United States Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended September 30, 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		30-0296398
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

5505 Johns Road, Suite 702 Tampa, Florida		33634
(Address of principal executive offices)		(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 Do not check if a smaller reporting company		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 4,697,945 shares outstanding of the issuer’s common stock, par value $0.001 per share, as of November 12, 2009.

STINGER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION		3
ITEM 1. Financial Statements (unaudited)		3
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008 (audited)		3
Consolidated Statements of Operations for the three months and nine months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited)		5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		15
ITEM 4. Controls and Procedures		15
PART II — OTHER INFORMATION		17
ITEM 1. Legal Proceedings		17
ITEM 1A. Risk Factors		17
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
ITEM 3. Defaults Upon Senior Securities		22
ITEM 4. Submission of Matters to a Vote of Security Holders		22
ITEM 5. Other Information		22
ITEM 6. Exhibits		23
SIGNATURES		24
INDEX TO EXHIBITS		25
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


	September 30,		December 31,
	2009		2008
	(Unaudited)
CURRENT ASSETS
Cash	$	19,545	$	699,934
Accounts Receivable, net of $1,800 allowance for uncollectible accounts in 2009 and 2008		68,511		75,200
Inventories, at cost		183,030		238,757
Prepaid Expenses and Other Current Assets		213,925		254,898

TOTAL CURRENT ASSETS		485,011		1,268,789

EQUIPMENT AND FURNITURE
Equipment and Furniture, net of accumulated depreciation of $329,040 and $229,767 in 2009 and 2008, respectively		234,037		231,706

OTHER ASSETS
Prepaid Interest, Long Term Asset		119,501		257,373
Intangible Assets, net of accumulated amortization of $1,813,574 and $1,527,222 in 2009 and 2008, respectively		859,046		1,145,398
Other Assets		24,402		35,898

TOTAL OTHER ASSETS		1,002,949		1,438,669

TOTAL ASSETS	$	1,721,997	$	2,939,164

See accompanying notes.
(Continued)

STINGER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY


	September 30,			December 31,
	2009			2008
	(Unaudited)
CURRENT LIABILITIES
Accounts Payable	$	830,034		$	417,425
Accrued Liabilities		366,736			254,638
Capital Lease Obligation, current portion		25,164			23,571
Note Payable-Related Parties		31,250			31,250

TOTAL CURRENT LIABILITIES		1,253,184			726,884

Capital Lease Obligation, long-term portion		33,216			52,293
Note Payable-Convertible, net of debt discount of $5,032,955 and $5,340,001 for 2009 and 2008, respectively		2,907,605			2,551,199
Derivative Liability Associated with Convertible Note and Warrants		6,200,000			7,377,771

TOTAL LIABILITIES		10,394,005			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, 4,697,945 and 4,001,832 Shares Issued and Outstanding at September 30, 2009 and December 31, 2008, respectively		4,698			4,002
Additional Paid-In Capital		49,505,793			47,259,019
Retained Deficit		(58,182,499	)		(55,032,004	)

TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY		(8,672,008	)		(7,768,983	)

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	1,721,997		$	2,939,164

See accompanying notes.

STINGER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
REVENUES
Sales	$	254,219		$	118,401		$	720,084		$	516,362
Cost of Product Sold		223,036			118,931			707,271			548,393

GROSS MARGIN(LOSS)		31,183			(530	)		12,813			(32,031	)

SELLING EXPENSES		60,829			57,165			184,899			347,620

GENERAL AND ADMINISTRATIVE EXPENSES
Employee Salaries		151,075			215,096			542,546			789,870
Other		1,701,719			914,485			2,202,889			3,901,882
Depreciation and Amortization		126,400			120,510			385,625			362,939
Research and Development		48,432			25,082			178,733			156,316

TOTAL GENERAL AND ADMINISTRATIVE EXPENSES		2,027,626			1,275,173			3,309,793			5,211,007

LOSS FROM OPERATIONS		(2,057,272	)		(1,332,868	)		(3,481,879	)		(5,590,658	)
INTEREST INCOME		—			17,060			5,401			20,992
INTEREST EXPENSE		(285,451	)		(244,881	)		(851,788	)		(639,652	)
CHANGE IN DERIVATIVE LIABILITY		(1,640,000	)		(11,558,974	)		1,177,771			(15,612,974	)

LOSS BEFORE INCOME TAXES		(3,987,723	)		(13,119,663	)		(3,150,495	)		(21,822,292	)

PROVISION FOR INCOME TAXES		—			—			—			—

NET (LOSS) GAIN	$	(3,982,723	)	$	(13,119,663	)	$	(3,150,495	)	$	(21,822,292	)

BASIC AND DILUTED (LOSS) PER COMMON SHARE	$	(0.85	)	$	(3.28	)	$	(0.71	)	$	(5.59	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted		4,697,945			4,001,596			4,419,500			3,906,791

See accompanying notes.

STINGER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss)	$	(3,150,495	)	$	(21,822,292	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		385,625			362,939
Stock Option Expense		1,260,220			2,642,356
Stock Issued for Services		204,000			—
Amortization of Discount on Notes Payable-Convertible		410,094			377,092
Derivative Liability Associated with Convertible Note		(1,177,771	)		15,612,974
Changes in Operating Assets and Liabilities
Accounts Receivable		6,689			50,408
Inventory		55,727			(104,000	)
Prepaid Expenses		323,591			47,040
Accounts Payable		412,609			108,685
Accrued Liabilities		112,098			89,965

NET CASH USED IN OPERATING ACTIVITIES		(1,157,613	)		(2,634,833	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment		(101,604	)		(12,230	)

NET CASH USED IN INVESTING ACTIVITIES		(101,604	)		(12,230	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the Sale of Common Stock		—			1,200
Proceeds from the Sale of Common Stock		—			—
Payments on Capital Lease Obligation		(17,484	)		(17,741	)
Proceeds from the Issuance of Convertible Notes Payable, Net of Issuance Costs and Prepaid Interest		596,312			4,380,995

NET CASH PROVIDED BY FINANCING ACTIVITIES		578,828			4,364,454

NET DECREASE IN CASH		(680,389	)		1,717,391
CASH BALANCE, BEGINNING OF PERIOD		699,934			345,293

CASH BALANCE, END OF PERIOD	$	19,545		$	2,062,684


NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of Notes Payable to Common Stock		—			(320,000	)
Common Stock Issued for Notes Payable Conversion		—			1,052
Additional Paid in Capital from Conversion of Notes Payable		—			318,948
Derivative Liability		—			(3,130,000	)
Deferred Debt Discount		(650,000	)		(2,032,500	)
Common stock		—			1,350
Paid-in-capital		650,000			5,161,150

	$	—		$	—


SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid During the Year For:
Interest	$	3,586		$	184,895

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 United States 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 September 30, 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, and therefore, no separate segment disclosures have been included in the accompanying notes to the financial statements. This is referred to as the management approach. The management approach facilitates consistent descriptions of a public entity in its annual report and various other published information. It focuses on financial information that a public entity’s decision makers use to make decisions about the public entity’s operating matters.

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 note payable and warrants issued in connection with the convertible note payable issued by the Company in August 2007, February 2008, September 2008 and July 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 September 30, 2009, the Company’s derivative valuation liability totaled $6,200,000.

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 September 30, 2009 and September 30, 2008 was 4,697,945 and 4,001,596, respectively. The weighted average number of shares of common stock outstanding for the nine month period ended September 30, 2009 and September 30, 2008 was 4,419,500 and 3,906,791, respectively. Options and warrants to purchase 22,490,986 and 9,864,059 shares of common stock were outstanding at September 30, 2009 and September 30, 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 September 30, 2009, we had no significant warranty claims on products sold. Once significant amounts of sales of the new model our new stun gun commence, 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 September 30, 2009 and December 31, 2008:


	September 30,		December 31,
	2009		2008
	(Unaudited)
Raw Materials and Work-In Progress	$	148,520	$	203,595
Finished Goods		34,510		35,161

	$	183,030	$	238,757

NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets include the following:


	September 30,
	2009
	(Unaudited)
Interest	$	205,763
Legal Deposits		7,500
Other Deposits		662

	$	213,925

NOTE 5: STOCK BASED COMPENSATION

Effective January 1, 2006, the Company measures and recognizes compensation expense for all stock-based awards made to employees and directors, including stock option grants, based on estimated fair values.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options. 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. Stock options were granted at an exercise price equal to the Company’s stock price at the date of grant.

We maintain the 2005 Stock Option/Stock Bonus Plan (the “Plan”) for employees, outside directors and consultants. At September 30, 2009, 7,811,900 options were outstanding under the Plan with exercise prices ranging from $0.35 to $40.25 per share. The requisite service periods for the options to vest vary from one month to two years and the options expire five years from the date of grant. At September 30, 2009, 2,739,100 shares remained available for grant, including forfeitures.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Estimated fair value	$	0.33		$	0.20		$	0.33		$	0.64
Expected life (years)		4.60			3.33			4.60			2.33
Risk free interest rate		2.09	%		2.08	%		2.09	%		2.38	%
Volatility		185.68	%		137.83	%		185.68	%		136.9	%
Dividend yield		—			—			—			—

NOTE 6: GENERAL AND ADMINISTRATIVE EXPENSES, OTHER

General and Administrative Expenses — Other includes the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Legal and Professional Fees	$	337,667	$	238,087	$	541,382	$	459,838
Stock Option Expense		1,260,220		333,765		1,260,220		2,642,356
Insurance Expense		5,186		7,435		12,546		12,797
Other		98,646		335,198		388,741		786,891

	$	1,701,719	$	914,485	$	2,202,889	$	3,901,882

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 July 14, 2009, the Company closed two private placement transactions (the “July 2009 Offerings”) with two institutional investors pursuant to which the Company issued and sold to the institutional investors two senior secured convertible notes (the “July 2009 Notes”) in an aggregate principal amount of $650,000 and warrants to purchase 4,062,500 shares of the Company’s common stock (the “July 2009 Warrants”). The July 2009 Notes are convertible into 3,250,000 shares of the Company’s common stock at a price of $0.20 per share. Under the terms of the July 2009 Notes, 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 July 2009 Warrants are exercisable immediately at a price of $0.20 per share. As a result of the issuance of the July 2009 Notes, the August 2007 Note, the September 2008 Note and February 2009 have all had their conversion price along with the conversion price of the warrants associated with these Notes, reset to $0.20 per share.

Neither the shares to be issued upon conversion of the July 2009 Note nor upon exercise of the July 2009 Warrant have been registered under the Securities Act of 1933 (the “Securities Act”), as amended, and may not be offered or sold 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 July 2009 Offering. The Company paid Midtown a cash fee equal to $20,000 and issued to Midtown a warrant to purchase 750,000 shares of the Company’s common stock at a price of $0.20 per share. The July 2009 Note and the July 2009 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 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 $3,075,000 and a warrant to purchase 2,586,207 shares of the Company’s common stock (the “September 2008 Warrant”). At September 30, 2009, the September 2008 Note was convertible into 5,882,353 shares of the Company’s common stock at a price of $0.20 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 $0.20 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, and may not be offered or sold in the absence of an effective registration statement or exemption from the registration requirements. Midtown acted as placement agent for the September 2008 Offering. The Company paid Midtown a cash fee equal to $67,500 and issued to Midtown a warrant to purchase 372,414 shares of the Company’s common stock at a price of $0.20 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 $0.20 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 September 30, 2009, the February 2008 Note was convertible into 4,215,686 shares of the Company’s common stock at a price of $0.20 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 September 30, 2009, is exercisable immediately at a price of $0.20 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 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 $0.20 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 September 30, 2009 of $2,799,450. 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 September 30, 2009 the August 2007 Note was convertible into 5,374,902 shares of the Company’s common stock at a price of $0.20 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 September 30, 2009, is exercisable immediately at a price of $0.20 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 and may not be offered or sold 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 $0.20 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 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 September 30, 2009, the Company’s derivative valuation liability totaled $6,200,000.

NOTE 9: LIQUIDITY AND CAPITAL RESOURCES

The process of developing and commercializing the Company’s products requires significant research and development, engineering, testing, 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 continues to introduce 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 and sales and marketing activities. Execution of the Company’s 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.

NOTE 10: NEW ACCOUNTING PRONOUNCEMENT

In June 2009, the FASB issued FASB ASC 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification as the sole source of authoritative generally accepted accounting principles (“GAAP”). The codification did not change GAAP but reorganizes the literature. Pursuant to the provisions of FASB ASC 105, we have updated references to GAAP in our financial statements issued for the period ended September 30, 2009. The adoption of FASB ASC 105 did not impact our financial position or results of operations.

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 September 30, 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 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 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 products to the law enforcement, correctional, professional security and military markets. The Company’s products include the Ice-Shield which is an electro-stun crowd control/prisoner extraction shield, the Band-It which is a remotely activated electro-stun prisoner restraint system, and the Stinger S-200 AT electronic immobilization device (EID). The Company’s success is largely dependent upon the commercialization of the S-200 AT.

The company’s ability to generate future revenues is dependent upon the overall reception of the Stinger product line. The Company has refined features of the Stinger S-200 AT EID based on market feedback from early Stinger EID models such as the S-200 and the S-400. The EID market is relatively new with only one significant competitor in the marketplace. Therefore, market demographics and feedback significantly impact the design of the Stinger EID product. The Company believes that it developed a state-of-the-art product that is very competitive. However, like many advanced technologies, further modifications of the S-200 AT may be required to remain competitive.

The Company uses some third party manufacturers to assist in creating manufacturing efficiencies and reduce cost of goods sold. However, the Company is under no long term contractual obligations with these third parties. Because the Stinger S-200 AT is classified as a firearm by the U.S. Bureau of Alcohol, Tobacco, and Firearms (ATF), the Company serializes all S-200 ATs, maintains records, and ships all S-200 ATs from its production and manufacturing facilities. The majority of the S-200 AT utilizes off the shelf electronic components and believes that manufacturing of the circuit boards and sourcing of the components can be easily sourced. The Company will continually seek best pricing for its products.

The Company sells its products directly and via distributors. While the Company’s focus in the United States currently is to rely on its internal sales force, international sales are solely reliant on the Company’s distributors.

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

Results of Operations

Revenues. Revenue increased $135,818 or 115% to $254,219 for the three months ended September 30, 2009 compared to $118,401 for the three months ended September 30, 2008, and increased $203,722 or 39% to $720,084 for the nine months ended September 30, 2009 compared to $516,362 for the nine months ended September 30, 2008. The increase for the nine and three months ended September 30, 2009 compared to 2008 was due to the Company’s ability to fill orders for the nine and three months ended September 30, 2009.

Cost of Goods Sold. Cost of Goods Sold increased $104,105 or 88% to $223,036 for the three months ended September 30, 2009 compared to $118,931 for the three months ended September 30, 2008, and increased $158,878 or 29% to $707,271 for the nine months ended September 30, 2009 compared to $548,393 for the nine months ended September 30, 2008. The increase for the three and nine months ended September 30, 2009 was due to the increase in sales and production. The cost of production for the periods ended September 30, 2009 and September 30, 2008, includes manufacturing costs such as materials, labor and identifiable overhead related to finished goods and components.

Gross Margin. Gross margin increased $31,713 to $31,183 for the three months ended September 30, 2009 compared to $(530) for the three months ended September 30, 2008 and increased $44,845 to $12,813 for the nine months ended September 30, 2009 compared to $(32,032) for the nine months ended September 30, 2008. The increase in gross margin was principally due to reduced costs to produce our product.

Selling Expenses. Selling expenses increased $3,664 to $60,829 for the three months ended September 30, 2009 compared to $57,165 for the three months ended September 30, 2008 and decreased $162,721 to $184,899 for the nine months ended September

30, 2009 compared to $347,621 for the nine months ended September 30, 2008. The decrease for the nine months ended September 30, 2009 was due to the restructuring of our sales department.

General and Administrative Expenses. General and Administrative (G&A) expenses increased $752,453 or 59% to $2,027,626 for the three months ended September 30, 2009 compared to $1,275,173 for the three months ended September 30, 2008 and decreased $1,901,214 to $3,309,793 for the nine months ended September 30, 2009 compared to $5,211,007 for the nine months ended September 30, 2008. The decrease in G&A expenses for the three and nine months ended September 30, 2009 as compared to the three and nine months ended September 30, 2008 is primarily due to the decrease of stock option expense and insurance expense. Additionally, other operating expenses for the three months ended September 30, 2009, include legal and professional fees of $337,667, stock option expense in the amount of $1,260,220, insurance expense of $5,186 and other costs in the amount of $98,646, compared to legal and professional fees of $238,087, stock option expense in the amount of $333,765, insurance expense of $7,435 and other costs in the amount of $335,198 for the three months ended September 30, 2008. Other operating expenses for the nine months ended September 30, 2009, include legal and professional fees of $541,382, stock option expense of $1,260,220, insurance expense of $12,546, and other costs in the amount of $388,741, compared to legal and professional fees of $459,838, stock option expense in the amount of $2,642,356, insurance expense of $12,797, and other costs in the amount of $786,891 for the nine months ended September 30, 2008.

Research and Development Expenses. Research and Development (R&D) expenses increased $23,350 or 39% to $48,432 for the three months ended September 30, 2009, compared to $25,082 for the three months ended September 30, 2008 and increased $22,417 or 14% to $178,733 for the nine months ended September 30, 2009 compared to $156,316 for the nine months ended September 30, 2008. The Company’s increase in R&D expense is attributable to costs associated with future generations of the projectile stun gun and the advanced stage of development in comparison to last year.

Interest Income. Interest income decreased $17,060 to $0 for the three months ended September 30, 2009, compared to $17,060 for the three months ended September 30, 2008 and decreased $15,590 to $5,401 for the nine months ended September 30, 2009 compared to $20,992. The decrease for the three and nine months ended September 30, 2008 to 2009 was due to an decrease in working capital and decrease in cash balances.

Interest Expense. Interest expense increased $40,570 to $285,451 for the three months ended September 30, 2009, compared to $244,881 for the three months ended September 30, 2008 and increased $212,136 to $851,788 for the nine months ended September 30, 2009 compared to $639,652 for the nine months ended September 30, 2008. The increase for the three and nine months ended September 30, 2008 to 2009 was due to financing received on July 14, 2009.

Net Loss. Net loss decreased by $9,136,940 to $(3,982,723) or $(0.85) per common share for the three months ended September 30, 2009 compared to a net loss of $(13,119,663) or $(3.28) per common share for the three months ended September 30, 2008 and decreased $18,691,797 to $(3,150,495) or $(0.71) per common share for the nine months ended September 30, 2009 compared to a net loss of $(21,822,292) or $(5.59) per common share for the nine months ended September 30, 2008. The decrease in the net loss was due primarily to the change in derivative liability associated with accounting for financing received during the third quarter of 2007 and the first quarter of 2008 and the third quarter of 2009.

Liquidity and Capital Resources

The process of developing and commercializing the Company’s products requires significant research and development, engineering, testing, 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 continues to introduce 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 and sales and marketing activities. Thus, execution of our current strategies will require us to raise additional capital through debt or equity transactions in order to finance its operations through 2009. 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.

At September 30, 2009, we had working capital of $(768,183), including a cash balance of $19,545. This represents a decrease in working capital of $1,310,088 from working capital of $541,905 at September 30, 2008 and a cash balance of $699,934. This decrease in working capital is principally due to a decrease in cash and an increase in payables. Operating activities for the nine months ended September 30, 2009 and the nine months ended September 30, 2008 used cash of $1,157,613 and $2,634,833, respectively. The decrease in the negative cash flow from operating activities during the nine months ended September 30, 2009, as compared to 2008 was primarily due to the decrease in our derivative liability and the stock option expense as computed for the nine months ended September 30, 2009.

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 September 30, 2009, we have had no significant warranty claims on products sold. Once significant sales of our new model 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 trading on 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 an existing patent held by a third party 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. The Company has one incentive stock plan, the 2005 Stock Option Plan (“the Plan”). The Plan is intended to attract and retain directors, officers and employees of the Company and to motivate these persons to achieve performance objectives related to the Company’s overall goal of increasing stockholder value. The principal reason for adopting the Plan is to ensure that the Company has a mechanism for long-term, equity-based incentive compensation to directors, officers and employees. Awards granted under the Plan may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and shares of the Company’s common stock, or any combination thereof within the limitations set forth in the Plan.

The Plan is administered by the compensation committee of the board of directors, which selects eligible employees and non-employee directors to participate in the Plan and determines the type, amount and duration of individual awards. Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation — Stock Compensation, which requires a fair-value-based measurement method to account for stock-based compensation. The Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to determine the estimated fair value of stock options.

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 September 30, 2009, the Company’s derivative valuation liability totaled $6,200,000.

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 United States 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 September 30, 2009. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this report on Form 10-Q 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 officers have 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

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 was held on April 23, 2009, after which, the Company filed for summary judgment based on its affirmative defenses. This trial for this case has not yet been reset.

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 is closed. Expert depositions are completed. The Court’s full Rule 16 Scheduling 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. However, out of state attorney’s fees will occur for representing in the state of Arizona where the case was filed. An adverse outcome in this action may have a material adverse effect on our business and results of operations. The company has filed for summary judgment.

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

ITEM 1.A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information contained in this annual report. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In that case, the trading price of our common stock could decline and investors may lose part or all of your

investment. In the opinion of management, the risks discussed below represent the material risks known to the company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations and adversely affect the market price of our common stock.

We have a history of operating losses and anticipate future operating losses until such time as we can generate additional sales.

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

If we do not obtain additional funding as needed, we may be unable to fund our engineering, marketing and production activities and to adequately pursue our business plan.

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

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

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

We have been the subject of SEC Enforcement action

On May 1, 2008, the SEC announced that the Honorable Willis B. Hunt, United States District Judge for the Northern District of Georgia, entered a Final Judgment as to Defendant Stinger Systems, Inc. The Company was enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Company consented to the entry of the final judgment without admitting or denying any of the allegations of the Commission’s Complaint.

The Complaint, filed on January 28, 2008, alleged that from October 2004 through March 2005, the Company and its president, Robert F. Gruder, made a series of fraudulent material misrepresentations and omissions regarding the Company’s “flagship” stun gun product. According to the Complaint, the misrepresentations consisted of press releases and direct mailings to thousands of law enforcement officers and agencies, suggesting that Stinger was manufacturing, selling and shipping its stun gun. In fact, the product was still in the development phase. The Complaint further alleged that the misrepresentations consisted of statements on the Company’s website and/or in industry publications that indicated the Company’s stock was trading on NASDAQ, when in fact it was not. The Complaint also alleged that the Company and Mr. Gruder misrepresented that the Bureau of Alcohol, Tobacco and Firearms (“ATF”) certified the Company’s stun gun, even though the ATF offered no such certification. According to the Complaint, these misrepresentations caused a spike in the trading volume and price for the Company’s shares once it began publicly trading in November 2004.

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

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 NYSE Amex Equities.

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 ranged from $0.55 to $7.60. Our stock closed on September 30, 2009 at $0.45 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, 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, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. 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 September 30, 2009, we had 4,697,945 shares issued and outstanding, 65,863,239 shares of common stock that could be issued upon the exercise of options, warrants, grants and convertible securities, of which 7,260,900 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
10.1		Securities Purchase Agreement dated July 14, 2009 among Stinger Systems, Inc. and the investors party thereto (1)

10.2		Senior Secured Convertible Note issued by Stinger Systems, Inc. to Castlerigg Master Investments Ltd. dated July 14, 2009 (1)

10.3		Senior Secured Convertible Note issued by Stinger Systems, Inc. to Debt Opportunity Fund, LLLP dated July 14, 2009 (1)

10.4		Warrant issued by Stinger Systems, Inc. to Castlerigg Master Investments Ltd. dated July 14, 2009 (1)

10.5		Warrant issued by Stinger Systems, Inc. to Debt Opportunity Fund, LLLP dated July 14, 2009 (1)

10.6		First Amended and Restated Security Agreement dated July 14, 2009 (1)

10.7		Second Amended and Restated Security Agreement, dated July 14, 2009 (1)

10.8		Amended and Restated Senior Secured Note dated July 14, 2009 (1)

10.9		Second Amended and Restated Senior Secured Note dated July 14, 2009 (1)

10.10		Third Amended and Restated Senior Secured Convertible Note dated July 14, 2009 (1)

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.


(1)		Previously filed as an exhibit to Current Report on Form 8-K on July 17, 2009

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: November 13, 2009	/s/ Robert F. Gruder
	Robert F. Gruder
	President (Principal Executive Officer)


Date: November 13, 2009	/s/ Brian S. Gannon
	Brian S. Gannon
	Financial Controller (Principal Financial Officer)

Index to Exhibits


Exhibit No.		Description
10.1		Securities Purchase Agreement dated July 14, 2009 among Stinger Systems, Inc. and the investors party thereto (1)

10.2		Senior Secured Convertible Note issued by Stinger Systems, Inc. to Castlerigg Master Investments Ltd. dated July 14, 2009 (1)

10.3		Senior Secured Convertible Note issued by Stinger Systems, Inc. to Debt Opportunity Fund, LLLP dated July 14, 2009 (1)

10.4		Warrant issued by Stinger Systems, Inc. to Castlerigg Master Investments Ltd. dated July 14, 2009 (1)

10.5		Warrant issued by Stinger Systems, Inc. to Debt Opportunity Fund, LLLP dated July 14, 2009 (1)

10.6		First Amended and Restated Security Agreement dated July 14, 2009 (1)

10.7		Second Amended and Restated Security Agreement, dated July 14, 2009 (1)

10.8		Amended and Restated Senior Secured Note dated July 14, 2009 (1)

10.9		Second Amended and Restated Senior Secured Note dated July 14, 2009 (1)

10.10		Third Amended and Restated Senior Secured Convertible Note dated July 14, 2009 (1)

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.


(1)		Previously filed as an exhibit to Current Report on Form 8-K on July 17, 2009

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STINGER SYSTEMS, INC 10-Q