Most people love to tell you about the next big thing. Few like to keep track of the disastrous crash and smoldering wreckage that too often follows. But I'm not one of those people. I don't like to forget. As soon as you forget the past, you're doomed to repeat it. That could have been written specifically for Wall Street, where the same old things seem to happen over and over again.
In that spirit, let's take a look at the latest quarterly report from the purported Taser International (NASDAQ:TASR) competitor, Stinger Systems (Pink Sheets: STIY) And by "latest," I mean "late," too. This 10-Q, filed at the end of December, actually only covers the third quarter of 2005, ended Sept. 30.
The first thing you'll note is that Stinger has burned through more than half of the $9 million in cash it had at the end of December 2004. As you may or may not remember, Stinger got this cash through a private placement in December of 2004, just after shares zipped from zilch to the $20s, floating on press releases, a spat with Taser, and the efforts of paid stock promoters like Bellwether Report.
As of Sept. 30, 2005, only $4.1 million remained. On top of that, the firm's total current liabilities tripled, now totalling $1.7 million. The year-to-date net red ink per share came to $0.58 a stub.
The main culprits in the whopping loss were $3.5 million in employee acquisition costs and $700,000 in severance costs -- including those for a CEO who didn't stick around long -- as well as $1 million in R&D and a nominal $2.5 million tab for "other."
"Other" happens to be pretty interesting. It includes $370,000 in legal fees, an amount nearly equal to Stinger's revenues over the period, oddly enough. "Other" also includes $280,000 in insurance expenses. And finally, "other" includes $830,000 worth of "liquidated damages to investors."
"What's that?" you ask. A fine question, which gets to the heart of the danger of investing in a pink-sheet flavor-of-the-month like Stinger.
The damages are owed to Stinger's December 2004 investors, because the firm didn't get a registration statement in place for the shares by the May 2005 deadline. Under the agreement with the people who put up the cash back in December 2004, they're owed $145,000 per month as long as the shares aren't registered.
It's not just the hefty money drain that should concern any prospective Stinger investors out there. The bigger question is: Why were these private-placement investors so concerned about their ability to get their shares registered within five months of buying them? Why were they worried enough to extract a 1.5% per-month damage pledge in the contract?
Could it be that they weren't really interested in hanging onto their shares for the long term? Could it be that they thought they could get in and out with Stinger still floating on its cushion of hype?
If so, those hopes were dashed. But at least the outfits that did that December 2004 private placement can look forward to that $145,000 a month. The little guys who bought into this broken dream have endured nothing but pain.
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At the time of publication, Seth Jayson had no position in any company mentioned here. View his stock holdings and Fool profile here. Taser International is a Motley Fool Rule Breakers recommendation. Fool rules are here.
