Taser bets on new products as stun gun sales slacken

The company's Taser guns, also known as conducted energy weapons, incapacitate people through a 50,000-volt jolt of electricity. Police say they are needed as a nonlethal alternative to firearms.

Critics, including human rights group Amnesty International, disagree. They have accused Arizona-based Taser of pushing the product into the market without adequate independent testing of health risks such as heart failure.

Controversy surrounding the gun reached a flash point following the death of a Polish immigrant at the Vancouver airport last year after police shot him with a Taser gun.

"I would say it was a tragic situation but we certainly do not think that it was the Taser that caused the death," Chief Financial Officer Daniel Behrendt told Reuters in an interview.

Taser, which makes virtually all the stun guns currently in use, operates a legal unit to manage its overall litigation strategy and has received favorable judgments in 70 lawsuits filed against it, while losing just one, Behrendt said. There are about 38 cases pending.

But the company's success with the law has not been matched by its financial performance.

The company has been posting weak results over the last few quarters, hurt mainly by lower municipal spending and higher research and development (R&D) expenses. It has lost almost two-thirds of its market value over the past year.

The company, which typically spends 5 percent of its sales on R&D, is targeting higher R&D spending of $13 million to $15 million this year as it plans several product launches.

"We feel these products will all contribute to 2009 sales and earnings," said Behrendt, who previously served as an auditor at Arthur Andersen and as finance chief at wallpaper maker Imperial Home Decor.

AXON, an audio-video device that can be connected to the stun gun to grab footage of incidents, is one of several devices the company plans to launch in the near term.

The product gives the company an opportunity to sell to agencies that already arm every officer with a Taser, Behrendt said.

Other potential products include Shockwave, to be used to regulate movement in and out of protected areas, and the XREP projectile, a wireless device that fires from a 12-gauge shotgun.

"Though we will continue to invest heavily in R&D, we probably will not spend quite as much in 2009 and 2010 as we did in 2008," Behrendt, who took over as CFO of Taser in 2004, said.

Taser, which spends between $750,000 and $1 million a year on patents, expects this expense to go up by 20 percent to 35 percent over the next two years as the new products are developed.

In the United States, the company has been granted 27 patents, while 55 are pending. It has been granted 22 patents in international markets; 91 are pending.

Taser guns are bought not only by key customers like the police, military and correction facilities, but also by individuals, casinos and companies' corporate security chiefs.

The company's stun gun, which has been featured in films such as "Hannibal" and "Time Cop," is not considered a firearm in the United States and is legal for civilian use in most states.

Last year, footage showing a University of Florida student being shot with a Taser gun surfaced on the Internet. Despite his pleas to "Don't tase me, bro," a campus police officer did just that. The phrase spread like wildfire, appearing on T-shirts and in commercials.