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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 Number000-51822
 STINGER SYSTEMS, INC.
  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
 (813) 281-1061
 NONE
 Common stock, par value $0.001 per share
 o þ
 o þ
 þ o
 þ
   Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer o
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
    DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 Item
    
    Description
    
    PagePART I
    
    
    11
    
    Business
    
    
    11A
    
    Risk Factors
    
    
    91B
    
    Unresolved Staff Comments
    
    
    132
    
    Properties
    
    
    133
    
    Legal Proceedings
    
    
    144
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART II
    
    
    155
    
    Market for the Registrants Common Equity, Related Stockholders Matters and Issuer Repurchases of Equity Securities
    
    
    156
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    167
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    238
    
    Financial Statements and Supplementary Data
    
    
    239
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    239A
    
    Controls and Procedures
    
    
    239B
    
    Other Information
    
    
    24PART III
    
    
    2410
    
    Directors, Executive Officers and Corporate Governance
    
    
    2411
    
    Executive Compensation
    
    
    2712
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    3013
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    3114
    
    Principal Accountant Fees and Services
    
    
    32PART IV
    
    
    3315
    
    Exhibits and Financial Statement Schedules
    
    
    33Signatures
    
    
    36Exhibit IndexEX-31.1EX-31.2EX-32.1EX-32.2
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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
   Our Business
  1/1/08- 12/31/08Sales %State Departments of Corrections
    
    
    21
    %Police Departments
    
    
    22
    %US Marshals
    
    
    6
    %County Law Enforcement Agencies
    
    
    21
    %Distributors and Other
    
    
    30
    %
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Our Products
 Stinger S-200 AT Two Dart Projectile Stun Guns
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Ice-Shield Electronic Immobilization Riot Shield
  1 4 ®
   Band-It / The R-E-A-C-T System, an Immobilizing Electronic Restraint
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Patents and Patent Applications Owned by Stinger Systems
  Stun Gun Cartridge with Electrical Primer
 Title:
    
    Cartridge for a Projectile Stun GunSerial No.:
    
    11/690,072Filing Date:
    
    03-22-2007Status:
    
    Patent PendingSubject:
    
    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 WidthsTitle:
    
    Stun GunPatent ApplicationKind Code:
    
    20080278882Filing Date:
    
    10 May 2007Status:
    
    Patent PendingSubject:
    
    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 CameraSerial No.:
    
    11/012,541Filing Date:
    
    14 December 2004Status:
    
    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.
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Manual Trigger with Indicating and Disabling features
 Title:
    
    Stun gun with low battery indicator and shutoff timerPatent No.:
    
    5,193,048Issue Date:
    
    March 9, 1993Serial No.:
    
    07/516,120Filing Date:
    
    April 27, 1990Status:
    
    Issued (12th 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.QuadrashockTMdart arrangementTitle:
    
    Stun GunSerial No.:
    
    10/957,301Filing Date:
    
    30 September 2004Status:
    
    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 deviceTitle:
    
    Electronic Restraint WeaponPatent No.:
    
    Design 323,870Issue Date:
    
    February 11, 1992Serial No.:
    
    07/367,500Filing Date:
    
    June 16, 1989Status:
    
    IssuedSubject:
    
    The ornamental design for the Ultron® II hand held stun device.
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Patents and Patent Applications Licensed by Stinger Systems
 Quadrashock TM dart arrangement
 Title:
    
    Method and apparatus for implementing a two projectile electrical discharge weaponPatent No.:
    
    6,575,073Issue Date:
    
    June 10, 2003Serial No.:
    
    09/569,431Filing Date:
    
    May 12, 2000Status:
    
    Issued (4th 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-ItTMrestraintTitle:
    
    Remotely activated electrical discharge restraint device using biceps flexion of the leg to restrainPatent No.:
    
    5,841,622Issue Date:
    
    November 24, 1998Serial No.:
    
    09/018,268Filing Date:
    
    February 4, 1998Status:
    
    Patent Expired Due to Non-payment of Maintenance Fees  Revival of the patent is being consideredSubject:
    
    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.
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Description of the Patent Process
     Marketing and Competition
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Government Regulation
   Research and Development
  History
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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.
  If we do not obtain additional funding as needed, we may be unable to fund our engineering,
marketing and production activities and to adequately pursue our business plan.
  Our failure to properly design the Stinger projectile stun gun would have a material adverse effect
on our operations.
  If we fail to convince the market place that we have competitive products, we will not be
commercially successful.
  If third party manufacturers do not perform in a commercially reasonable manner, we may not be
successful.
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Our primary competitor, Taser International Inc., has an established name in the marketplace with
both distributors and the end-users of stun products.
  Negative publicity about less-than-lethal stun weapons may negatively impact sales of our products.
  The sale and use of our products may result in claims against us.
  We have been sued by Taser International, Inc. which could result in a judgment against us that
could negatively impact our operations.
  We have been the subject of SEC Enforcement action
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Claims by others that our products infringed their patents or other intellectual property rights
could adversely affect our financial condition.
  We may not be able to protect our patent rights, trademarks, and other proprietary rights.
  Law enforcement, correction and military operations are government agencies which are subject to
budgetary constraints, which may inhibit sales.
  There exist some state, local and international regulations and/or prohibitions on less-than-lethal
weapon systems which will make it more difficult or impossible to market our products in those
jurisdictions thereby limiting potential revenues.
  If we cannot retain or hire qualified personnel, our programs could be delayed.
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Because our common stock is quoted only on the OTC Bulletin Board and the Pink Sheets, your ability
to sell your shares in the secondary trading market may be limited.
  Our stock price has been volatile and your investment in our common stock could suffer a decline in
value.
  
    
    sales of the Stinger projectile stun gun;
    
    announcements of technological innovations or new products by us or our competitors;
    
    government regulatory action affecting our products or our competitors products;
    
    developments or disputes concerning patent or proprietary rights;
    
    actual or anticipated fluctuations in our operating results;
    
    changes in our financial estimates by securities analysts;
    
    broad market fluctuations; and
    
    economic conditions in the United States.
  Trading of our stock may be restricted by the SECs penny stock regulations, which may limit a
stockholders ability to buy and sell our stock.
  FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.
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Sales of a substantial number of shares of our common stock in the public market could lower our
stock price and impair our ability to raise funds in stock offerings and impair the ability of
stockholders to receive a return on their investment in Stinger Systems.
  Exercise of outstanding options, warrants and convertible securities will dilute existing
shareholders and could decrease the market price of our common stock.
  We likely will issue additional equity securities which will dilute your share ownership.
  Any short selling of our stock could depress the stocks price and have a negative impact on the
investments in us by our stockholders.
  We do not intend to pay any cash dividends on our common stock in the foreseeable future and,
therefore, any return on your investment in our common stock must come from increases in the fair
market value and trading price of our common stock.
  
 ITEM 1.B UNRESOLVED STAFF COMMENTS
 None
 
 ITEM 2. PROPERTIES
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ITEM 3. LEGAL PROCEEDINGS
       ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER REPURCHASES
OF EQUITY SECURITIES
   2007
    
    High
    
    LowFirst Quarter
    
    $
    16.00
    
    
    $
    2.85Second Quarter
    
    $
    16.25
    
    
    $
    3.75Third Quarter
    
    $
    5.50
    
    
    $
    1.65Fourth Quarter
    
    $
    5.95
    
    
    $
    0.70
 2008
    
    High
    
    LowFirst Quarter
    
    $
    7.60
    
    
    $
    2.85Second Quarter
    
    $
    3.95
    
    
    $
    1.85Third Quarter
    
    $
    2.50
    
    
    $
    1.25Fourth Quarter
    
    $
    1.85
    
    
    $
    0.55
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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
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Background
  
    
    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.
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Results of Operations
  Comparison of the Years Ended December 31, 2008 and 2007
       - 18 -




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  Contractual Obligations
     - 19 -




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Intangible Assets
       - 20 -




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Critical Accounting Policies
  Revenue Recognition.
 Warranty Costs.
 Intangible Assets.
 Embedded Derivatives
 Purchase Accounting.
 Stock Options.
    - 21 -




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Limited Trading Market.
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ITEM 7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting.
  
    
    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.
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Changes in Internal Control
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionRobert F. Gruder
    
    
    50
    
    
    President and Chairman of the BoardBrian S. Gannon
    
    
    35
    
    
    Financial ControllerAndrew P. Helene
    
    
    47
    
    
    DirectorWells Van Pelt
    
    
    61
    
    
    Director
 Robert F. Gruder
 Brian S. Gannon
 Andrew P. Helene
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Wells Van Pelt
 - 25 -




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Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
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ITEM 11. EXECUTIVE COMPENSATION
  SUMMARY COMPENSATION TABLE
    Change inPension ValueandNon-Equity
    
    NonqualifiedName and
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Incentive Plan
    

    Deferred
    
    All OtherPrincipal
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($) (1)
    
    ($)
    
    Earnings ($)
    
    ($)
    
    Total ($)Robert F. Gruder
    
    2008
    
    238,004
    
    
    
    
    
    5,397,097
    
    
    
    
    
    
    
    5,635,101Chief Executive
Officer & Chairman
    
    2007
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Ronald Bellistri(2)
    
    2008
    
    43,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,750Chief 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 -




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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
  Option Awards
    
    Stock AwardsEquity
    
    Equity IncentiveEquity Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Plan Awards:Plan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    Market orNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Market Value
    
    Number of
    
    Payout Value ofSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    of Shares or
    
    Unearned
    
    UnearnedUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    Shares, Units or
    
    Shares, Units orUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    Option
    
    Stock That
    
    Stock That
    
    Other Rights
    
    Other RightsOptions (#)
    
    Options (#)
    
    Unearned Options
    
    Exercise
    
    Expiration
    
    Have Not
    
    Have Not
    
    That Have Not
    
    That Have NotName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    Price ($)
    
    Date
    
    Vested (#)
    
    Vested ($)
    
    Vested (#)
    
    VestedRobert F. Gruder
    
    
    800,000
    
    
    
    
    
    
    
    
    
    
    $
    0.55
    
    
    
    11/5/201312,000
    
    
    
    
    
    
    
    
    
    
    $
    1.00
    
    
    
    1/11/2013
 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
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DIRECTOR COMPENSATION
  Change in PensionValue andFees
    
    
    
    
    
    Option
    
    Non-Equity
    
    NonqualifiedEarned or
    
    Stock
    
    Awards
    
    Incentive Plan
    
    Deferred
    
    All OtherPaid in
    
    Awards
    
    ($)
    
    Compensation
    
    Compensation
    
    CompensationName
    
    Cash ($)
    
    ($)
    
    (1)(2)
    
    ($)
    
    Earnings ($)
    
    ($)
    
    Total ($)Andrew P. Helene
    
    
    
    
    
    
    
    
    
    
    616,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616,400Wells Van Pelt
    
    
    
    
    
    
    
    
    
    
    616,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616,400Richard Bo Dietl(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    T. Yates Exley(3)
    
    
    
    
    
    
    
    
    
    
    80,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 -




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
    
    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 ofBeneficial Owner
    
    Beneficial Ownership
    
    
    PercentageCastlerigg 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, AntillesVicas Capital Master Fund445 Park Avenue, 16th Floor
    
    
    4,939,148
    (2)
    
    
    9.99
    %New York, NY 10022Robert F. Gruder5505 Johns Road, Suite 702
    
    
    1,423,550
    (3)
    
    
    32.3
    %Tampa, FL 33634T. Yates Exley2239 Forrest Drive
    
    
    543,800
    (4)
    
    
    13.3
    %Charlotte, NC 28211Julie R. Exley2239 Forrest Drive
    
    
    435,800
    
    
    
    10.9
    %Charlotte, NC 28211Andrew Helene5505 Johns Road, Suite 702
    
    
    106,000
    (5)
    
    
    2.6
    %Tampa, FL 33634Wells Van Pelt
    
    
    92,530
    (6)
    
    
    2.3
    %5505 Johns Road, Suite 702Tampa, FL 33634All 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 -




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##### Table of Contents



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
  Weighted
    
    Number of securitiesNumber of securities
    
    average

    
    remaining available forto be issued upon

    
    exercise price
    
    future issuance underexercise of
    
    of outstanding
    
    equity compensationoutstanding options,
    
    options,
    
    plans (excludingwarrants and rights
    
    warrants and
    
    securities reflected inPlan Category
    
    (1)
    
    rights
    
    the first column)Equity compensation plans approved by security holders
    
    
    1,286,900
    
    
    $
    1.73
    
    
    
    8,713,100Equity 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
  - 31 -




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  Pre-Approval of Non-Audit Services
  - 32 -




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   PageNumberReport of Independent Registered Public Accounting Firm Killman, Murrell & Company, P.C.
    
    F-2Financial StatementsConsolidated Balance Sheets as of December 31, 2005 and 2004
    
    F-3Consolidated Statements of Operations for the year ended December 31, 2005 and for the
Period September 24, 2004 to December 31, 2004
    
    F-5Consolidated Statements of Stockholders Equity for the year ended December 31, 2005
and for the Period September 24, 2004 to December 31, 2004
    
    F-6Consolidated Statements of Cash Flows for the year ended December 31, 2005 and for the
Period September 24, 2004 to December 31, 2004
    
    F-7Notes to Consolidated Financial Statements
    
    F-9Pro Forma Combined Statement of Operations
  Financial statement schedules are omitted because they are not required.
 - 33 -




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Exhibit No.
    
    Description3.1
    
    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 -




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##### Table of Contents



(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 -




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##### Table of Contents



SIGNATURES
  STINGER SYSTEMS, INC.By:
    /s/ Robert F. GruderRobert F. GruderChief Executive OfficerDated: April 6, 2009  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 -




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm Killman, Murrell & Company, P.C.
    
    
    F-2Financial StatementsConsolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    F-3Consolidated Statements of Operations for the years ended
December 31, 2008 and 2007
    
    
    F-5Consolidated Statements of Stockholders Equity for the years
ended December 31, 2008 and 2007
    
    
    F-6Consolidated Statements of Cash Flows for the years ended
December 31, 2008 and 2007
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




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##### Table of Contents



Killman, Murrell & Company, P.C.
Certified Public Accountants
 3300 N. A Street, Bldg. 4, Suite 200
    
    1931 E. 37th Street, Suite 7
    
    2626 Royal CircleMidland, Texas 79705
    
    Odessa, Texas 79762
    
    Kingwood, Texas 77339(432) 686-9381
    
    (432) 363-0067
    
    (281) 359-7224Fax (432) 684-6722
    
    Fax (432) 363-0376
    
    Fax (281) 359-7112
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Killman, Murrell & Company, P.C.KILLMAN, MURRELL & COMPANY, P.C. 
 F-2




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
 December 31,2008
    
    
    2007CURRENT ASSETSCash
    
    $
    699,934
    
    
    $
    345,293Accounts Receivable, net of $1,800 Allowance for Uncollectible Accounts in 2008 and 2007
    
    
    75,200
    
    
    
    81,201Inventories, at cost
    
    
    238,757
    
    
    
    128,841Prepaid Expenses and Other Current Assets
    
    
    254,898
    
    
    
    35,149TOTAL CURRENT ASSETS
    
    
    1,268,789
    
    
    
    590,484EQUIPMENT AND FURNITUREEquipment and Furniture, net of accumulate depreciation of $229,767 and $126,414 in 2008 and 2007
    
    
    231,706
    
    
    
    276,590OTHER ASSETS, net of AccumulatedPrepaid Interest
    
    
    257,373
    
    
    
    Intangible Assets, net of accumulated amortization of $1,527,222 and $1,145,419 in 2008 and 2007
    
    
    1,145,398
    
    
    
    1,527,201Other Assets
    
    
    35,898
    
    
    
    11,496TOTAL OTHER ASSETS
    
    
    1,438,669
    
    
    
    1,538,697TOTAL ASSETS
    
    $
    2,939,164
    
    
    $
    2,405,771
 
 F-3




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS (DEFICIT)
 December 31,
    
    
    December 31,2008
    
    
    2007CURRENT LIABILITIESAccounts Payable
    
    $
    417,425
    
    
    $
    393,842Accrued Liabilities
    
    
    254,638
    
    
    
    124,846Capital Lease Obligation, current portion
    
    
    23,571
    
    
    
    21,445Note Payable-Related Parties
    
    
    31,250
    
    
    
    31,250TOTAL CURRENT LIABILITIES
    
    
    726,884
    
    
    
    571,383Capital Lease Obligation, long-term portion
    
    
    52,293
    
    
    
    77,739Note Payable-Convertible, net of debt discount of $5,340,001 and
$1,339,763 for 2008 and 2007, respectively
    
    
    2,551,199
    
    
    
    1,339,763Derivative Liability Associated with Convertible Note and Warrants
    
    
    7,377,771
    
    
    
    3,660,000TOTAL LIABILITIES
    
    
    10,708,147
    
    
    
    5,648,885COMMITMENTS 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
    
    
    
    3,506Additional Paid-In Capital
    
    
    47,259,019
    
    
    
    30,324,006Retained 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
  F-4




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008
 December 31, 2008
    
    
    December 31, 2007SALES
    
    $
    668,060
    
    
    $
    372,212COST OF PRODUCT SOLD
    
    
    770,773
    
    
    
    533,855GROSS (LOSS) MARGIN
    
    
    (102,713
    )
    
    
    (161,643
    )SELLING EXPENSES
    
    
    434,414
    
    
    
    235,531GENERAL AND ADMINISTRATIVE EXPENSESEmployee Salaries
    
    
    1,074,756
    
    
    
    1,102,479Other
    
    
    10,292,550
    
    
    
    1,797,869Depreciation and Amortization
    
    
    485,156
    
    
    
    511,238Impairment Loss
    
    
    
    
    
    
    523,342Research and Development
    
    
    245,080
    
    
    
    350,810LOSS FROM OPERATIONS
    
    
    (12,634,669
    )
    
    
    (4,682,912
    )INTEREST INCOME
    
    
    11,031
    
    
    
    21,517INTEREST EXPENSE
    
    
    (1,989,969
    )
    
    
    (437,832
    )VENDOR LIABILITY SETTLEMENT
    
    
    
    
    
    
    410,942DERIVATIVE 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 SHAREBasic
    
    $
    (5.47
    )
    
    $
    (2.51
    )Diluted
    
    $
    (5.47
    )
    
    $
    (2.51
    )WEIGHTED AVERAGE NUMBER OF COMMON
STOCK AND COMMON STOCK EQUIVALENT
SHARES OUTSTANDINGBasic
    
    
    3,925,034
    
    
    
    3,331,678Diluted
    
    
    3,925,034
    
    
    
    3,331,678
  F-5




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 2008
 Common Stock
    
    
    AdditionalNumber of
    
    
    
    
    
    
    Paid-In
    
    
    RetainedShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, December 31, 2006
    
    
    15,068,500
    
    
    $
    15,069
    
    
    $
    25,945,830
    
    
    $
    (25,222,341
    )
    
    $
    738,558Effect 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
    )
    
    $
    738,558Stock Options and
Warrants Issued To
Employees
    
    
    
    
    
    
    
    
    
    
    837,923
    
    
    
    
    
    
    
    837,923Stock Sold to Accredited
Investors
    
    
    296,729
    
    
    
    297
    
    
    
    951,802
    
    
    
    
    
    
    
    952,099Common Stock Issued for
Note Payable and Accrued
Interest
    
    
    194,405
    
    
    
    194
    
    
    
    971,833
    
    
    
    
    
    
    
    972,027Stock Issued To Employees
    
    
    600
    
    
    
    1
    
    
    
    1,709
    
    
    
    
    
    
    
    1,710Beneficial Conversion
Feature of Convertible
Debt
    
    
    
    
    
    
    
    
    
    
    1,602,854
    
    
    
    
    
    
    
    1,602,854Net 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
    
    
    
    
    
    
    
    320,000Common Stock Issued in Connection with Convertible Notes
    
    
    270,000
    
    
    
    270
    
    
    
    1,059,480
    
    
    
    
    
    
    
    1,059,750Stock Options Issued To
Employees
    
    
    
    
    
    
    
    
    
    
    8,825,509
    
    
    
    
    
    
    
    8,825,509Stock Options Exercised
by Employees
    
    
    16,000
    
    
    
    16
    
    
    
    4,934
    
    
    
    
    
    
    
    4,950Termination
of Registration Rights Feature of Warrants
    
    
    
    
    
    
    
    
    
    
    3,130,000
    
    
    
    
    
    
    
    3,130,000Value of Warrant Issued in Connection with Convertible Debt
    
    
    
    
    
    
    
    
    
    
    3,595,300
    
    
    
    
    
    
    
    3,595,300Net 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
    )
  F-6




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008
 For the Year
    
    
    For the YearEnded
    
    
    EndedDecember 31, 2008
    
    
    December 31, 2007CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (21,461,378
    )
    
    $
    (8,348,285
    )Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:Depreciation and Amortization
    
    
    485,156
    
    
    
    511,239Stock Option Warrant Expense
    
    
    8,825,509
    
    
    
    837,923Stock Issued for Services
    
    
    
    
    
    
    1,710Asset Impairment
    
    
    
    
    
    
    523,342Derivative Liability Associated with Convertible Notes and Warrants
    
    
    6,847,771
    
    
    
    3,660,000Amortization of Discount on Notes Payable  Convertible
    
    
    1,465,236
    
    
    
    268,617Changes in Operating Assets and LiabilitiesAccounts Receivable
    
    
    6,001
    
    
    
    (34,223
    )Inventory
    
    
    (109,916
    )
    
    
    163,585Prepaid Expenses
    
    
    164,653
    
    
    
    6,598Other Assets
    
    
    (24,402
    )
    
    
    Accounts Payable
    
    
    23,583
    
    
    
    (981,752
    )Accrued Liabilities
    
    
    190,992
    
    
    
    117,532NET CASH USED IN OPERATING ACTIVITIES
    
    
    (3,586,795
    )
    
    
    (3,273,714
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Equipment
    
    
    (58,469
    )
    
    
    (89,167
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (58,469
    )
    
    
    (89,167
    )CASH FLOWS FROM FINANCING ACTIVITIESCommon Stock Sales
    
    
    
    
    
    
    952,099Proceeds from issuance of Notes Payable, net of issue costs
    
    
    4,018,275
    
    
    
    2,878,000Payment 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
    
    
    
    3,587,127NET INCREASE (DECREASE) IN CASH
    
    
    354,641
    
    
    
    224,246CASH BALANCE, BEGINNING OF PERIOD
    
    
    345,293
    
    
    
    121,047CASH BALANCE, END OF PERIOD
    
    $
    699,934
    
    
    $
    345,293
 
 F-7




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##### Table of Contents



STINGER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 2008
 For the Year
    
    
    For the YearEnded
    
    
    EndedDecember 31,
    
    
    December 31,2008
    
    
    2007NON-CASH INVESTING AND FINANCING ACTIVITIESConversion 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
    
    
    
    
    
    
    106,906Note Payable
    
    
    
    
    
    
    (900,000
    )Accrued Interest
    
    
    
    
    
    
    (72,027
    )Common Stock Issued for Notes Payable Conversion
    
    
    
    
    
    
    972Additional Paid in Capital
    
    
    
    
    
    
    971,055Debt Discount on Notes Payable
    
    
    (3,595,300
    )
    
    
    (1,602,854
    )Additional Paid in Capital
    
    
    3,595,300
    
    
    
    1,602,854$
    
    
    
    $
    SUPPLEMENTAL CASH FLOW DISCLOSURESCash Paid During the Year For:Interest
    
    $
    330,646
    
    
    $
    53,845Income Taxes
    
    $
    
    
    
    $
    
  F-8




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 1: GENERAL
 Nature of Business
   NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Accounting
   Estimates
   F-9




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Cash and Cash Equivalents
  Inventories
  December 31,
    
    
    December 31,2008
    
    
    2007Raw Materials and Work-in Progress
    
    $
    203,595
    
    
    $
    99,853Finished Goods
    
    
    35,161
    
    
    
    28,988$
    238,757
    
    
    $
    128,841
 Furniture and Equipment
  December 31,
    
    
    December 31,Useful Life
    
    
    2008
    
    
    2007Furniture
    
    5 Years
    
    $
    56,592
    
    
    $
    21,825Machinery
    
    3 Years
    
    
    294,056
    
    
    
    286,856Mold For Stun Gun
    
    2.5 Years
    
    
    63,670
    
    
    
    59,556Computers and Equipment
    
    3 Years
    
    
    47,155
    
    
    
    34,767461,473
    
    
    
    403,004Accumulated Depreciation
    
    
    
    
    
    
    (229,767
    )
    
    
    (126,414
    )$
    231,706
    
    
    $
    276,590
  F-10




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Long-Lived Assets
  Deferred Compensation
   Revenue Recognition
  Cost of Goods Sold
   F-11




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Advertising
  Research and Development Costs
  Concentrations of Credit Risk and Fair Value of Financial Instruments
  Net (Loss) Per Share
  Income Taxes
   F-12




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Other Comprehensive Income
  Warranty Costs
  Recent Accounting Pronouncements
   F-13




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Stock Based Compensation
      F-14




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Year Ended
    
    Year EndedDecember 31
    
    December 31,2008
    
    2007Estimated fair value
    
    $
    6.71
    
    
    $
    6.00Expected life (years)
    
    
    3.81
    
    
    
    18.00Risk free interest rate
    
    
    1.95
    %
    
    
    3.37
    %Volatility
    
    
    181.83
    %
    
    
    176
    %Dividend yield
    
    
    
    
    
    
    
 Fair Value of Financial Instruments
       Fair Value Measurements at December 31, 2008 with:Quoted prices inactivemarkets for
    
    Significant other
    
    Significantidentical
    
    observable inputs
    

unobservable(Level
1)
    

(Level
2)
    

(Level
3)LiabilitiesDerivative Liability
    
    $
    7,377,221
    
    $
    
    
    $
    Fair Value of Stock Options
    
    
    8,825,508
 F-15




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 Embedded Derivatives
  Embedded Derivative Liability, December 31, 2007
    
    $
    3,660,000Adjustment
of Liability due to Termination of Registration Rights Agreement
    
    
    (3,130,000
    )Embedded Derivative Liability Expense, December 31, 2008
    
    
    6,847,771Ending Balance, December 31, 2008
    
    $
    7,377,771
 Reclassification
  NOTE 3: INTANGIBLE ASSETS
  December 31, 2008
    
    
    December 31, 2007Patent for Stun Gun
    
    $
    2,672,620
    
    
    $
    2,672,620Accumulated Amortization
    
    
    (1,527,222
    )
    
    
    (1,145,419
    )$
    1,145,398
    
    
    $
    1,527,201
   Year
    
    Amount2009
    
    
    381,8032010
    
    
    381,8032011
    
    
    381,792$
    1,145,398
 F-16




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 4: OPERATING LEASES
     NOTE 5: EMPLOYMENT AGREEMENTS
  F-17




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 6: CAPITAL STOCK TRANSACTIONS
     Number ofWarrants
    
    Exercise
    
    WarrantOutstanding
    
Price
        
Expiration
Date30,000
    
    0.005
    
    9/24/201134,000
    
    1.9795
    
    9/24/200940,000
    
    37.5
    
    12/30/20091,181,568
    
    2.539
    
    8/3/2012170,293
    
    3.171
    
    8/3/201295,520
    
    3.527
    
    2/29/201325,000
    
    3.6
    
    10/22/20092,958,632
    

1.45
    
    9/12/20135,882,584
    
    1.45
    
    3/29/201610,417,597
 F-18




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 7: INCOME TAXES
  For the year Ended
    
    
    For the year EndedDecember 31, 2008
    
    
    December 31, 2007Benefit 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
    
    
    
    
    
    
    284,894Other
    
    
    3,424
    
    
    
    63,339Stock Option Expense
    
    
    3,000,673
    
    
    
    Debt Discount Amortization
    
    
    356,164
    
    
    
    Derivative Expense
    
    
    2,328,242
    
    
    
    1,244,400Change in Valuation Allowance
    
    
    1,608,366
    
    
    
    1,245,786Income Tax Benefit
    
    $
    
    
    
    $
    
  December 31, 2008
    
    
    December 31, 2007Deferred Tax AssetsNet Operating Loss Carryforward
    
    $
    6,894,848
    
    
    
    5,447,332Depreciation and Amortization
    
    
    259,726
    
    
    
    199,632Loan Fee
    
    
    
    
    
    
    (100,756
    )Valuation Allowance
    
    
    (7,154,574
    )
    
    
    (5,546,208
    )Net Deferred Tax Asset
    
    $
    
    
    
    $
    
  F-19




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 8: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER
  For the Year Ended
    
    
    For the Year EndedDecember 31, 2008
    
    
    December 31, 2007Legal and Professional Fees
    
    $
    851,944
    
    
    $
    467,788Stock Option Expense
    
    
    8,825,508
    
    
    
    284,382Value of Warrants Issued for Services
    
    
    
    
    
    
    553,542Insurance Expense
    
    
    18,632
    
    
    
    14,265Other
    
    
    596,466
    
    
    
    477,892$
    10,292,550
    
    
    $
    1,797,869
 NOTE 9: NOTE PAYABLECONVERTIBLE
   F-20




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2008
 NOTE 9: NOTE PAYABLECONVERTIBLE (CONTINUED)
   F-21




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2008
 NOTE 9: NOTE PAYABLECONVERTIBLE (CONTINUED)
    For the Year Ended
    
    For the Year EndedDecember 31, 2008
    

December 31, 2007Balance, Beginning of Period
    
    $
    1,826,854
    
    
    $
    0Cash Fees Paid
    
    
    489,950
    
    
    
    326,000Fair Value of Stock Issued in Connection with Debt
    
    
    1,059,750
    
    
    
    Beneficial
Conversion of Note
    
    
    
    
    
    
    1,257,332Fair Value of Warrants Issued
    
    
    3,595,300
    
    
    
    243,5226,971,854
    
    
    
    1,826,854Less:
Accumulated amortization recognized    
As interest expense
    
    
    (1,631,853
    )
    
    
    (166,617
    )$
    5,340,001
    
    
    $
    1,660,237
   F-22




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2008
 NOTE 10: NOTES PAYABLE TO RELATED PARTIES
  NOTE 11: ACCRUED LIABILITIES
  2008
    
    
    2007Accrued Payroll Liabilities
    
    $
    36,314
    
    
    $
    14,434Accrued Interest
    
    
    23,037
    
    
    
    68,827Other Accruals
    
    
    195,287
    
    
    
    41,585$
    254,638
    
    
    $
    124,846
 NOTE 12: STOCK OPTION/STOCK BONUS PLAN
     F-23




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 12: STOCK OPTION/STOCK BONUS PLAN (CONTINUED)
  Weighted AverageShares
    
    
    Exercise PriceOutstanding beginning of year
    
    
    165,500
    
    
    
    9.70Granted
    
    
    1,543,000
    
    
    
    7.35Exercised
    
    
    (16,000
    )
    
    
    20.85Cancelled
    
    
    (405,600
    )
    
    
    9.65Outstanding end of year
    
    
    1,286,900
    
    
    
    8.60Exercisable end of year
    
    
    201,900
    
    
    
    0.65
  Weighted AverageShares
    
    
    Exercise PriceOutstanding beginning of year
    
    
    161,400
    
    
    
    16.65Granted
    
    
    92,500
    
    
    
    2.30Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (88,400
    )
    
    
    14.65Outstanding end of year
    
    
    165,500
    
    
    
    9.70Exercisable end of year
    
    
    101,000
    
    
    
    14.90
 NOTE 13: LITIGATION
 Taser International, Inc. v. Stinger Systems,
Inc. and Robert F. Gruder
    F-24




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 13: LITIGATION (CONTINUED)
   F-25




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##### Table of Contents



STINGER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
 NOTE 14: SUBSEQUENT EVENTS
  NOTE 15: LIQUIDITY AND CAPITAL RESOURCES
  F-26