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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, 2007
 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 SEPTEMBER 30, 2007
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)
    
    
    2Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006 (audited)
    
    
    2Consolidated Statements of Operations for the three and nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 (unaudited) and September 30, 2006 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17ITEM 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    18ITEM 1A. Risk Factors
    
    
    19ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24ITEM 3. Defaults Upon Senior Securities
    
    
    25ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    25ITEM 5. Other Information
    
    
    25ITEM 6. Exhibits
    
    
    26SIGNATURES
    
    
    27INDEX TO EXHIBITS
    
    
    28EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFCATION OF THE PAOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE PAO




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 STINGER SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 ASSETS
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)CURRENT ASSETSCash
    
    $
    1,358,536
    
    
    $
    121,047Accounts Receivable, net of $1,800
allowance for uncollectible accounts in
2007 and 2006
    
    
    26,397
    
    
    
    46,978Inventories, at cost
    
    
    236,122
    
    
    
    292,426Prepaid Expenses and Other Current Assets
    
    
    65,923
    
    
    
    41,747TOTAL CURRENT ASSETS
    
    
    1,686,978
    
    
    
    502,198EQUIPMENT AND FURNITUREEquipment and Furniture, net of
accumulated depreciation of $137,442 and
$52,982 in 2007 and 2006
    
    
    405,492
    
    
    
    303,295OTHER ASSETSIntangible Assets, net of accumulated
amortization of $1,049,968 and $763,616
in 2007 and 2006
    
    
    2,052,652
    
    
    
    2,339,004Other Assets
    
    
    11,496
    
    
    
    11,496TOTAL OTHER ASSETS
    
    
    2,064,148
    
    
    
    2,350,500TOTAL ASSETS
    
    $
    4,156,618
    
    
    $
    3,155,993
 
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STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)CURRENT LIABILITIESAccounts Payable
    
    $
    1,064,356
    
    
    $
    1,375,594Accrued Liabilities
    
    
    87,946
    
    
    
    79,341Capital Lease Obligation, current portion
    
    
    21,137
    
    
    
    Note Payable-Related Parties
    
    
    31,250
    
    
    
    962,500TOTAL CURRENT LIABILITIES
    
    
    1,204,689
    
    
    
    2,417,435Capital Lease Obligation, long-term portion
    
    
    81,444
    
    
    
    Note Payable-Convertible, net of debt
discount of $1,766,069
    
    
    1,233,930
    
    
    
    Derivative Liability Associated with Convertible Note and Warrants
    
    
    3,044,029
    
    
    
    TOTAL LIABILITIES
    
    
    5,564,092
    
    
    
    2,417,435COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS
(DEFICIT) EQUITYCommon Stock, $0.001 Par Value, 50,000,000 Shares Authorized,
17,427,171 and 15,068,500 Shares Issued and Outstanding at
September 30, 2007 and December 31, 2006, respectively
    
    
    17,427
    
    
    
    15,069Additional Paid-In Capital
    
    
    30,070,002
    
    
    
    25,945,830Retained Deficit
    
    
    (31,494,903
    )
    
    
    (25,222,341
    )TOTAL
STOCKHOLDERS (DEFICIT) EQUITY
    
    
    (1,407,474
    )
    
    
    738,558TOTAL
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
    
    $
    4,156,618
    
    
    $
    3,155,993
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended September
    
    
    Nine Months Ended September30,
    
    
    30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESSales
    
    $
    47,556
    
    
    $
    109,843
    
    
    $
    245,895
    
    
    $
    338,733Cost of Product Sold
    
    
    48,447
    
    
    
    80,607
    
    
    
    326,070
    
    
    
    215,980GROSS (LOSS) MARGIN
    
    
    (891
    )
    
    
    29,236
    
    
    
    (80,175
    )
    
    
    122,753SELLING EXPENSES
    
    
    64,959
    
    
    
    28,087
    
    
    
    138,355
    
    
    
    166,563GENERAL AND ADMINISTRATIVE
EXPENSESEmployee Salaries
    
    
    319,181
    
    
    
    250,167
    
    
    
    868,900
    
    
    
    702,317Employee Acquisition Cost
    
    
    3,500
    
    
    
    
    
    
    
    5,882
    
    
    
    10,686Employee Severance Cost
    
    
    18,217
    
    
    
    
    
    
    
    18,697
    
    
    
    895Other
    
    
    710,762
    
    
    
    558,520
    
    
    
    1,297,710
    
    
    
    3,656,644Depreciation and Amortization
    
    
    131,679
    
    
    
    126,550
    
    
    
    370,810
    
    
    
    336,141Research and Development
    
    
    56,434
    
    
    
    140,082
    
    
    
    196,863
    
    
    
    531,519TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    1,239,773
    
    
    
    1,075,319
    
    
    
    2,758,862
    
    
    
    5,238,202LOSS FROM OPERATIONS
    
    
    (1,305,623
    )
    
    
    (1,074,170
    )
    
    
    (2,977,392
    )
    
    
    (5,282,012
    )INTEREST INCOME
    
    
    11,151
    
    
    
    1,401
    
    
    
    13,560
    
    
    
    24,790INTEREST EXPENSE
    
    
    (209,195
    )
    
    
    (2,910
    )
    
    
    (264,702
    )
    
    
    (13,309
    )DERIVATIVE LIABILITY EXPENSE
    
    
    (3,044,028
    )
    
    
    
    
    
    
    (3,044,028
    )
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (4,547,695
    )
    
    
    (1,075,679
    )
    
    
    (6,272,562
    )
    
    
    (5,270,531
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (4,547,695
    )
    
    $
    (1,075,679
    )
    
    $
    (6,272,562
    )
    
    $
    (5,270,531
    )BASIC AND DILUTED LOSS PER
COMMON SHARE
    
    $
    (0.27
    )
    
    $
    (0.07
    )
    
    $
    (0.38
    )
    
    $
    (0.35
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARESBasic and Diluted
    
    
    16,938,908
    
    
    
    15,068,500
    
    
    
    16,399,756
    
    
    
    15,031,000
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STINGER SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Nine Months Ended September 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (6,272,562
    )
    
    $
    (5,270,531
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:Depreciation and Amortization
    
    
    370,810
    
    
    
    336,141Stock Option Expense
    
    
    213,572
    
    
    
    1,466,530Stock Issued for Services
    
    
    1,710
    
    
    
    166,875Amortization of Discount on Notes Payable-Convertible
    
    
    162,784
    
    
    
    Derivative Liability Associated with Convertible Note and Warrants
    
    
    3,044,029Dilution Costs
    
    
    384,369
    
    
    
    Loss on Sale of Asset
    
    
    
    
    
    
    3,381Changes in Operating Assets and LiabilitiesAccounts Receivable
    
    
    20,581
    
    
    
    (18,293
    )Inventory
    
    
    56,304
    
    
    
    (206,943
    )Prepaid Expenses
    
    
    (24,176
    )
    
    
    736,804Other Assets
    
    
    
    
    
    
    (4,785
    )Accounts Payable
    
    
    (311,238
    )
    
    
    931,408Accrued Liabilities
    
    
    49,382
    
    
    
    (111,965
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (2,304,434
    )
    
    
    (1,971,378
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (67,871
    )
    
    
    (217,685
    )Proceeds from Sale of Asset
    
    
    
    
    
    
    1,157NET CASH USED IN INVESTING ACTIVITIES
    
    
    (67,871
    )
    
    
    (216,528
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the Sale of Common Stock
    
    
    952,000
    
    
    
    Payments on Capital Lease Obligation
    
    
    (16,206
    )
    
    
    Proceeds from the Issuance of Convertible Notes Payable, Net of $326,000Issuance Costs
    
    
    2,878,000
    
    
    
    353,721Payments on Insurance Notes Payable
    
    
    
    
    
    
    (504,014
    )Retirement of Convertible Note Payable
    
    
    (204,000
    )
    
    
    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    3,609,794
    
    
    
    (150,293
    )NET DECREASE IN CASH
    
    
    1,237,489
    
    
    
    (2,338,199
    )CASH BALANCE, BEGINNING OF PERIOD
    
    
    121,047
    
    
    
    2,408,556CASH BALANCE, END OF PERIOD
    
    $
    1,358,536
    
    
    $
    70,357
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STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended September 30,2007
    
    
    2006NON-CASH INVESTING AND FINANCING ACTIVITIESPurchase of Equipment with Capital Lease
    
    
    (118,784
    )
    
    
    Capital Lease Obligation
    
    
    118,784
    
    
    
    Discount on Issuance of Notes Payable-Convertible
    
    
    (1,602,854
    )
    
    
    Discount on Issuance of Notes Payable-Convertible
    
    
    1,602,854
    
    
    
    Conversion of Interest on Converted Notes Payable to Common Stock
    
    
    (40,777
    )
    
    
    Conversion of Notes Payable to Common Stock
    
    
    (931,250
    )
    
    
    Common Stock Issued for Notes Payable Conversion
    
    
    972
    
    
    
    Paid in Capital for Notes Payable Conversion
    
    
    971,055
    
    
    
    Prepaid Insurance
    
    
    
    
    
    
    (268,797
    )Insurance Note Payable
    
    
    
    
    
    
    268,797Accounts Payable
    
    
    
    
    
    
    (146,279
    )Accounts Payable-Related Parties
    
    
    
    
    
    
    146,279$
    
    
    
    $
    SUPPLEMENTAL CASH FLOW DISCLOSURESCash Paid During the Year For:Interest
    
    $
    8,430
    
    
    $
    9,066Taxes
    
    $
    
    
    
    $
    
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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
  Reclassifications
  Loss per Share
  NOTE 2: USE OF ESTIMATES
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NOTE 3: REVENUE RECOGNITION
  NOTE 4: INVENTORIES
  September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Raw Materials and Work-In Progress
    
    $
    213,623
    
    
    $
    216,865Finished Goods
    
    
    22,499
    
    
    
    75,561$
    236,122
    
    
    $
    292,426
 NOTE 5: STOCK BASED COMPENSATION
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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Estimated fair value
    
    $
    0.60
    
    
    $
    2.74
    
    
    $
    0.82
    
    
    $
    2.74Expected life (years)
    
    
    2.50
    
    
    
    4.64
    
    
    
    2.50
    
    
    
    4.64Risk free interest rate
    
    
    5.01
    %
    
    
    4.65
    %
    
    
    4.68
    %
    
    
    4.65
    %Volatility
    
    
    141.0
    %
    
    
    136.4
    %
    
    
    139.0
    %
    
    
    136.4
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 NOTE 6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Legal and Professional Fees
    
    $
    206,016
    
    
    $
    204,374
    
    
    $
    325,133
    
    
    $
    870,777Stock Option Expense
    
    
    3,326
    
    
    
    158,646
    
    
    
    213,572
    
    
    
    1,466,530Insurance Expense
    
    
    459
    
    
    
    116,387
    
    
    
    11,304
    
    
    
    759,569Dilutive
Issuance Costs Attributed to Warrants
    
    
    384,368
    
    
    
    
    
    
    
    384,368
    
    
    
    Other
    
    
    116,593
    
    
    
    79,113
    
    
    
    363,333
    
    
    
    559,768$
    710,762
    
    
    $
    558,520
    
    
    $
    1,297,710
    
    
    $
    3,656,644
 NOTE 7: CAPITAL LEASE OBLIGATIONS
    NOTE 8: NOTES PAYABLE-RELATED PARTIES
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NOTE 9: CAPITAL STOCK TRANSACTIONS
     10




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NOTE 10: NOTES PAYABLE  CONVERTIBLE
    NOTE 11: LIQUIDITY AND CAPITAL RESOURCES
  11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Executive Summary
  12




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Results of Operations
 Revenues.
 Cost of Goods Sold.
 Gross Margin
 Selling Expenses.
 General and
Administrative Expenses.
 14




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Research and Development Expenses.
 Interest Income.
 Net Loss.
 Liquidity and Capital Resources
   15




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Critical Accounting Policies
  Revenue Recognition
 Warranty Costs
 Intangible Assets
 Purchase Accounting
 Stock Options Accounting for Stock Issued to Employees
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Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services
 Embedded
Derivatives
 Limited
Trading Market
 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
   17




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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
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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
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
    
    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.
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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 Principal Financial and
Accounting 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 Principal Financial and
Accounting 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: November 14, 2007
    /s/ Robert F. GruderRobert F. GruderChief Executive Officer
(Principal Executive Officer) Date: November 14, 2007
    /s/ Brian S. GannonBrian S. GannonFinancial Controller
(Principal Financial and Accounting Officer) 27