FORM 10-QSB

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

(X)                    QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934

For the quarterly period ended June 30, 2007

OR

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

Commission file number:
 001-32566

SECURITY WITH ADVANCED TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

|                                                                |                                     
|--------------------------------------------------------------- | ------------------------------------
|Colorado                                                        | 20-1978398                          
|(State or other jurisdiction of
 incorporation or organization) | (I.R.S. Employer Identification No.)

10855 Dover Street, Suite 1000, Westminster, Colorado 80021-3936
(Address of principal executive offices) (Zip Code)

(303) 439-0372(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  [X]  
No  [   ]

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

The number of shares of no par value
common stock outstanding as of August 17, 2007, was 6,248,914.

Transitional Small Business
Disclosure Format (Check one):      Yes    [     ]      No    [X]

---



# SECURITY WITH ADVANCED
TECHNOLOGY, INC.

|                                                                       | Page
|---------------------------------------------------------------------- | ----
|PART 1 Financial Information                                          |     
|                                                                       |     
|Item 1.   Condensed Consolidated Unaudited Financial Statements        |     
|                                                                       |     
|Consolidated Balance Sheet as of June 30, 2007                         |     
|                                                                       |     
|Consolidated  Statements of Operations For the Three and Six           |     
|Month Periods Ended June 30, 2007 and 2006                             |     
|                                                                       |     
|Consolidated Statements of Cash Flows For the  Six                     |     
|Months Ended June 30, 2007 and 2006                                    |     
|                                                                       |     
|Notes to Unaudited Condensed  Financial Statements                     |     
|                                                                       |     
|Item 2.   Management's Discussion and Analysis                         |     
|                                                                       |     
|Item 3.    Controls and Procedures                                     |     
|                                                                       |     
|PART II - Other Information                                            |     
|                                                                       |     
|Item 1.    Legal Proceedingss                                          |     
|                                                                       |     
|Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds |     
|                                                                       |     
|Item 3.   Defaults Upon Senior Securities                              |     
|                                                                       |     
|Item 4.   Submission of Matter to a Vote of Security Holders           |     
|                                                                       |     
|Item 5.   Other Information                                            |     
|                                                                       |     
|Item 6.    Exhibits                                                    |     
|                                                                       |     
|Signatures                                                             |     

2

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PART I-- FINANCIAL
INFORMATION

# Security With Advanced
Technology, Inc.                                                       Consolidated
Balance Sheet                                                              June 30, 2007
                                                              (Unaudited)

|                                                            |  |  |   |             |  
|----------------------------------------------------------- |  |  | - | ----------- | -
|ASSETS                                                      |  |  |   |             |  
|Current assets:                                             |  | 
|Cash                                                        |  |  | $ | 820,509     |  
|Short-term investments                                      |  |  |   | 1,540,152   |  
|Trade accounts receivable, net of a $6,400 allowance        |  |  |   | 206,890     |  
|Inventories (Note 2)                                        |  |  |   | 1,774,999   |  
|Prepaid expenses and other current assets                   |  |  |   | 563,410     |  
|                                                            |  | 
|Total current assets                                        |  |  |   | 4,905,960   |  
|                                                            | 
|Property and equipment, net (Note 3)                        |  |  |   | 441,790     |  
|                                                            | 
|Intangible and other assets (Notes 4)                       |  |  |   | 4,912,350   |  
|                                                            | 
|Restricted cash (Notes 8 and 9)                             |  |  |   | 1,000,000   |  
|                                                            |  | 
|Total assets                                                |  |  | $ | 11,260,100  |  
|                                                            |  | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                        |  | 
|Current liabilities:                                        |  | 
|Accounts payable                                            |  |  | $ | 705,689     |  
|Accrued expenses                                            |  |  |   | 245,196     |  
|Deferred revenues                                           |  |  |   | 640,295     |  
|Convertible notes, net of unamortized discount              |  | 
|of $2,975,042 (Note 5)                                      |  |  |   | 3,024,859   |  
|Line of credit                                              |  |  |   | 467         |  
|Current portion of long-term debt                           |  |  |   | 7,000       |  
|                                                            |  | 
|Total current liabilities                                   |  |  |   | 4,623,506   |  
|                                                            | 
|Long-term debt, net of current portion                      |  |  |   | 61,782      |  
|                                                            |  | 
|Total liabilities                                           |  |  |   | 4,685,288   |  
|                                                            |  | 
|Commitments and contingencies (Note 8)                      |  | 
|                                                            | 
|Stockholders' equity (Notes 6 and 9):                       |  | 
|Preferred stock, no par value, 5,000,000 shares authorized; |  | 
|306,598 Series A shares issued and outstanding              |  |  |   | 1,073,095   |  
|Common stock, no par value, 30,000,000 shares authorized;   |  | 
|5,985,950 shares issued and outstanding                     |  |  |   | 31,617,482  |  
|Accumulated deficit                                         |  |  |   | (26,115,765 | )
|                                                            |  | 
|Total stockholders' equity                                  |  |  |   | 6,574,812   |  
|                                                            |  | 
|Total liabilities and stockholders' equity                  |  |  | $ | 11,260,100  |  
|                                                            |  | 

See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

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# Security With Advanced
Technology, Inc.                                                  Consolidated Statements
of Operations                                                         Periods ended June
30,                                                               (Unaudited)

|                                                 | Three Months Ended |  | Six Months Ended |           
|------------------------------------------------ | ------------------ |  | ---------------- | ----------
|
|Net sales (Note 7)                               |                    |  | $                | 338,673   
|Cost of sales                                    |                    |  |                  | 420,572   
|                                                 |                    |  |                  |           
|Gross profit (loss)                              |                    |  |                  | (81,899   
|                                                 |                    |  |                  |           
|Operating expenses:                              |                    | 
|Selling, general and administrative (includes    |                    | 
|non-cash compensation of $360,792, $194,147,     |                    | 
|$1,464,607 and $293,822)                         |                    |  |                  | 1,978,143 
|Research and development                         |                    |  |                  | 246,885   
|                                                 |                    |  |                  |           
|Total operating expenses                         |                    |  |                  | 2,225,028 
|                                                 |                    |  |                  |           
|Operating loss                                   |                    |  |                  | (2,306,927
|                                                 |                    |  |                  |           
|Other income (expense):                          |                    | 
|Interest expense                                 |                    |  |                  | (86,356   
|Interest expense, non-cash contingent beneficial |                    | 
|conversion feature (Note 5)                      |                    |  |                  | (2,964,011
|Interest income                                  |                    |  |                  | 41,078    
|Other income (expense), net                      |                    |  |                  | (19,057   
|                                                 |                    |  |                  |           
|Total other income (expense)                     |                    |  |                  | (3,028,346
|                                                 |                    |  |                  |           
|Net loss                                         |                    |  | $                | (5,335,273
|                                                 |                    |  |                  |           
|Basic and diluted net loss per share             |                    |  | $                | (0.91     
|                                                 |                    |  |                  |           
|Basic and diluted weighted                       |                    | 
|average number of common shares                  |                    | 
|outstanding                                      |                    |  |                  | 5,846,245 
|                                                 |                    |  |                  |           
|                                                 |                    |  |                  |           

See Accompanying
Notes to Unaudited Condensed Consolidated Financial Statements.

4

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# Security With Advanced
Technology, Inc.                                                  Consolidated Statements
of Cash Flows                                              Six Month Periods Ended June
30, (Unaudited)

|                                                                 | 2007 |  | 2006 |            |   |   |            |  
|---------------------------------------------------------------- | ---- |  | ---- | ---------- | - | - | ---------- | -
|Cash flows from operating activities:                            |      |  |      |            |   |   |            |  
|Net loss                                                         |      |  | $    | (8,562,762 | ) | $ | (2,698,418 | )
|Adjustments to reconcile net loss to                             |      | 
|net cash used by operating activities:                           |      | 
|Non-cash stock based compensation                                |      |  |      | 1,464,607  |   |   | 293,822    |  
|Depreciation and amortization                                    |      |  |      | 65,434     |   |   | 42,179     |  
|Amortization of interest on convertible debt                     |      |  |      | 3,106,561  |   |   |           |  
|Loss on disposal of equipment                                    |      |  |      | 23,539     |   |   |           |  
|(Increase) decrease in:                                          |      | 
|Accounts receivable                                              |      |  |      | (101,210   | ) |   | (98,363    | )
|Inventories                                                      |      |  |      | (962,999   | ) |   | (359,194   | )
|Prepaid expenses and other assets                                |      |  |      | (474,298   | ) |   | (6,611     | )
|Increase (decrease) in:                                          |      | 
|Accounts payable                                                 |      |  |      | 34,827     |   |   | 23,984     |  
|Accrued liabilities and deferred revenue                         |      |  |      | 398,026    |   |   | 176,290    |  
|                                                                 |      |  |      |           
|Net cash used by operating activities                            |      |  |      | (5,008,275 | ) |   | (2,626,311 | )
|                                                                 |      |  |      |           
|Cash flows from investing activities:                            |      | 
|Sale of short term investments                                   |      |  |      | 459,848    |   |   |           |  
|Investment in restricted escrow cash                             |      |  |      | (1,000,000 | ) |   |           |  
|Purchases of property and equipment                              |      |  |      | (329,367   | ) |   | (50,765    | )
|Purchase of intangibles and other assets                         |      |  |      | (43,786    | ) |   | (53,454    | )
|                                                                 |      |  |      |           
|Net cash (used) by investing activities                          |      |  |      | (913,305   | ) |   | (104,219   | )
|                                                                 |      |  |      |           
|Cash flows from financing activities:                            |      | 
|Proceeds from issuance of convertible notes payable and warrants |      |  |      | 5,999,901  |   |   |           |  
|Payment of deferred financing costs                              |      |  |      | (160,000   | ) |   |           |  
|Repayment of line of credit and installment obligations          |      |  |      | (54,663    | ) |   | (2,924     | )
|Proceeds from issuance of common stock                           |      |  |      | 22,201     |   |   |           |  
|                                                                 |      |  |      |           
|Net cash provided (used) by financing activities                 |      |  |      | 5,807,439  |   |   | (2,924     | )
|                                                                 |      |  |      |           
|Net (decrease) in cash and cash equivalents                      |      |  |      | (114,141   | ) |   | (2,733,454 | )
|                                                                 |      | 
|Cash and cash equivalents at beginning of period                 |      |  |      | 934,650    |   |   | 4,665,955  |  
|                                                                 |      |  |      |           
|Cash and cash equivalents at end of period                       |      |  | $    | 820,509    |   | $ | 1,932,501  |  
|                                                                 |      |  |      |           
|Supplemental disclosure of cash flow information                 |      | 
|Cash paid during the period for interest                         |      |  | $    | 11,400     |   | $ | 395        |  
|                                                                 |      | 
|Schedule of non-cash investing and financing transactions        |      | 
|Conversion of Preferred Shares into Common Shares                |      |  | $    | 1,409,051  |   | $ |           |  
|                                                                 |      |  |      |           

See
Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

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Security With Advanced
Technology, Inc.                                          Notes to Condensed Consolidated
Financial Statements
                                                              (Unaudited)

INTERIM FINANCIAL STATEMENTS

The accompanying financial statements
of Security With Advanced Technology, Inc. (the Company or SWAT)
have been prepared in accordance with the instructions to quarterly reports on Form
10-QSB. In the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of operations and
changes in financial position at June 30, 2007, and for all periods presented have been
made. Certain information and footnote data necessary for a fair presentation of financial
position and results of operations in conformity with accounting principles generally
accepted in the United States of America have been condensed or omitted. It is therefore
suggested that these financial statements be read in conjunction with the summary of
significant accounting policies and notes to financial statements included in the
Companys Form 10-KSB filed with the Securities and Exchange Commission
(SEC) for the year ended December 31, 2006. The results of operations for the
period ended June 30, 2007 are not necessarily an indication of operating results for the
full year. Certain amounts in the 2006 interim financial statements have been reclassified
to conform to the 2007 presentation.

|1. | Going
concern, managements plans, accounting policy and recent           accounting
pronouncements:
|-- | ----------------------------------------------------------------------------------------------------

| | In the Companys Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2006, the Report of the
Independent Registered Public Accounting Firm includes an explanatory paragraph that
describes substantial doubt about the Companys ability to continue as a going
concern. The Companys interim consolidated financial statements for the six months
ended June 30, 2007 have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the normal
course of business. The Company incurred a net loss and utilized net cash in operating
activities of $8,562,762 and $5,008,275, respectively, for the six months ended June 30,
2007.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These conditions raise
substantial doubt about the Companys ability to continue as a going concern.
Managements plans with regard to these matters are discussed below. The accompanying
consolidated financial statements do not include any adjustments that might result from
the outcome of this uncertainty. We expect to continue to incur losses from operations
during 2007; however, the Company received approximately $6.0 million in a March and April
2007 convertible debt offering. While we expect that recent acquisitions will help
increase revenues, such increases for the near term may only provide limited additional
cash flow from such sales. The Companys ability to continue as a going concern
depends on the success of managements plans to bridge such cash shortfalls in 2007
including the following:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | Aggressively
pursue additional fund raising activities in 2007 in addition to the approximate $6.0
million that has               been received in  2007 from the Company's convertible debt
offering;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Continue
to advance development of the Company's new products, particularly the non-lethal Avurt
and MK-IV launchers and               associated targets and projectiles, and to begin
selling such products in late 2007, thereby generating cash flow from such               sales;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Continue
to support and expand our wholly-owned subsidiary Vizer Group Inc.s contract
opportunities in both fixed facilities and mobile environments as well as the CommandGrid
product, a unique technology which enables easy access and use to maintaining facilities
access and surveillance through an online hosted service. The business model for this
product is similar to the security alarm business;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Work
to capitalize on the supplier relationship we have developed with a lower cost supplier
for a high quality warranted product to meet customer demands for a mobile digital video
recorder (DVR);
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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| | 5. | Work
to complete the re-design of the ShiftWatch TVS DVR products to complete the
in-process installations and open orders thereby recognizing revenues and generating cash
flow from such sales;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | Contingent
upon the Companys ability to re-design the ShiftWatch TVS DVR products and the
level of sales of such products in 2007, if any, explore alternative revenue sources from
licensing or partnering opportunities for the ShiftWatch TVS DVR product line; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | Continue
to monitor and implement cost control initiatives to conserve cash.
| | -- | ----------------------------------------------------------------------------

| | Recently
issued accounting pronouncement
| | ----------------------------------------

| | In
July 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty
in Income Taxes, an interpretation ofFASB Statement 109"(FIN 48)
which clarifies the accounting for uncertainty in income taxes recognized in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN 48 is a
comprehensive model for how a company should recognize, measure, present, and disclose in
its financial statements uncertain tax positions that the company has taken or expects to
take on a tax return. If an income tax position exceeds a more likely than not (greater
than 50%) probability of success upon tax audit, the company will recognize an income tax
benefit in its financial statements. Additionally, companies are required to accrue
interest and related penalties, if applicable, on all tax exposures consistent with
jurisdictional tax laws. We adopted FIN 48 for the fiscal year beginning January 1, 2007.
We did not have any unrecognized tax benefits and there was no effect on our financial
condition or results of operations as a result of implementing FIN 48. We file income tax
returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is
no longer subject to U.S. federal tax examinations for years before 2003, and state tax
examinations for years before 2002. Management does not believe that there will be any
material changes in our unrecognized tax positions over the next 12 months. Our policy is
that we recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of the date of adoption of FIN 48, we did not have
any accrued interest or penalties associated with any unrecognized tax benefits, nor was
any interest expense recognized during the quarter. Our effective tax rate differs from
the federal statutory rate primarily due to non-deductible expenses and is offset
somewhat by state tax credits.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loss
per share
| | --------------

| | SFAS
No. 128, Earnings Per Share, requires dual presentation of basic and
diluted earnings per share (EPS) with a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loss
per share of common stock is computed based on the weighted average number of common
shares outstanding during the period. Convertible notes, preferred shares, stock options
and warrants are not considered in the calculation, as the impact of the potential common
shares (totaling approximately 12,967,000 shares at June 30, 2007 and approximately
3,051,000 shares at June 30, 2006) would be to decrease loss per share. Therefore,
diluted loss per share is equivalent to basic loss per share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Inventories:
|-- | ------------

|                                                     |  |  |   |           | 
|---------------------------------------------------- |  |  | - | --------- | 
|As of June 30, 2007, total inventories consisted of: |  |  |   |           | 
|Finished products for resale                         |  |  | $ | 146,797   | 
|Work-in-process                                      |  |  |   | 630,983   | 
|Raw materials and components                         |  |  |   | 997,219   | 
|                                                     |  | 
|Total inventories                                    |  |  | $ | 1,774,999 | 
|                                                     |  | 

7

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|3. | Property
and Equipment:
|-- | -----------------------

|                                                                     |  |  |   |         | 
|-------------------------------------------------------------------- |  |  | - | ------- | 
|Property and equipment at June 30, 2007, consisted of the following: |  |  |   |         | 
|Computer equipment and software                                      |  |  | $ | 252,457 | 
|Office equipment and improvements                                    |  |  |   | 357,547 | 
|Demonstration vehicles                                               |  |  |   | 40,531  | 
|                                                                     |  | 
|                                                                     |  |  |   | 650,535 | 
|Less accumulated depreciation                                        |  |  |   | 208,745 | 
|                                                                     |  | 
|Property and equipment, net                                          |  |  | $ | 441,790 | 
|                                                                     |  | 

|4. | Intangible
and other assets:
|-- | ----------------------------

| | Intangible
and other assets consisted of the following at June 30, 2007:
| | ------------------------------------------------------------------------

|                                                                     |  |  |   |           | 
|-------------------------------------------------------------------- |  |  | - | --------- | 
|Intangible asset acquired in acquisition                             |  |  | $ | 4,615,135 | 
|Patent and trademark applications                                    |  |  |   | 215,245   | 
|Deferred financing costs, net of $81,702 of accumulated amortization |  |  |   | 78,298    | 
|Deposits and other                                                   |  |  |   | 3,672     | 
|                                                                     |  | 
|                                                                     |  |  | $ | 4,912,350 | 
|                                                                     |  | 

| | The
Company is in the process of allocating the fair value of the intangible assets acquired
in the acquisition of Vizer  and its wholly-owned
subsidiary Avurt International, Inc. (Avurt) that was effective as of
December 31, 2006. The final determination and allocation of fair value is estimated to
be completed prior to the first anniversary of the acquisition. The determination of fair
value will be made by management as they deem appropriate based upon various means.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company capitalizes legal costs and filing fees associated with obtaining patents on its
new discoveries. Once the patents have been issued, the Company will amortize these costs
over the shorter of the legal life of the patent or its estimated economic life.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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|5. | Convertible
Notes Payable and Credit Arrangements:
|-- | --------------------------------------------------

| | Convertible
notes payable
| | -------------------------

| | On March 26, 2007 and April 12, 2007
the Company completed a $5,999,901 total private placement of unregistered securities
consisting of 1,999,967 convertible promissory note units (Note Units) at
$3.00 per unit with each Note Unit consisting of a 5.1% per annum Convertible Promissory
Note (Note) due September 30, 2007, unless earlier converted, and warrants
(Investor Warrants). At June 30, 2007, $5,999,901 was outstanding on
the Notes, which are recorded on the accompanying consolidated balance sheet net of
the remaining $2,975,042 unamortized discount, which was recorded based on the estimated
fair value assigned to the beneficial conversion features and warrants. The Company
ascribed a value of $3,756,912 to the Investor Warrants, which is recorded as a discount
to notes payable on the accompanying consolidated balance sheet.  The fair value
ascribed to the Investor Warrants was estimated on the commitment date using the
Black-Scholes pricing model with the following assumptions:  risk-free interest rate
of 4.66% to 4.8%; expected life being the life of the Investor Warrants; expected
volatility of 74.3% to 81.1%; and expected dividend yield of 0%.   In addition
to the fair value ascribed to the Investor Warrants, the Company ascribed $2,242,989 to
the beneficial conversion feature in the Notes, which is recorded as a discount to notes
payable on the accompanying consolidated balance sheet.  The values ascribed to the
Investor Warrants and beneficial conversion feature follow the guidance of EITF Issue No.
98-5,Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustment Conversion Ratios, and EITF Issue No. 00-27,
Application of Issue No. 98-5 to Certain Convertible Instrument of the
FASBs Emerging Issues Task Force.  The fair value of the Investor Warrants and
beneficial conversion feature is being amortized to expense over the term of the Notes,
which based upon the July 2007 shareholder meeting approval, ended as of July 19, 2007,
using the effective interest method.  During the three and six month periods ended
June 30, 2007, the Company amortized to interest expense $2,886,564 and $3,024,859,
respectively, of the loan discount.  The balance due under the convertible notes is
shown net of the remaining $2,975,042 unamortized discount on the accompanying
consolidated balance sheet. Included with accrued expenses as of June 30, 2007, is $79,672
in accrued interest on the convertible notes. Each $3.00 of principal (plus interest) due
under the Notes was automatically converted into one share of Series A Convertible
Preferred Stock (the Series A Preferred Stock) upon shareholder approval of
such conversion, which occurred at the July 19, 2007 SWAT 2007 annual meeting of
shareholders. The Series A Preferred Stock is non-voting, pays no dividends, contains no
liquidation preference and is convertible into one share of common stock for each share of
Series A Preferred Stock owned.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Investor Warrants issued in connection with this offering consist of a total of 1,999,967
of Warrant A, 866,650 of Warrant B and 1,999,967 of Warrant SWATW.
Warrant A is exercisable at $4.75 per share and expires four years from
closing; Warrant B is exercisable at $5.00 per share and expires four years
from closing; and Warrant SWATWs terms mirror exactly SWATs
current publicly-traded warrants, trading under the symbol: SWATW. Generally, the SWATW
Warrants are exercisable at $9.00 per share, expire in July 2010 and are redeemable by
SWAT beginning on July 18, 2008 for $0.10 each, under defined conditions, including a
minimum trading price of the common stock of $13.50 per share. All warrants are
exercisable in cash, commencing six months after the closing and contain anti-dilution
rights for stock splits and stock dividends. Substantially all of the proceeds received
in the offering were allocated to the value of the Investor Warrants and the beneficial
conversion feature of the Notes. This will result in $5,999,901 of additional interest
expense being recorded in 2007 over the six-month life of the Notes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has agreed to file a
registration statement with the SEC for the resale of the shares of common stock issuable
upon conversion of the Series A Preferred Stock underlying the Notes issued in the March
and April 2007 private placement, the shares of common stock issuable upon exercise of the
Warrants A, the Warrants B and the Warrants SWATW
issued in the March and April 2007 private placement, and the Warrants SWATW
issued in the March and April 2007 private placement.  Certain failures to file the
registration statement or to obtain registration statement effectiveness under the terms
of the registration rights agreement would require the Company to pay each investor a
penalty fee equal to 2% per month up to a maximum of 10% of such investors
investment. Based upon the Companys evaluation of the provisions of EITF 00-19-2,
Accounting for Registration Payment Arrangements, no accrual for penalty fees
was deemed necessary at June 30, 2007.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
purpose of the private placement was to raise funds to support the acquisitions of Vizer
and Avurt, for ongoing product development and for working capital and general corporate
purposes. The offering was conducted in reliance on Section 4(2) of the Securities Act of
1933, as amended (the Securities Act), and Rule 506 promulgated there-under.
No placement agent was used in the offering.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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| | Credit
arrangements
| | -------------------

| | The
Companys subsidiary has a line of credit totaling $50,000 of which $467 is
currently outstanding. Advances under the line are made based on the available balance of
the line, which matures in May 2011 and bears interest at the prime rate plus 3.25%. The
line of credit is collateralized by business assets and is personally guaranteed by the
Companys president.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the Companys entering into a supply agreement, the Companys
bank issued a $100,000 letter of credit on behalf of the Company to the supplier, against
future purchases.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Stockholders equity:
|-- | ---------------------

| | Common
stock transactions
| | -------------------------

| | During the six months ended June 30, 2007, a total of $5,999,901 received in the
private placement of convertible debt securities was allocated to the estimated
fair value of the Investor Warrants and the beneficial conversion feature of the
Notes, as part of the offering.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the six months ended June 30, 2007, the holders of a total of 402,586 shares of Series A
Convertible Preferred Stock elected to convert such shares into 402,586 shares of the
Companys Common Stock on a one-for-one basis as provided for under the terms of the
Series A Preferred Stock. As a result of this conversion a total of $1,409,051 has been
reclassified from Preferred Stock to Common Stock on the accompanying consolidated
balance sheet as of June 30, 2007.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 26, 2007, the holders of 12,229 warrants to acquire a like number of shares of the
Companys common stock, elected to exercise the warrants at the exercise price of
$1.66 per share. This generated proceeds to the Company of $20,299.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the six months ended June 30, 2007, the holder of options to acquire 544 shares of common
stock under the Companys Plan exercised the options to receive 544 common shares,
generating cash proceeds of $1,902 to the Company
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-based
compensation:
| | -------------------------

| | SWAT
currently provides stock-based compensation to employees and directors, under the Companys
2004 Stock Incentive Plan (the Plan) that has been approved by the Companys
shareholders. On July 19, 2007, the Companys shareholders approved an amendment to
the Plan to increase the number of shares reserved under the Plan from 1,500,000 to
2,000,000. Stock options granted under this plan generally vest over three to four years
from the date of grant as specified in the Plan or by the compensation committee of the
Companys board of directors and are exercisable for a period of up to ten years
from the date of grant. During the three and six month periods ended June 30, 2007 and
2006, SWAT recorded share-based compensation expense related to stock options resulting
in non-cash expenses of $360,792, $1,464,607, $194,147 and $293,822, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimated the fair value of each stock option at the grant date by using the
Black-Scholes option pricing model with the following weighted average assumptions used
for grants during the six months ended June 30, 2007 and 2006:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---



|                        | 2007 |  | 2006 |         
|----------------------- | ---- |  | ---- | --------
|Expected term           |      |  |      | 10 years
|Volatility              |      |  |      | 76-81%  
|Risk-free interest rate |      |  |      | 4.5-4.9%
|Dividend yield          |      |  |      | 0%      
|Forfeitures             |      |  |      | 5%      

| | The
expected term of stock options represents the period of time that the stock options
granted are expected to be outstanding based on historical exercise trends. The expected
volatility is based on the historical price volatility of SWATs common stock. The
risk-free interest rate represents the U.S. Treasury bill rate for the expected life of
the related stock options. The dividend yield represents SWATs anticipated cash
dividend over the expected life of the stock options. Forfeitures represent the weighted
average estimate of future options to be cancelled primarily due to employee
terminations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of stock option activity of options to employees and directors for the six months
ended June 30, 2007, is presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------

|                               | Shares
Under
Option |  | Weighted
Average
Exercise
Price |           | Weighted
Average
Remaining
Contractual
Life (Years) |   | Aggregate
Intrinsic Value | 
|------------------------------ | ------------------- |  | ------------------------------- | --------- | --------------------------------------------------- | - | ------------------------- | 
|Outstanding at January 1, 2007 |                     |  |                                 | 837,869   |                                                     | $ | 4.53                      | 
|Granted                        |                     |  |                                 | 759,000   |                                                     |   | 4.75                      | 
|Exercised                      |                     |  |                                 | (544      | )                                                   |   | 3.50                      | 
|Forfeited                      |                     |  |                                 | (165,152  | )                                                   |   | 5.08                      | 
|                               |                     |  |                                 |           |                                                     |   |                           | 
|Outstanding at June 30, 2007   |                     |  |                                 | 1,431,173 |                                                     | $ | 4.58                      | 
|                               |                     |  |                                 |           |                                                     |   |                           | 
|Exercisable at June 30, 2007   |                     |  |                                 | 594,782   |                                                     | $ | 4.70                      | 
|                               |                     |  |                                 |           |                                                     |   |                           | 

| | Based
upon the Companys experience, approximately 95% of the above stock options are
expected to vest in the future, under their terms.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | During
the six months ended June 30, 2007, options to purchase 759,000 shares of common stock
were granted under the Plan to employees, officers and directors. The options are subject
to vesting provisions, are exercisable at a weighted average of $4.75 per share, and
expire in ten years. During the six months ended June 30, 2007, 544 options to acquire
shares of common stock were exercised at $3.50 each and 165,152 options to acquire shares
of common stock were cancelled due to forfeitures. During the six months ended June 30,
2006, no employee stock options were exercised.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average grant-date fair value of options granted during the six months ended
June 30, 2007 and 2006 was $3.90 and $3.20, respectively. The total fair value of stock
options granted to employees that vested during the six months ended June 30, 2007 and
2006 was $1,285,200 and $147,100, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---



| | The
aggregate intrinsic value in the table above represents the total intrinsic value (the
difference between our closing stock price on June 30, 2007 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the
option holders had all option holders been able to exercise and in fact had exercised
their options on June 30, 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the status of the Companys non-vested options to acquire common stock
granted to employees, officers and directors and changes during the six month period
ended June 30, 2007 is presented below.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Nonvested Shares             |  | Nonvested
Shares
Under
Option |  | Weighted
Average
Exercise 
Price |   | Weighted
Average
Grant Date
Fair Value |     
|---------------------------- |  | ----------------------------- |  | -------------------------------- | - | -------------------------------------- | ----
|Nonvested at January 1, 2007 |  |                               |  | 582,901                          |   | $                                      | 4.39
|Granted                      |  |                               |  | 759,000                          |   |                                        | 4.75
|Vested                       |  |                               |  | (359,358                         | ) |                                        | 4.62
|Forfeited                    |  |                               |  | (146,152                         | ) |                                        | 5.08
|                             |  |                               |  |                                  |   |                                       
|                             |  |                              
|Nonvested at June 30, 2007   |  |                               |  | 836,391                          |   | $                                      | 4.50
|                             |  |                               |  |                                  |   |                                       
|                             |  |                              

| | As
of June 30, 2007, the Company had approximately $2,216,000 of unrecognized compensation
cost related to stock options that will be recorded over a weighted average period of
approximately two years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Industry
Segments and Customer Concentration:
|-- | ---------------------------------------------

| | Industry
Segments
| | -----------------

| | As
a result of the Vizer merger that was completed as of December 31, 2006, the Company now
operates in business segments that are divided into three distinct business reporting
units. The first business unit, called Division X, includes the operations of
Avurt and our  Veritas Tactical, which distributes and produces non-lethal personal protection
devices and compliance products and creates innovative training systems and tools to
increase the quality of training worldwide for law enforcement, militaries, both private
and government, and civilians. The second business unit operates within the Technology
Division and includes the operations of Vizer, which specializes in product design,
system design, engineering, installation, and integration of facility security systems
including access control, video surveillance, intrusion detection, and wireless mesh
network systems. The third business unit operates within the Technology Division and
includes the operations of ShiftWatch which is a product line of mobile digital
video surveillance solutions for public transportation. All of the industry segments are
located at the Companys headquarters in Westminster, Colorado. The Company
determines its segment results consistent with its management reporting and consolidated
accounting policies. No industry segment information is reported prior to the December
31, 2006 Vizer merger as previously the Company operated in one business the ShiftWatch
unit. Selected financial information from the Companys business segments is as
follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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|Six months ended
June 30, 2007 |  | Avurt |   | Vizer      |   | ShiftWatch |          | Corporate
Overhead /  Elimination |   | Totals     |  
|------------------------------ |  | ----- | - | ---------- | - | ---------- | -------- | --------------------------------- | - | ---------- | -
|Net sales                      |  |       | $ | 14,250     |   | $          | 347,321  |                                   | $ | 205,832    |  
|                               |  |       |   |            |  
|Gross profit (loss)            |  |       |   | (19,689    | ) |            | 29,734   |                                   |   | (201,180   | )
|                               |  |       |   |            |  
|Operating loss                 |  |       |   | (1,215,827 | ) |            | (366,733 | )                                 |   | (1,270,776 | )
|Interest expense               |  |       |   | 3,174      |   |            | 5,981    |                                   |   |           |  
|Net loss                       |  |       |   | (1,219,470 | ) |            | (372,714 | )                                 |   | (1,273,162 | )
|Depreciation                   |  |       |   | 869        |   |            | 8,008    |                                   |   | 41,689     |  
|Capital expenditures           |  |       |   | 223,383    |   |            | 58,161   |                                   |   | 47,823     |  
|Identifiable assets            |  |       |   | 2,569,197  |   |            | 456,679  |                                   |   | 3,507,255  |  

|Three months ended
June 30, 2007 |  | Avurt |   | Vizer    |   | ShiftWatch |          | Corporate
Overhead /  Elimination |   | Totals   |  
|-------------------------------- |  | ----- | - | -------- | - | ---------- | -------- | --------------------------------- | - | -------- | -
|Net sales                        |  |       | $ | 1,992    |   | $          | 299,317  |                                   | $ | 113,774  |  
|Gross profit (loss)              |  |       |   | (25,018  | ) |            | 53,235   |                                   |   | (110,116 | )
|Operating loss                   |  |       |   | (383,658 | ) |            | (241,636 | )                                 |   | (823,883 | )
|Interest expense                 |  |       |   | 3,174    |   |            | 1,311    |                                   |   | (22      | )
|Net loss                         |  |       |   | (387,251 | ) |            | (245,347 | )                                 |   | (830,219 | )
|Depreciation                     |  |       |   | 869      |   |            | 7,108    |                                   |   | 31,939   |  

| | Customer
Concentration
| | ----------------------

| | As
of June 30, 2007, three customers comprised 59%, 13% and 11%, respectively, of the
outstanding net accounts receivable balance. For the six-month period ended June 30,
2007, two customers accounted for 35% and 13%, respectively, of net sales and for the
three-month period ended June 30, 2007, two customers accounted for 32% and 14%,
respectively, of net sales. For the six-month period ended June 30, 2006, two customers
accounted for 47% and 28%, respectively, of net sales and for the three-month period
ended June 30, 2006, one customer accounted for 98% of net sales.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---



|8. | Commitments
and Contingencies:
|-- | ------------------------------

| | Supply
agreement
| | ----------------

| | On
May 30, 2007, the Company entered into a Supply Agreement with Perfect Circle
Projectiles, LLC (PCP) for the supply of projectile products. The agreement
provided for an initial term of up to four years and the Company agreed to certain
conditions, including the Companys providing specified product liability insurance
and handling import and export permits and licenses. Additionally, the Company placed
$1,000,000 into an escrow account to secure a portion of anticipated future purchases.
Subsequent to June 30, 2007, the Company acquired certain assets and rights owned by PCP
as described in Note 9, and under its terms the Supply Agreement automatically
terminated. In connection with the PCP acquisition, the $1,000,000 held in escrow, was
applied at closing to the purchase price.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Legal
action
| | ------------

| | On April 13, 2007, a complaint was
filed in United States District Court, Southern District of California, Case No.
07CV 0672 JAH POR, by Pepperball Technologies, Inc. (PTI) against the
Company, Vizer and Avurt. PTI alleges in the civil action that the prospective manufacture
and distribution of the Companys non-lethal projectile launchers infringed certain
of PTIs patents and breached a Reseller Agreement and Non-Disclosure Agreement
between Vizer and PTI. PTI is seeking (a) unspecified damages for the alleged patent
infringement and breach of contract, (b) an injunction to prohibit further alleged patent
infringement and (c) other relief and costs. The Company is vigorously defending
this matter, including exploring all legal rights and remedies available to it to protect
the Companys products, technology and brand, such as counterclaims against PTI, if
appropriate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Subsequent
Events:
|-- | ------------------

| | Asset acquisition
| | -----------------

| | On
July 10, 2007, the Company and PCP Acquisition, Inc., a wholly-owned subsidiary of the
Company, executed an Asset Purchase Agreement with Perfect Circle Projectiles, LLC (PCP)
and Gary E. Gibson (Gibson), for the acquisition (the Acquisition)
of certain assets and rights owned by PCP. The closing of the Acquisition was also
completed on July 10, 2007.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
assets acquired by the Company consist of PCPs spherical
projectile business for tactical and related uses including PCPs and one of its
affiliates domestic and international patent portfolio, trade secrets, machinery,
tooling and associated assets and rights. Consideration paid consisted of $1.0 million in
cash, the issuance of 262,964 shares of the Companys restricted common stock and a
six-year Royalty Agreement with PCP. Pursuant to the terms of the Royalty Agreement, the
Company will make a quarterly royalty payment to PCP for all live round and inert round
spherical projectiles produced by the Company, post closing during the term of the
Royalty Agreement. In addition, the Company agreed to make annual minimum royalty
payments to PCP during the term of the Royalty Agreement which obligation is secured by a
first priority lien in favor of PCP on all assets acquired by the Company in the
Acquisition. The annual minimum royalty payments may be prepaid by the Company at any
time without premium or penalty.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---



| | In
connection with the Asset Purchase Agreement, the Company also entered into a
Registration Rights Agreement with the equity owners of PCP, a Consulting Agreement with
Gibson and PCP, a Patent License Agreement with PCP, a Facilities Agreement with PCP and
a Confidentiality and Non-Competition Agreement with PCP and certain key employees of
PCP. Pursuant to the terms of the Registration Rights Agreement, the shareholders party
thereto holding a majority of the registrable securities may, on one occasion (subject to
certain exceptions) at any time after six months following the closing of the
Acquisition, demand registration of all or a part of their registrable securities. In
addition, each shareholder who is a party to the Registration Rights Agreement has one
right (subject to certain exceptions) to require the Company to register such shareholders
registrable securities in connection with the Companys filing of a registration for
its own securities or securities of other shareholders. Registrable securities include
all shares of the Companys common stock issued in connection with the Acquisition
and are subject to the approval of and cutback or elimination by the Company (based upon
market conditions).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the terms of the Consulting Agreement, Gibson will provide specified consulting
services to the Company, relating to the business and assets acquired from PCP, without
cost to the Company. The Consulting Agreement expires upon the termination or expiration
of the Royalty Agreement. The Patent License Agreement provides that the Company agrees
to license to PCP on an exclusive and perpetual basis and at no cost to PCP the rights to
manufacture, have manufactured, use and sell products embodying any claim of the patents
acquired by the Company in the Acquisition anywhere in the world for any use other than
tactical uses. Pursuant to the terms of the Facilities Agreement, PCP will manufacture
products for the Company at PCPs facilities as requested by the Company, which will
reimburse PCP for all actual, direct and incremental out-of-pocket costs incurred by PCP
in manufacturing products at PCPs facilities for the Company. Either party may
terminate the Facilities Agreement (a) upon 180 days written notice to the other
party for any reason or no reason at all or (b) upon 30 days written notice to the
other party due to such other partys material breach of the agreement if such
breaching party has not cured such breach to the satisfaction of the non-breaching party
within such 30-day period. At any time during the term of the Facilities Agreement that
the Company is able to manufacture products at its own facilities, the 180-day period set
forth above will be reduced to 120 days. Pursuant to the terms of the Confidentiality and
Non-Competition Agreement, PCP and each of Gibson and certain employees of PCP agreed not
to disclose confidential information of the Company to any third party without the prior
written consent of the Company and not to use any confidential information of the Company
for the benefit of PCP, any employee of PCP or any third party in competition with the
business acquired in the Acquisition (the Business). Additionally, PCP,
Gibson and certain employees of PCP agreed for period of between two and six years from
the closing date of the Acquisition, that each of them would not (i) solicit any client
or prospective client of the Business, (ii) advise or recommend solicitation of any
client or prospective client of the Business to any other person, or (iii) engage in the
Business anywhere in the world in competition with the Business.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Options and Warrants
| | --------------------------

| | On
August 6, 2007, a total of 212,000 stock options were granted under the Companys
2004 Stock Incentive Plan to employees exercisable at the then fair market value of $3.83
per share, vesting over a three-year period annually in arrears and expiring in ten
years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 6, 2007, a total of 15,000 non-qualified stock purchase warrants were granted to a
consultant for services. The warrants are exercisable at the then fair market value of
$3.83 per share, vested at the time of grant and expiring in five years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---



# CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain
statements in Managements Discussion and Analysis and other portions of this report
are forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby.
These statements relate to future events or our future financial performance and involve
known and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements or those of our industry to be
materially different from those expressed or implied by any forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
may, will, could, would,
should, expect, plan, anticipate,
intend, believe, estimate, predict,
potential or other comparable terminology. Please see the Cautionary
Note Regarding Forward-Looking Statements in our Form 10-KSB for the year ended
December 31, 2006 for a discussion of certain important factors that relate to
forward-looking statements contained in this quarterly report on Form 10-QSB. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be correct.
Unless otherwise required by applicable securities laws, we disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

# ITEM 2.

# MANAGEMENTS
DISCUSSION AND ANALYSIS

# Overview

Effective
as of December 31, 2006, we completed the acquisition of Vizer Group, Inc.
(Vizer) and Vizers wholly-owned subsidiary, Avurt International, Inc.
(Avurt). As consideration, we issued Vizers shareholders 754,380 shares
of SWAT newly-issued, restricted common stock. Up to an additional 533,333 shares of our
restricted common stock are issuable subject to the terms of an earn-out provision
contingent upon the achievement of specified future revenue and operating thresholds.
Since the acquisition was completed effective as of December 31, 2006, our consolidated
financial statements reflect the acquisition on the consolidated balance sheet and our
statements of operations and cash flows for the three and six months ended June 30, 2007,
while the statements of operations and cash flows for the three and six months ended June
30, 2006 do not include any results of the acquired companies.

On
July 10, 2007, we acquired the spherical projectile business of Perfect Circle
Projectiles, LLC, (Perfect Circle or PCP) the industrys
leading producer of non-lethal spherical projectiles, for tactical and related uses in our
new launchers. The acquisition includes Perfect Circles and one of its
affiliates domestic and international patent portfolio, trade secrets, machinery,
tooling and associated assets and rights. Perfect Circle has been producing high quality,
reliable projectiles since 1991 and is believed to be one of the only companies in the
world producing effective powder filled projectiles for use in non-lethal markets. As
consideration, we paid $1.0 million in cash, issued 262,964 shares of the Companys
restricted common stock and executed a six-year Royalty Agreement with PCP. The $1.0
million cash portion of the consideration had been previously funded into an escrow
account under a supply agreement with Perfect Circle. Since the acquisition was completed
after June 30, 2007, our consolidated financial statements do not reflect the acquisition
or the results of operations on the consolidated balance sheet and our statements of
operations and cash flows for the periods ended June 30, 2007.

Prior
to the late 2006 acquisition of Vizer and the 2007 acquisition of the spherical projectile
business PCP, we marketed high resolution mobile digital video recording systems for
security and surveillance. Our products were designed originally for use in the law
enforcement market. In early 2004, as a result of significant lead times being encountered
in the buying decisions of law enforcement customers we began marketing products to mass
transit customers. We had one principal customer, Kansas City Area Transit Authority, or
KCATA, which accounted for a majority of our sales through 2006.

# Results of Operations

In
the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31,
2006, the Report of the Independent Registered Public Accounting Firm includes an
explanatory paragraph that describes substantial doubt about the Companys ability to
continue as a going concern. The Companys interim consolidated financial statements
for the six months ended June 30, 2007 have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and commitments
in the normal course of business. The Company incurred a net loss and utilized net cash in
operating activities of $8,562,762 and $5,008,275, respectively, for the six months ended
June 30, 2007.

These
conditions raise substantial doubt about the Companys ability to continue as a going
concern. Managements plans with regard to these matters are discussed below. The
accompanying consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. We expect to continue to incur losses from
operations during 2007; however, the Company received approximately $6.0 million in a March and April 2007 convertible debt offering.

While we expect that the recent acquisitions will help increase
revenues, such increases for the near term may only provide limited additional cash flow
from such sales. The Companys ability to continue as a going concern depends on the
success of managements plans to bridge such cash shortfalls in 2007 including the
following:

| | 1. | Aggressively
pursue additional fund raising activities in 2007 in addition to the approximate $6.0
million that has               been received in 2007 from the Company's convertible debt
offering;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Continue
to advance development of the Company's new products, particularly the non-lethal Avurt
and MK-IV launchers and               associated targets and projectiles, and to begin
selling such products in late 2007, thereby generating cash flow from such               sales;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Continue
to support and expand Vizers contract opportunities in both fixed facilities and
mobile environments as well as the CommandGrid product, a unique technology which enables
easy access and use to maintaining facilities access and surveillance through an online
hosted service. The business model for this product is similar to the security alarm
business;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Work
to capitalize on the supplier relationship we have developed with a lower cost supplier
for a high quality warranted product to meet customer demands for a mobile DVR;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---



| | 5. | Work
to complete the re-design of the ShiftWatch TVS DVR product to complete the in-process
installations and open orders               thereby recognizing revenues and generating
cash flow from such sales;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | Contingent
upon the Companys ability to re-design the ShiftWatch TVS DVR products and the
level of sales of such product in 2007, if any, explore alternative revenue sources from
licensing or partnering opportunities for the ShiftWatch TVS DVR product; and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | Continue
to monitor and implement cost control initiatives to conserve cash.
| | -- | ----------------------------------------------------------------------------

Due
to the performance problems and product failures primarily associated with the late 2006
release of the ShiftWatch TVS 300 product, significant 2006 and interim 2007 product and
installation revenues from ongoing contracts have been deferred as of June 30, 2007
pending successful reconfiguration and installation of the product. Approximately $640,000
relating to amounts appropriately billed or collected under the terms of the installation
contracts has been recorded as deferred revenue as of June 30, 2007. Such deferred
revenues will not be recognizable until the products are working correctly and accepted by
the customers. Product handling and installation costs in early 2007 are also running
higher. This is due to efforts and costs of not only work done to determine the causes of
the failures, but also the additional on-site processes to remove, repair and replace the
units. We are currently in contact with our contract hardware supplier to determine the
level, if any, of product failure cost relief they could be responsible for and agree to
cover. We are also aggressively proceeding with a new hardware source for the re-designed
units.

# Comparison of the six
months ended June 30, 2007 to 2006

Net
sales for the six months ended June 30, 2007 totaled $491,000, which is a $261,800 or 114%
increase from net sales of $229,200 for the six months ended June 30, 2006. The change in
sales between 2007 and 2006 is attributable to a $23,400 decrease in the revenues from the
ShiftWatch division in 2007, offset by the sales from Vizer and Avurt, new in 2007 that
totaled approximately $285,200. During the fourth quarter of 2006, the Company determined
that the recently released ShiftWatch TVS DVR units were not performing as anticipated.
Accordingly, installations in process where slowed down and in some cases suspended. This
condition combined with pending warranty work on other units, resulted in approximately
$640,000 of cumulative revenues for in-process contracts being deferred and not recognized
through June 30, 2007.

Cost
of sales for the six months ended June 30, 2007 totaled $682,100, which is a $189,500
increase as compared to the 2006 period. The change in cost of sales primarily resulted
from the additional costs associated with the issues related to the ShiftWatch TVS DVR
unit installation, testing and re-work costs that were incurred in 2007. It is expected
that the higher level of cost of sales will continue during 2007 as the retrofit work on
the hardware configuration and re-installation of the ShiftWatch TCS DVR units continues.

Selling,
general and administrative expenses in the six months ended June 30, 2007 totaled
$4,496,400, which is a $2,476,800 or 123% increase as compared to the 2006 period. The
increase is primarily attributable to an increase of $1,171,000 in stock-based
compensation resulting from option issuances in 2007 combined with additional overhead
costs being incurred following the Vizer merger that closed as of December 31, 2006.

Research
and development expenses in the six months ended June 30, 2007 totaled $738,400, which is
a $259,800 or 54% increase as compared to the 2006 period. The increase is primarily
associated with development costs being incurred in 2007 for the Avurt launcher product
and other non-lethal products.

Interest
expense for the six months ended June 30, 2007 totaled $3,197,600, as compared being
virtually nil during the 2006 period. The increase was virtually all attributable to the
non-cash amortization of the $3,106,600 additional interest expense associated with the
amount allocated to the warrants and the beneficial conversion features of the convertible
debt offering completed in March and April 2007.

17

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No
income tax benefit was recorded on the loss for the six months ended June 30, 2007, as our
management was unable to determine that it was more likely than not that such benefit
would be realized. At June 30, 2007, we had a net operating loss carry forward for income
tax purposes of approximately $17.6 million, expiring through 2026.

# Comparison of the three
months ended June 30, 2007 to 2006

Net
sales for the three months ended June 30, 2007 totaled $338,700, which is a $322,300
increase from net sales of $16,400 for the three months ended June 30, 2006. The change in
sales between 2007 and 2006 is attributable to a decrease in the revenues from the
ShiftWatch division in 2007, offset by the sales from Vizer and Avurt, new in 2007 that totaled
approximately $224,900, for the three months ended June 30, 2007. During the fourth
quarter of 2006, the Company determined that the recently released ShiftWatch TVS DVR
units were not performing as anticipated. Accordingly, installations in process where
slowed down and in some cases suspended.

Cost
of sales for the three months ended June 30, 2007 totaled $420,600, which is a $135,000
increase as compared to the 2006 period. The change in cost of sales primarily resulted
from the additional costs associated with the issues related to the ShiftWatch TVS DVR
unit installation, testing and re-work costs that where incurred in 2007. It is expected
that the higher level of cost of sales will during 2007 as the retrofit work on the
hardware configuration and re-installation of the ShiftWatch TVS DVR units continues.

Selling,
general and administrative expenses in the three months ended June 30, 2007 totaled
$1,978,100, which is an $896,100 or 83% increase as compared to the 2006 period. The
increase is primarily attributable to an increase of $166,600 in stock based compensation
resulting from option issuances in 2007 combined with additional overhead costs being
incurred following the Vizer merger that closed as of December 31, 2006.

Research
and development expenses in the three months ended June 30, 2007 totaled $246,900, which
is a $3,300 decrease as compared to the 2006 period. The change is primarily associated
with development costs being incurred in 2006 for the ShiftWatch TVS DVR product line and in 2007
for the Avurt launcher product and other non-lethal products.

Interest
expense for the three months ended June 30, 2007 totaled $3,050,400, as compared to being
virtually nil during the 2006 period. The increase was virtually all attributable to the
non-cash amortization of the $2,964,000 additional interest expense associated with the
amount allocated to the warrants and the beneficial conversion features from the
convertible debt offering completed in March and April
2007.

# Issuances of Stock
Options

Our
board of directors has reserved a total of 2,000,000 shares of our common stock for
issuance pursuant to our 2004 Stock Incentive Plan, as amended. Our board of directors
administers the plan. On July 19, 2007, the Companys shareholders approved an
amendment to the Plan to increase the number of shares reserved under the Plan from
1,500,000 to 2,000,000. During the six month periods ended June 30, 2007 and 2006, the
Company issued options to employees and directors to acquire 759,000 shares of common
stock exercisable at an average price of $4.75 and 308,500 shares of common stock,
exercisable at an average price of $5.07, respectively.

# Liquidity and Capital
Resources

For
the six months ended June 30, 2007, we incurred a net loss of $8,563,000 including
$4,637,000 in noncash expenses relating to $1,465,000 in stock based compensation,
$3,107,000 in interest accretion on the convertible note offering and $65,000 for
depreciation and amortization. We expect our overhead expenses for the remainder of 2007
to remain generally at the levels incurred for the three months ended June 30, 2007. We
are currently engaged in product development activities for the products being developed
by Avurt and Vizer as well as the ShiftWatch TVS DVR product line. Because of the hardware and
performance issues associated with the ShiftWatch TVS DVR product completion and the
development status of the Avurt and Vizer products combined with the uncertainty regarding
the authorities purchasing decisions, we are making no estimates of expected
revenues for 2007. We expect, however, that a loss will be incurred for most if not all of
2007.

18

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At
June 30, 2007, we had working capital of $282,500. Included in current liabilities at June
30, 2007 were the convertible notes that totaled $3,024,900 (net of $2,975,000 in
unamortized fair value assigned to beneficial conversion feature and warrants). These
convertible notes were converted into Preferred Stock equity upon the approval by the
Companys shareholders at the July 19, 2007 Annual Meeting.

The
Companys subsidiary, Vizer has a line of credit totaling $50,000 of which $467 is
currently outstanding. Advances under the line are made based on the available balance of
the line, which matures in May 2011 and bears interest at the prime rate plus 3.25%. The
line of credit is collateralized by business assets and is personally guaranteed by the
Companys president.

During
May 2007 we entered into a supply agreement with Perfect Circle Projectiles, LLC
(PCP) and deposited $1.0 million into an escrow account under the terms of the
supply agreement. Subsequent to June 30, 2007 we completed an acquisition the spherical
projectile business of PCP, which automatically terminated the supply agreement and
utilized the $1.0 million in the escrow account to fund the cash portion of the purchase
price.

Capital
expenditures, primarily for tooling, development and testing equipment, office equipment
and facility improvement costs for the remainder of the fiscal year ending December 31,
2007 are anticipated to total approximately $100,000 to $300,000.

We
anticipate that spending for research and development for the fiscal year ending December
31, 2007, will decrease somewhat from the level of those incurred for the six months ended
June 30, 2007. The primary expenditures will be focused on adding new products following
the recent acquisitions. We expect that new products and applications and product
enhancements will also require additional development expenses.

# Operating Activities

Net
cash consumed by operating activities was $5,008,300 during the six months ended June 30,
2007. Cash was consumed by the loss of $8,562,800, less non-cash expenses of $4,636,600,
relating to $1,464,600 in non-cash stock based compensation, $3,106,600 in interest
accretion on the convertible note offering and $65,400 for depreciation and amortization.
Increases in inventories and prepaid expenses and other current assets totaled $1,437,300
during the period due to increases primarily associated with the upcoming launch of the
Avurt launcher. Accounts payable, accrued expenses and deferred revenue increased by
$432,900 during the period reflecting the associated inventory build-up as well as the
deferred revenues associated with the delays in the ShiftWatch TVS DVR product installations,
providing cash.

Net
cash consumed by operating activities was $2,626,300 during the six months ended June 30,
2006. Cash was consumed by the loss of $2,698,400, less non-cash expenses of $336,000 for
depreciation, amortization and non-cash stock-based compensation. Increases in accounts
receivable and inventories totaled $457,600 during the period as a result of increases and
anticipated increases in sales levels. Accounts payable, accrued expenses and deferred
revenues increased by $200,300, during the period, which provided cash.

# Investing Activities

Net
cash outflows from investing activities consumed $913,300 during the six months ended June
30, 2007. The outflow was primarily attributable to the funding of $1.0 million into the
PCP supply agreement escrow account plus $373,200 invested in equipment and patents net of
an inflow of $460,000 upon the sale of short term investments.

Net
cash outflows from investing activities consumed $104,200 during the six months ended June
30, 2006. The outflow was primarily attributable to purchases of equipment totaling
$50,800 and additions to patents and deposits totaling $53,500.

# Financing Activities

Net
cash inflows from financing activities generated $5,807,400 during the six months ended
June 30, 2007, primarily from the $6.0 million private placement in 2007, net of $160,000
in financing expenses paid and $54,700 in repayments under debt agreements.

Net
cash outflows from financing activities consumed $2,900 during the six months ended June
30, 2006 from repayments on installment obligations.

19

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# Recent accounting
pronouncement

In
July 2006, the FASB issued FASB Interpretation No.48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement 109"(FIN 48)
which clarifies the accounting for uncertainty in income taxes recognized in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN 48 is a
comprehensive model for how a company should recognize, measure, present, and disclose in
its financial statements uncertain tax positions that the company has taken or expects to
take on a tax return. If an income tax position exceeds a more likely than not (greater
than 50%) probability of success upon tax audit, the company will recognize an income tax
benefit in its financial statements. Additionally, companies are required to accrue
interest and related penalties, if applicable, on all tax exposures consistent with
jurisdictional tax laws. We adopted FIN 48 for the fiscal year beginning January 1, 2007.
We did not have any unrecognized tax benefits and there was no effect on our financial
condition or results of operations as a result of implementing FIN 48. We file income tax
returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is
no longer subject to U.S. federal tax examinations for years before 2003, and state tax
examinations for years before 2002. We do not believe that there will be any material
changes in our unrecognized tax positions over the next 12 months. Our policy is that we
recognize interest and penalties accrued on any unrecognized tax benefits as a component
of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued
interest or penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the quarter. Our effective tax rate differs from the federal
statutory rate primarily due to non-deductible expenses and is offset somewhat by state
tax credits.

# Item 3.  
Controls and Procedures

|(a) | Evaluation
of Disclosure Controls and Procedures.
|--- | -------------------------------------------------

Our
management, including our Chief Executive Officer and the Chief Financial Officer, has
conducted an evaluation of the effectiveness of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the
last day of the period of the accompanying financial statements (the Evaluation
Date). Based on that review and evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls
and procedures were adequate and effective to ensure that material information relating to
us and our subsidiaries would be made known to them by others within those entities in a
timely manner, particularly during the period in which this quarterly report on Form
10-QSB was being prepared, and that no changes are required, in each case at this time
except as described below.

In
connection with the December 31, 2006 year end closing and independent audit process,
certain material adjustments were made to the 2006 financial statements. These adjustments
related to the previous 2006 revenue recognized, costs of goods sold, certain related
inventory carrying amounts and costs and computations of amounts allocated to the
beneficial conversion feature from the October 2006 offering. As a result of these year
end adjustments, our management is currently re-evaluating certain accounting processes
and controls to determine the level of changes that may be needed to ensure that material
information is made known in a timely manner.

20

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# PART II  
OTHER INFORMATION

# Item 1.  
Legal Proceedings

On
April 13, 2007, a complaint was filed in United States District Court, Southern District
of California, Case No. 07CV 0672 JAH POR, by Pepperball Technologies, Inc.
(PTI) against the Company, Vizer and Avurt. PTI alleges in the civil action
that the prospective manufacture and distribution of our non-lethal projectile launchers
infringed certain of PTIs patents and breached a Reseller Agreement and
Non-Disclosure Agreement between Vizer and PTI.  PTI is seeking (a) unspecified damages for the
alleged patent infringement and breach of contract, (b) an injunction to prohibit further
alleged patent infringement and (c) other relief and costs. The Company is vigorously
defending this matter, including exploring all legal rights and remedies available to it
to protect the Companys products, technology and brand, such as counterclaims
against PTI, if appropriate.

We
are not a party to any other legal proceedings, the adverse outcome of which would, in
managements opinion, have a material adverse effect on our business, financial
condition and results of operations.

# Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds

No
unregistered equity securities were sold during the period covered by this report, not
previously reported on Forms 10-QSB or 8-K.

# Item 3.  
Defaults Upon Senior Securities

# Item 4.  
Submission of Matters to a Vote of Security Holders

On
July 19, 2007, the Company held its 2007 Annual Meeting of Shareholders. At the meeting,
the following directors were elected to serve until the next annual meeting or until their
successors are elected and qualified:

|Name                |  | Shares FOR |  | WITHHOLD Authority To
Vote | 
|------------------- |  | ---------- |  | -------------------------- | 
|Thomas R. Marinelli |  |            |  | 4,342,484                  | 
|Gregory Pusey       |  |            |  | 4,342,863                  | 
|Scott G. Sutton     |  |            |  | 4,347,005                  | 
|Barry C. Loder      |  |            |  | 4,343,229                  | 
|Gail S. Schoettler  |  |            |  | 4,342,845                  | 
|David E. Welch      |  |            |  | 4,343,203                  | 
|Robert J. Williams  |  |            |  | 4,343,208                  | 
|                    |  |           

In addition, the shareholders
approved the conversion of $5,999,901 principal amount of our convertible promissory
notes into shares of our Series A Convertible Preferred Stock. The number of votes cast
for and against, and abstaining are reflected in the table below.

|Shares FOR | Shares AGAINST | ABSTAIN | 
|---------- | -------------- | ------- | 
|2,655,392  | 15,160         | 1,080   | 

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The shareholders also authorized an
increase the number of shares available for issuance under our 2004 Stock Incentive Plan
to 2,000,000 from 1,500,000.  The number of votes cast for and against, and abstaining
are reflected in the table below.

|Shares FOR | Shares AGAINST | ABSTAIN | 
|---------- | -------------- | ------- | 
|2,611,558  | 58,288         | 1,786   | 

# Item 5.  
Other Information

None

# Item 6.   Exhibits

| | (a) | Exhibits.
| | --- | ---------

|EXHIBIT | DESCRIPTION
|------- | -----------

|31.1 | Rule
13a-14(a)/15d-14(a) - Certification of Chief Executive Officer. Filed herewith.
|---- | ------------------------------------------------------------------------------------

|31.2 | Rule
13a-14(a)/15d-14(a) - Certification of Chief Financial Officer. Filed herewith.
|---- | ------------------------------------------------------------------------------------

|32 | Section
1350 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the SARBANES-OXLEY ACT               of 2002. Filed herewith.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURES

In accordance with the requirements
of the Securities Exchange Act of 1934, the registrant caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|                       |                                                                                                                                 | 
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------- | 
|Dated: August 20, 2007 | Security With Advanced Technology, Inc.
(Registrant)
By: /s/ Jeffrey G. McGonegal
Jeffrey G. McGonegal,
Chief Financial Officer | 

22

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