Good day ladies and gentlemen and welcome to the Fourth Quarter 2010 TASER International Incorporated Earnings Conference Call. My name is Regina and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) Today’s conference is being recorded for replay purposes. I would now like to turn the conference over to our host for today’s event, Mr. Rick Smith, Chief Executive Officer. You may proceed sir.

Thank you. And thanks everybody for joining us this morning. As is the norm, I will turn over to our CFO Dan Behrendt to first read the Safe Harbor statement, and then we’ll get started.

Thanks Rick. 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 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 endorsements 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 our markets in which we compete and 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; and the 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 of suppliers; fluctuations in component pricing; risk of government investigation regulations; TASER product tests and reports; dependence upon key employees, employee retention risks and other factors detailed in the company’s filings with the Securities and Exchange Commission. With that, I’ll turn it back over to Rick Smith.

Thanks Dan. Okay, again thanks for joining us to everybody to look back at 2010, but more importantly looking forward in 2011. As is no secret, 2010 was a challenging year in general and particularly for our customers in municipal law enforcement. Going back to 2009, the stimulus program was in full swing in ‘09 and we had a record year that year. What it became clear in 2010 that the stimulus spend was not going to continue, really what happened was some necessary restructuring in the cost structure of many governments and particularly municipal agencies that was forestalled from ‘09, there were prop up operations with stimulus spending, 2010 was the year to that the music stopped and everybody had to find its share. Then we did a particularly tough year to be selling capital equipment into frankly paramilitary agencies that have a very tight bond of brotherhood in one of the agencies looking going through staffing cuts, they will go to extra lengths to try to preserve the jobs of their men and women at arms. And in those environments trying to sell new equipment and new capabilities is exceedingly difficult. And frankly we don’t dispute to be priorities of our customers were very close with that community. I would say that 2011 is a bright new day in our opinion. Our distribution network is giving its very positive signs. Our discussions of law enforcements, it seems that many agencies have been through the restructuring or at least they are in the midst of it now. And by the midpoint of the year, we believe that we’re seeing a fundamental shift where agencies will be coming out of this staff cutting mode. And as they do, they will be facing up to equipment shortfall, shortage in cartridges, outdated…

Okay, thanks Rick. So I’ll start with the results for the fourth quarter. Revenues as Rick said for the fourth quarter were $22.9 million. This is down approximately $8.2 million from the prior year adjusted revenues, which were impacted by of the $3.5 million deferral related to the X26 training program that we started with the introduction of the X3 Electronic Control Device. The decrease in sales versus the prior year quarter was primarily driven by clear individually significant orders especially to our international customers, and the way it’s been getting the AXON [ph] in the market as well as the reduction in stimulus funding for law enforcement equipment that we saw in 2010 versus the prior year 2009, where we saw a much higher stimulus funding for our products. Total year sales for 2010 were $86.9 million. This represents a 16% reduction from 2009. The gross margins for the fourth quarter were $11.8 million, or 51.7% of sales are down 7.2% as a percentage of sales. This was really one of the bigger impacts and drivers for that reduction is the fact that we’re now including $1.1 million of software-as-a-service datacenter costs and software maintenance costs into the cost of goods sold line. This presents about 4.8% of sales. So that’s a big part of that reduction, because we’re now including those costs up in the cost of goods sold. The remaining 2.5% decline is really driven mostly by decreased leverage on our fixed manufacturing overhead costs, with a lower sales level this year. We are seeing improvements in our direct manufacturing costs specifically in labor. The automation is really starting to have a positive impact on our margins and seeing the efficiencies related to some of the greenbelt projects we’ve started during 2010. Moving onto SG&A expenses. SG&A…

Thanks Dan. All right, I’m going to talk about 2011 now. In particular, I want to focus on the company’s top priorities. So we’re going to talk about five key priorities for 2011. Our first priority is efficiency and profitability in the business. So I mentioned before the break including timely [ph] efforts that we’ve taken to streamline our cost structure in a declining revenue environment this past year. It was generate $3 million in cash in our sales in last quarter. We believe that’s a trend that we can continue well into 2011 from a cash generation standpoint. We are coming off a large investment cycle, you’ll recall in late ‘07 and in to ‘08, we talked about the opportunity we saw with the emergence of video having a data storage and management challenges that video present to professional agencies like law enforcement. We see that as an important opportunity, an important trend and we decided to fundamentally invest the profit of the business over the few years into building a software-as-a-service and hardware capability that would enable us and position us to where the market was going. We’re skating to where we see the puck [ph] few years ahead. In intervening years, we did have a global financial crisis, but as I think I mentioned before, we believe that we’ve taken the right steps to position ourselves very well as we come out of this cycle both in the investment standpoint of TASER and from the global economic cycle perspective. And I’m also pretty proud that if you look at, we’ve been fundamentally able to do this or fund this new business opportunity out of cash from operations and maintain a small balance sheet with fundamentally no debt, as well as starting to return now to a cash…

(Operator Instructions) Gentlemen your first question today comes from the line of Eric Wold with Merriman Capital. Eric Wold – Merriman Curhan Ford & Co: Hi good morning.

Good morning. Eric Wold – Merriman Curhan Ford & Co: Good morning. So question on the kind of the replacement cycle that were kind of waiting for and to get a start again kind of in the second half as year when budgets open up. Do you think you would need to do anything kind of discounting or kind of trade-in promotions to get that going or you’re hearing with regard from agencies on that, and then would that be advantageous to keep those used devices off the street kind of get them in your hands and eliminate that the issue?

Yes. Eric, this is Dan Behrendt. That’s a good question, I think what we saw in 2010 is that we did have to give in some cases some small trade-in credits, I think it’s probably more of an emotional issue to give the customers some value for a product that its fielded. And would that that significant I think it just helped us sort of drive things forward. I think we’re seeing more and more customers just acknowledge the fact that these products are at the end of their useful lives. And I think the fact that we’ve got a product that’s got such a high ROI for our customers I think helps, because in cases like in Houston, where the chief went to city council, they used the fact that this is a product that had a higher ROI as a part of the justification to start upgrading their products over the next couple of years. So I think, we feel very good about that process as we go forward and the potential in that affords the business.

Yes, this is Rick. Let me comment on that as well, I think your point about having some trade-in credits to get some of the older devices out of circulation. There is merit to that as well. But in terms of the driving factor, we believe the bigger factor in 2011 will simply be frankly the fact that the bogyman of pending staff cuts is getting behind many of our agency customers on a time basis, which allows them to then start to focus more on okay, we’ve been through the adjustments now, what do we need to do though, a lot of the capital equipment is just really in need of upgrade including their TASER devices. So that’s sort of the key and then we have pulse [ph] different types of trade-in programs overtime and that will likely remain part of our strategy to help to drive that process. Eric Wold – Merriman Curhan Ford & Co: A follow-up on that, are you likely to see the X26 users that are looking are kind of getting towards end of life on their device, you’ve stick with the X26 and kind of replace that or are you getting feedback so they actually are considering a greater percentage moving up to the X3?

We’re seeing both. And we’re focused on from a pipeline perspective making sure that we’ve got a suite of product with compelling in terms of upgrades. Obviously we’d like to bring our customers up to greater capabilities rather than simply replacing what they’ve (inaudible) wears out, and just get them to useful lines [ph] with the same platforms. But we’re seeing interest in both spaces. Eric Wold – Merriman Curhan Ford & Co: Okay, and then lastly looking at the international markets, not looking for comments on specific countries or agencies, but maybe give a sense of where you are now versus maybe a year ago in terms of various trails going on with some of these countries that maybe close to a decision. What is the outlook look now versus maybe how closer lot of these places.

Yes, this is Dan Behrendt. I think the really the focus has been really in making sure that pipelines is robust as possible. So we’re – a year ago we were talking internal, externally about maybe just a few opportunities, I think that number has certainly increased over the year, and really focusing on leveraging our distribution network and making sure that we’ve got a lot more things in the pipeline at any given time. And I do feel that from a pipeline perspective the pipeline is certainly both the number of opportunities and the relative size is certainly better versus the prior year.

I would say as well we made some investments over the past few years in putting some sales offices abroad. We have been experimenting with trying different types of approaches in different countries. One example was actually putting a full time trainer into a country in order to help bolster the success rate of their deployment of product and the end-user experience. We’ve put more of a sales oriented employee into another market. We’ve used consultants in various markets in contrast to the typical rule of giving exclusive distributors to being more sort of governmentally aid on [ph] type resources as opposed to sort of product resellers. And I think part of reason we’re seeing a more robust pipeline. We do tend to see the international markets have a multiyear development cycle. So from the time you make those investments, until you start to see the return is we would just say they are probably 24 months or so and.

Yes, certainly 18 to 24 months which is part of why we want to have that big pipeline.

So we’re feeling pretty good about the international opportunity in 2011. Eric Wold – Merriman Curhan Ford & Co: Perfect. And then final question, if I look at the breakdown you gave Dan in terms of the units of each – various products in kind of you used kind of recent ASPs but I’m still getting short on the $22.9 million putting to that. Was there any large other revenue in the quarter or how large was the revenue from the other recent products like your XREP and the Shockwave etcetera?

Yes, I think probably the bulk of the difference Eric, is going to be driven by like extended warranties, training, things like that. That’s actually got informal the fairly material part of the business. So there is in any given quarter there is $1.5 million to $2 million worth of warranty in training, and out of warranty replacement sales in any given quarter. Eric Wold – Merriman Curhan Ford & Co: Perfect. Thank you, guys.

Thanks.

Thank you.

Your next question comes from the line of Greg McKinley with Dougherty and Company. Greg McKinley – Dougherty and Company: Thank you. Can you give us a little more sense around what you anticipate the run rate to be in a couple of your operating expense lines, I know we did see a big reduction in R&D for the full-year but it bumped up sequentially, despite I guess a reclassification of certain of those EVIDENCE.COM expenses from R&D to cost of sales. So I am wondering if you could talk a little bit about what caused the increase there despite that re-class and what we should expect going forward? And then maybe also if you could just provide similar color on general and administrative expenses? And then finally on your gross margin rate, again I thought perhaps with that re-class, the margin rate may have been a little lower sequentially, but it was up sequentially. Any observations you can share on that?

Sure. So good question, this is Dan Behrendt. So on the R&D side, the probably the biggest difference from Q3 to Q4 is we had more of the software kind of rework type expenses get re-classed to up in to cost of sales and Q3 versus Q4 majority of our software development efforts were really sort of new features in traditional development. So that amount of the re-class of the cost of goods sold was significantly lower. On a total spend base, it’s just really kind of pocket shift between R&D and gross margin. The expenses that we saw for Q4 – that’s it’s going to be around that range as we go into 2011 probably certainly actually little bit higher but on a run rate basis, it’s not going to be dramatically different than that. As far as SG&A, it’s kind of same thing obviously there is fluctuations in SG&A quarter-to-quarter depending on activities, trade shows. Second quarter we all did see higher SG&A because the cost related to training a (inaudible) and doing a shareholders meeting and stuff. But overall, we’re really focused on keeping the cost down in 2011 to make sure we’re getting leverage back to the model. On the gross margin side, I think leverage – we’re going to continue to work to get more efficient on the operation side of business. We’ve done a lot of quality training and greenbelt trainings. We’ve got a number of those projects we think will bear fruits in 2011. But there is still – especially with the automation equipments some of the other investments, there is fair amount of fixed costs. So really the leverage is going to be a big driver to the reference margins as well as we go into the current year. So we do feel that we’re really well positioned, I think that if we get start getting some traction and start seeing some sales increases, I think we’re well positioned for profitable growth there. Greg McKinley – Dougherty and Company: Thank you.

Sure.

Great. Go ahead.

No, I was just going to turn the call over to you. Go ahead.

Okay. All right, well again we’d like to thank everybody for spending your time with us this morning. Have a fantastic day. We’ll be back to talk to you in, I believe April, and hear us to a fantastic 2011. So thank you very much and have a great day.

Ladies and gentlemen, thank you so much for your participation in today’s teleconference. This concludes the presentation and you may now disconnect. Have a wonderful day.