Rick Smith – CEO and Co-Founder Dan Behrendt – CFO

Eric Wold – Merriman Curhan Ford & Co Greg McKinley – Dougherty and Company

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 equipment that constitutes for life, there will be pent-up demand. And we believe that as we come up to the backend of this, our customers as well knowing how painful it is to go through staffing cuts, are going to be more likely to focus on investing in efficiency systems, improving the efficiency in our workforce rather than just staffing right back up immediately. And our core systems both TASER devices and the new AXON and EVIDENCE.COM makes dramatic improvements in agency performance on a cost savings and return on investment basis. So we believe that positions us very well for the coming market conditions. In 2010, some specific highlights. One thing to point out, at the end of the year we saw our first major order for the TASER X3 for over a 1,000 units by the Arizona State Department of – I’m sorry the Arizona Highway Patrol, Department of Public Safety. Again we saw they finally were able to free up some budget dollars to make investment in upgrading their equipment. And over the course of the year, we actually were able to just start begin to drive some upgrades, the trend that we believe we’ll be able to continue and will be a major strategic focus in 2011. We also saw the launch of EVIDENCE.COM and AXON after a multiyear investment cycle. Not only in the U.S., but also in New Zealand that adopted our TASER CAMs and EVIDENCE.COM on a nationwide basis. I’ll talk more when we come back after the break, looking 2010 to talk more about our status in program forward with those exciting products. The Texas Department of Public Safety went full deployment after a multiyear sales engagement and test and evaluation program, with around 2,700 X26s, one of our larger packs, one of our larger deployment this year. We also successfully defended our intellectual property with a patent infringement case that we took all the way through, well it actually didn’t quite go to trial we want on pre-motion or pretrial motions, some re-judgment in infringements against Stinger Systems, a company that was violating several of our patent. That company was effectively dissolved in the Florida State equivalency of bankruptcy’s proceedings. We believe that is very strong message that TASER will defend our intellectual property. Its core to our business, its core to our mission and we believe we have the capabilities to do so very effectively. Finally we did – we took some important measures to streamline our cost structure in 2010. Again it was a bit of a tough year. At the top line we saw 16% decline in revenue, but due to some of the rigorous steps that we took in streamlining our processes and our expense structure, by the end of the year we were able to end in the fourth quarter a breakeven on a GAAP basis on obviously significant lower sales than the year before. But perhaps more importantly we were able to generate almost $300 million in cash from operations. We believe that has positioned us as we move into 2011, and as we obviously work on bringing the top line back to and above historical levels that the business is really positioned to be able to leverage increases in sales to consistent cash earnings and hopefully we’ll see that leverage generate throughout a GAAP basis as well. So before I move into talking about 2011, I’m going to hand over to our CFO Dan Behrendt to give a little more detail about 2010.

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 expenses for the quarter were $9.3 million. This is down a $0.5 million from the $9.8 million in the prior year. SG&A as a percentage of sales were about 40.8% of sales compared to 31.5% of sales in the prior year. Again it’s all driven by leverage because we are seeing reduction in the net SG&A cost due to some of the cost restructurings we’ve taken during the year. Most of that reductions from the prior year is driven by lower salaries, benefits, and stock compensation. The growth research and development expenses for fourth quarter were $2.5 million. This is actually down $3.1 million compared to 2009, decrease is driven by the fact that EVIDENCE.COM datacenter costs were now up and cost of goods sold at $1.1 million but also just structural changes were reduce the overall spend in research and development as some of the projects that we started previously are through most of the development and we’re seeing a reduction in expenses. We’ll continue to focus on our cost controls to making sure that expenses are managed as we gear towards returning to both near-term and long-term benefit for the company and getting leverage out of the fixed costs of the company. With the – on a cash basis, with the wrap up of our software development team in California and the resulting increase in 123R stock compensation and also the depreciation costs by the higher capital expenditures over the past couple of years especially the automation equipment put in place, we believe it makes sense to look at operating income on both a GAAP basis as well as traditional on a cash adjusted basis. The non-cash P&L expenses have grown at point where it makes sense to break them out. So on a GAAP basis, we actually had a pre-tax loss of $31,000 and a net of tax loss of a $197,000 or $0.00 loss per share both basic and dilutes, but on a cash basis, we did see income for the quarter of $2.9 million. For the full-year, we saw revenues of $86.7 million which is down $17 million from the prior year. Again we talked about the impacts of the economic downturn on municipal spending the reductions in stimulus funding. All those things had a similar impact on the total year-over-year sales. Gross margins for the year were $45.4 million or 52.2% of sales. Again the impact of the EVIDENCE.COM datacenter costs are impacting gross margins by $3.2 million for the year or 3.6% of sales. We’re also seeing lower leverage on the fixed costs, but again as we for – successful [ph] in growing the top line we’ll see that leverage return to the indirect manufacturing costs, improve gross margins. SG&A expenses of $39.1 million have decreased $4.4 million. Again attributed to the cost control measures we undertook during the year, we saw reductions in payroll costs versus the prior year of $1.2 million, reduced consulting costs by a $1 million, reduced professional fees by roughly $850,000, and travel is down $350,000. So we’re seeing dramatic impact to those cost restructuring. So we’ve taken during the year and we’re seeing that by up over than SG&A line and R&D. Our growth R&D expenses for the year were $12.7 million. That’s down $9.7 million on a gross basis versus the prior year, driven by a $5 million reduction in indirect supply, tooling and scrap charges. Again those we had much higher expenses in those areas last year due to the product development costs for AXON and the X3. We saw a $2.3 million reduction in salaries and benefits following the headcount reductions and a $1.2 million reduction in consulting expenses as volume development effort of EVIDENCE.COM and scale down. The growth $0.20 [ph] in 2009, R&D expenses are offset by $1.3 million and $2.3 million respectively at capitalized salaries and consulting fees for the development of EVIDENCE.COM. 2010 adjusted operating income of $5.8 million is the result of adding back the 123R charges and the depreciation amortization charges of $11 million. This compares to $8.5 million in the adjusted operating income for the prior year. We had a GAAP operating loss for the year of $5.1 million compared to $79,000 in 2009, and the net loss for the year is $4.4 million or $0.07 on both the basic and diluted basis. Moving onto the balance sheet. We just finished the quarter as Rick mentioned with $42.7 million of cash and investments. We actually had about $2.5 million increase in cash in the fourth quarter, mostly driven by the cash earnings. Overall our cash is down $2.8 million from the prior year, but considering the sales levels for the year and the investments we’ve made in the business, I think that’s a good result for the year. Accounts receivable of $13.5 million, its down $1.8 million from the prior year. Again mostly due to the timing collections and lower quarterly sales in the fourth quarter of 2010 versus the prior year. Inventory finished the year at $17.8 million. This is up $2.7 million from the prior year. Again that’s really driven by the inventories for the AXON and also video devices is the biggest driver there. Prepaid and other assets of $2.9 million are up $1.3 million, mostly driven by income tax receivables and other long-term assets. The investment in property and equipment of $35.9 million is down $2.8 million. This is really driven by the fact that we’re – we’ve got $7 million of depreciation expenses now. We’ve offset that with some new investments $1.9 million for production equipment in computer equipment for this year and another $2.2 million of capitalized EVIDENCE.COM (inaudible) development costs. And then we finished the year with total assets of $136.1 million. On the liability side of the balance sheet, accounts payable of $4.6 million is down $1.8 million from the prior year, really driven by the timing of differences in AP check runs as well as we had year-end 2009, we had the final payments for automated cartridge lines still obtainable at year-end, those were paid in the first quarter of 2010. Accrued liability is just $3.8 million, decrease to $0.5 million due to decreased used tax, decreased bonuses due to lower sales and then decreased legal accruals. The total deferred revenue is $7.7 million is up slightly $67,000 from 2009 related to the training credits and the extended warranty sales. Total liabilities is $18.6 million and finished the quarter with and the year with $117.6 million of stockholders equity. Again we’ve got no long-term debt. We continue to have liquidity to fund the R&D and operations as we move into 2011 here. On the cash flow, the company did have cash from operations for the year of $784,000 compared to $10.1 million to the prior year. The per year cash from operations is driven by number of factors including the cash operating income of $5.8 million. We did have another offset by $1.8 million – actually to the $1.8 million is receivables, $2.1 million of non-cash charges for inventory and warranty reserves. And those were offset by a $4 million increased inventory, a $1.7 million increase to prepaid other assets and a reduction of AP at $3.3 million. Again a significant cash generated from operations. The prior year was driven by the cash earnings of $8.5 million and various changes to the operating assets and liabilities with the most significant being the increase in inventory to prior year of $2.4 million. Net cash used by investing activities in 2010 was $4.5 million compared to $11.7 million in the prior year. Again the decrease is driven by the decline in production in computer equipment purchase this year versus last year. Again last year we saw the purchase of the automation equipment as well as a significant amount of capitalized cost relating to EVIDENCE.COM development. We did finished the year with $42.7 million of cash. And we’re confident that our strong liquidity will improvise for the means to manage the business. During this challenging times, we’re also obviously focused on growing our business throughout 2011. Well so now I’ll go run through the sales statistics as well as before I turn it back over to Rick Smith. The X26 units for the fourth quarter were 10,222. We sold 3,792 M26 units. We sold 1,106 X3 units. We sold 3,909 C2 units. 1,535 TASER CAMs, and our cartridge sales for the fourth quarter were 319,459. And with that I’ll turn it back to Rick Smith, our CEO.

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 generation type mode. Another thing I think you’ll see is in our product development capabilities have really matured. If you look at the frankly massive increase in R&D spending that occurred from ‘06, ‘07, ‘08, and ‘09. I think that much capability made to investment cycle like a learning opportunity through organization as well. And frankly you don’t hit the ball right on a 100% of your investments, but what you do is you learn important organizational capabilities, and now we’re able to take the advantage of that and streamline it to where I believe what you’ll see in 2011 and beyond is comparable or even greater levels of product innovations at significantly reduced spend levels. So I’ve got some investors are asking me about with some concern about the sequential decline in overall R&D spend. And my answer to that is we’re not cutting back on the pace or capability that – capabilities you were developing for our customers which is really able to mature and streamline those operations as an organization. So it’s that we’re getting a lot more (inaudible), I think we’ll see significant dividends from that in the future. We’ve also spent significant efforts on formalizing our voice of the customer integration. Last year we held our first formal innovation summit where we brought together engineers, who brought our company, our sales force and various representatives of our customer base to better understand our customers need, and it turned it to be a highly engaging event, very instructive for our engineers to become much more tightly integrated with our customers. We coupled that with a number of quantitative tools that we’re using to gain widespread quantitative data about customer technology use, the challenges they are facing and their foremost pressing need. So between a variety of qualitative and quantitative tools, we believe that we’re really generating a product innovation and deployment machine here at TASER which is tightly coupled with the needs of our customers and we’re getting better and better at it and that bodes well in my opinion into the future. We’re also focused on finding new sources of revenue while we’re streamlining our past. One example there is the Wildlife TASER that we announced this quarter. We’ve surely seen some humorous input on the Wildlife TASER, one of my favorite shows over at the Colbert Report did a fantastically funny segment on the Wildlife TASER. But that itself is really no joke. We were able to develop new Wildlife TASER for probably less than $20,000 in total. It was some far more changes and some testing required, not a huge lift but, it was something that many of our customers were asking for in the law enforcement across North America and really around the world, how – in many cases animal control segments that have to deal with wild animals in some cases. Particularly in areas in Alaska, there are towns where a significant safety issue is bears that come into the town for feeding purposes. And those wildlife specialists are charged with trying to find ways to keep the bears out of populated areas. And they destroy a lot of animals every year. And frankly people get killed and injured as well. And it’s been related to back to us that the Wildlife TASER technology we’ve developed is uniquely capable not only incapacitating a wild animal so it could be tranquilized and moved, but perhaps more importantly and more practically animals that had been hit with the Wildlife TASER, there is an important physiological effect where those animals do not return to the scene where the TASER was used. And that is the fundamental goal of these wildlife control specialists is to keep large predators out of human populated areas. Is it a huge market? No, but we’ve had significant interest from around the world from African countries where they have some very large animals that represent certain challenges in dealing with (inaudible) population of those animal. It fits our distribution channels into these government agencies. And it’s a nice opportunity that with a relatively small spend, we believe the ROI will be very healthy on that project. And I’ve been frankly quite surprised with the level of real interest that has gained in wildlife control markets. We’re focused on careful market testing and growth. At this point, the Protector product that we invested in last year. We introduced that at CES. We are showing it now and what I’ve characterize it is at test market mode. We have tremendous publicity and interest on that product. At this point we are looking very carefully at our go-to-market strategy. We are not going to make heavy investments to try to build a consumer distribution channel, as you all know that can be very expensive proposition, but we’re focused on tweaking features and interacting with customers and we’re not going to invest heavily so we have a proven model. And at this point the distraction management market is one of significant importance at the highest levels of government, but it is a fairly immature market from the perspective of there is not a significant revenue base out in that marketplace on a competitive basis for our products yet. So we’re going to take that carefully and manage it in line with the rigorous principles of making sure that we are focused on profitability and innovate and operational excellence this year. Our second primary focus is the AXON and EVIDENCE.COM sales ramp. Now AXON, one of our accomplishments in 2010 is that that product is now commercially available. We have a number of test agencies that began in late ‘09. Some agencies that purchased in early 2010. Earnest sales efforts really began in the third quarter. We are finding that the sales cycle is longer than we had initially anticipated. It is more complex solution sale than our typical hardware sale, and there is some maturation that’s occurring in our sales processes and pipeline management. Over the last year we’ve put it in a much more rigorous sales management tools. We are – at this point we’re finding some of the features in partnership with our customers. This is a fairly complex end-to-end system. And frankly at this point one of the biggest issues we’re working through are ergonomic issues. And we have several new mounting systems coming online this quarter. When you’re asking somebody to wear something on their head, comfort becomes a very primary concern. And we continually iterating and what we’re finding is the more options we have available every individual is different, some people want to wear it on hat mounts, some will wear it on a headband, some will wear it on glasses, some will want to wear it mounted on a collar or somewhere else in the upper torso, but we’re iterating through those. The important point is that the value proposition we’ve put forth is very well received. And we’re seeing near universal acceptance that these types of systems are coming. It is rare, in fact I cannot recall a customer that we’ve met with that is disputed that this is the future. They all recognize that video systems are coming, but they believe they will be standard issue equipment for every officer at some point in the future, obviously there are some different viewpoints as to how long that process will take, but we’re seeing consistent confirmation that we are on the right path and we’re on a growth phase. Let me give you one sample quote from one of our customers. And this will give you an idea of why I am so enthusiastic about the AXON and EVIDENCE.COM business segment. Quote, we have been using AXON system for several months now and are extremely pleased with it. First of all, it bolsters our case preparation with strong audio and visual evidence. It will lower cost by reducing court time. Records and evidence staff time, IT staff time and city and county attorney prep time. It has also reduced the number of false allegations against our officers. When complaints are initiated, we invite the complainants to come in and view the AXON video with us. So far no one has taken us up on that invitation, plus after discussing with our current policy and procedures concerning internal investigations, our city attorney told us that if video captures the event that the video can stand as the formal investigation. Under those circumstances it avoids the entire need for a statement of allegation, girdy [ph], officer witness interviews, etcetera. We’ve been able to do that twice already. One was an excessive use of force compliant. The other was an improper staff in search of a vehicle. Both times the videos clearly showed the officers did everything right. The AXON has been a great tool for us and by the way TASER has been a tremendous business partner to work with, end quote. We’ve also this past year had the opportunity to build not only our internal staff, our network of advisors, we all saw Hadi Partovi joined our Board as our newest Board member. Hadi Partovi was the founder of internet, I’m sorry he is the founder of Tellme Networks that was purchased by Microsoft a few years ago for little under $800 million. He was also a founder together with his brother of internet LinkExchange in the mid-1990s, also very successful venture. And he is one of the earliest advisers to Facebook and he is very well connected throughout the tech community, his last venture iLike was purchased my MySpace few years ago. We also have established advisory relationships with a number of other folks in the software-as-a-service space. And we’re getting very positive feedback from those advisors that there is some patience required when selling a software-as-a-service business. And particularly one that couples with a hardware solution, that the sales cycle tends to be long, quite a few things tend to have a hockey stick like adoption curve once you breakthrough a certain level of performance. And again based on the feedback we’re getting about the capability, we still have work to do in terms of we’re finding the exact features down but our core value propositions are very well received and the core infrastructure is stable enterprise rate platform that is positioned for growth. So at the end of the day this has been a not an insubstantial investment both in terms of time and focus of personnel and financial resources, however it clearly has the potential to be comparable to our frankly significantly larger than our core business. So we continue to believe that in the time when the market are that we believe this will have been as we look back on it in a few years, an excellent opportunity for the business to have moved into that leverages our core business relationships and law enforcement, our core training capabilities, our hardware innovation and our now software development capabilities we’ve built in the last few years. So AXON and EVIDENCE.COM lot of promising things happening there. Our third area of focus in the international space. International orders again were over I believe 20% of revenue in 2010. We’ve recently announced a number of additional orders in the international space. We continue to see a very robust pipeline with a significant opportunities ahead of us in 2011. Our fourth area of focus is really developing a world class people advancement system, our human capital systems had become much more rigorous in the past year. Everybody who went through TASER’s interview in recruiting process a few years ago found it was fairly informal. It has become very rigorous in fact again Hadi Partovi one of our advisors has been recently charged with helping Facebook to establish their Washington State presence and audience [ph] one of his real areas of expertise is in human capital systems and frankly Facebook and Google are considered best in class. And probably before actually just in the last few months one of our latest recruits a Stanford Mechanical Engineering who’d gone through recruiting at Google, when we did the interviews, we didn’t post our interview process really get back to us said, he found the TASER interview and selection process, everybody rigorous as Google. Something that we take tremendous pride in hearing that back. So we’re recruiting throughout the organization, particularly the engineering and through entry point levels in the company planting the seeds for the trees that will grow into really up to this company have the right systems and people to grow over the long-term as well as we’ve been spending a lot of time in the last six months on our internal review feedback and people development processes, because obviously the people of any business are the core. And so we’re really putting the right systems in place to grow and develop our people and to continue to recruit best in class. So again those are things that we could believe will lead to long-term leverage in the business as we continue to improve the rigor of our execution. And finally, the fifth major focus for this year is driving an upgrade cycle in our core ECD business. We saw – we ended the year with the order from the Arizona State Patrol upgrading from their 26s to X3s. Last year we did announce the end of life of the M26 in North America. We did see that that was did help many agencies to upgrade their systems to the X26s. We do have a significant portion of our installed base with weapons that were bought in 2003, 2004, 2005. They are recognizing that those devices are now over five years old and what they now usually use is nobody is hearing a cell phone they had five years ago, electronics do have finite lives. And we’re very much focused on working with our customer base to bring them the right solutions and opportunities to upgrade that hardware. And we believe that has the opportunity to be significant in 2011 and beyond. So at a very high level, our focus is on returning to profitability in 2011 by finding new sources of revenue, both irretrievably like the Wildlife TASER, with relatively low level of investment, repurposing some of our technology to adjacent market, finding relatively low less way to create value that take advantage of our distribution channel in our existing markets. And doing this in a rigorous way that’s very much focused on efficient execution with good cost controls so that we can grow the top line and get the leverage in at the bottom line that we believe we’ll make this a very exciting business on a financial basis the same way that is exciting I think today on a promising innovation basis for the product that are coming out of our pipeline. And with that we’ll take a few moments to take some questions. And then we’ll send everybody on their day.

(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.