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United States Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
    to
 Commission
File Number 333-122583
 STINGER SYSTEMS, INC.
  NEVADA
(State or other jurisdiction
of incorporation or organization)
    
    30-0296398
(I.R.S. Employer
Identification Number)
 2701 N. Rocky Point Drive, Suite 1130
Tampa, Florida
(Address of principal executive offices)
    
    33607
(Zip Code)
 (813) 281-1061
 þ o
 o þ
 o þ




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##### 



STINGER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)Consolidated
Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Consolidated
Statements of Operations for the three and nine months ended September 30, 2005 and 2004
    
    
    5Consolidated
Statements of Cash Flows for the nine months ended September 30, 2005 and 2004
    
    
    6Notes
to Consolidated Financial Statements
    
    
    8ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10ITEM
3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    13ITEM 4. Controls and Procedures
    
    
    13PART II  OTHER INFORMATION
    
    
    13ITEM 1. Legal Proceedings
    
    
    13ITEM
1A. Risk Factors
    
    
    14ITEM 6. Exhibits
    
    
    14SIGNATURES
    
    
    15INDEX TO EXHIBITS
    
    
    16EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification
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STINGER SYSTEMS, INC
 
 CONSOLIDATED BALANCE SHEETS
 PART I
 FINANCIAL INFORMATION
ITEM 1.   Financial Statements
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCURRENT ASSETSCash
    
    $
    4,124,733
    
    
    $
    9,093,634Accounts Receivable,
net of $1,800 allowance for uncollectible accounts in
2004 and 2005
    
    
    33,406
    
    
    
    20,773Inventories, at cost
    
    
    178,783
    
    
    
    78,162Inventory Purchase Deposits
    
    
    
    
    
    
    139,190Prepaid Expenses
    
    
    945,307
    
    
    
    2,474TOTAL CURRENT ASSETS
    
    
    5,282,229
    
    
    
    9,334,233EQUIPMENT AND FURNITUREEquipment and Furniture,
net of accumulated depreciation
of $8,160 and $404 in 2005 and 2004
    
    
    306,991
    
    
    
    105,764OTHER ASSETSIntangible Assets, net of $291,720 accumulated
amortization in 2005
    
    
    2,810,900
    
    
    
    3,102,620Other Assets
    
    
    6,872
    
    
    
    1,294TOTAL OTHER ASSETS
    
    
    2,817,772
    
    
    
    3,103,914TOTAL ASSETS
    
    $
    8,406,992
    
    
    $
    12,543,911
 
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STINGER SYSTEMS, INC
 CONSOLIDATED BALANCE SHEETS
 LIABILITIES AND STOCKHOLDERS EQUITY
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)CURRENT LIABILITIESNotes Payable to Related Parties
    
    $
    62,500
    
    
    $
    62,500Accounts Payable
    
    
    283,848
    
    
    
    2,552Note Payable to Insurance Company
    
    
    531,287
    
    
    
    Accrued Liabilities
    
    
    778,207
    
    
    
    491,918TOTAL CURRENT LIABILITIES
    
    
    1,655,842
    
    
    
    556,970COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    Redeemable Common Stock; 75,000 shares issued,
redemption value $1,387,500
    
    
    1,387,500
    
    
    
    1,387,500STOCKHOLDERS EQUITYCommon Stock, $0.001 Par Value, 50,000,000 Shares
Authorized, 14,918,500 and 14,928,500 Shares
Issued and Outstanding at September 30, 2005
and December 31, 2004, respectively
    
    
    14,919
    
    
    
    14,929Additional Paid-In-Capital
    
    
    22,839,989
    
    
    
    19,414,979Accumulated Deficit
    
    
    (17,491,258
    )
    
    
    (8,830,467
    )TOTAL STOCKHOLDERS EQUITY
    
    
    5,363,650
    
    
    
    10,599,441TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    8,406,992
    
    
    $
    12,543,911
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STINGER SYSTEMS, INC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004REVENUESSales
    
    $
    126,601
    
    
    $
    54,975
    
    
    $
    396,207
    
    
    $
    198,981Cost of Product Sold
    
    
    157,297
    
    
    
    48,946
    
    
    
    577,198
    
    
    
    144,122GROSS MARGIN (LOSS)
    
    
    (30,696
    )
    
    
    6,029
    
    
    
    (180,991
    )
    
    
    54,859SELLING EXPENSES
    
    
    104,195
    
    
    
    
    
    
    
    262,272
    
    
    
    GENERAL AND ADMINISTRATIVE EXPENSESEmployee Salaries
    
    
    285,980
    
    
    
    15,165
    
    
    
    596,884
    
    
    
    57,011Employee Acquisition Cost
    
    
    957,182
    
    
    
    
    
    
    
    3,475,000
    
    
    
    Employee Severance Cost
    
    
    
    
    
    
    
    
    
    
    719,346
    
    
    
    Other
    
    
    965,796
    
    
    
    23,233
    
    
    
    2,153,967
    
    
    
    165,136Depreciation and Amortization
    
    
    102,171
    
    
    
    6,840
    
    
    
    299,476
    
    
    
    20,520Research and Development
    
    
    571,659
    
    
    
    2,602
    
    
    
    1,039,344
    
    
    
    4,662TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    2,882,788
    
    
    
    47,840
    
    
    
    8,284,017
    
    
    
    247,329LOSS FROM OPERATIONS
    
    
    (3,017,679
    )
    
    
    (41,811
    )
    
    
    (8,727,280
    )
    
    
    (192,470
    )INTEREST INCOME
    
    
    35,164
    
    
    
    
    
    
    
    71,791
    
    
    
    INTEREST EXPENSE
    
    
    (3,759
    )
    
    
    (17,172
    )
    
    
    (5,302
    )
    
    
    (38,462
    )LOSS BEFORE INCOME TAXES
    
    
    (2,986,274
    )
    
    
    (58,983
    )
    
    
    (8,660,791
    )
    
    
    (230,932
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,986,274
    )
    
    $
    (58,983
    )
    
    $
    (8,660,791
    )
    
    $
    (230,932
    )BASIC AND DILUTED LOSS PER
COMMON SHARE
    
    $
    (0.20
    )
    
    $
    (0.01
    )
    
    $
    (0.58
    )
    
    $
    (0.02
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARESBasic and Diluted
    
    
    14,993,500
    
    
    
    10,750,000
    
    
    
    14,998,500
    
    
    
    10,750,000
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STINGER SYSTEMS, INC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended September 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (8,660,791
    )
    
    $
    (230,932
    )Adjustments to Reconcile Net Loss to Net Cash
Used by Operating ActivitiesDepreciation and Amortization
    
    
    299,476
    
    
    
    20,520Stock Issued for Services
    
    
    1,550,000
    
    
    
    Deferred Compensation Amortization
    
    
    1,925,000
    
    
    
    Changes in Operating Assets and LiabilitiesPrepaid Expenses
    
    
    (60,476
    )
    
    
    24,520Accounts Receivable
    
    
    (12,633
    )
    
    
    16,967Inventory
    
    
    (100,621
    )
    
    
    Inventory Deposits
    
    
    139,190
    
    
    
    Other Assets
    
    
    (5,578
    )
    
    
    Accounts Payable
    
    
    281,296
    
    
    
    (56,999
    )Accrued Liabilities
    
    
    361,289
    
    
    
    NET CASH
USED IN
OPERATING ACTIVITIES
    
    
    (4,283,848
    )
    
    
    (225,924
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (208,983
    )
    
    
    Purchase of Patent
    
    
    (75,000
    )
    
    
    NET CASH
USED IN
INVESTING ACTIVITIES
    
    
    (283,983
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIESPayment on Notes Payable
    
    
    (351,070
    )
    
    
    (3,023
    )Proceeds from Owner
    
    
    
    
    
    
    213,971Repurchase of Common Stock
    
    
    (50,000
    )
    
    
    NET CASH
(USED IN) PROVIDED BY
FINANCING ACTIVITIES
    
    
    (401,070
    )
    
    
    210,948NET DECREASE IN CASH
    
    
    (4,968,901
    )
    
    
    (14,976
    )CASH BALANCE, BEGINNING OF PERIOD
    
    
    9,093,634
    
    
    
    14,976CASH BALANCE, END OF PERIOD
    
    $
    4,124,733
    
    
    $
    
 
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STINGER SYSTEMS, INC
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
 Nine Months Ended September 30,2005
    
    2004NON-CASH INVESTING AND FINANCING ACTIVITIESAdditional Paid-In-Capital from Deferred Compensation
    
    
    1,925,000
    
    
    
    Deferred Compensation from Stock Issued to an Employee
    
    
    (1,925,000
    )
    
    
    Prepaid Insurance
    
    
    (882,357
    )
    
    
    (7,680
    )Insurance Note Payable
    
    
    882,357
    
    
    
    7,680SUPPLEMENTAL CASH FLOW DISCLOSURESCash Paid During the Year for Interest
    
    $
    3,360
    
    
    $
    36,452
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STINGER SYSTEMS, INC.
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 1: BASIS OF PRESENTATION
 ACCOUNTING POLICIES
   Disclosures About Enterprise and
Related Information
 Recent Accounting Pronouncements
  Reclassifications
  Loss per Share
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STINGER SYSTEMS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 2: USE OF ESTIMATES
  NOTE 3: REVENUE RECOGNITION
  NOTE
4: INVENTORIES
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Raw Materials and Work-In Progress
    
    $
    174,751
    
    
    $
    41,300Ammunition
    
    
    
    
    
    
    18,968Finished Goods
    
    
    4,032
    
    
    
    17,894$
    178,783
    
    
    $
    78,162
 NOTE 5: STOCK
BASED COMPENSATION
 Share-Based Payment,
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    

2004
    
    
    2005
    
    
    2004Net loss as reported
    
    $
    (2,986,274
    )
    
    $
    (58,983
    )
    
    $
    (8,660,791
    )
    
    $
    (230,932
    )Deduct: stock based compensation costs,
Net of taxes under SFAS 123
    
    
    (90,255
    )
    
    
    
    
    
    
    (181,533
    )
    
    
    Pro forma net income loss
    
    $
    (3,076,529
    )
    
    $
    (58,983
    )
    
    $
    (8,842,324
    )
    
    $
    (230,932
    )Per share information:Basic, as reported
    
    $
    (0.20
    )
    
    $
    (0.01
    )
    
    $
    (0.58
    )
    
    $
    (0.02
    )Basic, pro forma
    
    
    (0.21
    )
    
    
    (0.01
    )
    
    
    (0.59
    )
    
    
    (0.02
    )Diluted, as reported
    
    
    (0.20
    )
    
    
    (0.01
    )
    
    
    (0.58
    )
    
    
    (0.02
    )Diluted, pro forma
    
    
    (0.21
    )
    
    
    (0.01
    )
    
    
    (0.59
    )
    
    
    (0.02
    )
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Estimated fair value
    
    $
    2.74
    
    
    $
    
    
    
    $
    3.44
    
    
    $
    Expected life (years)
    
    
    2.5
    
    
    
    
    
    
    
    2.5
    
    
    
    Risk free interest rate
    
    
    4.25
    %
    
    
    
    
    
    
    4.34
    %
    
    
    Volatility
    
    
    93
    %
    
    
    
    
    
    
    95
    %
    
    
    Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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NOTE
6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Legal fees
    
    $
    139,960
    
    
    $
    17,545
    
    
    $
    369,852
    
    
    $
    50,921Liquidated
damages to investors
    
    
    542,640
    
    
    
    
    
    
    
    833,114
    
    
    
    Insurance
expense
    
    
    152,241
    
    
    
    
    
    
    
    279,380
    
    
    
    5,572Other
    
    
    130,955
    
    
    
    5,688
    
    
    
    671,621
    
    
    
    108,643$
    965,796
    
    
    $
    23,233
    
    
    $
    2,153,967
    
    
    $
    165,136
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Overview
    10




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Results of Operations
 Revenues.
 Cost of Goods Sold.
 Gross Margin.
 Selling Expenses, and General and Administrative Expenses.
 Research and Development Expenses.
 Interest Income.
 Net Loss.
 11




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Liquidity and Capital Resources
         12




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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Not Applicable
 
 ITEM 4. Controls and Procedures
 (a)
Evaluation of Disclosure Controls and Procedures
 (b)
Changes in Internal Controls Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
 Taser International,
Inc. v. Stinger Systems, Inc. and Robert F. Gruder
 13




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ITEM
1A. Risk Factors. Not applicable.
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable.
 ITEM 3. Defaults Upon Senior Securities. Not applicable.
 ITEM 4. Submission of Matters to a Vote of Security Holders. Not applicable.
 ITEM 5. Other Information. Not applicable.
 
 ITEM 6. EXHIBITS
 31.1
    
    Section 302 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Section 302 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Section 906 Certification of the Chief Executive Officer pursuant to
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Section 906 Certification of the Chief Financial Officer pursuant to
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES
  STINGER SYSTEMS, INC.(Registrant)Date: December 29, 2005
    
    /s/ Robert F. GruderRobert F. GruderChief Executive Officer(Duly Authorized Officer andPrincipal Executive Officer)
 Date: December 29, 2005
    
    /s/ David J. MeadorDavid J. MeadorChief Financial Officer(Principal Financial and Accounting Officer)
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Index
to Exhibits
  31.1
    
    Section 302 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Section 302 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Section 906 Certification of the Chief Executive Officer pursuant to
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Section 906 Certification of the Chief Financial Officer pursuant to
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 16