This is for Bobby, who called me a "twerp" after I suggested that Stinger Systems (Pink Sheets: STIY) might not be worth the $400-odd million that investors have recently been paying for the company. See, I feel sorry for Bobby, despite the second and third helpings of rude 'n' whiny email he's sent me. Whinin' Bob's Stinger stock took a big dive over the past couple days, and he thinks it's my fault. If you can trust the cypherin' of a fellow who'll call a stranger a twerp just for stating the facts, Bobby got out with only a 27-bagger. Personally, I think Bobby ought to hold Bobby responsible for Bobby's investing decisions, and Bobby clearly hasn't done his homework on Stinger.

So this is for Bobby, a few more facts. Unfortunately the facts about Stinger are stabbing, venomous things.

Monday, I noted that the firm, which purports to be a competitor to Motley Fool Rule Breakers pick Taser International (NASDAQ:TASR), has yet to ship a single product from its much-hyped new "stun gun" line. I also noted that the folks running the show, including frontman Robert Gruder, purchased the key assets for only $450,000 back in September, paying only $250,000 in cash. (How much you wanna bet that $200,000 note payable gets swapped for some of the newly bloated stock?)

With a razor-thin float, a few well-placed press releases and some critical hype provided by gullible local news teams and penny-stock hypesters, it took only a few months for Gruder to turn this profitless shell game into a half-a-billion-dollar enterprise, at least on paper.

This kind of magic trick is nothing new for Gruder. He's got a long history as a corporate executive. He prefers to make money the new-fashioned way -- by attracting investors and forgoing profits. Trouble is, his companies have an unfortunate habit of crashing and burning, taking investors along for the horrifying ride.

Gruder's greatest hits
Gruder is no stranger to the tail end of hot industry trends. In the early '90s it was computer software. Then it was the Y2K bug. In the late '90s, it was tech acquisitions -- paid for by stock, naturally -- and then, in the early 2000s, Gruder's "Holy Grail" was the Internet. For now Gruder's gig is stun guns. He has no history or expertise in the security field. But he does know how to start fast and get out when things collapse.

By my count, Gruder is currently 0 for 3. His first firm, GEM Technologies, declared bankruptcy in 1992, spawning lawsuits that were still being fought years later. (Gruder eventually lost that one, despite a pricey defense paid for by stockholders of his next corporation.) Next was his tenure at a two-time tech loser called Alydaar Software and then Information Architects (OTC BB: IACH). You may gain some idea of Mr. Gruder's management prowess by considering that IA now trades over the counter for 20 cents a stub, having hit a hype-heightened, split-adjusted, $160 per share at one point.

Mr. Switcheroo
Both Gruder and the companies he runs have short attention spans. His background is finance, which might explain his habit of building things from complex, constantly-shifting shells. IA began as an empty vessel called Enertronix, which then merged with a corporation called Daar, which brought its rudderless enterprise to North Carolina and renamed it Alydaar. When I say rudderless, I'm not being poetic. This was a firm with no direction, literally.

Alydaar Software, (formerly Nasdaq: ALYD) first tried to sell software-translation services, the kind of thing sometimes referred to as "porting." According to a hair-raising mini biography in the Charlotte Business Journal, Gruder began the business with no product and no plan, just a promise to customers to translate their software from one platform to another.

In the mid '90s, after securing some venture capital, the firm relocated to New Orleans where he and the programmers "were eating and drinking and having a hoot" but producing little revenue and no profits for shareholders.

Shortly after moving his business to New Orleans, Gruder decided the real focus ought to be the horrendously over-hyped "Y2K bug." In 1995, he moved the company back to North Carolina and began trying to sell its new wares, including via public predictions of computer-inspired nuclear Armageddon. (Alydaar even went so far as to enlist a member of British Parliament to try and force legislation requiring every company in Britain to hire a Y2K consultant. Alydaar's personal MP told his countrymen that without solutions like Alydaar's, everything up to and including "nuclear power plant cooling" would be at risk.)

By 1998, Y2K consulting had brought in a reported $27 million in revenues, but there were still three obvious problems. First, the firm was horribly overpriced by any valuation metric. Next, if there were ever a business with a short shelf life, Y2K consulting in 1998 would be it. Finally, the firm was a complete money pit for investors, turning in continual losses and staying afloat only by churning out more shares.

That didn't stop Gruder from holding out the PR-borne promise of earnings just around the corner. The worst of these mini-scandals came when he predicted black on the bottom line for March 1999. Two weeks later an "accounting error" that totaled an incredible 7% of revenues erased that happy prediction and launched a shareholder suit.

"We didn't do anything illegal," Gruder told the Charlotte Business Journal. "It wasn't an Enron thing." Interesting denial, considering that the firm's shares ended up just as worthless and, as you'll see below, Gruder shared the Enron execs' passion for cashing in personally on complex, poorly-disclosed, related, outside enterprises.

When it became clear that the Y2-gravy train had left the station, Alydaar underwent yet another costume change. In 1999, Gruder swapped $750,000 worth of company stock for a piece of software that was later named "Jitzu." It purported to allow Web users to create their own portal pages, but it didn't fly. In the end, Gruder gave up on the firm only a few months after he whined that ".shareholders are merciless and the majority of them are cowards that hide behind the chatboards."

Keep those last two bits in mind, since contempt for shareholders and slippery maneuvers are, shall we say, continuing themes in Gruder's career. And you don't need to dig up one of his foot-in-mouth interviews to see writing on the wall. All you need to do is read the financials.

Little shop of horrors
After only a few days of sorting through Gruder's public filings, it's clear that there's enough here to warrant a long and scary book, and maybe even a few raised eyebrows over at the SEC. I'm going to gloss over the myriad examples of insiders dipping their hands in the till. These sleazy but legal grabs included: millions in lease payments to Gruder's outside real estate partnership, forcing Alydaar to cover his legal fees from lawsuits resulting from his prior activities, the way management repriced options after their failures caused the stock price to tank -- that kind of thing.

Instead, I'd like you to consider just one especially sketchy deal. The following analysis probably makes me one of Gruder's "chatboard cowards," but here's hoping everyone who reads this is cowardly enough to keep his hard-earned moola out of Gruder's clutches.

A thick London fog
According to Alydaar's 1997 10K, in July of that year, the firm -- which was under Gruder's complete control -- purchased a London-based outfit called Alydaar International. It's only by reading the attached contracts that you find out the business was bought from a firm called Chase Technology. Alydaar International had zero in the way of hard assets, as evidenced by the fact that the entire $6.7 million purchase price was booked as Goodwill.

There are three things you need to remember about this deal to truly appreciate its magnitude. First, the $6.7 million purchase price. Next, the $390,000 worth of common stock that Gruder personally pocketed as a result of the transaction -- a fact buried deep in the page count of the filings. The final and most suspicious bit is Alydaar's statement that "The Company [Alydaar U.S.] had no equity interest in International prior to the acquisition."

That's an odd contention -- possibly even an outright lie -- given that Alydaar International is a company that Alydaar had co-founded only a few months before.

The details get confusing. (Raise your hand if you think things were arranged that way on purpose.) So, try to stick with me here.

A March 1997 SEC filing describes Alydaar's 45% interest in a new London joint venture called Alydaar Software Europe. It reportedly had "no activity" as of Dec. 31, 1996 . A later filing notes that Alydaar hadn't even bothered to pony up its $75,000 share of the startup costs. From this tidbit, we can calculate the venture's worth: $166,000.

Oddly enough, the name of the firm's UK partner doesn't appear in any of its filings. (Why do you suppose they left that out?) Fortunately, the name of Alydaar's UK partner does appear in a November 1996 press release that somehow never made its way to the SEC. Turns out, Alydaar's partner was one Chase Technologies. Yup, that's the same firm that sold the London company to Alydaar U.S. only eight months later for $6.7 million dollars.

Now, there are three possible explanations for Alydaar's claims that it had no equity interest. The first is that Alydaar just plain lied. Let's assume that didn't happen. The next is that it somehow divested itself of its 45% share. The final possibility is that Alydaar simply never paid its portion. In any event, at some point -- we don't know how or when or at what cost -- Gruder became personal stakeholder in the venture.

What's crystal clear to me is that shareholders were completely fleeced. Alydaar started a subsidiary for $166,000 then bought it from itself -- or closely related insiders -- less than a year later for 40 times the original price.

Keep in mind, that $6.7 million was equal to 62% of Alydaar's entire revenue stream for 1997. It's impossible to imagine that an asset-less, 7-month-old London upstart with no activity was worth anywhere near that amount.

Why the giant price tag? Your guess is as good as mine, but my guess is that Gruder's $400,000 personal take had a lot to do with it.

Apparently, nailing existing shareholders with this scheme wasn't enough. Gruder added insult to injury in the most literal way when, in the July 1997 10Q, Alydaar had the audacity to claim that this stagnant, 7-month-old subsidiary would contribute "at least" $0.50 to earnings per share in 1998 and $1.00 to earnings per share in 1999.

Of course, in the end, there never were any earnings per share. Alydaar produced nothing but losses for common stockholders, both on the financial reports and in the market. Within a couple of years the majority of Gruder's London purchase was written off in Alydaar's enormous, post-Y2K accounting bath.

Getting rid of the stinger
Do I even need to write the moral of this story? The $363 million market cap assigned to Gruder's latest pet, Stinger, is ludicrous on its face. Let's repeat the obvious, just in case anyone missed it.

  • Gruder bought the whole shebang for $250,000 cash plus a smaller IOU only a few months back.
  • The firm has no sales to date of its stun gun, and trailing sales of its other products come to $200,000.
  • Gruder's stun gun has no track record for effectiveness, reliability, or safety.
  • Gruder's gunpowder-charged device is classified as a handgun, meaning that any attempt to market a civilian model would face significant regulatory hurdles.

So, against tough competition from cop-favorite Taser, what is Gruder's unproven upstart really worth? Do you really think police departments are going to save a few bucks on a cheaper, copycat latecomer when their lives may be on the line?

Even if you could put a rational figure on the potential market of Gruder's stun gun, the final tally for the company would depend on your discount for bad management. Gruder has run all his companies directly into terra firma, and he's made plenty of shady deals on the way into the deck. Personally, I wouldn't give you pennies for this stock. Coincidentally, that's what it was worth only a few weeks back, before Gruder bought an idea for a song, then issued a thin float and chorus of press releases.

For related Foolishness:

Seth Jayson wonders how some people can sleep at night. At the time of publication, he had positions in no company mentioned. View his stock holdings and Fool profile here . Fool disclosure rules are here . Taser is a Motley Fool Rule Breakers pick.