Good day, ladies and gentlemen, and welcome to the Q4 2007 TASER International Earnings Call. My name is Tony; and I'll be your coordinator for today. At this time all participants are in a listen-only mode and we will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the call over to your host for today's conference, Mr. Tom Smith, Chairman and Founder. Please proceed, sir.

Thank you and good morning. This morning I'm joined by Kathy Hanrahan, our President and Dan Behrendt our Chief Financial Officer. And I'm going to start with all exciting Safe Harbor statement. Certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Private Securities Litigation and Reform Act of 1995, and TASER International intends that such forward-looking statements be subject to the Safe Harbor created thereby. Such forward-looking statements relate to expected revenue and earnings growth, estimations regarding the size of our target markets, successful penetration of the law-enforcement markets, expansion of product sales to the private security, military and consumer self-defense markets, growth expectations for new and existing accounts, expansion of production capability, new product innovations, product safety and our business model. We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements herein. Such factors include, but are not limited to, market acceptance of our products, establishment and expansion of our direct and indirect distribution channels, attracting and retaining the endorsement of key opinion leaders in the law-enforcement community, the level of product technology and price competition for our products, the degree and rate of growth in the markets in which we compete and accompanied demand for our products, potential delays in international and domestic orders, implementation risk of manufacturing automation, risks associated with rapid technological change, execution and implementation risks of new technology and new product introduction risk, rapid manufacturing production to meet demand, litigation resulting from alleged product-related injuries and deaths, media publicity concerning product uses and allegations of injury and deaths and the negative impact this could have on sales, product quality risk, potential fluctuations and quarter operating results, competition, negative reports concerning TASER…

Good morning. As Tom explained we are extremely pleased with our sales growth, both in the United States as well as the foreign markets during 2007. Our sales team worked hard to achieve the $100 million milestone, but also to lay the foundation to further grow the sales pipeline in 2008. Despite the strong revenue growth seen in 2007, our margins did not demonstrate the same forward growth. Therefore I'm dedicating my commentary on this call to the comparison from 2007 to 2006, and the corrective process is already implemented to improve our margin performance going forward. Fourth quarter results were similar and will be detailed in full by Dan. As I stated on my previous calls in 2007, there are four key factors that have impacted our margin performance throughout the year. First is the sales mix and that we're selling a greater amount of lower margin products during the year such as some of our peripheral products like the cartridges in the TASER CAM. Second we have been impacted by a change in average selling prices due to the distribution mix and cash discounts taken by our customers. Third our products utilize certain raw materials that have seen substantial increases in price during the year, which impacts our bill of material structures. And finally labor inefficiencies caused by the ramp up of new product introductions, the implementation of a second shift and a short-term decline in production yields. We've thoroughly analyzed the impact each factor has on our margin progression and we've taken very specific action to address each of these target areas. We began implementing many of these steps late in the third quarter and at the time of our last call had hoped to see the cost reductions materialize in our fourth quarter. While the material…

Thank you, first I'll go through the results for the quarter as Tom indicated sales for the third quarter of $31 million, which sets a new record for the highest quarterly sales in the company's history with sales for the quarter up 16.9% from the prior year. Sequentially, the Q4 sales were up $2.5 million from the third quarter sales as the company increased its sequential sales for third quarter in the row. Gross margins of $17.2 million or 55.4% of sales are down from the prior year, as Kathy indicated, degradation of margins caused by lower labor efficiencies, higher strap expenses and material costs, as well as the change in mix as more of a sales coming from cartridges, C2 handles, and TASER CAMs, which carry a lower margin than our TASERX26 products. Company continued to experience higher direct labor cost due to some of the inefficiencies associated with the new production employees as well as the higher temporary labor and overtime costs incurred as we expanded the direct labor work force to meet the growing demand for the existing products and the new C2 products. These items contributed to a 3.1% increase in direct labor as percentage of sales versus the same quarter in 2006. The $1.5 million increase indirect manufacturing expenses were mostly driven by the higher strap during the quarter, due to higher production levels and lower yields. We also incurred higher indirect wages due to increased headcounts in the quality, manufacturing engineering and materials departments to ensure that we can adequately support the ramp in production for our products. As Kathy indicated there are a number of initiatives that have been put in place to improve margins in 2008. SG&A expenses were $8.7 million for the quarter versus $7.7 million in the prior year. The…

Thanks Dan, I'm going to touch briefly on some of our sales accomplishments, starting in the fourth quarter 2007. We added 365 new agencies taking the total number of agencies that are testing or deploying TASER products at the end of the year to little over 12,400. We also, during the quarter, added 285 full deployments meaning there is 4,360 agencies carrying a TASER on every officer. We also on the TASER CAM site added 157 new agencies for a total of 1,585 testing or deploying the TASER CAM products. During the quarter, we shipped over 23,000 X26 handhelds that's up from 22,500 in the previous quarter and that also was bringing our ratio of handheld to cartridges of roughly 17.7 to 1 for the year. Again, that's showing the continued growth we are seeing within the law enforcement market. Again I think 2007, it was a landmark year for TASER International, ticking the $100 million number was a huge goal of ours and we were able to achieve that goal. Being in a growth company, obviously we have had to bring in over 150 employees and that is a challenge to get people in and get them up and to speed and train, but I think I'm very proud of the accomplishments that we as a manufacturing company and a technology company were able to do during the course of the year. 2007 started with the launch of the C2 and CTF. It was obviously very well received; it was one of the top picks of the show. We were able to also attract higher caliber individuals such as Dr. Richard Carmona to join our Board of Directors. During the summer we had our annual tactical conference announced several new product initiatives, which I'll talk about here in just…

No problem, sir. (Operator Instructions). Your first question does come from the line of Eric Wold with Merriman Curhan Ford. Please proceed.

Hey, good morning.

Hi Eric.

Before I get into a couple of questions, do you mind just giving me the actually numbers in the quarter for X26, M26, CAMs and Cartridges?

The X26 in the quarter was 23,065. On the M26, it was 777 and on the Cameras was a little over 3,000.

And the C2s were 8,830.

And the cartridges?

439,252.

Perfect. So going to the C2, can you update us on where we are there? When we could start seeing additional retailers be announced, what retailers are saying to you either? That they excited about it or they are still possibly hesitant about not carrying the C2 and then on the infomercial, when that starts rolling out kind of full force and kind of where the cost for that has been placed? How much is the infomercial within Q4 if any and if it's all going to be falling into Q1?

Well, let me start backwards and I appreciate your bringing up the infomercial, I skipped that in my comment. Our actual rollout begins this coming weekend. We're going to start in 10 cities and all of the cost will be borne for that in Q1 of this year. But it will start running this weekend, we're going to be again working with the company that they manage how you test those and get the response and then tweak what the messaging is within the infomercial and then call the action. We'll be starting for example; in Phoenix, Atlanta, Denver, Los Angeles just to name four of the ten cities. I don't have them all in front of me. That they will be doing some tests this weekend, they are monitoring those results, but we'll be taking all the expense for that in Q1. We've put a lot of effort into it; you can't see a full version of the infomercial on our website. And as far as the C2 goes, so far the response has been very good. I can tell you our biggest hurdle has still been the interest in what our critics are throwing out, they're about the potential for injury and when we're able to get in front of these people, we're able to convince them of that. And I'm hoping to make some announcements with some retailer by the end of the second quarter at the latest. But lot other people we started conversations with the year ago, we renewed those conversations, they have now seen six months of some sales out there, we have seen good response. The holiday season quite frankly we were late to at the end of the year. A lot of times the people are doing their buying for that in the first half of the year so at the end of the year was a lot of the direct sales and lot of the guys that had come online, but they are talking now about those types of applications. So, the response has been very positive. I think we are seeing a positive response from the consumers that are buying and that are coming back to us. I just ran into some folks a few weeks ago that went out and bought five for some family and friends that they just believe it's a good product and it's really demonstrated well for them and they actually did not have a use, but they are seeing the laws enforcement use it, it's mere presence is deterring people and I think that’s again with a reputation that we have out there, that’s the best use of all we can have for our users.

Okay, and if I can then just, two quick follow-ups on that. One, what is the cost of the infomercial specifically that fall in Q1 and what do you expect throughout all of this year that you could spend on marketing around C2?

Well we don’t have the final cost rundown, but it's not going to cheap. But I can tell you on the advertising side, we are tipping our toe into the pool very, very slowly. It's depending on their response goes, that’s something that we can react to very quickly. If we are seeing a good response, we can lever that up very quickly, if we are not, we'll slow that down, we'll tweak it and go run some more tests. So we can spend anywhere between $1 million at a minimum. If it's running very well, Dan will probably choke me for this, but we can spend 10s to 20s if we are getting the responses that we see. Again that’s something that we do get direct response. We get direct feedback on the infomercial itself. And in the channel they usually are telling us the stats are 7 to 1. So whatever we are going to see on the direct response you'll see 7 times that out in the marketplace. But we are going to be measuring specifically what we are doing this weekend, what's the call response and what's the response in those particular markets. We are running different tests in different markets on the call to see what's working and what's not.

As far as the cost of the commercial, it will be about $520,000 we'll recognize just for the commercial itself and then the advertising on top of that. As Tom said, we'll spend at least $1 million on the advertising and depending on what we see it's very scaleable as one of the things it's great about the infomercial.

Okay, and then final question, before, you're having some commodity price pressure, you raised prices on the cartridges last year, I think by a buck. Any thoughts on doing the same with the X26 or just looking at the pressure there pushing that up 50 bucks or so or something?

I don't think so, not right now we are still pretty confident that we have hit the bottom on the margin side, that we are going to able get that turned around without having to go out there and raise the cost or the price.

Okay, perfect, thanks guys.

Thank you

With Dougherty your next question comes from Greg McKinley. Please proceed.

Yeah thank you, in terms of the international sales that occurred this quarter I know you mentioned $3 million. How many customers did that come from, could you share that?

I can't give you that yet, we had literally, we've got 45 countries now using the product and it did come from all over and obviously there was a lot of attention during that quarter from Canada. We still did have sales from Canada during the quarter, but it's not one single customer per se during the quarter its pretty spread out.

Okay, looking at operating costs, Dan it looks like as for the full year was may be up about 15% in terms of total operating expenses. As you said you had 150 new employees in '07. Can you give us a sense for where you are in terms of infrastructure build out at corporate and the manufacturing facility and how we can expect to that impact '08 trends?

I think one of the things that I've been pretty proud of is I think we have done a real good job in 2007 on keeping a handle on the cost structure. The rallies we grew the sales by close to 50% as you pointed out there is a much smaller growth in the indirect expenses. I think as we move in to '08, we look out to make some investments in the business in order to continue to our growth. I think it’s a bit of a step-function for the company where we're able to keep costs down in 2006 and 2007. But as we grow the business, I think we find that there are certain areas we need to invest in, and I think we'll see investments. You've seen some of that already with the hiring of Steve Mercier in the manufacturing area, we've got open searches right now for VP of Marketing, VP of Consumer Sales, so we're adding to the infrastructure, but we think we need to do that in order to make sure we can execute and grow the business profitably.

Okay, very good. And then just a follow-up on the advertising and media, you mentioned $500,000 for the commercial I'm assuming is that the expensing of the capitalized production cost?

That's correct.

Okay. And then what was the amount you indicated for advertising?

It will be at least $1 million over the year and then we'll lever that up, but that's not all going in one chunk like I said we are starting in ten cities this weekend, by mid-week, next week, we are to have some initial results from that then we can determine what do we do, what do we tweak, what worked, what didn't. So again that's kind of a budget that we've set for the beginning of the year at a minimum.

Okay.

But again according like Dan said that's something we can respond and lever very quickly.

Okay, thank you.

Thanks, Greg.

Your next question comes from Steve Dyer with Craig Hallum. Please proceed.

Good morning, guys.

Good morning.

Good morning.

Couple of quick questions, so just to clarify, Tom on what you just said, $1 million base line in advertising over the year not for quarter. I mean it certainly could be per quarter, but what you referring to a sort of spread out throughout the year?

That's correct. We spent $0.5 million to produce the commercial. We want to dedicate at least $1 million over the course of the year at a minimum to go out and run that and again it's going to be done in very small bytes, and spread in numerous cities and to all different areas of the countries so we can find out if it is regional, is it the message. We hired an outside firm and that's what they do is test these things, they have a pattern that they follow and then they can come back to us a very specific result of what, we need to tweak, or not tweak or areas in the country that are working.

Okay.

You want to see all that hit in Q1 unless the things run in bananas for us.

So the way to think about would be, but a half a million to make the commercial and then an extra million to run it?

That's correct, that's what we have in the budget, that's assuming, we really have to tweak it, and it's taken a long time to really find the right lever and we're not getting any big hits with it.

Okay and then, how much for additional advertising and what channels would you be looking at?

Well, again I think that's going to be direct message as to how successful it is if its, if we're getting the two or three to one on the investment, I don't think we'd have any problem to go twist arm and throw $3 million, $4 million, $5 million at that in a quarter. But if it's not doing that, or if we're not seeing the results we want to see, again, we're not going to go and blow money just for the doing sake of doing. We want to be very scientific about how we do this, look at the stats, look at the results and then sit down and be very methodical about our approach to it.

Yeah and that infomercial was being coupled with a lot of marketing materials that are being developed at the retail point as well. So, so as we drive people in, we have the same kind of promotional materials being supported at the retailers and the stores that carry it.

And if you have watched the infomercial, we really spent a lot of time going through the script for many months on making sure we're communicating, testing the science, that its -- police proven a lot of, there is a lot of education in the infomercial. We're looking at it to help us in that aspect as well, but its going to educate people as well as just get them interested in where to get it.

Right, no I thought that was very well done. The C2 just in general, where are you seeing, may be pockets of surprising growths or weakness, what are your best channels, what's working, what's not, this far?

Well, obviously with the announcements of Cabela's Gander Mountain Academy, we were very excited to see those guys because traditionally the firearms dealers have been selling our products over the last years. The sporting goods chains, they are new to us, so I was just surprised how quickly they came on and they have been very happy with the performance so far. So, I think, obviously the weak side for us was the consumer electronic retailers. Not getting any of those guys right out of the gate, but again we are still in conversation, so I think the surprise would really be the sporting good guys.

Okay. And then just shifting channels here a little bit, we had gone last year, sometime without really a dustup in the press so to speak until kind of the Canada situations, sort of late in the fourth quarter. Did you see any thing you can identify in terms of people that maybe get cold feet or stepped away given that and just kind of let the dust settle?

Obviously we've got a lot of enquiries around it. If you follow the media up there at all; I was in Toronto doing a presentation to the public. Again, it's about pubic education, it's about public information and giving peoples the facts. I testified in Ottawa about it. So, certainly Canada has taken a slowdown. There is still buying as I said, we received orders from them even after the incident occurred, but I think there was more a lot of questions and what was response to a lot of the hype. Again, people have to remember we went through this in the United States in 2005. So this time I think, especially in the US, they are like we've heard that story, we know that sign is there and internationally they were just reconfirming that. Where it is still a dustup in Canada, there is still a great deal of interest in it, I'm sure I'm going to up there some more, but it's about presenting the science and the facts and it's very hard for people to argue with that. You'll remember, you probably saw pictures of me sitting with the great big blue book of all of our, over 120 studies and 1,300 pages of science and I think that was the biggest surprise when I went and talked to these individuals and to the committee up there with how much science really is there, because the critics obviously are trying to present that there isn't any, and the reality is that they are just full of it.

Okay and then I guess finally you know circling back to gross margins. Can you give us any color on sort of how you see that ramp back progressing you know sort of what do we get to how does that ramp over the year just with these improvements you are making.

You'll see steady improvements as we go from Q1 to Q4. As I explained a little bit in the material reductions we saw those come in to our inventory in the fourth quarter, we are still staring to see those reductions come in to play, so you will see them a lot probably late in March in terms of cost of goods sold. The labor reduction is in place now, so we should see a decline in the labor for the first quarter and we'll continue to manage that as we go forward. The other thing that was impacted by the cost of our materials was our scrap as we took a really hard look at the production scrap versus the prior year and a lot of that increase also had to with the component cost. So that really should make an improvement in a couple of places, but again I think the biggest thing we did is step back and restructured and realigned that organization to really be successful. We have got one group focused on the sustaining engineering. So how do we make our products better and for less money, they are working very diligently and have some great ideas moving forward on our existing products like the X26, I think Steve's focused on putting systems in place and improving the things that we need to grow the business so we don't incur the kinds of things we did with the C2 last year are all going to have improvements. So you'll see it in Q1 you will see it continue to improve all the way in to Q4.

And I think that’s one of the things, Dan touched on, we grow our revenue at a pretty substantial rate, but our SG&A was pretty tight, we are coming back now we have been pretty sensitive over the last couple of years to make sure that we didn’t grow too much there, but at the same time we do see a lot of opportunities out there and we're going to make the investments to get the right people in here to help us grow and go into these different markets. The R&D, obviously we're going to continue to invest in that to expand our technology and Kathy and Steve are going to be really focused internally on making sure that we're efficient. We stumbled in the fourth quarter trying to get all the products out the door, because we wanted to hear our growth numbers which we did, and now we're going to really make sure that in addition to hitting our growth numbers on the revenue side, we're going to hit them on the margin side.

Okay. So then just finally, I guess, in terms of numbers, would you expect gross margin in Q1 to be up over Q4 and then steadily progress higher throughout the year?

Yes.

Okay. Thank you.

Yep.

With Jefferies & Company your next question comes from Matthew McKay. Please proceed. Matthew McKay - Jefferies & Company: Good morning, guys.

Good morning, Matt. Matthew McKay - Jefferies & Company: Just on the production side. I'm assuming that you guys are still running two shifts at this point?

We are running two shifts, yes. Matthew McKay - Jefferies & Company: Okay. And at what capacity are the two shifts being run at?

The first shift is running at a 100%, and we ramped back that second shift, effectively we did not do a great job when we brought the second shift on in terms of bringing the labor in and making sure that was efficient. When we took a look at it, we actually had more headcount than we needed, so we pulled that back, and we'll continue to track that with our sales forecast and the demand for the product as we bring people in, but we will do a much better job bringing them in.

We're running at a 100% of volume maybe its not efficiency, but we're going to get that improved too. Matthew McKay - Jefferies & Company: Okay, Can I look at the number of units in the quarter, kind of on the X26; we're over 23,000, C2 only just about 9,000. It would seem like although while you are coming closer capacity on X26, those types of capacity levels can be met with just kind of one shift.

We do, but we have also got the cartridges. The other things that we're working on in addition to our current production are the new products things like the XREP that are going into field trials are also being built now by production employees. So we're trying to make sure that as we bring those on we do a much better job moving forward than we did last year. Matthew McKay - Jefferies & Company: Okay, and then just kind of a curiosity why you can run one shift at a 100% and another shift considerably below that as opposed to maybe trying to go 60-60 or something like that just to try and just kind of some of the logic behind it would be helpful?

One of the reasons we run first shift full capacity is it's when we've also got all of the engineering resources here. So we're also taking a look at some of the sustaining engineering and how we can improve those products. And the second shift right now is really used to offset what cannot be produced on one shift like the cartridge lines for example, because the demand for the cartridges and you can see from that 17 to 1 ratio is climbing and we build majority of our cartridges are actually that's where the overflow is being built is on the second shift. Matthew McKay - Jefferies & Company: Okay. And then there was a recent article where one of your distributors basically highlighted that he sold $1 million of C2 in the past four months, which given how many you sold in the fourth quarter with either he is completely dominating what you're selling or it would seem like things have sort of heated up a little bit in January in the first quarter. So I'm just curious like any color you can give on C2 in the first quarter?

I saw that article and that's a guy down in Florida and obviously Florida, California tend to be the leading areas of product adoption. So again we're seeing continued success of the product, but we aren't able to say with any big numbers what we can get for the first quarter we'll be able to give you that in about two months, but again with the response we got on out of the consumer electronics show and that followed very promptly with the SHOT show, that product was in the media very, very, successfully. So, obviously that was very positive for us to see that guy come out and make that statement, and again that is on the retail side, where we sell obviously discount from that for the dealers and distributors. But obviously that wasn’t a very positive note for us to see as well on the C2. Matthew McKay - Jefferies & Company: Yeah, and then just wondering if the build in inventory; Dan I know you said it was a refection of the growing sales. But I'm wondering if, in anticipation of CES but also return on advertising and everything else that you guys have been building up C2 inventory and if so if you could quantify just how many units are in there?

Yeah, we definitely built the inventory, both of the C2 product and also the X26 product and that was one of the ways we were able to meet the demand for the quarter. So, I think, unlike some of the prior quarters where we finished the quarter with very little in finished goods, we have really built some inventory thereby, which I think puts us in a good position to be able to satisfy the demand as we move forward and really service our customers better from that perspective. We've got, we did put about 19,000 C2s on the shelves in the quarter, which is really as you pointed out in anticipation of the CES show and also the infomercial starting, and once we got the production employees ramped up and working efficiently it did make sense to scale them back. It made more sense to go ahead and put some inventory on the shelf in order to be in a position to satisfy what we hope to be growing demand for the C2 as we move into 2008.

Yeah and there was a conscious thought to do that. As you mentioned, CES, SHOT are our biggest consumer shows of the year. They are right out of the gate and the infomercial, the biggest lever for us on that infomercial is being able to deliver very quickly. The last thing somebody wants to do is see something, order it and then get it in six weeks. So we wanted to make sure is that infomercial starts to run that we do are able to ship within a 48 hour period and get that out to the customer very quickly. Matthew McKay - Jefferies & Company: Okay and then relative to when you made the decision to allow the inventory to build up to what you have seen over the past month and a half. Has it kind of met expectations?

We made the decision last year obviously, because we've been looking at the timing of the trade shows knowing we were spending the money in the infomercial, we obviously made the decision to give manufacturing a heads up that hey we wanted to not only build the demand to ship everything we got out, we want to put X thousand units on the shelf which we came pretty close to getting right on where we were going to be on the manufacturing side. So I would say on the manufacturing side, yeah we did what we wanted to do. We didn't miss by any big number in other words we weren't saying lets build 2000 and we built 20, I mean we were pretty close to what we wanted on the shelf coming in to the first quarter this year and then again on the sales side, we got the infomercial just starting to hit and their interest out of CES was great, it really was.

But on the other side Matt, you have been following us for a while and there is a lot of exciting things in the future so the other decision was made was not just on the C2, but we wanted to make sure that we started to put X26's on the shelf as well as cartridges for some of the lumpier sales that hit our business to make sure that those were not an interruption to the regulars pipeline as well. Matthew McKay - Jefferies & Company: Okay, that's all -- my other question, sort of as we move through here and you've got obviously a lot of agencies that are still a partial deployment. Does the X26 side of the business, does it become more lumpier as may be you get some larger departments that go to full deployment or does it actually become smoother just because you get a larger you got a larger installed base and therefore you just start getting kind of more predictable reorder flow.

Domestically, it's definitely smoother. It is the consistent, they are adding units to grow it out, the lumpy sides comes internationally, I mean obviously that is the one we just put out the 3,000 M26 was in a single order. Obviously I have been working on that for a few months here, but we did 777 in all of Q4 of that particular product line. So that is right there, the demonstration of the lumpiness that we expect to get this year on the X26, and so we do want to have products on the shelf to be able to meet that. I don't want to get an order and then have to wait two quarters to ship it, because a lot of times these are filler kill-type deals they won't take partials for the orders. So obviously if some of the bigger ones such as France or things like that come in, we're telling, we aren't going to be able to, we want to space those out, because they are also going to have to time that with training, but the internationals is really where we're going to see the lumpiness I think on the X26. Matthew McKay - Jefferies & Company: Yeah. So do you expect more or like a recent order then kind of what the UK did which was a very methodical multiyear study test and sort of rollout. You think that like France for example could be a larger near-term order I guess?

Correct. They will have to go back out and bid that, so they will do in a larger number. The UK is the UK. I don't expect them to change. I think you'll continue to see them steady slow progress, for them this was, I can't even put it, it's a monumental stuff for them to take this and give it to non-firearm guys. I mean these are guys that have never touched a firearm in their life, they have no experience in it. They don't cover it even in their training, and now they are giving them this device to carry, and there is a lot of trepidations they move forward with that, but they did it. It's being received very, very successfully in the initial results that we are seeing and hearing it from the media over there. But there again, they're a little over two and a half months into that program, but I expect to see that one to go continually, I expect to see some of the other countries to take some larger numbers and then again going back to that order we just announced. I do think that's going to be a direct result of some of the countries that don't have the dedicated study resources. They're going to look at somebody like the UK, France, Australia, Singapore those types of countries that have done the due diligence that have really spent the time on the resources and hopefully we're going to see more of those guys come online where they're going to just go right to the deployment out of the gate. Matthew McKay - Jefferies & Company: Yeah. How many countries now have some type of a TASER program going?

45. Matthew McKay - Jefferies & Company: 45, and you still expect, kind of about half a dozen of them to sort of enter into more of a procurement phase this year?

We do. Obviously the one's that's garnered our attention recently, so I am sure most people to watch it is Australia. They've been having a lot of media and a lot of press come out of there from all the seven states with the police ministers talking about broader expansion and again I think that goes back to, they've been doing the field tests for several years. They've done the studies, last year Western Australia move forward with a big order and that's now resonating through the rest of the country. So again I think that kind of a micro cause in what we see on our international market stage. Matthew McKay - Jefferies & Company: Okay, great. And then just one last question, just as the cash builds up you guys going to think more about share repurchase or anything like that?

We've had some discussions at the board level about what we're going to do, no decisions were made. I can tell you both those items were; they were a bunch of items that we looked at. At the same time there is a lot of discussion we're going to continue to invest in research and development advance our technology and we're going to keep a sizeable war chest to be able to take on the fox and grow the business. But there is a lot of discussion going on at the board level. Matthew McKay - Jefferies & Company: Okay, great. Thanks a lot. Good job, guys.

Thank you.

Your next question comes from Paul Coster with JP Morgan. Please Proceed.

Thank you. Good morning.

Good morning, Paul.

Hi. I've got a few questions. First of all for Dan. In the press release, it hints at the possibility of the legal activities going to start tapering off soon. Is that true? How much of your expense is going towards legal activities on a quarterly basis and do you expect it to decline in '08?

No, I think as far as the -- we've definitely have seen a number of active cases in front of us decline. We've had more dismissals in 2007 than new cases. So I think that the decline in active cases facing the company, it certainly helps to keep a handle on legal, I would not -- legal expenses for the fourth quarter are about $750,000 that’s down about $100,000 from last year. So, we've definitely have seen that come down year-over-year. It is higher than the third quarter, but I think the third quarter as we talked was bit of an anomaly as we had a number of cases hit the retention in the third quarter and also just the work cases were on their life cycles. So I think it's one of those sort of ebb and flow type items. I think that, our focus as a company is to work in ways to try to reduce the amount of litigation that we are facing and I think it will come down over time. It is tough to predict. I would kind of model it at comparable levels for 2008 and hopefully we can improve on that, but I don’t think we are going to see a dramatic reduction in the near term.

Yeah, I was talking to our legal department too and one of the things that we are going to be facing in 2008 is a couple of these cases that were previously dragging a little bit, they are really getting pretty heavy in to the discovery phase this year and I think we've got a couple scheduled for going to trial at the tail end of the year and obviously we will be ready for those we are not going to skimp there on our defense side.

If I can just revisit the international side of business for a second, Kathy how are you pricing the products and is the weak dollar giving you some leeway to increase your pricing there?

What we sell in US dollars to all of our customers, we sell to the distributors, who are then turning around and selling it there. So I think it is making a little bit more affordable there on their side but quite frankly because we're turning it and selling it to the distributor and all we are dealing in the US dollars we don't get in to any of the currency valuations in affecting our international. I can tell you our cost is obviously a little bit higher on the international side so our prices are a little bit higher, but the currency I think is more going to affect the distributor in that particular country than really us.

Got it, and as you scale off internationally is there the opportunity to move to direct sales in certain countries and will that have impacts on margin?

I think, I don't know that we will go to a direct sales, because a lot of times the foreign countries want to work with somebody that's right located in that country that provide service to provide response, to provide training. One of the things actually about this in the past is will we be setting up an operation to manufacture there and again, because of department of commerce export rules we will not be doing that. But I think that by keeping somebody there locally keeps somebody gainfully in that country and that help us more than it would hurt us.

And the other piece of that is typically our distributors establish all of the importing and they are also they're pretty well connected with the departments ministry and the other agencies that are involved with bringing the product in. So they are incredibly helpful, our folks like in the UK and France were instrumental in that product expanding the way it has.

It would just be hard to sit here in Scottsdale and be able to provide service to France or the UK with the time change and the cultural differences and just the language barriers and all those things that factor in to it.

Okay. Lastly, in Trig buy, what's happening in the military at the movement there is a move towards unmanned ground vehicles, I think they are talking about 30% of them being unmanned by 2015. You've had this early success with iRobot. Can you give us any data points the iRobot partnership and also your sense of this unmanned ground vehicle opportunity and is it something you are actively involved in yet?

The iRobot is mainly the slowest of the three, because we've been working so hard on the other areas. And again really what that was more intended to do was to be a proof-of-concept to prove whether there was interest there and I can tell you there was. We've received from a number of different areas within the military interest, not just domestically but internationally of incorporating TASER technology with the unmanned vehicles. I just can't give any real specific on it, but I can tell you that we felt that that was a successful launch, that there was a lot of interest in term of that integration. Our partnership with iRobot still is going to move forward, but it did prompt a lot of the other branches with military to think and look at our technology being integrated with the unmanned vehicles again especially in the European data with some of our partners over there.

Okay, great. Thanks very much.

Thank you.

Sorry I can't be more specific on that, but a lot of times when you are working with the military they don't want a whole lot of that information out, as do our customers that order that we announced earlier unless the country, they'll a lot of times, are going to do that beyond if they don't want, we won't and that's why you will see it's still is an unnamed country.

Got it.

Thanks, Paul.

Your final question is a follow-up question from the line of Eric Wold with Merriman Curhan Ford. Please proceed.

Hey, couple of follow-up question on the C2. I don't know if you want to give it. In the past you gave the backlog going into the next quarter do you have that at the end of Q4?

It was minimal.

Okay.

We really did (inaudible) to get it all out by the end of the year

That's good and secondly, you saw an article, why were the C2 being sold over in France direct to the distributor there, and the article talked about having 2,000 units already in backlog that was I think a couple of weeks ago and being shipped this month. Any update on kind of how that's been sold there, kind of any thoughts there?

That wasn't it is going very slow and we're doing that for a reason, because we're really are focusing on, we've got have a huge opportunity with the law enforcement side of this and quite frankly, that he and us are putting just the effort into the law enforcement side, not spending a lot of time on the C2 side over there. There has been obviously demand, he talked about that in the article, but it's not been a focus for us, and probably won't be till the later half of the year.

Okay, on that any other country besides France that would be getting the C2?

There is a handful but its three to five, its not very many, most of the countries like UK, like Canada, it’s a prohibited item so it's a very small handful of number of countries that would even allow their citizens to have that type of a technology.

And for the most parts, those will be done through distributors or will you ever do those directly?

No, those will all be done through distributors, because then again, we hear when we sell this in there we do a background check and we do a registration. So we're asking our distributors when they're doing the same thing, which also is taking time for them to set up, when they're selling this, they need to do some kind of a check on who is going to, where its going and a registration system, so that our AFID system has integrity that not just here domestically but internationally as well.

So if someone from France logs onto your US website tries to order one, either just deny them or just kind of relocate them to the France side, or kind how does that flow?

We cannot shift there, we deny them not, because the export licensing requirements from the US. So we would be sending those over to our distributor in that country.

And what happens on the web is they try to put it into a location we can't ship, and we tell them to call the 1-800 number and our customer service folks walk them through that.

Perfect. Thanks, Guys.

Thank you.

Thank you so much, Eric. And Tony, thank you very much for hosting the call. For everyone on the call thank you so much for listening in. Obviously, stay tuned, we are very excited and we'll talk to you in April after Q1 2008. Good morning.

Ladies and gentlemen, once again thank you for your attendance in today's conference. This concludes your presentation. You may now disconnect. Good day.