UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549







**FORM
      10-KSB**





**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the fiscal year ended**- December 31, 2005****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the transition period from





Commission
      file number **0-024828**





**SENSOR
      SYSTEM SOLUTIONS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)





**NEVADA**
            **98-0204898**(State
                or Other jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification No.)





**45
      Parker Avenue, Suite A**


**Irvine,
      California 92618**


(Address
      of Principal Executive Offices, including zip code.)





**(949)
      855-6688**


(Issuer’s
      Telephone Number, Including Area Code)





Securities
      registered pursuant to Section 12(b) of the Act:


**Title
                of each class**
            **Name
                of each exchange on which registered****None**
            **None**





Securities
      registered pursuant to Section 12(g) of the Act:


**Title
                of each class**
            **Common
                Stock**





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 o













Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act. o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by referenced in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB x





State
      issuer's revenues for its most fiscal year **December 31, 2005** **:
      $1,324,872.**





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity . **As
      of May 1, 2006, the value was $6.1 million.**





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of **May 1, 2006: 76,586,112**


2





**PART
                I**ITEM
                1.
            DESCRIPTION
                OF BUSINESS.ITEM
                2.
            DESCRIPTION
                OF PROPERTY.ITEM
                3.
            LEGAL
                PROCEEDINGS.ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS.**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS AND SMALL BUSINESS
                ISSUER PURCHASES OF EQUITY SECURITIES.ITEM
                6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR FINANCIAL PLAN OF OPERATION.ITEM
                7.
            FINANCIAL
                STATEMENTS.ITEM
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE.ITEM
                8A.
            CONTROLS
                AND PROCEDURES.ITEM
                8B.
            OTHER
                INFORMATION.**PART
                III**ITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT.ITEM
                10.
            EXECUTIVE
                COMPENSATION.ITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.ITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS.ITEM
                13.
            EXHIBITS.ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES.SIGNATURES




3





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**




Sensor
      System Solutions, Inc. (the “Company” or “3S”) was incorporated in Nevada in
      April 1982 under the name The Enchanted Village, Inc. As the result of the
      March
      13, 2004 acquisition of Advanced Custom Sensors, Inc., a California corporation
      (“ACSI”), the Company is now in the business of design and manufacturing sensors
      and signal conditioning modules.





***Acquisition
      of Advanced Custom Sensors***




Pursuant
      to an Agreement and Plan of Merger (the "Merger Agreement") dated as of March
      13, 2004, by and among the Company, Spectre Merger Sub, Inc., a California
      corporation and wholly owned subsidiary of the Company ("Merger Sub"), Ian
      S.
      Grant ("Shareholder") and ACSI, on May 24, 2004 (the "Closing Date"), Merger
      Sub
      merged with and into Advanced Custom Sensors, Inc. (“ACSI”) (the "Merger"). As a
      result of the Merger, ACSI became a subsidiary of the Company. As consideration
      for the Merger, the Company issued 2,584,906 shares of common stock and warrants
      to purchase up to 47,802,373 shares of common stock to the shareholders of
      ACSI.
      The terms of the Merger were determined through arms-length negotiations between
      the management of the Company and management of ACSI. We changed our company
      name to Sensor System Solutions, Inc. in December 2004 to better represent
      our
      new focus. As such, the following results of operations are those of
      ACSI.





Until
      we
      acquired ACSI, we had only nominal assets and liabilities and limited business
      operations. Although ACSI became our wholly-owned subsidiary following the
      acquisition, because the acquisition resulted in a change of control, the
      acquisition was recorded as a "reverse merger" whereby ACSI is considered to
      be
      the accounting acquirer. Also, as a result of the acquisition, we have had
      a
      change of our financial position and our business. 3S is now a holding company
      and after the Spin-Off, defined below, will have no significant operations
      or
      assets other than our interest in Advanced Custom Sensors, Inc. Since the
      acquisition of ACSI, the Company has been engaged in the development,
      manufacturing, marketing and distribution of high quality sensors and
      transducers at an economical price by employing innovative designs and creative
      manufacturing methods.





***Spin-Off
      of Spectre Holdings***




On
      December 15, 2004, in consideration for making and guaranteeing certain
      representations, warranties and obligation in connection with the Agreement
      and
      Plan of Merger dated March 13, 2004 by and between the Company and ACSI, the
      Company transferred 20,878,081 shares of common stock (the "Shares"), which
      were
      all of the issued and outstanding shares of Spectre Holdings, Inc., our then
      wholly-owned subsidiary, to Ian Grant. As a result of the distribution of the
      Shares, the Company no longer owns any stock of Spectre Holdings, Inc.




***Advanced
      Custom Sensors***




ACSI
      was
      founded by an engineering management team with over 50 years of
      Micro-electro-mechanical-systems or "MEMS" transducer experience. Its objective
      is to provide high quality sensors and transducers at an economical price by
      employing innovative designs and creative manufacturing methods. Through ACSI,
      3S offers a variety of digital pressure gauges, p ressure
      transducers, pressure sensors, force beams, load cells, intelligent sensor
      interface electronics, intelligent embedded control systems, and wireless
      communication network interfaces. 3S produces or supplies a family of nearly
      30
      distinctive products. 3S is a supplier of thin-film and micro-machined force
      and
      pressure sensors to the medical, chemical, oil, and gas industries. 3S believes
      that its technology will enable it to become a global supplier of advanced
      MEMS/Microelectronic products in myriad developing markets. 3S' strategic plan
      is to focus on developing custom MEMS pressure sensor devices and forming
      strategic partnerships where its strategic partners dominate the sales channels
      in industries accepting MEMS sensor applications.


4




***Universal
      Sensors, Inc.***




In
      April
      2005, 3S, China Automotive Systems, Inc. (CAAS) and Shanghai Hongxi Investment
      Inc. (HX) formed Universal Sensors, Inc. (USI), a joint venture in the People’s
      Republic of China to develop, produce and market sensor and related electronic
      products, targeting the Chinese automotive sensor market. 3S is transitioning
      to
      move its production line in Taiwan to this joint venture. The ownership
      percentages of USI are 30%, 60% and 10% to 3S, CAAS and HX, respectively. CAAS
      and HX will contribute cash, land and building by the end of 2006. 3S has
      contributed technology. Since there was no cash contributed by 3S and the
      technology it contributed was not recorded on its books, no investment in USI
      was recorded. USI is in a start-up mode and had not begun operations as of
      December 31, 2005. It is currently beginning its sales and marketing operations.





***Strategic
      Plan***





We
      plan
      to grow our business in four areas.





· **Increase
      the revenue of our existing sensor component business** .
      Once
      finalized, the majority of our sensor component manufacturing will be moved
      to
      our joint venture in China to help reduce the cost of our products. We will
      invest to increase our production capacity and will qualify offshore suppliers
      to meet the increasing demands. Substantial efforts will be invested in sales
      and marketing in order to expand our customer base and to secure additional
      OEM
      projects.





· **Develop
      sensor solution business.** By
      leveraging the advances in technology and the large industry-wide investments
      in
      wireless and telecommunication in the last decade, we can now offer total sensor
      solutions at a very affordable price. These sensor solutions are modules
      containing sensing elements, signal conditioning circuitry, software for
      calibration and interface, and capability of wireless communication and/or
      networking. They will provide information continuously **** to
      decision makers in all phases of business operation.





· **Penetrate
      the automotive sensor market in China and India.** By
      leveraging the marketing channel of USI, our joint venture partner, and X-Lab
      Global, a leading technology advisory and strategic consulting firm, we will
      have access to the automotive market in China and India immediately. We plan
      to
      use the next two years to build up our production capacity, product offerings
      and technical team there. We expect to import automotive sensors produced by
      our
      joint venture to North America and Europe around 2008.





· **Strategic
      acquisition** :
      Being a
      public company gives us a supplemental tool to grow our business through
      acquisition in addition to internal growth. We will actively seek equity or
      debt
      funding to enable us to bring in the necessary resources to execute this
      plan.





***Industry
      Overview***




Micro-Electro-Mechanical
      Systems, or MEMS, is the integration of mechanical elements, sensors, actuators
      and electronics on a common silicon substrate through the utilization of
      microfabrication technology. MEMS is an enabling technology, allowing the
      development of smart products by augmenting the computational ability of
      microelectronics with the perception and control capabilities of microsensors
      and microactuators. MEMS is also an extremely diverse and fertile technology,
      both with regard to applications and the methodology of how electronic devices
      are designed and manufactured.


5




Microelectronic
      integrated circuits (“IC’s”) can be thought of as the "brains" of systems and
      MEMS augments this decision-making capability with "eyes" and "arms" to allow
      microsystems to sense and control the environment. In its most basic form,
      the
      sensors gather information from the environment through measuring mechanical,
      thermal, biological, chemical, optical and magnetic phenomena; the electronics
      process the information derived from the sensors and through some decision
      making capability direct the actuators to respond by moving, positioning,
      regulating, pumping and filtering, thereby controlling the environment for
      some
      desired outcome or purpose. Since MEMS devices are manufactured using batch
      fabrication techniques, similar to ICs, unprecedented levels of functionality,
      reliability and sophistication can be placed on a small silicon chip at a
      relatively low cost.





***Market
      Size and Viability***




The
      total
      MEMS market size was about $5.1 billion worldwide and is expected to grow to
      $9.7 billion by 2010, according to a recent market study report. MEMS pressure
      sensors has the largest market share of the MEMS market. The applications of
      MEMS pressure sensors can be separated into five categories: Automotive, Process
      Control, Medical, Consumer Appliances and Aerospace. Currently, the market
      in
      Consumer Electronics is enjoying the fastest growth. Due to its versatility,
      MEMS is taking the lead in the various fast-growing electronic applications
      in
      addition to its excellent performance and price ratio.




***Products***




The
      Company’s future technology strategy is to develop and/or acquire core
      intellectual property that will place it in a leadership position to manufacture
      and market MEMS sensors. 3S has been granted three patents by the United States
      Patent and Trademark Office, including the most recent in February 2006 for
      its
      Sensor Signal Conditioner for temperature compensation, linearization and
      amplification of a transducer output signal . 3S
      has
      also filed one provisional patent for a backflow testing device. In addition,
      the Company has developed many proprietary techniques/processes. These serve
      as
      the foundation to further develop our MEMS business.





3S
      produces or supplies a family of nearly thirty (30) distinctive products. These
      products employ or utilize the latest state-of-the-art technologies. The
      products are primarily electro-mechanical sensing devices and are identified
      under the following categories: Pressure Transducers, Pressure Transmitters,
      Pressure Switches, Force Sensors, Load Cells, Strain Gages and MEMS Sensors.
      We
      are expanding our product offering to include intelligent embedded systems
      that
      combine the attributes of both intelligent sensor and host systems





3S
      uses
      sputtered thin film, bonded foil, semi-conductor gages and piezoresistive strain
      gage technologies primarily in the design, development and manufacture of its
      general sensor products, although other technology options are also available.
      All of 3S’ products employ proven technologies with little or no risk involved
      with their manufacture. What sets 3S’ products apart from our competitors is our
      ability to optimize the performance of our products by efficient application
      of
      our diverse technologies into unique design concepts and by utilizing
      sophisticated materials in construction and packaging techniques.




***Customers***




We
      supply
      our sensors mainly to the medical and automation industries. In general
      customers are divided into three groups: original equipment manufacturers
      ("OEM's"), end users and catalogs. OEM’s accounted for 56% of our revenue in
      2005 with end users and catalogs splitting the rest.




We
      have
      established a wide presence in the catalog business with our 1200 Series of
      digital pressure gauges starting in 2004. We are currently signed up with six
      catalog houses, including the largest instrumentation catalog house in N.
      America in 2005. This additional account will allow us to increase our revenue.


6




***Sales
      and Marketing***




We
      use
      independent sales representatives with industry expertise to promote our product
      since sensors are quite complicated devices. We have a network of nine sales
      representatives to cover North America and two international representatives.
      In
      addition to our sales rep network, we also have a network of distributors to
      handle products that do not require much technical support. Both networks are
      managed by our VP of Marketing and Sales.





We
      are
      seeking new distribution channels for our sensor modules and we are working
      to
      leverage existing market intelligence. We hired a VP of Marketing and Sales
      in
      January 2006 to assist us in exploring the market for our sensor
      modules.





We
      plan
      to increase our market presence in China through our joint venture - Universal
      Sensors, Inc. (USI). USI has a 7-person sales team to promote not only its
      own
      automotive sensors but also 3S’ products in China.




***Research
      and Development***




We
      hired
      two key engineers in October of 2004. Together, they have sixty years of
      combined experience in designing creative sensor modules. To date, two series
      of
      sensor modules have been designed, models have been constructed and beta-site
      tested. We began production in the first quarter of 2006. One additional product
      that we filed a provisional patent for will be ready for production in the
      third
      quarter of 2006. The unit price of these modules will be at least ten times
      higher than our current sensor component’s sale price. We expect an increase in
      our sales from these two product lines.





***Our
      Goals***




Our
      goal
      is to become the market leader in innovative sensor system solutions, and a
      supplier with a competitive pricing and performance mix. To accomplish this
      objective, the Company plans to integrate proprietary techniques and processes
      developed by 3S that serve as the foundation to develop the Company’s MEMS
      business. These MEMS core competences include MEMS front-end wafer design and
      processing, volume assembly and testing, application-specific environmental
      protection and cost modeling. Combined with 3S’s expansion plans to increase
      marketing and sales efforts, these technologies present the Company with
      opportunities to further grow the business in international markets such as
      China. 3S formed a joint venture in China with China Automotive Systems, Inc.
      (CAAS) in April of 2005 to address its production requirements. 3S also has
      MEMS
      wafer fabrication partners in China and Taiwan, allowing the Company to maintain
      sensor wafer supplies as well as to continue MEMS device research.





3S
      intends to upgrade from the sensor component business to the system solution
      business. We will focus on providing complete data management solutions that
      can
      accommodate the needs of a wide range of industries and businesses. These
      solutions include a comprehensive set of products and services that establish
      the infrastructure necessary for manufacturing process partners to proactively
      participate in sustaining and optimizing the operation.





The
      Company is striving to be an important provider of sensor solutions with
      built-in network connectivity to supply critical data continuously for
      enterprises to monitor and control:




·
            Machine
                conditions


·
            Manufacturing
                processes


·
            Business
                transactions


7





The
      Company plans to develop and integrate various core intellectual properties
      in
      the areas of MEMS sensors, intelligent sensor interface electronics, intelligent
      embedded control systems and meters, wireless communication network interfaces,
      data appliances and mobile devices that facilitate machine-to-business data
      sharing, software & hardware to support web-based device diagnostics and
      data collection/data distribution, and web-based data management.





The
      Company believes that MEMS is an enabling technology allowing the development
      of
      smart products by augmenting the computational ability of microelectronics
      with
      the sensing and control capabilities of microsensors and microactuators.





The
      Company’s strategy includes the hiring of world-class engineering and sales and
      marketing teams coupled with robust off-shore joint ventures such as the one
      with CAAS. Management expects that the Company’s joint venture with CAAS will
      enable the transformation of 3S into a global supplier of advanced
      MEMS/Microelectronic products in the automotive market.





Implementation
      of our goals depends to a large extent on our ability to raise funds in the
      form
      of debt or equity or a combination thereof. The Company is actively seeking
      funding to expand its design, development and marketing.





***Strategy***




The
      keys
      to success for 3S ** are
      as
      follows:





·
            Penetrate
                automotive and appliance markets thru the Joint Venture with CAAS
                in
                China;


·
            Leverage
                the cost performance of above alliance to penetrate industrial and
                medical


markets
                in North America and Europe;


·
            Complete
                development of sensor-based systems to increase
                revenues;


·
            Merger
                and acquisition.




***Competition***




Our
      products and services are affected by varying degrees of competition. We compete
      with other companies in most markets we serve, many of which have far greater
      sales volumes and financial resources. The principal competitive factors in
      the
      commercial markets in which we participate are product performance, service
      and
      price. Part of product performance requires expenditures in research and
      development that lead to product improvement. The market for many of our
      products may be affected by rapid and significant technological changes and
      new
      product introduction. Our principal competitors include Honeywell, GE and MSI
      in
      the sensor component segment, and Delphi, Bosch and Denso in the automotive
      sensor segment. There is no major competitor in the Sensor System Solutions
      Market at the current time.





***Employees
      and employment agreements***




The
      Company currently employs 17 persons: There are no employment agreements with
      any of the employees.


8


**ITEM
      2. DESCRIPTION OF PROPERTY.**





Our
      headquarters is located at 45 Parker Avenue, Suite A, Irvine, California 92618.
      The facilities include 25,000 square feet of office, production and warehouse,
      which we lease from the Irvine Company under a five year lease. Annual
      rental payments
      for this lease are listed in the MD&A section.





We
      believe that these facilities have the capacity to meet our manufacturing and
      assembly needs for the foreseeable future, in combination with the production
      by
      our joint venture, USI.





**ITEM
      3. LEGAL PROCEEDINGS.**





We
      are
      not a party to any pending litigation and none is contemplated or
      threatened.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





There
      were no matters submitted to the stockholders in the fourth quarter of
      2005.




**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND SMALL BUSINESS
      ISSUERS PURCHASES OF EQUITY SECURITIES.**





The
      Company’s shares are quoted on the Over-The-Counter Bulletin Board. Our symbol
      is “SSYO”. The table shows the high and low bid price of our stock for 2004 and
      2005. These prices represent prices between dealers; they do not include retail
      markup, markdown or commission. These are bid prices only and do not represent
      actual transactions and are adjusted for dividends and splits.





**Quarter
                ended**
            
            **High**
            
            **Low****2004**March
                31
            
            $3.15
            
            $0.45June
                30
            
            $2.40
            
            $1.20September
                30
            
            $2.40
            
            $1.20December
                31
            
            $2.75
            
            $0.51**2005**March
                31
            
            $2.40
            
            $1.05June
                30
            
            $2.10
            
            $0.25September
                30
            
            $1.25
            
            $0.30December
                31
            
            $0.51
            
            $0.18




***Stockholders***




At
      May 1,
      2006,  we
      had
      approximately 139  stockholders
      of record of our common stock. This number does not include shares held by
      brokerage clearing houses, depositories or otherwise in unregistered form.





***Dividends***




We
      have
      not declared any cash dividends, nor do we intend to do so. We are not subject
      to any legal restrictions respecting the payment of dividends, except that
      they
      may not be paid to render us insolvent.


9





***Securities
      Authorized for Issuance under Equity Compensation
      Plans***




The
      following table summarizes the securities authorized for issuance as of December
      31, 2005 under our 2004 Stock Compensation Plan, the number of shares of our
      common stock issuable upon the exercise of outstanding options, the weighted
      average exercise price of such options and the number of additional shares
      of
      our common stock still authorized for issuance under such plan. The 2004 Stock
      Compensation Plan was replaced in March 2006. The existing options were canceled
      and new options on 3S shares were issued on a 10 for1 basis at the closing
      market price on March 3, 2006.




**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Number
                of securities remaining available or future issuance under equity
                compensation plans**Equity
                compensation plans approved by security holders
            
            
            —
            
            $
            —
            
            
            —Equity
                compensation plans not approved by security holders
            
            
            76,000
            
            
            .50
            
            
            124,000Total
            
            
            76,000
            
            
            
            
            
            124,000





***Recent
      Sales of Unregistered Securities***





None.





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**





The
      following is management's discussion and analysis of certain significant factors
      that have affected our financial position and operating results during the
      periods included in the accompanying consolidated financial statements, as
      well
      as information relating to the plans of our current management. This report
      includes forward-looking statements. Generally, the words "believes,"
      "anticipates," "may," "will," "should," "expect," "intend," "estimate,"
      "continue," and similar expressions or the negative thereof or comparable
      terminology are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties, including the matters set forth
      in this report or other reports or documents we file with the Securities and
      Exchange Commission from time to time, which could cause actual results or
      outcomes to differ materially from those projected. Undue reliance should not
      be
      place on these forward-looking statements that speak only as of the date hereof.
      We undertake no obligation to update these forward-looking
      statements.




The
      following discussion and analysis should be read in conjunction with and our
      consolidated financial statements and the related notes thereto and other
      financial information contained elsewhere in this Form 10-KSB.





***OVERVIEW***




On
      May
      24, 2004, we acquired all of the issued and outstanding equity interests of
      Advanced Custom Sensors, Inc ("ACSI"). Until we acquired ACSI, we had only
      nominal assets and liabilities and limited business operations. Although ACSI
      became our wholly-owned subsidiary following the acquisition, because the
      acquisition resulted in a change of control, the acquisition was recorded as
      a
      "reverse merger" whereby ACSI is considered to be the accounting acquirer. We
      changed our company name to Sensor System Solutions, Inc. in December 2004
      to
      better represent our new focus. As such, the following results of operations
      are
      those of ACSI.


10




3S
      was
      founded by an engineering management team with over 50 years of
      Micro-electro-mechanical-systems or "MEMS" transducer experience. Its objective
      is to provide high quality sensors and transducers at an economical price by
      employing innovative designs and creative manufacturing methods. 3S offers
      a
      variety of digital pressure gauges, pressure transducers, pressure sensors,
      force beams, load cells, intelligent
      sensor interface electronics, intelligent embedded control systems, and wireless
      communication network interfaces .




3S
      commenced operations as a private company in September 1996. 3S is headquartered
      in Irvine, California where 3S occupies a 25,000 square
      foot facility fully equipped with fabrication capability.




3S
      has 17
      employees in the United States, and utilizes a network of independent
      contractors and consultants throughout the United States and Asia. 3S produces
      or supplies a family of nearly 30 distinctive products. 3S
      formed
      a joint venture in China with China Automotive Systems, Inc. (NASDAQ: CAAS)
      in
      April 2005, targeting its automotive sensor market. 3S is transitioning to
      move
      its production line in Taiwan to this joint venture. 3S
      is a
      supplier of thin-film and micro-machined force and pressure sensors to the
      medical, chemical, oil and gas industries. 3S believes that its technology
      will
      enable it to become a global supplier of advanced MEMS/Microelectronic products
      in a myriad of developing markets. 3S's strategic plan is to focus on developing
      custom MEMS pressure sensor devices and forming strategic
      partnerships where its strategic partners dominate the sales channels in
      industries accepting MEMS sensor applications.




***PLAN
      OF OPERATION***





We
      plan
      to grow our business in four areas.




·
            **Increase
                the revenue of existing sensor component business**.
                The majority of our sensor component manufacturing is being moved
                to our
                joint venture in China to help reduce the cost of our products. In
                the
                meantime, we
                will strive to increase our production capacity and will qualify
                offshore
                suppliers to meet the increasing demands. Substantial efforts will
                be
                invested in sales and marketing in order to expand our customer base
                and
                to secure more OEM projects.





·
            **Develop
                sensor solution business.**With the rapid advance in technology and huge investment in wireless
                and
                telecommunication in the last decades, we can now offer total sensor
                solutions at a very affordable price. These sensor solutions are
                modules
                containing sensing elements, signal conditioning circuitry, software
                for
                calibration and interface, and capability of wireless and/or networking.
                These sensor solutions will provide information continuously to decision
                makers in all phases of business
                operation.





·
            **Penetrate
                automotive sensor market through China and India.**By
                leverage the marketing channel of our joint venture partner and X-Lab
                Global, we will have access to the automotive market in China and
                India
                immediately. We plan use the next two years to build up our production
                capacity, product offerings, and technical team there. We will import
                automotive sensors produced by our joint venture to North America
                and
                Europe around 2008.




·
            **Strategic
                acquisition**:
                Being a public company gives us a supplemental tool to grow our business
                through acquisition in addition to internal growth. We will actively
                seek
                equity or debt funding to bring in the necessary resources to execute
                this
                plan.




11




***RESULTS
      OF OPERATIONS***





***Years
      ended December 31, 2005 and 2004***





**Revenues**




We
      generated revenues of $1,324,872 for the year ended December 31, 2005, which
      was
      a $663,532 or a 100.3% increase from $661,340 for the year ended December 31,
      2004. The
      increase is the result of the hiring of a full-time sales manager and his
      success in securing several OEM accounts.





**Gross
      Profit**





Gross
      profit for the twelve months ended December 31, 2005, was $446,656 or 33.7%
      of
      revenues, compared to $81,550 or 12.3% of revenues for the year ended December
      31, 2004. The $365,106 increase in gross profit was
      a
      result of the decrease in cost of sales percentage, which in turn was the result
      of increased productivity and management’s efforts to reduce operating expense,
      and production tooling improvement.





**Total
      Operating expenses**





Operating
      expense




Operating
      expense increased to $1,869,896 for the year ended December 31, 2005 compared
      to
      $1,292,072 for the year ended December 31, 2004. The expense increased $577,824,
      or 44.7%, from 2004, primarily as a result of  an
      increase in payroll costs, professional fees, rent and interest
      expense.




Amortization
      of discount on notes payable




Amortization
      of discount on notes payable decreased to $531,033 for the year ended December
      31, 2005 compared to $651,868 for the year ended December 31, 2004. The expense
      decreased $120,835, or 18.5%, primarily due to the large amount of discount
      associated with the convertible loans from Sino-America and Tina Young in the
      prior year, partially offset by the Cornell Capital Partners, LP expense in
      2005.





Non-cash
      compensation costs




On
      May
      24, 2004, the Company issued 2,584,905 shares of its common stock and warrants
      (the Merger Warrants) to purchase up to 47,802,373 shares of its common stock,
      to the shareholders of ACSI in exchange for all the issued and outstanding
      shares of ACSI. On May 24, 2004, the OTCBB closing price for the Company’s
      common stock was $3.15 per share, resulting in a valuation of $12,527,134 (the
      Merger Valuation) for the 3,976,868 shares of common stock outstanding
      immediately following the Merger. On December 4, 2004, the Company granted
      7,500,000 shares of its common stock to five shareholders in Spectre, including
      two individuals who are also Directors of the Company, for providing services
      to
      the Company. 1,500,000 shares were treated as compensatory stock with a fair
      value $1.20 per share, representing the most recent OTCBB closing price prior
      to
      that date, for a total of $1,800,000 and was recognized as stock-based
      compensation expense in the accompanying financial statements. The remaining
      6,000,000 shares were treated as a stock dividend. In 2005, 1,500,000 shares
      of
      common stock and warrants to purchase 86,866 shares of common stock were issued
      as compensation for borrowing arrangements. These had a market value of
      $775,000.


12


**Net
      Loss**





Net
      loss
      decreased to ($2,729,273) for the year ended December 31, 2005 compared to
      ($3,662,390) for the year ended December 31, 2004. The loss decreased $933,117,
      or 25.5%, from 2004 , as
      a
      result of an increase of $365,106 in gross profit, a decrease of $1,145,835
      in
      stock-based compensation expense and amortization of discount on notes payable
      offset by the $577,824 in operating expenses.





***FINANCIAL
      CONDITION, LIQUIDITY, CAPITAL RESOURCES***





**Going
      Concern**





In
      their
      report in connection with our 2005 financial statements, our auditors included
      an explanatory paragraph stating that, because we have incurred a net loss
      of
      $2,729,273 and a negative cash flow from operations of $928,809 for the year
      ended December 31, 2005, and had a working capital deficiency of $2,004,770
      and
      a stockholders’ deficiency of $1,695,890 at December 31, 2005  there
      is
      substantial doubt about our ability to continue as a going concern.





We
      have
      relied primarily on cash flow from operations, bank loans, and advances and
      investments from our shareholders for our capital requirements since inception.
      The company received $800,000 from the issuance of a convertible debenture
      to
      Cornell Capital Partners, LP in December 2005 and $200,000 in February 2006.
      This allowed the company to pay off some of the debt and continue its
      operations. Current cash on hand will allow the company to continue its
      operations for a short period of time; a combination of additional equity and
      debt offerings will be necessary to continue beyond the short term.





At
      December 31, 2005, cash was $172,732 as compared to $17,115 at December 31,
      2004. The increase is due to the excess of net cash provided by financing
      activities over the net cash used in operations. We have a substantial working
      capital deficit. We require $2,000,000 to continue operations for the next
      three
      years. We are in the process of raising capital in the form of equity and/or
      debt. However, there is no guarantee that we will raise sufficient funds to
      execute our business plan. To the extent we are unable to raise sufficient
      funds, our business plan will be required to be substantially modified, our
      operations curtailed or protection under bankruptcy/reorganization laws
      sought.





We
      are
      addressing our liquidity requirements by the following actions: Continue our
      programs for selling products and continue to seek investment capital through
      the public markets. However, there is no guarantee that these strategies will
      enable us to meet our obligations for the foreseeable future.





**Commitments
      and Contingencies**





We
      have
      the following material contractual obligations and capital expenditure
      commitments:





The
      Company leases certain equipment under two capital leases with monthly payments
      of $360 and $701, respectively, including interest at 12.75% per annum.


13


Future
      minimum annual rental payments for capitalized leases are as
      follows:




**Years
                  ending December 31,**
              
              **Amount**2006
              
              $
              12,7322007
              
              
              12,7322008
              
              
              12,7322009
              
              
              3,90342,099Amount
                  representing interest
              
              
              (7,900
              )Present
                  value of minimum lease payments
              
              
              34,199Less:
                  current portion
              
              
              (8,877
              )Non-current
                  portion
              
              $
              25,322




The
      Company leases its office and facility through July 31, 2007 under a long-term
      operating lease agreement. Under terms of the lease, the Company pays the cost
      of repairs and maintenance. The office and warehouse facility was formally
      shared with TransOptix, but since the bankruptcy of TransOptix, the Company
      is
      liable for the entire lease obligation.





Future
      minimum lease commitments at December 31, 2005 are as follows:




**Years
                  ending December 31,**
              ****
              **Amount**2006
              
              $
              250,9002007
              
              
              151,095$
              401,995





Rent
      expense for the years ended December 31, 2005 and 2004 was $185,924 and $122,907
      respectively.





**Inflation
      and Changing Prices**





We
      doe
      not foresee any adverse effects on our earnings as a result of inflation or
      changing prices.





***CRITICAL
      ACCOUNTING POLICIES***





**Revenue
      Recognition**





The
      Company recognizes revenue when risk of loss and title to the product is
      transferred to the customer, which occurs at shipment





**Stock
      - based compensation**





The
      Company has adopted the disclosure-only provisions of Statement of Financial
      Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based
      Compensation - Transition and Disclosures” as well as those outlined in SFAS
      No. 123, “Accounting for Stock-Based Compensation”. As permitted by SFAS
      148 and SFAS 123, the Company continues to apply the provisions of Accounting
      Principles Board Opinion (APB) No. 25, “Accounting for Stock issued to
      Employees” and related interpretations in accounting for the Company’s stock
      option plan. Accordingly, compensation cost for stock options is measured as
      the
      excess, if any, of the estimated fair value of the Company’s stock at the date
      of the grant, over the amount an employee must pay to acquire the stock. Stock
      based awards for non-employees are accounted for at fair value equal to the
      excess of the estimated fair value of the Company’s stock over the option price
      using an estimated interest rate to calculate the fair value of the option.
      There were no stock based awards to non-employees in 2005 or
      2004.


14





**Inventories**




Inventories
      are stated at the lower of cost (first-in, first-out method) or
      market.





***Recent
      Accounting Pronouncements***





In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No. 151, “Inventory Costs”. This Statement amends the guidance in ARB
      No. 43 Chapter 4 Inventory Pricing, to require items such as idle
      facility costs, excessive spoilage, double freight and rehandling costs to
      be
      expensed in the current period, regardless if they are abnormal amounts or
      not.
      This Statement will become effective for us in the first quarter of 2006. The
      adoption of SFAS No. 151 is not expected to have a material impact on our
      financial condition, results of operations, or cash flows.





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 123 (R), "Share-Based
      Payment" ("SFAS 123(R)"). SFAS No. 123 (R) revises SFAS 123, "Accounting for
      Stock-Based Compensation" and supersedes Accounting Principles Board ("APB")
      Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 (R) focuses
      primarily on accounting for transactions in which an entity obtains employee
      services in share-based payment transactions. SFAS 123 (R) requires companies
      to
      recognize in the statement of operations the cost of employee services received
      in exchange for awards of equity instruments based on the grant-date fair value
      of those awards (with limited exceptions). SFAS 123 (R) is effective as of
      the
      first interim or annual reporting period of the first fiscal year that begins
      after June 15, 2005 for small business issuers. Accordingly, the Company will
      adopt SFAS 123 (R) in its quarter ending March 31, 2006.





As
      permitted by SFAS 123, the Company currently accounts for share-based payments
      to employees using APB 25's intrinsic value method. Accordingly, adoption of
      SFAS 123R's fair value method will have an effect on results of operations,
      although it will have no impact on overall financial position. The impact of
      adoption of SFAS 123R cannot be predicted at this time because it will depend
      on
      levels of share-based payments granted in the future. However, had SFAS 123R
      been adopted in prior periods, the effect would have approximated the SFAS
      123
      pro forma net loss and loss per share disclosures as shown above. SFAS 123R
      also
      requires the benefits of tax deductions in excess of recognized compensation
      cost to be reported as a financing cash flow, rather than as an operating cash
      flow as currently required, thereby reducing net operating cash flows and
      increasing net financing cash flows in periods after adoption.




***RISKS
      RELATED TO OUR BUSINESS***




***We
      have had negative cash flows from operations. Our business operations may fail
      if our actual cash requirements exceed our estimates, and we are not able to
      obtain further financing.***




Our
      company has had negative cash flows from operations. To date, we have incurred
      significant expenses in product development and administration in order to
      ready
      our products for market. Our business plan calls for additional significant
      expenses necessary to bring our products to market. We believe we do not have
      sufficient funds to satisfy our short-term cash requirements. There is no
      assurance that actual cash requirements will not exceed our estimates, in which
      case we will require additional financing to bring our products into commercial
      operation, finance working capital and pay for operating expenses and capital
      requirements until we achieve a positive cash flow. Additionally, more capital
      may be required in the event that:




15




·
            we
                incur unexpected costs in completing the development of our technology
                or
                encounter any unexpected technical or other
                difficulties;




·
            we
                incur delays and additional expenses as a result of technology
                failure;




·
            we
                are unable to create a substantial market for our product and services;
                or




·
            we
                incur any significant unanticipated
                expenses.




We
      may
      not be able to obtain additional equity or debt financing on acceptable terms
      if
      and when we need it. Even if financing is available it may not be available
      on
      terms that are favorable to us or in sufficient amounts to satisfy our
      requirements. If we require, but are unable to obtain, additional financing
      in
      the future, we may be unable to implement our business plan and our growth
      strategies, respond to changing business or economic conditions, withstand
      adverse operating results, and compete effectively. More importantly, if we
      are
      unable to raise further financing when required, our continued operations may
      have to be scaled down or even ceased and our ability to generate revenues
      would
      be negatively affected.




***A
      decline in the price of our common stock could affect our ability to raise
      further working capital and adversely impact our
      operations.***




A
      prolonged decline in the price of our common stock could result in a reduction
      in the liquidity of our common stock and a reduction in our ability to raise
      capital. Because our operations have been primarily financed through the
      issuance of convertible notes, a decline in the price of our common stock could
      be especially detrimental to our liquidity and our continued operations. Any
      reduction in our ability to raise equity capital in the future would force
      us to
      reallocate funds from other planned uses and would have a significant negative
      effect on our business plans and operations, including our ability to develop
      new products and continue our current operations. If the stock price declines,
      there can be no assurance that we can raise additional capital or generate
      funds
      from operations sufficient to meet our obligations.




***If
      we issue additional shares in the future this may result in dilution to our
      existing stockholders.***




Our
      Amended Certificate of Incorporation authorizes the issuance of 200,000,000
      shares of common stock. Our board of directors has the authority to issue
      additional shares up to the authorized capital stated in the certificate of
      incorporation. Our board of directors may choose to issue some or all of such
      shares to acquire one or more businesses or to provide additional financing
      in
      the future. The issuance of any such shares may result in a reduction of the
      book value or market price of the outstanding shares of our common stock. It
      will also cause a reduction in the proportionate ownership and voting power
      of
      all other stockholders. Further, any such issuance may result in a change of
      control of our corporation.




***We
      have a history of losses and negative cash flows, which is likely to continue
      unless our products gain sufficient market acceptance to generate a commercially
      viable level of sales.***




From
      inception through December 31, 2005, we have incurred aggregate net losses.
      There is no assurance that we will operate profitably or will generate positive
      cash flow in the future. In addition, our operating results in the future may
      be
      subject to significant fluctuations due to many factors not within our control,
      such as market acceptance of our products, the unpredictability of when
      customers will order products, the size of customers' orders, the demand for
      our
      products, and the level of competition and general economic conditions.




Although
      we anticipate that we will be able to increase revenues during the next 12
      months, we also expect an increase in development and operating costs.
      Consequently, we expect to incur operating losses and net cash outflow unless
      and until our existing products, and/or any new products that we may develop,
      gain market acceptance sufficient to generate a commercially viable and
      sustainable level of sales.




16




***Unless
      we can establish significant sales of our current products, our potential
      revenues may be significantly reduced.***




We
      expect
      that a substantial portion, if not all, of our future revenue will be derived
      from the sale of our sensor products. We expect that these product offerings
      and
      their extensions and derivatives will account for a majority, if not all, of
      our
      revenue for the foreseeable future. The successful introduction and broad market
      acceptance of our sensor products - as well as the development, introduction
      and
      market acceptance of any future enhancements - are, therefore, critical to
      our
      future success and our ability to generate revenues. Unfortunately, there can
      be
      no assurance that we will be successful in marketing our current product
      offerings, or any new product offerings, applications or enhancements. Failure
      to achieve broad market acceptance of our sensor products, as a result of
      competition, technological change, or otherwise, would significantly harm our
      business.




***We
      could lose our competitive advantages if we are not able to protect any
      proprietary technology and intellectual property rights against infringement,
      and any related litigation could be time-consuming and
      costly.***




Our
      success and ability to compete depends to a significant degree on our
      proprietary technology incorporated in our products. We have taken limited
      action to protect our proprietary technology and proprietary computer software.
      If any of our competitors copies or otherwise gains access to our proprietary
      technology or software or develops similar technologies independently, we would
      not be able to compete as effectively.




Further,
      the laws of foreign countries may provide inadequate protection of such
      intellectual property rights. We may need to bring legal claims to enforce
      or
      protect such intellectual property rights. Any litigation, whether successful
      or
      unsuccessful, could result in substantial costs and diversions of resources.
      In
      addition, notwithstanding any rights we have secured in our intellectual
      property, other persons may bring claims against us that we have infringed
      on
      their intellectual property rights, including claims based upon the content
      we
      license from third parties or claims that our intellectual property right
      interests are not valid. Any claims against us, with or without merit, could
      be
      time consuming and costly to defend or litigate, divert our attention and
      resources, result in the loss of goodwill associated with our service marks
      or
      require us to make changes to our website or other of our
      technologies.




***Our
      products may become obsolete and unmarketable if we are unable to respond
      adequately to rapidly changing technology and customer
      demands.***




Our
      industry is characterized by rapid changes in technology and customer demands.
      As a result, our products may quickly become obsolete and unmarketable. Our
      future success will depend on our ability to adapt to technological advances,
      anticipate customer demands, develop new products and enhance our current
      products on a timely and cost-effective basis. Further, our products must remain
      competitive with those of other companies with substantially greater resources.
      We may experience technical or other difficulties that could delay or prevent
      the development, introduction or marketing of new products or enhanced versions
      of existing products. Also, we may not be able to adapt new or enhanced products
      to emerging industry standards, and our new products may not be favorably
      received.




***If
      we fail to effectively manage our growth our future business results could
      be
      harmed and our managerial and operational resources may be
      strained*** *.*




As
      we
      proceed with the commercialization of our products, we expect to experience
      significant and rapid growth in the scope and complexity of our business. We
      will need to add staff to market our products, manage operations, handle sales
      and marketing efforts and perform finance and accounting functions. We will
      be
      required to hire a broad range of additional personnel in order to successfully
      advance our operations. This growth is likely to place a strain on our
      management and operational resources. The failure to develop and implement
      effective systems, or to hire and retain sufficient personnel for the
      performance of all of the functions necessary to effectively service and manage
      our potential business, or the failure to manage growth effectively, could
      have
      a materially adverse effect on our business and financial
      condition.




17




***Our
      plans for expansion and cost reduction are substantially dependent on our joint
      venture which involves the risk of doing business in
      China.***




Our
      PRC
      joint venture is subject to laws and regulations applicable to foreign
      investment in China in general and laws and regulations applicable to
      foreign-invested enterprises in particular. China has made significant progress
      in the promulgation of laws and regulations dealing with economic matters such
      as corporate organization and governance, foreign investment, commerce, taxation
      and trade. However, the promulgation of new laws, changes of existing laws and
      abrogation of local regulations by national laws may have a negative impact
      on
      our business and prospects.




The
      value
      of the Chinese currency, RMB, is subject to changes in PRC government policies
      and depends to a large extent on China’s domestic and international economic,
      financial and political developments, as well as the currency’s supply and
      demand in the local market. For over a decade from 1994, the conversion of
      RMB
      into foreign currencies, including the U.S. dollar, was based on exchange rates
      set and published daily by the People’s Bank of China, the PRC central bank,
      based on the previous day’s interbank foreign exchange market rates in China and
      exchange rates on the world financial markets. The official exchange rate for
      the conversion of RMB into U.S. dollars remained stable until RMB was revalued
      in July 2005 and allowed to fluctuate by reference to a basket of foreign
      currencies, including the U.S. dollar. Under the new policy, RMB will be
      permitted to fluctuate within a band against a basket of foreign currencies.
      This change in policy resulted initially in an approximately 2.0% appreciation
      in the value of Renminbi against the U.S. dollar. There remains significant
      international pressure on the PRC government to adopt a substantially more
      liberalized currency policy, which could result in a further and more
      significant appreciation in the value of RMB against the U.S. dollar. Further
      revaluations of RMB against the U.S. dollar may also occur in the future. A
      stronger RMB would increase our purchase price of raw material and
      parts.




***OFF
      BALACE SHEET ARRANGEMENTS***





There
      are
      no Off-Balance Sheet Arrangements to report.


18


**ITEM
      7. FINANCIAL STATEMENTS.**





REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            F-1FINANCIAL
                STATEMENTSConsolidated
                Balance Sheet
            F-2Consolidated
                Statements of Operations
            F-3Consolidated
                Statements of Changes in Stockholders' Deficiency
            F-4Consolidated
                Statements of Cash Flows
            F-5NOTES
                TO THE FINANCIAL STATEMENTS
            F-6




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**





***Evaluation
      of Disclosure Controls and Procedures***




Our
      management evaluated, with the participation of our Chief Executive and
      Financial Officer, the effectiveness of our disclosure controls and procedures
      as of the end of the period covered by this Annual Report on Form 10-KSB. Based
      on this evaluation, our Chief Executive and Financial Officer has concluded
      that
      our disclosure controls and procedures (as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are
      inadequate to ensure that information required to be disclosed by us in reports
      that we file or submit under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in SEC rules and forms. We are
      developing a plan to ensure that all information will be recorded, processed,
      summarized and reported on a timely basis. This plan is dependent, in part,
      upon
      reallocation of responsibilities among various personnel, possibly hiring
      additional personnel and additional funding. It should also be noted that the
      design of any system of controls is based in part upon certain assumptions
      about
      the likelihood of future events, and there can be no assurance that any design
      will succeed in achieving its stated goals under all potential future
      conditions, regardless of how remote.




***Changes
      in Internal Control over Financial Reporting***




There
      was
      no change in our internal control over financial reporting that occurred during
      the fourth fiscal quarter of the fiscal year covered by this Annual Report
      on
      Form 10-KSB that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**ITEM
      8B. OTHER INFORMATION.**





None.


19





**PART
      III**




**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.**





The
      name,
      age and position held by each of the directors and officers of our company
      are
      as follows:


**Name**
              
              **Age**
              
              **Position**Michael
                  Young
              
              47
              
              Chief
                  Executive Officer and ChairmanHanlin
                  Chen
              
              48
              
              Director





All
      directors have a term of office expiring at the next annual general meeting,
      unless re-elected or earlier vacated in accordance with the Bylaws. All officers
      have a term of office lasting until their removal or replacement by the Board
      of
      Directors.





***Background
      of Officers and Directors***




MICHAEL
      YOUNG founded and has served for eight years as CEO of 3S. Previously, his
      21-year career includes MEMS design, fabrication, packaging and applications
      development at Rosemount, Endevco, Hughes Aircraft and other firms. He is
      responsible for leading 3S given his technical expertise and a broad range
      of
      business experiences with 3S. He holds a Master of Science degree in Mechanical
      Engineering from Stanford University.





HANLIN
      CHEN began serving as the Chairman and CEO of China Automotive Systems, Inc.
      since 2003. Prior to this appointment, Mr. Chen was the general manager of
      Jiulong Power Steering Company Limited from 1992 to 1997. Mr. Chen holds a
      MBA
      from Barrington University and serves as a board member of Political Consulting
      Committee of Jingzhou city and vice president of Foreign Investors Association.




***Family
      Relationships***




There
      are
      no family relationships on the Board of Directors.





***Involvement
      in Certain Legal Proceedings***




To
      our
      knowledge, during the past five years, our officers and directors: have not
      filed a petition under the federal bankruptcy laws or any state insolvency
      law,
      nor had a receiver, fiscal agent or similar officer appointed by a court for
      the
      business or present of such a person, or any partnership in which he was a
      general partner at or within two years before the time of such filing, or any
      corporation or business association of which he was an executive officer within
      two years before the time of such filing; were not convicted in a criminal
      proceeding or named subject of a pending criminal proceeding (excluding traffic
      violations and other minor offenses); were not the subject of any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of any
      court of competent jurisdiction, permanently or temporarily enjoining him from
      or otherwise limiting their respective activities.





***Compliance
      with Section 16 (a) of the Exchange Act***





Based
      solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
      pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934 during
      our
      most recent fiscal year and Forms 5 and amendments thereto furnished to us
      with
      respect to our most recent fiscal year, all officers, directors and owners
      of
      10% or more of our outstanding shares have filed all Forms 3, 4 and 5 required
      by Section 16(a) of the Securities Exchange Act of 1934.


20


***Audit
      Committee and Charter***





Due
      to
      the size of our Board of Directors we do not have an audit committee at this
      time.





***Audit
      Committee Financial Expert***





We
      have
      no financial expert.





***Code
      of Ethics***





We
      have
      adopted a corporate code of ethics. We believe our code of ethics is reasonably
      designed to deter wrongdoing and promote honest and ethical conduct; provide
      full, fair, accurate, timely and understandable disclosure in public reports;
      comply with applicable laws; ensure prompt internal reporting of code
      violations; and provide accountability for adherence to the code.




**ITEM
      10. EXECUTIVE COMPENSATION.**





The
      following table sets forth information with respect to compensation paid by
      us
      to the chief executive officer since the Exchange. No other executive officer
      received compensation in excess of $100,000 for the fiscal year ended December
      31, 2005.





**Summary
      Compensation Table**





**Long
                Term Compensation****Annual
                Compensation**
            
            **Awards**
            
            **Payouts****(a)**
            
            **(b)**
            
            **(c)**
            
            **(d)**
            
            **(e)**
            
            **(f)**
            
            **(g)**
            
            **(h)**
            
            **(i)****Name
                and Principal Position**
            
            **Year**
            
            **Salary
                ($)**
            
            **Bonus
                ($)**
            
            **Other
                Annual Compen sation ($)**
            
            **Restricted
                Stock Award(s) ($)**
            
            **Securities
                Underlying Options /SARs (#)**
            
            **LTIP
                Payouts ($)**
            
            **All
                Other Compensation ($)**Michael
                Young, CEO
            
            2005
            
            108,500
            
            N/A
            
            -
            
            -
            
            -
            
            -
            
            -Michael
                Young, CEO
            
            2004
            
            75,000
            
            N/A
            
            -
            
            -
            
            -
            
            -
            
            -N/A
            
            2003
            
            N/A
            
            N/A
            
            -
            
            -
            
            -
            
            -
            
            -





There
      are
      no retirement, pension or profit sharing plans for the benefit of our officers
      and directors. A stock option plan was approved by the Board of Directors in
      March 2006 and options for 250,000 shares were granted to Michael
      Young.





***Option/SAR
      Grants***




No
      individual grants of stock options, whether or not in tandem with stock
      appreciation rights ("SARs") and freestanding SARs were made to any executive
      officer or any director prior to March 2006, accordingly, no stock options
      have
      been exercised by any of the officers or directors in fiscal 2005.





***Long-Term
      Incentive Plan Awards***




We
      do not
      have any long-term incentive plans that provide compensation intended to serve
      as incentive for performance to occur over a period longer than one fiscal
      year,
      whether such performance is measured by reference to our financial performance,
      our stock price, or any other measure.


21




***Compensation
      of Directors***




The
      directors did not receive any other compensation for serving as members of
      the
      board of directors. The Board has not implemented a plan to award options.
      There
      are no contractual arrangements with any member of the board of
      directors.





We
      do not
      intend to pay any additional compensation to our directors. As of the date
      hereof, we have not entered into employment contracts with any of our officers
      and we do not intend to enter into any employment contracts until such time
      as
      it profitable to do so.





***Indemnification***




Nevada
      corporation law provides that:




·
            A
                corporation may indemnify any person who was or is a party or is
                threatened to be made a party to any threatened, pending or completed
                action, suit or proceeding, whether civil, criminal, administrative
                or
                investigative, except an action by or in the right of the corporation,
                by
                reason of the fact that he is or was a director, officer, employee
                or
                agent of the corporation, or is or was serving at the request of
                the
                corporation as a director, officer, employee or agent of another
                corporation, partnership, joint venture, trust or other enterprise,
                against expenses, including attorneys' fees, judgments, fines and
                amounts
                paid in settlement actually and reasonably incurred by him in connection
                with the action, suit or proceeding if he acted in good faith and
                in a
                manner which he reasonably believed to be in or not opposed to the
                best
                interests of the corporation, and, with respect to any criminal action
                or
                proceeding, had no reasonable cause to believe his conduct was
                unlawful;




·
            A
                corporation may indemnify any person who was or is a party or is
                threatened to be made a party to any threatened, pending or completed
                action or suit by or in the right of the corporation to procure a
                judgment
                in its favor by reason of the fact that he is or was a director,
                officer,
                employee or agent of the corporation, or is or was serving at the
                request
                of the corporation as a director, officer, employee or agent of another
                corporation, partnership, joint venture, trust or other enterprise
                against
                expenses, including amounts paid in settlement and attorneys' fees
                actually and reasonably incurred by him in connection with the defense
                or
                settlement of the action or suit if he acted in good faith and in
                a manner
                which he reasonably believed to be in or not opposed to the best
                interests
                of the corporation. Indemnification may not be made for any claim,
                issue
                or matter as to which such a person has been adjudged by a court
                of
                competent jurisdiction, after exhaustion of all appeals therefrom,
                to be
                liable to the corporation or for amounts paid in settlement to the
                corporation, unless and only to the extent that the court in which
                the
                action or suit was brought or other court of competent jurisdiction
                determines upon application that in view of all the circumstances
                of the
                case, the person is fairly and reasonably entitled to indemnity for
                such
                expenses as the court deems proper;
                and




·
            To
                the extent that a director, officer, employee or agent of a corporation
                has been successful on the merits or otherwise in defense of any
                action,
                suit or proceeding, or in defense of any claim, issue or matter therein,
                the corporation shall indemnify him against expenses, including attorneys'
                fees, actually and reasonably incurred by him in connection with
                the
                defense.




·
            Our
                bylaws provide that we will advance all expenses incurred to any
                person
                who was or is a party or is threatened to be made a party to any
                threatened, pending or completed action, suite or proceeding, whether
                civil, criminal, administrative or investigative, by reason of the
                fact
                that he is or was our director or officer, or is or was serving at
                our
                request as a director or executive officer of another company,
                partnership, joint venture, trust or other enterprise, prior to the
                final
                disposition of the proceeding, promptly following request. This advanced
                of expenses is to be made upon receipt of an undertaking by or on
                behalf
                of such person to repay said amounts should it be ultimately determined
                that the person was not entitled to be indemnified under our bylaws
                or
                otherwise.




22




·
            Our
                bylaws also provide that no advance shall be made by us to any officer
                in
                any action, suit or proceeding, whether civil, criminal, administrative
                or
                investigative, if a determination is reasonably and promptly made:
                (a) by
                the board of directors by a majority vote of a quorum consisting
                of
                directors who were not parties to the proceeding; or (b) if such
                quorum is
                not obtainable, or, even if obtainable, a quorum of disinterested
                directors so directs, by independent legal counsel in a written opinion,
                that the facts known to the decision-making party at the time such
                determination is made demonstrate clearly and convincingly that such
                person acted in bad faith or in a manner that such person did not
                believe
                to be in or not opposed to our best
                interests.




·
            Insofar
                as indemnification for liabilities arising under the Securities Act
                may be
                permitted to directors, officers and controlling persons of our company
                under Nevada law or otherwise, we have been advised the opinion of
                the
                Securities and Exchange Commission is that such indemnification is
                against
                public policy as expressed in the Securities Act and is, therefore,
                unenforceable. In the event a claim for indemnification against such
                liabilities (other than payment by us for expenses incurred or paid
                by a
                director, officer or controlling person of our company in successful
                defense of any action, suit, or proceeding) is asserted by a director,
                officer or controlling person in connection with the securities being
                registered, we will, unless in the opinion of its counsel the matter
                has
                been settled by controlling precedent, submit to a court of appropriate
                jurisdiction, the question of whether such indemnification by it
                is
                against public policy in said Act and will be governed by the final
                adjudication of such issue.




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDERS MATTERS.**





The
      following table sets forth, as of May 1, 2006, the beneficial shareholdings
      of
      persons or entities holding five percent or more of our common stock, each
      director individually, each named executive officer and all of our directors
      and
      officers as a group. Each person has sole voting and investment power with
      respect to the shares of common stock shown, and all ownership is of record
      and
      beneficial. Unless otherwise disclosed, the address of each person set forth
      below is that of the Company.





**Name
                of Beneficial Owner**
            
            **Amount
                and Nature Beneficial Owner**
            
            **Position**
            
            **Percent
                of Class (1)**Michael
                Young
            
            10,620,186
            
            Chief
                Executive Officer and Chairman
            
            14%Hanlin
                Chen
            
            -
            
            Director
            
            *Officers
                and Directors as a Group
              (2
                persons)
            
            10,620,186
            
            
            
            14%**Principal
                Shareholders**
            
            
            
            **Address**Future
                Front International Co. Ltd.
            
            14,479,093
            
            6
                G/F, Johnston Road
              Wanchai,
                Hong Kong
            
            19%


**______________________**





*Less
      than 1%





(1)
            Based
                on 76,586,112shares
                outstanding at May 1, 2006.




23




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**





Mr.
      Hanlin Chen, a Director of the Company is the Chief Executive Officer of China
      Automotive Systems, Inc. The Company has a Joint Venture with China Automotive
      Systems, Inc. - see Note 4 of Notes to Consolidated Financial
      Statements.





The
      Company has outstanding convertible notes payable to related parties, including
      $300,665 to the sister of the Chief Executive Officer - see Note 6 of Notes
      to
      Consolidated Financial Statements.





**ITEM
      13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.**





**(a)
      Reports on Form 8-K**





There
      were no Reports filed on Form 8-K during the fourth quarter of
      2005.





**(b)
      Exhibits**





**Exhibit
                No.**
            
            **Document
                Description**3.1
            
            Articles
                of Incorporation (1)3.2
            
            Bylaws
                (1)10.1
            
            Share
                Exchange Agreement and Plan of Reorganization (2)10.2
            
            Joint
                Venture Agreement with Universal Sensors, Inc. (3)23.1
            
            Consent
                of Weinberg & Company, P.A. (3)31.1
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities
                and
                Exchange Act of 1934, as amended. (3)32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
                (3)


_________________


(1)  Incorporated
      herein by reference from the Company's Form 10-QSB filed with the Securities
      and
      Exchange Commission, File No. 000-11991 on May 28, 2003.





(2)  Incorporated
      herein by reference from the Company's Form 8-K Current Report and amendment
      thereto as filed with the Securities and Exchange Commission, on May 24, 2004.





(3)  Filed
      herewith.


24


**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





Weinberg
      & Company, P.A., was the Company's independent registered public accounting
      firm engaged to examine the financial statements of the Company for the fiscal
      years ended December 31, 2004 and 2005. Weinberg & Company, P.A. performed
      the following services and has been paid the following fees.





***Fiscal
      Years Ended December 31, 2005 and 2004***





**Audit
      Fees**





Weinberg
      & Company, P.A. was paid aggregate fees of approximately $112,000 and
      $54,500 for the fiscal years ended December 31, 2005 and 2004,
      respectively, for professional services rendered for the audit of the
      Company's annual financial statements and for the reviews of the financial
      statements included in the Company's interim quarterly reports.





**Audit-Related
      Fees**





Weinberg
      & Company, P.A. was not paid additional fees for the fiscal year December
      31, 2005 for assurance and related services reasonably related to the
      performance of the audit or review of the Company's financial
      statements.





**Tax
      Fees**





Weinberg
      & Company, P.A. was not paid any fees for the fiscal year ended December 31,
      2005 for professional services rendered for tax compliance, tax advice and
      tax
      planning. This service was not provided.





**All
      Other Fees**





Weinberg
      & Company, P.A. was paid no other fees for professional services during the
      fiscal year ended December 31, 2005.




25


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
      of
      1934, the Company has duly caused this report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized, on this 15th day of May,
      2006.




**SENSOR
                SYSTEM SOLUTIONS, INC.**By:
            /s/
                Michael YoungMichael
                YoungChief
                Executive Officer and Principal Accounting Officer


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following person on behalf of the Company and in the
      capacities.





**Signatures**
            
            **Title**
            
            **Date**/s/Michael
                Young
            
            Chief
                Executive Officer and Principal Accounting Officer
            
            May
                15, 2006Michael
                Young/s/
                Hanlin Chen
            
            Director
            
            May
                15, 2006Hanlin
                Chen





26


**SENSOR
      SYSTEM SOLUTIONS, INC. AND SUBSIDIARY**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**YEARS
      ENDED DECEMBER 31, 2005 AND 2004**










**SENSOR
      SYSTEM SOLUTIONS, INC. AND SUBSIDIARY**





**CONTENTS**








PAGE
            F-1
            REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPAGE
            F-2
            CONSOLIDATED
                BALANCE SHEET AS OF DECEMBER 31, 2005PAGE
            F-3
            CONSOLIDATED
                STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND
                2004PAGE
            F-4
            CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE YEARS ENDED
                DECEMBER 31, 2005 AND 2004PAGE
            F-5
            CONSOLIDATED
                STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND
                2004PAGES
            F6 -
                F17
            NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005 AND
                2004










27





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors of Sensor System Solutions, Inc.:





We
      have
      audited the accompanying consolidated balance sheet of Sensor System Solutions,
      Inc. and subsidiary as of December 31, 2005, and the related consolidated
      statements of operations, changes in stockholders' deficiency, and cash flows
      for the years ended December 31, 2005 and 2004. These financial statements
      are
      the responsibility of the Company's management. Our responsibility is to express
      an opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Sensor System Solutions,
      Inc. and subsidiary as of December 31, 2005, and the results of their operations
      and their cash flows for the years ended December 31, 2005 and 2004, in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying consolidated 2005 financial statements have been prepared assuming
      that the Company will continue as a going concern. As discussed in Note 1 to
      the
      consolidated financial statements, the Company incurred a net loss of $2,729,273
      and a negative cash flow from operations of $928,809 for the year ended December
      31, 2005, and had a working capital deficiency of $2,004,770 and a stockholders’
deficiency of $1,695,890 at December 31, 2005. These matters raise substantial
      doubt about its ability to continue as a going concern. Management’s plans in
      regard to these matters are also described in Note 1. The accompanying
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





WEINBERG
      & COMPANY, P.A.




Boca
      Raton, Florida


May
      11,
      2006




F-1





**SENSOR
      SYSTEM SOLUTIONS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


As
      of
      December 31, 2005




ASSETSCURRENT
                  ASSETSCash
              
              $
              172,732Accounts
                  receivable
              
              
              230,440Inventory
              
              
              302,171Prepaids
                  and other current assets
              
              
              46,634Total
                  current assets
              
              
              751,977Property
                  and equipment, net
              
              
              233,862Other
                  assets
              
              
              104,112Total
                  assets
              
              $
              1,089,951LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCYCURRENT
                  LIABILITIESAccounts
                  payable and accrued expenses
              
              $
              1,313,134Notes
                  payable
              
              
              1,060,171Notes
                  payable, related parties
              
              
              368,565Current
                  portion of capital lease obligations
              
              
              8,877Current
                  portion of deferred rent concession
              
              
              6,000Total
                  current liabilities
              
              
              2,756,747LONG-TERM
                  LIABILITIESCapital
                  lease obligations, net of current portion
              
              
              25,322Deferred
                  rent concession, net of current portion
              
              
              3,772Total
                  long-term liabilities
              
              
              29,094Commitments
                  and contingenciesSTOCKHOLDERS'
                  DEFICIENCYPreferred
                  stock, $.001 par value, 20,000,000 shares authorized, none
                  outstanding
              
              
              -Common
                  stock, $.001 par value, 180,000,000 shares authorized, 61,705,019
                  shares
                  issued and outstanding
              
              
              61,705Common
                  stock to be issued (14,479,093 shares)
              
              
              550,000Additional
                  paid-in capital
              
              
              15,456,834Deferred
                  compensation
              
              
              (26,598
              )Accumulated
                  deficit
              
              
              (17,737,831
              )Total
                  stockholders' deficiency
              
              
              (1,695,890
              )Total
                  liabilities and stockholders' deficiency
              
              $
              1,089,951





See
      accompanying notes to consolidated financial statements.


F-2





**SENSOR
      SYSTEM SOLUTIONS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**For
      the years ended December 31, 2005 and 2004**


**2005**
              
              **2004**Sales,
                  net
              
              $
              1,324,872
              
              $
              661,340Cost
                  of goods sold
              
              
              878,216
              
              
              579,790Gross
                  profit
              
              
              446,656
              
              
              81,550Operating
                  expenses
              
              
              1,869,896
              
              
              1,292,072Amortization
                  of discount on notes payable
              
              
              531,033
              
              
              651,868Stock-based
                  compensation costs
              
              
              775,000
              
              
              1,800,000Total
                  operating expenses
              
              
              3,175,929
              
              
              3,743,940Net
                  loss
              
              $
              (2,729,273
              )
              $
              (3,662,390
              )Loss
                  per common share, basic and diluted
              
              $
              (.05
              )
              $
              (0.46
              )Weighted
                  average shares outstanding, basic and diluted
              
              
              59,809,253
              
              
              7,920,079





See
      accompanying notes to consolidated financial statements.





F-3


Sensor
        System Solutions, Inc. Consolidated
          Statements of Changes in Stockholders' Deficiency For
            the
            years ended December 31, 2005 and 2004


**Sensor****Common
                stock**
            
            ****
            **ACSI****Common
                stock**
            ****
            ****
            **Common
                stock to be issued**
            ****
            ****
            **Treasury**
            ****
            ****
            **Additional**
              **paid-in**
            ****
            ****
            **Deferred**
            ****
            ****
            **Accumulated**
            ****
            ****
            ****
            ********
            ****
            **Shares**
            ****
            ****
            **Amount**
            ****
            ****
            **Shares**
            ****
            ****
            **Amount**
            ****
            ****
            **Shares**
            ****
            ****
            **Amount**
            ****
            ****
            **stock**
            ****
            ****
            **capital**
            ****
            ****
            **compensation**
            ****
            ****
            **deficit**
            ****
            ****
            **Total**Balance
                January 1, 2004
            
            
            
            
            
            
            
            
            2,584,895
            
            $
            3,639,513
            
            
            
            
            
            
            
            $
            (10,000
            )
            $
            585,936
            
            $
            (220,770
            )
            $
            (4,146,168
            )
            $
            (151,489
            )Common
                  stock of Sensor outstanding whenAdvanced Custom Sensors, Inc was
                  merged into Sensor, Inc.
            
            
            1,391,962
            
            $
            1,392
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,392
            )
            
            
            
            
            
            
            
            0Exchange
                  of Advanced Custom Sensors, Inc. common
                  stock for Sensor, Inc. common stock
            
            
            2,584,906
            
            
            2,585
            
            
            (2,584,895
            )
            
            (3,639,513
            )
            
            
            
            
            
            
            
            10,000
            
            
            3,626,928
            
            
            
            
            
            
            
            
            0Stock
                options issued to employees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,800
            
            
            (19,800
            )
            
            
            
            
            0Intrinsic
                  value of common stock warrantsissued with notes
                  payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            636,518
            
            
            
            
            
            
            
            
            636,518Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            54,170
            
            
            
            
            
            54,170Stock
                to be issued for settlement of note payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            200,000
            
            $
            300,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            300,000Compensatory
                stock to be issued
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,500,000
            
            
            1,800,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,800,000Stock
                dividend to be issued
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,000,000
            
            
            7,200,000
            
            
            
            
            
            
            
            
            
            
            
            (7,200,000
            )
            
            0Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,662,390
            )
            
            (3,662,390)Balance
                December 31, 2004
            
            
            3,976,868
            
            
            3,977
            
            
            -
            
            
            -
            
            
            7,700,000
            
            
            9,300,000
            
            
            -
            
            
            4,867,790
            
            
            (186,400
            )
            
            (15,008,558)
            
            
            (1,023,191)Forfeiture
                of stock options
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (122,100
            )
            
            122,100
            
            
            
            
            
            0Compensatory
                stock issued
            
            
            1,500,000
            
            
            1,500
            
            
            
            
            
            
            
            
            (1,500,000
            )
            
            (1,800,000
            )
            
            
            
            
            1,798,500
            
            
            
            
            
            
            
            
            0Stock
                dividend issued
            
            
            6,000,000
            
            
            6,000
            
            
            
            
            
            
            
            
            (6,000,000
            )
            
            (7,200,000
            )
            
            
            
            
            7,194,000
            
            
            
            
            
            
            
            
            0Warrants
                exercised by shareholders from merger
            
            
            47,802,373
            
            
            47,802
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (47,802
            )
            
            
            
            
            
            
            
            0Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            37,702
            
            
            
            
            
            37,702Stock
                to be issued for settlement of note payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            14,479,093
            
            
            550,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            550,000Stock
                issued for settlement of notes payable and exercise of
                warrants
            
            
            925,778
            
            
            926
            
            
            
            
            
            
            
            
            (200,000
            )
            
            (300,000
            )
            
            
            
            
            327,586
            
            
            
            
            
            
            
            
            28,512Warrants
                issued with notes payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            665,360
            
            
            
            
            
            
            
            
            665,360Warrants
                issued as compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,000
            
            
            
            
            
            
            
            
            10,000Stock
                  issued as compensation for a StandbyEquity Distribution
                  Agreement
            
            
            1,500,000
            
            
            1,500
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            763,500
            
            
            
            
            
            
            
            
            765,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,729,273
            )
            
            (2,729,273)Balance
                December 31, 2005
            
            
            61,705,019
            
            $
            61,705
            
            
            -
            
            $
            -
            
            
            14,479,093
            
            $
            550,000
            
            $
            -
            
            $
            15,456,834
            
            $
            (26,598
            )
            $
            (17,737,831)
            
            $
            (1,695,890)




See
      accompanying notes to consolidated financial statements.


F-4





**SENSOR
      SYSTEM SOLUTIONS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the years ended December 31, 2005 and 2004**




**2005**
              
              **2004**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (2,729,273
              )
              $
              (3,662,390
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock-based
                  compensation costs
              
              
              775,000
              
              
              1,800,000Costs
                  related to settlement of note payable
              
              
              --
              
              
              140,000Depreciation
                  and amortization
              
              
              93,355
              
              
              109,954Amortization
                  of discount on notes payable
              
              
              531,033
              
              
              651,868Amortization
                  of deferred compensation
              
              
              37,702
              
              
              54,170Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (129,910
              )
              
              (32,992
              )Inventory
              
              
              (81,726
              )
              
              (20,913
              )Prepaids
                  and other current assets
              
              
              (22,082
              )
              
              (20,445
              )Accounts
                  payable and accrued expenses
              
              
              653,091
              
              
              370,685Other
                  assets
              
              
              (50,000
              )
              
              -Deferred
                  rent (amortization) concession
              
              
              (5,999
              )
              
              15,770Net
                  cash used in operating activities
              
              
              (928,809
              )
              
              (594,293
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (6,500
              )
              
              (3,957
              )Cash
                  flows from financing activities:Proceeds
                  from notes payable
              
              
              1,648,745
              
              
              590,000Principal
                  payments on notes payable
              
              
              (600,000
              )
              
              -Proceeds
                  from notes payable, related parties
              
              
              50,000
              
              
              20,000Principal
                  payments on capital leases
              
              
              (7,819
              )
              
              (5,347
              )Net
                  cash provided by financing activities
              
              
              1,090,926
              
              
              604,653Net
                  increase in cash and cash equivalents
              
              
              155,617
              
              
              6,403Cash
                  and cash equivalents, beginning of the year
              
              
              17,115
              
              
              10,712Cash
                  and cash equivalents, end of the year
              
              $
              172,732
              
              $
              17,115Supplemental
                  disclosure of cash flow informationCash
                  paid for:Interest
              
              $
              50,637
              
              $
              14,458Taxes
              
              $
              800
              
              $
              800Non-cash
                  investing and financing activities:Acquisition
                  of equipment through capital lease obligations
              
              $
              -
              
              $
              47,365(Cancellation)
                  issuance of stock options
              
              
              (122,100
              )
              
              19,800Accrued
                  interest added to notes payable principal
              
              
              60,774
              
              
              12,500Discount
                  related to warrants and convertible notes
              
              
              665,360
              
              
              636,518Common
                  stock issued and to be issued in settlement of note
                  payable
              
              
              578,512
              
              
              160,000Stock
                  dividend
              
              
              -
              
              
              7,200,000




See
      accompanying notes to consolidated financial statements.




F-5


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




NOTE
      1
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description
      of business





Sensor
      System Solutions, Inc. (the “Company”) is a manufacturer and assembler of
      sensors and micro systems, and its products include thin film sensors, thin
      film
      pressure sensors and micro machined pressure sensors, and micro systems that
      may
      include sensors, signal conditioning circuits, LCD display, computer interface
      and molded housing specifically designed to the customers needs. The Company
      was
      incorporated in Nevada in April 1982 under the name The Enchanted Village,
      Inc.





Merger





On
      May
      24, 2004, Sensor System Solutions (formerly known as Spectre Industries, Inc.,)
      a Nevada corporation, entered into an agreement and plan of merger (the Merger)
      with Advanced Custom Sensors, Inc. (ACSI). Sensor issued 2,584,906 shares of
      its
      common stock and warrants (the Merger Warrants) to purchase up to 47,802,373
      shares of its common stock to the shareholders of ACSI in exchange for all
      the
      issued and outstanding shares of ACSI. The transaction was accounted for as
      a
      recapitalization with ACSI deemed to be the accounting acquirer and Spectre
      the
      legal acquirer.  All financial information included in these financial
      statements prior to the Merger is that of ACSI, as if ACSI had been the
      registrant.  The financial information since the Merger is that of ACSI and
      Sensor consolidated.




All
      references to “Sensor”, “Spectre” and “ACSI”, mean Spectre or ACSI separately
      prior to the Merger and Sensor (the Company) after the Merger.





The
      Company agreed that it would “spin-off” certain assets and liabilities included
      in Spectre in connection with the Merger on May 24, 2004. These assets and
      liabilities were transferred to Spectre Holdings, Inc. (Spectre Holdings),
      a
      wholly-owned subsidiary of the Company. On December 15, 2004, in consideration
      for making and guaranteeing certain representations, warranties and obligations
      in connection with the Agreement and Plan of Merger dated March 13, 2004 by
      and
      between the Company and ACSI, the Company transferred 20,878,081 shares of
      common stock, which are all of the issued and outstanding shares of Spectre
      Holdings to Ian Grant, a Director of the Company and shareholder in Spectre.
      As
      the Company never had direct or indirect control of those assets and
      liabilities, Spectre Holdings was not considered owned at the date of the
      Merger.





Going
      concern





The
      Company incurred a net loss of $2,729,273 and a negative cash flow from
      operations of $928,809 for the year ended December 31, 2005, and had a working
      capital deficiency of $2,004,770 and a stockholders’ deficiency of $1,695,890 at
      December 31, 2005. These matters raise substantial doubt about its ability
      to
      continue as a going concern. Without realization of additional capital, it
      would
      be unlikely for the Company to continue as a going concern. Management believes
      that actions are presently being taken to revise the Company's operating and
      financial requirements in order to improve the Company's financial position
      and
      operating results. However, given the levels of its cash resources and working
      capital deficiency at December 31, 2005, management believes cash to be
      generated by operations will not be sufficient to meet anticipated cash
      requirements for operations, working capital and capital expenditures during
      2006. The Company completed a merger and recapitalization on May 20, 2004,
      with
      Spectre Industries, Inc., a public company, to gain access to the United States
      and European capital markets, but there can be no assurances that the Company
      will ultimately be successful in this regard. The accompanying consolidated
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





Principles
      of consolidation




The
      2005
      and 2004 consolidated financial statements include the accounts and operations
      of Sensor System Solutions Inc. and its wholly-owned subsidiary. Intercompany
      accounts and transactions have been eliminated in consolidation.





F-6


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





Use
      of
      estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, disclosure of contingent assets and liabilities at the date of
      the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from those
      estimates.





Accounts
      receivable





The
      Company performs ongoing credit evaluations of its customers and generally
      does
      not require collateral. An appropriate allowance for doubtful accounts is
      included in accounts receivable.





Inventory





Inventory
      is stated at the lower of cost (first-in, first-out method) or
      market.





Property
      and equipment





Property
      and equipment are stated at cost less accumulated depreciation and amortization.
      Expenditures for additions, renewals and improvements are capitalized. Costs
      of
      repairs and maintenance are expensed when incurred. Depreciation is provided
      using the straight-line method over the estimated useful lives of the assets,
      which range from three to seven years. Leasehold improvements are amortized
      over
      the shorter of the lease term or the asset’s useful life.





Impairment
      of long-lived assets





Property
      and equipment and other long-lived assets are evaluated for impairment whenever
      events or conditions indicate that the carrying value of an asset may not be
      recoverable. If the sum of the expected undiscounted cash flows is less than
      the
      carrying value of the related asset or group of assets, a loss is recognized
      for
      the difference between the fair value and carrying value of the asset or group
      of assets. Such analyses necessarily involve significant judgment. There were
      no
      impairment losses recorded in 2005 or 2004.





Note
      payable debt discount cost





The
      Company has issued warrants to investors and related parties in conjunction
      with
      notes payable. The discounts allocated to the warrants are being treated as
      additional consideration for notes payable and are being amortized over the
      life
      of the note as additional interest cost using the straight-line method.





Revenue
      recognition





The
      Company recognizes revenue when risk of loss and title to the product is
      transferred to the customer, which occurs at shipment.





Income
      taxes





The
      Company accounts for income taxes under the asset and liability method. Under
      this method, deferred tax assets and liabilities are recognized and measured
      using enacted tax rates at the balance sheet date. Deferred tax expense or
      benefit is the result of changes in deferred tax assets and liabilities.
      Valuation allowances are established when necessary to reduce net deferred
      taxes
      to amounts that are more likely than not to be realized.





F-7


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





Stock -
      based compensation




The
      Company has adopted the disclosure-only provisions of Statement of Financial
      Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based
      Compensation - Transition and Disclosures” as well as those outlined in SFAS
      No. 123, “Accounting for Stock-Based Compensation”. As permitted by SFAS
      148 and SFAS 123, the Company continues to apply the provisions of Accounting
      Principles Board Opinion (APB) No. 25, “Accounting for Stock issued to
      Employees” and related interpretations in accounting for the Company’s stock
      option plan. Accordingly, compensation cost for stock options is measured as
      the
      excess, if any, of the estimated fair value of the Company’s stock at the date
      of the grant, over the amount an employee must pay to acquire the stock. Stock
      based awards for non-employees are accounted for at fair value equal to the
      excess of the estimated fair value of the Company’s stock over the option price
      using an estimated interest rate to calculate the fair value of the option.
      There were no stock based awards to non-employees in 2005 or 2004.





Had
      compensation cost for all stock option grants been determined based on their
      fair value at the grant dates, consistent with the method prescribed by SFAS
      148
      and SFAS 123, our net loss and loss per share would have been adjusted to
      the pro forma amounts indicated below:




**Year
                  ended December 31,****2005**
              
              **2004**Net
                  loss
              
              $
              (2,729,273
              )
              $
              (3,662,390
              )Add:
                  Stock based compensation costs included in net loss
              
              
              37,702
              
              
              54,170Stock-based
                  compensation costs
              
              
              (52,160
              )
              
              (58,880
              )Pro
                  forma net loss
              
              $
              (2,743,731
              )
              $
              (3,667,100
              )Basic
                  and diluted earnings per share:As
                  reported
              
              $
              (0.05
              )
              $
              (0.46
              )Pro
                  forma under SFAS No. 123
              
              $
              (0.05
              )
              $
              (0.46
              )





Earnings
      (loss) per share




Basic
      earnings (loss) per common share (EPS) are based on the weighted average number
      of common shares outstanding during each period (see Note 9). Diluted earnings
      per common share are based on shares outstanding (computed as under basic EPS)
      and potentially dilutive common shares. As of December 31, 2005 and 2004, the
      Company had granted stock options for 76,000 and 96,500 shares of common stock,
      respectively, that are potentially dilutive common shares but are not included
      in the computation of loss per share because their effect would be
      anti-dilutive.





Comprehensive
      income (loss)





The
      Company has no items of other comprehensive income (loss) for the years ended
      December 31, 2005 and 2004.





Fair
      value of financial instruments





The
      Company believes that the carrying value of its cash, accounts receivable,
      accounts payable, accrued liabilities, notes payable and notes payable to
      related parties as of December 31, 2005 approximates their respective fair
      values due to the demand or short-term nature of those instruments. The carrying
      value of long-term obligations approximates the fair value based on the
      effective interest rates compared to current market rates.





F-8


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





Concentration
      of credit risk





Financial
      instruments that are exposed to concentrations of credit risk consist
      principally of cash and accounts receivable. The Company places its cash in
      what
      it believes to be credit-worthy financial institutions. However, cash balances
      may have exceeded federally insured levels at various times during the year.
      The
      Company has not experienced any losses in such accounts and believes it is
      not
      exposed to any significant risk in cash.





The
      Company had two customers that accounted for 45% of sales and four customers
      that accounted for 29% of sales in the years ended December 31, 2005 and 2004,
      respectively.  Approximately
      90% of the Company’s sales in the years ended December 31, 2005 and
      2004 were to customers in North America.





Reclassification





Certain
      prior year amounts have been reclassified to conform to the current year
      presentation.




Recent
      accounting pronouncements




In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      151, "Inventory Costs". This Statement amends the guidance in ARB No. 43 Chapter
      4 Inventory Pricing, to require items such as idle facility costs, excessive
      spoilage, double freight and rehandling costs to be expensed in the current
      period, regardless if they are abnormal amounts or not. This Statement will
      become effective for us in the first quarter of 2006. The adoption of SFAS
      No.
      151 is not expected to have a material impact on the Company's consolidated
      financial statement.





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standard ("SFAS") No. 123 (R), "Share-Based
      Payment" ("SFAS 123(R)"). SFAS No. 123 (R) revises SFAS 123, "Accounting for
      Stock-Based Compensation" and supersedes Accounting Principles Board ("APB")
      Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 (R) focuses
      primarily on accounting for transactions in which an entity obtains employee
      services in share-based payment transactions. SFAS 123 (R) requires companies
      to
      recognize in the statement of operations the cost of employee services received
      in exchange for awards of equity instruments based on the grant-date fair value
      of those awards (with limited exceptions).SFAS 123 (R) is effective as of the
      first interim or annual reporting period of the first fiscal year that begins
      after June 15, 2005 for small business issuers. Accordingly, the Company will
      adopt SFAS 123 (R) in its quarter ending March 31, 2006.





As
      permitted by SFAS 123, the Company currently accounts for share-based payments
      to employees using APB 25's intrinsic value method. Accordingly, adoption of
      SFAS 123R's fair value method will have an effect on results of operations,
      although it will have no impact on overall financial position. The impact of
      adoption of SFAS 123R cannot be predicted at this time because it will depend
      on
      levels of share-based payments granted in the future. However, had SFAS 123R
      been adopted in prior periods, the effect would have approximated the SFAS
      123
      pro forma net loss and loss per share disclosures as shown above. SFAS 123R
      also
      requires the benefits of tax deductions in excess of recognized compensation
      cost to be reported as a financing cash flow, rather than as an operating cash
      flow as currently required, thereby reducing net operating cash flows and
      increasing net financing cash flows in periods after adoption.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
      This Statement replaces APB No. 20, "Accounting Changes" and FASB No. 3,
      "Reporting Accounting Changes in Interim Financial Statements", and changes
      the
      requirements for the accounting for and reporting of a change in accounting
      principle. This Statement applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement includes specific transition
      provisions. When a pronouncement includes specific transition provisions, those
      provisions should be followed. This Statement requires retrospective application
      to prior periods' financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period-specific effects
      or
      the cumulative effect of the change. The adoption of SFAS No. 154 did not have
      an impact on the Company's consolidated financial statements.


F-9


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      2
      INVENTORY





Inventory
      consists of the following as of December 31, 2005:




Raw
                  materials
              
              $
              204,748Finished
                  goods
              
              
              97,423$
              302,171
  NOTE
                  3 PROPERTY AND EQUIPMENT
  Property
                  and equipment consists of the following as of December 31,
                  2005:Machinery
                  and equipment
              
              $
              593,312Office
                  equipment
              
              
              2,636Furniture
                  and fixtures
              
              
              17,398Equipment
                  under capital leases
              
              
              47,365Leasehold
                  improvements
              
              
              143,637804,348Less,
                  accumulated depreciation and amortization
              
              
              (570,486
              )$
              233,862





Depreciation
      and amortization expense of $93,355 and $109,954 is reflected in Operating
      Costs
      in the accompanying Consolidated Statements of Operations for the years ended
      December 31, 2005 and 2004, respectively.





As
      of
      December 31, 2005 the Company maintained tooling assets with a net book value
      of
      approximately $90,000 at its main supplier located in Taiwan. During the first
      quarter of 2006, these tooling assets were sold for approximately $88,000 to
      Universal Sensors, Inc., a joint venture in which the Company owns 30% (see
      Note
      4).





NOTE
      4
      INVESTMENT IN AFFILIATED ENTITIES





Universal
      Sensors, Inc.




In
      April
      2005, the Company, China Automotive Systems, Inc. (CAAS) and Shanghai Hongxi
      Investment Inc. (HX) formed Universal Sensors, Inc. (USI), a joint venture
      in
      the People’s Republic of China to develop, produce and market sensor and related
      electronic products. The ownership percentages of USI are 30%, 60% and 10%
      to
      the Company, CAAS and HX, respectively. CAAS and HX will contribute cash, land
      and building and the Company will contribute technology. As there was no cash
      contributed by the Company and the technology it contributed is not recorded
      as
      an asset on the Company’s books, the Company’s investment in USI is recorded at
      zero. USI is in a start-up mode and had not begun operations as of December
      31,
      2005. USI has incurred cumulative losses at December 31, 2005 of approximately
      $232,000. The Company has not recorded any loss from USI since its investment
      is
      zero. The Company will not record any income in the future until such time
      as
      USI is cumulatively profitable. During 2005, the Company had sales of
      approximately $93,000 to USI.




F-10


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





TransOptix,
      Inc .




The
      Company had an investment in TransOptix, Inc. (TransOptix), that, when combined
      with the Company’s Chief Executive Officer’s ownership interest in TransOptix,
      resulted in the Company accounting for its investment in TransOptix under the
      equity method of accounting. The Company discontinued applying the equity method
      in 2002 when its share of losses of TransOptix exceeded its investment in
      TransOptix. There were no transactions between the Company and TransOptix in
      2005 and 2004 and the Company did not record any income or loss from TransOptix
      in 2005 or 2004. The Company and TransOptix shared the same office and facility
      lease. TransOptix declared bankruptcy in August 2005 and the Company took over
      TransOptix’s share of the facility lease (see Note 11).





NOTE
      5
      NOTES PAYABLE





Notes
      payable consist of the following at December 31, 2005:


Two
                  lines of credit, unsecured, interest payable monthly at 10.25%
                  and 11.5%
                  per annum,
              
              $
              92,983due
                  on demand.Note
                  payable, unsecured, interest payable monthly at Prime + 3% per
                  annum
              
              
              40,000(prime
                  rate at December 31, 2005 was 7.25%), due on demand.Note
                  payable, unsecured, interest payable monthly at 10% per annum,
                  payable as
                  a
              
              
              90,000percentage
                  of any future private or public stock offerings.Four
                  notes payable, secured by all assets of the Company, interest at
                  8% per
                  annum,
              
              
              346,907payable
                  at various maturities through May 30, 2006. One note for $200,000
                  was
                  dueFebruary
                  21, 2006 and was converted into a note due August 21, 2006. Two
                  notes
                  for$64,800
                  and $32,400 were due on April 18, 2006 and April 20, 2006,
                  respectively.The
                  Company is currently negotiating an extension of these notes. The
                  fourth
                  note,for
                  $49,707, is due May 30, 2006. At maturity, the notes are convertible
                  at
                  the holder’soption
                  at a conversion price equal to 70% of the weighted average price
                  of the
                  commonstock
                  for the 30 trading days immediately preceding the conversion date.
                  In
                  addition,each
                  note has warrants attached that, once the note is converted into
                  stock,
                  allow theholder
                  to purchase stock at 85% of the weighted average price of the common
                  stock
                  forthe
                  30 trading days immediately preceding the conversion date. Two
                  of these
                  notes wereoriginally
                  scheduled to mature in the fourth quarter of 2005. The notes and
                  the
                  accruedinterest
                  were rolled over into the new notes. The intrinsic value of the
                  beneficial
                  conversionfeature
                  of the notes and warrants, valued at $223,012, has been recorded
                  as loan
                  discountcosts
                  and is being amortized over the life of the respective notes as
                  additional
                  interest cost.Note
                  payable, secured by all assets of the Company, interest at 10%
                  per annum,
                  payable on
              
              
              800,000December
                  23, 2006. The note is convertible, with some limitations, at the
                  holder’s
                  option ata
                  conversion price equal to the lesser of $0.35 or 90% of the lowest
                  volume
                  weighted averageprice
                  of the common stock for the 15 trading days immediately preceding
                  the
                  conversion date.In
                  addition, the note has detachable warrants that allow the holder
                  to buy
                  600,000 shares ofcommon
                  stock at $0.2878 per share and another 600,000 shares at $0.35
                  per share.Less,
                  remaining debt discount
              
              
              (309,719
              )$
              1,060,171




F-11


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      6
      NOTES PAYABLE, RELATED PARTIES





Notes
      payable to related parties consist of the following at December 31, 2005:


Note
                  payable to the sister of the Company's Chief Executive Officer,
                  secured by
                  all assets
              
              $
              190,665of
                  the Company, interest at 14.25% per annum, due December 31, 2004.
                  The note
                  payablewas
                  originally issued by ACSI, which merged with the company in 2004.
                  In
                  connection withthe
                  note payable, ACSI issued warrants expiring September 17, 2008,
                  to
                  purchase 190,665shares
                  of ACSI's common stock at $.50 per share (the ACSI warrant is convertible
                  into5,372,940
                  shares of the Company's stock). The intrinsic value of the warrants
                  ($190,665)was
                  recorded as loan discount costs and was amortized over the life
                  of the
                  original note asadditional
                  interest cost. The Company is currently negotiating an extension
                  of this
                  note.Note
                  payable to the sister of the Company's Chief Executive Officer,
                  secured by
                  all assets
              
              
              110,000of
                  the Company, interest at 10.0% per annum, due March 15, 2005. The
                  note
                  payable wasoriginally
                  issued by ACSI in 2003, at which time ACSI issued a warrant expiringSeptember
                  17, 2008, to purchase 100,000 shares of stock at $.50 per share
                  (the ACSI
                  warrantis
                  convertible into 2,817,215 shares of the Company's common stock.
                  The
                  intrinsic value ofthe
                  original warrant ($100,000) was recorded as loan discount costs
                  and was
                  amortizedover
                  the life of the original note as additional interest cost. The
                  original
                  note was dueSeptember
                  16, 2004. On September 16, 2004, a new note was issued to replace
                  the
                  original note.At
                  maturity, the new note is convertible at the holder's option at
                  a
                  conversion price equal to 80%of
                  the weighted average price of the common stock for the 30 trading
                  days
                  immediatelypreceding
                  the conversion date. In addition, the note has warrants attached
                  that,
                  once the note isconverted
                  into stock, allow the holder to purchase stock at 85% of the weighted
                  average priceof
                  the common stock for the 30 trading days immediately preceding
                  the
                  conversion date. Theintrinsic
                  value of the beneficial conversion feature of the note and warrants,
                  valued at $48,125,has
                  been recorded as loan discount costs and is being amortized over
                  the life
                  of the note asadditional
                  interest cost. The Company is currently negotiating an extension
                  of this
                  note.Note
                  payable to an employee of the Company, secured by all assets of
                  the
                  Company, interest at
              
              
              21,6008.0%
                  per annum, due May 30, 2006. At maturity, the note is convertible
                  at the
                  holder's optionat
                  a conversion price equal to 70% of the weighted average price of
                  the
                  common stock for the30
                  trading days immediately preceding the conversion date. In addition,
                  the
                  note has warrantsattached
                  that, once the note is converted into stock, allow the holder to
                  purchase
                  stock at 85% ofthe
                  weighted average price of the common stock for the 30 trading days
                  immediately precedingthe
                  conversion date. The intrinsic value of the beneficial conversion
                  feature
                  of the note andwarrants,
                  valued at $13,886, has been recorded as loan discount costs and
                  is being
                  amortizedover
                  the life of the note as additional interest cost. This note was
                  due
                  November 12, 2005,and
                  the principal and accrued interest were converted into a new note
                  due May
                  30, 2006.Note
                  payable to shareholder, secured by all assets of the Company, interest
                  at
                  8.0% per annum,
              
              
              50,000due
                  February 3, 2006. The principal and accrued interest ($4,000) were
                  converted into a newnote
                  due April 3, 2006. That note was converted at maturity into 342,000
                  shares
                  of theCompany’s
                  common stock at a conversion price equal to 70% of the weighted
                  average
                  priceof
                  the common stock for the 30 trading days immediately preceding
                  the
                  conversion date. Inaddition,
                  the note has warrants attached that, once the note is converted
                  into
                  stock, allow theholder
                  to purchase stock at 85% of the weighted average price of the common
                  stock
                  for the 30trading
                  days immediately preceding the conversion date. The intrinsic value
                  of the
                  beneficialconversion
                  feature of the note and warrants, valued at $32,143, has been recorded
                  as
                  loandiscount
                  costs and is being amortized over the life of the note as additional
                  interest cost.Less,
                  remaining debt discount
              
              
              (3,700
              )$
              368,565




F-12




**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      7
      CAPITAL LEASE OBLIGATIONS





The
      Company leases certain equipment under two capital leases with monthly payments
      of $360 and $701, respectively, including interest at 12.75% per annum. Future
      minimum annual rental payments for capitalized leases are as
      follows:




**Years
                  ending December 31,**
              ****
              **Amount**2006
              
              $
              12,7322007
              
              
              12,7322008
              
              
              12,7322009
              
              
              3,90342,099Amount
                  representing interest
              
              
              (7,900
              )Present
                  value of minimum lease payments
              
              
              34,199Less:
                  current portion
              
              
              (8,877
              )Non-current
                  portion
              
              $
              25,322




NOTE
      8
      INCOME TAXES





There
      is
      no income tax provision due to continuing tax losses. Significant components
      of
      the Company’s deferred income tax assets at December 31, 2005 and 2004 are as
      follows:




**2005**
              
              **2004**Deferred
                  income tax asset:Net
                  operating loss carryforward
              
              $
              2,090,000
              
              $
              1,716,000Valuation
                  allowance
              
              
              (2,090,000
              )
              
              (1,716,000
              )Net
                  deferred income tax asset
              
              $
              -
              
              $
              -




Reconciliation
      of the effective income tax rate to the U.S. statutory rate is as
      follows:




**2005**
              
              **2004**Tax
                  expense at the U.S. statutory income tax rate
              
              
              (34.0)
              %
              
              (34.0)
              %Increase
                  in the valuation allowance
              
              
              34.0
              
              
              34.0Effective
                  income tax rate
              
              
              -
              %
              
              -
              %




Deferred
      taxes are recorded to give recognition to temporary differences between the
      tax
      bases of assets or liabilities and their reported amounts in the financial
      statements. Deferred tax assets generally represent items that can be used
      as a
      tax deduction or credit in future years. Deferred tax liabilities generally
      represent items that we have taken a tax deduction for, but have not yet
      recorded in the Consolidated Statements of Operations.





Net
      operating loss carryforwards totaling approximately $4.7 million federal and
      $1.7 million state amounts at December 31, 2005 are being carried forward.
      The
      net operating loss carryforwards expire at various dates through 2025 for
      federal purposes and 2015 for state purposes. A full valuation allowance has
      been established due to the lack of earnings as support for recognition of
      the
      deferred tax assets recorded.


F-13





**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      9
      STOCKHOLDERS’ EQUITY





On
      October 6, 2005, the Company secured financing through, among others, a Standby
      Equity Distribution Agreement (SEDA) with Cornell Capital Partners, LP (Cornell)
      to support the continued development and growth of the Company. In connection
      with the SEDA the Company issued 1,471,429 shares of the Company's common stock
      to Cornell and 28,571 shares of the Company's common stock to Monitor Capital
      for fees. The fair value of the shares issued was determined to be $0.51 per
      share based on the OTC Bulletin Board (OTCBB) closing price for the Company’s
      stock on October 6, 2005, for a total fair value of $765,000. Also on October
      6,
      2005, the Company sold an aggregate of $600,000 of convertible debentures to
      Cornell and issued a warrant to Cornell to purchase 600,000 shares of the
      Company's common stock, at $0.35 per share, expiring October 6, 2009.





On
      December 23, 2005, the Company and Cornell terminated the SEDA and related
      agreements. The Company recorded the fair value of the shares of common stock
      issued to Cornell in relation to the SEDA as stock-based compensation expense
      in
      the accompanying financial statements. Also on December 23, 2005, the Company
      agreed to sell an aggregate of $1,000,000 of convertible debentures to Cornell,
      of which $610,000 of the initial $800,000 proceeds was used to repay the
      convertible debentures issued to Cornell on October 6, 2005 plus accrued
      interest thereon of $10,000. On February 14, 2006, Cornell advanced an
      additional $200,000 on a convertible note payable to bring the total borrowing
      from Cornell to $1,000,000. Cornell is entitled, at its option, to convert
      and
      sell all or any part of the principal amount of the $1,000,000 convertible
      debentures, plus any and all accrued interest, into shares of the Company's
      common stock at a price equal to the lesser of (i) $0.35 or (ii) 90% of the
      lowest volume weighted average price of the common stock, as defined, during
      the
      fifteen trading days immediately preceding the date of conversion as quoted
      by
      Bloomberg, LP. Also on December 23, 2005, the Company issued a warrant to
      Cornell to purchase 600,000 shares of the Company's common stock, at $0.2878
      per
      share, expiring December 23, 2010.





On
      October 19, 2005, the Company issued 725,778 shares of common stock to a lender
      for warrants exercised by the lender in March 2005.





On
      May
      24, 2004 (the date of the Merger, see Note 1), the Company issued 2,584,905
      shares of its common stock and warrants to purchase up to 47,802,373 shares
      of
      its common stock, to the shareholders of ACSI in exchange for all the issued
      and
      outstanding shares of ACSI. In January 2005, the warrants were exercised and
      the
      47,802,373 shares of common stock were issued.





On
      December 4, 2004, the Company granted 7,500,000 shares of its common stock
      to
      five shareholders in Spectre, including two individuals who are also Directors
      of the Company, for providing services to the Company. 1,500,000 shares were
      treated as compensatory stock with a fair value $1.20 per share, representing
      the most recent OTCBB closing price prior to that date, for a total of
      $1,800,000 and was recognized as stock-based compensation expense in the
      accompanying financial statements. The remaining 6,000,000 shares were treated
      as a stock dividend. All share and per share amounts included herein have been
      restated to reflect the effects of the grant as if it had occurred at the date
      of the Merger. The 7,500,000 shares of common stock were issued in January
      2005.





Effective
      June 8, 2004 the Board of Directors initiated a fifteen for one reverse split
      of
      the common stock. It also increased the authorized number of common stock shares
      from 100,000,000 to 180,000,000. All share and per share amounts included herein
      have been restated to reflect the effects of the split as if had occurred at
      the
      beginning of the period.





On
      September 3, 2004, the Company negotiated a settlement of an unsecured note
      payable for $250,000 that was due March 9, 2004. Terms of the settlement require
      the Company to pay $90,000 plus interest at 10% per annum, payable from future
      stock offerings. In addition, the Company agreed to issue 200,000 shares of
      common stock to the lender. The fair value of the shares to be issued was
      determined to be $1.50 per share based on the OTC Bulletin Board (OTCBB) closing
      price for the Company’s stock on September 3, 2004, for a total fair value of
      $300,000. The Company recorded the difference between the net carrying amount
      of
      the extinguished note ($250,000) and the settlement price ($390,000) as
      settlement costs on note payable of $140,000 as operating expenses in the
      accompanying financial statements. 200,000 shares of the Company’s common stock
      were issued to the lender on October 20, 2005.


F-14





**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      10
      STOCK OPTIONS AND WARRANTS





Stock
      Option Plan





The
      Company has a stock option plan, which provides for the granting of options
      to
      employees, independent representatives and directors of the Company. The Company
      is authorized to issue 200,000 shares of common stock. The exercise price is
      fixed by the plan administrator. The shares vest over 4 years upon the
      optionee’s completion of service. The options expire ten years from the date of
      grant.





For
      the
      year ended December 31, 2004, in accordance with APB No. 25, the intrinsic
      value
      of the 10,000 stock options granted under this plan was $19,800 and was recorded
      as deferred compensation and additional paid-in capital in the accompanying
      financial statements (and is being amortized over the vesting periods of the
      options). No options were granted in 2005. Amortization of the deferred
      compensation related to stock options totaled $37,702 and $54,170 in 2005 and
      2004, respectively.





At
      December 31, 2005, options outstanding are as follows:




**Shares**
              
              **Average
                  Exercise Price**Balance
                  at January 1, 2005
              
              
              96,500
              
              $
              .50Granted
              
              
              -Exercised
              
              
              -Cancelled
              
              
              (20,500
              )
              
              .50Balance
                  at December 31, 2005
              
              
              76,000
              
              $
              .50





Additional
      information regarding options outstanding as of December 31, 2005 is as follows:




**Options
                    outstanding**
                ****
                **Options
                    exercisable****Exercise
                    price**
                ****
                **Number
                    outstanding**
                
                **Weighted
                    average remaining contractual life (years)**
                
                **Weighted
                    average exercise price**
                
                **Number
                    exercisable**
                
                **Weighted
                    average exercise price**$0.50
                
                76,000
                
                0.5
                
                $0.50
                
                76,000
                
                $0.50





Subsequent
      to year end, the board of directors approved a new stock option plan. The above
      options were converted to 10 options for the Company’s shares for each ACSI
      option outstanding and were repriced at the closing price of the Company’s
      shares on March 3, 2006.





Warrants





During
      2004, in conjunction with the issuance of a note payable, the board of directors
      approved the issuance of warrants to purchase a total of 500,000 shares of
      ACSI’s common stock. The warrants were exercised in 2005 and upon
      conversion of the note payable into the Company’s stock, 14,479,093
      shares of the Company’s common stock were recorded as common stock to be
      issued.





On
      May
      24, 2004, as part of the merger between the Company and ACSI, the Company issued
      warrants to purchase up to 47,802,373 shares of its common stock. The warrants
      were exercised in 2005 at $.0001 per share.





During
      2005, in conjunction with the issuance of a note payable, the board of directors
      approved the issuance of warrants to purchase a total of 1,286,866 shares of
      the
      Company’s common stock at prices between $0.2878 and $0.35 per share. The
      warrants expire between October 2009 and December 2010.


F-15





**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





At
      December 31, 2005, stock purchase warrants outstanding were as follows:




**Shares**
              
              **Average
                  Exercise Price**Balance
                  at January 1, 2005
              
              
              48,618,039
              
              $
              .0080Granted
              
              
              1,286,866
              
              
              .3168Exercised
              
              
              (48,327,373
              )
              
              .0055Converted
                  to the Company’s sharesfrom
                  ACSI shares
              
              
              7,899,489
              
              
              .0177Balance
                  at December 31, 2005
              
              
              9,477,021
              
              $
              .0584





Additional
      information regarding stock purchase warrants outstanding as of December 31,
      2005 is as follows:




**Warrants
                  outstanding**
              
              **Warrants
                  exercisable****Exercise
                  price**
              
              **Number
                  outstanding**
              
              **Weighted
                  average remaining contractual life (years)**
              
              **Weighted
                  average exercise price**
              
              **Number
                  exercisable**
              
              **Weighted
                  average exercise price**$0.0177
              
              8,190,155
              
              2.7
              
              $0.0177
              
              8,190,155
              
              $0.0177$0.2878
              
              686,866
              
              4.9
              
              $0.2878
              
              686,866
              
              $0.2878$0.35
              
              600,000
              
              4.8
              
              $0.35
              
              600,000
              
              $0.35





NOTE
      11
      COMMITMENT AND CONTINGENCIES





Operating
      Leases





The
      Company leases its office and facility through July 31, 2007 under a long-term
      operating lease agreement. Under terms of the lease, the Company pays the cost
      of repairs and maintenance. The office and warehouse facility was formerly
      shared with TransOptix, but since the bankruptcy of TransOptix the Company
      is
      liable for the entire lease obligation.





Future
      minimum lease commitments at December 31, 2005 are as follows:


**Years
                  ending December 31,**
              
              **Amount**2006
              
              $
              250,9002007
              
              
              151,095$
              401,995




Rent
      expense for the years ended December 31, 2005 and 2004 was $185,924 and $122,907
      respectively.


F-16


**SENSOR
      SYSTEM SOLUTIONS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





NOTE
      12
      SUBSEQUENT EVENTS





In
      January 2006, a note payable for $40,000 was converted from an interest only,
      due on demand note into a three-year note with even principal payments due
      monthly plus interest.





On
      February 3, 2006, a note payable for $50,000 and accrued interest of $4,000
      was
      converted into a new note for $54,000, due April 3, 2006 with interest payable
      at 8% per annum. The note was secured by all assets of the Company. At maturity,
      the note was converted into 342,000 shares of the Company’s common
      stock.





On
      February 14, 2006, Cornell advanced an additional $200,000 on a new convertible
      note payable in one year bringing the total borrowing from Cornell to
      $1,000,000.





On
      February 22, 2006, a note payable for $200,000 was issued to replace a note
      that
      matured on February 21, 2006. The note is secured by all assets of the Company,
      interest is payable at 8% per annum, and the note matures on August 21, 2006.
      At
      maturity, the note is convertible at the holder’s option at a conversion price
      equal to 75% of the average closing bid price of the Company’s common stock for
      the month of February 2006. In addition, the note has warrants attached that,
      once the note is converted into stock, allow the holder to purchase stock at
      85%
      of the weighted average price of the common stock for the 30 trading days
      immediately preceding the date of notice of exercising.





F-17