 31, 2016 | $ | 322 | | | $ | 205 | | | $ | — | | | $ | (84 | ) | | $ | 443 | |

| Year ended December 31, 2016 | $ | 314 | | | $ | 621 | | | $ | — | | | $ | (155 | ) | | $ | 780 | |

| 3.4 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Annex A to 2016 Proxy Statement, filed April 15, 2016. |

| | | |

| --- | --- | --- |

| | | |

| Exhibit Number | | Description |

| 10.15* | | 2016 Stock Incentive Plan (incorporated by reference to Annex B of 2016 Proxy Statement, filed on April 15, 2016) |

| Year ended December 31, 2013 | 200 | | | | 24 | | | | — | | | | (24 | | ) | | 200 | | |

| Year ended December 31, 2013 | 484 | | | | 1,001 | | | | — | | | | (530 | | ) | | 955 | | |

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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| --- | --- | --- | --- | --- |

| | | | | |

| | | | | |

| TASER INTERNATIONAL, INC. | | | | |

| | | | | |

| Date: | March 3, 2016 | | | |

| | | By: | | /s/ PATRICK W. SMITH |

| | | | | Chief Executive Officer, Director |

| | | | | (Principal Executive Officer) |

| | | | | |

| Date: | March 3, 2016 | By: | | /s/ DANIEL M. BEHRENDT |

| | | | | Chief Financial Officer |

| | | | | (Principal Financial and |

| | | | | Accounting Officer) |

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick W.

Smith his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, including all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.