AXON ENTERPRISE, INC. - Quarter Report: 2011 June (Form 10-Q)

 

 

United States Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

o		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-16391

TASER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		86-0741227
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification Number)
17800 N. 85th St., SCOTTSDALE, ARIZONA		85255
(Address of principal executive offices)		(Zip Code)

(480) 991-0797
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer company o		Smaller reporting o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

There were 59,497,286 shares of the issuer’s common stock, par value $0.00001 per share, outstanding as of August 4, 2011.

 

 

TASER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED June 30, 2011
TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Consolidated financial statements (unaudited)
Consolidated balance sheets as of June 30, 2011 and December 31, 2010			3
Consolidated statements of operations for the three and six months ended June 30, 2011 and 2010			4
Consolidated statements of cash flows for the three and six months ended June 30, 2011 and 2010			5
Notes to consolidated financial statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 6. Exhibits			33
SIGNATURES			33
INDEX TO EXHIBITS			34
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Items 3, 4 and 5 are not applicable.

PART I — FINANCIAL INFORMATION

ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS

TASER INTERNATIONAL, INC.

		June 30, 2011				December 31, 2010
ASSETS
Current Assets:
Cash and cash equivalents		$	27,719,405			$	42,684,241
Short term investments			10,775,112				—
Accounts receivable, net of allowance of $200,000 at June 30, 2011 and December 31, 2010, respectively			9,978,838				13,542,535
Inventory			16,049,209				17,815,405
Prepaid expenses and other current assets			3,449,974				1,999,525
Deferred income tax assets, net			8,129,195				6,284,489
Total current assets			76,101,733				82,326,195
Property and equipment, net			31,768,928				35,905,765
Deferred income tax assets, net			13,819,753				13,919,753
Intangible assets, net			3,145,911				3,090,876
Other long-term assets			716,493				944,346
Total assets		$	125,552,818			$	136,186,935
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	4,995,678			$	4,550,789
Accrued liabilities			6,603,304				3,759,800
Current portion of deferred revenue			3,023,251				3,265,260
Customer deposits			276,417				372,145
Total current liabilities			14,898,650				11,947,994
Deferred revenue, net of current portion			3,719,053				4,392,860
Liability for unrecorded tax benefits			2,279,851				2,281,840
Total liabilities			20,897,554				18,622,694
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.00001 par value per share; 25 million shares authorized; no shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				—
Common stock, $0.00001 par value per share; 200 million shares authorized; 59,704,086 and 62,621,268 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			647				647
Additional paid-in capital			98,965,932				97,122,085
Treasury stock, 5,013,450 and 2,091,600 shares at June 30, 2011 and December 31, 2010, respectively			(27,208,053	)			(14,708,237	)
Retained earnings			32,910,091				35,185,191
Accumulated other comprehensive loss			(13,353	)			(35,445	)
Total stockholders’ equity			104,655,264				117,564,241
Total liabilities and stockholders’ equity		$	125,552,818			$	136,186,935

The accompanying notes are an integral part of these consolidated financial statements.

TASER INTERNATIONAL, INC.

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2011				2010				2011				2010
Net sales		$	21,198,055			$	19,120,525			$	44,315,004			$	42,964,426
Total cost of products sold			8,956,362				9,489,815				19,865,649				19,843,295
Gross margin			12,241,693				9,630,710				24,449,355				23,121,131
Sales, general and administrative expenses			9,065,847				9,988,885				18,401,230				20,276,107
Research and development expenses			2,793,235				3,055,049				5,545,699				7,194,965
Litigation judgment expense			3,301,243				—				3,301,243				—
Loss on impairment			1,350,504				—				1,350,504				—
Loss on write down / disposal of property and equipment, net			747,409				22,510				757,038				34,442
Loss from operations			(5,016,545	)			(3,435,734	)			(4,906,359	)			(4,384,383	)
Interest and other income, net			1,261,885				6,203				1,288,206				14,102
Loss before income tax benefit			(3,754,660	)			(3,429,531	)			(3,618,153	)			(4,370,281	)
Income tax benefit			(1,459,828	)			(2,070,142	)			(1,343,053	)			(2,518,287	)
Net loss		$	(2,294,832	)		$	(1,359,389	)		$	(2,275,100	)		$	(1,851,994	)
Loss per common and common equivalent shares
Basic		$	(0.04	)		$	(0.02	)		$	(0.04	)		$	(0.03	)
Diluted		$	(0.04	)		$	(0.02	)		$	(0.04	)		$	(0.03	)
Weighted average number of common and common equivalent shares outstanding
Basic			60,605,140				62,333,929				61,515,979				62,450,722
Diluted			60,605,140				62,333,929				61,515,979				62,450,722

The accompanying notes are an integral part of these consolidated financial statements.

TASER INTERNATIONAL, INC.

		For the Six Months Ended June 30,
		2011				2010
Cash Flows from Operating Activities:
Net Loss		$	(2,275,100	)		$	(1,851,994	)
Adjustments to reconcile net loss to net cash (used) provided by operating activities:
Loss on impairment			1,350,504				—
Depreciation and amortization			4,117,580				3,128,328
Loss on write down / disposal of property and equipment, net			757,038				34,442
Provision for doubtful accounts			14,580				2,764
Provision / write-off of excess and obsolete inventory			328,870				806,350
Provision for warranty			79,886				321,137
Stock-based compensation expense			1,839,924				1,926,220
Litigation judgment accrual			3,301,243				—
Deferred income taxes			(1,744,706	)			(1,427,397	)
Provision for unrecognized tax benefits			(1,989	)			(65,159	)
Change in assets and liabilities:
Accounts receivable			3,546,984				4,383,916
Inventory			1,044,680				(4,797,031	)
Prepaids and other assets			(1,592,862	)			(2,705,926	)
Accounts payable and accrued liabilities			(599,996	)			(2,159,154	)
Deferred revenue			(915,816	)			119,355
Customer deposits			(95,728	)			(105,793	)
Net cash provided (used) by operating activities			9,155,092				(2,389,942	)
Cash Flows from Investing Activities:
Purchases of investments			(10,775,112	)			—
Purchases of property and equipment			(659,872	)			(3,193,856	)
Purchases of intangible assets			(213,276	)			(180,053	)
Net cash used by investing activities			(11,648,260	)			(3,373,909	)
Cash Flows from Financing Activities:
Repurchase of common stock			(12,499,816	)			—
Proceeds from stock options exercised			3,923				961,037
Net cash (used) provided by financing activities			(12,495,893	)			961,037
Effect of exchange rate change on cash and cash equivalents			24,225				(102,981	)
Net decrease in cash and cash equivalents			(14,989,061	)			(4,802,814	)
Cash and cash equivalents, beginning of period			42,684,241				45,505,049
Cash and cash equivalents, end of period		$	27,719,405			$	40,599,254
Supplemental Disclosure:
Cash paid for income taxes		$	36,000			$	528,532
Non-Cash Transactions:
Property and equipment purchases in accounts payable		$	507,260			$	39,134

The accompanying notes are an integral part of these consolidated financial statements.

TASER INTERNATIONAL, INC.

1. The Company and Summary of Significant Accounting Policies

TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced electronic control devices (“ECDs”) designed for use in law enforcement, military, corrections, private security and personal defense. In addition, the Company has developed full technology solutions for the capture, storage and management of video/audio evidence as well as other tactical capabilities for use in law enforcement. The Company sells its products worldwide through its direct sales force, distribution partners, online store and third party resellers. The Company was incorporated in Arizona in September 1993 and reincorporated in Delaware in January 2001. The Company’s corporate headquarters and manufacturing facilities are located in Scottsdale, Arizona. The Company’s internet services and software development division facilities are located in Carpenteria, California.

The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, TASER International Europe SE (“TASER Europe”). TASER Europe was established in 2010 to facilitate sales and provide customer service to our customers in the European region. All material intercompany accounts, transactions, and profits have been eliminated.

a. Basis of presentation, preparation and use of estimates

The accompanying unaudited consolidated financial statements of TASER include all adjustments (consisting only of normal recurring accruals) that in the opinion of management are necessary for the fair presentation of the Company’s operating results, financial position and cash flows as of June 30, 2011, and for the three and six months ended June 30, 2011 and 2010. The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted from these unaudited consolidated financial statements in accordance with applicable rules. The results of operations for the three and six months ended June 30, 2011 and 2010, are not necessarily indicative of the results to be expected for the full year (or any other period) and all results of operations included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

b. Segment information and major customers

Management has determined that its operations presently are comprised of one reportable segment, the sale of ECDs, accessories and other products and services. Based on the introduction of new product offerings in 2010, management will evaluate how the operating results of the Company will be reviewed internally on a go forward basis in order to improve the level of resource decision making and assessment of segment performance. Based on this evaluation, management will make the necessary changes to its internal management reporting system and subsequently, will perform a review to determine if the Company will redefine its reportable operating segments in accordance with U.S. GAAP. For the three and six months ended June 30, 2011 and 2010, sales by geographic area were as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
United States			77	%			84	%			77	%			79	%
Other Countries			23	%			16	%			23	%			21	%
Total			100	%			100	%			100	%			100	%

Sales to customers outside of the United States are typically denominated in U.S. dollars and are attributed to each country based on the billing address of the distributor or customer. For the three months ended June 30, 2011, sales to Australia represented approximately 10% of net sales. For the three months ended June 30, 2010, no individual country outside of the U.S. represented a material amount of total net sales. For the six months ended June 30, 2011 and 2010, no individual country outside of the U.S. represented a material amount of total net sales.

In the three months ended June 30, 2011, two distributors represented approximately 15% and 11% of total net sales. In the three months ended June 30, 2010, one distributor represented approximately 10% of total net sales. In the six months ended June 30, 2011, one distributor represented approximately 12% of total net sales. In the six months ended June 30, 2010, one distributor represented approximately 10% of total net sales. At June 30, 2011, the Company had receivables from two distributors comprising 19% and 14% of its aggregate accounts receivable balance. At December 31, 2010, the Company had receivables from three customers comprising 19%, 11% and 10% of its aggregate accounts receivable balance. These customers are unaffiliated distributors of the Company’s products.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

c. Loss per common share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods presented. Diluted loss per share reflects the potential dilution that could occur if such options were exercised using the treasury stock method. The calculation of the weighted average number of shares outstanding and loss per share are as follows:

		For the Three Months Ended June 30								For the Six Months Ended June 30,
		2011				2010				2011				2010
Numerator for basic and diluted loss per share
Net loss		$	(2,294,832	)		$	(1,359,389	)		$	(2,275,100	)		$	(1,851,994	)
Denominator for basic loss per share - weighted average shares outstanding			60,605,140				62,333,929				61,515,979				62,450,722
Dilutive effect of shares issuable under stock options outstanding			—				—				—				—
Denominator for diluted loss per share - adjusted weighted average shares outstanding			60,605,140				62,333,929				61,515,979				62,450,722
Net loss per common share
Basic		$	(0.04	)		$	(0.02	)		$	(0.04	)		$	(0.03	)
Diluted		$	(0.04	)		$	(0.02	)		$	(0.04	)		$	(0.03	)

As a result of the net loss per share for the three months and six months ended June 30, 2011, the effects of 7,031,017 and 7,015,738 stock options, respectively, were excluded from the calculation as their effect would have been to reduce net loss per share. As a result of the net loss for the three and six months ended June 30, 2010, the effects of 6,335,522 and 4,753,281 stock options, respectively, were excluded from the calculation as their effect would have been to reduce the net loss per share.

d. Warranty costs

The Company warrants its X2 ECDs, X3 ECDs, X26 ECDs, M26 ECDs, XREP, TASER CAM, Shockwave, AXON Tactical Computer, Com Hub user interface, Synapse Evidence Transfer Manager (ETM), and HeadCam products from manufacturing defects on a limited basis for a period of one year after purchase, and thereafter will replace any defective unit for a fee. The TASER C2 product is warranted for a period of 90 days after purchase. The Company also sells extended warranties for periods of up to four years after the expiration of the limited one year warranty. After the one year standard warranty expires, if the device fails to operate properly for any reason, the Company will replace the TASER X26 for a prorated discounted price depending on when the product was placed into service. These fees are intended to cover the handling and repair costs and include a profit. Management tracks historical data related to returns and warranty costs on a quarterly basis, and estimates future warranty claims by applying the estimated weighted average return rate to the product sales for the period. If management becomes aware of a component failure that could result in larger than anticipated returns from its customers, the reserve would be increased. The reserve for warranty returns is included in accrued liabilities on the consolidated balance sheet. The following table summarizes the changes in the estimated product warranty liabilities for the six months ended June 30, 2011 and 2010.

		2011				2010
Balance at January 1,		$	646,113			$	369,311
Utilization of accrual			(395,911	)			(264,291	)
Warranty expense			79,886				321,137
Balance at June 30,		$	330,088			$	426,157

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

h. Recently adopted accounting guidance

In October 2009, the FASB issued authoritative guidance on revenue recognition that became effective for the Company beginning January 1, 2011. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued authoritative guidance on business combinations concerning the disclosure of supplementary pro forma information which will be effective for the Company prospectively for business combinations for which the acquisition date is on or after January 1, 2011. The new guidance clarifies the acquisition date that should be used for reporting the pro forma financial information disclosures when comparative financial statements are presented. The amendments are also designed to improve the usefulness of the pro forma revenue and earnings disclosures by requiring a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable to the business combination. Management does not expect adoption of this new guidance to have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued guidance to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The guidance became effective for the Company effective January 1, 2011 and its adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued guidance to require presentation of the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This guidance will be effective for the Company on January 1, 2012, and management does not believe its adoption will have a material impact on the Company’s consolidated financial statements.

2. Cash, cash equivalents, and investments

Cash and cash equivalents include funds on hand and short-term investments with original maturities of three months or less. Short-term investments include securities generally having maturities of 90 days to one year. The Company’s short-term investments are invested in commercial paper, which, based on management’s intent and ability, are classified as held to maturity investments, recorded at amortized cost.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

The following is a summary of cash, cash equivalents and held-to-maturity investments by type at June 30, 2011 and December 31, 2010:

		June 30, 2011																December 31, 2010
						Gross				Gross												Gross				Gross
						Unrealized				Unrealized												Unrealized				Unrealized
		Cost				Gains				Losses				Fair Value				Cost				Gains				Losses				Fair Value
Cash and money market funds		$	27,719,405			$	—			$	—			$	27,719,405			$	42,684,241			$	—			$	—			$	42,684,241
Commercial paper			10,675,112				84				15,251				10,659,945				—				—				—				—
Certificate of Deposit			100,000				—				319				99,681				—				—				—				—
Total cash, cash equivalents and investments		$	38,494,517			$	84			$	15,570			$	38,479,031			$	42,684,241			$	—			$	—			$	42,684,241

The following table summarizes the classification of cash, cash equivalents and investments in the accompanying balance sheet:

		June 30,				December 31,
		2011				2010
Cash		$	8,231,945			$	12,282,389
Cash equivalents			19,487,460				30,401,852
Total cash and cash equivalents			27,719,405				42,684,241
Short term investments			10,775,112				—
Long term investments			—				—
		$	38,494,517			$	42,684,241

The commercial paper investments, identified above as short-term investments at June 30, 2011, have contractual maturities of less than one year. At June 30, 2011, held-to-maturity short-term investments have gross unrealized losses of $15,570, which have been in a continuous unrealized loss position for less than 12 months. The unrealized losses on the Company’s investments in commercial paper are due to interest rate fluctuations. As these investments were originally purchased at a premium, are short-term in nature, are expected to be redeemed at par value and because the Company has the ability and intent to hold these investments to maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2011.

3. Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (FIFO) method, and includes allocations of manufacturing labor and overhead. Provisions are made to reduce potentially excess, obsolete or slow-moving inventories to their net realizable value. Inventories as of June 30, 2011 and December 31, 2010 consisted of the following:

		June 30, 2011				December 31, 2010
Raw materials and work-in-process		$	12,430,725			$	11,817,579
Finished goods			4,158,460				6,348,490
Reserve for excess and obsolete inventory			(539,976	)			(350,664	)
		$	16,049,209			$	17,815,405

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

4. Intangible assets

Intangible assets consisted of the following at June 30, 2011 and December 31, 2010:

				June 30, 2011												December 31, 2010
				Gross								Net				Gross								Net
				Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Useful Life		Amount				Amortization				Amount				Amount				Amortization				Amount
Amortized intangible assets:
Domain names		5 Years		$	168,428			$	88,894			$	79,534			$	237,911			$	66,006			$	171,905
Issued patents		4 to 15 Years			1,370,969				299,476				1,071,493				1,040,148				264,716				775,432
Issued trademarks		9 to 11 Years			235,600				50,056				185,544				207,721				37,659				170,062
Non compete agreements		5 to 7 Years			150,000				140,000				10,000				150,000				130,000				20,000
					1,924,997				578,426				1,346,571				1,635,780				498,381				1,137,399
Unamortized intangible assets:
TASER Trademark					900,000								900,000				900,000								900,000
Patents and trademarks pending					899,340								899,340				1,053,477								1,053,477
					1,799,340								1,799,340				1,953,477								1,953,477
				$	3,724,337			$	578,426			$	3,145,911			$	3,589,257			$	498,381			$	3,090,876

Amortization expense for the three and six months ended June 30, 2011, was approximately $41,000 and $80,000, respectively. Amortization expense for the three and six months ended June 30, 2010, was approximately $24,000 and $48,000, respectively. Estimated amortization expense of intangible assets for the remaining six months of 2011, the next five years ended December 31, and thereafter is as follows:

2011 (remainder of year)		$	74,546
2012			129,093
2013			129,096
2014			128,179
2015			119,427
2016			106,556
Thereafter			659,674
		$	1,346,571

5. Accrued liabilities

Accrued liabilities consisted of the following at June 30, 2011 and December 31, 2010:

		June 30, 2011				December 31, 2010
Accrued salaries and benefits		$	1,620,218			$	1,411,716
Accrued litigation judgment expense			3,300,000				—
Accrued expenses			1,352,998				1,668,477
Accrued warranty expense			330,088				646,113
Accrued income tax			—				33,494
		$	6,603,304			$	3,759,800

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

6. Income taxes

Deferred Tax Assets

The net deferred income tax assets at June 30, 2011, include net operating loss and alternative minimum tax carryforwards, capitalized research and development costs, research and development tax credits, non-qualified stock-based compensation expense, deferred warranty revenue, warranty and inventory reserves and accrued vacation, partially offset by accelerated depreciation expense. The Company’s total current and long term deferred tax assets balance at June 30, 2011, is $21.9 million.

In preparing the Company’s consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating the Company’s ability to recover its deferred income tax assets, management considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining its provisions for income taxes, its deferred tax assets and liabilities, and its future taxable income for purposes of assessing its ability to utilize any future tax benefit from its deferred tax assets. Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgment that could become subject to audit by tax authorities in the ordinary course of business, as well as the generation of sufficient future taxable income. Management believes that, as of June 30, 2011, based on an evaluation and projections of future sales and profitability for fiscal 2011, no valuation allowance is necessary. However, such deferred tax assets could be reduced in the future if projections of future taxable income during the carryforward period are reduced.

The Company has completed research and development tax credit studies which identified approximately $5.9 million in tax credits for Federal, Arizona and California income tax purposes related to the 2003 through 2010 tax years, net of the federal benefit on the Arizona and California research and development tax credits. Management has made the determination that it is more likely than not that the full benefit of the research and development tax credit will not be sustained on examination and accordingly has established a cumulative liability for unrecognized tax benefits of $2.2 million as of June 30, 2011. In addition, management accrued approximately $106,000 for estimated uncertain tax positions related to certain state income tax liabilities. As of June 30, 2011, management does not expect the amount of the unrecognized tax benefit liability to increase or decrease significantly within the next 12 months. Should the unrecognized tax benefits of $2.3 million be recognized, the Company’s effective tax rate would be favorably impacted.

The following presents a rollforward of our liability for unrecognized tax benefits as of June 30, 2011:

		Unrecognized
		Tax Benefits
Balance at January 1, 2011		$	2,281,840
Decrease in prior year tax positions			—
Increase in current year tax positions			(1,989	)
Decrease related to adjustment of previous estimates of activity			—
Decrease related to settlements with taxing authorities			—
Decrease related to lapse in statute of limitations			—
Balance at June 30, 2011		$	2,279,851

Effective Tax Rate

Our estimated full year effective tax rate, before discrete period adjustments, is approximately 48%, which is above the statutory rate due to the impact of non-deductible expenses for items such as Incentive Stock Option (“ISO”) expense, meals and entertainment and lobbying fees, which make our projected annual net income for tax purposes significantly higher than our book pre-tax income. The overall effective tax rate of 38.9% and 37.1% for the three and six months ended June 30, 2011, was below our estimated annual effective tax rate due to treating the litigation judgment expense, asset impairment expense and the lawsuit settlement proceeds as discrete items due to their significant and unusual nature and therefore taxeffecting them at the statutory rate.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

7. Stockholders’ equity

Stock Repurchase

In March 2011, TASER’s Board of Directors authorized a stock repurchase program to acquire up to $12.5 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. Through June 30, 2011, the Company repurchased approximately 2.9 million shares at a weighted average cost, including commissions, of $4.28 per share and a total cost of $12.5 million. During July 2011, TASER’s Board of Directors authorized an additional repurchase program to acquire up to $20 million of the Company’s outstanding common stock, subject to stock market conditions and corporate considerations. Through August 4, 2011, the Company has repurchased a total of approximately 207,000 shares at an average cost of $4.22 per share and a total cost of $0.9 million.

Stock Option Activity

At June 30, 2011, the Company had four stock-based compensation plans, three of which are described more fully in Note 10 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K.

The following table summarizes the stock options available and outstanding as of June 30, 2011, as well as activity during the six months then ended:

						Outstanding Options
		Options Available								Weighted Average
		for Grant				Number of options				Exercise Price
Balance at December 31, 2010			2,478,768				7,507,286			$	5.71
Granted			(933,728	)			933,728			$	4.65
Exercised			—				(4,668	)		$	0.84
Expired/terminated			46,354				(46,354	)		$	5.46
Balance at June 30, 2011			1,591,394				8,389,992			$	5.59

The options outstanding as of June 30, 2011, have been segregated into five ranges for additional disclosure as follows:

		Options Outstanding												Options Exercisable
						Weighted												Weighted
						Average				Weighted Average								Average
						Exercise				Remaining				Number				Exercise
Range of Exercise Price		Number Outstanding				Price				Contractual Life				Exercisable				Price
$0.28 - $0.99			473,168			$	0.37				1.7				473,168			$	0.37
$1.03 - $2.41			650,379			$	1.62				1.3				650,379			$	1.62
$3.53 - $9.93			6,708,332			$	5.78				6.8				5,099,926			$	6.28
$10.07 - $19.76			533,413			$	11.94				4.4				533,413			$	11.94
$20.12 - $29.98			24,700			$	22.91				2.9				24,700			$	22.91
			8,389,992			$	5.59				6.0				6,781,586			$	5.87

The total fair value of options exercisable at June 30, 2011 and 2010 was $20.9 million and $19.7 million, respectively. The aggregate intrinsic value of options outstanding and options exercisable at June 30, 2011, was $4.2 million and $4.1 million, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $4.55 per share, and the exercise price multiplied by the number of options outstanding. Total intrinsic value of options exercised for the three and six month periods ended June 30, 2011, was $0 and approximately $13,000, respectively. Total intrinsic value of options exercised for the three and six month periods ended June 30, 2010 was approximately $39,000 and $2,128,000, respectively.

At June 30, 2011, the Company had approximately 1.6 million unvested options outstanding with a weighted average exercise price of $4.76 per share, weighted average grant date fair value of $2.19 per share and a weighted average remaining contractual life of 8.7 years. Of these unvested options outstanding, management estimates that approximately 1.5 million options will ultimately vest based on its historical experience.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

As of June 30, 2011, total unrecognized stock-based compensation expense related to unvested stock options was approximately $4.2 million, which is expected to be recognized over a remaining weighted average period of approximately 15 months.

Stock-Based Compensation Expense

The Company calculates the fair value of stock-based awards using the Black-Scholes-Merton option valuation model, which incorporates various assumptions including volatility, expected life, and interest rates. The assumptions used for the three and six month periods ended June 30, 2011 and 2010, and the resulting estimates of weighted-average fair value per share of options granted during those periods, are as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Expected life of options		4.5 years				4.5 years				4.5 years				4.5 years
Weighted average volatility			52.8	%			62.2	%			55.7	%			61.5	%
Weighted average risk-free interest rate			1.5	%			2.0	%			1.7	%			2.1	%
Dividend rate			0.0	%			0.0	%			0.0	%			0.0	%
Weighted average fair value of options granted		$	2.01			$	2.25			$	2.17			$	2.71

The expected life of options represents the estimated period of time until exercise and is based on the Company’s historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of employee behavior. Expected stock price volatility is based on a combination of historical volatility of the Company’s stock and the one-year implied volatility of its publicly traded options for the related vesting periods. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options is amortized to expense on a straight line basis over the relevant vesting period. As share-based compensation expense is recognized on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which ultimately vested.

Reported share-based compensation was classified as follows for the three and six months ended June 30, 2011 and 2010:

		Three Months Ended June 30								Six Months Ended June 30
		2011				2010				2011				2010
Cost of Products Sold		$	51,976			$	80,476			$	104,980			$	151,985
Sales, general and administrative expenses			649,566				724,464				1,372,745				1,522,591
Research and development expenses			175,465				111,686				362,199				251,644
		$	877,007			$	916,626			$	1,839,924			$	1,926,220

Total share-based compensation expense recognized in the income statement for the three and six months ended June 30, 2011, includes approximately $430,000 and $1.4 million, respectively, related to Incentive Stock Options (“ISOs”) for which no tax benefit is recognized. Total share-based compensation expense recognized in the income statement for the three and six months ended June 30, 2010, includes approximately $503,000 and $1.3 million, respectively, related to ISOs for which no tax benefit is recognized. The Company did not tax effect the share-based compensation expense for tax purposes related to the non-qualified disposition of ISOs exercised and sold as the benefit will be recorded when the Company is in a position to realize the benefit with an offset to taxes payable in future periods. The total unrecognized tax benefit related to the non-qualified disposition of stock options in the three and six months ended June 30, 2011, was approximately $430,000 and $1.4 million, respectively. The total unrecognized tax benefit related to the non-qualified disposition of stock options in the three and six months ended June 30, 2010, was approximately $39,000 and $2.1 million, respectively.

The Company has granted a cumulative total of 950,800 performance-based stock options from 2008 through June 30, 2011, the vesting of which is contingent upon the achievement of certain performance criteria related to the successful and timely development and market acceptance of future product introductions, as well as the future sales and operating performance of the Company. Compensation expense is recognized over the implicit service period (the date the performance condition is expected to be achieved) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. At June 30, 2011, 259,452 unvested performance options with a fair value of approximately $603,000 remain outstanding. No options were forfeited during the three or six months ended June 30, 2011. During the three and six months ended June 30, 2010, 25,000 and 225,000 of these options, respectively, were forfeited, resulting in the reversal of approximately $52,000 and $346,000, respectively, of previously recognized compensation expense.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

8. Line of credit

The Company has a line of credit agreement with a total availability of $10.0 million. The line is secured by the Company’s accounts receivable and inventory and bears interest at varying rates of interest, currently LIBOR plus 1.25%. The line of credit which was amended and renewed in June 2011, primarily to remove the borrowing base restriction, matures on June 30, 2013 and requires monthly payments of interest only. At June 30, 2011, there was no amount outstanding under the line of credit. There have been no borrowings under the line of credit to date. The Company’s agreement with the bank requires compliance with certain financial and other covenants including maintenance of minimum tangible net worth and a fixed charge coverage ratio. The ratio of total liabilities to tangible net worth can be no greater than 1:1, and the fixed coverage charge ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At June 30, 2011, the Company’s tangible net worth ratio was 0.21:1 and its fixed charge coverage ratio was 2.65:1. Accordingly, the Company was in compliance with those covenants.

9. Commitments and Contingencies

Product Litigation

The Company is currently named as a defendant in 52 lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which the TASER device was used (or present) by law enforcement officers in connection with arrests or during training exercises. Companion cases arising from the same incident have been combined into one for reporting purposes.

In addition, 132 other lawsuits have been dismissed or judgment entered in favor of the Company which are not included in this number. An appeal was filed by the plaintiff in the Lee (TN), Thompson (MI), Marquez (AZ), Oliver (FL) and Rosa (CA) cases where judgment was entered in favor of the Company. In July 2011, the Court of Appeals affirmed the judgment in favor of the Company in the Lee (TN) appeal and in August denied the plaintiff’s request for a rehearing. These cases are not included in this number or in the table below.

Also not included in the number of pending lawsuits or in the table below is the Heston lawsuit in which a jury verdict was entered against the Company on June 6, 2008, and judgment was entered against the Company on January 30, 2009 in the amount of $153,150 as compensatory damages, $1,423,127 as attorney fees, and $182,000 as costs. These damages, fees and costs are covered by the Company’s insurance policies. The jury found that Mr. Heston’s own actions were 85% responsible for his death. The jury assigned 15% of the responsibility to TASER for a “negligent failure to warn” that extended or multiple TASER ECD applications could cause muscle contractions that could potentially contribute to acidosis to a degree that could cause cardiac arrest. The jury inappropriately awarded $5,200,000 in punitive damages against TASER, which were subsequently disallowed by the Court on October 24, 2008. The Court denied the balance of the Company’s motion for judgment as a matter of law on all other grounds. The Company has filed a notice of appeal with respect to the judgment and plaintiffs have filed a notice of cross appeal.

The Turner (NC) lawsuit was tried in July 2011 and resulted in a jury verdict of $10 million against the Company. The Company has filed post trial motions seeking judgment as a matter of law notwithstanding the verdict and in the alternative a new trial or alternatively a remittitur of the jury award. The court has not yet entered judgment. The Company has recorded a litigation judgment expense of $3.3 million in the second quarter of 2011, which represents management’s best estimate of the Company’s uninsured portion of the judgment after consideration of available insurance coverage.

With respect to each of the pending 52 lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter. While the facts vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually involving a failure to warn, and the plaintiffs are seeking monetary damages. This table also lists those cases that were dismissed or judgment entered during the most recent fiscal quarter. Cases that were dismissed or judgment entered in prior fiscal quarters are not included in this table. The claims and in some instances, the defense of each of these lawsuits has been submitted to our insurance carriers that maintained insurance coverage during these applicable periods and we continue to maintain product liability insurance coverage with varying limits and deductibles. Our product liability insurance coverage during these periods ranged from $5,000,000 to $10,000,000 in coverage limits and from $10,000 to $1,000,000 in per incident deductibles. For the 2010 insurance policy year, our product liability insurance coverage was $10 million and, as noted above, in the Turner (NC) case the Company received an adverse $10 million jury verdict. After consideration of remaining available insurance coverage, the Company's uninsured exposure related to this case is approximately $3.3 million. While the Company will explore every possible legal channel to have this verdict overturned, in the event the verdict stands, the Company's insurance coverage for the 2010 policy year will be exhausted and, for any other claims relating to the 2010 policy year, the Company will not have insurance coverage for defense costs or any other adverse judgments, should they arise. We are defending each of these lawsuits vigorously and do not expect these lawsuits to individually and in the aggregate, materially affect our business, results of operations or financial condition.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

Plaintiff		Served		Jurisdiction		Claim Type		Status
Glowczenski		Oct-04		US District Court, ED NY		Wrongful Death		Trial rescheduled, date to be determined
Washington		May-05		US District Court, ED CA		Wrongful Death		Discovery Phase
Bagnell		Jul-06		Supreme Court for British Columbia, Canada		Wrongful Death		Dismissed
Hollman		Aug-06		US District Court, ED NY		Wrongful Death		Discovery Phase
Oliver		Sep-06		US District Court, MD FL, Orlando Division		Wrongful Death		Dismissed
Augustine		Jan-07		11th Judicial Circuit Court, Miami-Dade, FL		Wrongful Death		Dismissed
Wendy Wilson, Estate of Ryan Wilson		Aug-07		District Court Boulder County, CO		Wrongful Death		Dismissal Pending
Jack Wilson, Estate of Ryan Wilson (Companion to Wendy Wilson)		Nov-07		District Court Boulder County, CO		Wrongful Death		Dismissal Pending
Salinas		Aug-08		US District Court, ND CA		Wrongful Death		Motion Phase,off trial calendar
Thomas (Pike)		Oct-08		US District Court, WD Louisiana, Alexandria		Wrongful Death		Discovery Phase
Carroll		Mar-09		US District Court, SD TX		Wrongful Death		Dismissed
Shrum		May-09		Allen County District Court, Iola, KS		Wrongful Death		Trial Scheduled February 2012
Athetis		May-09		US District Court, AZ		Wrongful Death		Discovery Phase
Abrahams		Jul-09		CA Superior Court, Yolo County		Wrongful Death		Discovery Phase-trial scheduled September 2012
Humphreys		Oct-09		CA Superior Court, San Joaquin County		Wrongful Death		Discovery Phase
Terriquez		Feb-10		Superior Court of CA, Orange County		Wrongful Death		Discovery Phase, trial scheuduled January 2012
Rich		Feb-10		US District Court, NV		Wrongful Death		Discovery Phase
McKenzie		Feb-10		US Disctrict Court, ED CA		Wrongful Death		Dismissed
Turner		Feb-10		General Court of Justice, Superior Court Div, Mecklenburg County, NC		Wrongful Death		Jury award for $10 million. Post trial motions filed, judgment not filed.
Doan		Apr-10		Queens Bench Alberta, Red Deer Judicial Dist.		Wrongful Death		Pleading Phase
Piskkura		May-10		US District Court, OH		Wrongful Death		Discovery Phase, trial scheuduled March 2012
Corbin		Jun-10		Houston County Court, MD AL		Wrongful Death		Discovery Phase, trial scheuduled October 2011
Swayzer		Jun-10		US District Court, ND CA		Wrongful Death		Dismissed
DuBoise		Aug-10		US District Court, ED MO		Wrongful Death		Discovery Phase, trial scheduled October 2011
Vaugn		Sep-10		US District Court, ND CA		Wrongful Death		Dismissed
Kelly		Oct-10		District Court for Harris County, TX		Wrongful Death		Discovery Phase, trial scheduled October 2011
Jacobs		Oct-10		District Court for Travis County, TX		Wrongful Death		Discovery Phase, trial scheduled October 2012
Woodward		Nov-10		Sumner County TN Court, 18th Judicial District		Wrongful Death		Dismissed
Juran		Dec-10		Hennepin County District Court, 4th Judicial District		Wrongful Death		Discovery Phase
Shymko		Dec-10		The Queens Bench, Winnipeg Centre, Manitoba		Wrongful Death		Pleading Phase
Williams		Dec-10		US District Court, MS		Wrongful Death		Discovery Phase, trial scheduled April 2012
English		May-11		US District Court, WD, VA		Wrongful Death		Discovery Phase, trial scheduled April 2012
Wilson (MO)		May-11		US District Court, ED, MO		Wrongful Death		Pleading Phase
Terrell (TX)		Jun-11		US District Court, SD, TX		Wrongful Death		Pleading Phase
Sylvester (CA)		Jun-11		US District Court, ND, CA		Wrongful Death		Pleading Phase
La Day (TX)		Jun-11		US District Court, ED TX		Wrongful Death		Pleading Phase
Stewart		Oct-05		Circuit Court for Broward County, FL		Training Injury		Discovery Phase
Husband		Mar-06		British Columbia Supreme Court, Canada		Training Injury		Discovery Phase, trial scheduled March 2012
Grable		Aug-08		FL 6th Judicial Circuit Court, Pinellas County		Training Injury		Discovery Phase
Koon		Dec-08		17th Judicial Circuit Court, Broward County, FL		Training Injury		Discovery Phase
Bickle		Mar-09		18th Judicial District Court, Gallatin County, MT		Training Injury		Discovery Phase, trial scheduled December 2011
Foley		Mar-09		US District Court, MA		Training Injury		Dismissed
Peppler		Apr-09		Circuit Court 5th Judicial Dist., Sumter City, FL		Training Injury		Discovery Phase
Kandt		Jun-09		US District Court, ND NY		Training Injury		Discovery Phase
Ginger		Apr-10		Iowa District Court, Marion County		Training Injury		Dismissed
Maynard		Apr-10		Superior Court, Hartford Judicial District, CT		Training Injury		Discovery Phase
Butler		Jan-11		US District Court, ND TX		Training Injury		Discovery Phase, trial scheduled April 2012
Derbyshire		Nov-09		Ontario Superior Court of Justice		Officer Injury		Discovery Phase
Hollenback		Dec-10		St. Louis County Circuit Court MO		Officer Injury		Discovery Phase, trial scheduled January 2012
Strough		Feb-11		US District Court, ED MO		Officer Injury		Discovery Phase, trial scheduled December 2012
Lucas		Jun-09		US District Court, ED CA		Suspect Injury During Arrest		Dismissed
Wheat		Jul-09		CA Superior Court, Los Angeles County		Suspect Injury During Arrest		Discovery Phase, trial scheduled September 2011
Fahy		Dec-09		Circuit Court of City of St. Louis		Suspect Injury During Arrest		Discovery Phase, trial scheduled August 2012
Tylecki		Jan-10		US District Court, DE		Suspect Injury During Arrest		Dismissed
Thompson		Mar-10		11th Judicial Circuit Court Miami-Dade County, FL		Suspect Injury During Arrest		Discovery Phase
Wilson		Apr-10		US District Court, ND IL, ED		Suspect Injury During Arrest		Discovery Phase
Patterson		Jun-10		Circuit Court Pontotoc County, MS		Suspect Injury During Arrest		Discovery Phase, trial scheduled April 2012
Hadnot		Sep-10		US District Court, ED TX		Suspect Injury During Arrest		Dismissed
Streeter		Dec-10		US District Court, OR		Suspect Injury During Arrest		Discovery Phase, trial scheduled April 2012
Valkanet		Mar-11		US District Court, ND IL		Suspect Injury During Arrest		Discovery Phase
Sanders		Mar-11		US District Court, ND IL		Suspect Injury During Arrest		Discovery Phase
Payne		Mar-11		Blount County Circuit Court, TN		Suspect Injury During Arrest		Discovery Phase
Jefferson		Apr-11		US District Court, ED TX		Injury During Incarceration		Discovery Phase
Fountain		May-11		US District Court, MD FL		Suspect Injury During Arrest		Discovery Phase, trial scheduled April 2013
Alusa (UT)		May-11		US District Court, CD UT		Suspect Injury During Arrest		Pleading Phase
Diehl (PA)		Jun-11		Court of Common Pleas, Blair County, PA		Unknown		Pleading Phase

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

Other Litigation

In October 2007, we filed a lawsuit in Arizona Superior Court for Maricopa County against Steve Ward and Mark Johnson, both former TASER employees and VIEVU LLC, et. al. for breach of duty of loyalty, breach of contract, breach of fiduciary duty, and conversion. This lawsuit does not involve our ECD business and we do not expect this litigation to have a material impact on our financial results. Defendants Ward and VIEVU LLC filed an answer and counterclaim for declaration of non-infringement, tortious interference with contractual relations, tortious interference with business expectancy, and abuse of process. The lawsuit seeks compensatory damages, constructive trust, exemplary damages, injunctive relief attorneys’ fees, costs and disbursements. Cross motions for summary judgment were filed and on March 4, 2009, the Court denied Defendants’ motion for summary judgment on the trade secret claim and on April 9, 2009, the Court granted TASER’s motion for summary judgment against Ward on the breach of fiduciary duty and the breach of duty of loyalty claims. We filed a Motion to Extend Discovery Period by and to reconvene the Deposition of Steve Ward, and Defendants have filed Defendant’s Response in Opposition to this motion. In addition, Defendants Steve Ward and VIEVU LLC have filed a Motion for Reconsideration or in the alternative to make the Court’s Ruling a Final Judgment and Stay Proceeding Pending Outcome of Appeal. The Court denied the Motion for Reconsideration, but granted the motion to make the Court’s Ruling a Final Judgment and Stayed the Proceeding Pending Outcome of Appeal. An appeal has been filed by Defendants Ward and VIEVU LLC to the Arizona State Court of Appeals. The appellate court reversed the Superior Court and remanded the case back to Superior Court for trial. On June 14, 2010 TASER filed a petition for review with the Arizona Supreme Court and Ward filed a cross petition for review on June 29, 2010. The Arizona Supreme Court declined review of either petition and a trial date has been set for August 2011.

In June 2008, we filed an amended complaint in the State Court of Fulton County, Georgia, joining as a plaintiff in an existing lawsuit previously filed by certain current and former stockholders of the Company against Morgan Stanley & Co., Inc., and ten other brokerage firms alleging a conspiracy to unlawfully, deceptively, and fraudulently manipulate the price of the Company’s common stock in the context of illegal naked shorting. Specifically, the amended complaint alleges that the defendants committed conspiracy and endeavored to violate the Georgia Racketeer Influenced and Corrupt Organization Act; Securities Fraud; Theft By Taking; Theft By Deception; Violation of The Georgia Computer Systems Protection Act; Violation of the Georgia Securities Act; Violation of the Georgia Computer Systems Protection Act; and Conversion. The lawsuit seeks compensatory and punitive damages as well as expenses of litigation including attorneys’ fees and costs. Defendants have filed motions to dismiss or alternatively a motion for a more definite statement, and on July 29, 2009, the Court entered an order denying Defendants’ motion to dismiss and alternatively a motion for a more definite statement. Discovery has begun in this litigation and no trial date has been set. Defendants removed the case to United States District Court for the District of Georgia and Plaintiffs have filed a motion to remand the case back to state court. The court has not yet ruled on this motion to remand. However, we have reached a settlement with all of the Defendants and this litigation has been dismissed as of June 30, 2011. Settlement proceeds of approximately $1.3 million are recorded as other income on the statement of operations for the three and six months ended June 30, 2011.

In February 2009, we filed a complaint in the United States District Court for the District of Nevada against James F. McNulty, Jr., Robert Gruder, and Stinger Systems, Inc. alleging securities fraud under 15 U.S.C. § 78j, trade libel, unfair competition under the Lanham Act, 15 U.S.C. § 1125, abuse of process, and deceptive trade practices. Our complaint seeks compensatory damages, punitive damages, injunctive relief, attorneys’ fees and costs. Defendants filed motions to dismiss and on March 25, 2010 the Court denied Defendants’ motion on all claims except the securities fraud claim. Defendant McNulty filed a counterclaim on August 2, 2010 alleging that TASER’s XREP product infringes U.S. Patents 5,831,199 and 6,877,434. The counterclaim seeks declaratory and injunctive relief, compensatory, treble and punitive damages, and attorneys fees. The court issued a ruling in July 2011 dismissing TASER’s claims for civil conspiracy and abuse of process and affirming the magistrate’s order requiring defendants to disclose tax and stock information to TASER and ruling that TASER’s counterclaim for declaratory judgment with respect to the patent claims should not be dismissed. No trial date has been set.

In January 2011 we were served with a complaint in the matter of GEOTAG, Inc. v. TASER International, et. al. that was filed in the United States District Court for the Eastern District of Texas, Marshall Division which alleges that a dealer geographical locator feature on TASER’s website infringes upon plaintiff’s US Patent No. 5,930,474. The complaint seeks a judgment of infringement, a permanent injunction against infringement, an award for damages, costs, expenses and prejudgment and post-judgment interest, and an award for enhanced damages and attorneys’ fees. TASER has licensed this locator feature from a third party and has denied liability for infringement. This lawsuit is at the pleading phase and no trial date has been set.

In July 2011 we were served with a complaint in the matter of Integrity Staffing Professionals v. TASER International, Inc., et.al. that was filed in the Superior Court for the County of Ventura, California which alleges that the Company owes Integrity Staffing Professionals a fee for hiring 2 consultants. The complaint alleges breach of contract, breach of implied covenants, intentional and negligent interference with contractual relationships, civil conspiracy and unfair business practices. The complaint seeks compensatory, general, punitive damages, interest, attorneys’ fees and costs. This lawsuit is at the pleading phase and no trial date has been set.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

General

From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. After carefully assessing the claim, and assuming we determine that we are not at fault, we vigorously defend and pursue any lawsuit filed against or by the Company. Although we do not expect the outcome in any pending individual case to be material, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts provided by insurance coverage and will not have a material adverse effect on our business, operating results or financial condition. In addition, the Company has one lawsuit where the costs of legal defense incurred are in excess of its liability insurance deductibles. As of June 30, 2011, the Company has been fully reimbursed by its insurance company for these legal costs. The Company may settle a lawsuit in situations where a settlement can be obtained for nuisance value and for an amount that is expected to be less than the cost of defending a lawsuit. The number of product liability lawsuits dismissed includes a small number of police officer training injury lawsuits that were settled by the Company and dismissed in cases where the settlement economics to the Company were significantly less than the cost of litigation. In addition, it is the Company’s policy to not settle suspect injury or death cases, although the Company’s insurance company may settle such lawsuits over the Company’s objection where the case is over the Company’s liability insurance deductibles. Due to the confidentiality of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of any settlement.

10. Related Party Transactions

Aircraft charter

The Company reimburses Thomas P. Smith, Chairman of the Company’s Board of Directors for business use of his personal aircraft. For the three and six months ended June 30, 2011, the Company incurred expenses of approximately $24,000 and $78,000, respectively, to Thomas P. Smith. For the three and six months ended June 30, 2010, the Company incurred expenses of approximately $67,000 and $146,000, respectively, to Thomas P. Smith. At June 30, 2011, there was approximately $18,000 of outstanding payables due to Thomas P. Smith. At December 31, 2010, the Company had no outstanding payables due to Thomas P. Smith. Management believes that the rates charged by Thomas P. Smith are equal to or below commercial rates the Company would pay to charter similar aircraft from independent charter companies.

TASER Foundation

In November 2004, the Company established the TASER Foundation. The TASER Foundation is a 501(c)(3) non-profit corporation and has been granted tax exempt status by the Internal Revenue Service. The TASER Foundation’s mission is to honor the service and sacrifice of local and federal law enforcement officers in the United States and Canada lost in the line of duty by providing financial support to their families. Over half of the initial $1 million endowment was contributed directly by TASER International, Inc. employees. The Company bears all administrative costs of the TASER Foundation in order to ensure 100% of all donations are distributed to the families of fallen officers. For the three and six months ended June 30, 2011, the Company incurred approximately $2,300 and $3,900, respectively, in such administrative costs. For the three and six months ended June 30, 2010, the Company incurred approximately $30,000 and $76,000, respectively, in such administrative costs. The Company is authorized by its Board of Directors to make a discretionary contribution up to a maximum of $200,000 per quarter. For the three and six months ended June 30, 2011 and 2010, the Company did not make a discretionary contribution to the TASER Foundation.

Consulting services

The Company engages Mark Kroll, a member of the Board of Directors, to provide consulting services. The expenses relating to these services for the three and six months ended June 30, 2011, were approximately $63,000 and $116,000, respectively. The expenses relating to these services for the three and six months ended June 30, 2010, were approximately $26,000 and $56,000, respectively. At June 30, 2011 and December 31, 2010, the Company had accrued liabilities of approximately $9,000 and $20,000, respectively, for these services.

TASER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
(unaudited)

11. Employee Benefit Plan

The Company has a defined contribution profit sharing 401(k) plan (the “Plan”) for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum allowed by law of their eligible compensation, but not exceeding $16,500. The Company currently matches 100% of the first 3% of eligible compensation contributed to the Plan by each participant and 50% of the next 2% of eligible compensation contributed to the plan by each participant. Beginning January 1, 2008, the Company’s matching contributions are immediately vested. The Company’s matching contributions to the Plan for the three and six months ended June 30, 2011, were approximately $130,000 and $255,000, respectively. The Company’s matching contributions to the Plan for the three and six months ended June 30, 2010, were approximately $129,000 and $266,000, respectively. Future matching or profit sharing contributions to the Plan are at the Company’s sole discretion.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is a discussion of the Company’s financial condition as of June 30, 2011, and results of operations for the three and six months ended June 30, 2011 and 2010. The following discussion may be understood more fully by reference to the consolidated financial statements, notes to the consolidated financial statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations section contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Certain statements contained in this report may be deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and the Company intends that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements may relate to, among other things: the impact of recently adopted accounting standards and guidance; estimated amortization charges in future years and our projected tax rate for 2011; our expectations about unrecognized tax benefits and deferred income taxes; assumptions about the future vesting of outstanding stock options and the amortization of costs relating thereto; our litigation strategy; our intentions to hold our investment securities to maturity and expectations relating to the redemption prices of these securities; our intentions concerning our stock repurchase program in 2011; the outcome of pending litigation against us; our intentions to evaluate our internal reporting structure and operating segments; the sufficiency of our valuation reserves, including warranty, accounts receivable and inventory reserves; the sufficiency of our capital resources and the availability of financing to the Company and our strategy with respect to hedging activities. 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; budgetary and political constraints of prospects and customers; litigation risks resulting from alleged product-related injuries and media publicity concerning allegations of deaths occurring after use of the TASER device and the negative impact this publicity could have on sales; our dependence on sales of our TASER X26 ECDs; our ability to manage our growth; our ability to ramp manufacturing production to meet demand; the outcome of pending litigation; establishment and expansion of our direct and indirect distribution channels; the acceptance of our EVIDENCE.com software model; our ability to design, introduce and sell new products; delays in development schedules; risks relating to acquisitions and joint ventures; the length of our sales cycle and our ability to realize benefits from our marketing and selling efforts; risks of governmental regulations, including regulations of our products by the U.S. Consumer Product Safety Commission, regulation of our products as a “crime control” product by the Federal government, state and local government regulation and foreign regulation, our compliance with regulations governing the environment, including but not limited to, regulations within the European Union; our ability to protect our intellectual property; intellectual property infringement claims and relating litigation costs; competition in foreign countries relating to foreign patents; our successful identification of existing intellectual property rights that might infringe on our developments; the adverse effects that could result from our products being classified as firearms by the United States Bureau of Alcohol and Firearms; product defects; rapid technological change; our dependence on third party suppliers for key components of our products; component shortages; our dependence on foreign suppliers for key components; rising costs of raw materials and transportation relating to petroleum prices; catastrophic events; security vulnerabilities and service outages and disruptions relating to our EVIDENCE.com service; fluctuations in quarterly operating results; foreign currency fluctuations; counterparty risks relating to cash balances held in excess of FDIC insurance limits; employee retention risks and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2010, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, under the caption “Risk Factors.”

Overview

Our core mission is to protect life, prevent conflict and resolve disputes through technologies that make communities safer. We are a market leader in the development and manufacture of advanced electronic control devices (ECDs) designed for use in law enforcement, military, corrections, private security and personal defense.

Our mission to protect life has also been extended to prevent conflict and resolve disputes. We have learned that bringing a subject into custody is not the end of the challenge for law enforcement. In fact, it is typically just the beginning since a significant number of incidents that start as a physical conflict transition into a legal conflict. Whether it’s prosecuting and convicting the individual arrested, or responding to excessive use of force allegations, the post-incident legal process is a considerable part of the challenge that law enforcement faces on a continual basis and can often take years and millions of litigation dollars to resolve in the courtroom. To help law enforcement address this challenge, we have developed a fully integrated hardware and software solution that will provide our law enforcement customers the capabilities to capture, store, manage, share and analyze video and other digital evidence. Finally, the optimum situation is to have prevented the conflict from ever escalating. TASER ECDs and AXON on-officer video have a measured and positive effect on better suspect and officer behavior, as well as achieving compliance without escalation of force.

TASER solutions deliver significant results to our customers and to communities in which they are deployed. With over 275 independent studies confirming the safety of TASER ECDs relative to other force options, TASER ECDs have proven to be a safer alternative to other uses of force in situations of conflict. Further, most reporting agencies demonstrate overall decreases in use of force, and decreases in suspect and officer injuries resulting from conflict. Reducing uses of force and gaining compliance by use of a TASER ECD has provided significant reductions in worker’s compensation expenses and claims for excessive use of force for agencies, cities and taxpayers.

Technological innovation is the foundation for our long-term growth and we intend to maintain our commitment to the research and development of our technology for both new and existing products that further our mission. At the same time we have established industry leading training services to provide our users a comprehensive overview of legal and policy issues, medical information and risk mitigation relating to our ECDs and the use of force. We have built a network of distribution channels for selling and marketing our products and services to law enforcement agencies, primarily in North America, with ongoing focus and effort placed on expanding these programs in international, military and other markets. Over 16,000 law enforcement agencies in over 40 countries have made initial purchases of our TASER brand devices for testing or deployment. To date, we do not know of any significant sales of any competing ECD products.

Results of Operations

Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

The following table sets forth, for the periods indicated, our consolidated statements of operations as well as the percentage relationship to total net sales of items included in our consolidated statements of operations (dollars in thousands):

		Three Months Ended June 30,																Increase / (Decrease)
		2011								2010								$				%
Net sales		$	21,198				100.0	%		$	19,121				100.0	%		$	2,077				10.9	%
Cost of products sold			8,956				42.3	%			9,490				49.6	%			(534	)			-5.6	%
Gross margin			12,242				57.7	%			9,631				50.4	%			2,611				27.1	%
Sales, general and administrative expenses			9,066				42.8	%			9,988				52.2	%			(923	)			-9.2	%
Research and development expenses			2,793				13.2	%			3,055				16.0	%			(262	)			-8.6	%
Litigation judgment expense			3,301				15.6	%			—				—				3,301				100.0	%
Asset impairment			1,351				6.4	%			—				—				1,351				100.0	%
Loss on write down / disposal of fixed assets			747				3.5	%			23				0.1	%			724					*
Loss from operations			(5,017	)			-23.7	%			(3,435	)			-18.0	%			(1,582	)			46.0	%
Interest and other income, net			1,262				6.0	%			6				0.0	%			1,256					*
Loss before benefit for income taxes			(3,755	)			-17.7	%			(3,429	)			-17.9	%			(326	)			9.5	%
Benefit for income taxes			(1,460	)			-6.9	%			(2,070	)			-10.8	%			610				-29.5	%
Net Income/(Loss)		$	(2,295	)			-10.8	%		$	(1,359	)			-7.1	%		$	(936	)			68.9	%

Note: Table may not foot due to rounding differences
*		Not Meaningful

Net Sales

For the three months ended June 30, 2011 and 2010, sales by product line and by geography were as follows (dollars in thousands):

		Three Months Ended June 30,
		2011								2010
Sales by Product Line
TASER X26		$	10,053				47.4	%		$	10,008				52.3	%
Single Cartridges			5,473				25.8	%			4,877				25.5	%
TASER X2			1,414				6.7	%			—				—
TASER Cam			507				2.4	%			552				2.9	%
TASER C2			506				2.4	%			855				4.5	%
ADVANCED TASER			244				1.2	%			286				1.5	%
AXON/EVIDENCE.com			140					*			45					*
TASER X3			77					*			87					*
XREP			68					*			150					*
Other			2,716				12.8	%			2,261				11.8	%
Total		$	21,198				100.0	%		$	19,121				100.0	%

*		Less than 1%

		Three Months Ended June 30,
		2011				2010
United States			77	%			84	%
Other Countries			23	%			16	%
Total			100	%			100	%

Net sales increased $2.1 million, or 11%, to $21.2 million for the second quarter of 2011 compared to $19.1 million for the second quarter of 2010. The increase in sales versus the prior year quarter was primarily driven by an increase in individually significant orders to international customers, while domestic sales strengthened on the back of launching the TASER X2 during the quarter which contributed 7% to total net sales. Sales of our X26 ECDs remained flat, while cartridge sales increased $0.6 million or 12%. Sales of other ECD products and accessories including TASER Cam, TASER C2, ADVANCED TASER, TASER X3 and XREP declined by $0.5 million and on a combined basis represented 7% of total net sales vs. 10% in the prior year. Other sales, which include extended warranty revenue, out of warranty repairs, government research grants, training and shipping revenues, increased $0.5 million driven by an increase in out of warranty repairs and training revenue from our annual TASER Master Instructor Conference.

International sales for the second quarter of 2011 and 2010 represented approximately $4.8 million, or 23%, and $3.1 million, or 16%, of total net sales, respectively.

Cost of Products Sold

Cost of products sold decreased by $0.5 million, or 6%, to $9.0 million for the second quarter of 2011 compared to $9.5 million for the second quarter of 2010. As a percentage of net sales, cost of products sold decreased to 42.2% in the second quarter of 2011 compared to 49.6% in the second quarter of 2010. The net decrease in costs as a percent of sales is driven by a combination of offsetting factors. Manufacturing costs decreased 12.3% as a percentage of sales, attributable to a more favorable product and market segment sales mix with a larger contribution to net sales from higher margin products, including the newly launched X2, and higher margin international sales; production efficiency was improved with reductions in temporary labor and overtime as well as a reduction in rework effort; leverage on indirect manufacturing costs was improved following an 11% increase in sales, while indirect salary costs have been reduced following headcount reductions and severance charges in the prior year and obsolete inventory charges have also been reduced as have warranty provision charges resulting from reduced product returns. Offsetting the reduction in manufacturing costs as a percentage of net sales, approximately $1.3 million, of EVIDENCE.com datacenter operating and software maintenance costs are included in costs of products sold in the second quarter of 2011 compared to only $0.2 million in the prior year following the commercial availability of the service, representing a 4.9% increase in costs as a percentage of sales. A significant portion of these costs were included as part of research and development in the prior year.

Gross Margin

Gross margin increased $2.6 million, or 27%, to $12.2 million for the second quarter of 2011 compared to $9.6 million for the second quarter of 2010. As a percentage of net sales, gross margin increased to 57.8% for the second quarter of 2011 compared to 50.4% for the second quarter of 2010, a result of the factors discussed above under cost of products sold.

Sales, General and Administrative Expenses

For the three months ended June 30, 2011 and 2010, sales, general and administrative (“SG&A”) expenses were comprised of the following (dollars in thousands):

		Three Months Ended June 30,
										$				%
		2011				2010				Change				Change
Salaries, benefits and bonus		$	2,410			$	2,866			$	(456	)			-15.9	%
Legal, professional and accounting fees			1,197				1,141				56				4.9	%
Travel and meals			699				763				(64	)			-8.4	%
Stock-based compensation			650				724				(74	)			-10.2	%
Consulting and lobbying			720				666				54				8.1	%
Depreciation and amortization			412				504				(92	)			-18.2	%
Sales and Marketing			1,062				491				571				116.3	%
D&O and liability insurance			460				416				44				10.6	%
Other			1,456				2,418				(962	)			-39.8	%
Total		$	9,066			$	9,989			$	(928	)			-9.3	%
Sales, general and administrative as % of net sales			42.8	%			52.2	%

Sales, general and administrative expenses were $9.1 million and $10.0 million in the second quarter of 2011 and 2010, respectively, a decrease of $0.9 million, or 9%. As a percentage of total net sales, SG&A expenses decreased to 42.7% for the second quarter of 2011 compared to 52.2% for the second quarter of 2010. The dollar decrease for the second quarter of 2011 compared to the same period in 2010 is attributable to a $0.5 million reduction in salaries, benefits, bonus and stock-based compensation primarily driven by measures taken to reduce our salaried headcount and fixed cost infrastructure in 2010 including some one time severance charges. This was partially offset by a $0.6 million increase in sales and marketing related costs including advertising, tradeshows and outside commissions, primarily driven by product launch costs for the TASER X2 and timing of the annual TASER Master Instructor conference, which took place in the second quarter of 2011, but in the third quarter of 2010. In addition, $0.8 million relating to a litigation settlement for an officer injury during arrest claim was included in other expense in the prior year.

Research and Development Expenses

Research and development expenses were $2.8 million and $3.1 million for the second quarter of 2011 and 2010, respectively, a decrease of $0.3 million, or 9%, compared to the prior period. The reduction is partially attributable to costs in the prior year for the AXON product as well as the impact of cost-reduction measures including headcount reductions and associated severance expense incurred in the prior year. Additionally, the launch of EVIDENCE.com resulted in the Company including $1.3 million of expenses in cost of products sold for ongoing delivery and maintenance of the product, some of which were previously included in R&D in the second quarter of 2010, prior to the service launch in the second quarter of 2010.

Litigation Judgment Expense

Litigation judgment expense represents a $3.3 million charge in the second quarter of 2011 for an adverse jury verdict received in the case of Turner v. TASER International, Inc., et al. This represents management’s best estimate of the Company’s uninsured portion of the judgment after consideration of available insurance coverage. The court has not yet entered an order of judgment and based on the court excluding and failing to instruct the jury to consider significant evidence that the Company believes demonstrates contributory negligence on the part of the plaintiff, the Company has moved for judgment in its favor notwithstanding the verdict and will pursue all appropriate legal channels including filing an appeal in this matter at the appropriate time should an adverse judgment be subsequently entered.

Loss on Impairment

A $1.4 million asset impairment charge was recorded in the second quarter of 2011 following our determination to abandon operations of our Protector product line.

Loss on Write Down / Disposal of Property and Equipment, Net

A loss of $0.7 million from the write down / disposal of property and equipment was incurred following our decision to dispose of surplus equipment for EVIDENCE.com operations.

Interest and Other Income, Net

Interest and other income of $1.3 million in the second quarter includes proceeds from a settlement agreement reached in a lawsuit against various brokerage firms involving the naked shorting of the Company’s stock.

Benefit for Income Taxes

The benefit for income taxes decreased by $0.6 million to $1.5 million for the second quarter of 2011 compared to $2.1 million for the second quarter of 2010. Our estimated full year effective tax rate for 2011, before discrete period adjustments, is approximately 48%, which is above the statutory rate due to the impact of non-deductible expenses for items such as ISO stock option expense, meals and entertainment and lobbying fees, which make our projected annual net income for tax purposes significantly higher than our book pre-tax income. The overall effective tax rate of 38.9% for the three months ended June 30, 2011, was below our estimated annual effective tax rate due to treating the litigation judgment expense, asset impairment expense and the lawsuit settlement proceeds as discrete items due to their significant and unusual. The 60.4% effective tax rate for the three months ended June 30, 2010, is due to the higher impact that non-deductible expenses were expected to have on 2010’s projected annual pre-tax income.

Net Loss

Our net loss increased to $2.3 million, or $(0.04) per basic and diluted share, for the second quarter of 2011 compared to a net loss of $1.4 million, or $(0.02) per basic and diluted share, for the second quarter of 2010.

Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010

The following table sets forth, for the periods indicated, our statements of operations as well as the percentage relationship to total net revenues of items included in our statements of operations (dollars in thousands):

		Six Months Ended June 30,																Increase / (Decrease)
		2011								2010								$				%
Net sales		$	44,315				100.0	%		$	42,964				100.0	%		$	1,351				3.1	%
Cost of products sold			19,866				44.8	%			19,843				46.2	%			23				0.1	%
Gross margin			24,449				55.2	%			23,121				53.8	%			1,328				5.7	%
Sales, general and administrative expenses			18,401				41.5	%			20,276				47.2	%			(1,875	)			-9.2	%
Research and development expenses			5,546				12.5	%			7,195				16.7	%			(1,649	)			-22.9	%
Litigation judgment expense			3,301				7.4	%			—				—				3,301				100.0	%
Asset impairment			1,351				3.0	%			—				—				1,351				100.0	%
Loss on write down / disposal of fixed assets			757				1.7	%			34				0.2	%			723					*
Loss from operations			(4,906	)			-11.1	%			(4,384	)			-10.2	%			(522	)			11.9	%
Interest and other income, net			1,288				2.9	%			14				0.0	%			1,274					*
Loss before benefit for income taxes			(3,618	)			-8.2	%			(4,370	)			-10.2	%			752				-17.2	%
Benefit for income taxes			(1,343	)			-3.0	%			(2,518	)			-5.9	%			1,175				-46.7	%
Net loss		$	(2,275	)			-5.1	%		$	(1,852	)			-4.3	%		$	(423	)			22.8	%