Rick Smith - CEO Dan Behrendt - CFO

Eric Wold - Merriman Curhan Ford & Company Greg McKinley - Dougherty Markets Sean Brenckman - Craig-Hallum

Thank you. Good morning, everyone, and thanks for joining us.

We will first start out with Dan Behrendt reading the Safe Harbor statement.

Thanks, Rick. Certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

The TASER International intends that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements relate to expected revenue and earnings growth; estimations regarding the size of our target markets; successful penetration of the law enforcement market; expansion of product sales to the private security, military and consumer self-defense markets; growth expectations for new and existing accounts; expansion of production capabilities; new product introductions; product safety and our business model.

We caution these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements herein. Such factors include, but are not limited to market acceptance of our products; establishment and expansion of our direct and indirect distribution channels; attracting and retaining the endorsement of key opinion leaders in 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 and deaths; negative publicity concerning product uses and quality risks; potential fluctuations in quarterly operating results; competition; negative reports concerning TASER device uses; financial and budgetary constraints of prospects and customers; dependence upon sole and limited source suppliers; fluctuations in component pricing; risks of governmental investigations and regulations; TASER product tests and reports; dependence upon key employees; employee retention risks; and other factors detailed in the company's filings with the Securities and Exchange Commission.

Now I'd like to turn it back over to Rick Smith, our CEO.

Thanks, Dan. Okay.

As everybody has probably seen, in the press release this morning, net sales for the quarter were $23.8 million, which is a decrease of $0.8 million or 3% compared to last year. The decrease is primarily driven by fewer big significant orders from international customers.

As we've already talked about, this is a bit of a lumpy business and in the fourth quarter we benefited from some of these significant orders coming in. In the first quarter, as we were hoping to see, we didn't see in the quarter.

And as a result, things came in, I think, a little below of where we were expecting to see them. Adjusted operating income, which excludes the impact of stock-based compensation, charges, depreciation and amortization, was $1.6 million for the first quarter, a 49% increase from the $1.1 million in the first quarter of 2009.

So GAAP loss from operations was $0.9 million compared to $1.0 million from the first quarter of 2009. And the net loss for the first quarter of 2010 was $0.5 million, while the net loss per share on a basic and diluted basis was $0.01.

So we'll be talking about the first quarter, some of the significant events. You know, the domestic law enforcement business actually continued to show up pretty strong.

Domestic U.S. law enforcement was up 30% over prior year, and it was even up 7% sequentially.

We did see federal and military sales were really not strong this quarter, which is expected on a seasonal basis. We don’t tend to see many federal orders in our first year calendar quarter, but federal and military was certainly stronger in the fourth quarter.

They tend to be stronger in the fourth and second quarters. International sales, which did represent 25 of net sales, so we didn’t have a lot of the big lumpier orders, but the good news is that we saw some strength in just continuing business.

And we're now starting to see a base of business internationally like we've developed here in the U.S., which of course adds some predictability to our long term business with those customers coming back for replenishment, slowly expanding their programs, buying cartridges, etcetera. We also had our first domestic order from the Aberdeen Police Department for AXON.

We talked a bit about AXON at Evidence.Com. If you actually go to cnn.com and type in a search on AXON, you'll see a great story out of Cincinnati.

We've continued to see very strong interest in the capability that AXON at EVIDENCE.COM represent for our customers. We do expect to see revenue in the third quarter.

Do even though Aberdeen, they got pretty excited frankly from the results in the pilot, as with any software-as-a-service, there's a lot of complexity upfront so that we can make this product simple and easy for our customers' long term. And so, we've been doing a bunch of work in the pilots who've gotten great voice through the customer feedback.

We added a number of significant enhancements. A couple just to put out there; RF interference turns off police radios, transmits a very high level of electromagnetic interference to related devices.

We are having some issues with that interference causing some problems with our system. We have really hardened it from an EMI perspective.

We now have those issues under control. We've added a number of usability features in the software, so officers can enter case IDs and do other information right on the device that we learned during this pilot.

The head cams that we were originally shipping with that had some comfort and usability issues, so we've completely redesigned and re-launched the headbands. We're getting great feedback from customers on a comfort basis.

And a new magnesium holster that actually fits over the belt buckle space or can be worn on the belt, we're getting great reviews on that. That just started hitting the streets here in the last couple of weeks.

So we continue to see a lot of strength in that business. Again, given the opportunity, which is significant, and interest in the capability, we are being very careful to make sure that we're really getting the system stabilized and ready to scale based on the book pilot.

So we'll continue to extend the pilots through the second quarter and we expect revenue in the third quarter. On another note, the PROTECTOR Platform that we talked about at the International Consumer Electronics Show, we continue to get great interest from a number of different strategic partners, whether it be in the retail space, not-for-profits that are looking at the distracted driving problem.

We believe that the PROTECTOR Platform will be a revolutionary breakthrough. It is a most comprehensive look at global safety issues, everywhere from dealing with cyber bullying, which is a very big issue in the news, to distracted driving to sexting, to protecting children from child predators.

PROTECTOR, that development is moving apace. We're very happy with where we're at, and we believe we're on schedule for a late summer launch with PROTECTOR as well.

On the legal front, five product liabilities, these were dismissed in the quarter. I was happy to see those, and we had a significant win at the summary judgment base in our patent infringement suit against Stinger Systems.

Of course, the company, as you know, has a deep and rich intellectual property portfolio we have in our patent council that does a great job for us. And this obviously is a big win for us, defending some of our core IT.

There is a press release if you want more information out on our website. If you go to press release archive, you can read more about this finding of literal infringement on some of our core patents.

And so with that, I'm going to turn it over to Dan to talk a little bit about the financial results for the quarter. And I'll be back to wrap.

Thank you. So as Rick said, revenues for Q1 were $23.8 million, which are down $0.8 million or 3.1% from the prior year, mostly driven by a decreased international segment In prior year, we had the significant order as you remember in Q1 from the U.K., partially offsetting the lower international sales or increased sales in our domestic law enforcement segment.

International sales were 25% of our sales in Q1 of 2010 versus 39% of Q1 of 2009. Conversely, domestic law enforcement sales are actually 54% of our Q1 2010 sales versus 40% last year.

So we are seeing a strengthening in the domestic business. We saw both sequential increases in the domestic law enforcement sales and also significant year-over-year increases.

And although we've not seen a lot of significant individual orders funded by federal stimulus, we are starting to see more orders with that funding source. I think that's a positive sign for us.

Gross margins for the quarter of $13.5 million or 56.6% of revenues are down 2.9% as percentage of sales from the prior year. The decrease in margin was mostly driven by lower yields on the new product lines, some higher-than-normal rework expenses, increased temporary labor charges and then higher depreciation expenses and amortization of the (inaudible) products as well as the new cartridge automation line.

One thing to notice is, as people model this, at this point the cost for the data center remains in R&D. We'll have that data center with the servers and all the equipments to support EVIDENCE.com.

Right now, that's still sitting in the R&D line of the P&L. Once we launch that product commercially, those costs will move up into gross margins.

So there's about a 3% impact to margin, but you'll see reduction in R&D for the same amount, but just so people modeling that. SG&A expenses of $10.3 million for the quarter, this is actually down $1.1 million from $11.4 million in the prior year.

The decrease was driven by $682,000 reduction in legal, professional and accounting fees due to the timings of our annual audit fees as well as from lower outside legal costs. We also saw $619,000 reduction in consulting and lobbying services due to lower outside marketing, about $327,000 savings, and some lower IT consulting for $200,000 last year.

In the first quarter, we're doing ERP upgrade, which had significant outside costs. This year, the first quarter will not have the same expenses.

We did have an increase of $200,000 in sales and marketing, driven by some outside commissions. But overall, very happy that the SG&A line we're seeing some significant cost controls which is certainly helping to keep those costs in check.

Research and development expenses are $4.1 million for the first quarter, which includes a benefit of $793,000 of capitalized salaries and consulting fees for the EVIDENCE.com and PROTECTOR Platform. The gross research and development expenses of $4.9 million are actually up about $0.7 million from the prior year, mostly driven by $540,000 increase in salaries and benefits to support both the hardware development efforts in Scottsdale and our software development team headquartered in California.

We had $226,000 increase in scrap materials and our equipment rent is up $197,000. And that's mostly driven by the outside data center that houses the EVIDENCE.com servers.

Computer licenses are also up $141,000, also driven by EVIDENCE.com. We did see positive variances in indirect supplies, mostly driven by the fact that last year the first quarter we had a number of new hardware platforms that were driving some of that.

We've seen about a $398,000 reduction in direct supplies. So overall, R&D is looking pretty good.

We're really focusing on the cost controls across all areas of the company and making sure that the expenses are returning both near and long-term benefits to the company. We're seeing that really in all areas.

So we're pretty satisfied with what we're seeing there. As Rick said, the adjusting operated income, which is the non-GAAP basis, was $1.6 million.

Given the significant 123R stock compensations as well as the increase we've seen in depreciation cost by the higher capital expenditures over the last two years, we do believe it still makes sense to look at operating income from both on a non-GAAP cash basis as well as the traditional GAAP basis. Non-cash P&L expenses have grown forward, but they're not material, so we break that out so the company's cash earnings are a little bit more obvious.

On a GAAP basis, company posted pre-tax operating loss of $949,000 and a net of tax loss of $493,000 at $0.01 per share on both a basic and diluted basis. Moving on to the balance sheet, we finished the quarter at $37.4 million in cash investments.

This is down $8.1 million from the year-end balances, mostly driven by cash used in operations. Accounts receivable of $15.8 million is up $0.4 million from the prior year-end balance of $15.4 million.

That's mostly driven by the large international orders we announced right at the end of the first quarter, which drove our DSO balance up. We do expect that the DSO balances will come down back to more normalized level in Q2, just depending on the new order flow in the quarter and how much we have in back-end loaded business.

Inventory of $17.7 million is up $2.6 million from the year-end balance. We've seen increase in raw materials to support the X26, AXON and X3 product lines.

Prepaid and other assets at $3.1 million are up $1.6 million. This is mostly driven by our product liability insurance premiums we paid in January.

Property and equipments invested is $39.5 million. This is up $0.8 million from the prior year balance, mostly due to the capitalization of a portion of the EVIDENCE.COM and PROTECTOR Platforms.

Full assets at March 31 were $135.9 million. One thing I want to make sure to note here is that a lot of the cash used from operations is really more of a timing difference due to the timing of quarter-end orders, our accounts payable, payment (inaudible) as well as fluctuations in inventory.

And our current cash balance is already up from the 331 balance. So working capital actually at 331 of 2010, up $72.5 million is actually up slightly from last year's working capital balance.

That's really just a shift of assets from cash into receivables and inventory in regards to the payables. So we still feel very strong from a working capital perspective.

On the liability side, account payable is actually down significantly. We're down to $2.4 million of accounts payable; that's down $3.9 million from the year-end balance due to some timing of check runs at year-end versus quarter-end, and the final payments associated with the automated cartridge line.

Accrued liabilities of $4.3 million are in line with year-end levels, and the current deferred revenue balance of $2.9 million is just up slightly from year end due to the sale of extended warranties. So, finished the quarter with total liabilities of $16.8 million, and $119.2 million stockholders equity.

So, still have long term debt and we continue to have fund and liquidity to fund our operations here as we move forward. Going to cash flow, as I said earlier we had cash used in operations of $6.6 million for the three months ended March 31.

Again, we got a tough comparison this quarter; last year, the first quarter we generated cash from operations of $10.5 million. Again, just more figures; last year we had significant reductions in AR and inventory.

The first quarter this year we had some of those things go the opposite direction, but these are just sort of the normal timing differences we get to see in the business. We had $2.4 million of net cash used in investing activities.

Again, the new property equipment is mostly made up of the capitalized cost for EVIDENCE.COM and the PROTECTOR products, and we ended the period with $37.4 million in cash and investments. So with that, I'd like to turn the call back over to Rick Smith, our CEO.

Okay. Let me give you a couple of stats from the sales front.

We added 226 new agencies, testing and deploying our TASER products to become 15,334 agencies total. We have 261 new full deployments, so now we have a total of 6,256 full deployments; 74 new TASER CAM agencies for a total of 2,411 agencies testing and deploying our TASER CAM.

We have 15 new agencies with the X12 Less Lethal Shotgun for a total of 44 agencies testing and deploying the X12; 44 new agencies with the XREP, so we now have a total of 111 agencies testing and deploying the XREP. We had 238 M26 upgrades to X26s, and we had the first large scale deployment of the X3, with Lakeland PD upgrading from 150 M26s to X3s.

Speaking of XREPs and X3s, I would say this; it's been a challenging environment to introduce new products. Where we have seen some strength in our core legacy products, where people had budgets, and they have had programs in place to expand, XREP is a new capability, we're seeing a lot of interest in it.

There's not free budget dollars for new programs. And similarly with the X3, we're seeing a lot of interest from the field to technology.

It's certainly getting solid reviews in terms of the capabilities we've created, the budget. It certainly is at a premium price point, and in these economic times, folks just don't have the extra budget dollars to be able to allocate to these newer products.

But we do fully expect we are seeing continued improvement uptick in the XREP quarter-over-quarter. And as we move forward and both have (timely adjusted) this week, we expect to see those products grow.

In fact, just this morning, I had report of a field use of an X3, (inaudible) case where the officer actually missed on the first shot, but was able to immediately redeploy second time and take the subject down. So we're pretty excited about that.

Switching gears to again talk about EVIDENCE.COM, we're seeing a lot of elevation in the value proposition. In fact, the New Zealand National Police, as we've talked about, have selected and are currently implementing EVIDENCE.COM on a nationwide basis for handling all of their Electronic Control Devices there.

So certainly it's a pretty sound endorsement. We're excited about to have one of our early adopters being National Police Force.

So we talked about it is a complex ecosystem between the custom hardware we've built with embedded software on the devices, the ETM, Evidence Transfer Machines, that the docking stations have been out to interact with EVIDENCE.COM or Software-as-a-Service back-end. So there's a lot of complexity upfront.

So we're taking our time through field pilots. We've made a number of enhancements to the product.

We will continue through pilot in the second quarter. We expect to start to see revenues in Q3, although we may see some earlier revenue, particularly out of New Zealand in the second quarter.

In the PROTECTOR, with distracted driving being a top issue both in the political environment and in the area of public affairs, Oprah Winfrey is, I believe, hosting a big event on April 30 with her No Phone Zone campaign. And we believe that the timing is just right.

For us, we've done a competitive analysis. We do see there is lots of smaller competitors out there with, I would say, focused targeted solutions for different pieces of the puzzle.

We have not seen anything that would be of the breadth and comprehensive nature of what we're doing with the PROTECTOR Platform. That can really be a robust end-to-end solution.

It's certainly a huge problem. I believe we talked about on the last call that TASER has tremendous brand recognition.

We have over 92% brand awareness in the U.S. We got a huge brand footprint.

People see us as industrial-grade security. They know us as a company that law enforcement relies on.

And our mission here is to protect life. So over the past two years, we invested heavily in R&D to expand, so that we are not reliant, we're not defined just by our technology, but that we are defined by our mission.

And we're bringing innovative new breakthrough technologies in EVIDENCE.COM and AXON that will revolutionize the way that public agencies interact with the public. We believe we can revolutionize, and overall, the relationship, building trust between people and their local police departments.

And that will make our community safer. And with PROTECTOR, we're going to turn mobile technology into something that currently most people view as a threat to the safety of their kid, whether it's a distraction in the car or the unknown dangers that they run into when they're unmonitored out in cyberspace through a mobile device.

We're going to change that paradigm and turn mobile technology into something to bring families together and enable families to protect our most valued members of our society, at least they are for me, and that's kids. So that we can use the technology to, again, make the world a safer place through empowering families to do a better job of protecting.

And with that, we'll wrap up this conference call and we'll take a couple of calls or a couple of questions.

I guess just the first question, the number one, can you provide the unit sales by product for the quarter?

Yes, sure thing, Eric. This is Dan.

X26, we saw 13,935 units for the quarter. M26, we saw 707.

We had 5,381 C2s sold. TASER CAMs, we actually had a strong quarter for TASER CAMs.

We had a large announcement at the end of the quarter. We sold 4,252 TASER CAMs.

And cartridges, 304,761. And then some of the new products; the X3, we had 423 units; and XREP, we had 1,379 XREP packages sold.

Okay. And then just curious one of the comments made at the very beginning was that Q1 a couple of large orders that you expected did not come in as hoped.

Should we infer that some of those are maybe moved into Q2? And if that inference is correct, any reason why they maybe did not come in?

I would just characterize it as the predictability of some of the larger orders is always challenging. I wouldn't say that we would expect in Q2, looking at it to see sort of our normal flow where we would have some large orders materialize in the quarter.

As to which orders come in when, those are things that can be just really challenging to predict. For example, we had one large order last quarter, in the fourth quarter, that came in.

It frankly wasn't even on our radar screen until it showed up here. I don't know if I should talk about which one it is in particular, but that's just sort of endemic of the business.

So it can be difficult to predict quarter-to-quarter. But we do expect Q2 to be a more typical quarter, where we would see some significant international orders.

Okay. And a couple more questions.

With Stinger, with this ruling, what is the process if it's not there already in terms of getting them out of the market? I know that one of the issues that's been with them in the market, even if a police department had absolutely no desire to purchase the Stinger, they still had to test the product and that lengthened your sales cycle.

How could this shorten the sales cycle for you guys?

Well, at this point what we wanted some re-judgment is really a literal infringement; a product literally infringes the claims. It's not over legally speaking, and so you go through trial because there are still issues up back.

Certainly they will assert defenses around whether the patent themselves are valid, this typical pattern litigation. During that time period until we get to the trial, our assessment is that it's highly unlikely that most government agencies would buy a product knowing that it's been bound in a federal court to literally infringe upon existing patents.

And early discussions with customers on that topic seem to be validating that point that it makes it very risky on their part to buy something that they are informed, literally infringes. They'd be relying on sort of a Hail Mary approach that the patent would be found invalid, which is frankly legally a very long shot defense in our assessment.

So we do believe this, and we are seeing in our discussion with some customers that this long term could end up simplifying the sales process and streamlining it.

And then last question, I'll hop back in the queue. On the PROTECTOR coming out in Q3, how is that going to be sold and offered to the customers?

Great question. Q3 is going to be more of a half launch, focusing a lot on online sales, online distribution.

There's sort of two iterations, right? There is the mobile product that enables parents to have more control over a child's cell phone and how they monitor it.

That can be (bugged) as a download, or they could buy preconfigured cell phones, so that there is no installation required on the parents' part. For the Driver Protector piece which includes a hardware component that gets installed in the vehicle, we are putting together a relationship with a national installer alliance that would be able to do those installations.

That product would be available also through our online components, as well as through retail partners. We have not announced any retail partners, but we've had a high degree of interest, and I'd say we have at least one that's pretty far along the process that could be a late summer launch partner for the Driver Protector product.

I'm wondering if you guys could talk a little bit about, first of all getting back to PROTECTOR, any line of thought in terms of, once we get beyond that initial online soft launch, is this a product that you would intend selling to like an app store, or I know there is some school of thought that you might actually be able to include this software as part of a base service plan with the carrier. Can you talk with us a little bit about that?

Yes, we're exploring all those options. Certainly, there's retail components.

Any business that is currently involved in car security or car audio installation is a natural fit for the Driver Protector product. And of course, for the cellular service components, relationships with carriers certainly would be a great distribution channel in addition to consumer direct.

We could intercept those at retail where this could be sold as an incremental service and configured in the retail environment where a phone is being configured at point of sale. So literally, the way this breaks out, I don't think we'll have great visibility on it until we're getting much closer to market and we're through our betas as to how it breaks out between the direct download, the retail day sales, and carrier partnerships.

And then there is some interesting other third party alliances that could be forged around. There is, for example, insurance carriers or others that could see the risk mitigation benefits of products like the Driver Protector in particular.

So, we're very confident that we've got the right product in terms of how we get it to market. We're going to have to experiment frankly with a number of different approaches until we find the one that really resonates to get the best degree of convenience and efficiency to get it for the customer.

Dan, I'm wondering if you could talk a little bit about how we should think about gross margin performance as you prepare to launch some of these products. And just, I wanted to validate the datacenter, you think that's running at about 3% of revenues, and once those products launch that'll move from R&D up into cost of sales?

That's correct.

Could you talk a little bit about your gross margin outlook, I guess excluding that factor as you get ready to launch product? And then I know that you've indicated maybe there was absence of some big expenses in Q1 that will be coming up in terms of training and conferences.

How should we be thinking about that impacting operating expenses over the next few quarters?

On the gross margin side, I think there's a couple of things that came into play. And obviously while the first quarter sales of $23.8 million are reasonably aligned with what we did last year in the first quarter, there's certainly a lack of leverage on the indirect part of the gross margin.

So as our sales increase, we should see just a natural increase in margins by leveraging those costs. On the automation side of things, we actually kind of ran both the automation line and the manual line.

Mostly, it's driven by the factor we had on the inventory that was specific for the manual cartridge line. So we want to burn through that inventory and not leave it on the shelf.

So as a result, we didn't fully utilize automation. I think as automation comes online, we'll see an improvement in margins.

In the first quarter, we saw sort of the scenario of having all the depreciation, but not fully utilizing equipment. I think as we move into the second quarter, we'll see the utilization of that automation equipment go up, which will improve margins.

The new products, the PROTECTOR product, because again, it's a retail product, it probably won't enjoy the same margin profile as our existing products. But again, you have that ongoing SaaS model.

The SaaS part of those products will have a nice gross margin. But the retail selling won't be quite as strong.

But overall, the (military) product we still feel good about, and we do expect margins absent that data center to improve as sales improve. As far as the operating expenses, we're really laser-focused on keeping our expenses down.

First quarter, we actually were under-budget on expenses. So even things like the audit and the trade shows like CES and SHOT Show, even with those expenses in there, we still saw a relatively small increase over the fourth quarter, which is also pretty strong.

So we're really focused on organization and trying to keep the cost down to make sure that we're going to get the leverage out of every line that we can.

Can you talk a little bit more about the X3 launch and give us some color into maybe how large of a market you're going to roll out with in Q3? You mentioned there is going to be some Q3 revenue.

Is that a global launch? Is that one step beyond the pilot?

Can you talk a little bit about that?

I think you're asking about the AXON and ECIDENCE.COM launch in Q3? Yes, that will be primarily U.S.-based, because the data center is out here in the U.S.

Although we'll have some international pilots that we'll start to run off the U.S. datacenter, but we have discovered that there is fair amount of concern from international customers about housing data in the U.S.

because of the Patriot Act, whereby the U.S. government reserves the right to access just about any data stored in the U.S.

And a lot of foreign police agencies are not comfortable with that fact. But we have had a number of international folks now that have agreed that they would pilot the capability out of our U.S.

data centers. So it'll be primarily, I would say, a North American launch or expansion.

And this is one of those that because of the nature of the product, it's a fairly complex rollout. So it's going to be probably a little more slow-growing than our typical ECD products where customers just go to the distributor and buy them, because here again, they have to have their accounts set up, get the hardware and get trained.

There is some interaction with the local IT department in terms of making sure they've got the right high bandwidth internet access, et cetera. So it's likely to be a slower rollout.

But of course, on the positive side, there is a significant recurring revenue model within the business as it ramps.

And in our existing markets as well, which I think are very positive.

That's good. Can you talk a little bit about the sales cycle and compare it to your ECD stuff?

I was under the impression that that would be shorter, given that it's not an ECD.

Again, as Dan pointed out, there is a large existing revenue budget item area for incident video. It's in the hundreds of millions of dollars.

So that's good news that there is existing budget fund in a lot of places. I think it's really more about the logistics of rolling these systems out that will be a bit of a limiting factor early on.

But again, one of these damages of a SAP-based business model is there's a lot of complexity upfront; would the complexity sit on the provider rather than on the customer. And we would expect that then there will be sort of a ramping and accelerating ability for us to bring customers online, so that the first customers electing pilots takes several weeks to get up and running and trained and the kinks worked out.

As we get towards the end of the pilot phase and we get into the production, bringing customers online might still be for significant agencies a few weeks. And our goal will be to drive that time down and down and down by streamlining the process.

So by the time we're rolling out our 100th agency that we're doing it much faster and more efficiently and our processes are firming up. And by the time, we get to our 1000th agency that we've got it down to something that's really going like clockwork.

But I just think from a modeling perspective we should be conservative in that this is a solution sale; there are more touch points involved within the agency, it's not just the tacticians, but it's the IT departments as well. So there is sort of these tradeoffs, right?

Budget should be easier. There is existing programs at many of the agencies, but that also means we have to migrate people potentially from existing solutions over to our solution, and that can take some time particularly in the larger agencies.

Where I think the business gets really interesting is, we're able to start scaling it in the smaller and smaller agencies because the smaller agencies tend to be less political and setup should go faster. But then you're talking about setting up hundreds of agencies or thousands of agencies, and so that places more strain on our systems to be able to do that reliably and consistently.

So we'll start on sort of the larger and mid-size agencies. I think we'll the first to see this, because frankly just the revenue opportunity justifies the higher level of expense involving getting them set up until we get more streamlined.

And as we get more streamlined, our setup costs drop, and at that point we can take this out to the smaller agencies and more of the mass police market.

Just a follow up question. You made the comment that you're starting to see some more orders flowing in from stimulus funding.

Can you give a sense kind of what you're hearing from departments in terms of maybe what's been holding them back and kind of when they expect to start spending that money? What can you kind of characterize this, (especially) the average kind of order size you're seeing from the stimulus orders?

This is Dan. A lot of the orders we're seeing are still through distribution.

And really where we're getting the information is polling our distributors to see how much stimulus money they are seeing in their business, both for TAZER and other products. And definitely I think we're getting our fair share out of the products they rep.

It hasn't been individually significant; we saw the large order from Philadelphia in Q4. I haven't seen anything of that size in Q1, but we saw just more of sort of the 25 to maybe $100,000 orders.

But I think it's still just a net positive. We're up as Rick said 30% year-over-year, and up sequentially as well.

So I feel that the domestic part of the business is turning the corner, and hopefully stimulus allows us to continue to have a good 2010.

A follow-up there; have you had conversations with departments in terms of, if they are sitting on funds or have some funds, are they kind of waiting until the end of a fiscal year to put it to use just to make sure, or is it the function that they're getting it and spending it as they get it?

I think it's a little bit of both. I think some of these guys are holding off to see where the rest of the budgets shake out, and want to make sure that they don't fall short on their budget.

So they're sitting a little bit on the sidelines and waiting to get towards the end of their fiscal year. Q2 is a fiscal year-end for a lot of agencies, and we are hopeful that would give them opportunity to say, okay, we've got these stimulus dollars, you know, they've got a good idea where they're going to end up for the regular budgets and will go ahead and spend it.

I'm not getting the impression that there is a ton of spending for other types to price. Like I said, I think we're getting our fair share, and I think there's still a fair amount of money on the sidelines.

All right, I think you had appreciatively used time this morning. A number of exciting products are coming down the pipeline.

Stay tuned for the rest of the year, and we'll be back. Hopefully we will see some of you guys at our shareholder meeting, which is coming up here in late May; it's May 27, here at TASER headquarters.

And by the way, you come down, check out the headquarters, come visit your company. And we look forward to meeting you there, and we'll talk to you again with our second quarter results in July.

Everybody have a great day and a fantastic weekend.