<SUBMISSION>
<ACCESSION-NUMBER>0000950153-06-002732
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20060930
<FILING-DATE>20061108
<DATE-OF-FILING-DATE-CHANGE>20061107
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>TASER INTERNATIONAL INC
<CIK>0001069183
<ASSIGNED-SIC>3480
<IRS-NUMBER>860741227
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-16391
<FILM-NUMBER>061195258
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>7860 EAST MCLAIN DR.
<STREET2>SUITE 2
<CITY>SCOTTSDALE
<STATE>AZ
<ZIP>85260
<PHONE>4809052000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>7860 EAST MCLAIN DR.
<STREET2>SUITE 2
<CITY>SCOTTSDALE
<STATE>AZ
<ZIP>85260
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>p73080e10vq.htm
<DESCRIPTION>10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>United States Securities and Exchange Commission</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 6pt"><B>Form&nbsp;10-Q</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>


<TR style="font-size: 6pt">
    <TD width="7%"></TD>
    <TD width="5%"></TD>
    <TD width="88%"></TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the quarterly period ended September&nbsp;30, 2006</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number 001-16391</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 0pt"><B>TASER INTERNATIONAL, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>DELAWARE</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>86-0741227</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">of incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification Number)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>17800 N. 85</B><SUP style="font-size: 85%; vertical-align: text-top"><B>th</B></SUP><B> St., SCOTTSDALE, ARIZONA</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>85255</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>(480)&nbsp;991-0797</B><BR>
(Registrant&#146;s telephone number, including area code)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in
Rule&nbsp;12b-2 of the Exchange Act. (Check one):
</DIV>

<DIV align="center" style="font-size: 10pt">Large Accelerated Filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated Filer <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated Filer <FONT face="Wingdings">&#111;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act). Yes <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There were
61,923,053 shares of the issuer&#146;s common stock, par value $0.00001 per share,
outstanding as of November&nbsp;2, 2006.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
QUARTERLY REPORT ON FORM 10-Q<BR>
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006<BR>
TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I &#151; FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1. Financial Statements (unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Balance sheets as of September&nbsp;30, 2006 and December&nbsp;31, 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Statements of operations for the three and nine months ended September&nbsp;30, 2006 and 2005 (as restated)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">Statements of cash flows for the nine months ended September&nbsp;30, 2006 and 2005 (as restated)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Notes to financial statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">PART II &#151; OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Item
2.&nbsp;Unregistered
Sales and Equity Securities and Use of Proceds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">SIGNATURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">INDEX TO EXHIBITS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exhibit&nbsp;31.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exhibit&nbsp;31.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exhibit&nbsp;32.1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exhibit&nbsp;32.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="p73080exv31w1.htm">EX-31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="p73080exv31w2.htm">EX-31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="p73080exv32w1.htm">EX-32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="p73080exv32w2.htm">EX-32.2</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I &#151; FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 1. FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.</B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(UNAUDITED)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="9" align="center"><B>ASSETS</B><BR></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,833,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,351,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,638,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts receivable, net of allowance of $110,000 and
$111,000 in 2006 and 2005, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,387,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,422,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,531,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,105,336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepaids and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,330,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,795,576</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Insurance settlement proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,538,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">575,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,454</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current deferred income tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,209,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,955,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,537,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,249,802</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,028,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,548,120</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,794,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,061,754</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,828,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,040,788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,492,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,340,783</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">128,682,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,241,247</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="9" align="center"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B><BR></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current portion of capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,111</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,604,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,315,654</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">561,165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred insurance settlement proceeds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660,824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation settlement liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,256</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,249,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,586,701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital lease obligations, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred revenue, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,580,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">839,983</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,873,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,502,872</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and Contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred stock, $0.00001 par value per share; 25
million shares authorized; 0 shares issued and
outstanding at September&nbsp;30, 2006 and December&nbsp;31,
2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock, $0.00001 par value per share; 200
million shares authorized; 61,922,153 and 61,938,654
shares issued and outstanding at September&nbsp;30, 2006
and December&nbsp;31, 2005, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,427,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,742,862</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,208,954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,590,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,994,894</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,809,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,738,375</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities and stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">128,682,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,241,247</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.</B>
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>STATEMENTS OF OPERATIONS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(UNAUDITED)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>For the Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(As restated, see note 3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(As restated, see note 3)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,311,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,675,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48,430,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35,086,431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of Products Sold:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct manufacturing expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,099,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,932,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,858,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,568,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indirect manufacturing expense (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,580,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,002,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,594,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,021,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Cost of Products Sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,679,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,935,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,453,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,589,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,631,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,739,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,977,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,496,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales, general and administrative expenses (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,125,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,724,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,982,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,242,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">772,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,999,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,103,593</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation Settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income(loss) from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,733,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">654,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,655,235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,430</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">483,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,281,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">853,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,760</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(103</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(228</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,735</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,215,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,379,714</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,944,065</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision(credit) for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,819,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,975,007</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,066,675</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,395,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">374,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,404,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per common and common equivalent shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of common and
common equivalent shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,031,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,385,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,003,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,266,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,717,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,694,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,003,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,951,621</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>For the Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(1)&nbsp;Stock-based compensation was allocated as follows:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Indirect manufacturing expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">95,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Sales, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">695,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">274,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">948,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.</B>
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>STATEMENTS OF CASH FLOWS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(UNAUDITED)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>For the Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="2">(As restated, see note 3)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash Flows from Operating Activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,404,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)&nbsp;to net cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,548,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,185,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,872</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for excess and obsolete inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for warranty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">948,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred insurance settlement proceeds recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,041,838</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,645</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Excess tax benefits from stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,026,539</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,965,917</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,154,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,570,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,227,579</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaids and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Insurance settlement proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,963,852</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,057</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,597</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,028,743</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,109,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued litigation settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,353</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided (used)&nbsp;by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,539,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(363,956</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash Flows from Investing Activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75,487,096</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(26,985,127</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,367,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,702,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,252,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,380,839</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(180,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(66,153</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided (used)&nbsp;by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,552,685</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,270,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash Flows from Financing Activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,642</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">736,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">474,629</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repurchase of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,208,954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,504,839</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(518,089</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,376,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,351,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,757,159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and Cash Equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,833,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,133,705</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental Disclosure:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non Cash Transactions-</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">
Increase to deferred tax asset related to tax benefits realized from the exercise of
stock options (with a related increase to additional paid in capital of $0 and
$1,179,138)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">726,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase to property and equipment with a corresponding increase in accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,121,091</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.</B>
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS (unaudited)</B></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Company background</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TASER International, Inc. (&#147;TASER&#148; or the &#147;Company&#148;) is a global leader in the development and
manufacture of advanced electronic control devices designed for use in law enforcement,
corrections, private security and personal defense. The Company&#146;s core expertise includes
proprietary, patented technology which is uniquely capable of incapacitating highly focused and
aggressive subjects. The Company&#146;s proprietary Neuro-Muscular Incapacitation (NMI)&nbsp;technology uses
electrical impulses to interfere with a subject&#146;s neuron-muscular system, causing substantial
incapacitation regardless of whether the subject feels or responds to pain. The Company&#146;s current
flagship products are the TASER M26 and TASER X26 models. Both the M26 and the X26 are hand-held
devices which launch two wire-tethered probes at a remote target up to a maximum distance of 35
feet. These wire tethered probes serve to form an electrical connection from the TASER device to
the subject, thereby eliminating the need for the user to make close contact with the potentially
dangerous target. In addition to the hand-held devices, the Company also sells disposable
cartridges which contain the probes, wires, and proprietary nitrogen propulsion system. These
cartridges are disposable and provide a recurring revenue stream from the Company&#146;s installed
customer base. There are several models of cartridges with ranges from 15 feet to 35 feet and
include both electrically active cartridges and inert simulation cartridges used only in training.
The Company also sells batteries, chargers, holsters and other accessories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It should be noted that the Company&#146;s products are often used in aggressive confrontations
that may result in serious, permanent bodily injury or death to those involved. A person injured in
a confrontation or otherwise in connection with the use of the Company&#146;s products may bring legal
action against the Company to recover damages on the basis of theories including personal injury,
wrongful death, negligent design, dangerous product or inadequate warning. The Company is currently
subject to a number of such lawsuits. The Company may also be subject to lawsuits involving
allegations of misuse of its products. The Company has seen and expects to continue to see
additional complaints filed against it alleging injuries resulting from the use of a TASER device.
If successful, personal injury, misuse and other claims could have a material adverse effect on the
operating results and financial condition of the Company. Although the Company carries product
liability insurance, significant litigation could also result in a diversion of management&#146;s
attention and resources, negative publicity and an award of monetary damages in excess of its
insurance coverage. The outcome of any litigation is inherently uncertain and there can be no
assurance that existing or any future litigation will not have a material adverse effect on the
Company&#146;s revenues, financial condition or financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s deferred tax asset includes approximately $78&nbsp;million in net operating loss
carryforwards. The amount of the deferred tax asset is considered realizable; however, it could be
reduced in the near term if estimates of future taxable income during the carry forward period are
reduced.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. Summary of significant accounting policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>a. Basis of presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited financial statements of TASER International, Inc. include all
adjustments (consisting only of normal recurring accruals) which management considers necessary for
the fair presentation of the Company&#146;s operating results, financial position and cash flows as of
September&nbsp;30, 2006 and September&nbsp;30, 2005 and for the periods then ended. Certain information and
note disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (&#147;GAAP&#148;) have been omitted from these
unaudited financial statements in accordance with applicable rules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations for the three and nine month periods ended Spetember 30, 2006 are
not necessarily indicative of the results to be expected for the full year (or any other period)
and should be read in conjunction with the financial statements and notes thereto included in the
Company&#146;s Annual Report on Form 10-K as filed on March&nbsp;16, 2006.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>b. </B><B><I>Segment information</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management has determined that its operations are comprised of one reportable segment. For the
three and nine months ended September&nbsp;30, 2006 and 2005, sales by geographic area were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>For the Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">86</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">89</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales to customers outside the United States are
 denominated in U.S. dollars. Substantially all
assets of the Company are located in the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>c. </B><B><I>Stock-Based compensation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2006, the Company accounted for its stock-based compensation plans under
the recognition and measurement provisions of Accounting Principles Board Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees&#148; (&#147;APB Opinion No.&nbsp;25&#148;) and related interpretations, as
permitted by Statement of Financial Accounting Standards No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;SFAS No.&nbsp;123&#148;). Accordingly, no stock-based compensation expense was recognized in
the income statement for the three and nine month periods ended September&nbsp;30, 2005, as all options
granted under the Company&#146;s stock-based employee compensation plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. As permitted by SFAS No.&nbsp;123,
stock-based compensation was included as a pro forma disclosure in the notes to the Company&#146;s
financial statements for the three and nine month periods ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No.&nbsp;123(R), &#147;Share Based Payment&#148; (&#147;SFAS No.&nbsp;123(R)&#148;)
using the modified prospective transition method. Under that transition method, compensation cost
recognized in the three and nine months ended September&nbsp;30, 2006 includes: (a)&nbsp;compensation cost
for all stock-based payments granted prior to, but not yet vested as of January&nbsp;1, 2006, based on
the grant date fair value estimated in accordance with the original provisions of SFAS No.&nbsp;123, and
(b)&nbsp;compensation cost for all stock-based payments granted subsequent to January&nbsp;1, 2006, based on
the grant date fair value estimated in accordance with the provisions of SFAS No.&nbsp;123(R). Results
for prior periods have not been restated, as provided for under the modified-prospective method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stock-based compensation expense recognized in the income statement for the three and
nine months ended September&nbsp;30, 2006 was $274,692 and $948,340 before income taxes, respectively.
The related total deferred tax benefits were approximately $120,000 and $341,000 for the three and
nine months ended September&nbsp;30, 2006, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the adoption of SFAS No.&nbsp;123(R), the Company presented all tax benefits of deductions
resulting from the exercise of stock options as operating cash flows in the consolidated statements
of cash flows. SFAS No.&nbsp;123(R) requires the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options (&#147;excess tax benefits&#148;) to be classified and
reported as both an operating cash outflow and a financing cash inflow on a prospective basis upon
adoption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the effect on net income and basic and diluted earnings per share
for the three and nine months ended September&nbsp;30, 2005 had compensation cost been recognized based
upon the estimated fair value on the grant date of stock options in accordance with SFAS 123, as
amended by SFAS No.&nbsp;148 &#147;Accounting for Stock-Based Compensation &#150; Transition and Disclosure&#148;.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">374,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Total stock-based compensation included in net income as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Total stock-based employee compensation determined under fair
value based method for all awards, net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,755,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,037,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss &#151; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,380,120</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,159,610</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share &#151; as reported:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per common share &#151; pro forma:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic, pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted, pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,385,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,266,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,694,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,951,621</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosures for the three and nine month periods ended September&nbsp;30, 2006 are not
presented because the amounts are recognized in the financial statements in connection with the
adoption of SFAS 123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;123R requires the use of a valuation model to calculate the fair value of stock-based
awards. The Company has elected to use the Black-Scholes-Merton (&#147;BSM&#148;) option valuation model,
which incorporates various assumptions including volatility, expected life, and interest rates. The
assumptions used for the three and nine month periods ended September&nbsp;30, 2006 and September&nbsp;30,
2005 and the resulting estimates of weighted-average fair value per share of options granted during
those periods are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000"><B>For the Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected Life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.49 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">1.5 &#151; 3 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.49 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">1.5 &#151; 3 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">68.8% &#151; 69.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">103</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">67.8% &#151; 70.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">106</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk Free Interest Rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">4.86% &#151; 5.14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">4.5% &#151; 5.14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.50</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend Yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average fair value of options granted during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.72</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The expected life of the options
represents the estimated period of time until
exercise and is based on the Company&#146;s historical experience of similar awards, giving consideration to the
contractual terms, vesting schedules and expectations of future employee behavior. For 2006,
expected stock price volatility is based on a combination of historical volatility of the Company&#146;s
stock and the one-year implied volatility of its traded options for the related vesting periods.
Prior to the adoption of SFAS 123R, expected stock price volatility
was estimated using only the
historical volatility of the Company&#146;s stock. 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.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>d. Income per Common Share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for earnings per share in accordance with SFAS No.&nbsp;128, &#147;Earnings per
Share.&#148; Basic income per share is computed by dividing net income by the weighted average number of
common shares outstanding during the periods presented. Diluted income per share reflects the
potential dilution that could occur if outstanding stock options were exercised. The calculation of
the weighted average number of shares outstanding and earnings per share are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Earnings Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Earnings Per Share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>For the Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Numerator for basic and diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,395,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">374,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,404,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator for basic earnings per share &#151; weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,031,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,385,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,003,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,266,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dilutive effect of shares issuable under stock options outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,686,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,308,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,685,234</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator for diluted earnings per share &#151; adjusted weighted average shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,717,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,694,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,003,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,951,621</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net income (loss)&nbsp;per share is based upon the weighted average number of
common shares outstanding during the period. For the three months ended September&nbsp;30, 2006, the
effects of 1,813,325 stock options were excluded from the calculation of diluted income per share
as their effect would have been antidilutive and increased the net income per share. As a result of
the net loss for the nine months ended September&nbsp;30, 2006, 3,563,310 of potential dilutive
securities were considered anti-dilutive and excluded from the calculation. For the three and nine
months ended September&nbsp;30, 2005, the effects of 558,406 and 370,906 stock options were excluded
from the calculation of diluted income per share as their effect would have been antidilutive and
increased the net income per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>e. Warranty Costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company warrants its products from manufacturing defects on a limited basis for a period
of one year after purchase, and thereafter will replace any defective TASER unit for a fee. The
Company also sells extended warranties for periods of up to four years after the expiration of the
limited one year warranty. The Company tracks historical data related to returns and related
warranty costs on a quarterly basis, and estimates future warranty claims by applying the estimated
average return rate to the product sales for the period. Historically, the reserve amount is
increased if the Company becomes aware of a component failure that could result in larger than
anticipated returns from its customers. After the one year warranty expires, if the device fails to
operate properly for any reason, the Company will replace the ADVANCED TASER device for a fee and
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. A
summary of changes in the warranty accrual for the nine months ended September&nbsp;30, 2006 and 2005 is
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at Beginning of Period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">851,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">457,914</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Utilization of Accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(427,227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(599,193</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warranty Expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">749,607</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at End of the Period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">735,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">608,328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>f. Recent Accounting Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Interpretation (&#147;FIN&#148;)
No.&nbsp;48, &#147;Accounting for Uncertainty in Income Taxes&#151;an interpretation of FASB Statement No.&nbsp;109.&#148;
This Interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return, and provides guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December&nbsp;15, 2006. Management is currently assessing the impact of the
Interpretation on its financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005, the Financial Accounting Standards Board (the &#147;FASB&#148;) issued FASB Staff Position
No.&nbsp;FAS 123(R)-3, &#147;Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards&#148; (&#147;FSP 123(R)-3&#148;). Under the provisions of FSP 123(R)-3, entities may follow either
the transition guidance for the additional paid-in capital pool as prescribed by SFAS 123(R), or
elect to use the alternative transition method as described in the FSP. An entity that adopts SFAS
123(R) using the modified prospective application method may make a one-time election to adopt the
transition method described in the FSP. The Company is currently evaluating the available
transition alternatives and has until November&nbsp;2006, which is one year from the effective date of
the FSP, to finalize the one-time election.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the SEC issued Staff Accounting Bulletin No.&nbsp;108, <I>Considering the Effects
of Prior Year Misstatements when quantifying Misstatements in Current Year Financial Statements</I>
(SAB 108). SAB 108 requires companies to evaluate the materiality of identified unadjusted errors
on each financial statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108. The rollover
approach quantifies misstatements based on the amount of the error in the current year financial
statement, whereas the iron curtain approach quantifies misstatements based on the effects of
correcting the misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement&#146;s year(s) of origin. Financial statements would require adjustment
when either approach results in quantifying a misstatement that is material. Correcting prior year
financial statements for immaterial errors would not require previously filed reports to be
amended. If a Company determines that an adjustment to prior year financial statements is required
upon adoption of SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006 beginning balances of the
affected assets and liabilities with a corresponding adjustment to the fiscal 2006 opening balance
in retained earnings. SAB 108 is effective for interim periods of the first fiscal year ending
after November&nbsp;15, 2006. Management does not expect the adoption of SAB 108 to have a material
impact on its financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>3. Restatement of Previously Issued Financial Statements for Manufacturing Overhead and Error
Corrections</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;11, 2006, the Company concluded that its financial statements at March&nbsp;31, 2005, June
30, 2005 and September&nbsp;30, 2005 and for the periods then ended, included in its Form 10-Qs for the
periods ended March&nbsp;31, 2005, June&nbsp;30, 2005 and September&nbsp;30, 2005, respectively, should no longer
be relied upon due to an error in those financial statements which resulted in the incorrect
calculation of manufacturing overhead costs being applied to inventory. The Company has restated
its results for the quarters ended March&nbsp;2005 and June&nbsp;2005 in its Form 10-Q&#146;s filed for the
periods ended March&nbsp;31, 2006 and June&nbsp;30, 2006, respectively, and is amending the results of the
quarter ended September&nbsp;30, 2005 herein. No restatement of the Company&#146;s financial statements for
the years ended December&nbsp;31, 2005 and December&nbsp;31, 2004 is necessary as a result of the matters
discussed below as the Company has determined they are not material to those periods based on the
materiality guidelines contained in SEC Staff Accounting Bulletin No.&nbsp;99 &#150; &#147;Materiality&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first quarter of 2006, the Company determined that its historical methodology for
the calculation of indirect manufacturing overhead costs applied to inventory was incorrect and
also identified a clerical error in the calculation of the overhead applied to inventory for the
three months ended December&nbsp;31, 2005. The Company originally recorded an adjustment in the first
quarter of 2006 to correct the net cumulative impact of the change in methodology and the clerical
error. However, as it was subsequently determined that the impact of correcting the methodology
related to prior periods was material to the operating results of the first quarter of 2006, a
further adjustment was necessary to reflect the cumulative impact against the relevant prior year
periods. Additionally, the Company has recorded the impact of previously unrecorded adjustments
related to cut-off errors primarily for legal and professional fees and the related income tax
effects which were previously deemed to be immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the impact to correct the cumulative amount of manufacturing overhead costs
applied to inventory, record previously unrecorded proposed cut-off errors and the related income
tax effects on the financial statements for the quarter ended September&nbsp;30, 2005 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Three Months Ended September 30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Nine Months Ended September 30, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Previously</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Overhead</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Cut-off</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Previously</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Overhead</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Cut-off</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Reported</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As Restated</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Reported</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As Restated</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statements of Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indirect manufacturing expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">894,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">108,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,002,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,531,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">489,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,021,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Cost of Products Sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,827,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,935,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,100,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,589,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,848,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(108,469</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,739,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,986,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(489,589</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,496,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,909,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(149,741</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,378</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,724,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,740,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(342,086</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(155,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,242,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">654,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,142,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(147,503</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,430</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">885,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,936,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(147,503</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,944,065</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,066,675</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">330,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">374,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">954,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(167,636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">90,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Nine Months Ended September 30, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Previously</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Overhead</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Cut-off</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Reported</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As Restated</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statement of Cash Flows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">954,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(167,636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877,390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,030</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,645</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,375,082</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,227,579</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts Payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,873,258</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(155,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,028,743</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>4. Cash, cash equivalents and investments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
original maturities of 90&nbsp;days to one year. Long-term investments include securities having
original maturities of more than one year. The Company&#146;s long-term investments are invested in
federal agency mortgage-backed securities, and are classified as held to maturity. These
investments are recorded at amortized cost. The Company intends to hold these securities until
maturity. The Company intends to reinvest the proceeds from maturing short and long term
investments into securities with similar original maturities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of cash, cash equivalents and held-to-maturity investments by type
at September&nbsp;30, 2006 and December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,841,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,841,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,387,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,387,796</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Government sponsored entity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,659,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(261,478</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,437,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,512,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(388,252</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,146,868</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total cash, cash equivalents and investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,501,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">39,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(261,478</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,278,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,900,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(388,252</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,534,664</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD nowrap align="center" colspan="0" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Government sponsored entity securities reported as:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,992,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,964,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,638,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,028,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,548,120</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,659,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,512,233</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the contractual maturities of government sponsored
entity securities at September&nbsp;30, 2006 and December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less than 1&nbsp;year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,777,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,980,493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1-3&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,882,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,531,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,659,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">37,512,233</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information about held-to-maturity investments with
gross unrealized losses and the length of time that individual investments have been in a
continuous unrealized loss position at September&nbsp;30, 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Less than 12 months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">12 months or more</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description of Securities</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Government sponsored entity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,988,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,337</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,750,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(260,141</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,738,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(261,478</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unrealized losses on the Company&#146;s investment in government sponsored entity
securities were caused by interest rate increases. The contractual cash flows of these investments
are guaranteed by an agency of the U.S. Government and, accordingly it is expected that the
securities would not be settled for a price less than the amortized cost of the investment. Since
the decline in fair value was attributable to interest rates and not credit quality, 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 September&nbsp;30, 2006.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>5. Inventories</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market. Cost is determined using the weighted
average cost which approximates the first-in, first-out (FIFO)&nbsp;method. Provisions are made to
reduce potentially excess, obsolete or slow-moving inventories to their net realizable value.
Inventories as of September&nbsp;30, 2006 and December&nbsp;31, 2005 consist of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials and work-in-process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,948,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,054,683</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,724,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,311,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserve for excess and obsolete inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(141,495</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260,750</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,531,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,105,336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. Intangible assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consist of the following at September&nbsp;30, 2006 and December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net Carrying</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Useful Life</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortized intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TASER.com domain name</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">5 Years</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issued patents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">4 to 15 Years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">223,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issued trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">9 to 11 Years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,503</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non compete agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">7 Years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,143</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unamortized intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TASER Trademark</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and trademarks pending</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,304,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,304,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,182,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,182,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,655,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">162,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,492,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,474,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">133,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,340,783</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for the three months ended September&nbsp;30, 2006 and 2005 was
$8,616 and $9,782, respectively. Amortization expense for the nine months ended September&nbsp;30, 2006
and 2005 was $28,761 and $20,145, respectively. Estimated amortization expense of intangible assets
for the balance of 2006, the next four years and thereafter is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Year Ending December 31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,875</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,577</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,423</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,342</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">188,215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

<TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>7. Accounts payable and accrued liabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities consist of the following at September&nbsp;30, 2006 and
December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>September 30, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,763,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,027,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,001,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">954,908</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued warranty expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">735,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">851,920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued salaries and benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,105,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,604,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,315,654</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Income taxes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deferred income tax asset at September&nbsp;30, 2006 is comprised primarily of a net operating
loss carryforward, which resulted from the compensation expense the Company recorded for income tax
purposes when employees exercised stock options in 2004. For the three and nine months ended
September&nbsp;30, 2006, the Company did not recognize additional tax
benefits related to disqualifying dispositions of stock options
exercised. A total tax benefit of $1,277,945 was credited to additional paid-in capital in the nine
months ended September&nbsp;30, 2005 for these disqualifying
dispositions. Additionally, warranty and inventory reserves, accrued vacation
and other items have contributed to the deferred income tax asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s total current and long term deferred tax asset at September&nbsp;30, 2006 is $30.0
million. In preparing the Company&#146;s financial statements, the Company has assessed the likelihood
that its deferred tax assets will be realized from future taxable income. In evaluating the ability
to recover its deferred income tax assets, the Company 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. The Company 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 the Company believes that its tax estimates are reasonable, the ultimate tax
determination involves significant judgments that could become subject to audit by tax authorities
in the ordinary course of business. As a result of the shareholder litigation settlement expense
recorded in the second quarter of 2006, the Company has determined that it is more likely than not
that its net operating loss carryforwards for the state of Arizona, which expire in 2009, will not
be fully realized. Accordingly, the Company has recorded a valuation allowance of $250,000, against
its deferred tax assets as of September&nbsp;30, 2006. Management believes that, other than as
previously described, as of September&nbsp;30, 2006, based on an evaluation and projections of future
sales and profitability, no other valuation allowance was deemed necessary as the Company concluded
that it is more likely than not that the Company&#146;s net deferred tax assets will be realized.
However, the deferred tax asset could be reduced in the near-term if estimates of future taxable
income during the carryforward period are reduced.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. Stockholders equity</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Stock Repurchase</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2006, TASER&#146;s
Board of Directors authorized a stock repurchase program to acquire up
to $10&nbsp;million  of the Company&#146;s outstanding common stock. During the third
quarter of 2006, the Company repurchased 300,000 shares at a weighted average cost of $7.36 per
share and a total cost of approximately $2.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stock Award Activity</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September&nbsp;30, 2006, the Company had three stock-based compensation plans, which are
described more fully in Note 11 to the financial statements included in the Company&#146;s Annual Report
on Form 10-K as filed on March&nbsp;16, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the stock options available and outstanding as of September&nbsp;30,
2006 as well as activity during the nine months then ended:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Outstanding Options</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Available for</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,381,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,161,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;&nbsp;</TD>
    <TD align="right">4.92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(114,125</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;&nbsp;</TD>
    <TD align="right">8.84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(273,321</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;&nbsp;</TD>
    <TD align="right">2.36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expired/terminated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(132,599</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;&nbsp;</TD>
    <TD align="right">5.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,400,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,870,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;&nbsp;</TD>
    <TD align="right">5.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The options outstanding as of September&nbsp;30, 2006 have been segregated into five
ranges for additional disclosure as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Options Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Options Exercisable</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>Range of Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Contractual Life</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,325,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,325,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,683,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,360,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,207,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.07</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14.72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,870,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,608,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aggregate intrinsic value of options outstanding and options exercisable at
September&nbsp;30, 2006 was $20.6&nbsp;million and $20.5&nbsp;million, respectively. Aggregate intrinsic value
represents the difference between the Company&#146;s closing stock price on the last trading day of the
fiscal period, which was $7.25 as of September&nbsp;30, 2006, and the exercise price multiplied by the
number of options outstanding. Total intrinsic value of options exercised was $1.7&nbsp;million and $4.5
million for the nine-month periods ended September&nbsp;30, 2006 and 2005, respectively. As of September
30, 2006, total unrecognized stock-based compensation expense related to non-vested stock options
was approximately $1.3&nbsp;million, which is expected to be recognized over a weighted average period
of approximately 11.6&nbsp;months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total fair value of options vested was $14.0&nbsp;million and $11.5&nbsp;million for the nine-month
periods ended September&nbsp;30, 2006 and 2005, respectively.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>10. Line of credit</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a line of credit agreement with a bank which provides for a total availability
of $10&nbsp;million. The line is secured primarily by the Company&#146;s accounts receivable and inventory
and bears interest at varying rates of interest, ranging from LIBOR plus 1.5% to prime. The
availability under this line is computed on a monthly borrowing base, which is based on the
Company&#146;s eligible accounts receivable and inventory. The line of credit matures on June&nbsp;30, 2008
and requires monthly payments of interest only. At September&nbsp;30, 2006, the available borrowing was
$8.5&nbsp;million and there was no amount outstanding under the line of credit. There have been no
borrowings under the line of credit to date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s agreement with the bank requires the Company to comply with certain financial
and other covenants including maintenance of minimum tangible net worth and fixed charge coverage
ratios. For the quarter ended September 30, 2006, the Company was in
violation of a covenant prohibiting the repurchase of shares of
its common stock. Effective November 1, 2006, the Company signed an
amendment to its existing agreement with the bank which waived the violation and permits the repurchase of shares up to an
aggregate amount of $10&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Commitments and Contingencies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Legal proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Securities Litigation</B><BR>
<B><I>Securities Class&nbsp;Action Litigation</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning on or about January&nbsp;10, 2005, numerous securities class action lawsuits were filed
against the Company and certain of its officers and directors. These actions were filed on behalf
of the purchasers of the Company&#146;s stock in various class periods, beginning as early as May&nbsp;29,
2003 and ending as late as January&nbsp;14, 2005. The majority of these lawsuits were filed in the
District of Arizona. Four actions were filed in the United States District Court for the Southern
District of New York and one in the Eastern District of Michigan. The New York and Michigan actions
were transferred to the District of Arizona. The class actions were consolidated by Judge Susan
Bolton and Lead Plaintiff and Lead Counsel were selected. The Lead Plaintiff filed a consolidated
complaint (which became the operative complaint for all of the class actions) on August&nbsp;29, 2005.
The operative class period is May&nbsp;29, 2003 to January&nbsp;11, 2005. The defendants filed a motion to
dismiss the consolidated complaint, which has been fully briefed for
the Court but was not decided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated complaint alleges, among other things, violations of the Securities Exchange
Act of 1934, as amended, and Rule&nbsp;10B-5, promulgated thereunder, and seeks unspecified monetary
damages and other relief against all defendants. The consolidated amended complaint generally
alleges that the Company and the individual defendants made false or misleading public statements
regarding, among other things, the safety of the Company&#146;s products and the Company&#146;s ability to
meet its sales goals, including the validity of a $1.5&nbsp;million sales order with the Company&#146;s
distributor, Davidson&#146;s, in the fourth quarter of 2004. The consolidated complaint also alleges
that product defects were leading to excessive product returns by customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

On July 25, 2006, Lead Plaintiff, Lead Counsel, defendants and
defendants&#146; counsel engaged in a mediation conference, and in
subsequent discussions, in an attempt to settle the consolidated
securities class actions. On August 9, 2006, the parties filed a
joint notice of settlement stating, among other things, that the parties
had reached an agreement in principal setting all consolidated
actions, subject to documentation, notice and Court approval. On
August 11, 2006, the Court issued an Order staying the class action
for 60 days to allow the parties to complete and submit settlement
documents, and  further denying as moot the defendants&#146; pending
motion to dismiss the consolidated complaint. On October 11, 2006,
the parties filed a joint Stipulation of Settlement and related
documents, and plaintiff filed a motion in support of the proposed
order preliminarily approving the settlement, to which motion the
defendants consented.

<BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Stipulation of Settlement
and related documents filed on October 11, 2006 set forth terms of
settlement including, among other things, full releases of any and all
related known or unknown claims among the plaintiff, plaintiff class
and the defendants, and payment of $20 million from TASER for the
benefit of the plaintiff class to be comprised  of $12 million in cash
(approximately $4.1 million to be provided from the Directors&#146;
and Officers&#146; Liability Insurance policy), and $8 million in
Company common stock valued as of the date at which the stock is
transferred (1,103,448 shares based on a closing market price of $7.25
at September 29, 2006). The number of shares is subject to change
based on the market price of the Company&#146;s stock at the
consumation of the settlement. At the Company&#146;s election, the
stock portion of the settlement may be funded with cash.<br><br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
Settlement of the consolidated securities class actions is
conditioned upon approval by the Court and other factors. There is no
assurance that the settlement will be completed on the terms set
forth in the parties&#146; Stipulation of Settlement and related
documents filed with the Court, or at all. In the event that a
settlement occurs, it is expected that the consolidated securities
class actions will be dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Shareholder Derivative Litigation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning on or about January&nbsp;11, 2005, numerous shareholder derivative actions were also
filed against the Company&#146;s officers and directors. Such actions have been filed in the United
States District Court for the District of Arizona, the Arizona Superior Court in Maricopa County,
and the Delaware Chancery Court in New Castle County. The derivative actions pending in the Arizona
Superior Court and the Delaware Chancery Court have been stayed pending resolution of the
consolidated Arizona District Court action. </DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The plaintiffs in the Arizona District Court action
filed a consolidated complaint on May&nbsp;13, 2005. The Company and the individual defendants filed
motions to dismiss the consolidated complaint on August&nbsp;19, 2005. On March&nbsp;17, 2006, the Court
denied the motions to dismiss. Defendants answered the consolidated complaint on April&nbsp;21, 2006.
Discovery has commenced and no trial date has been set.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
\<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The derivative complaints are based on similar facts and events as those alleged in the
securities class action complaints. The complaints generally allege that the individual defendants
breached the fiduciary duties that they owe to the Company and its shareholders by reason of their
positions as officers and/or directors of the Company. The complaints claim that such duties were
breached by defendants&#146; disclosure of allegedly false or misleading statements about the safety and
effectiveness of Company products and the Company&#146;s financial results. The complaints also claim
that fiduciary duties were breached by defendants&#146; alleged use of non-public information regarding
the safety of Company products and the Company&#146;s financial condition and future business prospects
to commit insider trading of the Company&#146;s stock. The derivative plaintiffs seek damages and
restitutionary, equitable, injunctive and other relief.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

On July 25, 2006, the parties to the Arizona District Court action
engaged in a mediation conference in an attempt to settle the
shareholder derivative litigation. On August 9, 2006, the parties to
the Arizona District Court action filed a joint notice of settlement
stating, among other things, that the parties had reached an
agreement in principal settling all consolidated actions, subject to
documentation, notice and Court approval. On August 11, 2006, the Court
issued an Order staying the Arizona District Court action for 60 days
to allow the parties to complete and submit settlement documents. On
October 13, 2006, the Court, upon the joint stipulation of the
parties to the Arizona District Court action, entered an Order
continuing the stay of the Arizona District Court action through
November 6, 2006 to complete and submit settlement documents.<br><br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Terms of the proposed settlement include, among other things, that
TASER would adopt certain measures to improve the Company&#146;s
corporate governance, and that TASER would pay the attroneys&#146;
fees in the Arizona District Court action in the amount of $1,750,000
comprised of the Company&#146;s common stock valued as of the date of
which the stock is transferred (241,379 shares, based on a closing
market price of $7.25 of September 29, 2006), in exchange for a
release by plaintiffs and current TASER shareholders of all claims
based on or arising out of the shareholder derivative complaint. All
parties to the Arizona District Court action, the Arizona State Court
action and the Delaware Chancery Court action anticipate that the
settlement will include each of these actions. Any settlement of
these derivative actions would be conditioned upon approval by the
Court and other factors. There is no assurance that the settlement
will be completed on the foregoing terms or at all. In the event that
a settlement occurs, it is expected that the derivative actions would
be dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Proposed Class&nbsp;Action and Derivative Lawsuit Settlement</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the aforementioned proposed settlements, the Company has established a litigation
settlement liability of $21.75&nbsp;million, recorded a receivable of $4.5&nbsp;million to reflect insurance
proceeds, and recorded a liability of approximately $400,000 for legal fees. The total litigation
settlement expenses reflected in the income statement for the nine months ended September&nbsp;30, 2006
are $17.65&nbsp;million, which are net of insurance proceeds after legal fees. The Company has tax
effected the settlement expenses in accordance with APB 28.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Demand for Inspection of Documents Litigation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May 4, 2005, a Company shareholder filed an action in the Delaware
Chancery Court against the Company under Section 220 of Delaware
General Corporation Law, demanding the inspection of certain corporate
documents. The Company filed an answer to the complaint on June 7,
2005. The plaintiff commenced discovery. Based upon the negotiations
of the parties and the plaintiff&#146;s review of certain Company
documents related to the demand, on August 21, 2006, the parties filed
a stipulation of dismissal of the action with prejudice on the merits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Securities and Exchange Commission Investigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Company was informed that the staff of the Securities and Exchange
Commission had commenced an informal inquiry concerning the Company&#146;s public statements regarding
the safety and performance of the Company&#146;s products, certain disclosure issues and the accounting
for certain transactions. The Company voluntarily provided documents and information to the SEC
staff. In August&nbsp;2005, the Company was informed that the staff of the SEC had initiated a formal
investigation as of June&nbsp;20, 2005, regarding the Company&#146;s disclosures concerning the medical
safety of its products; the accounting and disclosure of certain transactions; and the unauthorized
acquisition of confidential information from the Company by persons outside the Company for the
possible purpose of manipulating the Company&#146;s stock. The Company provided additional information
at the request of the SEC staff. In December&nbsp;2005, the SEC staff advised the Company that it had
completed its investigation into the Company&#146;s disclosures concerning the medical safety of the
Company&#146;s products; and into the accounting and disclosure issues. The SEC staff further advised
the Company that it had determined that it would not recommend that the Commission institute any
enforcement proceedings as to these matters. The SEC staff also advised the Company that it was
continuing to investigate issues relating to trading in the Company&#146;s stock. In May&nbsp;2006, the SEC
staff advised the Company that the SEC investigation has been terminated in its entirety with no
recommendation for enforcement action.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contract Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2000, Thomas N. Hennigan, a sales representative for our products from late 1997
through early 2000, sued the Company and certain of our shareholders in the United States District
Court, Southern District of New York. The Company previously sued him in February&nbsp;2000 in the
United States District Court for the District of Arizona, but had not served him. After the New
York case was dismissed in February&nbsp;2001 for lack of personal jurisdiction, Mr.&nbsp;Hennigan brought a
counterclaim in the United States District Court for the District of Arizona. Mr.&nbsp;Hennigan claims
the exclusive right to sell our products to many of the largest law enforcement, corrections, and
military agencies in the United States. He sought monetary damages that may amount to as much as
$500,000 against us allegedly arising in connection with his alleged service to the Company as a
distributor. His claims rest on theories of our failure to pay commissions, breach of contract,
promissory estoppel, breach of fiduciary duty, and on related theories. No written contract was
ever signed with Mr.&nbsp;Hennigan. We believe that he has no reasonable basis for claims based on
informal or implied contractual rights and will be unable to prove his damages with reasonable
certainty. Mr.&nbsp;Hennigan died in April&nbsp;2001 and the case is now being prosecuted by his estate. On
May&nbsp;24, 2002, H.A. Russell was permitted to proceed as an additional defendant-counterclaimant. We
filed various motions in November&nbsp;2002 for partial summary judgment including a motion to dismiss
his claims. On September&nbsp;30, 2003, the Court issued an order granting our motion for partial
summary judgment to dismiss Mr.&nbsp;Russell&#146;s claims and struck Hennigan&#146;s jury demand. On April&nbsp;14,
2004, the Court issued an opinion partially granting our motion for partial summary judgment on
certain joint venture, post-termination, post-death and exclusivity claims. A pretrial conference
was held on July&nbsp;28, 2005 and the trial started on August&nbsp;31, 2005. At the conclusion of Hennigan&#146;s
case in chief, we made a motion to dismiss Hennigan&#146;s case. The court issued a briefing schedule on
our motion and the trial was suspended pending the court&#146;s decision on our motion. On August&nbsp;4,
2006 the Court issued an opinion and order dismissing with prejudice all of plaintiffs claims,
except the Court set a briefing schedule for an alleged remaining
nominal claim. On September&nbsp;28, 2006, the
court entered an order granting judgment for plaintiff in the amount
of the nominal claim. In October&nbsp;2006, we reached a settlement
agreement under which plaintiff agreed not to appeal the court&#146;s order and we agreed to pay
plaintiff the judgment and forego the Company&#146;s claim for an award of attorney&#146;s fees as the
prevailing party under an offer of judgment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2004, the Company was served with a summons and complaint in the matter of Roy
Tailors Uniform Co., Inc. v. TASER International in which the plaintiff alleges that it is entitled
to commissions for disputed sales that were made to customers that are claimed to be plaintiff&#146;s
customers for which plaintiff is seeking monetary damages. Plaintiff failed to sign a distributor
agreement with the Company and did not have distribution rights with the Company. This case is in
the discovery phase and a trial date has been scheduled for
April&nbsp;2007. In October&nbsp;2006, a request
for dismissal of this lawsuit was filed with the court.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Class&nbsp;Action Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2005, the Company was served with a summons and complaint in the matter of Village
of Dolton v. TASER International in which the Plaintiff alleges that defendant misled the plaintiff
about the safety of the TASER device when they purchased the TASER device and are seeking damages.
The plaintiff is seeking to certify the lawsuit as a class action. We have filed an answer to the
complaint and a motion to dismiss. In October&nbsp;2005, we filed a declaration of the former chief of
police for the Village of Dolton which refutes many of the allegations made in the complaint and we
filed a motion for sanctions. In October&nbsp;2005, the Court issued an order partially granting our
Motion to Dismiss, and denied the balance of the motions. In
October&nbsp;2006, the Company reached an
agreement with the plaintiffs to dismiss this lawsuit the terms of which are subject to a
confidentiality agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Product Liability Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is currently named as a defendant in 56 lawsuits in which the plaintiffs alleged
either wrongful death or personal injury in situations in which the TASER device was used (or
present) by law enforcement officers or during training exercises. In addition, 26 other lawsuits
have been dismissed and are not included in this number. Two of the lawsuits that have been
dismissed or judgment entered in favor of TASER, are on appeal. With respect to each of these
pending 56 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. This table also lists those cases which were dismissed during the most recent fiscal
quarter. Cases that were dismissed in prior fiscal quarters are not included in this table. In each
of the pending lawsuits, the plaintiff is seeking monetary damages from the Company. 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 $250,000 in
per incident deductibles. We are defending each of these lawsuits vigorously.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Month</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Plaintiff</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Served</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Jurisdiction</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Claim Type</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Alvarado
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Jury Verdict for TASER</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">City of Madera
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed by Summary Judgment,<BR>
Appeal Pending</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thompson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">MI Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pierson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Glowczenski
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Case Stayed</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">LeBlanc
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">M. Elsholtz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">TX District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Washington
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sanders
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fleming
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Trial Scheduled for April&nbsp;9, 2007</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Woolfolk
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court MD FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Trial Scheduled for March&nbsp;2007.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Graff
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Holcomb
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND OH
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tucker
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hammock
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">District Court, Tarrant County, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Heston
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Rosa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gosserand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">O&#146;Donnell/Hasse
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Cook County, IL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yeagley
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hillsborough County Circuit Court, FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Neal-Lomax
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yanga Williams
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gwinnett County State Court, GA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mann
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND GA, Rome Div
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">King
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, MD FL, Jacksonville
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert Williams
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lee
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Davidson County, TN Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase, Trial Scheduled for June&nbsp;2008.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zaragoza
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Sacramento County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tapia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Los Angeles County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kinkle
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND MS
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nunez
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">72<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> District Court, Lubbock County, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bagnell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supreme Court for British Columbia, Canada
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Salazar
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Maricopa County Superior Court, AZ
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gillson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hollman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oliver
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Ninth Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Teran/LiSaola
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Powers
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Verdict for TASER, Appeal Pending</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cook
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NV District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stevens
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">OH Court Common Pleas
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dimiceli
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Allen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.J
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.B
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Howard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wagner
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gerdon
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gallant
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Herring
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court of City of St. Louis, MO
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stewart
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court for Broward County, FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lewandowski
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peterson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Husband
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">British Columbia Supreme Court, Canada
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wright
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Court of Common Pleas, Clinton County Ohio
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Howard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, KS (Companion to AZ lawsuit)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Richthofen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">22<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> Judicial District Court, St.
Tammany Parish, LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wilson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND GA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gray
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Judicial District, Davis County, Utah
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Diamond
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Douglas County, Oregon
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cuckovic
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, McDonald County, Missouri
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Personal Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cosby
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, SD NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Blair
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, MD NC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Detention
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lewis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court Tal FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lash
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED MO
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Games
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Multnomah County, OR
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bynum
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court SD NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lopez
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND IL Eastern Div
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Police Call
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bellemore
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wieffenbach
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court of
12<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Judicial <BR>
District, Will County, Il
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cruz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Los Angeles County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Turner
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD, CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Molina
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND West Virginia
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Detention
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Short
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, SD West Virginia
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>








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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2005,
the Company received a defense verdict in the Samuel Powers v. TASER
International personal injury case. As part of its legal strategy to aggressively defend these
cases, the Company entered into a settlement agreement with its own insurance provider in order to
prevent its insurance provider from settling the case with the plaintiff. Under the terms of the
settlement, the Company received $575,000 from its liability insurance provider associated with a
settlement and release agreement and the Company assumed all future potential liability and costs
from and after the date the settlement and release agreement was signed. After offsetting
approximately $100,000 in legal expenses to defend and win the trial, the Company has recorded the
remaining balance of approximately $475,000 as deferred insurance
settlement proceeds on its balance sheet. This deferred
income will be used to cover any costs through all appeals and the remaining balance if any will be
recorded as &#147;other income&#148; when final resolution is completed. During the three and nine month
period ended September&nbsp;30, 2006, the Company expended approximately $3,000 and $41,000,
respectively, in connection with the appeal and reduced the deferred amount by these costs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2006, the Company received a defense verdict in the Alvarado
v. Taser International in-custody death case. In
September&nbsp;2006, as part of its legal strategy to aggressively defend these cases, the Company entered into a
settlement agreement with its own insurance provider in order to prevent its insurance provider
from settling the case with the plaintiff. Under the terms of the settlement, the Company received
$225,000 from its liability insurance provider associated with a settlement and release agreement
and the Company assumed all future potential liability and costs from and after the date the
settlement and release agreement was signed. The Company has recorded
the $225,000 as deferred insurance settlement proceeds on its balance
sheet. This deferred  income will be used to cover any costs through
all appeals and the remaining balance if any will be recorded as
&#147;other income&#148; when final resolution is completed. No such
defense costs were paid in the three
months ended September&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2005, we filed litigation in U.S.&nbsp;District Court for the
Western District of North Carolina against Stinger Systems, Inc. and
Robert Gruder alleging false advertising and a violation of the
Lanham Act. The defendants have filed a counterclaim against the
Company alleging defamation. This case is in the discovery phase and
no trial date has been set.
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2005,
we filed litigation in Superior Court for Maricopa County against Thomas G.
Watkins III, our former patent attorney, for declaratory judgment, breach of fiduciary duty,
constructive fraud, and breach of contract. Mr.&nbsp;Watkins originally filed patent applications on our
behalf as our patent attorney for inventions utilized in the TASER X26 device in February and May
2003. In each patent application he filed a declaration stating that Magne Nerheim, our employee,
was the sole inventor. These patent applications are pending. Mr.&nbsp;Nerheim assigned his interest in
these patent applications to us. In December&nbsp;2004 Mr.&nbsp;Watkins informed us that he now felt that he
was the inventor of a portion of this invention. We vigorously dispute his claim and we believe
that we are the sole owner of this invention. We have filed a motion for summary judgment in this
litigation in February&nbsp;2006 which motion is pending before the Court. On February&nbsp;14, 2006, U.S.
Patent No.&nbsp;US 6,999,295 entitled &#147;Dual Operating Mode Electronic Disabling Device For Generating A
Time-Sequenced, Shaped Voltage Output Waveform&#148; was issued to named inventors Thomas G. Watkins,
III and Mr.&nbsp;Nerheim. Mr.&nbsp;Nerheim assigned his interest in this patent to us. This patent covers a
portion of the technology utilized in the TASER X26 device. This patent was applied for by Mr.
Watkins without our knowledge or consent. Since we are a joint owner of this patent, this patent
will not restrict us from manufacturing and selling the TASER X26 device. We have other patent
applications pending that cover inventions contained in this patent. In March&nbsp;2006, the Court
issued a temporary restraining order and a preliminary injunction preventing Mr.&nbsp;Watkins from
selling, assigning, transferring or licensing this patent to a third party during the duration of
this litigation. On August&nbsp;2, 2006, the Court issued an order granting our motion for partial
summary judgment on liability, leaving open the matter of remedies and other residual issues for
resolution in subsequent proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005
and April&nbsp;2006, we filed lawsuits in Marion County Circuit Court, Indiana and
in Fairfax County Circuit Court, Virginia, respectively, against James Ruggieri for defamation,
product disparagement, intentional interference with a business relationship, Lanham Act violations
and tortuously affecting the fairness and integrity of litigation as adverse third-party witness.
Mr.&nbsp;Ruggieri has counterclaimed for defamation and infliction of distress. This case is entering
the discovery phase and no trial date has been set. In October 2006, we reached a settlement agreement
with Mr.&nbsp;Ruggieri and a dismissal was entered in this litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2005,
we filed a lawsuit in Vigo County, Indiana, Superior Court against Roland M.
Kohr for defamation, product disparagement, Lanham Act violations, tortuously affecting the
fairness and integrity of litigation as adverse third-party witness, and intentional interference
with a business relationship. Dr.&nbsp;Kohr was the Medical Examiner and expert witness in the James
Borden wrongful death litigation which litigation was dismissed with prejudice. This case is in the
discovery phase and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2006, we filed a lawsuit in U.S. District Court for the Central District of California
against Bestex Company, Inc. for patent infringement, false patent marking, unfair competition and
breach of written contract. Bestex filed a counterclaim for unfair competition and false
advertising. This case is entering the discovery phase and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s policy to not disclose the specifics of any claim or
threatened lawsuit until the summons and complaint are actually served on the Company. We intend to
pursue and defend any lawsuit filed against or by the Company vigorously. Although we do not expect
the outcome in any individual case to be material, the outcome of any litigation is inherently
uncertain and there can be no assurance that any expense, liability and 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. The Company may settle a lawsuit in situations
where a settlement can be obtained for nuisance value and for an amount which is expected to be
less than the cost of defending a lawsuit. Due to the confidentiality of our litigation strategy
and the confidentiality agreements that are executed in the event of a settlement, the Company will
not identify or comment on which lawsuits have been settled or the amount of any settlement.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TASER INTERNATIONAL, INC.<BR>
NOTES TO FINANCIAL STATEMENTS (unaudited) &#151; Continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Aircraft charter</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to 2006, the Company chartered an aircraft for business travel from Four Futures
Corporation, which is wholly-owned by Thomas P. Smith, President of the Company, and his family.
Beginning in 2006, the Company began reimbursing Thomas P. Smith for business use of his personal
aircraft. For the three and nine months ended September&nbsp;30, 2006, the Company incurred expenses of
approximately $125,000 and $327,000 respectively, to Thomas P. Smith and Four Futures Corporation.
For the three and nine months ended September&nbsp;30, 2005, the Company incurred expenses of
approximately $141,000 and $340,000, respectively, to Thomas P. Smith and Four Futures Corporation.
Any personal use of the aircraft by Mr.&nbsp;Smith prior to 2006 was billed to Four Futures Corporation
for reimbursement. At September&nbsp;30, 2006 and December&nbsp;31, 2005, the Company had outstanding
payables of approximately $72,000 and $67,000, respectively to Thomas P. Smith, and no amounts due
from Thomas P. Smith or Four Futures Corporation. The Company believes that the rates charged by
Mr.&nbsp;Smith or Four Futures Corporation are equal to or below commercial rates the Company would pay
to charter similar aircraft from independent charter companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to 2006, the Company also chartered an aircraft for business travel from Thundervolt,
LLC, which is wholly owned by Patrick W. Smith, Chief Executive Officer of the Company, and
Phillips W. Smith, Chairman of the Company&#146;s Board. During January&nbsp;2006, the Company ceased the
charter of this aircraft. For the three and nine months ended September&nbsp;30, 2005, the Company
incurred charter expenses of approximately $98,000 and $335,000, respectively, to Thundervolt, LLC.
Any personal use of the aircraft by Patrick, Phillip or Thomas Smith was billed to Thundervolt,
LLC, or directly to the individual, for reimbursement. For the three and nine months ended
September&nbsp;30, 2005, the Company billed approximately $118,000 and $293,000, to Thundervolt, LLC,
Patrick W. Smith, Phillips W. Smith and Thomas P. Smith for personal use of the aircraft. The
Company believes that the rates charged by Thundervolt, LLC were equal to or below commercial rates
the Company would pay to charter similar aircraft from independent charter companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company performed a review of the above relationships in accordance with the provisions of
Financial Accounting Standards Board Interpretation No.&nbsp;46, &#147;Consolidation of Variable Interest
Entities, an Interpretation of ARB No.&nbsp;51&#148; (FIN 46R). Neither of the relationships were determined
to meet the definition of a variable interest entity (VIE)&nbsp;as defined by FIN 46R as both Four
Futures Corporation and Thundervolt, LLC are adequately capitalized, their owners possess all of
the essential characteristics of a controlling financial interest, and the Company does not have
any voting rights in either entity. Therefore, the entities are not required to be consolidated
into the Company&#146;s results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>TASER Foundation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the Company established the TASER Foundation. The TASER Foundation is a
501(c)3 non-profit corporation and has made application to the IRS for tax exempt status. The TASER
Foundation&#146;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. Daniel M. Behrendt an officer of the Company serves on the Board of Directors of
the TASER Foundation. Patrick W. Smith and Thomas P. Smith resigned from the Board of Directors of
the TASER Foundation in January&nbsp;2006. Over half of the initial $1&nbsp;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 nine months ended September&nbsp;30, 2006, the Company incurred
approximately $28,000 and $148,000, respectively, in such administrative costs. For the three and
nine months ended September&nbsp;30, 2005, the Company incurred approximately $32,000 and $92,000,
respectively in administrative costs. For the three and nine months ended September&nbsp;30, 2006, the
Company contributed $100,000 and $175,000 to the TASER Foundation. For the three and nine months
ended September&nbsp;30, 2005, the Company contributed $100,000 and $225,000 to the TASER Foundation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Consulting services</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in August&nbsp;2005, the Company agreed to pay Mark Kroll, a member of the Board of
Directors, a retainer of $8,000 per month to provide consultancy services. The cumulative expense
for the three and nine months ended September&nbsp;30, 2006 were approximately $50,000 and $159,000,
respectively. At September&nbsp;30, 2006, the Company had accrued liabilities of approximately $14,000
related to these services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Employee Benefit Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the Company established a defined contribution profit sharing 401(k) plan
(the &#147;Plan&#148;) 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
$15,000. The Company matches 50% of the first 6% of eligible compensation contributed to the Plan
by each participant. The Company&#146;s matching contributions vest after four years of service, at age
59 1/2 regardless of service, upon the death or permanent disability of the employee, or upon
termination of the Plan. The Company&#146;s matching contributions to the Plan for the three and nine
months ended September&nbsp;30, 2006 were $51,383 and $143,686, respectively. Future matching or profit
sharing contributions to the Plan are at the Company&#146;s sole discretion.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a discussion of the Company&#146;s financial condition and results of operations
for the three and nine months ended September&nbsp;30, 2006 and September&nbsp;30, 2005. The following
discussion may be understood more fully by reference to the financial statements, notes to the
financial statements, and the Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations section contained in the Company&#146;s Annual Report on Form 10-K filed on March
16, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. <I>Such forward-looking
statements may relate to, among other things: expected revenue and earnings growth; estimates
regarding the size of our target markets; successful penetration of the law enforcement market;
expansion of product sales to the private security, military and consumer self-defense markets;
growth expectations for new and existing accounts; expansion of production capability; new product
introductions; and our business model. We caution that these statements are qualified by important
factors that could cause actual results to differ materially from those reflected by the
forward-looking statements herein. Such factors include, but are not limited to: market acceptance
of our products; establishment and expansion of our direct and indirect distribution channels;
attracting and retaining the endorsement of key opinion-leaders in the law enforcement community;
the level of product technology and price competition for our products; the degree and rate of
growth of the markets in which we compete and the accompanying demand for our products; potential
delays in 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; risks related to government inquiries
and pending class action and derivative litigation; media publicity concerning allegations of
deaths occurring after use of the TASER device and the negative impact this publicity could have on
sales; product quality risks; potential fluctuations in quarterly operating results; competition;
financial and budgetary constraints of prospects and customers; dependence upon sole and limited
source suppliers; fluctuations in component pricing; risks of governmental regulations; dependence
on a single product; dependence upon key employees; employee retention risks; and other factors
detailed in the Company&#146;s filings with the Securities and Exchange Commission including in &#147;Part&nbsp;II
&#151; Item&nbsp;1A. Risk Factors&#148; in this report on </I><I>Form 10-Q</I> .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a global leader in the development and manufacture of advanced electronic control
devices designed for use in law enforcement, corrections, private security and personal defense. We
have focused our efforts on the continuous development of our technology for both new and existing
products as well as industry leading training services while building distribution channels for
marketing our products and services to law enforcement agencies, primarily in North America with
increasing efforts on expanding these programs with a view toward international markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our core expertise includes proprietary, patented technology which is uniquely capable of
incapacitating highly focused and aggressive subjects. Competing non-lethal weapons rely primarily
on pain to dissuade subjects from continuing unwanted behavior. Our proprietary Neuro-Muscular
Incapacitation (NMI)&nbsp;technology uses electrical impulses to interfere with a subject&#146;s
neuron-muscular system, causing substantial incapacitation regardless of whether the subject feels
or responds to pain. Our NMI technology stimulates the motor nerves which control muscular
movement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Law enforcement, military and corrections agencies represent our primary target markets. In each of
these markets, the decision to purchase TASER devices is normally made by a group of people
including the agency head, his or her training staff, and weapons experts. Depending on the size
and cost of the device deployment, the decision may involve political decision-makers such as city
council members and the federal government. The decision making process can take as little as a few
weeks or as long as several years.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our devices are not considered to be a &#147;firearm&#148; by the U.S. Bureau of Alcohol, Tobacco,
Firearms and Explosives. Therefore, no firearms-related regulations apply to the sale and
distribution of our devices within the United States. However, many states have regulations
restricting the sale and use of stun guns, which we believe apply to our devices as well. Our
products are often used in aggressive confrontations that may result in serious, permanent bodily
injury or death to those involved. Our products may cause or be associated with these injuries. A
person injured in a confrontation or otherwise in connection with the use of our products may bring
legal action against us to recover damages on the basis of theories including personal injury,
wrongful death, negligent design, dangerous product or inadequate warning. We are currently subject
to a number of such lawsuits. We may also be subject to lawsuits involving allegations of misuse of
our products. If successful, personal injury, misuse and other claims could have a material adverse
effect on our operating results and financial condition. Although we carry product liability
insurance, significant litigation could also result in a diversion of management&#146;s attention and
resources, negative publicity and an award of monetary damages in excess of our insurance coverage.
The outcome of any litigation is inherently uncertain and there can be no assurance that our
existing or any future litigation will not have a material adverse effect on our revenues, our
financial condition or financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our financial statements, and the reported amounts of revenue
and expenses during the reporting periods. There can be no assurance that actual results will not
differ from those estimates. We have identified the following policies as critical to our business
operations and the understanding of our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenue Recognition</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenue recognition policy is significant because our revenue is a key component of our
results of operations. We recognize revenues when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, title has transferred, the price is fixed and
collectability is reasonably assured. All of our sales are final and our customers do not have a
right to return the product. We charge certain of our customers shipping fees, which are recorded
as a component of net sales. We record training revenue as the service is provided. In 2003, we
began offering our customers the right to purchase extended warranties on our ADVANCED TASER
product and TASER X26 product. Revenue for extended warranty purchases is deferred at the time of
sale, and recognized over the warranty period. At September&nbsp;30, 2006 and December&nbsp;31, 2005, we
deferred $2,322,000 and $1,233,000 under this program, respectively. We also defer revenue
associated with the one-on-one private citizen training and background checks that are included
with the purchase of an X26 <SUP style="font-size: 85%; vertical-align: text-top"> C </SUP> private citizen device. The revenue associated
with these items is deferred until the service is provided. At September&nbsp;30, 2006 and December&nbsp;31,
2005, we had deferred approximately $189,000 and $150,000, respectively, relating to these items
and another $18,000 at December&nbsp;31, 2005 relating to the training of federal firearms licensed
dealers who will sell the X26 <SUP style="font-size: 85%; vertical-align: text-top"> C </SUP> device. Changes in judgments on these
assumptions and estimates could impact the timing or amount of our revenue recognition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Standard Warranty Costs</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We warrant our products from manufacturing defects for a period of one year after purchase and
will replace any defective unit with a new one for a fee. We track historical data related to
returns and related warranty costs on a quarterly basis, and estimate future warranty claims by
applying our four quarter average return rate to our product sales for the period. We have also
historically increased our reserve amount if we become aware of a component failure that could
result in a larger than anticipated returns from our customers. As of September&nbsp;30, 2006, our reserve
for warranty returns was $735,000 compared to a $852,000 reserve at December&nbsp;31, 2005. In the event
that product returns under warranty differ from these estimates, changes to our warranty reserves
might become necessary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Inventory</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market, with cost determined using the weighted
average cost, which approximates the first-in, first-out (FIFO)&nbsp;method. Provisions are made to
reduce potentially excess, obsolete or slow-moving inventories to their net realizable value. These
provisions are based on our best estimates after considering historical demand, projected future
demand, inventory purchase commitments, industry and market trends and conditions and other
factors. In the event that actual excess, obsolete or slow-moving inventories differ from these
estimates, changes to our inventory reserves might become necessary. Our reserve for excess and
obsolete inventory was $141,000 at September&nbsp;30, 2006 compared
to $261,000 at December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Accounts Receivable</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales are typically made on credit and we generally do not require collateral. We perform
ongoing credit evaluations of our customers&#146; financial condition and maintain an allowance for
estimated potential losses. Uncollectible accounts are written off when deemed uncollectible, and
accounts receivable are presented net of an allowance for doubtful accounts. These allowances
represent our best estimates and are based on our judgment after considering a number of factors
including third-party credit reports, actual payment history, customer-specific financial
information and broader market and economic trends and conditions. In the event that actual
uncollectible amounts differ from these estimates, changes in our allowances for doubtful accounts
might become necessary.


Our allowance for doubtful accounts was $110,000 at September&nbsp;30, 2006 compared to $111,000 at
December&nbsp;31, 2005.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Valuation of Long-lived Assets</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We review long-lived assets, such as property and equipment and intangible assets subject to
amortization, whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. We utilize a two-step approach to testing long-lived assets for
impairment. The first step tests for possible impairment indicators. If an impairment indicator is
present, the second step measures whether the asset is recoverable based on a comparison of the
carrying amount of the asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Our review requires the use of judgment and estimates. No such
impairment charges have occurred to date. However, future events or circumstances may result in a
charge to earnings if we determine that the carrying value of a long-lived asset is not
recoverable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income Taxes</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement of Financial Accounting Standards No.&nbsp;109, or SFAS No.&nbsp;109, <I>Accounting for Income
Taxes</I>, establishes financial accounting and reporting standards for the effect of income taxes. In
accordance with SFAS No.&nbsp;109, we recognize federal, state and foreign current tax liabilities or
assets based on our estimate of taxes payable or refundable in the current fiscal year by tax
jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities, as
appropriate, for our estimate of future tax effects attributable to temporary differences and
carryforwards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our calculation of current and deferred tax assets and liabilities is based on certain
estimates and judgments and involves dealing with uncertainties in the application of complex tax
laws. Our estimates of current and deferred tax assets and liabilities may change based, in part,
on added certainty or finality to an anticipated outcome, changes in accounting or tax laws in the
United States, or changes in other facts or circumstances. In addition, we recognize liabilities
for potential United States tax contingencies based on our estimate of whether, and the extent to
which, additional taxes may be due. If we determine that payment of these amounts is unnecessary or
if the recorded tax liability is less than our current assessment, we may be required to recognize
an income tax benefit or additional income tax expense in our financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In preparing our financial statements, we assess the likelihood that our deferred tax assets
will be realized from future taxable income. In evaluating our ability to recover our deferred
income tax assets we consider all available positive and negative evidence, including our operating
results, ongoing tax planning and forecasts of future taxable income. We establish a valuation
allowance if we determine that it is more likely than not that some portion or all of the net
deferred tax assets will not be realized. We exercise significant judgment in determining our
provisions for income taxes, our deferred tax assets and liabilities and our future taxable income
for purposes of assessing our ability to utilize any future tax benefit from our deferred tax
assets. Although we believe that our tax estimates are reasonable, the ultimate tax determination
involves significant judgments that could become subject to audit by tax authorities in the
ordinary course of business. As a result of the shareholder litigation settlement expense recorded
in the second quarter of 2006, we have determined that it is more likely than not that our net
operating loss carryforwards for the state of Arizona, which expire in 2009, will not be fully
realized. Accordingly, we have recorded a valuation allowance of $250,000 against our deferred tax
assets as of September&nbsp;30, 2006. As of September&nbsp;30, 2006, other than as previously described,
based on our evaluation, no other valuation allowance was deemed necessary as it is more likely
than not that our net deferred tax assets will be realized. However, our deferred tax asset could
be reduced in the near term if estimates of taxable income during the carryforward period are
reduced.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Contingencies</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the possibility of various loss contingencies arising in the ordinary course
of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a
liability, as well as our ability to reasonably estimate the amount of loss in determining loss
contingencies. An estimated loss contingency is accrued when it is probable that an asset has been
impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We
regularly evaluate current information available to us to determine whether such accruals should be
adjusted and whether new accruals are required.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>






<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Three and Nine Months Ended September&nbsp;30, 2006 Compared to the Three and Nine Months Ended
September&nbsp;30, 2005</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth, for the periods indicated, our statements of income expressed as a
percentage of revenue:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #ffffff"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #ffffff"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net sales</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of products sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">36.48</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">33.71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">36.04</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">38.73</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gross margin</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">63.52</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">66.29</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">63.96</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">61.27</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">38.91</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">57.60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">45.39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">54.84</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.22</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.09</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.13</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.15</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Litigation settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">36.44</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income(loss) from operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20.39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-22.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.28</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.63</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.43</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.01</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.01</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income and expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.17</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income(loss) before income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">23.02</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.23</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-19.36</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.54</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision(credit) for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9.94</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.02</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-6.14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.04</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net income(loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.08</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.21</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-13.22</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net Sales</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three and nine months ended September&nbsp;30, 2006 and 2005, sales by product line and by
geography were as follows (amounts in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Three Months Ended September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Nine Months Ended September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Sales by Product Line</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TASER X26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">67</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">70</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">63</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TASER Cam</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ADVANCED TASER</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">AIR TASER</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Single Cartridges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">24</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">22</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">28</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research Funding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #ffffff"><B>For the Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #ffffff"><B>For the Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">86</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">89</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales increased $6.6&nbsp;million, or 57%, to $18.3&nbsp;million for the third quarter of 2006
compared to $11.7&nbsp;million for the third quarter of 2005. For the first nine months of 2006, net
sales were $48.4&nbsp;million, an increase of $13.3&nbsp;million, or
38%, over the same period in 2005. We
believe the principal reasons for the increases in net sales are related to us overcoming certain
elements of the various types of negative publicity we experienced during the course of 2005.
Specifically, as a result of an SEC investigation, ongoing negative press coverage and increased
amounts of litigation concerning our products and their use, prospective customers, particularly
law enforcement agencies, frequently postponed implementation decisions. With the resolution of key
portions of the SEC investigation in December&nbsp;2005, we noted that many of the agencies that
were postponing decisions began moving forward with their evaluation and implementation programs
and decisions to purchase our products which had a positive impact on our sales for both the third
quarter and first nine months of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, in the third quarter of 2006, we advanced our international presence with the shipment of
1,000 TASER&#174; X26s and 1,000 TASER CAM<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> systems to France, following a lengthy trial and
evaluation process. This represents the first shipment under a tender award to the Company&#146;s
distributor which was authorized by the French Government to purchase up to 5,000 TASER systems.
Also contributing to the increase in net sales in both the third quarter and first nine months of
2006 was the introduction of the TASER Cam&#153; product which began shipping in the second quarter of
2006. Sales of the TASER Cam&#153; contributed $872,000 and $1.3&nbsp;million to net revenues in the third
quarter and first nine months of 2006, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sequentially, our net sales for the third quarter of 2006 increased by $2.1&nbsp;million, or 13%, over
the second quarter of 2006.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of the TASER X26
product line increased $5.2&nbsp;million to $13.0&nbsp;million for the third
quarter of 2006 compared to $7.8&nbsp;million for the third quarter of 2005. For the first nine months
of 2006, sales of the TASER X26 product line were $34.0&nbsp;million, an increase of $11.8&nbsp;million or
53% over the same period in 2005. Single cartridge sales increased $0.9&nbsp;million for the third
quarter of 2006 to $3.7&nbsp;million compared to $2.8&nbsp;million for the third quarter of 2005. For the
first nine months of 2006, cartridge sales increased $0.8&nbsp;million to $10.5&nbsp;million compared to $9.7
million for the same period of 2005. International sales for the third quarter and first nine
months of 2006 represented approximately $2.2&nbsp;million, or 12%, and $5.4&nbsp;million, or 11%, of total
net sales, respectively. This compares to international sales for the third quarter and first nine
months of 2005 of $1.6 million, or 14% and $4.2&nbsp;million, or 12%, of total net sales, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Grant funding from the Office of Naval Research (ONR)&nbsp;was $0 and $105,000 for the three months
ended September&nbsp;30, 2006 and 2005, respectively. For the first nine months of 2006 and 2005, the
grant funding was $146,000 and $245,000, respectively. We were awarded a grant for $515,000 in late
2004 to fund Phases 3 and 4 of the extended range projectile project for which the related work was
performed and revenue recognized in 2005 and the first quarter of 2006 based upon the completion of
specified milestones. We have fully billed the ONR for the work performed and received final
payment in the second quarter of 2006. Other sales represent shipping and training and warranty
revenues net of cash and distributor discounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cost of Products Sold</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of products sold increased by $2.7&nbsp;million, or 70%, to $6.7&nbsp;million for the third quarter
of 2006 compared to $3.9&nbsp;million for the third quarter of 2005. As a percentage of net sales, cost
of products sold increased to 36% for the third quarter of 2006 compared to 34% for the third
quarter of 2005. The increase in cost of products sold as a percentage of net sales was driven by a
combination of a change in sales mix with the introduction of the
lower margin TASERCam<SUP>TM</SUP> product, a rise in raw material costs due to higher price of certain petroleum based product
components and higher temporary labor costs due to the increased production levels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the first nine months of 2006, cost of product sold were $17.5&nbsp;million, an increase of
$3.9 million, or 28%, over the same period in 2005. However, as a percentage of net sales, cost of
products sold decreased by 3% to 36% for the first nine months of 2006 compared to 39% for the same
period in the prior year. The decrease in cost of products sold as a percentage of sales for the
first nine months of 2006 is attributable to improved production throughput and lower scrap
expense. Specifically, on one X26 assembly line, production yield improved from approximately 69%
in the first quarter of 2005 to greater than 98% for the first nine months of 2006. In addition,
the increased volume of device and ancillary product sales in 2006 resulted in a larger number of
units over which to apply indirect manufacturing expenses, resulting in lower per unit costs.
Indirect expenses primarily include indirect salaries for
manufacturing support personnel including manufacturing engineering,
quality and materials management, scrapped
materials, freight, supplies and depreciation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Gross Margin</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross margin increased $3.9&nbsp;million, or 50%, to $11.6&nbsp;million for the third quarter of 2006
compared to $7.7&nbsp;million for the third quarter of 2005. As a percentage of net sales, gross margins
decreased to 64% for the third quarter of 2006 compared to 66% for the third quarter of 2005. The
decrease in gross margin was attributable to the increased percentage of direct costs as a
percentage of net sales as noted above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross margin increased $9.5&nbsp;million, or 44%, to $31.0&nbsp;million for the first nine months of
2006 compared to $21.5&nbsp;million for the first nine months of 2005. As a percentage of net sales,
gross margin increased to 64% for the first nine months of 2006 compared to 61% for the first nine
months of 2005. The increase in gross margin was due to the lower cost of sales per unit from the
improved leverage of indirect manufacturing expenses and improved production yields as discussed
above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Sales, General and Administrative Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three and nine months ended September&nbsp;30, 2006 and 2005, sales, general and
administrative expenses were comprised as follows (amounts in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Three Months Ended September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Nine Months Ended September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>Change</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries and benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">26.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,357</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">24.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Professional, consulting and lobbying fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-6.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Travel and meals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-17.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-2.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">D&#038;O and liability insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">23.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-0.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">29.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-1.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales, general and administrative as % of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">58</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">54</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales, general and administrative expenses were $7.1&nbsp;million and $6.7&nbsp;million in the third
quarter of 2006 and 2005, respectively,
an increase of $0.4&nbsp;million, or 6%. As a percentage of total net sales, sales, general and
administrative expenses decreased to 39% for the third quarter of 2006 compared to 58% for the
third quarter of 2005. The dollar increase for the third quarter of 2006 over the same period in
2005 is substantially attributable to a $319,000, or 26%, growth in salaries and benefits related to
an increase in personnel to support the expansion of our business infrastructure combined with
employee bonuses and $195,000 of stock-based compensation costs associated with our adoption of
SFAS 123(R), effective January&nbsp;1, 2006. In addition, continuing costs incurred by us in order to
defend against numerous litigation matters contributed to a $61,000 increase in legal expenses.
These increases were partially offset by a decrease in travel and meals of $146,000 and
professional, consulting and lobbying fees of $83,000, a function of the intensive lobbying efforts
undertaken in the third quarter of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales, general and administrative expenses were $22.0&nbsp;million and $19.2&nbsp;million for the first
nine months of 2006 and 2005, respectively, an increase of $2.7&nbsp;million, or 14%. As a percentage of
total net sales, sales, general and administrative expenses decreased to 45% for the first nine
months of 2006 compared to 54% for same period in 2005. The dollar increase for the first nine
months of 2006 compared to the first nine months of 2005 is primarily
due to a $850,000, or 24%,
increase in salaries and benefits related to an increased headcount and employee bonuses and an
$815,000 increase in legal, professional, consulting and lobbying fees associated with the
continuing costs of defending against numerous litigation matters and our ongoing efforts via
public relations and lobbying to educate the public in regard to the safety and efficacy of our
products. In addition, we incurred $707,000 of stock-based compensation expense, D&#038;O and liability
insurance costs increased by $303,000 as a result of higher premiums due to increased coverage, and
depreciation expense increased $224,000 with our new facility and related equipment which were not
placed into service until April&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Research and Development Expenses.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses increased $412,000, or 114%, to $773,000 for the third
quarter of 2006 compared to $361,000 for the third quarter of 2005. Research and development
expenses increased $896,000, or 81%, to $2.0&nbsp;million, for the first nine months of 2006 compared to
$1.1&nbsp;million for the first nine months of 2005. The increase on both a quarterly and nine month
basis is predominantly related to growth in salary, supply and consulting costs to support our
continuing efforts to develop new products such as the TASERCam and the XREP (Extended Range
Electro-Muscular Projectile). Additionally, $46,000 and $157,000 of the increase in research and
development expenses for the third quarter and first nine months of
2006, respectively, is related to stock-based
compensation expense recognized in those periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Litigation settlement expenses.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Litigation settlement expenses for the first nine months of 2006 represent $17.65&nbsp;million
recorded in the second quarter of 2006 as a result of an agreement in principle for the proposed
settlement of our shareholder class action litigation and derivative lawsuits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Interest Income.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income increased $176,000, or 57%, to $483,000 for the third quarter of 2006 compared
to $307,000 for the third quarter of 2005. Interest income increased $426,000, or 50%, to $1.3
million for the first nine months of 2006 compared to $854,000 for the same period in 2005. The
increase on both a quarterly and nine month basis is a function of the growth in our cash and
investment balances and higher average yields on our investments. Our cash and investment accounts
earned interest at an approximate average rate of 3.88% and 3.62% during the third quarter and
first nine months of 2006, respectively, compared to 2.83% and 2.47% during the third quarter and
first nine months of 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income Taxes.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
provision for income taxes increased by $1.2&nbsp;million to $1.8 million for the third quarter
of 2006 compared to $586,000 for the third quarter of 2005. This is attributable to the growth in
income before provision for income taxes to $4.2&nbsp;million in the third quarter of 2006 compared to
$961,000 for the same period in the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for income taxes decreased by $4.1&nbsp;million from $1.1&nbsp;million for the first nine
months of 2005 to a credit for income taxes of $3.0&nbsp;million for
the first nine months of 2006. The
decrease is substantially the result of the loss before provision for income taxes of $9.4&nbsp;million
for the nine months ended September&nbsp;30, 2006, which was generated by the shareholder litigation
expense of $17.65&nbsp;million recorded in the second quarter of 2006. The
effective income tax rate for the third quarter and first nine months of 2006 was 43.2% and 31.7%,
respectively, compared to 61% and 54.9% for the third quarter and first nine months of 2005,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The net deferred tax asset as of September&nbsp;30, 2006 totaled $30.0&nbsp;million compared to $27.0&nbsp;million
at December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net Income (Loss).</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income increased by $2.0&nbsp;million to $2.4&nbsp;million for the third quarter of 2006 compared to
$375,000 for the same period in the prior year. Income per basic and diluted share increased to
$0.04 in the third quarter of 2006 from $0.01 for the third quarter of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income decreased by $7.3&nbsp;million from $877,000 for the first nine months of 2005 to a net
loss of $6.4&nbsp;million for the first nine months of 2006. Income per basic and diluted share
decreased from $0.01 for the first nine months of 2005 to a loss of $0.10 for the first nine months
of 2006.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Liquidity and Capital Resources</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Liquidity.</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2006, we had working capital of $25.3&nbsp;million compared to working capital
of $34.7&nbsp;million at December&nbsp;31, 2005. The decrease in
working capital is mainly attributable to the recording of the
litigation settlement partially offset by an increase in accounts
receivable and insurance settlement proceeds receivable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for the first nine months of 2006 was mainly
comprised of a decrease in inventory of $1.6&nbsp;million attributable to increased sales of finished
goods and our ongoing efforts to reduce our investment in inventory and,a $1.1&nbsp;million increase in
deferred revenue created by the growth in sales of extended warranties. Primarily due to the net
shareholder litigation settlement of $17.65&nbsp;million accrued in the second quarter of 2006, these
items were partially offset by a net loss of $6.4&nbsp;million which includes non cash depreciation and
amortization expense of $1.5&nbsp;million and stock based compensation expense of $0.9&nbsp;million, a net
increase in deferred income taxes of $3.0&nbsp;million from the associated net operating loss
carryforwards and a net increase of $4.0&nbsp;million in related insurance settlement proceeds
receivable. Also offsetting the cash provided by operations was an increase in accounts receivable
of $5.0&nbsp;million attributable to the increased sales levels in the third quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As previously discussed in note 11 to
the financial statements, we have reached a tentative
agreement to settle our shareholder class action and derivative lawsuits. The terms of the
agreement call for us to pay approximately $12&nbsp;million of cash, $4.1 of which will be provided by
insurance. In addition, we will make a final payment of $8&nbsp;million of stock or cash at our
discretion. These payments are expected to be made in the next six months. We expect to fund the
projected settlement payments from existing cash balances and cash generated from operations. In
addition, our Board has approved, in connection with the settlement, a stock repurchase of up to
$10&nbsp;million subject to stock market conditions and corporate considerations. During the third
quarter of 2006, we repurchased 300,000 shares of our common stock for
$2.2 million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used $8.6&nbsp;million of cash in investing activities during the nine months ended September
30, 2006, compared to $2.3&nbsp;million of cash provided by investing activities for the same period in
2005. Net cash used in investing activities for the nine months ended September&nbsp;30, 2006 was
comprised of net increases in our investments of $7.1&nbsp;million combined with $1.3&nbsp;million in
acquisitions of property and equipment, which mainly related to building improvements and
production and office equipment. In 2005, proceeds from investments which matured in the first nine
months of $36.7&nbsp;million were partially offset by the purchase of other investments of $27.0&nbsp;million
and $7.4&nbsp;million of investments in property and equipment. Of the funds used in the acquisition of
property and equipment in the first nine months of 2005, $5.3&nbsp;million was used for the construction
of our manufacturing and administrative facility in Scottsdale, Arizona, $0.9&nbsp;million was used for
production equipment and $1.1&nbsp;million was used to purchase and install new computer equipment and
software, including investments associated with a new ERP system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first nine months of 2006,
 we used $1.5&nbsp;million of cash in financing activities,
compared to $0.5&nbsp;million generated from financing activities for the same period in 2005. The $1.5
 million of cash used by financing activities in 2006 was mainly comprised of the repurchase of
300,000 shares of or common stock for $2.2 million offset by proceeds from stock options exercised
of $0.7&nbsp;million. We generated $0.5&nbsp;million of proceeds from stock options exercised in the same
period of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Capital Resources.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;30, 2006, we had cash and investments of $50.5&nbsp;million and $0.1&nbsp;million of
capital lease obligations outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We negotiated a revolving line of credit on July&nbsp;13, 2004 through a domestic bank. The total
availability on the line is $10&nbsp;million. The line is secured by substantially all of our assets,
other than intellectual property, and bears interest at varying rates, ranging from LIBOR plus 1.5%
to prime. The line of credit matures on June&nbsp;30, 2008 and requires monthly payments of interest
only. At September&nbsp;30, 2006, there was a calculated availability
of $8.5&nbsp;million based on the
defined borrowing base, which is based on our eligible accounts receivable and inventory. However,
there was no outstanding balance under the line of credit at September&nbsp;30, 2006, and no borrowings
under the line as of the date of the filing of this Form 10-Q.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our existing balance of cash and investments of $50.5&nbsp;million as of September
30, 2006, together with cash expected to be generated from operations and availability under the
line of credit will be adequate to fund our operations for at least the next 12&nbsp;months. However, we
may require additional resources to expedite manufacturing of new and existing technologies in
order to meet possible demand for our products. Although we believe financing will be available at
terms favorable to us, both through our existing credit lines and possible additional equity
financing, there is no assurance that such funding will be available, or on terms acceptable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Commitments and Contingencies.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
than as described in footnote 11 to our financial statements, with respect to the
proposed class action and derivative lawsuit settlements, there have been no material changes in
future contractual financial obligations as of September&nbsp;30, 2006 compared to the information at
December&nbsp;31, 2005 set forth in our Annual Report on Form 10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Off Balance Sheet Arrangements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have no off balance sheet arrangements as of September&nbsp;30, 2006.
</DIV>


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<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Interest Rate Risk</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We invest in a limited number of financial instruments, consisting principally of investments
in high credit quality government sponsored entity securities, denominated in United States
dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for our investment instruments in accordance with Statement of Financial Accounting
Standards No.&nbsp;115, <I>&#147;Accounting for Certain Investments in Debt and Equity Securities&#148; </I>, (SFAS No.
115 <I>). A</I>ll of our cash equivalents and marketable securities are treated as &#147;held-to-maturity&#148;
under SFAS No.&nbsp;115. Investments in fixed rate interest earning instruments carry a degree of
interest rate risk as their market value may be adversely impacted due to a rise in interest rates.
As a result, we may suffer losses in principal if forced to sell securities that decline in market
value due to changes in interest rates. However, because we classify our debt securities as
&#147;held-to-maturity,&#148; no gains or losses are recognized due
to changes in interest rates and, as such,
a 10% change in interest rates would not have a material adverse affect on our results of
operations. These securities are reported at amortized cost, which approximates fair value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Rate Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider our direct exposure to foreign exchange rate fluctuations to be minimal.
Currently, sales to customers provide for pricing and payment in United States dollars, and
therefore are not subject to exchange rate fluctuations. To date, we have not engaged in any
currency hedging activities, although we may do so in the future. Fluctuations in currency exchange
rates could harm our business in the future.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Evaluation of disclosure controls and procedures</I></B>.

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, because there has been insufficient time in which to demonstrate the
consistent operational effectiveness of the remediation efforts related to the material weaknesses
in internal control over financial reporting as described below, our disclosure controls and
procedures were ineffective as of September&nbsp;30, 2006 to ensure that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i)&nbsp;is
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms and (ii)&nbsp;is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Our disclosure controls and procedures are designed
to provide reasonable assurance that such information is accumulated and communicated to our
management. Our disclosure controls and procedures include components of our internal control over
financial reporting. Management&#146;s assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance because a control system, no
matter how well designed and operated, can provide only reasonable, but not absolute, assurance
that the control system&#146;s objectives will be met.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Status of Remediation Efforts with Respect to Previously Disclosed Material Weaknesses</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Restatement of previously issued financial statements due to an error in those financial statements
which resulted from the incorrect calculation of manufacturing overhead applied to inventory</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;11, 2006, we concluded that our financial statements at March&nbsp;31, 2005, June&nbsp;30, 2005
and September&nbsp;30, 2005 and for the periods then ended, included in our Form 10-Qs for such periods
should no longer be relied upon due to an error in those financial statements as we determined that
our historical methodology for the calculation of indirect manufacturing expense applied to
inventory was incorrect. We also identified a clerical error in the calculation of the overhead
applied to inventory for the three months ended December&nbsp;31, 2005. We had historically been
calculating the rate used to capitalize overhead into inventory using an incorrect amount of direct
labor hours, the result of which was to overstate the rate used to capitalize overhead into
inventory which overstated both inventory and income. In addition, when reviewing the historical
overhead calculation, a formulaic spreadsheet error was identified in the calculations for the
fourth quarter of 2005. The effect of these errors on the our results was to reduce net income for
the year ended December&nbsp;31, 2005 by approximately $6,000 and to increase net income for the three
months ended March&nbsp;31, 2006 by approximately $113,000. The changes had no impact on revenues for
the periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these errors, adjustments
were required to correct the cumulative impact both
in the first quarter of 2006 and in the relevant prior periods. We disclosed the impact of these
errors on the prior periods in footnote 3 to the financial statements included in Item&nbsp;1 of our
Form 10-Q filed for the periods ended March&nbsp;31, 2006 and June
30, 2006 and we have restated the September&nbsp;30, 2005
balances in this Form 10-Q. Since the errors were not previously identified in the prior periods in
which they occurred, a material weakness in our internal controls was deemed to exist.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management corrected the methodology for calculating indirect manufacturing expense applied to
inventory in the first quarter of 2006 and implemented additional procedures and controls
surrounding the preparation and review of the overhead calculation, including verification of
spreadsheet accuracy. We consulted with and advised our Audit Committee of our Board of Directors
of our determination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even though management believes it has implemented remediation efforts as described above,
insufficient time has elapsed to demonstrate that the control is consistently operating effectively
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in accordance with U.S.
generally accepted accounting principles.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Changes in internal control over financial reporting.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than as noted above with respect to our remediation efforts, there has been no change in
our internal control over financial reporting during our quarter ended September&nbsp;30, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II&#151;OTHER INFORMATION</B>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. LEGAL PROCEEDINGS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Securities Litigation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Securities Class&nbsp;Action Litigation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning on or about January&nbsp;10, 2005, numerous securities class action lawsuits were filed
against the Company and certain of its officers and directors. These actions were filed on behalf
of the purchasers of the Company&#146;s stock in various class periods, beginning as early as May&nbsp;29,
2003 and ending as late as January&nbsp;14, 2005. The majority of these lawsuits were filed in the
District of Arizona. Four actions were filed in the United States District Court for the Southern
District of New York and one in the Eastern District of Michigan. The New York and Michigan actions
were transferred to the District of Arizona. The class actions were consolidated by Judge Susan
Bolton and Lead Plaintiff and Lead Counsel were selected. The Lead Plaintiff filed a consolidated
complaint (which became the operative complaint for all of the class actions) on August&nbsp;29, 2005.
The operative class period is May&nbsp;29, 2003 to January&nbsp;11, 2005. The defendants filed a motion to
dismiss the consolidated complaint, which has been fully briefed for
the Court was not decided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated complaint alleges, among other things, violations of the Securities Exchange
Act of 1934, as amended, and Rule&nbsp;10b-5, promulgated thereunder, and seeks unspecified monetary
damages and other relief against all defendants. The consolidated amended complaint generally
alleges that the Company and the individual defendants made false or misleading public statements
regarding, among other things, the safety of the Company&#146;s products and the Company&#146;s ability to
meet its sales goals, including the validity of a $1.5&nbsp;million sales order with the Company&#146;s
distributor, Davidson&#146;s, in the fourth quarter of 2004. The consolidated complaint also alleges
that product defects were leading to excessive product returns by customers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

On July 25, 2006, Lead Plaintiff, Lead Counsel, defendants and
defendants&#146; counsel engaged in a mediation conference, and in
subsequent discussions, in an attempt to settle the consolidated
securities class actions. On August 9, 2006, the parties filed a
joint notice of settlement stating, among other things, that the parties
had reached an agreement in principal settling all consolidated
actions, subject to documentation, notice and Court approval. On
August 11, 2006, the Court issued an Order staying the class action
for 60 days to allow the parties to complete and submit settlement
documents, and further denying as moot the defendants&#146; pending
motion to dismiss the consolidated complaint. On October 11, 2006,
the parties filed a joint Stipulation of Settlement and related
documents, and plaintiff filed a motion in support of the proposed
order preliminarily approving the settlement, to which motion the
defendants consented.

<BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Stipulation of Settlement
and related documents filed on October 11, 2006 set forth terms of
settlement including, among other things, full releases of any and all
related known or unknown claims among the plaintiff, plaintiff class
and the defendants, and payment of $20 million from TASER for the
benefit of the plaintiff class to be comprised  of $12 million in cash
(approximately $4.1 million to be provided from the Directors&#146;
and Officers&#146; Liability Insurance policy), and $8 million in
Company common stock valued as of the date at which the stock is
transferred (1,103,448 shares based on a closing market price of $7.25
at September 29, 2006. The number of shares is subject to change
based on the market price of the Company&#146;s stock at the
consumation of the settlement. At the Company&#146;s election, the
stock portion of the settlement may be funded with cash.<br><br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
Settlement of the consolidated securities class actions is
conditioned upon approval by the Court and other factors. There is no
assurance that the settlement will be completed on the terms set
forth in the parties&#146; Stipulation of Settlement and related
documents filed with the Court, or at all. In the event that a
settlement occurs, it is expected that the consolidated securities
class actions will be dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Shareholder Derivative Litigation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning on or about January&nbsp;11, 2005, numerous shareholder derivative actions were also
filed against the Company&#146;s officers and directors. Such actions have been filed in the United
States District Court for the District of Arizona, the Arizona Superior Court in Maricopa County,
and the Delaware Chancery Court in New Castle County. The derivative actions pending in the Arizona
Superior Court and the Delaware Chancery Court have been stayed pending resolution of the
consolidated Arizona District Court action.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The plaintiffs in the Arizona District Court action
filed a consolidated complaint on May&nbsp;13, 2005. The Company and the individual defendants filed
motions to dismiss the consolidated complaint on August&nbsp;19, 2005. On March&nbsp;17, 2006, the Court
denied the motions to dismiss. Defendants answered the consolidated complaint on April&nbsp;21, 2006.
Discovery has commenced and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The derivative complaints are based on similar facts and events as those alleged in the
securities class action complaints. The complaints generally allege that the individual defendants
breached the fiduciary duties that they owe to the Company and its shareholders by reason of their
positions as officers and/or directors of the Company. The complaints claim that such duties were
breached by defendants&#146; disclosure of allegedly false or misleading statements about the safety and
effectiveness of Company products and the Company&#146;s financial results. The complaints also claim
that fiduciary duties were breached by defendants&#146; alleged use of non-public information regarding
the safety of Company products and the Company&#146;s financial condition and future business prospects
to commit insider trading of the Company&#146;s stock. The derivative plaintiffs seek damages and
restitutionary, equitable, injunctive and other relief.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

On July 25, 2006, the parties to the Arizona District Court action
engaged in a mediation conference in an attempt to settle the
shareholder derivative litigation. On August 9, 2006, the parties to
the Arizona District Court action filed a joint notice of settlement
stating, among other things, that the parties had reached an
agreement in principal settling all consolidated actions, subject to
documentation, notice and Court approval. On August 11, 2006, the Court
issued an Order staying the Arizona District Court action for 60 days
to allow the parties to complete and submit settlement documents. On
October 13, 2006, the Court, upon the joint stipulation of the
parties to the Arizona District Court action, entered an Order
continuing the stay of the Arizona District Court action through
November 6, 2006 to complete and submit settlement documents.<br><br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Terms of the proposed settlement include, among other things, that
TASER would adopt certain measures to improve the Company&#146;s
corporate governance, and that TASER would pay the attroneys&#146;s
fees in the Arizona District Court action in the amount of $1,750,000
comprised of the Company&#146;s common stock valued as of the date of
which the stock is transferred (241,379 shares, based on a closing
market price of $7.25 of September 29, 2006), in exchange for a
release by plaintiffs and current TASER shareholders of all claims
based on or arising out of the shareholder derivative complaint. All
parties to the Arizona District Court action, the Arizona State Court
action and the Delaware Chancery Court action anticipate that the
settlement will include each of these actions. Any settlement of
these derivative actions would be conditioned upon approval by the
Court and other factors. There is no assurance that the settlement
will be completed on the foregoing terms or at all. In the event that
a settlement occurs, it is expected that the derivative actions would
be dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Demand for Inspection of Documents Litigation</I></B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May 4, 2005, a Company shareholder filed an action in the Delaware
Chancery Court against the Company under Section 220 of Delaware
General Corporation Law, demanding the inspection of certain corporate
documents. The Company filed an answer to the complaint on June 7,
2005. The plaintiff commenced discovery. Based upon the negotiations
of the parties and the plaintiff&#146;s review of certain Company
document related to the demand, on August 21, 2006, the parties filed
a stipulation of dismissal of the action with prejudice on the merits.
</DIV>






<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Securities and Exchange Commission Investigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Company was informed that the staff of the Securities and Exchange
Commission had commenced an informal inquiry concerning the Company&#146;s public statements regarding
the safety and performance of the Company&#146;s products, certain disclosure issues and the accounting
for certain transactions. The Company voluntarily provided documents and information to the SEC
staff. In August&nbsp;2005, the Company was informed that the staff of the SEC had initiated a formal
investigation as of June&nbsp;20, 2005, regarding the Company&#146;s disclosures concerning the medical
safety of its products; the accounting and disclosure of certain transactions; and the unauthorized
acquisition of confidential information from the Company by persons outside the Company for the
possible purpose of manipulating the Company&#146;s stock. The Company provided additional information
at the request of the SEC staff. In December&nbsp;2005, the SEC staff advised the Company that it had
completed its investigation into the Company&#146;s disclosures concerning the medical safety of the
Company&#146;s products; and into the accounting and disclosure issues. The SEC staff further advised
the Company that it had determined that it would not recommend that the Commission institute any
enforcement proceedings as to these matters. The SEC staff also advised the Company that it was
continuing to investigate issues relating to trading in the Company&#146;s stock. In May&nbsp;2006, the SEC
staff advised the Company that the SEC investigation has been terminated in its entirety with no
recommendation for enforcement action.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Contract Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2000, Thomas N. Hennigan, a sales representative for our products from late 1997
through early 2000, sued the Company and certain of our shareholders in the United States District
Court, Southern District of New York. The Company previously sued him in February&nbsp;2000 in the
United States District Court for the District of Arizona, but had not served him. After the New
York case was dismissed in February&nbsp;2001 for lack of personal jurisdiction, Mr.&nbsp;Hennigan brought a
counterclaim in the United States District Court for the District of Arizona. Mr.&nbsp;Hennigan claims
the exclusive right to sell our products to many of the largest law enforcement, corrections, and
military agencies in the United States. He sought monetary damages that may amount to as much as
$500,000 against us allegedly arising in connection with his alleged service to the Company as a
distributor. His claims rest on theories of our failure to pay commissions, breach of contract,
promissory estoppel, breach of fiduciary duty, and on related theories. No written contract was
ever signed with Mr.&nbsp;Hennigan. We believe that he has no reasonable basis for claims based on
informal or implied contractual rights and will be unable to prove his damages with reasonable
certainty. Mr.&nbsp;Hennigan died in April&nbsp;2001 and the case is now being prosecuted by his estate. On
May&nbsp;24, 2002, H.A. Russell was permitted to proceed as an additional defendant-counterclaimant. We
filed various motions in November&nbsp;2002 for partial summary judgment including a motion to dismiss
his claims. On September&nbsp;30, 2003, the Court issued an order granting our motion for partial
summary judgment to dismiss Mr.&nbsp;Russell&#146;s claims and struck Hennigan&#146;s jury demand. On April&nbsp;14,
2004, the Court issued an opinion partially granting our motion for partial summary judgment on
certain joint venture, post-termination, post-death and exclusivity claims. A pretrial conference
was held on July&nbsp;28, 2005 and the trial started on August&nbsp;31, 2005. At the conclusion of Hennigan&#146;s
case in chief, we made a motion to dismiss Hennigan&#146;s case. The court issued a briefing schedule on
our motion and the trial was suspended pending the court&#146;s decision on our motion. On August&nbsp;4,
2006 the Court issued an opinion and order dismissing with prejudice all of plaintiffs claims,
except the Court set a briefing schedule for an alleged remaining
nominal claim. On September
28, 2006 the court entered an order granting judgment for plaintiff
in the amount of the nominal claim. In
October&nbsp;2006 we reached a settlement agreement under which plaintiff agreed not to appeal the
court&#146;s order and we agreed to pay plaintiff the judgment and forego the Company&#146;s
claim for an award of attorney&#146;s fees as the prevailing party under an offer of judgment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2004, the Company was served with a summons and complaint in the matter of Roy
Tailors Uniform Co., Inc. v. TASER International in which the plaintiff alleges that it is entitled
to commissions for disputed sales that were made to customers that are claimed to be plaintiff&#146;s
customers for which plaintiff is seeking monetary damages. Plaintiff failed to sign a distributor
agreement with the Company and did not have distribution rights with the Company. This case is in
the discovery phase and a trial date has been scheduled for April&nbsp;2007. In October&nbsp;2006 a dismissal
of this lawsuit was filed with the court.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Class&nbsp;Action Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2005, the Company was served with a summons and complaint in the matter of Village
of Dolton v. TASER International in which the Plaintiff alleges that defendant misled the plaintiff
about the safety of the TASER device when they purchased the TASER device and are seeking damages.
The plaintiff is seeking to certify the lawsuit as a class action. We have filed an answer to the
complaint and a motion to dismiss. In October&nbsp;2005, we filed a declaration of the former chief of
police for the Village of Dolton which refutes many of the allegations made in the complaint and we
filed a motion for sanctions. In October&nbsp;2005, the Court issued an order partially granting our
Motion to Dismiss, and denied the balance of the motions. The case is now moving forward with
discovery.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Product Liability Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is currently named as a defendant in 56 lawsuits in which the plaintiffs alleged
either wrongful death or personal injury in situations in which the TASER device was used (or
present) by law enforcement officers or during training exercises. In addition, 26 other lawsuits
have been dismissed and are not included in this number. Two of the lawsuits that have been
dismissed or judgment entered in favor of TASER are on appeal. With respect to each of these
pending 56 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. This table also lists those cases which were dismissed during the most recent fiscal
quarter. Cases that were dismissed in prior fiscal quarters are not included in this table. In each
of the pending lawsuits, the plaintiff is seeking monetary damages from the Company. 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 $250,000 in
per incident deductibles. We are defending each of these lawsuits vigorously.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Month</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Plaintiff</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Served</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Jurisdiction</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Claim Type</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Alvarado
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Jury Verdict for TASER</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">City of Madera
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed by Summary Judgment,<BR>
Appeal Pending</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thompson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">MI Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pierson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Glowczenski
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Case Stayed</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">LeBlanc
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">M. Elsholtz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">TX District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Washington
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sanders
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fleming
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Trial Scheduled for April&nbsp;9, 2007</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Woolfolk
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court MD FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Trial Scheduled for March&nbsp;2007.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Graff
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Holcomb
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND OH
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tucker
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hammock
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">District Court, Tarrant County, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Heston
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Rosa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gosserand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">O&#146;Donnell/Hasse
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Cook County, IL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yeagley
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hillsborough County Circuit Court, FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Neal-Lomax
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yanga Williams
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gwinnett County State Court, GA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mann
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND GA, Rome Div
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">King
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">12/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, MD FL, Jacksonville
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Robert Williams
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lee
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Davidson County, TN Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase, Trial Scheduled
for June&nbsp;2008.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zaragoza
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Sacramento County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tapia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Los Angeles County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kinkle
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND MS
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nunez
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">72<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> District Court, Lubbock County, TX
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bagnell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supreme Court for British Columbia, Canada
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Salazar
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Maricopa County Superior Court, AZ
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gillson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hollman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ED NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oliver
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Ninth Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Teran/LiSaola
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wrongful Death
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Powers
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Verdict for TASER, Appeal Pending</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cook
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NV District Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stevens
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">OH Court Common Pleas
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dimiceli
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Allen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.J
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.B
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FL Circuit Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Howard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wagner
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gerdon
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gallant
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Herring
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court of City of St. Louis, MO
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stewart
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court for Broward County, FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lewandowski
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peterson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, NV
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Husband
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">British Columbia Supreme Court, Canada
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wright
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Court of Common Pleas, Clinton County Ohio
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Howard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">4/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, KS (Companion to AZ lawsuit)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Richthofen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">22<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> Judicial District Court, St.
Tammany Parish, LA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wilson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND GA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gray
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Judicial District, Davis County, Utah
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Diamond
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Douglas County, Oregon
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Training Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cuckovic
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, McDonald County, Missouri
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Personal Injury
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cosby
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, SD NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Blair
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, MD NC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Detention
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lewis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court Tal FL
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lash
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court ED MO
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Games
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court, Multnomah County, OR
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dismissed with Prejudice</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bynum
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court SD NY
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lopez
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">11/2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND IL Eastern Div
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Police<BR>
Call
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bellemore
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AZ Superior Court
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wieffenbach
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">6/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Circuit Court of
12<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Judicial <BR>
District, Will County, Il
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cruz
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CA Superior Court, Los Angeles County
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discovery Phase</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Turner
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">8/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, CD, CA
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Molina
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">9/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, ND West Virginia
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Detention
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Short
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">10/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">US District Court, SD West Virginia
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Injury During Arrest
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Complaint Served</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2005, the Company received a defense verdict in the Samuel Powers v. TASER
International personal injury case. As part of its legal strategy to aggressively defend these
cases, the Company entered into a settlement agreement with its own insurance provider in order to
prevent its insurance provider from settling the case with the plaintiff. Under the terms of the
settlement, the Company received $575,000 from its liability insurance provider associated with a
settlement and release agreement and the Company assumed all future potential liability and costs
from and after the date the settlement and release agreement was signed. After offsetting
approximately $100,000 in legal expenses to defend and win the trial, the Company has recorded the
remaining balance of approximately $475,000 as deferred insurance
settlement proceeds on its balance sheet. This deferred
income will be used to cover any costs through all appeals and the remaining balance if any will be
recorded as &#147;other income&#148; when final resolution is completed. During the three and nine month
period ended September&nbsp;30, 2006, the Company expended approximately $3,000 and $41,000,
respectively, in connection with the appeal and reduced the deferred amount by these costs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2006, the Company received a defense verdict in the Alvarado
v. TASER International in-custody death case. In
September&nbsp;2006, as part of its legal strategy to aggressively defend these cases, the Company entered into a
settlement agreement with its own insurance provider in order to prevent its insurance provider
from settling the case with the plaintiff. Under the terms of the settlement, the Company received
$225,000 from its liability insurance provider associated with a settlement and release agreement
and the Company assumed all future potential liability and costs from and after the date the
settlement and release agreement was signed. The Company has recorded
the $225,000 as deferred insurance settlement proceeds on its balance
sheet. This deferred income will be used to cover any costs through
all appeals and the remaining balance if any will be recorded as
&#147;other income&#148;  when final resolution is completed. No such
defense costs were paid in the three
months ended September&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Litigation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2005, we filed litigation in U.S. District Court for the Western District of North
Carolina against Stinger Systems, Inc. and Robert Gruder alleging false advertising and a violation
of the Lanham Act. The defendants have filed a counterclaim against the Company alleging
defamation. This case is in the discovery phase and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2005, we filed litigation in Superior Court for Maricopa County against Thomas G.
Watkins III, our former patent attorney, for declaratory judgment, breach of fiduciary duty,
constructive fraud, and breach of contract. Mr.&nbsp;Watkins originally filed patent applications on our
behalf as our patent attorney for inventions utilized in the TASER X26 device in February and May
2003. In each patent application he filed a declaration stating that Magne Nerheim, our employee,
was the sole inventor. These patent applications are pending. Mr.&nbsp;Nerheim assigned his interest in
these patent applications to us. In December&nbsp;2004 Mr.&nbsp;Watkins informed us that he now felt that he
was the inventor of a portion of this invention. We vigorously dispute his claim and we believe
that we are the sole owner of this invention. We have filed a motion for summary judgment in this
litigation in February&nbsp;2006 which motion is pending before the Court. On February&nbsp;14, 2006, U.S.
Patent No.&nbsp;US 6,999,295 entitled &#147;Dual Operating Mode Electronic Disabling Device For Generating A
Time-Sequenced, Shaped Voltage Output Waveform&#148; was issued to named inventors Thomas G. Watkins,
III and Mr.&nbsp;Nerheim. Mr.&nbsp;Nerheim assigned his interest in this patent to us. This patent covers a
portion of the technology utilized in the TASER X26 device. This patent was applied for by Mr.
Watkins without our knowledge or consent. Since we are a joint owner of this patent, this patent
will not restrict us from manufacturing and selling the TASER X26 device. We have other patent
applications pending that cover inventions contained in this patent. In March&nbsp;2006, the Court
issued a temporary restraining order and a preliminary injunction preventing Mr.&nbsp;Watkins from
selling, assigning, transferring or licensing this patent to a third party during the duration of
this litigation. On August&nbsp;2, 2006 the Court issued an order granting our motion for partial
summary judgment on liability, leaving open the matter of remedies and other residual issues for
resolution in subsequent proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005 and April&nbsp;2006, we filed lawsuits in Marion County Circuit Court, Indiana and
in Fairfax County Circuit Court, Virginia, respectively, against James Ruggieri for defamation,
product disparagement, intentional interference with a business relationship, Lanham Act violations
and tortuously affecting the fairness and integrity of litigation as adverse third-party witness.
Mr.&nbsp;Ruggieri has counterclaimed for defamation and infliction of distress. This case is entering
the discovery phase and no trial date has been set. In October we reached a settlement agreement
with Mr.&nbsp;Ruggieri and a dismissal was entered in this litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2005, we filed a lawsuit in Vigo County, Indiana, Superior Court against Roland M. Kohr
for defamation, product disparagement, Lanham Act violations, tortuously affecting the fairness and
integrity of litigation as adverse third-party witness, and intentional interference with a
business relationship. Dr.&nbsp;Kohr was the Medical Examiner and expert witness in the James Borden
wrongful death litigation which litigation was dismissed with prejudice. This case is in the
discovery phase and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006 we filed a lawsuit in U.S. District Court for the Central District of California
against Bestex Company, Inc. for patent infringement, false patent marking, unfair competition and
breach of written contract. Bestex filed a counterclaim for unfair competition and false
advertising. This case is entering the discovery phase and no trial date has been set.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>General</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s policy to not disclose the specifics of any claim or
threatened lawsuit until the summons and complaint are actually served on the Company. We intend to
pursue and defend any lawsuit filed against or by the Company vigorously. Although we do not expect
the outcome in any
individual case to be material, the outcome of any litigation is inherently uncertain and there can
be no assurance that any expense, liability and 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. The Company may settle a lawsuit in situations where a
settlement can be obtained for nuisance value and for an amount which is expected to be less than
the cost of defending a lawsuit. Due to the confidentiality of our litigation strategy and the
confidentiality agreements that are executed in the event of a settlement, the Company will not
identify or comment on which lawsuits have been settled or the amount of any settlement.
</DIV>



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<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1A. </B><B><I>Risk Factors</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We are materially dependent on acceptance of our products by the law enforcement and corrections
market, and if law enforcement and corrections agencies do not purchase our products, our revenues
will be adversely affected and we may not be able to expand into other markets.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial number of law enforcement and corrections agencies may not purchase our
conducted energy, non-lethal devices. In addition, if our products are not widely accepted by the
law enforcement and corrections market, we may not be able to expand sales of our products into
other markets. Law enforcement and corrections agencies may be influenced by claims or perceptions
that conducted energy weapons are unsafe or may be used in an abusive manner. In addition, earlier
generation conducted energy devices may have been perceived as ineffective. Sales of our products
to these agencies may also be delayed or limited by these claims or perceptions.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We substantially depend on sales of the TASER X26 products, and if these products are not widely
accepted, our growth prospects will be diminished.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the three and nine months ended September&nbsp;30, 2006 and 2005, we derived our revenues
predominantly from sales of the TASER X26 brand devices and related cartridges, and we expect to
depend on sales of these products for the foreseeable future. A decrease in the prices of or demand
for these products, or their failure to achieve broad market acceptance, would significantly harm
our growth prospects, operating results and financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to manage the growth in our business, our prospects may be limited and our future
profitability may be adversely affected.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to expand our sales and marketing programs and our manufacturing capacity as needed
to meet future demand. Any significant expansion may strain our managerial, financial and other
resources. If we are unable to manage our growth, our business, our operating results and financial
condition could be adversely affected. We will need to continually improve our operations,
financial and other internal systems to manage our growth effectively, and any failure to do so may
lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may face personal injury, wrongful death and other liability claims that harm our reputation and
adversely affect our sales and financial condition.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products are often used in aggressive confrontations that may result in serious, permanent
bodily injury or death to those involved. Our products may cause or be associated with these
injuries. A person injured in a confrontation or otherwise in connection with the use of our
products may bring legal action against us to recover damages on the basis of theories including
personal injury, wrongful death, negligent design, dangerous product or inadequate warning. We are
currently subject to a number of such lawsuits. We may also be subject to lawsuits involving
allegations of misuse of our products. If successful, personal injury, misuse and other claims
could have a material adverse effect on our operating results and financial condition. Although we
carry product liability insurance, we do incur significant legal expenses within our self insured
retention in defending these lawsuits and significant litigation could also result in a diversion
of management&#146;s attention and resources, negative publicity and a potential award of monetary
damages in excess of our insurance coverage. The outcome of any litigation is inherently uncertain
and there can be no assurance that our existing or any future litigation will not have a material
adverse effect on our revenues, our financial condition or financial results.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Pending litigation may subject us to significant litigation costs, judgments in excess of insurance
coverage, and divert management attention from our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are involved in various litigation matters relating to our products or the use of such
products, litigation against persons who we believe have defamed our products, litigation against a
competitor, litigation against our former patent attorney as well as shareholder class action
lawsuits and derivative lawsuits. Such matters have resulted and are expected to continue to result
in substantial costs to us and a likely diversion of our management&#146;s attention, which could
adversely affect our business, financial condition or operating
results. In particular, we recently
reached an agreement to settle our shareholder class action lawsuits and derivative lawsuits for
approximately $21.75&nbsp;million, of which approximately $4.1&nbsp;million is covered by insurance.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our future success is dependent on our ability to expand sales through distributors and our
inability to recruit new distributors would negatively affect our sales.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our distribution strategy is to pursue sales through multiple channels with an emphasis on
independent distributors. Our inability to recruit and retain police equipment distributors who can
successfully sell our products would adversely affect our sales. In addition, our arrangements with
our distributors are generally short-term. If we do not competitively price our products, meet the
requirements of our distributors or end-users, provide adequate marketing support, or comply with
the terms of our distribution arrangements, our distributors may fail to aggressively market our
products or may terminate their relationships with us. These developments would likely have a
material adverse effect on our sales. Our reliance on the sales of our products by others also
makes it more difficult to predict our revenues, cash flow and operating results.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to design, introduce and sell new products successfully, our business and
financial results could be adversely affected.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success will depend on our ability to develop new products that achieve market
acceptance in a timely and cost-effective manner. The development of new products is complex, and
we may experience delays in completing the development and introduction of new products. We cannot
provide any assurance that products that we may develop in the future will achieve market
acceptance. If we fail to develop new products on a timely basis that achieve market acceptance,
our business, financial results and competitive position could be adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may
receive no revenue in return.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, law enforcement and corrections agencies consider a wide range of issues before
committing to purchase our products, including product benefits, training costs, the cost to use
our products in addition to or in place of other non-lethal products, budget constraints and
product reliability, safety and efficacy. The length of our sales cycle may range from a few weeks
to as long as several years. Adverse publicity surrounding our products or the safety of such
products has in the past and could in the future result in long sales cycles with customers. In
particular, we believe our revenue decrease for the year ended December&nbsp;31, 2005 compared to the
year ended December&nbsp;31, 2004 was impacted by the adverse effect on customers and potential
customers of the negative publicity surrounding our products or use of our products. We may incur
substantial selling costs and expend significant effort in connection with the evaluation of our
products by potential customers before they place an order. If these potential customers do not
purchase our products, we will have expended significant resources and received no revenue in
return.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Most of our end-users are subject to budgetary and political constraints that may delay or prevent
sales.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of our end-user customers are government agencies. These agencies often do not set their
own budgets and therefore have little control over the amount of money they can spend. In addition,
these agencies experience political pressure that may dictate the manner in which they spend money.
As a result, even if an agency wants to acquire our products, it may be unable to purchase them due
to budgetary or political constraints. Some government agency orders may also be canceled or
substantially delayed due to budgetary, political or other scheduling delays which frequently occur
in connection with the acquisition of products by such agencies.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Government regulation of our products may adversely affect sales.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Federal regulation of sales in the United States: </I>Our devices are not firearms regulated by
the Bureau of Alcohol, Tobacco, Firearms and Explosives, but are consumer products regulated by the
United States Consumer Product Safety Commission. Although there are currently no federal laws
restricting sales of our devices in the United States, future federal regulation could adversely
affect sales of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Federal regulation of international sales: </I>Our devices are controlled as a &#147;crime control&#148;
product by the United States Department of Commerce, or DOC, for export directly from the United
States. Consequently, we must obtain an export license from the DOC for the export of our devices
from the United States other than to Canada. Our inability to obtain DOC export licenses on a
timely basis for sales of our devices to our international customers could significantly and
adversely affect our international sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>State and local regulation: </I>Our devices are controlled, restricted or their use prohibited by
several state and local governments. Our devices are banned from private citizen sale or use in
seven states: New York, New Jersey, Rhode Island, Michigan, Wisconsin, Massachusetts and Hawaii.
Law enforcement use of our products is also prohibited in New Jersey. Some municipalities,
including Omaha, Nebraska and Washington, D.C., also prohibit private citizen use of our products.
Other jurisdictions may ban or restrict the sale of our products and our product sales may be
significantly affected by additional state, county and city governmental regulation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign regulation: </I>Certain foreign jurisdictions, including Japan, Australia, Italy and Hong
Kong, prohibit the sale of conducted energy devices, limiting our international sales
opportunities.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Environmental laws and regulations subject us to a number of risks and could result in
significant liabilities and costs.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may be subject to various state, federal and international laws and regulations governing
the environment, including restricting the presence of certain substances in electronic products
and making producers of those products financially responsible for the collection, treatment,
recycling and disposal of those products. Recent environmental legislation within the European
Union (EU)&nbsp;may increase our cost of doing business internationally and impact our revenues from EU
countries as we comply with and implement these new requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EU has published directives on the restriction of certain hazardous substances in
electronic and electrical equipment (the RoHS Directive) which became effective in July&nbsp;2006, and
on electronic and electrical waste management (the WEEE Directive). The RoHS Directive restricts
the use of a number of substances, including lead. The Waste Electrical and Electronic Equipment
Directive, or WEEE directs members of the European Union to enact laws, regulations, and
administrative provisions to ensure that producers of electric and electronic equipment are
financially responsible for the collection, recycling, treatment and environmentally responsible
disposal of certain products sold into the market after August&nbsp;15, 2005 and from products in use
prior to that date that are being replaced. In addition, similar environmental legislation has been
or may be enacted in other jurisdictions, including the U.S. (under federal and state laws) and
other countries, the cumulative impact of which could be significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to evaluate the impact of specific registration and compliance activities required
by the RoHS and WEEE Directives. We endeavor to comply with these environmental laws, yet
compliance with such laws could increase our operations and product costs; increase the
complexities of product design, procurement, and manufacturing; limit our ability to manage excess
and obsolete non-compliant inventory; limit our sales activities; and impact our future financial
results. Any violation of these laws can subject us to significant liability, including fines,
penalties, and prohibiting sales of our products into one or more states or countries, and result
in a material adverse effect on our financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to protect our intellectual property, we may lose a competitive advantage or incur
substantial litigation costs to protect our rights.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success depends in part upon our proprietary technology. Our protective measures,
including patents, trademarks and trade secret laws, may prove inadequate to protect our
proprietary rights. Our United States patent on the construction of the gas cylinder used to store
the compress nitrogen in our cartridges expires in 2015. Our patent on the process by which
compressed gases launch the probes in our cartridges expires in 2009. The scope of any patent to
which we have or may obtain rights may not prevent others from developing and selling competing
products. The validity and breadth of claims covered in technology patents involve complex legal
and factual questions, and the resolution of such claims may be highly uncertain, lengthy and
expensive. In addition, our patents may be held invalid upon challenge, or others may claim rights
in or ownership of our patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;14, 2006, U.S. Patent No.&nbsp;US 6,999,295 entitled &#147;Dual Operating Mode Electronic
Disabling Device For Generating A Time-Sequenced, Shaped Voltage Output Waveform&#148; was issued to
named inventors Thomas G. Watkins, III and Magne Nerheim. Mr.&nbsp;Nerheim assigned his interest in this
patent to us. This patent covers a portion of the technology utilized in the TASER X26 device. This
patent was applied for by Mr.&nbsp;Watkins, who was our former patent attorney, without our knowledge or
consent. Mr.&nbsp;Watkins originally filed patent applications on our behalf as our patent attorney for
the same inventions in February and May&nbsp;2003 with the U.S. Patent and Trademark Office. In each
application he filed a declaration stating that Mr.&nbsp;Nerheim was the sole inventor. These patent
applications are pending. In December&nbsp;2004, he informed us that he now felt that he was the
inventor of a portion of this invention. We vigorously dispute his claim and we have filed
litigation against Mr.&nbsp;Watkins for declaratory judgment, breach of fiduciary duty, constructive
fraud, and breach of contract. We believe that we are the sole owner of this invention. Since we
are a joint owner of this patent, this patent will not restrict us from manufacturing and selling
the TASER X26 device. We have other patent applications pending that cover inventions contained in
this patent. In March&nbsp;2006, the court issued a temporary restraining order and a preliminary
injunction preventing Mr.&nbsp;Watkins from selling, assigning, transferring, or licensing this patent
to a third party during the duration of this litigation. However,
there can be no assurance as to the ultimate outcome of this
litigation.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may be subject to intellectual property infringement claims, which will cause us to incur
litigation costs and divert management attention from our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any intellectual property infringement claims against us, with or without merit, could be
costly and time-consuming to defend and divert our management&#146;s attention from our business. If our
products were found to infringe a third party&#146;s proprietary rights, we could be required to enter
into royalty or licensing agreements in order to be able to sell our products. Royalty and
licensing agreements, if required, may not be available on terms acceptable to us or at all.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Competition in the law enforcement and corrections market could reduce our sales and prevent
us from achieving profitability.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The law enforcement and corrections market is highly competitive. We face competition from
numerous larger, better capitalized and more widely known companies that make other non-lethal
devices and products. Increased competition may result in greater pricing pressure, lower gross
margins and reduced sales. In this regard, in 2005 two different competitors announced plans to
introduce new products. We are unable to predict the impact such products will have on our sales or
our sales cycle, but existing or potential customers may choose to evaluate such products which
could lengthen our sales cycle and potentially reduce our future sales.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Defects in our products could reduce demand for our products and result in a loss of sales, delay
in market acceptance and injury to our reputation.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Complex components and assemblies used in our products may contain undetected defects that are
subsequently discovered at any point in the life of the product. In 2002, we recalled a series of
ADVANCED TASER devices due to a defective component. In connection with the recall, we incurred
expenses of approximately $25,000. Defects in our products may result in a loss of sales, delay in
market acceptance and injury to our reputation, potential legal liability and increased warranty
costs.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Component shortages could result in our inability to produce volume to adequately meet customer
demand. This could result in a loss of sales, delay in deliveries and injury to our reputation.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Single source components used in the manufacture of our products may become unavailable or
discontinued. Delays caused by industry allocations, or obsolescence may take weeks or months to
resolve. In some cases, part obsolescence may require a product re-design to ensure quality
replacement circuits. These delays could cause significant delays in manufacturing and loss of
sales, leading to adverse effects significantly impacting our financial condition or results of
operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our dependence on third party suppliers for key components of our devices could delay shipment of
our products and reduce our sales.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on certain domestic and foreign suppliers for the delivery of components used in the
assembly of our products. Our reliance on third-party suppliers creates risks related to our
potential inability to obtain an adequate supply of components or subassemblies and reduced control
over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on
suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit
boards, custom wire fabrications and other miscellaneous customer parts for our products. We also
do not have long-term agreements with any of our suppliers. We believe that there are readily
available alternative suppliers in most cases, however there is no guarantee that supply will not
be interrupted. Any material interruption of supply for any components of our products could
significantly delay the shipment of our products and have a material adverse effect on our
revenues, profitability and financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our dependence on foreign suppliers for key components of our products could delay shipment of our
finished products and reduce our sales.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on foreign suppliers for the delivery of certain components used in the assembly of
our products. Due to regulatory changes imposed for imports of foreign products into the United
States, as well as potential port closures and delays created by terrorist threats, public health
issues or national disasters, we are exposed to risk of delays caused by freight carriers or
customs clearance issues for our imported parts. Delays caused by our inability to obtain
components for assembly could have a material adverse effect on our revenues, profitability and
financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may experience a decline in gross margins due to rising raw material and transportation costs
associated with the increase in petroleum prices.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant number of our raw materials are comprised of petroleum based products, or incur
some form of landed cost associated with transporting the raw materials or components to our
facility. The continued rise in oil prices could adversely impact our ability to sustain current
gross margins, by eliminating our ability to control component pricing.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may
cause our stock price to decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues and operating results have varied significantly in the past and may vary
significantly in the future due to various factors, including, but not limited to: market
acceptance of our products and services, the outcome of any existing or future litigation, adverse
publicity surrounding our products, the safety of our products, or the use of our products,
increased raw material expenses, changes in our operating expenses, regulatory changes that may
affect the marketability of our products, and budgetary cycles of municipal, state and federal law
enforcement and corrections agencies. As a result of these and other factors, we believe that
period- to-period comparisons of our operating results may not be meaningful in the short term, and
our performance in a particular period may not be indicative of our performance in any future
period.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The Sarbanes-Oxley Act and other recent changes in securities laws and regulations have increased
our costs.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Sarbanes-Oxley Act of 2002 as well as rules subsequently implemented by the Securities and
Exchange Commission and the NASDAQ Stock Market, have required changes to some of our accounting
and corporate governance practices, including a report on our internal controls as required by
Section&nbsp;404 of the Sarbanes-Oxley Act of 2002. These rules and regulations have increased our
accounting, legal and other costs, and made some activities more difficult, time consuming and/or
costly. In particular, complying with the internal control requirements of Sarbanes-Oxley Section
404 has resulted and will continue to result in increased internal efforts, significantly higher
fees from our independent registered public accounting firm and significantly higher fees from
third party contractors. These rules and regulations could make it more difficult and expensive for
us to obtain director and officer liability insurance in the future and could also make it more
difficult for us to attract and retain qualified executive officers and qualified members of our
board of directors, particularly to serve on our audit committee.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have experienced difficulties in complying with Sarbanes-Oxley Section&nbsp;404.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning with our Annual Report on Form 10-K for the fiscal year ending December&nbsp;31, 2005, as
filed on March&nbsp;16, 2006, we are required to furnish a report by our management on our internal
control over financial reporting under Section&nbsp;404 of the Sarbanes-Oxley Act of 2002. Such report
contained among other matters, an assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year (December&nbsp;31, 2005), including a statement as
to whether or not our internal control over financial reporting was effective. Such report also
contained a statement that our independent registered public accounting firm has issued an
attestation report on management&#146;s assessment of such internal controls.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the material weaknesses described in our Form 10-K, our management concluded that our
internal control over financial reporting was not effective as of December&nbsp;31, 2005. Our
independent registered public accounting firm, Grant Thornton LLP, who also audited our
consolidated financial statements, audited management&#146;s assessment and independently assessed the
effectiveness of our internal control over financial reporting. Grant Thornton LLP issued their
attestation report, which was included in Part&nbsp;II, Item&nbsp;9A of our Form 10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in
 Item&nbsp;4 of this Form 10-Q, because of the fact that there has been insufficient
time in which to demonstrate the consistent operational effectiveness of the remediation efforts
related to a previously disclosed material weakness in internal control over financial reporting,
our disclosure controls and procedures were ineffective as of September&nbsp;30, 2006. Our disclosure
controls and procedures include components of our internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our ongoing Section&nbsp;404 compliance efforts, we are also continuing to make
improvements to our systems, procedures and controls. Due to our conclusion that our internal
control over financial reporting was not effective at December&nbsp;31, 2005 and our conclusion that our
disclosure controls and procedures were not effective at September&nbsp;30, 2006, we could lose investor
confidence in the accuracy and completeness of our financial reports, which could have an adverse
effect on our stock price.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Recent regulations related to equity compensation has resulted in significantly higher expenses and
could adversely affect our ability to attract and retain key personnel.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock options are a fundamental component of our employee compensation packages. We believe
that stock options directly motivate our employees to maximize long-term stockholder value and,
through the use of vesting, encourage employees to remain with us. In December&nbsp;2004, the Financial
Accounting Standards Board (FASB)&nbsp;issued Statement 123R, Share-Based Payment, which requires all
companies to measure compensation cost for all share-based payments (including employee stock
options) at fair value. This requirement was effective for us beginning in the first quarter of
2006. Statement 123R has and  will negatively impact our earnings. We recorded stock-based compensation for
the third quarter and first nine months of 2006 of $275,000 and $948,000, respectively. In
addition, regulations implemented by The NASDAQ Stock Market requiring shareholder approval for all
stock option plans as well as regulations implemented by the NYSE prohibiting NYSE member
organizations from giving a proxy to vote on equity-compensation plans unless the beneficial owner
of the shares has given voting instructions could make it more difficult for us to grant options to
employees in the future. To the extent that new regulations make it more difficult or expensive to
grant options to employees, we may incur additional cash compensation costs, change our equity
compensation strategy or find it difficult to attract, retain and motivate employees, each of which
could materially and adversely affect our business.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Foreign currency fluctuations may affect our competitiveness and sales in foreign markets.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The relative change in currency values creates fluctuations in product pricing for potential
international customers. These changes in foreign end-user costs may result in lost orders and
reduce the competitiveness of our products in certain foreign markets. These changes may also
negatively affect the financial condition of some existing or potential foreign customers and
reduce or eliminate their future orders of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Use of estimates may cause our financial results to differ from expectations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We face risks associated with rapid technological change and new competing products.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The technology associated with non-lethal devices is receiving significant attention and is
rapidly evolving. While we have patent protection in key areas of electro-muscular disruption
technology, it is possible that new non-lethal technology may result in competing products that
operate outside our patents and could present significant competition for our products.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>To the extent demand for our products increases, our future success will be dependent upon our
ability to ramp manufacturing production capacity which will be accomplished by the implementation
of customized manufacturing automation equipment.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although our revenue decreased in 2005 compared to 2004, we experienced significant revenue
growth in 2003 and 2004 and our revenue grew in the third quarter and first nine months of 2006
compared to the same periods in 2005. To the extent demand for our products increases significantly
in future periods, one of our key challenges will be to ramp our production capacity to meet sales
demand, while maintaining product quality. Our primary strategies to accomplish this include
increasing the physical size of our assembly facilities, the hiring of additional production staff,
and the implementation of customized automation equipment. We have limited previous experience in
implementing automation equipment, and the investments made on this equipment may not yield the
anticipated labor and material efficiencies. Our inability to meet any future increase in sales
demand or effectively manage our expansion could have a material adverse affect on our revenues,
financial results and financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We depend on our ability to attract and retain our key management and technical personnel.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends upon the continued service of our key management personnel. Our success
also depends on our ability to continue to attract, retain and motivate qualified technical
personnel. Although we have employment agreements with certain of our officers, the employment of
such persons is &#147;at-will&#148; and either we or the employee can terminate the employment relationship
at any time, subject to the applicable terms of the employment agreements. The competition for our
key employees is intense. The loss of the service of one or more of our key personnel could harm
our business.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</B>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our purchase of our common stock in the third quarter of 2006 and the footnote below designates the
repurchase program that the shares were purchased under.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Issuer Purchases of Equity Securities</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(c) Total Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(d) Maximum</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(a) Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Shares Purchased</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(b) Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>as Part of Publicity</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>that May Yet Be</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price Paid per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Announced</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Purchased Under the</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Purchased</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Programme</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Program</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;1, 2006 - August&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD nowrap>(a)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1,075,868</TD>
    <TD nowrap>(b)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>(a)</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>In August&nbsp;2006, our Board of Directors authorized the repurchase of up to $10&nbsp;million of our common stock between the date of
authorization and the date of final payment of the shareholder class action settlement subject to stock market conditions and corporate
considerations. The final payment of the settlement will take place after final point approval of the formal shareholder class action
settlement agreement, a process expected to take several months.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>(b)</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Calculated based on a closing stock price of $7.25 on
September&nbsp;29, 2006.</I></TD>
</TR>

</TABLE>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. EXHIBITS</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chief Executive Officer Certification pursuant to Rule&nbsp;13a-14(a) under the Securities Exchange Act of 1934.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chief Financial Officer Certification pursuant to Rule&nbsp;13a-14(a) under the Securities Exchange Act of 1934.
</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chief Executive Officer Certification pursuant to U.S.C.
Section&nbsp;1350 as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.
</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Chief Financial Officer Certification pursuant to U.S.C.
Section&nbsp;1350 as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">TASER INTERNATIONAL, INC.<br>
(Registrant)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:
November&nbsp;8, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Patrick W. Smith</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Patrick W. Smith,</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Principal Executive Officer)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:
November&nbsp;8, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Daniel M. Behrendt</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Daniel M. Behrendt</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Principal Financial and Accounting Officer)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Index to Exhibits</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="2">Exhibits:</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

    <TD align="right" valign="top">31.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer Certification pursuant to Rule&nbsp;13a-14(a) under the Securities exchange Act of 1934.</DIV></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->

    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">

    <TD align="right" valign="top">31.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Financial Officer Certification pursuant to Rule&nbsp;13a-14(a) under the Securities exchange Act of 1934.</DIV></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->

    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">

    <TD align="right" valign="top">32.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer Certification pursuant to U.S.C. Section&nbsp;1350 as adopted pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->

    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">

    <TD align="right" valign="top">32.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Financial Officer Certification pursuant to U.S.C. Section&nbsp;1350 as adopted pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>p73080exv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
RULE 13a-14(a) UNDER THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Patrick W. Smith, principal executive officer, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q of TASER International, Inc. for the period ended September&nbsp;30, 2006;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred
during the registrant&#146;s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the
registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting that are
reasonably likely to adversely affect the
registrant&#146;s ability to record, process,
summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant&#146;s internal
control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: November 8, 2006 &nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Patrick W. Smith
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Patrick W. Smith&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>p73080exv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
RULE 13a-14(a) UNDER THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Daniel M. Behrendt, principal financial officer, certify that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q of TASER International, Inc. for the period ended September&nbsp;30, 2006;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred
during the registrant&#146;s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the
registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material
weaknesses in the design or operation of internal
control over financial reporting that are
reasonably likely to adversely affect the
registrant&#146;s ability to record, process,
summarize and report financial information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant&#146;s internal
control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: November 8, 2006 &nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Daniel M. Behrendt
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Daniel M. Behrendt&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>p73080exv32w1.htm
<DESCRIPTION>EX-32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Quarterly Report of TASER International, Inc. (the &#147;Company&#148;) on Form
10-Q for the period ending September&nbsp;30, 2006 as filed with the Securities and Exchange Commission
on the date hereof (the &#147;Report&#148;), I, Patrick W. Smith, Chief Executive Officer of the Company,
certify pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002, that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">/s/ Patrick W. Smith<BR>
Patrick W. Smith<BR>
Chief Executive Officer<BR>
November&nbsp;8, 2006

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>p73080exv32w2.htm
<DESCRIPTION>EX-32.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Quarterly Report of TASER International, Inc. (the &#147;Company&#148;) on Form
10-Q for the period ending September&nbsp;30, 2006 as filed with the Securities and Exchange Commission
on the date hereof (the &#147;Report&#148;), I, Daniel M. Behrendt, Chief Financial Officer of the Company,
certify pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002, that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">/s/ Daniel M. Behrendt<BR>
Daniel M. Behrendt<BR>
Chief Financial Officer<BR>
November&nbsp;8, 2006

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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</DOCUMENT>
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