Good day, ladies and gentlemen. And welcome to the second quarter 2010 TASER International earnings conference call. My name is Chandelle, and I will be your facilitator for today's call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Rick Smith, CEO of TASER International. Please proceed.

Thank you. Good morning. Certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. 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 market; expansion of product sales to the private security, military and consumer self-defense markets; growth expectations for new and existing accounts; expansions of production capabilities; new product introductions; product safety and our business model. We caution 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 law enforcement community; the level of product technology and price competition for our products; the degree and rate of growth of the markets in which we compete and the accompanying demand for our products; potential delays international and domestic orders; implementation risks of manufacturing automation; risks associated with rapid technological change; execution and implementation risks of new technology; new product introduction risks; ramping manufacturing production to meet demand; litigation resulting from alleged product-related injuries and deaths; media publicity concerning product uses and allegations of injure and deaths; negative impact this could have on sales; product quality risks; potential fluctuations in quarterly operating results; competition; negative reports concerning TASER device uses; financial and budgetary constraints of prospects and customers; dependent on sole and limited source suppliers; fluctuations in component pricing; risk of government investigation regulations; TASER product test reports; dependence upon key employees, employee retention risks and other factors detailed in the company’s filings with the Securities and Exchange Commission. And with that, I'd like to turn the call back over to Rick Smith, our CEO.

Thank you. Okay. So for the quarter, net sales were $19.1 million, which was a decrease of about 12%, compared to second quarter of last year. The decrease was primarily driven by fewer significant international orders. We have been looking after a number, we got a number of very significant international orders we've been working. We’re not able to get them disburse in the quarter. We do believe that we’ll get at least one or two of those significant orders in the back half of the year, which could have a significant impact on the business. But as we talked about historically, these large orders typically have longer sales cycles, just there's a lot of political things happening over to get them closed. We remain positive on those, just, unfortunately couldn't bring them in this quarter. With lower sales level, of course, our margins declined, with less leverage on the lower sales and also some inventory obsolescence. You all recall in the fourth quarter we brought the new automated assembly line, we’ve continued to run some of our manual lines in parallel as we converted over, built up inventory and made sure that we had stability in automation line. So this last quarter we completed, that changeover and there were some inventories and safety stocks that became obsolete that are not compatible with the new automated equipment. So long-term we believe, obviously this will improve margins, efficiencies and our cost structure, but the changeover, I see, there’s some cost involved in new inventory obsolescence. SG&A is down 80% year-over-year even with the restructuring charges. We did, in the last quarter, use some downsizing within the company. We executed reduction reports across our various locations. At this point, we reduced – if you look at salary and benefits versus the high…

Thank you very much. As Rick said, revenues for Q2 are $19.1 million, which were down approximately $2.7 million or 12.4% from the prior year, mostly driven by a push out of some of the large international orders, which originally scheduled to be completed during the second quarter. International sales were 16% of our sales in Q2 of 2010 versus 19% of sales in Q2 of 2009. Domestically, we also experienced some weakness in our law enforcement business in the second quarter, driven by a decrease in the stimulus spending, compared to the first quarter, with the federal and consumer sales also being a little bit lower versus the prior year levels. Gross margins $9.6 million or 50.4% of sales are down 12.5% as percentage of sales from the prior year. The decrease in margins driven by combination of factors including less favorable product and sales mix and creates direct labor cost due to increased use of temporary labor and overtime during the second quarter of 2010. Indirect manufacturing expenses increased in the second quarter of 2010 due to depreciation expense on our cartridge automation production equipment that Rick talked about, as well as depreciation of the tooling costs and other costs associated with the X3 and XRep product lines, as well as some one-time charges for restructuring and obsolete inventory write-offs, like mostly obsolete inventory write-offs were around the cartridge components that were used under manual lines that weren't compatible at the automated line. It was actually cheaper to write-off those components than to continue to run the manual lines. Finally, commercial launch of EVIDENCE.COM during the second quarter began to classify some of the related data center operating costs as costs of goods sold, which impacted gross margins by about 1% in the quarter. This impact was –…

Thanks, Dan. Okay. Speaking of some of the new products, as Dan mention AXON and EVIDENCE.com are now in general release. We have several paying customers at this point. And at last, I believe two weeks ago we had our annual master instructor school we had 130 of the top law enforcement trainers representing about 115 agencies around North America. That kind of number integrated the training exercise we ran there so we can showcase the product; get these thought leaders familiar with how the product actually operates. The response was excellent. Significant majority of the people they indicated they would love to begin using the system. They got the message point that 90% placed outside their vehicle. So the lean part cameras don't really catch the majority of other, anyway of that incident video of an incident, 96% of all complaints were dismissed by federal police. So it's resonating that this will be something to protect officers in the court room the way our products do out on the streets. However, we got our new technology right now in the short term is going to be challenging as many of you can see in a cut back mode. I'm sure you've all seen the headlines that city and government are particularly strapped right now as they're adjusting their budgets to the new fiscal environment where they are no longer projecting and be able to account an significant federal stimulus dollars. So while there's short term restructuring that's happening in our customer base, in the state and local areas, we live along the conducted technology looks very good. We also do expect there will be a longer sales cycle; this is a bit more complex sale because it now includes IT, not just tactical officers the administration of the department…

(Operator Instructions) Your first question comes from the line of Mr. Paul Coster of J.P. Morgan. Please proceed. Mark Strouse – J.P. Morgan: Good morning. It’s Mark Strouse for Paul. Just starting with EVIDENCE.COM and AXON, I guess, can you just give us an update as to how many pilots are being currently run and what are the size of those pilots? And I guess how are they being funded? Is TASER paying for those or are the customers paying for them?

We have about eight pilots that are currently on going. We do have paying customers in several of them. So for example, as we talked about, the country of New Zealand is a paying customer where they've done a national implementation of EVIDENCE.COM for handling all their TASER films and the TASER data. They're not yet piloting the AXON. We have two major agencies of more than 1,000 men each, where we've got approximately 10 to 20 AXON units in the field. We've got about five or six smaller agencies where we've got roughly five to ten AXONs in the field, would get two paying customers that have deployed purchased the units in the smaller agencies. Frankly, at this point our focus between now and the end of the year is going to be on the under 200 man agency size for a couple reasons. Those agencies were able to make decisions very quickly. That's where we really grew our business with the TASER devices because they’re not – they don't have the long decision making cycle. They also tend to have – frankly acknowledge the fully developed of an IT infrastructure. They're less likely to have an existing solution that we may be coming in and displacing with our products. So traditionally so far we've gone in and we’ve supported most of these initially where we've gone in and put these equipment with some trial and then focus on converting them into paying customers. Mark Strouse – J.P. Morgan: Okay. And I might have missed this and I apologize if I did. But with protector, can you just remind us with the go to market strategy is going to be there? If you're going to be marketing it yourself or carriers will be doing it?

Yeah, with the Protector, we're really focusing initially on the distraction management portion of that product line, frankly just because we were such a fevered pitch and there's sort of a number of folks that are looking into getting into that space about how to manage distractions while driving. So that's the first product that will come to market. Our focus at this point is transitioning modern alpha [ph] right now. So we've got working units basically within the company’s control that are being built at it. We'll be moving to beta this quarter where we start moving into non-employee beta testers and later in the fall, we'll be moving to more of a soft launch, where we will be focusing on working with advocacy groups and primarily consumer direct sales for the balance of the year so that we can stream line the customer's implementation process – make sure we've got all the features dialed in and then 2011, we will be focusing on scaling that part of it to both retail and our carrier partners. Mark Strouse – J.P. Morgan: All right. Just a couple more, if I can. With the U.S. stimulus spending, can you just give us an update on where you think we are in that? I mean, the majority has been spent or if the majority is still to come. Just your view on that spending

This is Dan Behrendt. Yeah, we've definitely saw a much larger impact from the stimulus in Q4 and then Q4 of 2009 and Q1 of 2010. We didn't see as much impact in Q2. You know, we think part of what's happened is some of that stimulus money has actually just helped to prop up the budgets and really just replace other capital, you know, capital that they had at their capital budgets. So it didn't have the positive increase to the capital budgets, we'd hoped for as really kind of allowed things to stay in the status quo. Certainly, we see a challenge on the municipal side, but we've sort of seen the business stay relatively flat year on year, but I think as we move into the second part of the year, I think the challenge will be how much of that stimulus money still exists out there. We certainly saw a much smaller impact in Q2 than what we saw in Q1. Mark Strouse – J.P. Morgan: Okay. And then with your existing products that are in the field with agencies today, I mean, is there any evidence of a large product replacement cycle coming up? Are you seeing any kind of like product wearing down or anything like that, that would need to be replaced anytime soon?

Yeah, I think – that's one of the thing we’re excited about as we look to the future. We have our useful life for our products are typically in the sort of five to six year time frame. The installed base of product that is in that five to six year range where we have some of these early adopters is well over 150,000 units at this point. So there's a significant opportunity out there for that. I think part of it is, you know, getting the customers to be pro-active as far as replacement and not just hanging on to the products until they fail in the field and this is a safety product. The Bulletproof Vests guys have done a great job in convincing the customers on a five-year cycle they need to replace Bulletproof Vests for safety reasons. Because our technology is a lot newer, we haven't really had that cycle yet. But certainly, with the large installed base, we do think that's a big opportunity as we move the business forward and as the budget environment improves. I think right now the challenge is, you know, if somebody's got something that's working, it’s probably will be a challenge to get them priority to replace it. But I think as the budget cycles improve these municipal budgets, I think that large base will be a benefit for those customers to start coming back for upgrades. Mark Strouse – J.P. Morgan: Okay. That's it for us. Thank you very much.

Great. Thank you.

Your next question comes from the line of Steve Dyer of Craig-Hallum. Please proceed. Steve Dyer – Craig-Hallum: Thanks. Good morning. Dan, in the past, you've kind of gone product by product and given us sales numbers. Could you do that again this quarter?

Certainly. So the X 26 units for the quarter were 13,503. We sold 711 M26s, 3,261 C2s and the cartridge sales for the quarter are about 258,269. Steve Dyer – Craig-Hallum: Okay. So cartridge kind of appears to be one of the larger weaknesses in the quarter. What are you seeing from your customers in terms of, you know, given the budget tightness? Are they just electing to train less often with the cartridges or are they keeping less cartridges in inventory or just not replacing handles or sort of, what is sort of their strategy given that they need these things in the field every day and at the same time now budgets are tight.

Yeah. This is Dan again. I think it's a little bit of all those things. I think it's really more sort of inventory levels. I think cartridges are definitely one of the things that you see purchases with sort of the budget flush moneys at the end of the quarter. I think, to an extent, the municipal budgets are weak, you don't see those purchases as much. But I think what we saw in 2009, you know, was a real strong year for cartridges after kind of a weaker 2008. So there's going to be sort of an ebb and flow. Obviously, as the install base continues to increase long-term, we feel good about the cartridge part of the business. But, you know, tough budget environment. I think, people can sort of, you know, kind of milk down their inventories a little bit and, you know, as a result defer purchases. I don’t think if the sales go away, I think it’s just more of a deferral. Steve Dyer – Craig-Hallum: Okay. And could you give a little color on the X3? It seems, at least in terms of press releases, to be a little bit slow coming out of the gate. May be, I don't think you gave that, the unit numbers for that this quarter. And what's your early perception on it? What are people telling you? And if there's a push back, is it cost? Is it size? What does it seem to be?

This is Rick. We've got a number of agencies that have deployed those. On it’s behalf, we're getting very positive feedback. The largest deployment at this point is Lakeland, Florida. It's gone a full deployment with the X3s and they're having great results with it. In fact, I met with one of their master instructors just last week. The challenge at this point is really primarily budgetary. That the price points of the X3 is added to this point. Agencies, lot of the agencies in the last six months have been going through layoffs. The stimulus in 2009, a lot of cases what we're learning is that allowed agencies to forestall restructuring and cutting back. And then early this year, the second which shifted and people – I think it become pretty – they don’t see the federal government continuing stimulus through the long-term strategy, a lot of these agencies have had to cut back. And so what we've heard is that just right now for them to upgrade to newer technologies, especially if they are at a higher price point when they're laying officers off, they'd rather cut back everywhere they can in their budget and try to save as many of their officer positions as they could. So it's made it a tough environment with these new products. And although we do have several major agencies testing the X3 right now, we're getting positive feedback. It's just proven to be a really tough environment to roll out new product into right now. People are sort of in a spacious mode. They'll maintain the projects and programs they've got but we don't see a lot of people investing in new technology. Steve Dyer – Craig-Hallum: Okay. And then my last question, just how do you see, I think domestically you're probably 35% or 40% penetrated. What do you sort of see as saturation at this point? I mean, it seems like maybe we've hit a little bit of a plateau here for awhile. And certainly, it's not a product that is necessary or works well for everybody but sort of where do you see your saturation point in the U.S. at least?

Well, I’m not sure we used that in terms of working well to everybody. Policing across North America and (inaudible) they face the same sorts of challenges and agencies – police agencies are seeing significant reductions in the number of cops that are injured. In fact, we used to stay in and when I was looking at some agencies that pulled TASERS off the street several years ago in a controversy and then put them back out and their early indications are that when they pull the things off the streets, there was a spike in injury to cops and service its outlook. And I believe even spike in police shootings that are inversely correlated with TASER deployment. So we believe that the TASERS are moving toward standard equipment. And that at the end of the day, police radios have nearly 100% penetration, firearms, the guns, pepper sprays, nearly 100% penetrated. And we believe over the long term TASER as well will be in that 80%, 90% penetration and work that penetration where it's being more accepted and necessary piece of standard policing equipment. Steve Dyer – Craig-Hallum: Okay. Thanks.

Thank you.

Your next question comes from the line of Eric Wold of Merriman. Please proceed Eric Wold – Merriman: Hey, good morning. Follow-up question kind of on the domestic landscape. As you kind of talked into there kind of taking stimulus out of the equation, what tends to be any major push backs and why they're not rolling out TASERS besides funding, if there are any? And is there any differentiation, you're seeing in trend between new agencies, equipping officers with TASERS for the first time versus existing customers going to full deployment?

Again, this is Rick. I would say that is already what we're hearing is it's 90% financial, particularly in the larger agencies. The larger the agencies, the bigger the budgetary problems it seems that they're having. There's pockets of smaller agencies that used to have budgetary surpluses. But on the major agencies, literally everyone that can face, I think of is in budgetary deficit. They're reducing the number of cops on the street. And in that environment, if this – you talk about police work, it's a very high camaraderie. It’s a very military type of organization. These guys look to each other as camaraderie in arms. They go out every day and put their lives on the line. Anything they can do to protect their friends, their comrades, their coworkers and that includes helping them keep their jobs, they're going to do. So the primary focus primary in our customer base is finding ways to keep cops out on the street. And they are going to destroy your measures like (inaudible). Some agencies have put two cops per vehicle rather than one. Some of the cops have gone to, been a part of proportionate shift to cut back on the gas consumption. Our training batch is across the board and there have been cut backs. I think the good news is relying on this is, unfortunately this year and in the early part of this year started where these agencies have finally hit a point, where they have to take painful steps of restructuring. And once they do, we think the budgetary sectors will return to more of a normal. In fact the situation, especially, when we start to see some growth in the economy and the tax base. The fact that they're cutting back their core operating expenses much like what we've done in our business. Now positions us well for profitability and growth, when the company starts growing, communicating with our customers. Their tax revenue starts growing, they will be able to start – They're going have to start investing in equipment. These agencies have really kind of stretched out and they're feeling pain of that over the last several years. They have not been investing significantly in new technology. Eric Wold – Merriman: Okay. Then following up on a question about the stimulus. Correct me if I'm wrong, I was under the impression of the majority of the stimulus dollars that law enforcement got approved for or requested had to be spent on equipment and stuff that otherwise was not in the budget and they otherwise could not afford. You kind of get a sense, they kind have got around that, so I want to understand if you’re applying for budgets?

Eric, this is Dan. I think it's a little bit of that. I think it's also that what happened is their normal capital budgets got swept into cover things like payroll and then they used the stimulus money to replace the capital budget. So we didn't really see the positive impact. It was sort of a pocket shift towards the capital budgets, used to issue pay salaries and then took the stimulus money and put it in the capital budgets to kind of keep the status close. So I think it was a little bit of a shift. I don't think they've used stimulus monies for salaries, but it's really more they just swept the capital budgets to use the stimulus in place. Eric Wold – Merriman: Okay. And then on the delayed orders from Q2 – you mentioned there are numbers that enclosed in Q2. You expect from one to two, at least one to two to close back out there. How many total orders were delayed and can you give any kind of a sense of a range of what you expect, what later could come back after those?

There was one very large order that we were working on. In fact, you look and Dan talked about some of the overtime expense and our inventory – They we're building up in anticipation of receiving that order this quarter. And it would have made a significant difference. I don't feel comfortable at this point divulging the exact magnitude, but it would have been, probably, the largest order or one of the largest orders in the company's history. And I think there’s two other internationals. So we have three little orders, are we going to close them all? Probably not as we'd love to. But any one of those three could be in the top tier of orders we've received in our history. And they've estimated the normal order flow internationally. These are three big ones that are out there for us. Eric Wold – Merriman: Okay. And then just lastly, just a couple of housekeeping ones for Dan. How much was the obsolescence charges or cost in cost until it gets in Q2?

$4,000 in Q2. About $4,000 year to date. Eric Wold – Merriman: If we look at SG&A $10 million, take out the $1.2 million, take out some for the, salaries and reaps in the quarter, is a new good quarterly run rate for SG&A somewhere in the $8 million to $8.5 million range?

Yeah. I think it’s probably more like $9 million to $9.5 million. I think that we're going to keep on driving that down. But there are sort of ebbs and flows. In Q3, we have our mass instructor school and tactical conference. In fact the look of a larger expense for us, but certainly we're going to continue to look at any of those discretionary items. We've seen significant reductions in like travel and meals this year. Significant reductions in the trade show expenses, just because we've determined that the trade shows we're not seeing in front of our eyes, either not attending or attending with a smaller booth and smaller presence. We've got creative as far as using some booths that are more temporary booths of these things that have had big savings on the generic, setup costs. We're really looking at everything we can to just take costs out of the business without impacting the development of new products or sort of the customer payroll would impact sales. But, other discretionary items have been very vigilant this year on. Eric Wold – Merriman: Okay. And then final one, when you talked about rolling the data center costs into our costs of goods sold. You said it impacted 1% in Q2 and should impact 3% margin in Q3. Is that 3% more than Q2 or kind of 2% more to get to a 3%?

Yeah. It gets to 3%. It was about 1.2% on the lower sales this quarter on kind of a normal sales level, expected to be about 3%. Eric Wold – Merriman: Okay. Thank you very much.

Sure. Thanks, Eric.

We'll do one more? Okay.

Your next question comes from the line of Peter Mahoney [ph].

Actually, our questions have already been asked, so thank you.

All right. Thank you, Peter. All right. So we appreciate everybody giving us your time this morning to participate in the call. We wish everybody a wonderful day and looking forward to a brighter second half to 2010.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.