- BlueGunBlog -

PHOENIX Oct 26, 2005 — The safety controversy surrounding Taser International Inc.'s stun guns has hurt the company's profit, which fell more than 90 percent in the first three quarters of 2005.

The Scottsdale-based company said Wednesday that net income was $948,014 in the first nine months of the year, down from $14.1 million in the same period a year ago. Sales for the first nine months of the year fell 27.5 percent to $35 million.

Third-quarter net income dropped to $270,945, or less than 1 cent per share, from $6.1 million, or 11 cents per share. Sales plunged by $7.3 million to 11.7 million.

The quarterly earnings result was in line with an average estimate of 1 cent per share, according to two analysts surveyed by Thomson Financial.

Taser shares fell 44 cents, or 6.3 percent, to close at $6.53 in trading Wednesday on the Nasdaq Stock Market.

"It's probably not one of the best long-term growth strategies," said John Gavin, president of SEC Insight, an investment research firm that has been warning investors about Taser and its stock option-granting practices since January.

After seeing the profit loss Taser reported on Wednesday, Gavin said SEC Insight "still calls it a troubled company."

Taser, which manufactures three different stun guns, said its gross margin widened by 4.3 percentage points in the third quarter as it improved its operating efficiency and made changes to its product mix. Coupled with lower manufacturing expenses, the bigger margin helped it stay profitable, it said.

Still, the company's sales, general and administrative expenses have about doubled, to $7 million in the quarter and $19.8 million in the first nine months.

"What makes me more comfortable is that they've controlled some manufacturing costs and also brought marketing costs down," said Joe Blankenship, an analyst with Source Capital Group. "I'm reasonably bullish on the stock right now." Blankenship said.

Taser executives said they were optimistic that the controversy around their stun guns was subsiding.

"I believe we're starting to see a shift … from a debate primarily on the safety of the device to the appropriate use of the device," said Taser Chief Executive Rick Smith. "I think we're going to see things die down with the continuous legal and scientific evidence supporting our cause."

Of the 37 personal-injury, wrongful-death, or excessive-force lawsuits that have been filed against Taser, five have been dismissed. The company also faces a class action lawsuit by shareholders over its safety claims and has said it faces another potential class action suit over weapons safety.

A Taser delivers a 50,000-volt jolt for 5 seconds, temporarily immobilizing a person by over-stimulating the nervous system. The company says 185,000 Tasers are in use by more than 8,000 law enforcement agencies in the United States.

The weapons have been blamed for a growing list of accidental deaths, prompting police to reconsider their necessity and lawmakers to push for legislation restricting their use. Amnesty International reports more than 120 Taser-related deaths in the U.S. and Canada since June 2001.

The company has consistently denied that its products are to blame in the deaths, arguing that none have been directly linked to Tasers. The company also contends Tasers have saved the lives of thousands of suspects who might otherwise have been fatally shot by police.

Taser also announced Wednesday that plaintiffs in Indiana have withdrawn a wrongful-death lawsuit against the stun-gun maker. The plaintiffs' filing of a stipulation for dismissal leaves each party responsible for its own legal costs and Taser not liable for any damages, the company said.

The case involves the November 2003 death of James Borden, who was shocked several times with a Taser while in police custody and later died. The dismissal was significant, Smith said, because it was the first case where a coroner found Taser to be a contributing factor in a person's death.

Blankenship said he thinks two other wrongful death lawsuits that were dismissed this quarter were significant.

"They are indicative of how aggressive Taser is in fighting those kinds of lawsuits to avoid liability," Blankenship said. "It sets a precedent that they will not be pushed into a corner for settling something that people cannot prove."