Stinger Barely Buzzing

You know things are bad when a company that mustered some 19 press releases since January 2005 -- including six that month alone, when the stock was hot -- can't come up with a press release now to announce year-end earnings, or the lack thereof. That's the case with former stun-gun star Stinger Systems (OTC BB: STIY.OB).

On Monday, the purported TASER International (Nasdaq: TASR) competitor released its 10-K, with none of the fanfare that accompanied its grand claims months ago regarding its upcoming stun gun.

The 10-K clearly explains why. Stinger lost $10.1 million for the year ended Dec. 31, 2005, a good deal worse than the $9 million it lost the year before. Revenues of $470,000 might look better than the $262,000 from the year before, but the margin on those revenues was less than zero, clocking in at negative-$140,000, which includes a $270,000 write-off for bad circuit boards for the stun gun that has yet to reach the commercial market. (More on that below.) Moreover, it's not a lot higher than the combined $436,000 that Stinger paid its top three executives in cash salary and bonuses on the year.

Factor in research and development for the stun gun, big acquisition and severance fees for the Smith & Wesson Holdings (AMEX: SWB) execs who came to Stinger and then left shortly thereafter, and other costs, and it's easy to see why the cash position dropped from $9 million at the end of 2004 to $2.4 million at the end of 2005.

Stinger had announced "initial sales and volume production" of the stun gun in the fall of 2005, along with a deal with Maricopa County, Ariz., loudmouth Sheriff Joe Arpaio. But the 10-K tells the story of a gun that still isn't ready for prime time. It reads: "It may be the case that further modifications of the Stinger projectile stun gun will be required before commercial shipments of the Stinger are possible. As a result, the Company can give no definitive assurances that it will begin commercial production in the second quarter of 2006."

That might cause some trouble, as the company later reveals: "At the present time, the Company does not generate sufficient revenues from its operations to pay its operating costs. Management believes that the Company will need additional outside sources of funding in the future to continue the production and promotion of its products."

And that's not the only threat to the business. The legal-proceedings section mentions the fight with TASER, as well as an investigation from the Securities and Exchange Commission: "A judgment from this action adverse to our interest could jeopardize our business operations and exhaust the Company's cash reserve and investors may lose their entire investment."

What it should also mention is that there can, of course, be no assurances that anyone out there will find Stinger's weapon a better alternative to TASER's proven designs, or even the promised gun from Law Enforcement Associates (AMEX: AID). (It's difficult not to notice that that Sheriff Joe's face no longer graces the Stinger website, as it did after the announcement last fall.)

TASER's well-known top- and bottom-line difficulties have long since proved that this market is not the slam-dunk that everyone wanted us to believe. I wouldn't give you the going price for any of the stun-gun shares out there, but if you feel as though you must ride this lightning, at least stick with a company that has delivered the stun gun that cops know, buy, and use every day. Everything else is just buzz.

TASER International is a Motley Fool Rule Breakers recommendation.

Editor's note: Seth Jayson has been writing commentaries about Stinger Systems, Inc., since January 2005. In February 2006, Stinger Systems and its CEO, Robert F. Gruder, filed a lawsuit against Seth and The Motley Fool on the grounds that three of those commentaries were libelous. We believe that the lawsuit lacks merit and intend to defend against it. We do not plan to let the lawsuit influence our commentaries about Stinger, but we thought you should know about it.

At the time of publication, Seth Jayson had positions in no company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.