|                                   |                                      |
|----------------------------------------|-------------------------------------------|
| Delaware                               | 75-2626358                                |
| (State      or other jurisdiction      | (I.R.S.      Employer Identification No.) |
| of      incorporation or organization) |                                      |

----

----

|          | Item      in Form 10-K                                                                                                        | Page      No. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------|---------------|
| PART      I   |                                                                                                                          |          |
| Item      1   | Description      of Business                                                                                                  | 4             |
| Item      1A  | Risk      Factors                                                                                                             | 5             |
| Item      1B  | Unresolved      Staff Comments                                                                                                | 5             |
| Item      2   | Properties                                                                                                                    | 5             |
| Item      3   | Legal      Proceedings                                                                                                        | 6             |
| Item      4   | Submission      of Matters to a Vote of the Security Holders                                                                  | 6             |
|          |                                                                                                                          |          |
| PART      II  |                                                                                                                          |          |
| Item      5   | Markets      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities | 7             |
| Item      6   | Selected      Consolidated Financial Data                                                                                     | 8             |
| Item      7   | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                         | 8             |
| Item      7A  | Quantitative      and Qualitative Disclosures About Market Risk                                                               | 10            |
| Item      8   | Consolidated      Financial Statements and Supplementary Data                                                                 | 11            |
| Item      9   | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                | 11            |
| Item      9A  | Controls      and Procedures                                                                                                  | 11            |
| Item      9B  | Other      Information                                                                                                        | 12            |
|          |                                                                                                                          |          |
| PART      III |                                                                                                                          |          |
| Item      10  | Directors,      Executive Officers and Corporate Governance                                                                   | 12            |
| Item      11  | Executive      Compensation                                                                                                   | 16            |
| Item      12  | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                      | 21            |
| Item      13  | Certain      Relationships and Related Transactions, and Director      Independence                                           | 22            |
| Item      14  | Principal      Accountant Fees and Services                                                                                   | 22            |
|          |                                                                                                                          |          |
| PART      IV  |                                                                                                                          |          |
| Item      15  | Exhibits,      Financial Statement Schedules                                                                                  | 24            |
|          |                                                                                                                          |          |
| SIGNATURES    |                                                                                                                          |          |

----

ITEM 3. LEGAL PROCEEDINGS.

| Proposal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | For      All | Withhold      All | Exceptions | Totals     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------|------------|------------|
| 1.      Election of  Four (4) Directors To Serve Until The Next Annual      Meeting Of Shareholders                                                                                                                                                                                                                                                                                                                                                                                        |         |              |       |       |
| Carlo      R. Loi                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 26,822,998   | 2,235,574         | 0          | 29,058,572 |
| James      W. Power                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 26,643,211   | 2,415,361         | 0          | 29,058,572 |
| Peter      B. Knepper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 26,855,527   | 2,203,045         | 0          | 29,058,572 |
| J.      Collier Sparks                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 26,087,296   | 2,971,276         | 0          | 29,058,572 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |         |              |       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | For          | Against           | Abstain    | Total      |
| 2.      To ratify the appointment of Padgett, Stratemann & Co., L.L.P. as the      independent auditors of the Company for the fiscal year ending December      31, 2008                                                                                                                                                                                                                                                                                                                    | 27,997,950   | 497,212           | 563,410    | 29,058,572 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | For          | Against           | Abstain    | Total      |
| 3.  To      approve an amendment to our Amended and Restated 2002 Incentive Plan to      increase the number of shares of common stock authorized for issuance      under the Plan by 5,000,000 shares and to effect certain other minor      amendments as described in this Proxy Statement.                                                                                                                                                                                        | 4,150,021    | 13,241,598        | 269,125    | 17,660,744 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | For          | Against           | Abstain    | Total      |
| 4.      To authorize the Board of Directors, in its discretion, should it deem it      to be appropriate and in the best interests of the Company and its      stockholders, to amend the Company’s Certificate of Incorporation to      effect a reverse stock split of the Company’s issued and outstanding      shares of Common Stock by a ratio of between 1-for-2 and 1-for-10,      inclusive, without further approval or authorization of the Company’s      stockholders | 23,483,163   | 5,492,269         | 83,140     | 29,058,572 |

----

PART II

|                      Fiscal Year ended December 31, 2008      :                         | High             | Low              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|------------------|
|                                                                                                                                                                                                                                                                                       |             |             |
|                      Quarter ended December 31, 2008                                                                                                                                                  | $0.41            | $0.12            |
|                      Quarter ended September 30, 2008                                                                                                                                                      |   0.72 |   0.30 |
|                      Quarter ended June 30,      2008                                                                                                              |   0.68 |   0.40 |
|                      Quarter ended March 31, 2008                                                                                                                                                               |   0.69 |   0.31 |
|                                                                                                                                                                                                                                                                                       |             |             |
|                      Fiscal Year ended December 31, 2007      :                                                                                                                                                 | High             | Low              |
|                                                                                                                                                                                                                                                                                       |             |             |
|                      Quarter ended December 31, 2007                                                                                                                                                            | $0.99            | $0.50            |
|                      Quarter ended September 30, 2007                                                                                                                                                 |   0.72 |   0.55 |
|                      Quarter ended June 30,      2007                                                                                                              |   1.34 |   0.96 |
|                      Quarter ended March 31, 2007                                                                                                                                                               |   1.61 |   0.36 |

----

| Plan Category                                                  |   | Number      of securities to be issued upon exercise of outstanding options and      warrants |       | Weighted-average      exercise price of outstanding options and      warrants |   | Number      of securities remaining available for future issuance under equity      compensation plans |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|
| Equity      compensation plansapproved      by security holders     |   |                                                                                          | 6,866,123  |                                                                                         |   | $0.76                                                                                                  |   |   | 2,418,222 |   |
| Equity      compensation plans notapproved      by security holders |   |                                                                                          | 4,552,268  |                                                                                         |   | $0.42                                                                                                  |   |   | -0- |   |
| Total                                                               |   |                                                                                          | 11,418,391 |                                                                                         |   | $0.62                                                                                                  |   |   | 2,418,222 |   |

Recent Sales of UnregisteredSecurities

----

|                                     | Year      ended December 31 |   |   |
|------------------------------------------|-----------------------------|--------|--------|
|                                     | 2008                        |   | 2007   |   | Change |
|                                     | Dollars                     | %      |   | Dollars | % |   | $ | % |
|                                     |                        |   |   |   |   |   |   |   |
| Net      Sales                           | $17,190                     | 100%   |   | $9,196 | 100% |   | 7,994 | 87% |
| Gross      profit                        | 6,850                       | 40%    |   | 4,547 | 49% |   | 2,303 | 51% |
| Selling,      general and administrative | 8,853                       | 52%    |   | 9,794 | 107% |   | (941) | (10)% |
| Asset      and goodwill impairment       | 2,374                       | 14%    |   | - | 0% |   | 2,374 | 0% |
| Operating      loss                      | (5,250)                     | (31)%  |   | (5,535) | (60)% |   | 285 | (5)% |
| Net      loss                            | (5,233)                     | (30)%  |   | (5,100) | (55)% |   | (133) | 3% |

----

|                      | Name   |   |   |                                                                                   | Age |   |   |   | Title |   |
|---------------------------|--------|--------|--------|----------------------------------------------------------------------------------------|-----|--------|--------|--------|-------|--------|
| Directors                 |   |   |   |                                                                                   |
| James      W. Power       |   | 79     |   | Chairman      of the Board and Director                                                |
| Carlo      R. Loi         |   | 70     |   | Vice      Chairman and Director                                                        |
| James      Collier Sparks |   | 51     |   | President,      CEO and Director                                                       |
| Peter      B. Knepper     |   | 60     |   | Director                                                                               |
|                      |   |   |   |                                                                                   |
| Executive      Officers   |   |   |   |                                                                                   |
| Michael      R. Sweet     |   | 53     |   | Senior      Vice President, Chief Financial Officer & Chief Operating      Officer |
| Richard      A. Larsen    |   | 60     |   | Senior      Vice President, General Counsel &Secretary                             |

|               |   | Audit      Committee |   | Nominating      Committee |   | CompensationCommittee |
|--------------------|--------|----------------------|--------|---------------------------|--------|-----------------------|
|               |   |                 |   |                      |   |                  |
| James      Power   |   | x               |   | c                         |   | x                     |
| Carlo      Loi     |   | x               |   |  x                   |   | c                     |
| Peter      Knepper |   | c                    |   | x                         |   | x                     |

----

|   Name           | Fees      Earnedor      PaidIn      cash | StockAwards      ($) | OptionAwards      (1)  | Non-Equity      Incentive Plan Compensation ($)  | Change      in Pension Value and Nonqualified Deferred Compensation Earnings      ($) |  All      OtherCompensation($) |   Total      ($) |
|----------------------------|------------------------------------------|----------------------|-----------------------------|-------------------------------------------------------|---------------------------------------------------------------------------------------|-------------------------------------|----------------------------|
| James      Power           | $52,500                                  | -0-                  | $23,541                     | N/A                                                   | N/A                                                                                   | -0-                                 | $76,041                    |
| Carlo      Loi             | $49,500                                  | -0-                  | $21,972                     | N/A                                                   | N/A                                                                                   | -0-                                 | $71,472                    |
| Peter      Knepper         | $41,500                                  | -0-                  | $14,133                     | N/A                                                   | N/A                                                                                   | -0-                                 | $55,633                    |
| Robert      McCann III (2) | $6,667                                   | -0-                  | $4,684                      | N/A                                                   | N/A                                                                                   | -0-                                 | $11,351                    |

| (1)   | The      amounts in this column reflect the dollar amount of option awards      recognized for financial reporting purposes for the fiscal year ended      December 31, 2008 in accordance with FAS 123 (R) and thus includes awards      granted prior to 2008. Aggregate options outstanding for each director as      of December 31, 2008 were 447,500 for Mr. Power; 575,500 for Mr. Loi;      270,000 for Mr. Knepper. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Mr.      McCann resigned as a Director on April 4, 2008. All options were      forfeited. |
|-----------------|-------------------------------------------------------------------------------------------|

----

----

|   Name      andPrincipal      position                                                      |    Year |    Salary |    Bonus |   StockAwards |   OptionAwards      (1) | Non-equityIncentivePlanCompensation |  AllOtherCompensation |    Total |
|-------------------------------------------------------------------------------------------------------|------------------------|--------------------------|-------------------------|-------------------------|-----------------------------------|-------------------------------------|----------------------------|-------------------------|
| J.      Collier SparksPresident      andChief      Executive Officer                                  | 20082007               | $350,000$271,154         |  -0-               |  -0-               | $-0-$137,539                      |  -0-                           |  -0-                  | $350,000$408,693        |
| Michael      SweetSenior      Vice President;Chief      Operating Officer and Chief Financial Officer | 20082007               | $250,000$210,577(2)      |  -0-               |  -0-               | $-0-$88,418                       |  -0-                           |  -0-                  | $250,000$298,995        |
| Richard      LarsenSenior      Vice President,General      Counsel & Secretary                    | 20082007               | $250,000$190,865         |  -0-               |  -0-               | $-0-$58,945                       |  -0-                           |  -0-                  | $250,000$249,810        |

| (1)   | The      amounts in this column reflect the dollar amount recognized for financial      reporting purposes for the fiscal years ended December 31, 2007 and 2008      in accordance with FAS 123 (R) and thus may include awards granted in and      prior to 2007 and 2008. A discussion of the assumptions used in      calculating these values may be found in the Notes to our 2008 audited      financial statements. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Effective      as of February 11, 2008, Lori Jones was hired as Senior Vice President –      Finance and Chief Financial Officer at an annual salary of $200,000. Ms.      Jones resigned effective March 31, 2008. She received $27,692 in      compensation. No severance was paid or is owed as a result of her      resignation. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name      andPrincipal      position                                                 | Option      Awards                                                         |
|--------------------------------------------------------------------------------------|----------------------------------------------------------------------------|
| Number      ofSecuritiesUnderlyingUnexercisedOptions      (#)Exercisable             | Number      ofSecuritiesUnderlyingUnexercisedOptions      (#)Unexercisable | OptionExercisePrice |  OptionExpirationDate |
| J.      Collier Sparks                                                               | 100,000                                                                    | -0- | $1.31 | 1/1/2014 |
| President      and Chief                                                             | 185,000                                                                    | -0- | $0.77 | 1/13/2015 |
| Executive      Officer                                                               | 200,000                                                                    | -0- | $0.91 | 1/1/2016 |
|                                                                                 | 700,000                                                                    | -0- | $0.39 | 1/24/2012 |
| Michael      Sweet                                                                   | 200,000                                                                    | -0- | $0.74 | 6/22/2016 |
| Senior      Vice President; Chief Operating Officer and Chief Financial      Officer | 300,000                                                                    | -0- | $0.39 | 1/24/2012 |
| Richard      Larsen                                                                  | 8,000                                                                      | -0- | $1.21 | 7/18/2013 |
| Senior      Vice President,                                                          | 60,000                                                                     | -0- | $1.31 | 1/1/2014 |
| General      Counsel &                                                           | 15,000                                                                     | -0- | $1.31 | 1/1/2014 |
| Secretary                                                                            | 85,500                                                                     | -0- | $0.77 | 1/13/2015 |
|                                                                                 | 100,000                                                                    | -0- | $0.91 | 1/1/2016 |
|                                                                                 | 450,000                                                                    | -0- | $0.39 | 1/24/2012 |

| ITEM      12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS. |
|---------------|-----------------------------------------------------------------------------------------------------------|

|                                                         | Common      Stock | Preferred      Stock |
|--------------------------------------------------------------|-------------------|----------------------|
| Name      and Address of Beneficial Owner (1)                | Shares            | Percentage           | Shares | Percentage |
| 5%      Shareholders:                                        |              |                 |   |   |
|                                                         |              |                 |   |   |
| Ridgemont      Investment Group, LLC (2)                     | 3,160,000         | 8.9                  |   |   |
| Victoria      & Eagle Strategic Fund, Ltd. (3)           | 2,120,000         | 5.9                  | 195,351 | 100% |
| Directors      and Executive Officers: (4)                   |              |                 |   |   |
| Collier      Sparks                                          | 1,185,000         | 3.3                  | -- | -- |
| Richard      Larsen                                          | 718,500           | 2.0                  | -- | -- |
| Michael      Sweet                                           | 500,000           | 1.4                  | -- | -- |
| Carlo      Loi                                               | 596,500           | 1.7                  | -- | -- |
| James      Power                                             | 470,000           | 1.3                  | -- | -- |
| Peter      Knepper                                           | 285,000           | *                    | -- | -- |
| Executive      Officers and directors as a group (6 persons) | 3,755,000         | 10.5                 | -- | -- |

| (*) | Less      than 1 percent |
|-----|--------------------------|

| (1) | Unless      otherwise noted, all addresses are c/o MDI, Inc., 10226 San Pedro Avenue,      Suite 100, San Antonio, Texas78216. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

| (2) | Based      on a Schedule 13G filed by Ridgemont Investment Group, LLC with the SEC      dated August 14, 2008, Ridgemont Investment Group, LLC owns 2,335,000      shares of the Company’s common stock and its affiliates own      825,000. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The      Company believes the address for Victoria & Eagle Strategic Fund, Ltd.      is c/o Price Waterhouse Coopers, P.O. Box 258 GT, Strathvale House, George      Town, Grand Cayman, Cayman Islands. Based on the last information      available to the Company, the Company believes that VESF’s beneficial      ownership consists of 2,120,000 shares of common stock owned by VESF and      406,981 shares of common stock issuable upon conversion of the 195,351      shares of Series A Preferred Stock owned by  VESF. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The      table includes shares of Common Stock that can be acquired through the      exercise of options within 60 days of March 12, 2009 (May 12, 2009) as      follows: Mr. Sparks — 1,185,000, Mr. Larsen — 718,500,  Mr.      Sweet — 500,000, Mr. Loi — 596,500, Mr. Power — 470,000, Mr. Knepper —      285,000, and all named executive officers and directors as a group      —3,755,000. The percent of the class owned by each person has been      computed assuming the exercise of all options deemed to be beneficially      owned by that person, and assuming that no options held by any other      person have been exercised. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        | 2008                                                          | 2007                                                    |
|-----------------------------|---------------------------------------------------------------|---------------------------------------------------------|
| Audit      fees(1)          | $       184,500            | $      201,226            |
| Audit      related fees(2)  | $         20,915 | $        18,480 |
| Tax      compliance fees(3) | $         29,030 | $        25,540 |

----

PART IV

| ExhibitNo. |  Description |
|------------|-------------------|
|       |              |

|   | 3.1 | Certificate      of Incorporation of the Company, as amended to December 20, 2002 (filed as      Exhibit 3.4 to the Company’s Form 10-K for the year ended December 31,      2002) |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.2 | Amendment      to Certificate of Incorporation of the Company dated September 22, 2004      (filed as Exhibit 3.2 to the Company’s Form 10-K for the year ended      December 31, 2005) |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.3 | Amendment      to Certificate of Incorporation of the Company dated June 22, 2006 (filed      as Exhibit 3.3 to the Company’s Form 10-K for the year ended December 31,      2006) |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.4 | By-Laws      of the Company, as amended to April 21, 2008(*) |
|--------|-----|--------------------------------------------------------------|

|   | 4.1 | Form      of certificate representing shares of the Common Stock (filed as Exhibit      4.1 to the Company’s Registration  Statement on Form S-2,      (Registration No. 333-02891) |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 14.1 | Code      of Ethics (filed as Exhibit 14.1 to the Company’s Form 10-K for the year      ended December 31, 2003) |
|--------|------|------------------------------------------------------------------------------------------------------------------------|

|   | 21.1 | Subsidiaries      of MDI, Inc. (*) |
|--------|------|------------------------------------|

|   | 23.2 | Consent      of Padgett Stratemann & Co., L.L.P.(*) |
|--------|------|---------------------------------------------------------|

|   | 31.1 | Certification      of  Principal Executive Officer required  by Rule 13a-14(a) or      Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (the      “Exchange Act”). (*) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification      of Principal Financial Officer required  by Rule 13a-14(a) or Rule      15d-14(a) of the Exchange Act. (*) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certification      of Principal Executive Officer required  by Rule 13a-14(b) or Rule      15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18      of the United States Code. (*) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certification      of Principal Financial Officer required  by Rule 13a-14(b) or Rule      15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18      of the United States Code. (*) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 99.1 | Audit      Committee Charter revised by the Audit Committee as of April 9, 2005.      (filed as Exhibit 99.1 to the Company’s Form 10-K for the year ended      December 31, 2005) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 99.2 | Nominating      Committee Charter adopted by the Board on March 8, 2004. (filed as Exhibit      99.2 to the Company’s Form 10-K for the year ended December 31,      2005) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 99.3 | Form      of Executive Officer Employment Agreement. (filed as Exhibit 99.3 to the      Company’s Form 10-KSB for the year ended December 31,  2007) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 99.4 | Summary      of Executive Officer Employment Agreements. (filed as Exhibit 99.4 to the      Company’s Form 10-KSB for the year ended December 31,  2007) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| /s/ James Power                             | Chairman      of the Board                                           | Dated: March 25,    2009   |
|---------------------------------------------|----------------------------------------------------------------------|----------------------------|
| James      Power                            |                                                                 |                       |
|                                        |                                                                 |                       |
| /s/ J. Collier SparksJ.      Collier Sparks | Chief      Executive Officer(Principal      Executive Officer)  | Dated:      March 25, 2009 |
| /s/ Carlo Loi                               | Vice      Chairman of the Board                                      | Dated: March 25,    2009   |
| Carlo      Loi                              |                                                                 |                       |
| /s/ Peter Knepper                           | Director                                                             | Dated: March 25,    2009   |
| Peter      B. Knepper                       |                                                                 |                       |
|                                        |                                                                 |                       |

----

|                                                         | PAGE   |
|--------------------------------------------------------------|--------|
|                                                         |   |
| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 27     |
|                                                         |   |
| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 28     |
|                                                         |   |
| CONSOLIDATED      BALANCE SHEETS                             | 29     |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF OPERATIONS                   | 30     |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF STOCKHOLDERS' EQUITY         | 31     |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                   | 32     |
|                                                         |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS              | 34-47  |
|                                                         |   |
|                                                         |   |

----

----

----

|                                                                                                                                                                                                                                                                                    | December      31,                                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                    | 2008                                                                                                                                             |   | 2007 |
| ASSETS                                                                                                                                                                                                                                                                                  |
| Current      Assets:                                                                                                                                                                                                                                                                    |                                                                                                                                             |   |   |
| Cash      and cash equivalents                                                                                                                                                                                                                                                          | $                   180                           |   | $                   1,374 |
| Certificate      of deposit – restricted                                                                                                                                                                                                                                          | 2,000                                                                                                                                            |   | - |
| Restricted      cash                                                                                                                                                                                                                                                                    | 105                                                                                                                                              |   | 455 |
| Trade      accounts receivable, net                                                                                                                                                                                                                                                     | 2,034                                                                                                                                            |   | 1,914 |
| Inventories,      net                                                                                                                                                                                                                                                                   | 278                                                                                                                                              |   | 318 |
| Costs      in excess of billings                                                                                                                                                                                                                                                        | 902                                                                                                                                              |   | 25 |
| Prepaid      expenses and other current assets                                                                                                                                                                                                                                          | 624                                                                                                                                              |   | 222 |
| Notes      receivable – related party                                                                                                                                                                                                                                             | 400                                                                                                                                              |   | 986 |
| Total      current assets                                                                                                                                                                                                                                                               | 6,523                                                                                                                                            |   | 5,294 |
| Property      and Equipment, net                                                                                                                                                                                                                                                        | 8,621                                                                                                                                            |   | 8,382 |
| Other      Assets:                                                                                                                                                                                                                                                                      |                                                                                                                                             |   |   |
| Goodwill                                                                                                                                                                                                                                                                                | 6,793                                                                                                                                            |   | 7,971 |
| Other      intangible assets, net                                                                                                                                                                                                                                                       | 940                                                                                                                                              |   | 1,260 |
| Other      assets                                                                                                                                                                                                                                                                       | 1,098                                                                                                                                            |   | 608 |
| Total      assets                                                                                                                                                                                                                                                                       | $                   23,975                        |   | $                 23,515 |
|                                                                                                                                                                                                                                                                                    |                                                                                                                                             |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                         |
| Current      Liabilities:                                                                                                                                                                                                                                                               |                                                                                                                                             |   |   |
| Bank      lines of credit                                                                                                                                                                                                                                                               | $                       2,069 |   | $                    355 |
| Accounts      payable                                                                                                                                                                                                                                                                   | 2,148                                                                                                                                            |   | 879 |
| Accounts      payable – contractors                                                                                                                                                                                                                                               | 4,430                                                                                                                                            |   | 1,472 |
| Accrued      expenses                                                                                                                                                                                                                                                                   | 742                                                                                                                                              |   | 736 |
| Accrued      compensation                                                                                                                                                                                                                                                               | 287                                                                                                                                              |   | 564 |
| Other      current liabilities                                                                                                                                                                                                                                                          | 120                                                                                                                                              |   | 472 |
| Deferred      revenue                                                                                                                                                                                                                                                                   | 238                                                                                                                                              |   | 408 |
| Total      current liabilities                                                                                                                                                                                                                                                          | 10,034                                                                                                                                           |   | 4,886 |
| Long-Term      Liabilities                                                                                                                                                                                                                                                              |                                                                                                                                             |   |   |
| Note      payable                                                                                                                                                                                                                                                                       | 5,500                                                                                                                                            |   | 5,500 |
| Other      long-term liabilities                                                                                                                                                                                                                                                        | 148                                                                                                                                              |   | 224 |
|                                                                                                                                                                                                                                                                                    |                                                                                                                                             |   |   |
| Total      Liabilities                                                                                                                                                                                                                                                                  | 15,682                                                                                                                                           |   | 10,610 |
| Commitments      and Contingencies                                                                                                                                                                                                                                                      | -                                                                                                                                                |   | - |
| Stockholders’      Equity:                                                                                                                                                                                                                                                        |                                                                                                                                             |   |   |
| Preferred      stock, $5 par value, issuable in series; 2,000,000 shares authorized;      Series A, LIBOR+2% cumulative convertible; 195,351 shares authorized and      issued; including unpaid dividends of $76 and $45 at December 31, 2008 and      December 31, 2007, respectively | 1,053                                                                                                                                            |   | 1,022 |
| Common      stock, $0.01 par value; 100,000,000 shares authorized; 35,634,385 and      37,106,302 shares issued at December 31, 2008 and December 31, 2007,      respectively                                                                                                           | 356                                                                                                                                              |   | 371 |
| Additional      paid-in-capital                                                                                                                                                                                                                                                         | 146,693                                                                                                                                          |   | 148,657 |
| Stock      subscription receivable                                                                                                                                                                                                                                                      | -                                                                                                                                                |   | (2,600) |
| Accumulated      deficit                                                                                                                                                                                                                                                                | (139,809)                                                                                                                                        |   | (134,545) |
| Total      stockholders’ equity                                                                                                                                                                                                                                                   | 8,293                                                                                                                                            |   | 12,905 |
| Total      liabilities and stockholders’ equity                                                                                                                                                                                                                                   | $                   23,975                        |   | $               23,515 |
|                                                                                                                                                                                                                                                                                    |                                                                                                                                             |   |   |

----

|                                                                          | Years      ended December 31,                                       |
|-------------------------------------------------------------------------------|---------------------------------------------------------------------|
|                                                                          | 2008                                                                |   | 2007 |
| Net      sales                                                                |  $        17,190       |   |  $        9,196 |
| Cost      of sales (exclusive of depreciation shown separatelybelow)          | 10,340                                                              |   | 4,649 |
| Gross      profit                                                             | 6,850                                                               |   | 4,547 |
| Other      operating costs:                                                   |                                                                |   |   |
| Selling,      general and administrative                                      | 8,853                                                               |   | 9,794 |
| Asset      and goodwill impairment                                            | 2,374                                                               |   | - |
| Depreciation      and amortization                                            | 873                                                                 |   | 288 |
|                                                                          | 12,100                                                              |   | 10,082 |
| Operating      loss                                                           | (5,250)                                                             |   | (5,535) |
| Other      income (expense):                                                  |                                                                |   |   |
| Interest      income (expense), net                                           | (415)                                                               |   | (17) |
| Gain      on sale or disposal of assets                                       | 12                                                                  |   | 484 |
| Other,      net                                                               | 437                                                                 |   | (29) |
|                                                                          | 34                                                                  |   | 438 |
|  Loss      before income taxes                                           | (5,216)                                                             |   | (5,097) |
| Income      taxes                                                             |  (17)                                                          |   |  (3) |
| Net      loss                                                                 | (5,233)                                                             |   | (5,100) |
| Dividend      requirements on preferred stock                                 | (31)                                                                |   | (45) |
| Net      loss allocable to common stockholders                                |  $       (5,264)            |   |  $       (5,145) |
| Basic      and diluted loss per share from:                                   |                                                                |   |   |
| Basic      and diluted loss per share                                         |  $         (0.14) |   |  $         (0.16) |
|                                                                          |                                                                |   |   |
|    Basic      and diluted weighted average shares outstanding: | 36,655,571                                                          |   | 31,370,518 |

----

|                                                   |                 |                   |              |                      |                               |   |                 |   |                   |   |                                                                 |   |                     |
|--------------------------------------------------------|----------------------|------------------------|-------------------|---------------------------|------------------------------------|--------|----------------------|--------|------------------------|--------|----------------------------------------------------------------------|--------|--------------------------|
|                                                   |                 |                   |              |                      |                               |   | Additional           |   |                   |   | Stock                                                                |   |                     |
|                                                   | Preferred      Stock |                   | Common      Stock |                      | Paid-in                            |   | Accumulated          |   | Subscription           |   |                                                                 |
|                                                   | Shares               | Amount                 |              | Shares                    | Amount                             |   | Capital              |   | Deficit                |   | Receivable                                                           |   | Total                    |
| Balance,    December      31, 2006 | 195,351              | $   977 |              |   22,657,610    | $     227 |   | $  132,957 |   | $      (129,400)       |   | $        -                   |   | $   4,761 |
| Net      loss                                          |  -              |  -                |              | -                    |                               |   |                 |   | (5,100)                |   | -                                                                    |   | (5,100)                  |
| Shares      issued pursuant to business acquisition    |  -              |  -                |              |  8,306,122           |  83                           |   |  7,044          |   |  -                |   | -                                                                    |   |  7,127              |
| Issuance      of common stock                          |  -              |  -                |              | 5,376,620                 | 54                                 |   | 7,227                |   |  -                |   | (2,600)                                                              |   | 4,681                    |
| Non      cash stock compensation                       |  -              |  -                |              |  -                   |  -                            |   | 483                  |   |  -                |   | -                                                                    |   | 483                      |
| Issuance      of warrants                              | -                    | -                      |              | -                         | -                                  |   | 180                  |   | -                      |   | -                                                                    |   | 180                      |
| Exercise      of stock options and warrants            |  -              |  -                |              | 765,950                   |  7                            |   | 766                  |   |  -                |   | -                                                                    |   | 773                      |
| Preferred      stock dividends                         | -                    | 45                     |              | -                         |                               |   | -                    |   | (45)                   |   | -                                                                    |   | -                        |
| Balance,    December      31, 2007 | 195,351              | 1,022                  |              | 37,106,302                | 371                                |   | 148,657              |   | (134,545)              |   | (2,600)                                                              |   | 12,905                   |
| Net      loss                                          |  -              |  -                |              | -                         |  -                            |   |  -              |   | (5,233)                |   | -                                                                    |   | (5,233)                  |
| Non      cash stock compensation                       | -                    | -                      |              | -                         | -                                  |   | 413                  |   | -                      |   | -                                                                    |   | 413                      |
| Stock      issued for services rendered                |  -              |  -                |              | 528,083                   | 5                                  |   | 203                  |   |  -                |   | -                                                                    |   | 208                      |
| Stock      cancellation                                |  -              |  -                |              | (2,000,000)               | (20)                               |   | (2,580)              |   |  -                |   | 2,600                                                                |   | -                        |
| Preferred      stock dividends                         |  -              | 31                     |              |     - |  -                            |   |  -              |   | (31)                   |   | -                                                                    |   | -                        |
| Balance,    December      31, 2008 | 195,351              | $      1,053           |              | 35,634,385                |  $   356       |   |  $      146,693 |   |  $      (139,809) |   | $           - |   |  $      8,293       |
|                                                   |                 |                   |              |                      |                               |   |                 |   |                   |   |                                                                 |   |                     |

|                                                                                  |  Years      ended December 31,                                                                                  |
|---------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|                                                                                  | 2008                                                                                                                 |   | 2007 |
| Operating      Activities:                                                            |                                                                                                                 |   |   |
| Net      loss                                                                         |  $        (5,233)                                                       |   |  $        (5,100) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |                                                                                                                 |   |   |
| Gain      on sale or disposal of assets                                               | (12)                                                                                                                 |   | (484) |
| Amortization      of deferred loan costs                                              | 58                                                                                                                   |   | 14 |
| Non-cash      stock compensation                                                      | 413                                                                                                                  |   | 483 |
| Services      rendered for stock issued                                               | 208                                                                                                                  |   | - |
| Services      rendered and rent forgiveness for warrants issued                       | -                                                                                                                    |   | 180 |
| Non-cash      interest income on note receivable – related party                | (77)                                                                                                                 |   | (18) |
| Depreciation      and amortization                                                    | 874                                                                                                                  |   | 288 |
| Provision      for losses on accounts receivable                                      | 67                                                                                                                   |   | (185) |
| Asset      and goodwill impairment                                                    | 2,374                                                                                                                |   | - |
| Loss      on early collection of notes receivable                                     | -                                                                                                                    |   | 29 |
| Changes      in operating assets and liabilities, net of dispositions:                |                                                                                                                 |   |   |
| Trade      accounts receivable                                                        | (187)                                                                                                                |   | 329 |
| Inventories                                                                           | 40                                                                                                                   |   | 402 |
| Prepaid      and other current assets                                                 | (2,479)                                                                                                              |   | 196 |
| Trade      accounts payable                                                           | 1,269                                                                                                                |   | (754) |
| Contractors      payable                                                              | 2,958                                                                                                                |   | (125) |
| Accrued      and other current liabilities                                            | (865)                                                                                                                |   | (60) |
| Net      cash used in operating activities                                            | (592)                                                                                                                |   | (4,805) |
|                                                                                  |                                                                                                                 |   |   |
| Investing      Activities:                                                            |                                                                                                                 |   |   |
| Purchases      of property and equipment                                              | (718)                                                                                                                |   | (160) |
| Changes      in restricted cash                                                       | (1,650)                                                                                                              |   | (20) |
| Proceeds      from sale of business                                                   | -                                                                                                                    |   | 100 |
| Proceeds      from sale of assets                                                     | 55                                                                                                                   |   | - |
| Business      acquisition, net of unrestricted cash acquired                          | -                                                                                                                    |   | 667 |
| Net      cash provided by (used) in investing activities                              | (2,313)                                                                                                              |   | 587 |
|                                                                                  |                                                                                                                 |   |   |
| Financing      Activities:                                                            |                                                                                                                 |   |   |
| Issuance      of common stock                                                         | -                                                                                                                    |   | 5,449 |
| Issuance      of common stock pursuant to exercise of stock options                   | -                                                                                                                    |   | 5 |
| Net      payments on debt                                                             | (3)                                                                                                                  |   | (2) |
| Net      borrowings on line of credit                                                 | 1,714                                                                                                                |   | - |
| Net      proceeds from (repayment of) factoring payable                               | -                                                                                                                    |   | (312) |
| Net      cash provided by financing activities                                        | 1,711                                                                                                                |   | 5,140 |
| Net      increase (decrease) in unrestricted cash and cash    equivalents             | (1,194)                                                                                                              |   | 922 |
| Unrestricted      cash and cash equivalents, beginning of period                      | 1,374                                                                                                                |   | 452 |
| Unrestricted      cash and cash equivalents, end of period                            |  $              180                       |   |  $           1,374 |
|                                                                                  |                                                                                                                 |   |   |
| Non      cash Investing:                                                              |                                                                                                                 |   |   |
| Acquisition      of STC and FAS, allocated to goodwill and fair value                 | $                   - |   | $            7,127 |
| of      assets for 8,306,122 shares of common stock                                   |                                                                                                                 |   |   |
| Non      cash Investing:                                                              |                                                                                                                 |   |   |
| Note      receivable issued pursuant to sale of business                              | $                   - |   | $              400 |
| Subscription      receivable for shares of common stock                               | $                   - |   | $           2,600 |
| Stock      acquisition costs for warrants issued                                      | $                   - |   | $                78 |
|                                                                                  |                                                                                                                 |   |   |
| Supplemental      cash flow information:                                              |                                                                                                                 |   |   |
| Cash      paid during the year for:                                                   |                                                                                                                 |   |   |
| Interest                                                                              | $            481                                         |   | $             163 |
| Income      taxes                                                                     |  $              35                        |   |  $                 - |

----

----

----

----

| Cash                                      | $            1,102 |
|-------------------------------------------|--------------------------------------------------------------------------------|
| Accounts      receivable                  | 750                                                                            |
| Note      receivable                      | 986                                                                            |
| Land                                      | 778                                                                            |
| Building                                  | 7,067                                                                          |
| Net      property and equipment           | 377                                                                            |
| Other      current and non-current assets | 207                                                                            |
| Intangible      assets                    |                                                                           |
| -      trade name                         | 66                                                                             |
| -      backlog                            | 369                                                                            |
| -      customer relationships             | 1,015                                                                          |
| Goodwill                                  | 3,242                                                                          |
| Total      assets acquired                | 15,959                                                                         |
| Payables      and accrued expenses        | (3,277)                                                                        |
| Long-term      liabilities                | (5,555)                                                                        |
| Net      assets acquired                  | $            7,127 |

----

|                                           | (unaudited)                                                                                                                           |
|------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                                           | Year      Ended December 31,                                                                                                          |
|                                           | 2007                                                                                                                                  |
| Net      sales                                 | $                    13,649       |
| Operating      loss                            | $                   (5,241)            |
| Net      loss allocable to common stockholders | $                   (5,262)            |
| Income      per share:                         |                                                                                                                                  |
| Basic                                          | $                     (0.15) |
| Diluted                                        | $                     (0.15) |

|                                                    | 2008   |
|---------------------------------------------------------|--------|
|                                                    |   |   |
| Costs      incurred on uncompleted contracts            | $      | 2,559 |
| Estimated      earnings on uncompleted contracts        |   | 103 |
|                                                    |   |   |
|                                                    |   | 2,662 |
|                                                    |   |   |
| Less      billings to date on uncompleted contracts     |   | 1,760 |
|                                                    |   |   |
| Costs      and estimated earnings in excess of billings |   | 902 |
|                                                    |   |   |

----

|                          |              | December      31,                  |
|-------------------------------|-------------------|------------------------------------|
|                          | Useful      Lives | 2008                               |   | 2007 |
| Land                          |              |  $    778 |   |  $    778 |
| Building                      | 35      years     | 7,577                              |   | 7,164 |
| Building      improvements    | 3-10      years   | 304                                |   | 188 |
| Machinery      and equipment  | 3-7      years    | 963                                |   | 854 |
| Furniture      and fixtures   | 3-7      years    | 276                                |   | 239 |
| Software                      | 3-8      years    | 2,097                              |   | 2,112 |
|                          |              | 11,995                             |   | 11,335 |
| Accumulated      depreciation |              | (3,374)                            |   | (2,953) |
|                          |              |  $   8,621     |   |  $  8,382 |

----

|                                   | Year      Ended December 31,                                          |   |
|----------------------------------------|-----------------------------------------------------------------------|--------|
|                                   | 2008                                                                  |   | 2007 |   |
|                                   |                                                                  |   |   |   |
| U.S.      Federal statutory rate       |        (34.0)                      | %      |        (34.0) | % |
| State      tax effect                  |          (3.0)           |   |          (3.0) |   |
| Other      non-deductible expenses     |       7.2                               |   |        0.9 |   |
| Net      change in valuation allowance |          33.9            |   |          29.9 |   |
| Other,      net                        |         (4.1)                 |   |          6.2 |   |
|                                   |            0.0 | %      |            0.0 | % |

|                                      | December      31,                                              |
|-------------------------------------------|----------------------------------------------------------------|
|                                      | 2008                                                           |   | 2007 |
| Deferred      tax assets:                 |                                                           |   |   |
| Property      and equipment               | $     276                             |   | $     276 |
| Inventories                               | 22                                                             |   | 7 |
| Accounts      receivable                  | 110                                                            |   | 87 |
| Accrued      expenses                     | 189                                                            |   |  334 |
| Net      operating loss carry forwards    | 29,878                                                         |   |  27,932 |
| Other,      net                           | 88                                                             |   |      54 |
| Gross      deferred tax assets            | $30,563                                                        |   | $28,690 |
|                                      |                                                           |   |   |
| Deferred      tax liabilities:            |                                                           |   |   |
| Property      and equipment               | -                                                              |   | - |
| Goodwill      amortization and impairment |   (941)                                              |   |   (844) |
| Gross      deferred tax liabilities       | $   (941)                                       |   | $   (844) |
|                                      |                                                           |   |   |
| Valuation      allowance                  | (29,622)                                                       |   | (27,846) |
| Net      deferred tax asset               | $          - |   | $          - |

|                                         |   |  Total                                            |
|----------------------------------------------|--------|--------------------------------------------------------|
| Net      carrying value at December 31, 2006 |   |  $      4,612       |
| Business      acquisition (Note 2)           |   |   3,359                                      |
| Net      carrying value at December 31, 2007 |   |  $       7,971 |
| Business      acquisition (Note 2)           |   | (117)                                                  |
| Impairment      loss                         |   | (1,061)                                                |
| Net      carrying value at December 31, 2008 |   |  $       6,793 |

|                                                 | Weighted     |                                       |   |                                                                                 |   |                                                 |
|------------------------------------------------------|--------------|--------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|------------------------------------------------------|
|                                                 | Average      | Gross                                      |   |                                                                                 |   | Net                                                  |   |
|                                                 | Amortization | Carrying                                   |   | Accumulated                                                                          |   | Carrying                                             |   |
|                                                 | (Years)      | Value                                      |   | Amortization                                                                         |   | Value                                                |   |
|                                                 |         | December      31, 2008                     |   |
|  Intangible      assets subject to amortization |         |                                       |   |                                                                                 |   |                                                 |   |
| Customer      relationships                          | 4.3          | $     1,015       |   | $             (212) |   | $        803 |   |
| Patents      and trademarks                          | 17.1         | 98                                         |   |   (83)                                                                     |   | 15                                                   |   |
| Trade      name                                      | 5.0          | 66                                         |   | (16)                                                                                 |   | 50                                                   |   |
| Backlog                                              | 1.9          | 369                                        |   | (297)                                                                                |   | 72                                                   |   |
|                                                 |         |                                       |   |                                                                                 |   |                                                 |   |
| Totals                                               |         |  $     1,548 |   |  $           (608)       |   |  $       940 |   |
|                                                 |         |                                       |   |                                                                                 |   |                                                 |   |
|                                                 |         | December      31, 2007                     |   |
|  Intangible      assets subject to amortization |         |                                       |   |                                                                                 |   |                                                 |   |
| Customer      relationships                          | 5.4          | $     1,267       |   | $             (92)  |   | $     1,175                 |   |
| Patents      and trademarks                          | 17.1         | 98                                         |   |   (76)                                                                     |   | 22                                                   |   |
| Trade      name                                      | 5.0          | 66                                         |   | (3)                                                                                  |   | 63                                                   |   |
|                                                 |         |                                       |   |                                                                                 |   |                                                 |   |
| Totals                                               |         |  $     1,431 |   |  $           (171)       |   |  $    1,260                 |   |

| Years      ending December 31, |   | Amortization      Expense                                                          |
|--------------------------------|--------|------------------------------------------------------------------------------------|
| 2009                           |   |  $            298 |
| 2010                           |   | 211                                                                                |
| 2011                           |   | 155                                                                                |
| 2012                           |   | 112                                                                                |
| 2013                           |   | 73                                                                                 |
| Thereafter                     |   | 91                                                                                 |
| Total                          |   |  $         940                   |

|                               |   | Physical      Security                           |   | General      Contracting and Related Services                              |   | FAS                                                                              |   | Non-Segment                                                                                        |   | Total                                                        |
|------------------------------------|--------|--------------------------------------------------|--------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|
| 2008                               |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   |                                                         |
| Operations                         |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   |                                                         |
| Revenues                           |   | $       7,989 |   | $        2,715                     |   | $            6,486   |   | $                - |   | $        17,190      |
| Income      (Loss) from operations |   | (2,224)                                          |   | 6                                                                          |   | (3,032)                                                                          |   |  -                                                                                            |   | (5,250)                                                      |
| Asset      and goodwill impairment |   | 95                                               |   | 3                                                                          |   | 2,276                                                                            |   | -                                                                                                  |   | 2,374                                                        |
| Depreciation      and amortization |   | 471                                              |   | 13                                                                         |   | 389                                                                              |   | -                                                                                                  |   | 873                                                          |
| Interest      expense, net         |   | -                                                |   | -                                                                          |   | -                                                                                |   | (415)                                                                                              |   | (415)                                                        |
| Other                              |   | -                                                |   | -                                                                          |   | -                                                                                |   | 432                                                                                                |   | 432                                                          |
| Net      loss                      |   | $    (2,224)                 |   | $            6 |   | $            (3,032) |   | $         17                                          |   | $      (5,233)                 |
|                               |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   |                                                         |
| Assets                             |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   |                                                         |
| Segment      assets                |   | $      1,892       |   | $        1,029                     |   | $            2,962   |   | $                - |   | $         5,883 |
| Goodwill                           |   | 4,612                                            |   | -                                                                          |   | 2,181                                                                            |   | -                                                                                                  |   | 6,793                                                        |
| Non-segment      assets            |   |                                             |   |                                                                       |   |                                                                             |   | 11,299                                                                                             |   | 11,299                                                       |
| Consolidated      assets           |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   | $       23,975            |
|                               |   |                                             |   |                                                                       |   |                                                                             |   |                                                                                               |   |                                                         |

----

|                               |   | Physical      Security                           |   | General      Contracting and Related Services                                                            |   | FAS                                                                                  |   | Non-Segment                                                                                              |   | Total                                                        |
|------------------------------------|--------|--------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|
| 2007                               |   |                                             |   |                                                                                                     |   |                                                                                 |   |                                                                                                     |   |                                                         |
| Operations                         |   |                                             |   |                                                                                                     |   |                                                                                 |   |                                                                                                     |   |                                                         |
| Revenues                           |   | $       7,931 |   | $                 - |   | $             1,265 |   | $                 - |   | $         9,196 |
| Loss      from operations          |   | (5,229)                                          |   |  -                                                                                                  |   |  (306)                                                                          |   |  -                                                                                                  |   | (5,535)                                                      |
| Depreciation      and amortization |   |  106                                        |   |  -                                                                                                  |   |  182                                                                            |   |  -                                                                                                  |   |  288                                                    |
| Interest      expense, net         |   | -                                                |   |  -                                                                                                  |   | -                                                                                    |   | (17)                                                                                                     |   | (17)                                                         |
| Other                              |   | -                                                |   |  -                                                                                                  |   | -                                                                                    |   | 452                                                                                                      |   | 452                                                          |
| Net      loss                      |   | (5,229)                                          |   |  -                                                                                                  |   | (306)                                                                                |   | 435                                                                                                      |   | $      (5,100)                 |
|                               |   |                                             |   |                                                                                                     |   |                                                                                 |   |                                                                                                     |   |                                                         |
| Assets                             |   |                                             |   |                                                                                                     |   |                                                                                 |   |                                                                                                     |   |                                                         |
| Segment      assets                |   | $      2,556       |   | $                 - |   | $             4,081 |   | $                -       |   | $         6,637 |
| Goodwill                           |   | 4,612                                            |   |  -                                                                                                  |   | 3,359                                                                                |   | -                                                                                                        |   | 7,971                                                        |
| Non-segment      assets            |   |                                             |   |                                                                                                     |   |                                                                                 |   | 8,907                                                                                                    |   | 8,907                                                        |
| Consolidated      assets           |   |                                             |   |                                                                                                     |   |                                                                                 |   |                                                                                                     |   | $       23,515            |

| Expected      life in years                           | 2.5      – 2.94   |
|-------------------------------------------------------|-------------------------|
| Expected      volatility                              | 92      – 103%    |
| Risk-free      interest rate                          | 1.94      – 2.90% |
| Weighted      average per share grant date fair value | $0.21                   |

|                                          | 2008        |                                | 2007   |
|-----------------------------------------------|-------------|-------------------------------------|--------|
|                                          |        | Weighted                            |   |   | Weighted |
|                                          |        | Average                             |   |   | Average |
|                                          |        | Exercise                            |   |   | Exercise |
|                                          | Shares      | Price                               |   | Shares | Price |
|  Outstanding      at beginning of year   | 7,887,373   | $     0.79 |   | 4,581,973 | $     0.99 |
| Granted                                       | 744,000     | 0.40                                |   | 3,917,900 | 0.52 |
| Exercised                                     | -           | -                                   |   | (12,500) | 0.39 |
| Forfeited                                     | (1,135,687) | 0.84                                |   | (600,000) | 0.48 |
| Outstanding      at end of year               | 7,495,686   | $     0.75 |   | 7,887,373 | $     0.79 |
|  Options      exercisable at end of year | 7,025,686   | $     0.77 |   | 5,907,876 | $     0.88 |

----

|                      | Options      Outstanding |   | Options      Exercisable |
|---------------------------|--------------------------|--------|--------------------------|
|                      |                     |   | Weighted                 |   | Weighted |   |   |   | Weighted |
|                      |                     |   | Average                  |   | Average |   |   |   | Average |
| Range      of Exercise    | Number                   |   | Remaining                |   | Exercise |   | Number |   | Exercise |
| Prices                    | Outstanding              |   | Contractual      Life    |   | Price |   | Exercisable |   | Price |
|  $0.33      to $0.52 | 3,224,650                |   | 3.5      years           |   | $     0.40 |   | 2,818,400 |   | $      0.40 |
|  $0.53      to $0.95 | 2,629,363                |   |  5.7      years     |   | 0.83 |   | 2,565,613 |   | 0.83 |
|  $0.96      to $1.60 | 1,636,333                |   |  5.2      years     |   | 1.29 |   | 1,636,333 |   | 1.29 |
|  $1.61      to $9.25 | 5,340                    |   |  0.8      years     |   | 8.39 |   | 5,340 |   | 8.39 |
|                      | 7,495,686                |   |  4.7      years     |   | $     0.75 |   | 7,025,686 |   | $      0.77 |

|                                  |   | Nonvested      Options |
|---------------------------------------|--------|------------------------|
|                                  |   | Outstanding            |
| Outstanding      at beginning of year |   | 1,979,497              |
| Granted                               |   | 500,000                |
| Vested                                |   | (1,703,810)            |
| Forfeited                             |   | (305,687)              |
| Outstanding      at end of year       |   | 470,000                |

----