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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, 2008
 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
    
    30-0296398(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)2701 N. Rocky Point Drive, Suite 1130Tampa, Florida
    
    33607(Address of principal executive offices)
    
    (Zip Code)
 (813) 281-1061
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting Company þ
 o þ




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##### 



STINGER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED June 30, 2008
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007 (audited)
    
    
    4Consolidated Statements of Operations for the three months and six months ended June 30,
2008 (unaudited) and June 30, 2007 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the six months ended June 30,
2008 (unaudited) and June 30, 2007 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15ITEM 4. Controls and Procedures
    
    
    15PART II  OTHER INFORMATION
    
    
    16ITEM 1. Legal Proceedings
    
    
    16ITEM 1A. Risk Factors
    
    
    16ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20ITEM 3. Defaults Upon Senior Securities
    
    
    21ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    21ITEM 5. Other Information
    
    
    21ITEM 6. Exhibits
    
    
    22SIGNATURES
    
    
    23INDEX TO EXHIBITS
    
    
    24EX-31.1 SECTION 302 CERTIFICATION OF THE PEOEX-31.2 SECTION 302 CERTIFICATION OF THE PFOEX-32.1 SECTION 906 CERTIFICATION OF THE PEOEX-32.2 SECTION 906 CERTIFICATION OF THE PFO
  2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 STINGER SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
ASSETS
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)CURRENT ASSETSCash
    
    $
    1,828
    
    
    $
    345,293Accounts Receivable, net of $1,800 allowance for uncollectible accounts in 2008 and 2007
    
    
    99,154
    
    
    
    81,201Inventories, at cost
    
    
    242,971
    
    
    
    128,841Prepaid Expenses and Other Current Assets
    
    
    219,861
    
    
    
    35,149TOTAL CURRENT ASSETS
    
    
    563,814
    
    
    
    590,484EQUIPMENT AND FURNITUREEquipment and Furniture, net of accumulated depreciation of $177,942 and $126,414 in 2008 and
2007
    
    
    237,293
    
    
    
    276,590OTHER ASSETSIntangible Assets, net of accumulated amortization of $1,336,320 and $1,145,419 in 2008 and 2007
    
    
    1,336,299
    
    
    
    1,527,201Prepaid Interest (long term)
    
    
    410,023
    
    
    
    Other Assets
    
    
    11,496
    
    
    
    11,496TOTAL OTHER ASSETS
    
    
    1,757,818
    
    
    
    1,538,697TOTAL ASSETS
    
    $
    2,558,925
    
    
    $
    2,405,771
 
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STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)CURRENT LIABILITIESAccounts Payable
    
    $
    612,042
    
    
    $
    393,842Accrued Liabilities
    
    
    126,663
    
    
    
    124,846Capital Lease Obligation, current portion
    
    
    22,566
    
    
    
    21,445Note Payable-Related Parties
    
    
    31,250
    
    
    
    31,250TOTAL CURRENT LIABILITIES
    
    
    792,521
    
    
    
    571,383Capital Lease Obligation, long-term portion
    
    
    64,335
    
    
    
    77,739Note Payable-Convertible, net of debt discount of $3,618,480
    
    
    1,272,720
    
    
    
    1,339,763Derivative Liability Associated with Convertible Note and Warrants
    
    
    4,584,000
    
    
    
    3,660,000TOTAL LIABILITIES
    
    
    6,713,576
    
    
    
    5,648,885COMMITMENTS AND CONTINGENCIES
   
    
    
    
    
    
    STOCKHOLDERS (DEFICIT)Common Stock, $0.001 Par Value, 50,000,000 Shares Authorized,
20,004,230 and 17,527,171 Shares Issued and Outstanding at June
30, 2008 and December 31, 2007, respectively
    
    
    20,004
    
    
    
    17,527Additional Paid-In Capital
    
    
    38,098,600
    
    
    
    30,309,985Retained Deficit
    
    
    (42,273,255
    )
    
    
    (33,570,626
    )TOTAL STOCKHOLDERS (DEFICIT)
    
    
    (4,154,651
    )
    
    
    (3,243,114
    )TOTAL LIABILITIES AND STOCKHOLDERS (DEFICIT)
    
    $
    2,558,925
    
    
    $
    2,405,771
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUESSales
    
    $
    215,403
    
    
    $
    102,170
    
    
    $
    397,960
    
    
    $
    198,339Cost of Product Sold
    
    
    237,546
    
    
    
    179,572
    
    
    
    429,462
    
    
    
    277,624GROSS (LOSS) MARGIN
    
    
    (22,143
    )
    
    
    (77,402
    )
    
    
    (31,502
    )
    
    
    (79,285
    )SELLING EXPENSES
    
    
    133,500
    
    
    
    32,671
    
    
    
    290,455
    
    
    
    73,397GENERAL AND ADMINISTRATIVE
EXPENSESEmployee Salaries
    
    
    286,853
    
    
    
    252,809
    
    
    
    574,773
    
    
    
    549,718Employee Acquisition Cost
    
    
    
    
    
    
    1,238
    
    
    
    6,000
    
    
    
    2,382Employee Severance Cost
    
    
    1,875
    
    
    
    
    
    
    
    1,875
    
    
    
    480Other
    
    
    1,002,285
    
    
    
    252,138
    
    
    
    2,979,522
    
    
    
    586,946Depreciation and Amortization
    
    
    121,612
    
    
    
    131,658
    
    
    
    242,429
    
    
    
    239,132Research and Development
    
    
    61,139
    
    
    
    23,961
    
    
    
    131,234
    
    
    
    140,429TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    1,473,764
    
    
    
    661,804
    
    
    
    3,935,833
    
    
    
    1,519,087LOSS FROM OPERATIONS
    
    
    (1,629,407
    )
    
    
    (771,877
    )
    
    
    (4,257,790
    )
    
    
    (1,671,769
    )INTEREST INCOME
    
    
    1,308
    
    
    
    595
    
    
    
    3,932
    
    
    
    2,409INTEREST EXPENSE
    
    
    (204,083
    )
    
    
    (31,951
    )
    
    
    (394,771
    )
    
    
    (55,507
    )DERIVATIVE LIABILITY EXPENSE
    
    
    (644,000
    )
    
    
    
    
    
    
    (4,054,000
    )
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (2,476,182
    )
    
    
    (803,233
    )
    
    
    (8,702,629
    )
    
    
    (1,724,867
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,476,182
    )
    
    $
    (803,233
    )
    
    $
    (8,702,629
    )
    
    $
    (1,724,867
    )BASIC AND DILUTED LOSS PER
COMMON SHARE
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.45
    )
    
    $
    (0.11
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARESBasic and Diluted
    
    
    19,956,730
    
    
    
    16,372,144
    
    
    
    19,330,262
    
    
    
    16,099,153
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (8,702,629
    )
    
    $
    (1,724,867
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:Depreciation and Amortization
    
    
    242,430
    
    
    
    239,132Stock Option Expense
    
    
    2,308,591
    
    
    
    210,246Stock Issued for Services
    
    
    
    
    
    
    Amortization of Discount on Notes Payable-Convertible
    
    
    252,957
    
    
    
    6,281Derivative Liability Associated with Convertible Note and Warrants
    
    
    
    
    
    
    4,054,000Changes in Operating Assets and LiabilitiesAccounts Receivable
    
    
    (17,953
    )
    
    
    19,762Inventory
    
    
    (114,130
    )
    
    
    43,938Prepaid Expenses
    
    
    47,040
    
    
    
    4,020Accounts Payable
    
    
    218,200
    
    
    
    (64,189
    )Accrued Liabilities
    
    
    1,817
    
    
    
    44,237NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,709,677
    )
    
    
    (1,221,440
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (12,230
    )
    
    
    (37,038
    )Proceeds from Sale of Asset
    
    
    
    
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (12,230
    )
    
    
    (37,038
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the Sale of Common Stock
    
    
    
    
    
    
    952,000Payments on Capital Lease Obligation
    
    
    (12,283
    )
    
    
    (5,089
    )Proceeds from the Issuance of Convertible Notes Payable, Net of $117,500Issuance Costs and $641,775 prepaid interest
    
    
    1,390,725
    
    
    
    204,000NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    1,378,442
    
    
    
    1,150,911NET DECREASE IN CASH
    
    
    (343,465
    )
    
    
    (107,567
    )CASH BALANCE, BEGINNING OF PERIOD
    
    
    345,293
    
    
    
    121,047CASH BALANCE, END OF PERIOD
    
    $
    1,828
    
    
    $
    13,480NON-CASH INVESTING AND FINANCING ACTIVITIESPurchase of Equipment with Capital Lease
    
    
    
    
    
    
    (28,307
    )Capital Lease Obligation
    
    
    
    
    
    
    28,307Discount on Issuance of Notes PayableConvertible
    
    
    
    
    
    
    (102,000
    )Discount on Issuance of Notes PayableConvertible
    
    
    
    
    
    
    102,000Conversion of Notes Payable to Common Stock
    
    
    (320,000
    )
    
    
    Common Stock Issued for Notes Payable Conversion
    
    
    1,052
    
    
    
    Paid in Capital for Notes Payable Conversion
    
    
    318,948
    
    
    
    Derivative Liability
    
    
    (3,130,000
    )
    
    
    Paid-in-capital
    
    
    3,130,000
    
    
    
    Deferred Debt Discount
    
    
    (2,032,500
    )
    
    
    Common stock
    
    
    1,350
    
    
    
    Paid-in-capital
    
    
    2,031,150
    
    
    
    $
    
    
    
    $
    SUPPLEMENTAL CASH FLOW DISCLOSURESCash Paid During the Year For:Interest
    
    $
    124,783
    
    
    $
    896Taxes
    
    $
    
    
    
    $
    
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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
 Embedded Derivatives
   Embedded Derivative Liability, December 31, 2007
    
    $
    3,660,000Adjustment of Liability due to amended August 3, 2007 Note
    
    
    (3,130,000
    )Embedded Derivative Liability Expense, June 30, 2008
    
    
    4,054,000Ending Balance, June 30, 2008
    
    $
    4,584,000
 Reclassifications
  Loss per Share
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NOTE 2: USE OF ESTIMATES
  NOTE 3: REVENUE RECOGNITION
  NOTE 4: INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)Raw Materials and Work-In Progress
    
    $
    198,371
    
    
    $
    99,853Finished Goods
    
    
    44,600
    
    
    
    28,988$
    242,971
    
    
    $
    128,841
 NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS
  June 30,2008(Unaudited)Interest
    
    $
    160,444Product Deposits
    
    
    41,252Legal Deposits
    
    
    17,500Other Deposits
    
    
    665$
    219,861
 NOTE 6: STOCK BASED COMPENSATION
    8




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Estimated fair value
    
    $
    0.68
    
    
    $
    0.60
    
    
    $
    1.03
    
    
    $
    0.82Expected life (years)
    
    
    0.90
    
    
    
    2.50
    
    
    
    2.50
    
    
    
    2.50Risk free interest rate
    
    
    3.51
    %
    
    
    5.01
    %
    
    
    3.51
    %
    
    
    4.68
    %Volatility
    
    
    132.05
    %
    
    
    141.0
    %
    
    
    149.98
    %
    
    
    139.0
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 NOTE 7: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Legal and Professional Fees
    
    $
    102,637
    
    
    $
    34,172
    
    
    $
    221,752
    
    
    $
    119,117Stock Option Expense
    
    
    702,274
    
    
    
    83,139
    
    
    
    2,308,591
    
    
    
    210,246Insurance Expense
    
    
    43,885
    
    
    
    
    
    
    
    97,054
    
    
    
    Other
    
    
    153,489
    
    
    
    134,827
    
    
    
    352,125
    
    
    
    257,583$
    1,002,285
    
    
    $
    252,138
    
    
    $
    2,979,522
    
    
    $
    586,946
 NOTE 8: CAPITAL LEASE OBLIGATIONS
    NOTE 9: NOTES PAYABLE  CONVERTIBLE
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NOTE 10: LIQUIDITY AND CAPITAL RESOURCES
  10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Executive Summary
     11




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Results of Operations
 Revenues.
 Cost of Goods Sold.
 Gross
Margin
 Selling Expenses.
 General and Administrative Expenses.
 Research
and Development Expenses.
 Interest Income.
 Interest Expense.
 12




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Net
Loss.
 Liquidity and Capital Resources
    Critical Accounting Policies
    13




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14




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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 ITEM 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  15




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PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
   
 ITEM 1A. RISK FACTORS
 Investing in our common stock involves a high degree of risk. You should carefully consider
the risks and uncertainties described below in addition to the other information contained in this
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 their 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 engineering,
marketing 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.
  16




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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.
  We have been sued by Taser International, Inc. which could result in a judgment against us that
could negatively impact our operations.
  We have been the subject of SEC Enforcement action
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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.
  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.
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
    
    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.
  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.
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Exercise of outstanding options, warrants and convertible securities will dilute existing
shareholders and could decrease the market price of our common stock.
   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.
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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.
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ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    
    Section 302 Certification of the Principal Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    
    Section 302 Certification of the Principal Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    
    Section 906 Certification of the Principal 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 Principal Financial Officer pursuant to U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 22




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SIGNATURES
  STINGER SYSTEMS, INC.
(Registrant)Date: August 19, 2008
    /s/ Robert F. GruderRobert F. GruderPresident and Chairman of the Board
of Directors
(Principal Executive Officer)Date: August 19, 2008
    /s/ Brian S. GannonBrian S. GannonFinancial Controller
(Principal Financial Officer) 23




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Index to Exhibits
 Exhibit No.
    
    Description31.1
    
    
    Section 302 Certification of the Principal Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934.31.2
    
    
    Section 302 Certification of the Principal Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934.32.1
    
    
    Section 906 Certification of the Principal 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 Principal Financial Officer
pursuant to U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 24