Well that didn't last long. Not even a week after a judge set aside $5.2 million in punitive damages levied against TASER (NASDAQ:TASR) in a wrongful death case, the stun-gun maker reported a 90% drop in net income.

There's little good news in the third-quarter numbers:

  • Revenue declined 19.8%.
  • Year-to-date cash from operations fell 30.9%.
  • Inventories rose 59.1%

There is one bright spot, though. Gross margin improved to 60.8% from 56.1% in last year's Q3. What TASER is selling, it's selling for more.

But that's the top line. The bottom line is nowhere near as healthy thanks to a three-fold increase in research and development expense. Net income plummeted 90%, from $6.2 million to $618,000.

Still, CEO Rick Smith is undaunted. Quoting from the press release:

Difficult economic times like these create opportunities for market leaders like TASER International to extend our technological and market leadership. During a period when many companies were eliminating their future growth initiatives, we were able to remain profitable and maintain positive cash flows, while also making significant investments toward the Company's future. [Emphasis added.]

Good for Smith. This is exactly what he should do -- invest in growth while laggards lag, especially when TASER, like so many other Motley Fool Rule Breakers recommendations, has tens of millions in the bank with no debt.

Even so, TASER isn't Google (NASDAQ:GOOG) or Intuitive Surgical (NASDAQ:ISRG). Both of those firms are producing higher income streams in troubled times. And while Intuitive Surgical is like TASER, VeriSign (NASDAQ:VRSN), and VASCO Data Security (NASDAQ:VDSI) in that its universe of potential customers is sometimes limited, health-care spending shows no signs of slowing. Municipal police departments still account for the majority of TASER's revenue.

Innovation will help broaden TASER's revenue base. There's only one problem: The products that Smith's company is creating -- the Shockwave perimeter defense system, the XREP shotgun shell, etc. -- are aimed at the military, which could suffer budget cuts under a new president.

TASER, like a young Tom Cruise, is making all the right moves. Whether they pay off is a matter of time. Just more damnable time.

A stunning array of related Foolishness awaits:

Fool contributor Tim Beyers recently returned from a tour of Silicon Valley with his Rule Breakers teammates, during which time they visited more than a dozen established and emerging innovators. Care to learn more? Just tell us where to send you our updates. It's 100% free.

Tim had stock and options positions in Google at the time of publication. Google, Intuitive Surgical, and TASER are Rule Breakers recommendations. VASCO Data Security is a Stock Advisor selection. The Motley Fool's disclosure policy was not at all stunned to see a court give Britney's dad power over her purse.