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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 June 30, 2006
 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 000-51822
 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 o þ
 o þ




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##### 



STINGER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2006
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)
    
    
    1Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005 (audited)
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2006 (unaudited) and June 30, 2005 (unaudited)
    
    
    3Consolidated Statements of Cash Flows for the six months ended June 30, 2006 (unaudited) and June 30, 2005 (unaudited)
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    14ITEM 4. Controls and Procedures
    
    
    14PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    14ITEM 1A. Risk Factors
    
    
    15ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20ITEM 3. Defaults Upon Senior Securities
    
    
    20ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    20ITEM 5. Other Information
    
    
    20ITEM 6. Exhibits
    
    
    20SIGNATURES
    
    
    21INDEX TO EXHIBITS
    
    
    22Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 STINGER SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 ASSETS
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT ASSETSCash
    
    $
    313,791
    
    
    $
    2,408,556Accounts Receivable, net of $1,800
allowance for uncollectible accounts in
2006 and 2005
    
    
    38,353
    
    
    
    32,591Inventories, at cost
    
    
    279,818
    
    
    
    199,765Prepaid Expenses and Other Current Assets
    
    
    458,497
    
    
    
    653,132TOTAL CURRENT ASSETS
    
    
    1,090,459
    
    
    
    3,294,044EQUIPMENT AND FURNITUREEquipment and Furniture, net of
accumulated depreciation of $31,105 and
$14,685 in 2006 and 2005
    
    
    398,097
    
    
    
    353,388OTHER ASSETSIntangible Assets, net of accumulated
amortization of $572,715 and $381,813 in
2006 and 2005
    
    
    2,529,905
    
    
    
    2,720,807Other Assets
    
    
    11,664
    
    
    
    6,711TOTAL OTHER ASSETS
    
    
    2,541,569
    
    
    
    2,727,518TOTAL ASSETS
    
    $
    4,030,125
    
    
    $
    6,374,950
 
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STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT LIABILITIESAccounts Payable
    
    $
    1,159,233
    
    
    $
    542,406Accrued Liabilities
    
    
    64,781
    
    
    
    175,997Insurance Note Payable
    
    
    137,292
    
    
    
    267,635Notes Payable to Related Parties
    
    
    62,500
    
    
    
    62,500TOTAL CURRENT LIABILITIES
    
    
    1,423,806
    
    
    
    1,048,538COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon Stock, $0.001 Par Value, 50,000,000
Shares Authorized, 15,068,500 and 14,993,500
Shares Issued and Outstanding at June 30,
2006 and December 31, 2005, respectively
    
    
    15,069
    
    
    
    14,994Additional
Paid-In Capital
    
    
    25,702,098
    
    
    
    24,227,414Retained Deficit
    
    
    (23,110,848
    )
    
    
    (18,915,996
    )TOTAL STOCKHOLDERS EQUITY
    
    
    2,606,319
    
    
    
    5,326,412TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,030,125
    
    
    $
    6,374,950
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESSales
    
    $
    110,751
    
    
    $
    145,511
    
    
    $
    228,890
    
    
    $
    269,606Cost of Product Sold
    
    
    62,618
    
    
    
    94,527
    
    
    
    135,374
    
    
    
    419,901GROSS MARGIN (LOSS)
    
    
    48,133
    
    
    
    50,984
    
    
    
    93,516
    
    
    
    (150,295
    )SELLING EXPENSES
    
    
    66,404
    
    
    
    107,377
    
    
    
    138,475
    
    
    
    158,077GENERAL AND ADMINISTRATIVE EXPENSESEmployee Salaries
    
    
    246,099
    
    
    
    114,999
    
    
    
    452,149
    
    
    
    310,904Employee Acquisition Cost
    
    
    10,686
    
    
    
    967,818
    
    
    
    10,686
    
    
    
    2,517,818Employee Severance Cost
    
    
    
    
    
    
    (11,333
    )
    
    
    895
    
    
    
    719,346Other
    
    
    1,256,696
    
    
    
    557,040
    
    
    
    3,098,124
    
    
    
    1,188,171Depreciation and Amortization
    
    
    105,732
    
    
    
    100,890
    
    
    
    209,591
    
    
    
    197,305Research and Development
    
    
    194,631
    
    
    
    414,797
    
    
    
    391,438
    
    
    
    467,685TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    1,813,844
    
    
    
    2,144,211
    
    
    
    4,162,883
    
    
    
    5,401,229LOSS FROM OPERATIONS
    
    
    (1,832,115
    )
    
    
    (2,200,604
    )
    
    
    (4,207,842
    )
    
    
    (5,709,601
    )INTEREST INCOME
    
    
    7,432
    
    
    
    35,870
    
    
    
    23,389
    
    
    
    36,627INTEREST EXPENSE
    
    
    (3,965
    )
    
    
    (910
    )
    
    
    (10,399
    )
    
    
    (1,543
    )LOSS BEFORE INCOME TAXES
    
    
    (1,828,648
    )
    
    
    (2,165,644
    )
    
    
    (4,194,852
    )
    
    
    (5,674,517
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (1,828,648
    )
    
    $
    (2,165,644
    )
    
    $
    (4,194,852
    )
    
    $
    (5,674,517
    )BASIC AND DILUTED LOSS PER COMMON
SHARE
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    (0.28
    )
    
    $
    (0.38
    )WEIGHTED AVERAGE NUMBER OF COMMON
SHARESBasic and Diluted
    
    
    15,031,000
    
    
    
    14,998,500
    
    
    
    15,014,929
    
    
    
    15,000,643
 
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Six Months Ended June 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (4,194,852
    )
    
    $
    (5,674,517
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:Employee Acquisition Cost
    
    
    
    
    
    
    1,550,000Depreciation and Amortization
    
    
    209,591
    
    
    
    197,305Stock Option Expense
    
    
    1,307,885
    
    
    
    Stock Issued for Services
    
    
    166,875
    
    
    
    Deferred Compensation Amortization
    
    
    
    
    
    
    967,818Loss on Sale of Asset
    
    
    3,381
    
    
    
    Changes in Operating Assets and LiabilitiesAccounts Receivable
    
    
    (5,762
    )
    
    
    (35,754
    )Inventory
    
    
    (80,053
    )
    
    
    (156,721
    )Inventory Deposits
    
    
    
    
    
    
    139,190Prepaid Expenses
    
    
    505,767
    
    
    
    (156,480
    )Other Assets
    
    
    (11,253
    )
    
    
    (5,577
    )Accounts Payable
    
    
    616,827
    
    
    
    110,504Accrued Liabilities
    
    
    (111,217
    )
    
    
    311,299NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,592,811
    )
    
    
    (2,752,933
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (67,936
    )
    
    
    (93,260
    )Purchase of Patent
    
    
    
    
    
    
    (75,000
    )Proceeds from Sale of Asset
    
    
    1,157
    
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (66,779
    )
    
    
    (168,260
    )CASH FLOWS FROM FINANCING ACTIVITIESRepurchase of Common Stock
    
    
    
    
    
    
    (50,000
    )Payment on Notes Payable
    
    
    (435,175
    )
    
    
    NET CASH USED IN FINANCING ACTIVITIES
    
    
    (435,175
    )
    
    
    (50,000
    )NET DECREASE IN CASH
    
    
    (2,094,765
    )
    
    
    (2,971,193
    )CASH BALANCE, BEGINNING OF PERIOD
    
    
    2,408,556
    
    
    
    9,093,634CASH BALANCE, END OF PERIOD
    
    $
    313,791
    
    
    $
    6,122,441
 
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STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended June 30,2006
    
    
    2005NON-CASH INVESTING AND FINANCING ACTIVITIESAdditional
Paid-In Capital from Deferred Compensation
    
    
    
    
    
    
    1,925,000Deferred Compensation from Stock Issued to an Employee
    
    
    
    
    
    
    (1,925,000
    )Prepaid Insurance
    
    
    (304,832
    )
    
    
    Insurance Note Payable
    
    
    304,832
    
    
    
    $
    
    
    
    $
    SUPPLEMENTAL CASH FLOW DISCLOSURESCash Paid During the Year For:Interest
    
    $
    9,066
    
    
    $
    Taxes
    
    $
    
    
    
    $
    
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STINGER SYSTEMS, INC.
 
 NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 1: BASIS OF PRESENTATION
 ACCOUNTING POLICIES
  Disclosures About Enterprise and
Related Information
 Reclassifications
  Loss per Share
  NOTE 2: USE OF ESTIMATES
  NOTE 3: REVENUE RECOGNITION
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STINGER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 4: INVENTORIES
  June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)Raw Materials and Work-In Progress
    
    $
    212,632
    
    
    $
    175,882Finished Goods
    
    
    67,186
    
    
    
    23,883$
    279,818
    
    
    $
    199,765
 NOTE 5: STOCK BASED COMPENSATION
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STINGER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 5: STOCK BASED COMPENSATION (Continued)
  Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net loss as reported
    
    $
    (2,165,644
    )
    
    $
    (5,674,517
    )Deduct: stock based
compensation costs, Net
of taxes under SFAS 123
    
    
    (90,343
    )
    
    
    (93,093
    )Pro forma net income loss
    
    $
    (2,255,987
    )
    
    $
    (5,767,610
    )
 Three Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2005Per share information:Basic, as reported
    
    $
    (0.14
    )
    
    $
    (0.38
    )Basic, pro forma
    
    $
    (0.15
    )
    
    $
    (0.38
    )Diluted, as reported
    
    $
    (0.14
    )
    
    $
    (0.38
    )Diluted, pro forma
    
    $
    (0.15
    )
    
    $
    (0.38
    )
  Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005Estimated fair value
    
    $
    1.47
    
    
    $
    8.04
    
    
    $
    2.74
    
    
    $
    22.40Expected life (years)
    
    
    2.50
    
    
    
    2.50
    
    
    
    4.64
    
    
    
    4.38Risk free interest rate
    
    
    4.08
    %
    
    
    4.05
    %
    
    
    4.65
    %
    
    
    4.33
    %Volatility
    
    
    116.6
    %
    
    
    178.0
    %
    
    
    136.4
    %
    
    
    126.0
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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STINGER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Legal and Professional Fees
    
    $
    320,782
    
    
    $
    140,244
    
    
    $
    666,404
    
    
    $
    229,892Stock Option Expense
    
    
    276,062
    
    
    
    
    
    
    
    1,307,885
    
    
    
    Stock Issued for Services
    
    
    166,875
    
    
    
    
    
    
    
    166,875
    
    
    
    Insurance Expense
    
    
    322,111
    
    
    
    68,682
    
    
    
    638,640
    
    
    
    127,139Other
    
    
    170,866
    
    
    
    348,114
    
    
    
    318,320
    
    
    
    831,140$
    1,256,696
    
    
    $
    557,040
    
    
    $
    3,098,124
    
    
    $
    1,188,171
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
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Overview
 Executive Summary
 ®
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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.
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Net Loss.
 Liquidity and Capital Resources
    Critical Accounting Policies
  Revenue Recognition
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Warranty Costs
 Intangible Assets
 Purchase Accounting
 Stock Options Accounting for Stock Issued to Employees Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services
 Limited Trading Market
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 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
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ITEM 1A. Risk Factors.
 You should carefully consider the risks and uncertainties described below in addition to the
other information contained in this annual report. If any of the following risks actually occur,
our business, financial condition or operating results could be harmed. In that case, the trading
price of our common stock could decline and investors may lose part or all of your investment. In
the opinion of management, the risks discussed below represent the material risks known to the
company. Additional risks and uncertainties not currently known to us or that we currently deem
immaterial may also impair our business operations and adversely affect the market price of our
common stock.
 We have a history of operating losses and anticipate future operating losses until such time as we
can generate additional sales.
  If we do not obtain additional funding as needed, we may be unable to fund our re-engineering and
production activities and to adequately pursue our business plan.
  Our failure to properly design the Stinger projectile stun gun would have a material adverse effect
on our operations.
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If we fail to convince the market place that we have competitive products, we will not be
commercially successful.
  If third party manufacturers do not perform in a commercially reasonable manner, we may not be
successful.
   Our primary competitor, Taser International Inc., has an established name in the marketplace with
both distributors and the end-users of stun products.
  Negative publicity about less-lethal stun weapons may negatively impact sales of our products.
  The sale and use of our products may result in claims against us.
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We have been sued by Taser International, Inc. which could result in a judgment against us that
could negatively impact our operations.
  We have received a Wells Notice from the SEC .
  Claims by others that our products infringed their patents or other intellectual property rights
could adversely affect our financial condition.
  We may not be able to protect our patent rights, trademarks, and other proprietary rights.
  Law enforcement, correction and military operations are government agencies which are subject to
budgetary constraints, which may inhibit sales.
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There exist some state, local and international regulations and/or prohibitions on less-lethal
weapon systems which will make it more difficult or impossible to market our products in those
jurisdictions thereby limiting potential revenues.
  If we cannot retain or hire qualified personnel, our programs could be delayed.
  Because our common stock is quoted only on the OTC Bulletin Board and the Pink Sheets, your ability
to sell your shares in the secondary trading market may be limited.
  Our stock price has been volatile and your investment in our common stock could suffer a decline in
value.
  
    
    sales of the Stinger projectile stun gun;
    
    announcements of technological innovations or new products by us or our competitors;
    
    government regulatory action affecting our products or our competitors products;
    
    developments or disputes concerning patent or proprietary rights;
    
    actual or anticipated fluctuations in our operating results;
    
    changes in our financial estimates by securities analysts;
    
    broad market fluctuations; and
    
    economic conditions in the United States.
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Trading of our stock may be restricted by the SECs penny stock regulations, which may limit a
stockholders ability to buy and sell our stock.
  NASD sales practice requirements may also limit a stockholders ability to buy and sell our stock.
  Sales of a substantial number of shares of our common stock in the public market could lower our
stock price and impair our ability to raise funds in stock offerings and impair the ability of
stockholders to receive a return on their investment in Stinger Systems.
  Exercise of outstanding options, warrants and convertible securities will dilute existing
shareholders and could decrease the market price of our common stock.
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We likely will issue additional equity securities which will dilute your share ownership.
  Any short selling of our stock could depress the stocks price and have a negative impact on the
investments in us by our stockholders.
  We do not intend to pay any cash dividends on our common stock in the foreseeable future and,
therefore, any return on your investment in our common stock must come from increases in the fair
market value and trading price of our common stock.
  
 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
 Exhibit No.
    
    Description31.1
    
    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 2002.32.2
    
    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: August 14, 2006
    
    /s/ Robert F. GruderRobert F. GruderChief Executive Officer(Principal Executive Officer)Date: August 14, 2006
    
    /s/ David J. MeadorDavid J. MeadorChief Financial Officer(Principal Financial and Accounting Officer)
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Index to Exhibits
 Exhibit No.
    
    Description31.1
    
    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 2002.32.2
    
    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.
 - 22 -