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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 March 31, 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
    
    33607
(Zip Code)(Address of principal executive offices)
 (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 MARCH 31, 2006
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONITEM 1. Financial Statements (unaudited)Consolidated Balance Sheets as of March 31, 2006 (unaudited) and March 31, 2005 (audited)
    
    
    1Consolidated Statements of Operations for the three months ended March 31, 2006 (unaudited) and March 31, 2005 (unaudited)
    
    
    3Consolidated Statements of Cash Flows for the three months ended March 31, 2006 (unaudited) and March 31, 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
    
    
    15ITEM 1A. Risk Factors
    
    
    16ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    22ITEM 3. Defaults Upon Senior Securities.
    
    
    22ITEM 4. Submission of Matters to a Vote of Security Holders.
    
    
    22ITEM 5. Other Information.
    
    
    22ITEM 6. Exhibits
    
    
    22SIGNATURES
    
    
    23INDEX TO EXHIBITS
    
    
    24Ex-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
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT ASSETSCash
    
    $
    1,109,130
    
    
    $
    2,408,556Accounts Receivable, net of $1,800 allowance for uncollectible accounts in 2006 and 2005
    
    
    50,124
    
    
    
    32,591Inventories, at cost
    
    
    189,313
    
    
    
    199,765Prepaid Expenses and Other Current Assets
    
    
    754,231
    
    
    
    653,132TOTAL CURRENT ASSETS
    
    
    2,102,798
    
    
    
    3,294,044EQUIPMENT AND FURNITUREEquipment and Furniture, net of accumulated depreciation of $23,092 and $14,685 in 2006 and 2005
    
    
    358,760
    
    
    
    353,388OTHER ASSETSIntangible Assets, net of accumulated amortization of $477,264 and $381,813 in 2006 and 2005
    
    
    2,625,356
    
    
    
    2,720,807Other Assets
    
    
    6,711
    
    
    
    6,711TOTAL OTHER ASSETS
    
    
    2,632,067
    
    
    
    2,727,518TOTAL ASSETS
    
    $
    5,093,625
    
    
    $
    6,374,950
 
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STINGER
SYSTEMS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 LIABILITIES AND STOCKHOLDERS EQUITY
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT LIABILITIESAccounts Payable
    
    $
    729,336
    
    
    $
    542,406Accrued Liabilities
    
    
    71,406
    
    
    
    175,997Insurance Note Payable
    
    
    238,352
    
    
    
    267,635Notes Payable to Related Parties
    
    
    62,500
    
    
    
    62,500TOTAL CURRENT LIABILITIES
    
    
    1,101,594
    
    
    
    1,048,538COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon Stock, $0.001 Par Value, 50,000,000 Shares
Authorized, 14,993,500 Shares Issued and Outstanding
at March 31, 2006 and December 31, 2005, respectively
    
    
    14,994
    
    
    
    14,994Additional Paid-In-Capital
    
    
    25,259,236
    
    
    
    24,227,414Retained Deficit
    
    
    (21,282,199
    )
    
    
    (18,915,996
    )TOTAL STOCKHOLDERS EQUITY
    
    
    3,992,031
    
    
    
    5,326,412TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    5,093,625
    
    
    $
    6,374,950
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STINGER
SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended March 31,2006
    
    
    2005REVENUESSales
    
    $
    118,138
    
    
    $
    124,095Cost of Product Sold
    
    
    72,755
    
    
    
    325,374GROSS MARGIN (LOSS)
    
    
    45,383
    
    
    
    (201,279
    )SELLING EXPENSES
    
    
    72,071
    
    
    
    50,700GENERAL AND ADMINISTRATIVE EXPENSESEmployee Salaries
    
    
    206,051
    
    
    
    195,905Employee Acquisition Cost
    
    
    
    
    
    
    1,550,000Employee Severance Cost
    
    
    
    
    
    
    730,679Other
    
    
    1,842,323
    
    
    
    631,131Depreciation and Amortization
    
    
    103,858
    
    
    
    96,415Research and Development
    
    
    196,806
    
    
    
    52,888TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    2,349,038
    
    
    
    3,257,018LOSS FROM OPERATIONS
    
    
    (2,375,726
    )
    
    
    (3,508,997
    )INTEREST INCOME
    
    
    15,958
    
    
    
    757INTEREST EXPENSE
    
    
    (6,435
    )
    
    
    (633
    )LOSS BEFORE INCOME TAXES
    
    
    (2,366,203
    )
    
    
    (3,508,873
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,366,203
    )
    
    $
    (3,508,873
    )BASIC AND DILUTED LOSS PER
COMMON SHARE
    
    $
    (0.16
    )
    
    $
    (0.23
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARESBasic and Diluted
    
    
    14,993,500
    
    
    
    15,003,500
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STINGER
SYSTEMS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three Months Ended March 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (2,366,203
    )
    
    $
    (3,508,873
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:Employee Acquisition Cost
    
    
    
    
    
    
    1,550,000Depreciation and Amortization
    
    
    103,858
    
    
    
    96,415Stock Option Expense
    
    
    1,031,822
    
    
    
    Deferred Compensation Amortization
    
    
    
    
    
    
    10,635Changes in Operating Assets and LiabilitiesAccounts Receivable
    
    
    (17,533
    )
    
    
    (46,327
    )Inventory
    
    
    10,452
    
    
    
    (121,086
    )Inventory Deposits
    
    
    
    
    
    
    139,190Prepaid Expenses
    
    
    203,733
    
    
    
    (259,247
    )Other Assets
    
    
    
    
    
    
    84Accounts Payable
    
    
    186,930
    
    
    
    85,057Accrued Liabilities
    
    
    (104,591
    )
    
    
    450,621NET CASH USED IN OPERATING ACTIVITIES
    
    
    (951,532
    )
    
    
    (1,603,531
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (13,779
    )
    
    
    (56,438
    )Purchase of Patent
    
    
    
    
    
    
    (75,000
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (13,779
    )
    
    
    (131,438
    )CASH FLOWS FROM FINANCING ACTIVITIESPayment on Notes Payable
    
    
    (334,115
    )
    
    
    NET CASH USED IN FINANCING ACTIVITIES
    
    
    (334,115
    )
    
    
    NET DECREASE IN CASH
    
    
    (1,299,426
    )
    
    
    (1,734,969
    )CASH BALANCE, BEGINNING OF PERIOD
    
    
    2,408,556
    
    
    
    9,093,634CASH BALANCE, END OF PERIOD
    
    $
    1,109,130
    
    
    $
    7,358,665
 
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STINGER
SYSTEMS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
 Three Months Ended March 31,2006
    
    
    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
    
    $
    5,775
    
    
    $
    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
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STINGER SYSTEMS, INC.
 NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 2: USE OF ESTIMATES
  NOTE 3: REVENUE RECOGNITION
  NOTE 4: INVENTORIES
  March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)Raw Materials and Work-In Progress
    
    $
    169,057
    
    
    $
    175,882Finished Goods
    
    
    20,256
    
    
    
    23,883$
    189,313
    
    
    $
    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 EndedMarch 31, 2005Net loss as reported
    
    $
    (3,508,873
    )Deduct: stock based compensation costs,
Net of taxes under SFAS 123
    
    
    (2,750
    )Pro forma net income loss
    
    $
    (3,511,623
    )
 Three Months EndedMarch 31, 2005Per share information:Basic, as reported
    
    $
    (0.23
    )Basic, pro forma
    
    
    (0.23
    )Diluted, as reported
    
    
    (0.23
    )Diluted, pro forma
    
    
    (0.23
    )
  Three Months Ended March 31,2006
    
    
    2005Estimated fair value
    
    $
    2.95
    
    
    $
    31.05Expected life (years)
    
    
    2.50
    
    
    
    1.25Risk free interest rate
    
    
    4.75
    %
    
    
    4.50
    %Volatility
    
    
    140.0
    %
    
    
    95.0
    %Dividend yield
    
    
    
    
    
    
    
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STINGER SYSTEMS, INC.
 NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE 6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  Three Months Ended March 31,2006
    
    
    2005Legal and Professional Fees
    
    $
    345,623
    
    
    $
    89,648Stock Option Expense
    
    
    1,031,822
    
    
    
    Insurance Expense
    
    
    316,528
    
    
    
    58,457Other
    
    
    148,350
    
    
    
    483,026$
    1,842,323
    
    
    $
    631,131
 
 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.
 Net
Loss.
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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 Stock-Based Compensation Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services
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Limited Trading Market.
 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
   
 ITEM 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
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(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.
  If we fail to convince the market place that we have competitive products, we will not be
commercially successful.
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If third party manufacturers do not perform in a commercially reasonable manner, Stinger Systems
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.
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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 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.
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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.
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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.
  Trading of our stock may be restricted by the Securities and Exchange Commissions penny stock
regulations, which may limit a stockholders ability to buy and sell our stock.
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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.
  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 Stinger Systems by our stockholders.
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We do not intend to pay any cash dividends on 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: May 15, 2006
    
    /s/ Robert F. GruderRobert F. GruderChief Executive Officer(Principal Executive Officer)Date: May 15, 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.