- Annual Report (10-K)

Position

Robert F. Gruder

President and Chairman of the Board

Brian S. Gannon

Financial Controller

Andrew P. Helene

Wells Van Pelt

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2008		Commission File Number 000-51822

STINGER SYSTEMS, INC.

(Exact name of registrant)


Nevada		30-0296398
(State or other jurisdiction		(I.R.S. employer identification number)
of incorporation or organization)

5505 Johns Road, Suite 702
Tampa, Florida 33634
(address of principal executive offices and zip code)

(813) 281-1061
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split completedon January 17, 2009. The aggregate market value of voting and non-voting Common stock held by non-affiliates of the registrant computed based on the price last sold, or the average bid and asked price of such equity as of June 30, 2008 was $5.5 million.*

As of March 14, 2009, there were 4,001,832 shares of our Common Stock outstanding.

*As reported on the OTC Bulletin Board. Excludes 1,973,001 shares of common stock deemed to be held by officers and directors and stockholders whose ownership exceeds five percent of the shares outstanding at June 30, 2008. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

DOCUMENTS INCORPORATED BY REFERENCE
NONE

TABLE OF CONTENTS


Item	Description	Page
	PART I		1
1	Business		1
1A	Risk Factors		9
1B	Unresolved Staff Comments		13
2	Properties		13
3	Legal Proceedings		14
4	Submission of Matters to a Vote of Security Holders		14

	PART II		15
5	Market for the Registrant’s Common Equity, Related Stockholders Matters and Issuer Repurchases of Equity Securities		15
6	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
7	Quantitative and Qualitative Disclosures about Market Risk		23
8	Financial Statements and Supplementary Data		23
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		23
9A	Controls and Procedures		23
9B	Other Information		24

	PART III		24
10	Directors, Executive Officers and Corporate Governance		24
11	Executive Compensation		27
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		30
13	Certain Relationships and Related Transactions and Director Independence		31
14	Principal Accountant Fees and Services		32

	PART IV		33
15	Exhibits and Financial Statement Schedules		33
	Signatures		36
	Exhibit Index
EX-31.1
EX-31.2
EX-32.1
EX-32.2

- i -

PART I

ITEM 1. BUSINESS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933 that involve risks and uncertainties. In some cases, forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and similar expressions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. All of these forward-looking statements are based on information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere. We urge you to review and consider the various disclosures made by us in this report, and those detailed from time to time in our filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect our future results. All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split completed on January 17, 2009.

Overview

Stinger Systems is in the business of producing and marketing less-than-lethal electro-stun products to law enforcement, correctional facilities, professional security and military sectors. Stinger Systems’ products include the Ice-Shield electronic immobilization riot shield and the Band-It / REACT system, an electronic immobilizing restraint. Stinger Systems’ primary focus is the S-200 AT projectile stun gun. Stinger’s success is largely dependent upon the commercialization of its S-200 AT projectile stun gun.

Stinger Systems, Inc. is a Nevada corporation organized on July 2, 1996. Our principal executive offices are located at 5505 Johns Road, Suite 702, Tampa, FL 33634. The telephone number of our principal executive offices is (813) 281-1061. Our Internet address is www.stingersystems.com. Our common stock is currently quoted on the OTC Bulletin Board under the symbol “STYS.OB.”

Our Business

Stinger Systems is engaged in the manufacture of electronic stun devices for the control of, and to provide temporary immobilization of, potentially dangerous persons. Stinger Systems produces a variety of control products including Ice Shield, an electrified riot shield, Band-It/REACT system, a remote controlled or movement controlled electrified wrap used for controlling potentially dangerous detainees in public situations or during transport and the S-200 AT projectile stun gun. The products of Stinger Systems are classified under the SIC code 3489. Following is a list of entities that use to some extent one or more of Stinger Systems’ products:


	1/1/08- 12/31/08
	Sales %
State Departments of Corrections		21	%
Police Departments		22	%
US Marshals		6	%
County Law Enforcement Agencies		21	%
Distributors and Other		30	%

Substantially all of the sales were made to the law enforcement and correctional sectors. While Stinger Systems markets its projectile stun weapon broadly to the police, correctional, professional security and military sectors, our success will be heavily dependent on a positive reception by the law enforcement community.

- 1 -

In 2004, new senior management was implemented. The Company developed a four dart projectile stun device based on technology the new management inherited. The four dart model was known as the S-400. Although we believe many of the features of the S-400 were desirable to the law enforcement community, ultimately the size of the S-400 prevented it from gaining large market acceptance.

During marketing efforts of the S-400, the Company surveyed the marketplace to determine what feature benefits the law enforcement community wanted to see in an Electronic Immobilization Device (EID). When the Company believed it had acquired enough information, it set out to design an EID from the beginning. In order to compete effectively, the Company believed that the new EID named the S-200 would have to have features not yet seen by the Company’s primary competitor. The Company developed what it believed to be such a product by late 2006. However, like most initial products brought to market, the Company found that the basic design and features of the S-200 were sound but made modifications internally to improve the guns performance. The Company believes that models from late 2007 on are very competitive. The Company will continually develop its products to strive to create the best available EID products available.

In October 2007, the Company increased its sales force to aggressively sell against its competitor. While the Company will continue to sell the Band-It and Ice Shield products, the success of the Company rests solely on the success of the Stinger S-200 product line.

Because the Stinger product line utilizes primers to propel its darts, the Stinger product line is classified as a firearm under the Gun Control Act of 1968 (GCA), 18 U.S.C. Section 921(a) (3). Therefore, only companies that carry Federal Firearms Licenses can sell the Stinger projectile stun weapons.

The Company’s success will be dependent upon its ability to grow sales organically through its own sales force and to attract high quality distributors and manufacturer’s representatives to market its products. To date, the Company has been able to attract distributors and manufacturer’s representative groups with a solid track record selling firearms to the law enforcement, correctional, and/or military community. As these contracts do not require minimum order quantities, the Company is unable to provide forecasts as to the number of products it anticipates selling.

The Company also intends to sell the Stinger product line internationally. The Company continues to obtain all the necessary export licenses to sell its products internationally. The Company can give no assurances that international sales will be successful. Additional costs associated with international sales are negligible and are mainly attributable to processing costs, financial institution charges, and fees to obtain export licensing.

Our Products

Stinger S-200 AT Two Dart Projectile Stun Guns

The Stinger S-200™ is a two-dart electronic immobilization device (EID). Stinger surveyed many individuals from the law enforcement community to create, what it believes is, a state-of-the-art product that incorporated useful strategic features yet feels and looks like a tactical weapon.

Features include an ambidextrous button to release the cartridge. This allows an officer to quickly reload without putting their hand in front of a live weapon. Other features include off-the-shelf batteries, a programmable trigger firing sequence, and a recessed bolt safety. Other features that were on an officer’s “wish list” include a recessed cartridge so they would be protected from accidental dislodgement, a fight, or from vibration from motorcycles. Size was vital, so Stinger Systems™, made sure that the barrel height of the S-200™ was roughly equivalent to competing products. The feature-full, safety-conscious product also comes with a one year guarantee and is priced significantly less than similar stun guns.

- 2 -

Ice-Shield Electronic Immobilization Riot Shield

The ICE Shield™ is an electrified riot shield designed to provide added protection for police, corrections and military personnel in hazardous crowd control situations. The product is currently in use by numerous organizations including the New York City DOC and Riker’s Island.

Utilizing Stinger Systems’™ electronic incapacitation technology, the shields are constructed of ¹ / 4 ” polycarbonate Lexan ^® and feature 9 sparking display points on the front to provide a visible deterrent. The power shield can be used as a traditional riot shield, or the operator can simply push a switch on the shield’s handles to activate a less-lethal, immobilizing contact-shock. Applications to date have centered on hazardous crowd control, civil disturbances, prison disturbances and forced cell entries.

When activated, the generated pulses of electricity into the subject’s neuromuscular system and temporarily interrupt voluntary muscle control. An application interrupts the tiny neurological impulses that normally travel through the body to control and direct voluntary muscle movement.

The ICE Shield™ is available in either standard (20” x 36”) or Full Body/Institutional (24” x 48”) sizes, as well as in both Convex and Concave styles. This product is currently priced at $575 and $595, respectively.

Band-It / The R-E-A-C-T System, an Immobilizing Electronic Restraint

The Band-It™ (Remote Electronically Activated Control Technology (REACT)) has been used on tens of thousands of prisoners nationwide by local law enforcement agencies and federal agencies including the Federal Bureau of Prisons and the U.S. Marshals. The Band-It™ serves as a deterrent and is designed for the safe, effective movement of inmates by providing the greatest security available without the use of potential lethal force.

The Band-It™ is a prisoner restraint system that is comprised of a universal sleeve which is placed either on a prisoner’s leg or arm and an RF transmitter is held by a law enforcement official. If a prisoner tries to flee, the sheriff or bailiff can remotely activate the Band-It up to 150 feet away. Electrical impulses are then disbursed on the prisoner incapacitating his or her muscles.

The Band-It™ is powered by a rechargeable battery pack which is capable of being recharged up to 500 times. The Band-It™ is made of rugged material which may be worn over or under clothing and will not interfere with a prisoner’s ability to sit or write. Features include a remotely activated alarm on the Band-It™ warning the prisoner to comply before activation is necessary. The Band-It™ also contains a mechanical tether cord which is fixed in place while a prisoner is seated. If the prisoner tries to flee, the cord is detached from the unit and the Band-It™ will be activated. The ultimate performance of an electronic incapacitation device (EID) is dependent on the ability of the device to affect the electrical system of the body. To achieve this, the distance between contact probes becomes a critical factor. The shorter the distance between the probes, the less the impact on the body’s system. The Band-It™ stun package was designed with a 2.5” or more to permit more contact area upon the subject.

When the activator switch is depressed, electricity flows into muscular tissue of the suspect at a predetermined pulse rate frequency. This typically temporarily incapacitates the subject’s muscles allowing security personnel to contain the situation.

The Band-It™ may be worn in eight (8) places on the body over or under clothing. This device maintains 100% contact with the skin or clothing without having to constantly tighten it. The Band-It™ may be triggered either manually by the remote or automatically if the subject/suspect tries to get up and deactivates the tether. This product is currently priced at $925.

- 3 -

Patents and Patent Applications Owned by Stinger Systems

(Refer to Intangible Assets section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section for additional information)

Stun Gun Cartridge with Electrical Primer


Title:		Cartridge for a Projectile Stun Gun
Serial No.:		11/690,072
Filing Date:		03-22-2007
Status:		Patent Pending
Subject:		The cartridge includes a housing defining an exterior surface; a dart assembly including a barb adapted to temporarily attach to a target, a wire having a first end fastened to the barb and a second end coupled to the exterior surface of the housing, and a propellant adapted to propel the barb; and an electrical primer adapted to ignite the propellant. The removable cartridge has been specifically designed for a projectile stun gun and, even more specifically, to be easily attached to and removed from a projectile stun gun.

Electric Disabling Device with Controlled Immobilizing Pulse Widths

Title:		Stun Gun
Patent Application
Kind Code:		20080278882
Filing Date:		10 May 2007
Status:		Patent Pending
Subject:		A capacitive discharge stun-gun uses a flyback output circuit in which a semiconductor switch operates under control of a controller or suitable logic circuitry. The flyback circuit can deliver 50-65 kV pulses to a pair of electrodes in order to ionize air adjacent a target in order to initiate good electrical contact. When the electrodes are in good contact with the target, the flyback circuit delivers current at a lower voltage. In one mode of operation the stun-gun is controlled to initially deliver wider pulses optimized for causing air breakdown and to then deliver a series of shorter pulses in pulse groups optimized for causing involuntary muscle cramping.

Title:		Weapon With Illuminator And Camera
Serial No.:		11/012,541
Filing Date:		14 December 2004
Status:		Patent Pending (4 months to first Office Action)
Subject:		The system includes a weapon, an illuminator, a camera to record information, a memory device to store recorded information, and a security device to inhibit unauthorized tampering of the recorded information.

- 4 -

Manual Trigger with Indicating and Disabling features


Title:		Stun gun with low battery indicator and shutoff timer
Patent No.:		5,193,048
Issue Date:		March 9, 1993
Serial No.:		07/516,120
Filing Date:		April 27, 1990
Status:		Issued (12 ^th year maintenance fee paid)
Subject:		In one embodiment, the electrical shock device includes a housing containing a power supply and an electronic circuit, a trigger means on the housing for selectively connecting the power supply to the electric circuit when in a first position, and a low power source indicating means for indicating the trigger means operated in the first position for a first predetermined time period. In another embodiment, the electrical shock device includes a housing containing a power supply and an electronic circuit, a trigger means on the housing for selectively connecting the power supply to the electronic circuit when in a first position, a means for disabling the electronic circuit when the trigger means is continuously operated in said first position for a first predetermined time period.

Quadrashock ^TM dart arrangement

Title:		Stun Gun
Serial No.:		10/957,301
Filing Date:		30 September 2004
Status:		Patent Pending (Response to Non Final Office Action Mailed)
Subject:		The stun gun of one embodiment includes: a first dart coupled to a tether and positioned to be propelled along a first trajectory, a second dart coupled to a tether and positioned to be propelled along a second trajectory divergent to the first trajectory, and a third dart coupled to a tether and positioned to be propelled along a third trajectory substantially parallel to the first trajectory. The stun gun also includes a power source having opposing charges and an activation circuit. The activation circuit is adapted to selectively connect one of the opposing charges to the first dart and connect the other of the opposing charges to the second and third darts.

Ultron® II hand held contact stun device

Title:		Electronic Restraint Weapon
Patent No.:		Design 323,870
Issue Date:		February 11, 1992
Serial No.:		07/367,500
Filing Date:		June 16, 1989
Status:		Issued
Subject:		The ornamental design for the Ultron® II hand held stun device.

- 5 -

Patents and Patent Applications Licensed by Stinger Systems

Quadrashock ^TM dart arrangement


Title:		Method and apparatus for implementing a two projectile electrical discharge weapon
Patent No.:		6,575,073
Issue Date:		June 10, 2003
Serial No.:		09/569,431
Filing Date:		May 12, 2000
Status:		Issued (4 ^th year maintenance fee due by 06/11/2007)
Subject:		An electrical discharge weapon that selectively propels wire-tethered electrode darts toward a live target for imparting an electrical shock. The weapon includes a receiver and two ammunition chambers spaced apart. Each chamber has electrodes for activating propulsion of a tethered dart. The ammunition chambers being formed in a portion detachable from the receiver.

Band-It ^TM restraint

Title:		Remotely activated electrical discharge restraint device using biceps’ flexion of the leg to restrain
Patent No.:		5,841,622
Issue Date:		November 24, 1998
Serial No.:		09/018,268
Filing Date:		February 4, 1998
Status:		Patent Expired Due to Non-payment of Maintenance Fees — Revival of the patent is being considered
Subject:		A remotely activated electrical discharge restraint device configured for attachment to a human body. The device includes: an electrical circuit for generating a selected high voltage signal; a housing for containing the circuit and attaching the circuit to a human body; a first contact connected to the circuit and available exterior of the housing for contacting a first location on a human body; and a second contact connected to the circuit and available exterior of the housing for contacting a second location on a human body. The respective positions of and spacing between the first and second locations being selected to induce involuntary flexing contractions of the biceps of both legs upon transfer of the signal to the human body.

- 6 -

Description of the Patent Process

The patent process is commenced by filing a patent application with the U.S. Patent and Trademark Office (“USPTO”). If the USPTO determines that the patent application has included the required parts (such as a government filing fee), the USPTO mails an Official Filing Receipt and places the patent application in their examination queue (sometimes more than two years long).

At the top of the queue, the USPTO examines the patent application, searches for disclosures on similar inventions, and issues either a rejection or an allowance. Most patent applications are initially rejected. The applicant is given time to amend and argue the scope of the protection on the invention with the USPTO. This period can often take more than one year.

If and when the USPTO and the applicant reach an agreement on the claim scope, the USPTO issues a patent. Before the issuance of a patent, the applicant has no patent rights in the claimed invention. After the issuance of a patent, the applicant has the right to exclude others from making, using, selling, and importing the claimed invention in the United States for a period of twenty years from the filing of the patent application.

Utility patents must be maintained by filing maintenance fees with the USPTO at certain intervals. A utility patent will expire for failure to pay such maintenance fees, but may be revived within a certain period by filing a petition and fee.

Marketing and Competition

Stinger Systems markets its products primarily to the law enforcement, correctional, professional security and military sectors. Orders are received from both end-users and from authorized representatives and distributors. Stinger Systems’ marketing strategy is to engage the services of manufacturing representatives and distributors that specialize in Stinger Systems’ industry. The Company has contracted with distributors and representative groups across the United States as well as several foreign countries. Typically, the distributors that stock Stinger Systems’ products will receive an 18% commission. Stinger Systems employs a number of inside and outside sales associates to coordinate sales activates with the distributors as well as present directly to our end customers when necessary.

Stinger Systems is not aware of any companies with meaningful market share offering products that compete with its Ice Shield or Band-IT products. The Company has no reliable data on market share for any of these products. Therefore, the Company has no significant marketing plans for this product and only provides it as an additional offering for our customers.

Stinger System’s primary competitor in the projectile stun gun market is Taser International, Inc., a publicly held corporation that is substantially larger and has a history of successfully accessing capital markets. Taser is the dominant firm in the projectile stun gun industry.

The Company believes the Stinger product line projectile stun guns offer many advantages over the X-26 and M-26 model projectile stun guns produced by Taser International, Inc., but can make no assurance of their validity. See the product overview for a more detailed description of the Company’s products.

- 7 -

Government Regulation

The Stinger product line projectile stun guns uses primer charges to propel the dart wire system to the target. The use of primer as a propellant classifies the Stinger S-200 as a firearm and as such, the manufacture, distribution and sale of the gun, is regulated by the Bureau of Alcohol, Tobacco and Firearms (ATF). Some states, cities, and municipalities have outlawed the use of stun guns either entirely or in part. It is not clear which regulations will affect Stinger Systems’ product as it will be treated as a firearm. Since the Stinger projectile stun gun is considered a firearm by the ATF, it must be manufactured in a secure environment at an ATF approved site, serial numbered, documented appropriately, and shipped in accordance with all applicable regulations.

Stinger Systems employs a designated individual for the Stinger product line projectile stun gun to meet ATF requirements by coordinating production reviews and maintaining shipping and tracking logs. We anticipate the added production costs associated with meeting ATF regulations to be negligible per gun. We do not expect any material costs to be burdened by the Company associated with regulatory compliance for product shipping.

Research and Development

Stinger Systems spent approximately $245,080 in research and development during the twelve months ended December 31, 2008. Several studies have been undertaken to determine the optimum electronics for the Stinger product line projectile stun gun as well as maximizing the effectiveness of the contact arc. We anticipate ongoing studies of electrical designs for the existing weapons, as well as future generation releases.

History

Stinger Systems was organized under the laws of the State of Nevada under the name United Consulting Corporation on July 2, 1996. United Consulting Corporation was formed for the purpose of developing business after developing a business plan, United Consulting Corporation intended to provide business consulting services to the management of the company for the purpose of executing the business plan. The business plan development and subsequent business management consulting services were not limited to any particular industry. United Consulting Corporation attempted to establish its own business plan but ultimately failed and never succeeded in conducting viable business operations. Accordingly, not long after its formation, United Consulting Corporation existed only as a dormant corporation. At the time of its acquisition of Electronic Defense Technologies, LLC, it was dormant and was engaged in the business of seeking out a business combination with an operating company. It changed its name to Stinger Systems, Inc. on September 27, 2004. Stinger Systems has never been in bankruptcy, receivership or any similar proceeding. Prior to the acquisition of Electronic Defense Technology, LLC by Stinger Systems, there was no relationship between the officers and directors of Stinger Systems, EDT Acquisition, LLC and Electronic Defense Technology, LLC.

On September 24, 2004, EDT Acquisition LLC, a Michigan limited liability company owned and formed by Robert Gruder and T. Yates Exley, for the sole purpose of acquiring a controlling interest in Electronic Defense Technology, LLC, (“EDT”), acquired a 95% interest in EDT, an Ohio limited liability company. EDT was formed in January of 2000 as a single member LLC for the purpose of manufacturing and marketing electronic restraint products to the law enforcement and correctional sectors. EDT developed several products to serve these sectors. EDT Sales included Powertron (now called Stinger), Band-It, Shield, Ultron II and training manuals. However, it continued to incur operating losses through the date it was acquired by EDT Acquisition, LLC in September of 2004. The business purpose for the acquisition of EDT was to accelerate the Company’s entrance into the electronic restraint market and acquire technology and patents necessary for the Stinger projectile stun gun business. The interest was acquired in exchange for $250,000 in cash and a $200,000 note payable on or before March 24, 2006 from EDT Acquisition, LLC. The 95% interest in Electronic Defense Technologies, LLC together with the remaining 5% interest in the same company was then transferred on the same day to Stinger Systems in exchange for the issuance by Stinger Systems of 1,950,000 shares of Stinger Systems’ common stock. In connection with the transaction, 2,000,000 shares of Stinger Systems, as adjusted to reflect a 1-for 5 reverse stock split completed on January 17, 2009, that had been issued and outstanding previously was returned to Stinger Systems for cancellation. This transaction transferred control of Stinger Systems to Robert Gruder and T. Yates Exley. Mr. Gruder is Chairman of the Board of Directors and President of Stinger Systems. Mr. Exley resigned from the Board on August 28, 2008. Mr. Gruder’s portion of the shares of Stinger Systems formerly held in EDT Acquisition, LLC have been distributed by EDT Acquisition, LLC and are held by him directly.

EDT was formed in January 2000 to manufacture and market less-lethal electronic restraint products to the law enforcement, correction and professional security sectors. Its principal products included a hand held stun weapon, an electric riot shield and an electric wrap used to control potentially dangerous persons/prisoners during transport or in court rooms. From January 2000 to the acquisition, EDT did final assembly of these products and sold them to the law enforcement, corrections and professional security sectors. In early 2003, EDT began development of a projectile stun gun and developed models of the gun for study and testing. The first sales of the projectile stun gun occurred in 2004.

- 8 -

ITEM 1.A. 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 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.

Since beginning operations in September 2004, we have sustained substantial operating losses. At the present time, we do not generate sufficient revenues to support our operating expenses. We expect to have ongoing costs associated with the process of developing and commercializing the Company’s products, including significant research and development, engineering, testing, significant marketing and sales efforts, and manufacturing capabilities. These activities, together with the Company’s general and administrative expenses, require significant investments and are expected to continue to result in operating losses for the foreseeable future while the Company introduces its Stinger product line to the marketplace. If adequate funds are not available to fund these activities, the Company may be required to delay, reduce the scope of or eliminate its research and development programs, reduce its commercialization efforts, or effect changes to its facilities or personnel, and its ability to operate as a going concern may be adversely impacted.

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 business plan requires significant ongoing expenditures for product engineering, testing and marketing of our products. It is likely that we will need additional outside funding sources in the future to continue the production and the promotion of our products. If we are not successful in obtaining additional funding for operations, if and when needed, we may have to discontinue some or all of our business activities and our stockholders might lose all of their investment.

Our failure to properly design the Stinger projectile stun gun would have a material adverse effect on our operations.

We will be devoting our capital and management efforts to the design, production and marketing of the Stinger S-200 EID. There is no assurance that our current design will meet our targeted specifications and tolerances, or that we will be able to manufacture the Stinger EID on a timely basis at a competitive price. Additionally, both the original mold for the Stinger stun gun and the mold for the ammunition needed to be redesigned to provide better fit and allow for mass production on an economical basis. Any failure to timely resolve these issues will delay the rollout of the Stinger EID. Failure to introduce the Stinger EID on a timely basis would have a material adverse effect on us and investors could lose their entire investment.

If we fail to convince the market place that we have competitive products, we will not be commercially successful.

Even if we are successful in designing products competitive to those of our competitors, it will be necessary for us to educate and convince the market place of that competitiveness. If we are unable to do so, we will not be able to achieve the market penetration necessary to become commercially successful and our investors may lose their investments.

If third party manufacturers do not perform in a commercially reasonable manner, we may not be successful.

We rely primarily on third parties to manufacture our products. We do not have long-term supply contracts with these third party manufacturers and instead work on an order-by-order basis. By not having long-term supply contracts, we run the risk that our current suppliers will opt to discontinue their relationship with us thereby interrupting the flow of products and significantly limiting our ability to operate our business. If alternative third party manufacturers could not be located in a timely manner, we would go out of business and investors would lose their entire investment. We own all of the rights, drawings, and intellectual property regarding schematics of the electronics of our products. Circuit board manufacturing and transformer winding companies are a common business throughout the world. We continually are examining alternative sourcing and may have multiple suppliers providing transformers and circuit boards when economies of scale merit such sourcing. We do not anticipate any business interruption if any of our suppliers could no longer supply or work with us on our terms.

- 9 -

Our primary competitor, Taser International Inc., has an established name in the marketplace with both distributors and the end-users of stun products.

Taser International, Inc. is the dominant player in our industry. Taser has been able to successfully launch its products, and penetrate the marketplace. While we hope to design a product that is competitive with those offered by Taser, there is no assurance that we will be able to do so or that we will be able to successfully market such products if we are successful in designing them. Unless we are able to persuade distributors or manufacturer’s representatives and end-users of the competitiveness of our products, we will be unable to generate sufficient sales of our products to become viable. Further, Taser already has contracts with a number of distributors and end-users, who may be unwilling or unable to distribute or purchase our products, respectively.

Negative publicity about less-than-lethal stun weapons may negatively impact sales of our products.

There have been a number of negative articles about the use and abuse of less-than-lethal weapons by law enforcement and correctional officers. There have also been accusations that stun guns have caused the deaths of subjects who have been stunned. The safety of such less-than-lethal weapons has become a matter of some controversy and continued negative publicity about the use of less-than-lethal stun devices may negatively impact the sale of our products.

The sale and use of our products may result in claims against us.

As noted above, the use of stun weapons has been associated with injuries, some serious and permanent, including death. While we are attempting to design the Stinger projectile stun gun to diminish the risk of injury, there can be no assurance that injuries will not occur from the use of the product. Such injuries could result in claims against us. Although we intend to maintain liability insurance for our products, there can be no assurance that the coverage limits of our insurance policies will be adequate. Claims brought against us, whether fully covered by insurance or not, will likely have a material adverse effect upon us.

We have been sued by Taser International, Inc. which could result in a judgment against us that could negatively impact our operations.

On January 9, 2007, Taser International, Inc. filed a complaint against Stinger Systems, Inc. that alleges patent infringement, false advertising, and patent false marking in its case, Taser International, Inc. v. Stinger Systems, Inc., in United States District Court for the District of Arizona, Case CV-07-0042-PHX-DGC. Discovery in this case closed on October 17, 2008, but Taser is seeking to reopen discovery. The Markman hearing has concluded, and the Court ruled on claims constructions for US patents 7,234,262, 6,999 295 and 7,102, 870 on February 2, 2009. Parties bearing the burden of proof must serve expert disclosures by April 3, 2009 (60 days after the Markman ruling). Rebuttal expert disclosures are due by May 3, 2009 (90 days after the Markman ruling). Expert depositions must be completed by June 17, 2009 (135 days after the Markman ruling). Dispositive Motions must be filed by August 1, 2009 (190 days after the Markman ruling). Upon resolution of all dispositive motions, the Court will set a pretrial status hearing to set the dates for the Pretrial Order, Motions in Limine, the Pretrial Conference and a firm Trial date. The Court’s full Rule 16 Scheduling Order order dated May 2, 2007 is available on line at PACER, the official web site of the U.S. Courts. All dates are subject to modification. The case is also seeking an unspecified amount of punitive damages. Absent modification or other unexpected event, the Company will incur no legal fees for its defense in this case as the Company’s attorney has agreed upon entry of appearance to act as its attorney in the case without fee. An adverse outcome in this action may have a material adverse effect on our business and results of operations.

We have been the subject of SEC Enforcement action

On May 1, 2008, the Company consented to the entry of the final judgment without admitting or denying any of the allegations of the Commission’s complaint. The Company was enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The charges in the complaint against Mr. Gruder have not been settled and a judgment adverse to Mr. Gruder could jeopardize our business operations and exhaust the Company’s cash reserve, which may result in investors losing their entire investment.

- 10 -

Claims by others that our products infringed their patents or other intellectual property rights could adversely affect our financial condition.

Any claim of patent or other proprietary right infringement brought against us would be time consuming to defend and would likely result in costly litigation, diverting the time and attention of our management. Moreover, an adverse determination in a judicial or administrative proceeding could prevent us from developing, manufacturing and/or selling some of our products, which could harm our business, financial condition and operating results. Claims against our patents may cost us significant expenses to defend and if our patents are not upheld, we may not be able to continue operations and investors may lose their entire investment.

We may not be able to protect our patent rights, trademarks, and other proprietary rights.

We believe that our patent rights, trademarks, and other proprietary rights are important to our success and our competitive position. While we have patents and licenses with respect to certain of our products, there is no assurance that they are adequate to protect our proprietary rights. Accordingly, we plan to devote substantial resources to the establishment and maintenance of these rights. However, the actions taken by us may be inadequate to prevent others from infringing upon our rights which could compromise any competitive position we may develop in the marketplace.

Law enforcement, correction and military operations are government agencies which are subject to budgetary constraints, which may inhibit sales.

Government agencies are generally subject to budgets which limit the amount of money that they can spend on weapons procurement. It may be that although a government agency is interested in acquiring our products, it will be unable to purchase our products because of budgetary constraints. Further, the lead time for an agency acquiring new weapons and receiving approval to acquire them may delay sales to such agencies. Any such delay will have an adverse effect upon our revenues.

There exist some state, local and international regulations and/or prohibitions on less-than-lethal weapon systems which will make it more difficult or impossible to market our products in those jurisdictions thereby limiting potential revenues.

Some states prohibit the sale of less-than-lethal weapon systems. Additional negative publicity with respect to less-than-lethal weapon systems may cause other jurisdictions to ban or restrict the sale of our products. Internationally, there are some countries which restrict and/or prohibit the sale of less-than-lethal weapon systems. Further, the export of our less-than-lethal weapon systems is regulated. Export licenses must be obtained from the Department of Commerce for all shipments to foreign countries. To the extent that states, local governments or other countries impose restrictions or prohibitions on the sale and use of our products or to the extent we are unable to obtain export licenses for the sales of our weapons to international customers, our sales could be materially adversely impacted.

If we cannot retain or hire qualified personnel, our programs could be delayed.

Our business is a technical and highly specialized area of the firearms industry. We are dependent on the principal members of the management and technical staff. The loss of key employees could disrupt our research and development and product promotion activities. We believe that our future success will depend in large part upon our ability to attract and retain highly skilled, scientific and managerial personnel. We face intense competition for these kinds of personnel from other companies and organizations. We might not be successful in hiring or retaining the personnel needed for our company to be successful.

- 11 -

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 common stock is traded only on the OTC Bulletin Board and the Pink Sheets. Consequently, the liquidity of our common stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any, of our company. As a result, prices for shares of our common stock may be different than might otherwise prevail if our common stock was quoted or traded on a national securities exchange such as the New York Stock Exchange, NASDAQ or the American Stock Exchange.

Our stock price has been volatile and your investment in our common stock could suffer a decline in value.

Our common stock is quoted for trading only on the OTC Bulletin Board and the Pink Sheets. The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include:

	•		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.

During 2008, the split-adjusted closing sales price of our stock has ranged from $0.55 to $7.60. Our stock closed on December 31, 2008 on a split adjusted basis of $1.50 per share. All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split affected on January 17, 2009.

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.

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the penny stock rules described above, the FINRA (Financial Industry Regulatory Authority) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.

- 12 -

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.

Future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and could make it more difficult for us to raise additional capital through the sale of equity securities and reduce the chances of persons who have invested in us of receiving a return on their investment. In addition, substantially all of the outstanding shares of our common stock are freely tradable or eligible for sale under Rule 144, subject to certain conditions of that rule.

Exercise of outstanding options, warrants and convertible securities will dilute existing shareholders and could decrease the market price of our common stock.

All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split affected on January 17, 2009. As of December 31, 2008, we had 4,001,846 shares issued and outstanding, 17,893,663 shares of common stock that could be issued upon the exercise of options, warrants, grants and convertible securities, of which 1,286,900 shares could be issued pursuant to the exercise of options outstanding under the Stinger Systems, Inc. Employee Stock Option & Stock Bonus Plan. There can be no guarantee that any or all of the warrants, grants, options or convertible securities will be exercised or converted. To the extent these underlying shares are ultimately issued, there will be further dilution to investors. The existence or exercise of the outstanding options, grants, warrants or convertible notes may adversely affect the market price of our common stock and the terms under which we could obtain additional equity capital.

We likely will issue additional equity securities which will dilute your share ownership.

We likely will issue additional equity securities through the exercise of options, grants, convertible notes, or warrants that are outstanding or may be outstanding, and possibly to raise capital. These additional issuances 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.

Downward pressure on our stock price could result from the occurrence of any of the risk factors set forth herein as well as from other factors that relate generally to stocks that trade in the securities markets. Downward pressure on our stock could result in short sales of stock that could further depress the price. The further depression of the stock price could then encourage additional short selling with the end result being a downward spiral of our stock price. If short selling of our stock should commence in the market, the net effect could be an overall drop in share price thereby having a negative effect on any person owning shares of our stock.

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.

We have never paid a cash dividend on our common stock. We do not intend to pay 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 1.B UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Stinger Systems’ corporate office is located at 5505 Johns Road, Suite 702, Tampa, Florida 33634 and includes 14,752 square feet. Stinger Systems pays $12,201 per month for this space on a lease running through March 2012. We believe this facility is adequate for the current scope of Stingers’ corporate offices.

Stinger Systems’ production and manufacturing facility is located in Largo, Florida and includes approximately 9,200 square feet of warehouse, manufacturing, office, and storage space. The Company pays $5,332 to $5,491 per month for this space for a three year lease term. The initial lease term ends March 31, 2009, in which the Company has declined an option to renew for two additional consecutive two year terms.

- 13 -

ITEM 3. LEGAL PROCEEDINGS

Stinger is a party in Case Number 3:04CV620K styled Taser International, Inc. v. Stinger Systems, Inc. and Robert F. Gruder, pending in the United States District Court for the Western District of North Carolina. In the suit, Taser asserts a claim for false advertising under 15 U.S.C. Section 1125(a) and seeks injunctive relief, monetary damages in an unspecified amount, trebling of damages, attorneys fees and destruction of certain advertising material. Based upon a review of the pleading, it is Stinger’s management’s opinion that Taser’s claims center around the allegation that the Stinger stun gun does not exist and therefore Stinger’s statements about its existence and capabilities are false and misleading and inasmuch as Stinger has demonstrated its Stinger stun gun on several occasions. It is Stinger’s management’s opinion that Stinger will prevail in the lawsuit. Stinger has moved to dismiss Taser’s claims, responded to the allegations and counter sued Taser for defamation. It is seeking monetary damages, punitive damages and attorney fees.

On August 4, 2008, John Ward filed an eight-count complaint against Dennis Kaufman, Frances J. Reimer, the Company, John Doe 1 and John Doe 2 based, essentially, on a loan agreement entered into in 1992, whereby Mr. Ward loaned $30,000 to Stun Tech, Inc. Mr. Ward seeks payment of a promissory note which was the security for the loan, from all the defendants, and punitive damages against Dennis Kaufman and Frances Reimer. The Company is a defendant to the breach of contract, unjust enrichment and constructive trust counts of the complaint. Mr. Ward alleges liability against the Company based on a successor liability theory, claiming that the Company is the successor entity of Electronic Defense Technology LLC and, ultimately, of Stun Tech, Inc., the obligor of the promissory note. Mr. Ward alleges damages in the amount of $232,629.79 from the Company, comprising the principal of the note and interest from 1992. On September 18, 2008, the Company filed its answer and affirmative defenses. Discovery is on-going. The deposition of the Company’s corporate representative is scheduled for April 23, 2009, after which, the Company may move for summary judgment based on its affirmative defenses. This case is set for trial for July 20-24, 2009.

On December 30, 2007, the Company entered into an employment agreement with Ronald Bellistri to become chief executive officer of the Company, effective January 1, 2008. As a sign on bonus, Mr. Bellistri received an option to acquire 200,000 shares of common stock of the Company. Mr. Bellistri resigned in July of 2008 and on October 29, 2008, he filed a demand for arbitration against the Company. Mr. Bellistri alleges that he is due wages and stock options pursuant to his employment agreement with the Company, notwithstanding his written resignation. Mr. Bellistri has a three-count claim alleging unpaid wages, wrongful discharge and breach of contract and covenant of good faith and fair dealing. Mr. Bellistri seeks $984,000, plus punitive damages, arbitration costs and attorneys’ fees. The Company filed a counterclaim for breach of contract against Mr. Bellistri for his failure to perform the duties required in his employment agreement. The parties are currently engaged in discovery. The arbitration will be heard before a three-arbitrator panel and is set for May 12-14, 2009, in Tampa, Florida.

The Company has been responding to an investigation by the Securities and Exchange Commission (“SEC”), which commenced in December 2004. In connection with the investigation, the Company has received a “Wells Notice” from the SEC indicating that the staff intends to recommend that the SEC institute an action against the Company, alleging that the Company violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 5(a), 5(c), and 17(a) of the securities Act of 1933. The proposed allegations relate to purported representations that the Company made about one of the Company’s products regarding when the Company would be shipping the product, the product’s status with the Bureau of Alcohol, Tobacco, and Firearms, the performance of the product, and where the Company’s stock was trading. The allegations further related to the lack of registration for sales of stock in late 2004, made by three individuals who were not officers, directors, or employees of the Company. Under the Wells process established by the SEC, the Company has been provided an opportunity to respond in writing before the staff makes a formal recommendation to the SEC regarding any action. On May 1, 2008, the SEC announced that the Honorable Willis B. Hunt, United States District Judge for the Northern District of Georgia, entered a Final Judgment as to Defendant Stinger Systems, Inc. The Company was enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Company consented to the entry of the final judgment without admitting or denying any of the allegations of the Commission’s Complaint. The Complaint, filed on January 28, 2008, alleged that from October 2004 through March 2005, the Company and its president, Robert F. Gruder, made a series of fraudulent material misrepresentations and omissions regarding the Company’s “flagship” stun gun product. According to the Complaint, the misrepresentations consisted of press releases and direct mailings to thousands of law enforcement officers and agencies, suggesting that Stinger was manufacturing, selling and shipping its stun gun. In fact, the product was still in the development phase. The Complaint further alleged that the misrepresentations consisted of statements on the Company’s website and/or in industry publications that indicated the Company’s stock was trading on NASDAQ, when in fact it was not. The Complaint also alleged that the Company and Mr. Gruder misrepresented that the Bureau of Alcohol, Tobacco and Firearms (“ATF”) certified the Company’s stun gun, even though the ATF offered no such certification. According to the Complaint, these misrepresentations caused a spike in the trading volume and price for the Company’s shares once it began publicly trading in November 2004. The charges in the Complaint against Mr. Gruder have not been settled and a judgment adverse to Mr. Gruder could jeopardize our business operations and exhaust the Company’s cash reserve, which may result in investors losing their entire investment.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2008.

- 14 -

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER’S MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock has been quoted on the OTC Bulletin Board since February 23, 2006. The following table reflects the high and low sales information as reported on the OTCBB. The information reflects inter-dealer prices, which may or may not reflect retail mark-ups, mark-downs, or commissions and may not represent actual transactions. Also, these transactions may not be representative of all transactions during the indicated periods or the actual fair market value of our common stock at the time of such transactions due to the infrequency of trades and the limited market for our common stock. The following table presents the quarterly high and low bid information on the OTC Bulletin Board and on the electronic Pink Sheets. From November 12, 2004, until February 23, 2006, trades of common stock were reported from time to time on the electronic Pink Sheets.

On January 17, 2009, we completed a 1-for-5 reverse stock split. The reverse stock split was approved by stockholders holding a majority of the outstanding shares of common stock by written consent on August 25, 2008. Trading of the Company’s common stock on the split-adjusted basis began prior to the market open on January 20, 2009 under the symbol “STYS.OB.” Prior to that time, the common stock traded under the symbol STIY.OB. As a result of the reverse stock split, every five shares of common stock of the Company that were issued and outstanding were converted into one share of common stock of the Company, thus reducing the number of the Company’s outstanding common stock from approximately 20.0 million shares to approximately 4.0 million shares.


2007	High		Low
First Quarter	$	16.00	$	2.85
Second Quarter	$	16.25	$	3.75
Third Quarter	$	5.50	$	1.65
Fourth Quarter	$	5.95	$	0.70


2008	High		Low
First Quarter	$	7.60	$	2.85
Second Quarter	$	3.95	$	1.85
Third Quarter	$	2.50	$	1.25
Fourth Quarter	$	1.85	$	0.55

As of March 14, 2009, there were approximately 36 holders of record of our common stock. We have never declared or paid any cash dividends. We do not anticipate declaring or paying cash dividends for the foreseeable future. Instead, we will retain our earnings, if any, for the future operation and expansion of our business.

- 15 -

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

Stinger Systems is in the business of producing and marketing less-than-lethal electronic restraint products to law enforcement, correctional facilities, professional security and military sectors. The Company’s products include the Ice-Shield electronic immobilization riot shield and the Bandit / REACT system, an electronic immobilizing restraint. The Company’s primary focus is the Stinger S-200 EID gun and its success is largely dependent upon the commercialization of this product.

The Company plans to mass market the new Stinger S-200 AT in the marketplace in fiscal year 2009. The Company’s ability to generate future revenues is dependent upon the overall market reception of the Stinger product line and the volume of production and sales that the Company is able to generate. It may be the case that further modifications of the Stinger product line projectile stun gun will be required.

The Company plans to use third parties to manufacture some components for its products. Except for ongoing purchase orders, the Company is under no contractual obligation with these parties. Because the Stinger projectile stun gun is classified as a firearm and subject to various regulations of the U.S. Bureau of Alcohol, Tobacco, and Firearms (ATF), the Company ships all products from its production and manufacturing facility and maintains proper records. While the Company hopes to manufacture the Stinger and its components in the United States, there can be no assurances that it will continue to do so. The Company believes that electronics are easily sourced throughout the world and the Company will continually seek best pricing and highest quality components for its products. The Company expects to continue handling the shipment of its products.

The Company’s success will be dependent upon its ability to attract high quality distributors to market its products. To date, the Company has been able to attract distributors and manufacturer’s representative groups with a solid track record selling firearms to the law enforcement, correctional, and/or military community. The Company is unable to provide forecasts as to the number of Stingers it anticipates selling.

Due to the limited sales volume of its existing products, the Company reported a net loss of $21,461,378 for the year ending December 31, 2008 (net loss of $5.47 per share), a net loss of $8,348,285 for the year ending December 31, 2007 (net loss of $2.51 per share).

At the present time, the Company does not generate sufficient revenues from its operations to pay its operating costs. Management believes that the Company will need additional outside sources of funding in the future to continue the production and promotion of its products.

All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split completed on January 17, 2009.

- 16 -

Background

The Company, after the acquisition of EDT, required funds to support current operations and to provide future working capital. All amounts in this section have been adjusted to reflect the 1-for-5 reverse stock split completed on January 17, 2009. The Company has met its financial needs through its operations and through the sales of its securities. Since September, 2004, the Company has undertaken sales of non-registered securities in a series of private transactions, including the following:

	•		On September 24, 2004, the Company issued 1,950,000 shares of its common stock for 100% of EDT. The Company received 2,000,000 of its previously issued and outstanding shares for cancellation. The 1,950,000 shares were valued at $474,300, consisting of the cash and note payable to the former owners of EDT for the initial purchase of 95% of EDT in the amount of $450,000 plus the value of 100,000 shares of common stock issued for the remaining 5% of EDT valued at $24,300.

	•		Between September 24, 2004 and December 31, 2004, the Company sold 644,400 shares of common stock for $10,900,000, less expense of $665,035. Specifically, the Company sold 224,400 shares of common stock for net proceeds of $400,000 in September 2004, and sold 420,000 shares of common stock for net proceeds of $9,834,965 in December 2004. As part of the sale in December 2004, the Company also issued warrants to the investors to purchase 200,000 shares of the Company’s common stock at $37.50 per share. The warrants are exercisable through September 24, 2009. The investors were also granted registration rights. The Company also issued warrants to the underwriters to acquire 40,000 shares at $37.50 per share.

	•		Between September 24, 2004 and December 31, 2004, the Company issued 184,300 shares of common stock for various services received by the Company.

	•		In December 2004, the Company issued 2,000 shares of its common stock as settlement of a note payable plus accrued interest in the amount of $106,943.

	•		During November and December of 2004, the Company issued a total of 20,000 shares of its common stock for patents that were complimentary to its product lines. The recipient of 15,000 of the 20,000 shares issued had the right to rescind the transaction if a registration statement was not effective by the Company as of a specific date. As a result of this redeemable feature, these shares were classified as “Redeemable Common Stock” with a liquidation value of $1,387,500 (the value assigned to the stock on issuance at December 31, 2004). The Company filed a registration statement that was declared effective by the Securities and Exchange Commission on November 14, 2005 and the individual no longer had the right to rescind the transaction, so the 15,000 shares were taken out of Redeemable Common stock and shown as issued common stock.

	•		On January 25, 2007, the Company and certain existing warrant holders entered into an amendment and exercise agreement pursuant to which (i) the Company reduced the exercise price of the warrants then held by the warrant holders to $3.00 per share; (ii) the warrant holders exercised all of the existing warrants at an exercise price of $3.00 per share and acquired 200,000 shares of the Company’s common stock; and (iii) the Company issued to the warrant holders new warrants to purchase up to an aggregate of 300,000 shares of the Company’s common stock at an exercise price of $10.00 per share. The Company granted the warrant holders certain registration rights with respect to the resale of the shares issued upon exercise of the existing warrants and the shares to be issued upon exercise of the new warrants.

	•		On August 3, 2007, the Company closed a private placement transaction with an institutional investor pursuant to which the Company issued and sold a senior secured convertible note in the aggregate principal amount of $3,000,000 and a warrant to purchase 2,586,207 shares of the Company’s common stock at $1.45 per share. The note is convertible into 2,149,961 shares of the Company’s common stock at a price of $1.275 per share. Under the terms of the note, the Company, at its option, may pay any portion of the interest then due on the Note in cash or may elect to issue the Investor shares of the Company’s common stock. The Warrant is exercisable immediately at a price of $1.45 per share.

	•		On February 29, 2008, the Company closed a private placement transaction with an institutional investor pursuant to which the Company issued and sold a senior secured convertible note in an aggregate principal amount of $2,150,000, a warrant to purchase 3,296,377 shares of the Company’s common stock at $1.45 per share, and 250,000 shares of the Company’s Common Stock. The note is convertible into 1,686,275 shares of the Company’s common stock at a price of $1.275 per share. Under the terms of the note, the Company, at its option, may pay any portion of the interest then due on the note in cash or may elect to issue shares of the Company’s common stock. The warrant is exercisable immediately at a price of $1.45 per share.

	•		On September 12, 2008, the Company closed a private placement transaction with an institutional investor pursuant to which the Company issued and sold a senior secured convertible note in an aggregate principal amount of $3,000,000, and a warrant to purchase 2,586,207 shares of the Company’s common stock at $1.45 per share The note is convertible into 2,352,941 shares of the Company’s common stock at a price of $1.275 per share. Under the terms of the note, the Company, at its option, may pay any portion of the interest then due on the note in cash or may elect to issue shares of the Company’s common stock. The warrant is exercisable immediately at a price of $1.45 per share.

- 17 -

Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this document. This discussion contains forward-looking statements that are based on our current expectations and involve risks and uncertainties. Stinger Systems’ actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Comparison of the Years Ended December 31, 2008 and 2007

Revenues. Revenue increased $295,849 or 79% to $668,060 for 2008 compared to $372,211 for 2007. The increase from 2007 to 2008 was due to a new sales structure implemented in 2008.

Cost of Goods Sold. Cost of Goods Sold increased $236,918 or 44% to 770,773 for 2008 compared to $533,855 for 2007. The decrease from 2007 to 2008 was due to increased efficiency and less waste of materials. The cost of production for 2007 and 2008 includes manufacturing costs such as materials, labor and identifiable overhead related to finished goods and components.

Gross Margin. Gross margin increased $58,931 or 36% to $(102,712) for 2008 compared to $(161,643) for 2007. The increase in gross margin for 2008 was principally due to an increase in sales while generating less material waste in 2008.

Selling Expenses. Selling Expenses increased $198,883 or 84% to $434,414 for 2008 compared to $235,531 for 2007. The increase was based primarily on our new sales model and increased expenses related to our efforts to promote current products and the branding of the Stinger name.

General and Administrative Expenses. General and Administrative (G&A) expenses increased $8,162,616 or 207% to $12,097,544 for 2008 compared to $3,934,928 for 2007. Stock option expense for 2008 increased by $8,541,126 to $8,825,508 compared to $284,382 for 2007. The increase from 2007 to 2008 was related to the grant of stock options to our employees and directors as further explained in the Notes to Financial Statements. Additionally, other operating expenses for the year ended December 31, 2008, include legal and professional fees of $851,944, insurance expense in the amount of $18,632 and other costs in the amount of $588,592 compared to legal and professional fees of $467,788, insurance expense in the amount of $14,265, and other costs in the amount of $453,313 for the year ended December 31, 2007.

Research and Development Expenses. Research and Development (R&D) expenses decreased $105,729 or 30% to $245,080 for the year ended December 31, 2008, compared to $350,810 for the year ended December 31, 2007. The Company’s decrease in R&D expense is attributable to the advanced stages of product development, and the accumulated engineering knowledge associated with improving the design of the Stinger projectile stun gun product line. The Company expects to have ongoing research and development costs associated with future generations of the projectile stun gun product line.

- 18 -

Interest Income. Interest income decreased $10,485 to $11,032 for the year ended December 31, 2008, compared to $21,517 for the year ended December 31, 2007. The decrease from 2007 to 2008 was due to a reduction in working capital.

Net Loss. Net loss increased by $13,113,095 or 157% to $(21,461,378) or $(5.47) per common share for the year ended December 31, 2008 compared to a net loss of $(8,348,285) or $(2.51) per common share for the year ended December 31, 2007 The increase in the net loss was due primarily to incurring or a derivative liability due to the accounting for our debt and an increase in stock option expense in 2008.

Liquidity and Capital Resources

Based on the Company’s current plans and market conditions, management does not believe that the Company’s existing cash and current operations will be sufficient to satisfy its anticipated cash requirements for the next twelve months. In addition, the Company is unable to provide assurance that its planned levels of revenue, costs and expenses will be achieved. If the Company’s operating results fail to meet its expectations or if the Company fails to manage its inventory, accounts receivable or other assets, it will have a negative impact on the Company’s liquidity and the Company will be required to seek additional funding through public or private financings or other arrangements. In addition, due to the planned expansion of its product offerings, marketing efforts, channels and geographic presence, the Company may require additional working capital. If this were to occur, it is possible that adequate funds may not be available when needed or may not be available on favorable or commercially acceptable terms, which could have a negative effect on the Company’s business and results of operations.

At December 31, 2008, we had positive working capital of approximately $541,854, including a cash balance of $699,934. This represents an increase in working capital of $522,804 from working capital of $19,050 at December 31, 2007 and a cash balance of $345,293. This increase in working capital is principally due to cash and prepaid interest on our February 2008 financing. Operating activities used cash of $3,586,795 and $3,273,714 during 2008 and 2007, respectively. The increase in the negative cash flow from operating activities for 2008, as compared to 2007, was primarily due to how the company is required to account for its notes.

The long-term continuation of the Company’s business plans is dependent upon generation of sufficient revenues from its products to offset expenses. In the event that the Company does not generate sufficient revenues, it will be required to obtain additional funding through public or private financing, if available, and/or reduce certain discretionary spending. Management believes certain operating costs could be reduced if working capital decreases significantly and additional funding is not available. Failure to generate sufficient revenues, raise additional capital and/or reduce certain discretionary spending could have a material adverse effect on the Company’s current operations and its ability to achieve its intended long-term business objectives.

Off-Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements.

Contractual Obligations

The Company has entered into operating leases for headquarters and warehouse space, which runs through March 2012 and March 2009, respectively. Future minimum lease payments under operating leases are $126,284 in 2009, $146,414 in 2010, $146,414 in 2011, and $36,603 in 2012.

In January 2007, the Company entered into a capital lease for a tool room mill machine in which the Company pays $631 per month for a term of four years, and the initial lease term ends December 2010. The lease agreement contains a bargain purchase option after the initial term of the lease or when the obligation has been completely performed, at which time the Company may purchase the leased equipment for $101.

In September 2007, the Company entered into a capital lease for a tool room mill machine in which the Company pays $824 per month for a term of four years, and the initial lease term ends August 2011. The lease agreement contains a bargain purchase option after the initial term of the lease or when the obligation has been completely performed, at which time the Company may purchase the leased equipment for $101.

In September 2007, the Company entered into a capital lease for a tool room mill machine in which the Company pays $1,111 per month for a term of five years, and the initial lease term ends August 2012. The lease agreement contains a bargain purchase option after the initial term of the lease or when the obligation has been completely performed, at which time the Company may purchase the leased equipment for $101.

- 19 -

Intangible Assets

The Company’s intangible assets consist of two pending patents and four patents for stun gun technology with a carrying value of $1,145,398 at December 31, 2008. Generally a patent has a life of 17 to 20 years. The two projectile stun gun patents were granted in 1998.

The acquisition of EDT by EDTA was accounted for under the purchase method of accounting. Under this method, the assets acquired and the liabilities assumed were recorded at their fair values at September 24, 2004. The acquisition cost exceeded the values assigned to assets and liabilities acquired by $1,160,820. This amount was recorded as an intangible asset. Management has determined that the intangible asset value is related solely to the stun gun technology. The acquisition of the remaining 5% of EDT added another $24,300 to the stun gun intangible asset. The stun gun technology patents; #D323,870 — “The Ornamental Design for an Electronic Restraint Weapon” and #5,193,048 — “Stun Gun with Low Battery Indicator and Shutoff Timer” were acquired in the EDT Acquisition from Mr. Richard Bass and have a carrying value of $541,430.

On November 26, 2004, the Company acquired certain patents related to the product license: patent #5,841,622 — “Remotely Activated Electrical Discharge Restraint Device Using Biceps Flexion of the Leg to Restrain” granted November 24, 1998, and patent #6,573,073 — “Method and Apparatus For Implementing A Two Projectile Electrical Discharge Weapon” granted June 10, 2003 from James F. McNulty, Jr., a non-related party in exchange for $100,000 cash and 15,000 shares of the Company’s redeemable common stock. The 15,000 shares of common stock were valued at $92.50 per share (the quoted pink sheet price on November 26, 2004). The value of the intangible asset assigned to the stun gun from this transaction was $603,969. There was no carrying value or purchase price assigned to the Band-IT design patent. The patents related to the Band-IT technology are intertwined in the stun gun technology, and is the sole purpose for which the Company purchased the original patents from the inventor. Upon acquiring the patents, the related license agreement was canceled.

On December 4, 2004, the Company acquired 100% of the ownership interest in Questek, a California Sole Proprietorship, from Joseph Valencic, a non-related party, in exchange for $75,000 cash (which was not paid until January 6, 2005 but was included in accrued liabilities at December 31, 2004) and the issuance of 5,000 shares of the Company’s common stock. Questek’s only assets were intellectual property rights including a pending patent, trademarks and copyrights. The major asset of Questek was a pending patent on a miniature camera. Questek had no liabilities. The 5,000 shares of common stock issued were valued at $71.00 per share (the quoted pink sheet price on December 4, 2004). The camera pending patent serial no. 11/012,541 — “Weapon with Illuminator and Camera” had no carrying value at December 31, 2008.

Stinger Systems filed pending patents; serial no. 10/975,563 — “Weapon and Input Device to Record Information” on October 27, 2004 and serial no. 10/957,301 — “Stun Gun” on September 30, 2004. These pending patents were initiated by Stinger Systems on existing Stinger technology and carry no value at December 31, 2008.

The Company performed an impairment test in accordance with the guidance provided in SFAS 142, “Goodwill and Other Intangible Assets”, and has determined that no impairment exists on any of the Company’s assets based on the present value of future cash flows generated from Company assets. The majority of the assets, other than cash, reported on the balance sheet at December 31, 2008 are related to intangible assets.

- 20 -

Critical Accounting Policies

We have identified the following policies as critical to our business operations and the understanding of our results of operations. The preparation of these financial statements require us to make estimates and assumptions that effect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The effect of these policies on our business operations is discussed below where such policies affect our reported and expected financial results.

Revenue Recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. We recognize revenue when delivery of the product has occurred or services have been rendered, title has been transferred, the price is fixed and collectibility is reasonably assured. Sales of goods are final with no right of return.

Warranty Costs. We warrant our products against manufacturing defects for a period of one year. As of December 31, 2008, we have had no significant warranty claims on products sold. Once sales of our new stun gun commence, we expect to make an accrual for warranty claims based on our sales.

Intangible Assets. We have substantial intangible assets. Our estimate of the remaining useful life of these assets and the amortization of these assets will affect our gain from operations. Since we do not have a method of quantifying the estimated number of units that may be sold we have elected to amortize these intangibles over a seven year period beginning in the first quarter of 2005.

Embedded Derivatives . The conversion feature of the convertible note payable was accounted for as embedded derivatives and were valued on the transaction date using the Black-Scholes pricing model. At the end of each quarterly reporting date, the value of the derivatives are calculated and adjusted to current fair value. At December 31, 2008, the Company’s derivative valuation liability totaled $7,377,771.

Purchase Accounting. Our purchase accounting policy is to record any acquisitions in accordance with current accounting pronouncements and allocate the purchase price to the net assets. The Company evaluates the fair market values of tangible and intangible assets based on current market conditions, and financial and economic factors. Intangible assets are valued using several cash flow projection models and financial models to establish a baseline for their respective valuations. The Company valued its acquisition of the stun gun technology based on the competitive advantage the technology provides. These competitive advantages are analyzed in relation to the current market and may include valuation techniques, such as the cost to develop the technology, the cost of designing around the claims of the patent or technology, comparable transactions of like-kind patents or technology, and discounted cash flows of future incremental profits that may be generated. The Company valued its intangible assets, including its stun gun technology, utilizing the aforementioned techniques. The Company valued its stun gun technology by comparing current competitor’s revenue and assumed a 10% market penetration of this revenue. We also assumed a factor for the increase in the general use of this stun gun technology, the estimated economic life of this current technology of approximately seven years, and the anticipated profit margins that the Company believed was achievable. The Company’s policy is to expense in-process research and development costs at acquisition.

Stock Options. We have a stock option plan under which options to purchase shares of our common stock may be granted to employees, consultants and directors at a price no less than the fair market value on the date of grant.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including stock option grants, based on estimated fair values. SFAS 123(R) supersedes previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), for periods beginning in fiscal year 2006.

SFAS 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations. The Company adopted SFAS 123(R) using the modified prospective transition method that requires the application of the accounting standard starting on January 1, 2006, without restatement of prior years. Stock options were granted at an exercise price equal to the Company’s stock price at the date of grant.

Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Under the intrinsic value based method, stock-based compensation expense for employee stock options was recognized in the Company’s Consolidated Financial Statements as the difference in the

- 21 -

exercise price of the option and the Company’s stock price at the date of grant.

Limited Trading Market. Until February 22, 2006, the Company’s common stock was only traded on the Pink Sheets. An investment in a security quoted on the Pink Sheets is speculative and involves a high degree of risk. Many Pink Sheet securities are relatively illiquid, or “thinly traded,” which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. In some cases, the liquidation of a position in a Pink Sheet security may not be possible within a reasonable period of time. Reliable information regarding issuers of Pink Sheet securities, their prospects, or the risks associated with the business of any particular issuer or an investment in the issuer’s securities may not be available. As a result, it may be difficult to properly value an investment in a Pink Sheet security. Pink Sheets is not a securities exchange or a broker-dealer. Pink Sheets is an electronic quotation and information service provided to registered broker-dealers to facilitate efficient transactions in Pink Sheet securities. Investors must contact an SEC registered broker-dealer that is a member of the Financial Industry Regulatory Authority (FINRA) to invest in a security quoted on the Pink Sheets. The Company used the Pink Sheet price to determine fair market value at the date of the respective transactions in order to value the transactions to best reflect the financial valuation of those parties involved in the transactions. Since February 23, 2006, our stock has been quoted on the OTC Bulletin Board.

- 22 -

ITEM 7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is currently confined to our cash and cash equivalents and restricted cash. We currently do not hedge interest rate exposure. We have not used derivative financial instruments for speculation or trading purposes. Because of the short-term maturities of our cash, cash equivalents and marketable securities, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments, but may increase the interest expense associated with any future debt.

Our most liquid assets are cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. We also believe that we have intangible assets in the value of our intellectual property. In accordance with generally accepted accounting principles, we have not capitalized the value of this intellectual property on our balance sheet. Due to the nature of this intellectual property, we believe that these intangible assets are not affected by inflation. Because we intend to retain and continue to use our equipment, furniture and fixtures and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services, which could increase our level of expenses and the rate at which we use our resources.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth on pages F-1 through F-28.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2008. Our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that the information required to be disclosed in this annual report on Form 10-K have been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including its principal executive and principal financial officers, to allow timely decisions regarding disclosure. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that:

	•		pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of its assets;

	•		provide reasonable assurance that transactions are recorded as necessary to permit preparation of its financial statements in accordance with generally accepted accounting principles, and that its receipts and expenditures are being made only in accordance with authorizations of its management and directors; and

	•		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.

Internal control over financial reporting may not prevent or detect misstatements due to its inherent limitations. Management’s projections of any evaluation of the effectiveness of internal control over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

- 23 -

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 and in making this assessment used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework in accordance with the standards of the Public Company Accounting Oversight Board (United States).

The Company’s management determined that as of December 31, 2008, the Company’s internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Changes in Internal Control

Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the year ended December 31, 2008 and has concluded that there was no change that occurred during the year ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to our executive officers and directors as of March 15, 2008:

Robert F. Gruder — Chairman and President of Stinger Systems, Inc. Mr. Gruder is co-founder of Stinger Systems, Inc. Prior to founding Stinger Systems, Mr. Gruder was an independent investor since September, 2002, managing his personal portfolio. For the three years prior thereto, he was Chairman and Chief Executive Officer of Information Architects Corporation a public company traded on NADASQ. Mr. Gruder has over 15 years of experience in the technology industry. Mr. Gruder holds no outside board affiliations.

Brian S. Gannon — Financial Controller of Stinger Systems, Inc. Mr. Gannon is the controller for the Company and has been controller since August 2007. Mr. Gannon serves as the Company’s principal financial and principal accounting officer. He has been employed in the Company’s finance group since April 2006. From 2005 to 2006, Mr. Gannon was a staff accountant at Granite Services, Inc., a subsidiary General Electric. From 2003 to 2005, Mr. Gannon served as an accountant for Outback Steakhouse, Inc. While at Outback, Mr. Gannon had complete accounting responsibility for multiple restaurants within the United States. Mr. Gannon is a Certified Public Accountant (CPA) and he holds a Bachelor’s degree in Accounting from the University of South Florida.

Andrew P. Helene — is a member of our board of directors and the audit committee. He is an independent director. He is currently Vice President, TD Banknorth, N.A. Mr. Helene has over 15 years experience in commercial and investment banking. Mr. Helene graduated from Williams College and holds a Masters degree in Business Administration from Columbia University and a Masters degree in International Studies from Johns Hopkins University. Mr. Helene has no outside board affiliations.

- 24 -

Wells Van Pelt — is a member of our board of directors and serves as the chairman of the audit committee and the compensation committee. He is an independent director. Mr. Van Pelt graduated from Saint Andrews Presbyterian College in Laurinburg, North Carolina. Mr. Van Pelt has 35 years of experience in the investment business while also serving on numerous boards. He has served on non-profit, for profit and governmental boards including vice-chairman of the civil service board for Charlotte, North Carolina.

- 25 -

Section 16(a) Beneficial Ownership Reporting Compliance

The Securities Exchange Act of 1934 requires our directors, executive officers and beneficial owners of more than 10% of any class of our equity securities to file reports of ownership of our equity securities and to furnish these reports to us. Based solely on a review of such reports, the Company believes that these persons and entities filed all the reports required by the Securities Exchange Act of 1934 on a timely basis.

Code of Ethics

The Company intends to adopt a Code of Ethics for all its directors, officers and employees in the near future, but has not adopted a Code as of the date hereof. When adopted, the Code will be available electronically on the Company’s website at “Investor Relations” at www.stingersystems.com or you may request a copy from the Company by writing to us at 5505 Johns Road, Suite 702, Tampa, Florida 33634.

- 26 -

ITEM 11. EXECUTIVE COMPENSATION

As a “smaller reporting company”, we have elected to follow scaled disclosure requirements for smaller reporting companies with respect to Part III, Item 11 — Executive Compensation. Under the scaled disclosure obligations, we are not required to provide Compensation Discussion and Analysis and certain other tabular and narrative disclosures relating to executive compensation. Nor are we required to quantify payments due to the named executives upon termination of employment.

SUMMARY COMPENSATION TABLE

The table below summarizes the total compensation paid or earned by each of the named executive officers for the fiscal year ended December 31, 2008. The Company has not entered into any employment agreements with any of the named executive officers. When setting total compensation for each of the named executive officers, the Board of Directors reviews tally sheets which show the executive’s current compensation, including equity and non-equity based compensation.

The named executive officers were not entitled to receive payments which would be characterized as Bonus, Stock Awards, Non-Equity Incentive Plan Compensation, Change in Pension Value and Nonqualified Deferred Compensation Earnings, or All Other Compensation payments for the fiscal year ended December 31, 2008.

Based on the fair value of equity awards granted to named executive officers in 2008 and the base salary of the named executive officers, salary accounted for approximately 4% of the total compensation of the named executive officers. The table below may reflect less than the full fiscal year salary for individuals who were not employed by the Company for the full fiscal year, and because the value of certain equity awards included below is based on the FAS 123(R) value rather than the fair value, these percentages may or may not be derived using the amounts reflected in the table below.

Change in

Pension Value

and

Non-Equity

Nonqualified

Name and

Stock

Option

Incentive Plan

Deferred

All Other

Principal

Salary

Bonus

Awards

Compensation

Position

Year

($)

($) (1)

($)

Earnings ($)

($)

Total ($)

Robert F. Gruder

2008

238,004

5,397,097

5,635,101

Chief Executive
Officer & Chairman

2007

250,000

Ronald Bellistri(2)

2008

43,750

Chief Executive
Officer


(1)		The amounts in the Option Awards column reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2008, in accordance with FAS 123(R) of awards pursuant to the 2005 Stock Option/Stock Bonus Plan and thus include amounts from awards granted in and prior to 2006. Assumptions used in the calculation of this amount for fiscal years ended December 31, 2007 and 2008 are included in the footnotes to the Company’s audited financial statements for the fiscal year ended December 31, 2008, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

(2)		Ronald Bellistri’s employment with the Company was terminated on August 27, 2008.

- 27 -

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth certain information with respect to the value of all unexercised options previously awarded to our named executive officers as of December 31, 2008:

Option Awards

Stock Awards

Equity

Equity Incentive

Incentive Plan

Plan Awards:

Awards:

Market or

Number of

Market Value

Number of

Payout Value of

Securities

Shares or

of Shares or

Unearned

Underlying

Units of

Shares, Units or

Unexercised

Option

Stock That

Other Rights

Options (#)

Unearned Options

Exercise

Expiration

Have Not

That Have Not

Name

Exercisable

Unexercisable

(#)

Price ($)

Date

Vested (#)

Vested ($)

Vested (#)

Vested

Robert F. Gruder

800,000

0.55

11/5/2013

12,000

1.00

1/11/2013

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

There are no potential payments upon termination or change of control provided to NEO’s.

- 28 -

DIRECTOR COMPENSATION

The following table sets forth information concerning the compensation earned during the last fiscal year by each individual who served as a director at any time during the fiscal year:

Change in Pension

Value and

Fees

Option

Non-Equity

Nonqualified

Earned or

Stock

Awards

Incentive Plan

Deferred

All Other

Paid in

Awards

($)

Compensation

Name

Cash ($)

($)

(1)(2)

($)

Earnings ($)

($)

Total ($)

Andrew P. Helene

616,400

Wells Van Pelt

616,400

Richard “Bo” Dietl(2)

—

T. Yates Exley(3)

80,400


(1)		The amounts in the Option Awards column reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2008, in accordance with FAS 123(R) of awards pursuant to the 2005 Stock Option/Stock Bonus Plan and thus include amounts from awards granted in and prior to 2008. Assumptions used in the calculation of this amount for the fiscal year ended December 31, 2008 are included in the footnotes to the Company’s audited financial statements for the fiscal year ended December 31, 2008, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

(2)		Mr. Dietl was removed from the Board on August 27, 2008.

(2)		Mr. Exley resigned from the Board on August 28, 2008.

- 29 -

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of March 14, 2009, we had 4,001,832, as reflected by the 1-for-5 reverse split completed on January 17, 2009, shares of common stock outstanding (excluding certain options, grants and warrants), and no shares of preferred stock outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of March 14, 2009 by:

•		each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of our common stock;

•		each of our executive officers;

•		each of our current directors; and


	Amount and Nature of
Beneficial Owner	Beneficial Ownership			Percentage
Castlerigg Master Investments Ltd.
c/o Citco Fund Services (Curacao) N.V.
Kaya Flamboyan 9, PO Box 812		9,718,819	(1)		9.99	%
Curaco, Netherlands, Antilles

Vicas Capital Master Fund
445 Park Avenue, 16th Floor		4,939,148	(2)		9.99	%
New York, NY 10022

Robert F. Gruder
5505 Johns Road, Suite 702		1,423,550	(3)		32.3	%
Tampa, FL 33634

T. Yates Exley
2239 Forrest Drive		543,800	(4)		13.3	%
Charlotte, NC 28211

Julie R. Exley
2239 Forrest Drive		435,800			10.9	%
Charlotte, NC 28211

Andrew Helene
5505 Johns Road, Suite 702		106,000	(5)		2.6	%
Tampa, FL 33634

Wells Van Pelt		92,530	(6)		2.3	%
5505 Johns Road, Suite 702
Tampa, FL 33634

All directors and executive officers as a group (3 persons)		1,622,080			35.3	%

Less than one percent (1%)


(1)		Includes 9,718,819 shares of Common Stock into which the convertible notes and/or the warrants held by Castlerigg Master Investments are convertible or exercisable, as applicable. Castlerigg Master Investments holds (x) a senior secured

- 30 -


		convertible note convertible into an aggregate of 2,149,961 shares of Common Stock, (y) a convertible note convertible into an aggregate of 1,686,275 shares of Common Stock, and (z) warrants held by Castlerigg Master Investments exercisable for an aggregate of 5,882,584 shares of Common Stock. Such securities are not convertible or exercisable to the extent that their exercise would cause the holder to be the beneficial owner of more than 9.99% of the Company’s common stock.

(2)		Includes 4,939,148 shares of Common Stock into which the convertible notes and/or the warrants held by Vicas Capital Master Fund are convertible or exercisable, as applicable. Vicas Capital Master Fund holds (x) a senior secured convertible note convertible into an aggregate of 2,352,941 shares of Common Stock and (y) warrants held by Vicas Capital Master Fund exercisable for an aggregate of 2,586,207 shares of Common Stock. Such securities are not convertible or exercisable to the extent that their exercise would cause the holder to be the beneficial owner of more than 9.99% of the Company’s common stock.

(3)		Includes 412,000 shares of common stock that may be purchased upon the exercise of options.

(4)		Mr. Exley also has a potential minority beneficial interest in 27,412 shares held by Exley Management Services LLC, a company principally owned and controlled by his father. Because Mr. T. Yates Exley cannot control the disposition or the voting of the shares held in this company, they have not been allocated to him as part of his beneficial holdings. Includes approximately 88,000 shares of common stock issuable upon conversion of a convertible promissory note held in trust for the benefit of Mr. Exley’s children.

(5)		Includes 92,000 shares of common stock that may be purchased upon the exercise of options.

(6)		Includes 92,000 shares of common stock that may be purchased upon the exercise of options.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding the Company’s equity compensation plans as of December 31, 2008.

Weighted

Number of securities

average

remaining available for

to be issued upon

exercise price

future issuance under

exercise of

of outstanding

equity compensation

outstanding options,

options,

plans (excluding

warrants and rights

warrants and

securities reflected in

Plan Category

(1)

rights

the first column)

Equity compensation plans approved by security holders

1,286,900

1.73

8,713,100

Equity compensation plan not approved by security holders

—

Total

1,286,900

1.73

8,713,100


(1)		Represents shares of the Company’s Common Stock issuable in connection with such equity compensation plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On September 24, 2004, EDT Acquisition LLC, a Michigan limited liability company then owned by Robert Gruder and T. Yates Exley, acquired a 95% interest in Electronic Defense Technologies, LLC, an Ohio limited liability company. The interest was acquired in exchange for $250,000 in cash and a $200,000 note payable at 4% interest due on or before March 24, 2006 from EDT Acquisition, LLC. The 95% interest in Electronic Defense Technologies, LLC together with the remaining 5% interest in the same company was then transferred on the same day to Stinger Systems in exchange for the issuance by Stinger Systems of 1,950,000 shares of Stinger Systems’ common stock. This transaction transferred control of Stinger Systems to Robert Gruder and T. Yates Exley by virtue of their ownership of EDT Acquisition LLC which held 1,850,000 common shares of Stinger Systems. Mr. Gruder serves as President and Chairman of the Board of Directors. Mr. Gruder’s portion of the shares of Stinger Systems formerly held in EDT Acquisition, LLC have been paid out of EDT Acquisition, LLC and are held by him directly. It is the responsibility of the Company’s Audit Committee to review all transactions or arrangements between our company and any of its directors, officers, principal shareholders or any of their respective affiliates, associates or related parties.

- 31 -

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The fees billed by Killman, Murrell & Company, P.C. for professional services rendered in connection with the audit of the Company’s annual consolidated financial statements for 2008 and 2007, the review of the consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, as well as the review and consent for the Company’s other filings for 2008 and 2007 were $86,093 and $36,768, respectively.

Audit-Related Fees

The fees billed by Killman, Murrell & Company, P.C. for professional services rendered for assurance and related services that are reasonably related to the audit of the Company’s annual consolidated financial statements for 2008 and 2007 were $0.

Tax Fees

The fees billed by Killman, Murrell & Company, P.C. for professional services rendered for tax compliance, tax advice and tax planning for 2008 and 2007 were $0 and $3,082 respectively.

All Other Fees

In 2008 and 2007, Killman, Murrell & Company, P.C. did not bill the Company for any services other than those described above.

Pre-Approval of Non-Audit Services

Management may use Killman, Murrell & Company, P.C. for non-audit services that are permitted under SEC rules and regulations, provided that management obtain the Audit Committee’s approval before such services are rendered.

- 32 -

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report:

(1) Index to Consolidated Financial Statements


		Page
		Number
Report of Independent Registered Public Accounting Firm Killman, Murrell & Company, P.C.		F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the year ended December 31, 2005 and for the Period September 24, 2004 to December 31, 2004		F-5
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2005 and for the Period September 24, 2004 to December 31, 2004		F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2005 and for the Period September 24, 2004 to December 31, 2004		F-7
Notes to Consolidated Financial Statements		F-9
Pro Forma Combined Statement of Operations

(2) Financial Statement Schedules

Financial statement schedules are omitted because they are not required.

- 33 -

(3) Exhibits

The following exhibits are filed with this Annual Report:


Exhibit No.		Description
3.1		Articles of Incorporation (1)

3.2		Amendment to Articles of Incorporation (1)

3.3		Amendment to Articles of Incorporation (9)

3.4		By-laws (1)

4.1		Specimen Common Stock Certificate of Registrant (1)

10.1		Form of Securities Purchase Agreement used in the December 2004 506 offering (1)

10.2		Form of warrant used in the December 2004 506 offering (1)

10.3		Form of Registration Rights Agreement used in the December 2004 506 offering (1)

10.4		Employment Agreement with Mr. Cuny (2)

10.5		Employment Agreement with Mr. Killoy (2)

10.6		Severance Agreement with Mr. Cuny (2)

10.7		Research Agreement — Wayne State University (2)

10.8		Independent Manufacturer's Representative Agreement (2)

10.9		Stinger Systems Distributor Agreement (2)

10.10		Settlement Agreement, Release and Covenant Not to Sue with Mr. Killoy (3)

10.11		Purchase Agreement (3)

10.12		Cancellation Agreement (3)

10.13		Agreement between Mr. McNulty and CM Partners (3)

10.14		Assignment of Inventions (3)

10.15		Patent Assignment (3)

10.16		Modification Letter Agreement with Mr. McNulty (4)

10.17		Amendment and Exercise Agreement (5)

10.18		Form of New Warrant (5)

10.19		Registration Rights Agreement used in the January 2007 offering (5)

10.20		Securities Purchase Agreement dated August 2, 2007 among Stinger Systems, Inc. and the investor party thereto(6)

10.21		Senior Secured Convertible Note dated August 3, 2007(6)

10.22		Warrant dated August 3, 2007(6)

10.23		Registration Rights Agreement dated August 3, 2007 among Stinger Systems, Inc. and the investor party thereto(6)

10.24		Security Agreement dated August 3, 2007(6)

10.25		Securities Purchase Agreement dated February 29, 2008 among Stinger Systems, Inc. and the investor party thereto(7)

10.26		Senior Secured Convertible Note dated February 29, 2008(7)

10.27		Warrant(7)

10.28		Amended and Restated Security Agreement, dated February 29, 2008(7)

10.29		Amended and Restated Senior Secured Convertible Note dated February 29, 2008(7)

10.30		Securities Purchase Agreement dated September 12, 2008 among Stinger Systems, Inc. and the investor party thereto (8)

10.31		Senior Secured Convertible Note dated September 12, 2008 (8)

10.32		Warrant (8)

10.33		Security Agreement, dated September 12, 2008 (8)

10.34		Amendment and Exchange Agreement dated September 12, 2008 (8)

10.35		Second Amended and Restated Senior Secured Note dated September 12, 2008 (8)

10.36		Amended and Restated Senior Secured Convertible Note dated September 12, 2008 (8)

10.37		Amended and Restated Warrant (8)

10.38		Letter Agreement dated September 12, 2008 between Stinger Systems, Inc. and the party thereto (8)

10.39		Letter Agreement dated September 12, 2008 between Stinger Systems, Inc. and the party thereto (8)

21.1		List of Subsidiaries (1)

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 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.


(1)		Previously filed as an exhibit to Form S-1/A on February 8, 2005.

(2)		Previously filed as an exhibit to Form S-1/A on July 20, 2005.

(3)		Previously filed as an exhibit to Form S-1/A on September 20, 2005.

- 34 -


(4)		Previously filed as an exhibit to Form S-1/A on November 10, 2005.

(5)		Previously filed as an exhibit to Current Report on Form 8-K on January 26, 2007

(6)		Previously filed as an exhibit to Current Report on Form 8-K on August 3, 2007

(7)		Previously filed as an exhibit to Current Report on Form 8-K on March 3, 2008

(8)		Previously filed as an exhibit to Current Report on Form 8-K on September 15, 2008

(9)		Previously filed as an exhibit to Current Report on Form 8-K on January 23, 2009

- 35 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	STINGER SYSTEMS, INC.
	By:	/s/ Robert F. Gruder
		Robert F. Gruder
		Chief Executive Officer
Dated: April 6, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated:


Signature	Title	Date

/s/ Robert F. Gruder Robert F. Gruder	President and Chairman of the Board Chief Executive Officer (Principal Executive Officer)	April 6, 2009

/s/ Brian S. Gannon Brian S. Gannon	Financial Controller (Principal Financial and Accounting Officer)	April 6, 2009

/s/ Andrew P. Helene Andrew P. Helene	Director	April 6, 2009

/s/ Wells Van Pelt Wells Van Pelt	Director	April 6, 2009

- 36 -

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


			Page
Report of Independent Registered Public Accounting Firm Killman, Murrell & Company, P.C.			F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 2008 and 2007			F-3
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007			F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007			F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007			F-7
Notes to Consolidated Financial Statements			F-9

F-1

Killman, Murrell & Company, P.C.
Certified Public Accountants


3300 N. A Street, Bldg. 4, Suite 200	1931 E. 37 ^th Street, Suite 7	2626 Royal Circle
Midland, Texas 79705	Odessa, Texas 79762	Kingwood, Texas 77339
(432) 686-9381	(432) 363-0067	(281) 359-7224
Fax (432) 684-6722	Fax (432) 363-0376	Fax (281) 359-7112

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Stinger Systems, Inc.
Tampa, Florida

We have audited the accompanying consolidated balance sheets of Stinger Systems, Inc. as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stinger Systems, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 15 to the consolidated financial statements, the Company has suffered recurring losses from operations and its limited capital resources raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



	/s/ Killman, Murrell & Company, P.C.
	KILLMAN, MURRELL & COMPANY, P.C.

Odessa, Texas
March 20, 2009

F-2

STINGER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
ASSETS


	December 31,
	2008		2007
CURRENT ASSETS
Cash	$	699,934	$	345,293
Accounts Receivable, net of $1,800 Allowance for Uncollectible Accounts in 2008 and 2007		75,200		81,201
Inventories, at cost		238,757		128,841
Prepaid Expenses and Other Current Assets		254,898		35,149

TOTAL CURRENT ASSETS		1,268,789		590,484
EQUIPMENT AND FURNITURE
Equipment and Furniture, net of accumulate depreciation of $229,767 and $126,414 in 2008 and 2007		231,706		276,590
OTHER ASSETS , net of Accumulated
Prepaid Interest		257,373		—
Intangible Assets, net of accumulated amortization of $1,527,222 and $1,145,419 in 2008 and 2007		1,145,398		1,527,201
Other Assets		35,898		11,496

TOTAL OTHER ASSETS		1,438,669		1,538,697

TOTAL ASSETS	$	2,939,164	$	2,405,771

The accompanying notes are an integral part of these consolidated financial statements.
(Continued)

F-3

STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)


	December 31,			December 31,
	2008			2007
CURRENT LIABILITIES
Accounts Payable	$	417,425		$	393,842
Accrued Liabilities		254,638			124,846
Capital Lease Obligation, current portion		23,571			21,445
Note Payable-Related Parties		31,250			31,250

TOTAL CURRENT LIABILITIES		726,884			571,383

Capital Lease Obligation, long-term portion		52,293			77,739
Note Payable-Convertible, net of debt discount of $5,340,001 and $1,339,763 for 2008 and 2007, respectively		2,551,199			1,339,763
Derivative Liability Associated with Convertible Note and Warrants		7,377,771			3,660,000

TOTAL LIABILITIES		10,708,147			5,648,885

COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ (DEFICIT)
Preferred Stock, $0.001 Par Value, 1,000,000 Shares Authorized, None Issued		—			—
Common Stock, $0.001 Par Value, 150,000,000 Shares Authorized, 4,001,846 and 3,505,434 Shares Issued and Outstanding at December 31, 2008 and December 31, 2007, respectively,		4,002			3,506
Additional Paid-In Capital		47,259,019			30,324,006
Retained Deficit		(55,032,004	)		(33,570,626	)

TOTAL STOCKHOLDERS’ (DEFICIT)		(7,768,983	)		(3,243,114	)

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$	2,939,164		$	2,405,771

The accompanying notes are an integral part of these consolidated financial statements.

F-4

STINGER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008


	December 31, 2008			December 31, 2007
SALES	$	668,060		$	372,212
COST OF PRODUCT SOLD		770,773			533,855

GROSS (LOSS) MARGIN		(102,713	)		(161,643	)
SELLING EXPENSES		434,414			235,531
GENERAL AND ADMINISTRATIVE EXPENSES
Employee Salaries		1,074,756			1,102,479
Other		10,292,550			1,797,869
Depreciation and Amortization		485,156			511,238
Impairment Loss		—			523,342
Research and Development		245,080			350,810

LOSS FROM OPERATIONS		(12,634,669	)		(4,682,912	)
INTEREST INCOME		11,031			21,517
INTEREST EXPENSE		(1,989,969	)		(437,832	)
VENDOR LIABILITY SETTLEMENT		—			410,942
DERIVATIVE LIABILITY EXPENSE		(6,847,771	)		(3,660,000	)

LOSS BEFORE INCOME TAXES		(21,461,378)	)		(8,348,285	)
PROVISIONS FOR INCOME TAXES		—			—

NET LOSS	$	(21,461,378	)	$	(8,348,285	)

NET LOSS PER SHARE
Basic	$	(5.47	)	$	(2.51	)

Diluted	$	(5.47	)	$	(2.51	)

WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK EQUIVALENT SHARES OUTSTANDING
Basic		3,925,034			3,331,678

Diluted		3,925,034			3,331,678

The accompanying notes are an integral part of these consolidated financial statements.

F-5

STINGER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 2008


	Common Stock						Additional
	Number of						Paid-In		Retained
	Shares			Par Value			Capital		Deficit			Total
Balance, December 31, 2006		15,068,500		$	15,069		$	25,945,830	$	(25,222,341	)	$	738,558
Effect of 5 for 1Reverse Split		(12,054,800	)	$	(12,055	)	$	12,055	$	—		$	—

Balance After Effect of Reverse Split		3,013,700		$	3,014		$	25,957,885	$	(25,222,341	)	$	738,558
Stock Options and Warrants Issued To Employees		—			—			837,923		—			837,923
Stock Sold to Accredited Investors		296,729			297			951,802		—			952,099
Common Stock Issued for Note Payable and Accrued Interest		194,405			194			971,833		—			972,027
Stock Issued To Employees		600			1			1,709		—			1,710
Beneficial Conversion Feature of Convertible Debt		—			—			1,602,854					1,602,854
Net Loss		—			—			—		(8,348,285	)		(8,348,285	)

Balance, December 31, 2007		3,505,434		$	3,506		$	30,324,006	$	(33,570,626	)	$	(3,243,114	)
Partial Conversion of Note to Stock		210,412			210			319,790		—			320,000
Common Stock Issued in Connection with Convertible Notes		270,000			270			1,059,480		—			1,059,750
Stock Options Issued To Employees		—			—			8,825,509		—			8,825,509
Stock Options Exercised by Employees		16,000			16			4,934		—			4,950
Termination of Registration Rights Feature of Warrants		—			—			3,130,000					3,130,000
Value of Warrant Issued in Connection with Convertible Debt		—			—			3,595,300					3,595,300
Net Loss		—			—			—		(21,461,378	)		(21,461,378	)

Balance, December 31, 2008		4,001,846		$	4,002		$	47,259,019	$	(55,032,004	)	$	(7,768,983	)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

STINGER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008


	For the Year			For the Year
	Ended			Ended
	December 31, 2008			December 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(21,461,378	)	$	(8,348,285	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		485,156			511,239
Stock Option Warrant Expense		8,825,509			837,923
Stock Issued for Services		—			1,710
Asset Impairment		—			523,342
Derivative Liability Associated with Convertible Notes and Warrants		6,847,771			3,660,000
Amortization of Discount on Notes Payable — Convertible		1,465,236			268,617
Changes in Operating Assets and Liabilities
Accounts Receivable		6,001			(34,223	)
Inventory		(109,916	)		163,585
Prepaid Expenses		164,653			6,598
Other Assets		(24,402	)		—
Accounts Payable		23,583			(981,752	)
Accrued Liabilities		190,992			117,532

NET CASH USED IN OPERATING ACTIVITIES		(3,586,795	)		(3,273,714	)

CASH FLOW S FROM INVESTING ACTIVITIES
Purchase of Equipment		(58,469	)		(89,167	)

NET CASH USED IN INVESTING ACTIVITIES		(58,469	)		(89,167	)

CASH FLOWS FROM FINANCING ACTIVITIES
Common Stock Sales		—			952,099
Proceeds from issuance of Notes Payable, net of issue costs		4,018,275			2,878,000
Payment on Insurance Notes Payable		—			(235,250	)
Payment on Capital Leases		(23,320	)		(7,722	)
Proceeds from Exercised Options		4,950			—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		3,999,905			3,587,127

NET INCREASE (DECREASE) IN CASH		354,641			224,246
CASH BALANCE, BEGINNING OF PERIOD		345,293			121,047

CASH BALANCE, END OF PERIOD	$	699,934		$	345,293

The accompanying notes are an integral part of these consolidated financial statements.
(Continued)

F-7

STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008


	For the Year			For the Year
	Ended			Ended
	December 31,			December 31,
	2008			2007
NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of Note Payable		(320,000	)		—
Additional Paid-In Capital From Conversion of Note Payable		319,790			—
Common Stock Issued for Notes Payable Conversion		210			—
Additional Paid in Capital from Termination of Reg Rights		3,130,000			—
Reduction of Derivative Liability due to Termination of Registration Rights		(3,130,000	)		—
Stock Issued for Debt Discount		270			—
Additional Paid in Capital, Issued in Connection with Financing from Stock		1,059,480			—
Debt Discount from Issuance of Common Stock		(1,059,750	)		—
Prepaid interest from Convertible Note		(641,775	)		—
Convertible Note		641,775			—
Debt Discount from Fees Retained		(422,450	)		—
Convertible Note		422,450			—
Equipment		—			(106,906	)
Capital Lease Obligations		—			106,906
Note Payable		—			(900,000	)
Accrued Interest		—			(72,027	)
Common Stock Issued for Notes Payable Conversion		—			972
Additional Paid in Capital		—			971,055
Debt Discount on Notes Payable		(3,595,300	)		(1,602,854	)
Additional Paid in Capital		3,595,300			1,602,854

	$	—		$	—

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid During the Year For:
Interest	$	330,646		$	53,845
Income Taxes	$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-8

STINGER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 1: GENERAL

Nature of Business

Stinger Systems, Inc. (the “Company”) was incorporated on July 2, 1996, under the laws of the State of Nevada as United Consulting Corporation. The Company changed its name to Stinger Systems, Inc., on September 24, 2004, in connection with the following transactions. On September 24, 2004, EDT Acquisition LLC owned by two individuals acquired a 95% interest in Electronic Defense Technologies, LLC (“EDT”). This 95% interest in EDT together with the remaining 5% interest in EDT was then transferred on the same day to the Company in exchange for the issuance by the Company of 1,950,000 shares of the Company’s common stock. In connection with the transaction 2,000,000 shares of the Company’s issued and outstanding common stock were returned to the Company for cancellation. Prior to September 24, 2004, the Company had no operations.

The Company is engaged in the production and sale of electronic stun devices for the control of, and to provide temporary incapacitation of, potentially dangerous persons.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, EDT, and have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. All intercompany transactions and account balances have been eliminated in consolidation.

Management of the Company has determined that the Company’s operations are comprised of one reportable segment as that term is defined by SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information.” Therefore, no separate segment disclosures have been included in the accompanying notes to the financial statements.

Estimates

The preparation of financial statements in conformity with accounting principles accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

(Continued)

F-9

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of average cost or market. Inventories consisted of the following at December 31, 2008 and 2007:


	December 31,		December 31,
	2008		2007
Raw Materials and Work-in Progress	$	203,595	$	99,853
Finished Goods		35,161		28,988

	$	238,757	$	128,841

Furniture and Equipment

Furniture and equipment are stated at cost net of accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from two and one half to five years. Items acquired in connection with the acquisition of EDT were recorded at estimated fair values. Gross assets included in machinery in the amount of $75,864 are held under capitalized leases. At December 31, 2008 and 2007, furniture and equipment consisted of the following:


		December 31,			December 31,
	Useful Life	2008			2007
Furniture	5 Years	$	56,592		$	21,825
Machinery	3 Years		294,056			286,856
Mold For Stun Gun	2.5 Years		63,670			59,556
Computers and Equipment	3 Years		47,155			34,767

			461,473			403,004
Accumulated Depreciation			(229,767	)		(126,414	)

		$	231,706		$	276,590

(Continued)

F-10

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Long-Lived Assets

The Company routinely evaluates the carrying value of its long-lived assets. The Company would record an impairment loss when events or circumstances indicate that a long-lived asset’s carrying value may not be recovered. The Company recognized an impairment charge of $0 in 2008 and $523,342 in 2007.

Deferred Compensation

Revenue Recognition

The Company recognizes revenue when delivery of the product has occurred or services have been rendered, title has been transferred, the price is fixed and collectibility is reasonably assured. Sales of goods are final, with no right of return.

Cost of Goods Sold

Costs of goods sold include manufacturing costs, including materials, labor and identifiable overhead related to finished goods and components.

(Continued)

F-11

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising

Advertising and marketing costs are expensed as incurred. During the years ended December 31, 2008 and 2007, advertising costs were $63,129 and $52,989, respectively.

Research and Development Costs

The Company expenses research and development costs as incurred. During the years ended December 31, 2008 and 2007, research and development costs were $245,080 and $350,810, respectively.

Concentrations of Credit Risk and Fair Value of Financial Instruments

The Company has financial instruments that are exposed to concentrations of credit risk and consist of cash. The Company routinely maintains cash at certain financial institutions in amounts substantially in excess of FDIC insurance limits; however, management believes that these financial institutions are of high quality and the risk of loss is minimal.

Net (Loss) Per Share

Basic and diluted net loss per share information is presented under the requirements of SFAS No. 128, Earnings Per Share. Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible preferred stock, in the weighted-average number of common shares outstanding for a period, if dilutive. All potentially dilutive securities have been excluded from the computation, as their effect is anti-dilutive.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse.

(Continued)

F-12

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Other Comprehensive Income

The Company has no material components of other income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.

Warranty Costs

The Company warrants its products against manufacturing defects for a period of one year. The Company assumed warranty coverage for products sold by EDT from September 24, 2003 thru September 24, 2004. For the period September 24, 2004 through December 31, 2008, the Company has had no warranty claims. The Company has no history of material warranty claim expenses and has not provided a liability for future warranty expense as of December 31, 2008, as it is management’s opinion that such liability is immaterial as of December 31, 2008. Once significant sales of the new stun guns commence, the Company expects to make an accrual for warranty claims based on sales.

Recent Accounting Pronouncements

In June 2008, the FASB’s issued an EITF 07-5’s clarifying the scope for the requirements for convertible debt to be treated as liabilities. This change will go into effect for fiscal year beginning January 1, 2009. EITF 07-5 responded to practice questions about whether an instrument or embedded feature is indexed to the reporting company’s own stock by establishing a framework for the determinations and by nullifying some previous requirements. One of the requirements for classifying a warrant in stockholders’ equity is that it be considered “indexed to the entity’s own stock.” A warrant that is not considered indexed to a company’s own stock must be accounted for as a liability. Management is in the process of determining the effect, if any, the adoption of 07-5 will have on the Company’s financial statement.

(Continued)

F-13

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock Based Compensation

The Company has selected the Black-Scholes option-pricing model as the most appropriate method for determining the estimated fair value for stock-based awards.

(Continued)

F-14

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The fair value of stock based awards was estimated using the Black-Scholes model with the following weighted average assumptions for the years ended December 31, 2008 and 2007.


	Year Ended			Year Ended
	December 31			December 31,
	2008			2007
Estimated fair value	$	6.71		$	6.00
Expected life (years)		3.81			18.00
Risk free interest rate		1.95	%		3.37	%
Volatility		181.83	%		176	%
Dividend yield		—			—

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted SFAS No. 157 for our financial assets and liabilities. Management uses the fair value hierarchy of SFAS No. 157, “Fair-Value Measurements,” which gives the highest priority to quoted prices in active markets. The fair value of financial instruments is estimated based on market trading information, where available. Absent published market values for an instrument or other assets, management uses observable market data to arrive at its estimates of fair value. Management believes that the carrying amount of cash and cash equivalents, accounts receivable, accrued liabilities and long-term debt approximate far value.

SFAS No. 157 defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted price for identical or similar assets and liabilities in markets that are not active; or other input that are observable or can be corroborated by observable market data.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, segregated among the appropriate levels within the fair value hierarchy:

Fair Value Measurements at December 31, 2008 with:

Quoted prices in

active

markets for

Significant other

Significant

identical

observable inputs

unobservable

(Level 1)

(Level 2)

(Level 3)

Liabilities

Derivative Liability

7,377,221

—

Fair Value of Stock Options

8,825,508

F-15

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

Embedded Derivatives

The conversion feature of the convertible note payable and warrants issued in connection with the convertible note payable was accounted for as embedded derivatives and were valued on the transaction date using the Black-Scholes pricing model. At the end of each quarterly reporting date, the value of the derivatives are evaluated and adjusted to current fair value. At December 31, 2008, the Company’s derivative valuation liability totaled $7,377,771.


Embedded Derivative Liability, December 31, 2007	$	3,660,000
Adjustment of Liability due to Termination of Registration Rights Agreement		(3,130,000	)
Embedded Derivative Liability Expense, December 31, 2008		6,847,771
Ending Balance, December 31, 2008	$	7,377,771

Reclassification

Certain reclassifications have been made to previous reported amounts, so that the prior year’s presentation is comparative with the current presentation.

NOTE 3: INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 2008 and 2007:


	December 31, 2008			December 31, 2007
Patent for Stun Gun	$	2,672,620		$	2,672,620
Accumulated Amortization		(1,527,222	)		(1,145,419	)

	$	1,145,398		$	1,527,201

The intangibles are amortized over the estimated life of seven years, beginning the first quarter of 2005

Estimated amortization for intangible assets is as follows:


Year	Amount
2009		381,803
2010		381,803
2011		381,792

	$	1,145,398

F-16

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 4: OPERATING LEASES

The Company has entered into operating leases for office and warehouse space, which runs through November of 2008 and March of 2009, respectively. Rent expense was $131,736 and $147,390 during the years ended December 31, 2008 and December 31, 2007, respectively.

The Company’s corporate office and production facility includes office space of 3,454 square feet and a warehouse production area of approximately 11,339 square feet, in which the Company pays $10,713 per month for this space on a lease running through March 2012.

The Company’s production and manufacturing facility includes approximately 9,200 square feet of warehouse, manufacturing, office, and storage space. The Company pays $5,332 to $5,491 per month for this space for a three year lease term. The initial lease term ends March 31, 2009, in which the Company has declined an option to renew for two additional consecutive two year terms.

Future minimum lease payments under operating leases as of December 31, 2008 are $126,284 in 2009 and $146,414 in 2010 and 2011 and $36,603 in 2012.

NOTE 5: EMPLOYMENT AGREEMENTS

On December 30, 2007, the Company entered into an employment agreement with Ronald Bellistri to become chief executive officer of the Company, effective January 1, 2008. As a sign on bonus, Mr. Bellistri received an option to acquire 200,000 shares of common stock of the Company. Mr. Bellistri resigned in August of 2008 and on October 29, 2008, he filed a demand for arbitration against the Company. Mr. Bellistri alleges that he is due wages and stock options pursuant to his employment agreement with the Company, notwithstanding his written resignation. Mr. Bellistri has a three-count claim alleging unpaid wages, wrongful discharge and breach of contract and convenant of good faith and fair dealing. Mr. Bellistri seeks $984,000, plus punitive damages, arbitration costs and attorneys’ fees. The Company filed a counterclaim for breach of contract against Mr. Bellistri for his failure to perform the duties required in his employment agreement. The parties are currently engaged in discovery. The arbitration will be heard before a three-arbitrator panel and is set for May 12-14, 2009, in Tampa, Florida.

F-17

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 6: CAPITAL STOCK TRANSACTIONS

On January 25, 2007, the Company and certain existing warrant holders (the “Warrant Holders”) entered into an amendment and exercise agreement (the “Agreement”) pursuant to which (i) the Company reduced the exercise price of the warrants then held by the Warrant Holders (the “Existing Warrants”) to $3.00 per share; (ii) the Warrant Holders exercised all of the Existing Warrants at an exercise price of $3.00 per share and acquired 200,000 shares of the Company’s common stock; and (iii) the Company issued to the Warrant Holders new warrants (the “New Warrants”) to purchase up to an aggregate of 300,000 shares of the Company’s common stock at an exercise price of $6.00 per share.

On March 19, 2007, the Company and a certain investor entered into a Securities Purchase Agreement for the investor to subscribe and acquire 28,037 shares of the Company’s common stock at a purchase price of $5.35 per share, pursuant to the agreement. On March 28, 2007, the Company and a certain investor entered into a Securities Purchase Agreement for the investor to subscribe and acquire 18,692 shares of the Company’s common stock at a purchase price of $5.35 per share, pursuant to the agreement. On April 23, 2007, the Company and a certain investor entered into a Securities Purchase Agreement for the investor to subscribe and acquire 34,000 shares of the Company’s common stock at a purchase price of $3.00 per share, pursuant to the agreement. As a result of the August 2, 2007 financing, $931,250 of related party notes payable and related accrued interest of $72,027 were converted into 194,405 shares of common stock and was issued to the related party.

On February 29, 2008, the Company completed a private placement transaction with an institutional investor pursuant to which the Company issued and sold to the investor a senior secured convertible note (the “February Note”) in the aggregate principal amount of $2,150,000 and a warrant to purchase 600,000 shares of the Company’s common stock (the “February Warrant”). The investor also received 250,000 shares of common stock. Midtown also received 20,000 shares in connection with the financing. The investor has also converted $320,000 of the Note into 210,412 of common stock.

At December 31, 2008, the Company has 10,417,586 warrants outstanding to acquire shares of the Company’s common stock at prices ranging from $.01 to $37.50 per share.


Number of
Warrants	Exercise	Warrant
Outstanding	Price	Expiration Date
30,000	0.005	9/24/2011
34,000	1.9795	9/24/2009
40,000	37.5	12/30/2009
1,181,568	2.539	8/3/2012
170,293	3.171	8/3/2012
95,520	3.527	2/29/2013
25,000	3.6	10/22/2009
2,958,632	1.45	9/12/2013
5,882,584	1.45	3/29/2016

10,417,597

F-18

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 7: INCOME TAXES

There has been no provision for U.S. federal, state, or foreign income taxes for any period because the Company has incurred losses in all periods and for all jurisdictions. The Company has not recorded an income tax benefit for the losses incurred because it is not more likely than not that any deferred tax asset is realizable. A reconciliation of the provisions (benefit) for income taxes, which amounts are determined by applying the statutory federal income tax rate to loss before income taxes, is as follows:


	For the year Ended			For the year Ended
	December 31, 2008			December 31, 2007
Benefit for Income Taxes Computed Using the Statutory Rate of 34%	$	(7,296,869	)	$	(2,838,419	)
Difference Between Book Expense and Tax Expense of Charges for Stock Issued for Services		—			284,894
Other		3,424			63,339
Stock Option Expense		3,000,673			—
Debt Discount Amortization		356,164			—
Derivative Expense		2,328,242			1,244,400
Change in Valuation Allowance		1,608,366			1,245,786

Income Tax Benefit	$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets are as follows:


	December 31, 2008			December 31, 2007
Deferred Tax Assets
Net Operating Loss Carryforward	$	6,894,848			5,447,332
Depreciation and Amortization		259,726			199,632
Loan Fee		—			(100,756	)
Valuation Allowance		(7,154,574	)		(5,546,208	)

Net Deferred Tax Asset	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. As of December 31, 2008, the Company had net operating loss carryforwards of approximately $20,279,000 for federal and state income tax purposes. These carryforwards, if not utilized to offset taxable income begin to expire in 2019. Utilization of the net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation could result in the expiration of the net operating loss before utilization.

F-19

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 8: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER

General and administrative expenses, other includes the following:


	For the Year Ended		For the Year Ended
	December 31, 2008		December 31, 2007
Legal and Professional Fees	$	851,944	$	467,788
Stock Option Expense		8,825,508		284,382
Value of Warrants Issued for Services		—		553,542
Insurance Expense		18,632		14,265
Other		596,466		477,892

	$	10,292,550	$	1,797,869

NOTE 9: NOTE PAYABLE—CONVERTIBLE

On May 15, 2007, the Company and certain investors entered into a Convertible Senior Promissory Note (“May 2007 Note”) to loan the Company $204,000 at a rate of 10% per annum. The May 2007 Note is due and payable on the earlier of May 31, 2009 or when the Company achieves revenues of $8,000,000 annually beginning June 1, 2007. This note was satisfied on August 6, 2007 and is no longer outstanding.

On August 3, 2007, the Company completed a private placement transaction with an institutional investor pursuant to which the Company issued and sold to the investor a senior secured convertible note (the “August 2007 Note”) in the aggregate principal amount of $3,000,000 and a warrant to purchase 2,586,207 shares of the Company’s common at $1.45 per share (the “August 2007 Warrant”). During 2008, $320,000 of the notes was converted into 210,412 shares of common stock, and $61,200 of interest was capitalized leaving a note balance at December 31, 2008 of $2,741,200. The conversion rate of the notes, the number of shares under its warrant and the warrant price have been reset due to anti-dilution provisions of the notes. At December 31, 2008 the August 2007 Note is convertible into 2,149,961 shares of the Company’s common stock at a price of $1.275 per share. Under the terms of the August 2007 Note, the Company, at its option, may pay any portion of the interest then due on the August 2007 Note in cash or may elect to issue the investor shares of the Company’s common stock. The August 2007 Warrant (2,586,207 shares at December 31, 2008) is exercisable immediately at a price of $1.45 per share. Pursuant to the purchase agreement, the Company granted the investor certain registration rights with respect to the shares to be issued upon conversion of the August 2007 Note and upon exercise of the August 2007 Warrant. Neither the shares to be issued upon conversion of the August 2007 Note nor upon exercise of the August 2007 Warrant have been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements. The August 2007 Note and the August 2007 Warrant were offered and sold to an accredited investor (as defined in section 501(a) of Regulation D) pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act. Midtown Partners & Co., LLC (“Midtown”), acted as placement agent for the offering. The Company paid Midtown a cash fee of $270,000 and issued a warrant to Midtown to purchase 170,293 shares of the Company’s common stock at an exercise price of $3.17 per share.

F-20

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 9: NOTE PAYABLE—CONVERTIBLE (CONTINUED)

On February 29, 2008, the Company closed a private placement transaction (the “February 2008 Offering”) with an institutional investor pursuant to which the Company issued and sold a senior secured convertible note (the “February 2008 Note”) in the aggregate principal amount of $2,150,000 and a warrant to purchase 3,296,377 shares of the Company’s common stock at $1.45 per share (the “February 2008 Warrant”). The Company also issued 250,000 shares of the Company’s Common stock valued at $981,250. The conversion rate of the note, the number of shares under the warrant and the warrant exercise price have been reset due to the anti-dilution provisions of the February 2008 Note. At December 31, 2008, the February 2008 Note is convertible into 1,686,275 shares of the Company’s common stock at a price of $1.275 per share. Under the terms of the February 2008 Note, the Company, may pay any portion of the interest then due on the February 2008 Note in cash or may elect to issue shares of the Company’s common stock. The February 2008 warrant, consisting of 3,296,377 shares of stock at December 31, 2008, is exercisable immediately at a price of $1.45 per share. In connection with the February 2008 Offering, the Company amended a security agreement entered into in August 2007 in connection with a prior offering and amended and restated the senior secured convertible note issued in such offering. Neither the shares to be issued upon conversion of the February 2008 Note nor upon exercise of the February 2008 Warrant nor the Shares have been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements. Midtown acted as placement agent for the February 2008 Offering. The Company paid Midtown a cash fee equal to $67,500 and issued to Midtown 20,000 shares of Common Stock and a warrant to purchase 95,520 shares of the Company’s common stock. The February 2008 Note, the February 2008 Warrant and the Shares were offered and sold to an “accredited investor” (as defined in section 501(a) of Regulation D) pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act.

On September 12, 2008, the Company closed a private placement transaction (the “September 2008 Offering”) with an institutional investor pursuant to which the Company issued and sold a senior secured convertible note (the “September 2008 Note”) in an aggregate principal amount of $3,000,000, a warrant to purchase 2,586,207 shares of the Company’s common stock (the “September 2008 Warrant”). The September 2008 Note is convertible into 2,352,941 shares of the Company’s common stock at a price of $1.28 per share. Under the terms of the September 2008 Note, the Company, at its option, may pay any portion of the interest then due on the September 2008 Note in cash or may elect to issue shares of the Company’s common stock. The September 2008 Warrant is exercisable immediately at a price of $1.45 per share.

F-21

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 9: NOTE PAYABLE—CONVERTIBLE (CONTINUED)

Neither the shares to be issued upon conversion of the September 2008 Note nor upon exercise of the September 2008 Warrant have been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements. Midtown acted as placement agent for the September 2008 Offering. The Company paid Midtown a cash fee equal to $67,500 and issued a warrant to purchase 372,414 shares of the Company’s common stock at a price of $1.45 per share. The September 2008 Note and the September 2008 Warrant were offered and sold to an “accredited investor” (as defined in section 501(a) of Regulation D) pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act. All exhibits attached hereto are incorporated herein by reference.

All of the Company’s assets have been pledged as collateral for the notes described above.

The following summarizes the debt discount related to the Company’s convertible notes:


	For the Year Ended			For the Year Ended
	December 31, 2008			December 31, 2007
Balance, Beginning of Period	$	1,826,854		$	0
Cash Fees Paid		489,950			326,000
Fair Value of Stock Issued in Connection with Debt		1,059,750			—
Beneficial Conversion of Note		—			1,257,332
Fair Value of Warrants Issued		3,595,300			243,522

		6,971,854			1,826,854
Less: Accumulated amortization recognized As interest expense		(1,631,853	)		(166,617	)

	$	5,340,001		$	1,660,237

The unamortized debt discount is netted against the note balance in the accompanying financial statements.

The issuable warrants and the registration rights features of the Notes issued on August 3, 2007, February 29, 2008 and September 15, 2008 were reviewed for possible embedded derivatives. Conversion features of the notes were deemed to be embedded derivatives and were accounted for as a derivative liability. At the end of each quarterly and yearly reporting dates, the value of the derivatives are evaluated and adjusted to current fair value. At December 31, 2008, the Company’s derivative valuation liability totaled $7,377,771.

F-22

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 10: NOTES PAYABLE TO RELATED PARTIES

Notes payable at December 31, 2008 consisted of one note of $31,250 to one of the major shareholders. The note bears interest at 4% per annum and is due on demand. The shareholder has the right to receive payment of the note and accrued interest in common stock of the Company at a conversion rate of $2.00 per share. As of December 31, 2008, if the shareholder demanded payment in stock, the Company would be obligated to issue 88,358 shares of common stock to one of the major shareholders.

NOTE 11: ACCRUED LIABILITIES

Accrued liabilities at December 31, 2008, and 2007 are as follows:


	2008		2007
Accrued Payroll Liabilities	$	36,314	$	14,434
Accrued Interest		23,037		68,827
Other Accruals		195,287		41,585

	$	254,638	$	124,846

NOTE 12: STOCK OPTION/STOCK BONUS PLAN

On April 14, 2005, the Company adopted the 2005 Stock Option/Bonus Plan (“Plan”). The Plan provides for options and other stock-based awards that may be granted to eligible employees, officers, consultants, and non-employee directors of the Company. The Plan was amended during 2008 to increase the allowable shares to 10,000,000. The Company has reserved 10,000,000 shares of common stock for future issuance under the Plan. As of December 31, 2008 there remain 8,713,100 shares which may be issued under the plan.

The purpose of the Plan generally is to retain and attract persons of training, experience, and ability to serve as employees of the company and its subsidiaries and to serve as non-employee directors of the Company, to encourage the sense of proprietorship of such persons and to stimulate the active interest of such persons in the development and financial success of the Company and its subsidiaries.

The Plan is administered by the Compensation Committee of the board of directors (the “Committee”). The Committee has the power to determine which eligible employees will receive awards, the timing and the manner of the grant of such awards, the exercise price of stock options (which may not be less than market value on the grant date), the number of shares, and all of the terms of the awards. The Company may at any time amend or terminate the Plan. However, no amendment that would impair the rights of any participant, with respect to outstanding grants, can be made without the participant’s prior consent. Stockholder approval of an amendment to the Plan is necessary only when required by applicable law or stock exchange rules.

(Continued)

F-23

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 12: STOCK OPTION/STOCK BONUS PLAN (CONTINUED)

The following summarizes stock option activity under the Plan and related information as of December 31, 2008:


				Weighted Average
	Shares			Exercise Price
Outstanding beginning of year		165,500			9.70
Granted		1,543,000			7.35
Exercised		(16,000	)		20.85
Cancelled		(405,600	)		9.65

Outstanding end of year		1,286,900			8.60

Exercisable end of year		201,900			0.65

The following summarizes stock option activity under the Plan and related information as of December 31, 2007:


				Weighted Average
	Shares			Exercise Price
Outstanding beginning of year		161,400			16.65
Granted		92,500			2.30
Exercised		—			—
Cancelled		(88,400	)		14.65

Outstanding end of year		165,500			9.70

Exercisable end of year		101,000			14.90

NOTE 13: LITIGATION

Stinger is a party in Case Number 3:04CV620K styled Taser International, Inc. v. Stinger Systems, Inc. and Robert F. Gruder , pending in the United States District Court for the Western District of North Carolina. In the suit, Taser asserts a claim for false advertising under 15 U.S.C. Section 1125(a) and seeks injunctive relief, monetary damages in an unspecified amount, trebling of damages, attorneys fees and destruction of certain advertising material. Based upon a review of the pleading, it is Stinger’s management’s opinion that Taser’s claims center around the allegation that the Stinger stun gun does not exist and therefore Stinger’s statements about its existence and capabilities are false and misleading and inasmuch as Stinger has demonstrated its Stinger stun gun on several occasions. It is Stinger’s management’s opinion that Stinger will prevail in the lawsuit. Stinger has moved to dismiss Taser’s claims, responded to the allegations and counter sued Taser for defamation. It is seeking monetary damages, punitive damages and attorney fees.

On August 4, 2008, John Ward filed an eight-count complaint against Dennis Kaufman, Frances J. Reimer, the Company, John Doe 1 and John Doe 2 based, essentially, on a loan agreement entered into in 1992, whereby Mr. Ward loaned $30,000 to Stun Tech, Inc. Mr. Ward seeks payment of a promissory note which was the security for the loan, from all the defendants, and punitive damages against Dennis Kaufman and Frances Reimer. The Company is a defendant to the breach of contract, unjust enrichment and constructive trust counts of the complaint. Mr. Ward alleges liability against the Company based on a successor liability theory, claiming that the Company is the successor entity of Electronic Defense Technology LLC and, ultimately, of Stun Tech, Inc., the obligor of the promissory note. Mr. Ward alleges damages in the amount of $232,630 from the Company, comprising the principal of the note and interest from 1992. On September 18, 2008, the Company filed its answer and affirmative defenses. Discovery is on-going. The deposition of the Company’s corporate representative is scheduled for April 23, 2009, after which, the Company may move for summary judgment based on its affirmative defenses. This case is set for trial for July 20-24, 2009.

(Continued)

F-24

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 13: LITIGATION (CONTINUED)

F-25

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

NOTE 14: SUBSEQUENT EVENTS

All amounts set forth in this Form 10-K have been adjusted to reflect a 1-for 5 reverse stock split completed on January 17, 2009.

NOTE 15: LIQUIDITY AND CAPITAL RESOURCES

The Company has experienced significant operating losses since its inception in 2004. The process of developing and commercializing the Company’s products requires significant research and development, engineering, testing, significant marketing and sales efforts, and manufacturing capabilities. These activities, together with the Company’s general and administrative expenses, require significant investments and are expected to continue to result in operating losses for the foreseeable future while the Company introduces its Stinger product line to the marketplace. To date, revenues recognized from its current products have not been sufficient for the Company to achieve or sustain profitability. The Company believes it is unlikely that its existing cash resources will be sufficient to fund its operations for 2009 at its planned levels of research, development, sales, and marketing activities. Thus, execution of its current strategies will require it to raise additional capital through debt or equity transactions in order to finance its operations through 2009. The Company believes that additional financing may be available to it, but there can be no guarantee that financing will be available on acceptable terms or at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of or eliminate its research and development programs, reduce its commercialization efforts, or effect changes to its facilities or personnel, and its ability to operate as a going concern may be adversely impacted.

F-26

Stinger Systems (CE) (USOTC:STYS)
過去株価チャート
から 5 2024 まで 6 2024