There's one born every minute. The easily fooled investor, the kind who acts quickly, without much thought to what will happen down the road.
That's the best explanation I can see for the near-100% pop in share price at Stinger Systems (OTC BB: STIY.OB) yesterday. It all followed a press release in which Stinger CEO Robert Gruder spun a tale that looks designed to deceive. TASER International (NASDAQ:TASR) is after our technology, the release seems to say, so it must be really valuable.
The reality seems much more mundane. TASER -- whose previous dodgy press releases I've been equally quick to condemn -- nevertheless explains the issue better. There's patent litigation between the two, and TASER says it has agreed to an order so that it can evaluate Stinger's product for potential patent infringement. In other words, this looks like plain old legal discovery.
But that's not enough for Stinger, which dropped yet another press release today, trying to suggest (via a context-free quotation of an opinion from another case) that TASER's actions are "Highly Suspect."
To my mind, Stinger's the highly suspicious one. I don't know who has the upper hand in any patent dispute, but we're clearly looking at a company that's still desperate for attention -- perhaps, I submit, because its filings show it to be desperate for cash. (One way to get that cash: Create some buzz into which you can sell shares.)
You need look no further than Stinger's latest 10-Q. There's not a lot of cash on the balance sheet ($126,000), but the company has more than $1 million in accounts payable. Stinger continues to burn plenty more green, as shown on the cash flow statement. In fact, it torched more than $800,000 last quarter.
So how does it pay the bills? Look again at the cash flow statement. There's your huckleberry: "Proceeds from the Sale of Common Stock," in the amount of $850,000.
Outside of press releases, even Stinger tells you that it doesn't make enough money to keep the company running. Just review note 10 to the financial statements, where management says:
To date, revenues recognized from its current products have not been sufficient for the Company to achieve or sustain profitability. The Company believes it is unlikely that its existing cash resources will be sufficient to fund its operations for 2007 at its planned levels of research, development, sales, and marketing activities. Thus, execution of its current strategies will require it to raise additional capital through debt or equity transactions in order to finance its operations through 2007. The Company believes that additional financing may be available to it, but there can be no guarantee that financing will be available on acceptable terms or at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of or eliminate its research and development programs, reduce its commercialization efforts, or effect changes to its facilities or personnel, and its ability to operate as a going concern may be adversely affected.
Stinger may have a few more products to try to sell (and issue press releases about) than it did when it was trading as high as $46 a share. But for potential outside investors, little else seems to have changed since I first began documenting the firm's numerous financial and managerial failings. TASER is an entrenched competitor with a long history and a good relationship with law enforcement offices worldwide. This is TASER's battle to lose. Bet on a money-burning also-ran, and you're likely to get seriously zapped.
At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. TASER International is a Motley Fool Rule Breakers recommendation. Fool rules are here.
