Mr. Gruder could jeopardize our business operations and exhaust the Company’s cash reserve, which may result in investors losing their entire investment.
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.
