- Quarterly Report (10-Q)

United States Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q


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

		For the quarterly period ended March 31, 2009

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

		For the transition period from to

Commission File Number 000-51822

STINGER SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


NEVADA (State or other jurisdiction of incorporation or organization)		30-0296398 (I.R.S. Employer Identification Number)

5505 Johns Road, Suite 702 Tampa, Florida (Address of principal executive offices)		33634 (Zip Code)

(813) 281-1061
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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 definition 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

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 Quarterly Report Form 10-Q have been adjusted to reflect a 1-for 5 reverse stock split completed on January 17, 2009. There were 4,001,832 shares outstanding of the issuer’s common stock, par value $0.001 per share, as of May 15, 2009.

STINGER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2009
TABLE OF CONTENTS


		Page

PART I — FINANCIAL INFORMATION			3

ITEM 1.	Financial Statements (unaudited)		3

	Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008 (audited)		3

	Consolidated Statements of Operations for the three months ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited)		5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited)		6

	Notes to Consolidated Financial Statements (unaudited)		8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		16

ITEM 4.	Controls and Procedures		17

PART II — OTHER INFORMATION			18

ITEM 1.	Legal Proceedings		18

ITEM 1A.	Risk Factors		19

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23

ITEM 3.	Defaults Upon Senior Securities		23

ITEM 4.	Submission of Matters to a Vote of Security Holders		23

ITEM 5.	Other Information		23

ITEM 6.	Exhibits		24

SIGNATURES			25

INDEX TO EXHIBITS			26
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION


ITEM 1.		Financial Statements

STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS


	March 31,		December 31,
	2009		2008
	(Unaudited)
CURRENT ASSETS
Cash	$	25,261	$	699,934
Accounts Receivable, net of $1,800 allowance for uncollectible accounts in 2009 and 2008		119,298		75,200
Inventories, at cost		248,795		238,757
Prepaid Expenses and Other Current Assets		220,910		254,898

TOTAL CURRENT ASSETS		614,264		1,268,789

EQUIPMENT AND FURNITURE
Equipment and Furniture, net of accumulated depreciation of $266,522 and $229,767 in 2009 and 2008, respectively		305,764		231,706

OTHER ASSETS
Prepaid Interest, Long Term Asset		203,892		257,373
Intangible Assets, net of accumulated amortization of $1,622,672 and $1,527,222 in 2009 and 2008, respectively		1,049,947		1,145,398
Other Assets		35,898		35,898

TOTAL OTHER ASSETS		1,289,737		1,438,669

TOTAL ASSETS	$	2,209,765	$	2,939,164

See accompanying notes.
(Continued)

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


	March 31,			December 31,
	2009			2008
	(Unaudited)
CURRENT LIABILITIES
Accounts Payable	$	643,710		$	417,425
Accrued Liabilities		382,164			254,638
Capital Lease Obligation, current portion		24,090			23,571
Note Payable-Related Parties		31,250			31,250

TOTAL CURRENT LIABILITIES		1,081,214			726,884

Capital Lease Obligation, long-term portion		46,072			52,293
Note Payable-Convertible, net of debt discount of $5,235,319 and $5,340,001 for 2009 and 2008, respectively		2,655,881			2,551,199
Derivative Liability Associated with Convertible Note and Warrants		7,837,074			7,377,771

TOTAL LIABILITIES		11,620,241			10,708,147

COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ (DEFICIT) EQUITY
Preferred Stock, $0.001 Par Value, 1,000,000 Shares Authorized, None Issued		—			—
Common Stock, $0.001 Par Value, 50,000,000 Shares Authorized, 4,001,832 and 4,001,832 Shares Issued and Outstanding at March 31, 2009 and December 31, 2008, respectively		4,002			4,002
Additional Paid-In Capital		47,259,019			47,259,019
Retained Deficit		(56,673,497	)		(55,032,004	)

TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY		(9,410,476	)		(7,768,983	)

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	2,209,765		$	2,939,164

See accompanying notes.

STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


	Three Months Ended March 31,
	2009			2008
REVENUES
Sales	$	273,009		$	182,557
Cost of Product Sold		299,325			191,916

GROSS (LOSS) MARGIN		(26,316	)		(9,359	)

SELLING EXPENSES		74,920			156,955

GENERAL AND ADMINISTRATIVE EXPENSES
Employee Salaries		250,933			287,921
Other		325,422			1,983,237
Depreciation and Amortization		132,206			120,817
Research and Development		84,763			70,096

TOTAL GENERAL AND ADMINISTRATIVE EXPENSES		793,324			2,462,071

LOSS FROM OPERATIONS		(894,560	)		(2,628,385	)
INTEREST INCOME		5,402			2,624
INTEREST EXPENSE		(293,032	)		(190,688	)
DERIVATIVE LIABILITY EXPENSE		(459,303	)		(3,410,000	)

LOSS BEFORE INCOME TAXES		(1,641,493	)		(6,226,449	)

PROVISION FOR INCOME TAXES		—			—

NET LOSS	$	(1,641,493	)	$	(6,226,449	)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.41	)	$	(1.65	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted		4,001,832			3,768,707

See accompanying notes.

STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Three Months Ended March 31,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(1,641,493	)	$	(6,226,449	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		132,206			120,817
Stock Option Expense		—			1,606,317
Amortization of Discount on Notes Payable-Convertible		104,682			191,015
Derivative Liability Associated with Convertible Note and Warrants		459,303			3,410,000
Changes in Operating Assets and Liabilities Accounts Receivable		(44,098	)		(40,658	)
Inventory		(10,038	)		(58,926	)
Prepaid Expenses		87,469			3,718
Accounts Payable		226,285			81,772
Accrued Liabilities		127,526			(30,101	)

NET CASH USED IN OPERATING ACTIVITIES		(558,158	)		(942,495	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment		(110,813	)		(7,473	)

NET CASH USED IN INVESTING ACTIVITIES		(110,813	)		(7,473	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Capital Lease Obligation		(5,702	)		(6,942	)
Proceeds from the Issuance of Convertible Notes Payable, Net of $117,500 Issuance Costs and $641,775 prepaid interest		—			1,390,725

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(5,702	)		1,383,783

NET DECREASE IN CASH		(674,673	)		433,815
CASH BALANCE, BEGINNING OF PERIOD		699,934			345,293

CASH BALANCE, END OF PERIOD	$	25,261		$	779,108

(Continued)

STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Three Months Ended March 31,
	2009		2008
NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional Paid in Capital from Termination of Registration Rights on Debt		—		3,130,000
Reduction of Derivative Liability due to Termination of Registration Rights on Debt		—		(3,130,000	)
Additional Paid in Capital, Issued in Connection with Financing from Stock		—		1,059,480
Common Stock Issued for Debt Discount		—		270
Debt Discount from Issuance of Common Stock		—		(1,059,750	)
Prepaid Interest from Convertible Note		—		(641,775	)
Debt Discount from Fees Retained		—		(422,450	)
Convertible Note		—		1,064,225
Conversion of Notes Payable to Common Stock		—		(320,000	)
Common Stock Issued for Notes Payable Conversion		—		210
Additional Paid in Capital from Conversion of Notes Payable		—		319,790
Debt Discount on Notes Payable		—		(3,595,300	)
Additional Paid in Capital, Issued in connection of Notes Payable		—		3,595,300
Deferred Debt Discount		—		—
Common stock		—		—
Paid-in-capital		—		—

	$	—	$	—


SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid During the Year For:
Interest	$	1,618	$	330,646

Taxes	$	—	$	—

See accompanying notes.

STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements for Stinger Systems, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements as of December 31, 2008. Operating results as of March 31, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

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 Enterprise and Related Information ”, therefore, no separate segment disclosures have been included in the accompanying notes to the financial statements.

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

Embedded Derivatives

The conversion feature of the convertible notes payable and warrants issued by the Company in August 2007, February 2008 and September 2009 was accounted for as an embedded derivative and was 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 March 31, 2009, the Company’s derivative valuation liability totaled $7,837,074.

In conjunction with the February 29, 2008 offering, the registration rights were removed from the amended August 2007 Note. This eliminated the embedded derivative pertaining to the Warrant issued in conjunction with the August 2007 offering. The table below illustrates the effect of the removal of registration rights.


Embedded Derivative Liability, December 31, 2007	$	3,660,000
Adjustment of Liability due to amended August 2007 Note		(3,130,000	)
Embedded Derivative Liability Expense, December 31, 2008		6,847,771
Embedded Derivative Liability Expense, March 31, 2009		459,303

Ending Balance, December 31, 2008	$	7,837,074

Reclassifications

Certain reclassifications have been made to the 2008 consolidated financial statements in order to conform to the 2009 presentation.

Loss per Share

Basic loss per share is determined based on the weighted average number of common shares outstanding during each period. Diluted loss per share is the same as basic loss per share because all common share equivalents are excluded from the calculation, because their effect is anti-dilutive. The weighted average number of shares of common stock outstanding for the three month period ended March 31, 2009 and March 31, 2008 was 4,001,832 and 3,768,707, respectively. Options and warrants to purchase 11,662,486 and 3,768,707 shares of common stock were outstanding at March 31, 2009 and March 31, 2008, respectively, and were excluded from the computation of diluted earnings per share as the effect of these options and warrants would have been anti-dilutive.

NOTE 2: USE OF ESTIMATES

The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts in the consolidated financial statements. Therefore, actual results could differ materially from those estimates used in the preparation of these financial statements.

NOTE 3: 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 collectability is reasonably assured. We warrant our products against manufacturing defects for a period of one year. As of March 31, 2009, we had no significant warranty claims on products sold. Once reasonable estimates of returns of sales of our new stun gun are obtainable, we expect to make an accrual for warranty claims based on our sales.

NOTE 4: INVENTORIES

Inventories are stated at the lower of average cost or market. Inventories consisted of the following at March 31, 2009 and December 31, 2008:


	March 31,		December 31,
	2009		2008
	(Unaudited)
Raw Materials and Work-In Progress	$	206,265	$	203,595
Finished Goods		42,530		35,161

	$	248,795	$	238,757

NOTE 5: STOCK BASED COMPENSATION

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

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. As of March 31, 2009, the Company’s outstanding stock options have vested and therefore the Company has not recognized a stock option expense for the current quarter.

The fair value of the stock-based awards was estimated using the Black-Scholes model with the following weighted average assumptions:


	Three Months Ended
	March 31,
	2009			2008
Estimated fair value	$	0.70		$	0.70
Expected life (years)		1.15			1.15
Risk free interest rate		1.54	%		1.54	%
Volatility		132.05	%		140.93	%
Dividend yield		—			—

NOTE 6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER

General and Administrative Expenses — Other includes the following:


	Three Months Ended
	March 31,
	2009		2008
Legal and Professional Fees	$	186,995	$	158,086
Stock Option Expense		—		1,606,317
Rent and Utilities		52,045		43,073
Other		85,285		116,592

	$	325,422	$	1,977,237

NOTE 7: CAPITAL LEASE OBLIGATIONS

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, with the initial lease term ending on December 2010. The lease agreement contains a bargain purchase option after the initial term of the lease, 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, with the initial lease term ending on August 2011. The lease agreement contains a bargain purchase option after the initial term of the lease, 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, with the initial lease term ending August 2012. The lease agreement contains a bargain purchase option after the initial term of the lease, at which time the Company may purchase the leased equipment for $101.

NOTE 8: NOTES PAYABLE — CONVERTIBLE

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 to the institutional investor a senior secured convertible note (the “September 2008 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 (the “September 2008 Warrant”). At March 31, 2009, the September 2008 Note is convertible into 6,417,112 shares of the Company’s common stock at a price of $0.4675 per share. Under the terms of the September 2008 Note, the Company, at its option, may pay any portion of the interest then due 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.

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(the “Securities Act”), 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 Partners & Co., LLC(“Midtown”) acted as placement agent for the September 2008 Offering. The Company paid Midtown a cash fee equal to $67,500 and issued to Midtown 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.

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 to that institutional investor 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 to that institutional investor 250,000 shares of the Company’s Common stock valued at $981,250. The conversion rate of the February 2008 Note, the number of shares under the February 2008 Warrant and the February 2008 Warrant exercise price have been reset due to the anti-dilution provisions of the February 2008 Note. At March 31, 2009, the February 2008 Note is convertible into 4,598,930 shares of the Company’s common stock at a price of $0.4675 per share. Under the terms of the February 2008 Note, the Company, may pay any portion of the interest then due 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 March 31, 2009, 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 issued in connection therewith have been registered under the Securities Act 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 August 3, 2007, the Company completed a private placement transaction with an institutional investor pursuant to which the Company issued and sold to that institutional 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 stock at $1.45 per share (the “August 2007 Warrant”). During 2008, $320,000 of the August 2007 Note was converted into 210,412 shares of common stock, and $61,200 of interest was capitalized leaving a balance at March 31, 2009 of $2,741,200. The conversion rate of the August 2007 Note, the number of shares under the August 2007 Warrant and the August 2007 Warrant price have been reset due to anti-dilution provisions of the notes. At March 31, 2009 the August 2007 Note is convertible into 5,863,529 shares of the Company’s common stock at a price of $0.4675 per share. Under the terms of the August 2007 Note, the Company, at its option, may pay any portion of the interest then due in cash or may elect to issue the investor shares of the Company’s common stock. The August 2007 Warrant, consisting of 2,586,207 shares at March 31, 2009, is exercisable immediately at a price of $1.45 per share. 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 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 acted as placement agent for the offering. The Company paid Midtown a cash fee of $270,000 and issued Midtown a warrant to purchase 170,293 shares of the Company’s common stock at an exercise price of $3.17 per share.

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

The warrants and the conversion features of the August 2007 Note, the September 2008 Note and February 2009 Note were reviewed for possible embedded derivatives. The warrants and conversion features of the August 2007 Note, the September 2008 Note and February 2009 Notes were deemed to have embedded derivative features and were accounted for as such. At the end of each quarterly reporting date, the value of the derivatives are evaluated and adjusted to current fair value. At March 31, 2009, the Company’s derivative valuation liability totaled $7,837,074.

NOTE 9: LIQUIDITY AND CAPITAL RESOURCES

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. Stinger Systems views the development of the S-200 as an ongoing process and has spent several years developing the S-200 AT model ECD to be more mature, both in respect to the ECD’s overall technology and creating an efficient manufacturing processes. Because only one other significant vendor makes ECD’s, the processes and best manufacturing practices could not be sourced by traditional hiring practices. The Company has incurred substantial costs to develop a sophisticated and documented methodology to completely understand every known detail related to manufacturing the ECD. Stinger Systems believes that its knowledge of manufacturing and methods of creating efficiencies for the ECD has greatly matured. The Company believes that it is at a point in which the S-200 AT can be manufactured readily and reliably at considerably less costs than in the past.

In an effort to try to maintain excellent customer relations, the Company has replaced many older model S-200’s with newer, next generation models. The result of this is reflected poorly on the Company’s gross and net margins. However, the Company believes that these efforts have created excellent relationships and references that provide the Company the ability to become competitive in the projectile ECD marketplace. Further, the Company believes that its new production efficiencies will allow the cost of goods sold to be greatly reduced, therefore allowing the Company to be more competitive on pricing, provide improved margins, or both. 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 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 in the future. 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.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the financial statements and related notes appearing in Item 1 of this Part I and the financial statements and notes thereto and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Forward-Looking Statements

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (this “Form 10-Q”). This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. We generally identify forward-looking statements by the use of terms such as “believe”, “intend”, “expect”, “may”, “should”, “plan”, “project”, “contemplate”, “anticipate” or other similar statements. Examples of forward looking statements in this Quarterly Report on Form 10-Q include, but are not limited to statements concerning: (a) the timely development and acceptance of new products, (b) sources of supply and concentration of customers, (c) acceptance in the marketplace, establishment and expansion of our distribution channels, (d) endorsement of opinion leaders in the law enforcement community, (e) implementation risks of manufacturing automation, (f) risks associated with rapid technology change, (g) impact of media publicity, (h) dependence upon sole or limited source suppliers, (i) existing or potential lawsuits, (j) risks of governmental regulations and (k) dependence upon key employees, (l) availability of financing, and other factors detailed in the Company’s filings with the SEC. These factors should not be considered exhaustive. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. We caution you not to put undue reliance on these forward-looking statements. These forward-looking statements relate to our plans, objectives and expectations for future operations. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this Form 10-Q should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Our actual financial results realized could differ materially from the statements made herein, depending in particular upon the risks and uncertainties described in our filings with the SEC.

Executive Summary

Stinger Systems is in the business of producing and marketing less-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 Electronic Immobilization Device (EID) and the Company’s success is largely dependent upon the commercialization of this product.

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 for 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.

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.

Stinger Systems views the development of the S-200 as an ongoing process and has spent several years developing the S-200 AT model ECD to be more mature both in respect to the ECD’s overall technology but also in best understanding efficient manufacturing processes. Because only one other significant vendor makes ECD’s, the processes and best manufacturing practices could not be sourced by traditional hiring practices. The Company has incurred substantial costs to develop a sophisticated and documented methodology to completely understand every known detail related to manufacturing the ECD. Stinger Systems now believes that its knowledge of manufacturing and methods of creating efficiencies has greatly matured. The Company strives to and now believes that it is at a point in which the S-200 AT can be manufactured readily and reliably at considerably less costs than in the past.

In an effort to try to maintain excellent customer relations, the Company has replaced many older model S-200’s with newer, next generation models. The result of this is reflected poorly on the Company’s gross and net margins. However, the Company believes that these efforts have created excellent relationships and references that provide the Company the ability to become competitive in the projectile ECD marketplace. Further, the Company now believes that these new production efficiencies will allow the cost of goods sold to be greatly reduced, therefore allowing the Company to be more competitive on pricing, provide improved margins, or both.

Results of Operations

Revenues. Revenue increased $90,452, or 50%, to $273,009 for the three months ended March 31, 2009 compared to $182,557 for the three months ended March 31, 2008. The increase from 2007 to 2008 was due to the Company’s new sales model and ability to receive and fill orders during 2009.

Cost of Goods Sold. Cost of Goods Sold increased $107,409 or 56% to $299,325 for the three months ended March 31, 2009 compared to $191,916 for the three months ended March 31, 2008. The increase for the three months ended March 31, 2009 was due to increased production, and in an effort to maintain excellent customer relations, the Company’s replacement of many older model S-200’s with the next generation S-200 AT model. The cost of production for the periods ended March 31, 2009 and March 31, 2008, includes manufacturing costs such as materials, labor and identifiable overhead related to finished goods and components.

Gross Margin . Gross margin decreased $16,956 to $(26,316) for the three months ended March 31, 2009 compared to $(9,359) for the three months ended March 31, 2008. The decrease in gross margin was principally due to an increase in the costs of goods sold related to the Company’s replacement of many older model S-200’s with the next generation S-200 AT model, partially mitigated by an increase in revenue.

Selling Expenses. Selling expenses decreased $82,035 to $74,920 for the three months ended March 31, 2009 compared to $156,955 for the three months ended March 31, 2008. The decrease for the three months ended March 31, 2009 was due to the restructuring of our marketing department and other related efforts to promote current products and the branding of the Stinger name.

General and Administrative Expenses. General and Administrative (G&A) expenses decreased $1,668,746 or 68% to $793,324 for the three months ended March 31, 2009 compared to $2,462,070 for the three months ended March 31, 2008. The decrease in G&A expenses for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 is primarily due to the decrease of stock option expense and insurance expense. Additionally, other operating expenses for the three months ended March 31, 2009, include legal and professional fees of $186,995, rent and utilities expense of $52,045, stock option expense in the amount of $0, insurance expense of $1,097, and other costs in the amount of $85,285, compared to legal and professional fees of $158,086, rent and utilities expense of $43,073 stock option expense in the amount of $1,606,317, and other costs in the amount of $116,592 for the three months ended March 31, 2008.

Research and Development Expenses. Research and Development (R&D) expenses increased $14,667 or 21% to $84,763 for the three months ended March 31, 2009, compared to $70,096 for the three months ended March 31, 2008. The Company’s increase in R&D expense is due to the costs associated with future generations of our projectile stun guns.

Interest Income. Interest income increased $2,778 to $5,402 for the three months ended March 31, 2009, compared to $2,624 for the three months ended March 31, 2008. The increase for the three months ended March 31, 2009 to 2008 was due to an increase in working capital and higher cash balances as a result of the September 2008 offering.

Interest Expense. Interest expense increased $102,344 to $293,032 for the three months ended March 31, 2009, compared to $190,688 for the three months ended March 31, 2008. The increase for the three months ended March 31, 2008 to 2009 was due to financing received in February and September 2008.

Derivative Liability. Derivative liability expense decreased $2,950,697 to $459,303 for the three months ended March 31, 2009, compared to $3,044,028 for the three months ended March 31, 2008. The increase for the three months ended March 31, 2008 to 2009 was due to financing received on February 29, 2008 and September 12, 2008.

Net Loss. Net loss decreased by $4,589,956 to $(1,641,493) or $(0.41) per common share for the three months ended March 31, 2009 compared to a net loss of $(6,226,449) or $(1.65) per common share for the three months ended March 31, 2008. The increase in the net loss was due primarily to the derivative liability expense associated with accounting for financing received during the third quarter of 2007 and during 2008.

Liquidity and Capital Resources

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. Given the severe contraction in the credit market, the Company is not certain that additional financing will be available to it, or that financing will be available on acceptable terms. 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.

Stinger Systems views the development of the S-200 as an ongoing process and has spent several years developing the S-200 AT model ECD to be more mature, both in respect to the ECD’s overall technology and creating an efficient manufacturing process. Because only one other significant vendor makes ECD’s, the processes and best manufacturing practices could not be sourced by traditional hiring practices. The Company has incurred substantial costs to develop a sophisticated and documented methodology to completely understand every known detail related to manufacturing the ECD. Stinger Systems believes that its knowledge of manufacturing and methods of creating efficiencies for the ECO matured. The Company believes that it is at a point in which the S-200 AT can be manufactured readily and reliably at considerably less costs than in the past.

At March 31, 2009, we had working capital of $(466,951), including a cash balance of $25,261. This represents a decrease in working capital of $1,011,834 from working capital of $544,833 at March 31, 2008 and a cash balance of $779,108. This decrease in working capital is principally due to a decrease in cash. Operating activities for the three months ended March 31, 2009 and the three months ended March 31, 2008 used cash of $558,158 and $942,495, respectively. The decrease in the negative cash flow from operating activities during the three months ended March 31, 2009, as compared to 2008 was primarily due to the decrease in our loss for the period and general timing of obligations.

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.

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 collectability 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 March 31, 2009, 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.

Common Stock Issued for Goods and Services. We have issued our common stock for intangible assets and services received or to be received. The values assigned to such stock issuances effects the amount of recorded assets and the amount of recorded expenses. For stock issued before November 12, 2004, (the Company’s common stock began to be traded in the Pink Sheets on November 12, 2004) we assigned a value of $0.36 to $0.40 per share which approximates the cash received per share for shares sold on September 24, 2004. For shares issued after November 12, 2004 we assigned the closing value quoted on the OTC Bulletin Board or on the Pink Sheets as the amount of the recorded asset or expenditure. From May 2005 until November 2005, we incurred $145,000 per month of liquidated damages as part of the registration rights agreement from the December 2004 financing.

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. We evaluate 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. We valued our 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. We valued our intangible assets, including our stun gun technology, utilizing the aforementioned techniques. We valued our 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 we believed was achievable. Our 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 exercise price of the option and the Company’s stock price at the date of grant.

Embedded Derivatives. Certain features of the convertible notes payable were 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 March 31, 2009, the Company’s derivative valuation liability totaled $7,387,074.

Limited Trading Market. On February 22, 2006, our common stock began trading on the OTC Bulletin Board. An investment in a security quoted on the OTC Bulletin Board is speculative and involves a high degree of risk. Many OTC Bulletin Board 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 OTC Bulletin Board security may not be possible within a reasonable period of time. Reliable information regarding issuers of OTC Bulletin Board 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 OTC Bulletin Board security. Prior to February 23, 2006, our stock has been quoted on the Pink Sheets which presented similar risks related to the liquidity of the market for our shares.


ITEM 3.		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 4.		Controls and Procedures

Evaluation of 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 defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this report has 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 our principal executive and principal financial officers, to allow timely decisions regarding disclosures. Based on that evaluation, our principal executive and principal financial officer has concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Controls Over Financial Reporting

Our management, including our principal executive and principal financial officer, has evaluated any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report and have concluded that there was no change that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.		Legal Proceedings

The Company 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.

On December 30, 2007 the Company entered into an employment agreement with Ronald Bellistri to become an officer of the Company. Mr. Bellistri contract was structured for three years and one million stock option shares. Mr. Bellistri employment was terminated with the Company in August of 2008. In May of 2009, the Company and Mr. Bellistri reached a settlement for $50,000 payable over one year and Mr. Bellistri termination has forfeited his options.

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.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information contained in this 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. Failure to timely resolve any design or production issues will delay the continued production 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.

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.

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.

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 March 31, 2009 at $0.50 per share. All amounts set forth in this Form 10-Q 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.

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 Quarterly Report Form 10-Q have been adjusted to reflect a 1-for 5 reverse stock split affected on January 17, 2009. As of March 31, 2009, we had 4,001,832 shares issued and outstanding, 28,542,057 shares of common stock that could be issued upon the exercise of options, warrants, grants and convertible securities, of which 1,244,900 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 2.		Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable.


ITEM 3.		Defaults Upon Senior Securities. Not applicable.


ITEM 4.		Submission of Matters to a Vote of Security Holders. Not applicable.


ITEM 5.		Other Information. Not applicable.


ITEM 6.		EXHIBITS


Exhibit No.		Description

	31.1	Section 302 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

	31.2	Section 302 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

	32.1	Section 906 Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Section 906 Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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. (Registrant)
Date: May 15, 2009	/s/ Robert F. Gruder
	Robert F. Gruder
	President (Principal Executive Officer)



Date: May 15, 2009	/s/ Brian S. Gannon
	Brian S. Gannon
	Financial Controller (Principal Financial Officer)

Index to Exhibits


Exhibit No.		Description

	31.1	Section 302 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

	31.2	Section 302 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

	32.1	Section 906 Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Section 906 Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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