| T      | Annual      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934     |
|--------|----------------------------------------------------------------------------------------------------|
|   | For      the fiscal year ended December 31, 2007                                                   |
|   | OR                                                                                                 |
| £ | Transition      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |

| Delaware                                         | 75-2626358               |
|--------------------------------------------------|--------------------------|
| (State      or other jurisdiction                | (I.R.S.      Employer    |
| Of      incorporation or organization)           | Identification      No.) |
|                                             |                     |
| 10226      San Pedro Avenue, Suite      200 |                     |
| San      Antonio, Texas                          | 78216                    |
| (Address      of principal executive offices)    | (Zip      Code)          |

----

| 1.   | Description      of Business |
|----------------|------------------------------|

| 2.   | Description      of Property |
|----------------|------------------------------|

| 3.   | Legal      Proceedings |
|----------------|------------------------|

| 4.   | Submission      of Matters to a Vote of SecurityHolders |
|----------------|---------------------------------------------------------|

| 5.   | Market      for Common Equity, related Stockholder Matters and Small      Business |
|----------------|------------------------------------------------------------------------------------|

| 6.   | Management’s      Discussion and Analysis or Plan ofOperation |
|----------------|---------------------------------------------------------------------|

| 7.   | Financial      Statements |
|----------------|---------------------------|

| 8.   | Changes      in and Disagreements with Accountantson |
|----------------|------------------------------------------------------|

| 9.   | Directors      and Executive Officers of theRegistrant |
|----------------|--------------------------------------------------------|

| 10.   | Executive      Compensation |
|-----------------|-----------------------------|

| 11.   | Security      Ownership of Certain Beneficial Ownersand |
|-----------------|---------------------------------------------------------|

| 12.   | Certain      Relationships and RelatedTransactions |
|-----------------|----------------------------------------------------|

| 13.   | Exhibits |
|-----------------|----------|

| 14.   | Principal      Accountant Fees and Services |
|-----------------|---------------------------------------------|

----

----

----

|                      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 |
|                                                                                                                                                                                                                                                                                       |             |             |
|                      Fiscal Year ended December 31, 2006      :                                                                                                                                                 | High             | Low              |
|                                                                                                                                                                                                                                                                                       |             |             |
|                      Quarter ended December 31, 2006                                                                                                                                                  | $0.55            | $0.35            |
|                      Quarter ended September 30, 2006                                                                                                                                                 |   0.72 |   0.43 |
|                      Quarter ended June 30,      2006                                                                                                              |   1.34 |   0.71 |
|                      Quarter ended March 31, 2006                                                                                                                                                               |   1.61 |   0.87 |

| 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     |   |                                                                                          | 7,290,806 |                                                                                         |   | $0.79                                                                                                  |   |   | 1,999,472 |   |
| Equity      compensation plans notapproved      by security holders |   |                                                                                          | 644,000   |                                                                                         |   | $0.85                                                                                                  |   |   | -0- |   |
| Total                                                               |   |                                                                                          | 7,934,806 |                                                                                         |   | $0.79                                                                                                  |   |   | 1,999,472 |   |

----

|                                     | Year      ended December 31  |   |   |
|------------------------------------------|-----------------------------------|--------|--------|
|                                     | 2007                              |   | 2006   |   | Change |
|                                     | Dollars                           | %      |   | Dollars | % |   | $ | % |
|                                     |                              |   |   |   |   |   |   |   |
| Net      Sales                           | $      9,196                      | 100%   |   | $8,720 | 100% |   | $  476 | 5% |
| Gross      profit                        | 4,547                             | 49%    |   | 4,301 | 49% |   | 246 | 6% |
| Selling,      general and administrative | 9,794                             | 107%   |   | 10,751 | 123% |   | (957) | (9)% |
| Operating      loss                      | (5,535)                           | (60)%  |   | (6,984) | (80)% |   | 1,449 | (21)% |

  However,gross margin remained constant at 49% for the years ended December 31, 2007 and2006.

----

|   | Income      Taxes |
|--------|-------------------|

----

----

----

Item8B.  Other information

Item 9.   Directors and Executive Officers of the Registrant.

Item 10. ExecutiveCompensation.

Item 11. Security Ownership ofCertain Beneficial Owners and Management and Related StockholderMatters.

| 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 22, 2004 (filed as Exhibit 3.4 to the      Company’s Form 10-K for the year ended December 31,  2005) |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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) |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.2 | Form      of Stock Purchase and Registration Rights Agreement (incorporated by      reference to our Current Report on Form 8-K filed on February 1,      2007) |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.3 | Form      of Warrant to Purchase Common Stock (incorporated by reference to our      Current Report on Form 8-K filed on May 7,2007) |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.4 | Registration      Rights Agreement, dated as of May 7, 2007, by and among MDI, Inc. and      certain parties listed therein (incorporated by reference to our Current      Report on Form 8-K filed on May 7,2007) |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.1 | Form      of Securities Purchase Agreement (incorporated by reference to our Current      Report on Form 8-K filed on May 7,2007) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | 10.2 | Form      of  Stock Purchase Agreement entered into as of September 1,      2007 for the purchase by MDI of the shares of STC Holdings, Inc.      (*) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.3 | Form      of  Stock Purchase Agreement entered into as of October 2, 2007      for the purchase by MDI of the shares of FAS Construction Management, Inc.      (*) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | 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.(*) |
|--------|------|---------------------------------------------------------|

|   | 99.4 | Summary      of Executive Officer Employment Agreements.(*) |
|--------|------|-------------------------------------------------------------|

----

| /s/ James Power                             | Chairman      of the Board                                           | Dated:      March 31, 2008                                                 |
|---------------------------------------------|----------------------------------------------------------------------|----------------------------------------------------------------------------|
| James      Power                            |                                                                 |                                                                       |
|                                        |                                                                 |                                                                       |
| /s/ J. Collier SparksJ.      Collier Sparks | Chief      Executive Officer(Principal      Executive Officer)  |         Dated:      March 31, 2008 |
| /s/ Carlo Loi                               | Vice      Chairman of the Board                                      | Dated:      March 31, 2008                                                 |
| Carlo      Loi                              |                                                                 |                                                                       |
| /s/ Peter Knepper                           | Director                                                             | Dated:      March 31, 2008                                                 |
| Peter      B. Knepper                       |                                                                 |                                                                       |
|                                        |                                                                 |                                                                       |

----

|                                                         |   |
|--------------------------------------------------------------|--------|
|                                                         |   |
| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |   |
|                                                         |   |
| REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |   |
|                                                         |   |
| CONSOLIDATED      BALANCE SHEETS                             |   |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF OPERATIONS                   |   |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF STOCKHOLDERS' EQUITY         |   |
|                                                         |   |
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                   |   |
|                                                         |   |
| NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS              |   |
|                                                         |   |
|                                                         |   |

----

----

----

|                                                                                                                                                                                                                                                                                   | December      31,                                                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                   | 2007                                                                                                                                                                         |   | 2006 |
| ASSETS                                                                                                                                                                                                                                                                                 |
| Current      Assets:                                                                                                                                                                                                                                                                   |                                                                                                                                                                         |   |   |
| Cash      and cash equivalents                                                                                                                                                                                                                                                         | $                          1,374           |   | $                       452 |
| Restricted      cash                                                                                                                                                                                                                                                                   | 455                                                                                                                                                                          |   | - |
| Trade      accounts receivable,.net                                                                                                                                                                                                                                                    | 1,914                                                                                                                                                                        |   | 1,308 |
| Inventories                                                                                                                                                                                                                                                                            | 318                                                                                                                                                                          |   | 736 |
| Prepaid      expenses and other current assets                                                                                                                                                                                                                                         | 247                                                                                                                                                                          |   | 107 |
| Note      receivable – related party                                                                                                                                                                                                                                             | 986                                                                                                                                                                          |   | - |
| Total      current assets                                                                                                                                                                                                                                                              | 5,294                                                                                                                                                                        |   | 2,603 |
| Property      and Equipment, net                                                                                                                                                                                                                                                       | 8,382                                                                                                                                                                        |   | 192 |
| Other      Assets:                                                                                                                                                                                                                                                                     |                                                                                                                                                                         |   |   |
| Goodwill                                                                                                                                                                                                                                                                               | 7,971                                                                                                                                                                        |   | 4,612 |
| Other      intangible assets                                                                                                                                                                                                                                                           | 1,260                                                                                                                                                                        |   | 28 |
| Other      assets                                                                                                                                                                                                                                                                      | 608                                                                                                                                                                          |   | 363 |
| Total      assets                                                                                                                                                                                                                                                                      | $                       23,215                            |   | $                 7,798 |
|                                                                                                                                                                                                                                                                                   |                                                                                                                                                                         |   |   |
| LIABILITIES      AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                               |
| Current      Liabilities:                                                                                                                                                                                                                                                              |                                                                                                                                                                         |   |   |
| Bank      line of credit                                                                                                                                                                                                                                                               | $                            355 |   | $                         - |
| Accounts      payable                                                                                                                                                                                                                                                                  | 879                                                                                                                                                                          |   | 1,473 |
| Accounts      payable – contractors                                                                                                                                                                                                                                              | 1,472                                                                                                                                                                        |   | - |
| Accrued      expenses                                                                                                                                                                                                                                                                  | 736                                                                                                                                                                          |   | 263 |
| Accrued      compensation                                                                                                                                                                                                                                                              | 564                                                                                                                                                                          |   | 382 |
| Bank      factoring advance                                                                                                                                                                                                                                                            | -                                                                                                                                                                            |   | 312 |
| Current      maturities of long-term debt                                                                                                                                                                                                                                              | 32                                                                                                                                                                           |   | - |
| Other      current liabilities                                                                                                                                                                                                                                                         | 440                                                                                                                                                                          |   | 397 |
| Deferred      revenue                                                                                                                                                                                                                                                                  | 408                                                                                                                                                                          |   | 210 |
| Total      current liabilities                                                                                                                                                                                                                                                         | 4,886                                                                                                                                                                        |   | 3,037 |
| Long-Term      Liabilities                                                                                                                                                                                                                                                             |                                                                                                                                                                         |   |   |
| Note      payable                                                                                                                                                                                                                                                                      | 5,500                                                                                                                                                                        |   | - |
| Other      long-term liabilities                                                                                                                                                                                                                                                       | 224                                                                                                                                                                          |   | - |
|                                                                                                                                                                                                                                                                                   |                                                                                                                                                                         |   |   |
| Total      Liabilities                                                                                                                                                                                                                                                                 | 10,610                                                                                                                                                                       |   | 3,037 |
| 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 $45 and $0 at December 31, 2007 and      December 31, 2006, respectively | 1,022                                                                                                                                                                        |   | 977 |
| Common      stock, $0.01 par value; 100,000,000 shares authorized; 37,106,302 and      22,657,610 shares issued at December 31, 2007 and December 31, 2006,      respectively                                                                                                          | 371                                                                                                                                                                          |   | 227 |
| Additional      paid-in-capital                                                                                                                                                                                                                                                        | 148,657                                                                                                                                                                      |   | 132,957 |
| Stock      subscription receivable                                                                                                                                                                                                                                                     | (2,600)                                                                                                                                                                      |   | - |
| Accumulated      deficit                                                                                                                                                                                                                                                               | (134,545)                                                                                                                                                                    |   | (129,400) |
| Total      stockholders’ equity                                                                                                                                                                                                                                                  | 12,905                                                                                                                                                                       |   | 4,761 |
| Total      liabilities and stockholders’ equity                                                                                                                                                                                                                                  | $                       23,515                            |   | $                    7,798 |
|                                                                                                                                                                                                                                                                                   |                                                                                                                                                                         |   |   |

----

|                                                                          | Years      ended December 31,                                       |
|-------------------------------------------------------------------------------|---------------------------------------------------------------------|
|                                                                          | 2007                                                                |   | 2006 |
| Net      sales                                                                |  $        9,196        |   |  $        8,720 |
| Cost      of sales (exclusive of depreciation shown separatelybelow)          | 4,649                                                               |   | 4,419 |
| Gross      profit                                                             | 4,547                                                               |   | 4,301 |
| Other      operating costs:                                                   |                                                                |   |   |
| Selling,      general and administrative                                      | 9,794                                                               |   | 10,751 |
| Depreciation      and amortization                                            | 288                                                                 |   | 534 |
|                                                                          | 10,082                                                              |   | 11,285 |
| Operating      loss                                                           | (5,535)                                                             |   | (6,984) |
| Other      income (expense):                                                  |                                                                |   |   |
| Interest      income (expense), net                                           | (17)                                                                |   | 22 |
| Gain      (loss) on sale or disposal of assets                                | 484                                                                 |   | (11) |
| Other,      net                                                               | (29)                                                                |   | 1 |
|                                                                          | 438                                                                 |   | 12 |
|  Loss      before income taxes and discontinued operations               | (5,097)                                                             |   | (6,972) |
| Income      taxes                                                             |  (3)                                                           |   | - |
| Loss      from continuing operations                                          | (5,100)                                                             |   | (6,972) |
| Loss      from discontinued operations                                        | -                                                                   |   | (12) |
| Net      loss                                                                 | (5,100)                                                             |   | (6,984) |
| Dividend      requirements on preferred stock                                 | (45)                                                                |   | (34) |
| Net      loss allocable to common stockholders                                |  $       (5,145)            |   |  $       (7,018) |
| Basic      and diluted loss per share from:                                   |                                                                |   |   |
| Continuing      operations                                                    |  $         (0.16) |   |  $         (0.33) |
| Discontinued      operations                                                  | (0.00)                                                              |   | (0.00) |
| Basic      and diluted loss per share                                         |  $         (0.16) |   |  $         (0.33) |
|                                                                          |                                                                |   |   |
|    Basic      and diluted weighted average shares outstanding: | 31,370,518                                                          |   | 21,472,634 |

----

|                                                   |                 |                               |              |                      |                               |   |                                   |   |                                     |   |                                                                                                     |   |                  |                                                                       |   |                                 |
|--------------------------------------------------------|----------------------|------------------------------------|-------------------|---------------------------|------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|-----------------------|----------------------------------------------------------------------------|--------|--------------------------------------|
|                                                   |                 |                               |              |                      |                               |   | Additional                             |   |                                     |   | Stock                                                                                                    |   |                  |                                                                       |   |                                 |
|                                                   | Preferred      Stock |                               | Common      Stock |                      | Paid-in                            |   | Accumulated                            |   | Subscription                             |   | Treasury      stock                                                                                      |   |                  |
|                                                   | Shares               | Amount                             |              | Shares                    | Amount                             |   | Capital                                |   | Deficit                                  |   | Receivable                                                                                               |   | Shares                | Amount                                                                     |   | Total                                |
| Balance,    December      31, 2005 | 195,351              |  $    977 |              | 21,230,637                |  $    212 |   |  $  166,926             |   |  $    (122,382) |   | $                 - |   |   3,488,350 |  $(38,701)                                                            |   |  $    7,032 |
| Net      loss                                          |  -              |  -                            |              | -                    |                               |   |                                   |   | (6,984)                                  |   | -                                                                                                        |   |  -               |  -                                                                    |   | (6,984)                              |
| Business      Acquisition                              | -                    | -                                  |              | 2,000,000                 | 20                                 |   | 1,800                                  |   | -                                        |   | -                                                                                                        |   | -                     | -                                                                          |   | 1,820                                |
| Sale      of common stock                              | -                    | -                                  |              | 2,875,000                 | 29                                 |   | 2,115                                  |   | -                                        |   | -                                                                                                        |   | -                     | -                                                                          |   | 2,144                                |
| Non      cash stock compensation                       |  -              |  -                            |              | -                         | -                                  |   | 732                                    |   |  -                                  |   | --                                                                                                       |   |  -               |  -                                                                    |   | 732                                  |
| Exercise      of stock options and warrants            | -                    | -                                  |              | 40,323                    | 1                                  |   | 50                                     |   | -                                        |   | -                                                                                                        |   | -                     | -                                                                          |   | 51                                   |
| Preferred      stock dividends                         | -                    | -                                  |              | -                         |                               |   | -                                      |   | (34)                                     |   | -                                                                                                        |   | -                     | -                                                                          |   | (34)                                 |
| Retirement      of treasury stock                      | -               |  -                            |              |  (3,488,350)         | (35)                               |   | (38,666)                               |   | -                                   |   | -                                                                                                        |   | (3,488,350)           | 38,701                                                                     |   | -                                    |
| 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            |
|                                                   |                 |                               |              |                      |                               |   |                                   |   |                                     |   |                                                                                                     |   |                  |                                                                       |   |                                 |

----

|                                                                                     |  Years      ended December 31,                                                                                  |
|------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|                                                                                     | 2007                                                                                                                 |   | 2006 |
| Operating      Activities:                                                               |                                                                                                                 |   |   |
| Net      loss                                                                            |  $        (5,100)                                                       |   |  $      (6,984) |
| Adjustments      to reconcile net loss to net cash used in operating      activities:    |                                                                                                                 |   |   |
| (Gain)      loss on sale or disposal of assets                                           | (484)                                                                                                                |   | 11 |
| Amortization      of deferred loan costs                                                 | 14                                                                                                                   |   | - |
| Non-cash      stock compensation                                                         | 483                                                                                                                  |   | 732 |
| Services      rendered and rent forgiveness for warrants issued                          | 180                                                                                                                  |   | - |
| Non-cash      interest income  on note receivable – related    party     | (18)                                                                                                                 |   | - |
| Depreciation      and amortization                                                       | 288                                                                                                                  |   | 534 |
| Provision      for losses on accounts receivable                                         | (185)                                                                                                                |   | 221 |
| Loss      on early collection of notes receivable                                        | 29                                                                                                                   |   | - |
| Changes      in operating assets and liabilities, net of dispositions:                   |                                                                                                                 |   |   |
| Trade      accounts receivable                                                           | 329                                                                                                                  |   | 383 |
| Inventories                                                                              | 402                                                                                                                  |   | 272 |
| Prepaid      and other current assets                                                    | 196                                                                                                                  |   | 274 |
| Trade      accounts payable                                                              | (754)                                                                                                                |   | 597 |
| Contractors      payable                                                                 | (125)                                                                                                                |   | - |
| Accrued      and other current liabilities                                               | (60)                                                                                                                 |   | (99) |
| Net      cash used in operating activities                                               | (4,805)                                                                                                              |   | (4,059) |
|                                                                                     |                                                                                                                 |   |   |
| Investing      Activities:                                                               |                                                                                                                 |   |   |
| Purchases      of property and equipment                                                 | (160)                                                                                                                |   | (102) |
| Changes      in restricted cash                                                          | (20)                                                                                                                 |   | - |
| Proceeds      from sale of business                                                      | 100                                                                                                                  |   | - |
| Business      acquisition, net of unrestricted cash acquired                             | 667                                                                                                                  |   | - |
| Net      cash provided by (used) in investing activities                                 | 587                                                                                                                  |   | (102) |
|                                                                                     |                                                                                                                 |   |   |
| Financing      Activities:                                                               |                                                                                                                 |   |   |
| Issuance      of common stock                                                            | 5,449                                                                                                                |   | 2,144 |
| Issuance      of common stock pursuant to exercise of stock options                      | 5                                                                                                                    |   | 51 |
| Net      payments on debt                                                                | (2)                                                                                                                  |   | - |
| Net      proceeds from (repayment of) factoring payable                                  | (312)                                                                                                                |   | 312 |
| Payment      of preferred stock dividends                                                | -                                                                                                                    |   | (34) |
| Net      cash provided by financing activities                                           | 5,141                                                                                                                |   | 2,473 |
| Net      increase (decrease) in unrestricted cash and cash    equivalents                | 922                                                                                                                  |   | (1,688) |
| Unrestricted      cash and cash equivalents, beginning of period                         | 452                                                                                                                  |   | 2,140 |
| Unrestricted      cash and cash equivalents, end of period                               |  $           1,374                                       |   |  $          452 |
|                                                                                     |                                                                                                                 |   |   |
| Non      cash Investing:                                                                 |                                                                                                                 |   |   |
| Purchase      of assets from Ecomatrix Funding, allocated to goodwill for      2,000,000 | $                   - |   | $        1,820 |
| shares      of common stock                                                              |                                                                                                                 |   |   |
| Acquisition      of STC and FAS, allocated to goodwill and fair value of    assets       | $            7,127                                       |   | $               - |
| 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                                                                                 | $             163                                   |   | $             - |
| Income      taxes                                                                        |  $                 -       |   |  $             - |

----

----

----

----

----

| 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                                                                             |
| -      customer relationships             | 1,267                                                                          |
| Goodwill                                  | 3,359                                                                          |
| Total      assets acquired                | 15,959                                                                         |
| Payables      and accrued expenses        | (3,277)                                                                        |
| Long-term      liabilities                | (5,555)                                                                        |
| Net      assets acquired                  | $            7,127 |

|                                           | (unaudited)                                                                                                                           |
|------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                                           | Years      Ended December 31,                                                                                                         |
|                                           | 2007                                                                                                                                  | 2006 |
| Revenue                                        | $                    13,649       | $             13,741 |
| Loss      from operations                      | $                   (5,111)            | $            (6,233) |
| Net      loss allocable to common stockholders | $                   (5,132)            | $            (6,234) |
| Income      per share:                         |                                                                                                                                  |   |
| Basic                                          | $                     (0.14) | $             (0.21) |
| Diluted                                        | $                     (0.14) | $             (0.21) |

----

----

|                          |               | December      31,                  |
|-------------------------------|--------------------|------------------------------------|
|                          |  Useful Lives | 2007                               |   | 2006 |
| Land                          |               |  $    778 |   | $        - |
| Building                      | 35      years      | 7,164                              |   | - |
| Building      improvements    | 3-10      years    | 188                                |   | - |
| Machinery      and equipment  | 3-7      years     | 854                                |   | 539 |
| Leasehold      improvements   | 5-7      years     | -                                  |   | 159 |
| Furniture      and fixtures   | 3-7      years     | 239                                |   | 279 |
| Software                      | 3-8      years     | 2,112                              |   | 3,676 |
|                          |               | 11,335                             |   | 4,653 |
| Accumulated      depreciation |               | (2,953)                            |   | (4,461) |
|                          |               |  $  8,382           |   |  $        192 |

|                                   | Year      Ended December 31,                                          |    |
|----------------------------------------|-----------------------------------------------------------------------|---------|
|                                   | 2007                                                                  |    | 2006 |   |
|                                   |                                                                  |    |   |   |
| U.S.      Federal statutory rate       |        (34.0)                      |  % |        (34.0) |  % |
| State      tax effect                  |          (3.0)           |    |          (3.0) |   |
| Other      non-deductible expenses     |        0.9                         |    |        3.8 |   |
| Net      change in valuation allowance |          29.9            |    |          32.4 |   |
| Other,      net                        |          6.2             |    |          0.8 |   |
|                                   |            0.0 |  % |            0.0 |  % |

----

|                                      | December      31,                                              |
|-------------------------------------------|----------------------------------------------------------------|
|                                      | 2007                                                           |   | 2006 |
| Deferred      tax assets:                 |                                                           |   |   |
| Property      and equipment               | $     276                             |   | $     156 |
| Inventories                               | 7                                                              |   | 46 |
| Accounts      receivable                  | 87                                                             |   | 103 |
| Accrued      expenses                     |  334                                                      |   |    140 |
| Net      operating loss carry forwards    |  27,932                                                   |   |    26,097 |
| Other,      net                           |      54                               |   |    44 |
| Gross      deferred tax assets            | $28,690                                                        |   | $  26,586 |
|                                      |                                                           |   |   |
| Deferred      tax liabilities:            |                                                           |   |   |
| Property      and equipment               | -                                                              |   | - |
| Goodwill      amortization and impairment |   (844)                                              |   |       (749) |
| Gross      deferred tax liabilities       | $   (844)                                       |   | $   (749) |
|                                      |                                                           |   |   |
| Valuation      allowance                  | (27,846)                                                       |   | (25,837) |
| Net      deferred tax asset               | $          - |   | $         - |

|                                         |   |  Total                                            |
|----------------------------------------------|--------|--------------------------------------------------------|
| Net      carrying value at December 31, 2005 |   |  $      2,792       |
| Asset      purchase (Note 2)                 |   |   1,820                                      |
| Net      carrying value at December 31, 2006 |   |  $       4,612 |
| Business      acquisition (Note 2)           |   | 3,359                                                  |
| Net      carrying value at December 31, 2007 |   |  $       7,971 |

----

|                                                 | Weighted     |                                                      |   |                                                                                |   |                                                |   |
|------------------------------------------------------|--------------|-----------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                 | Average      | Gross                                                     |   |                                                                                |   | Net                                                 |
|                                                 | Amortization | Carrying                                                  |   | Accumulated                                                                         |   | Carrying                                            |
|                                                 | (Years)      | Value                                                     |   | Amortization                                                                        |   | Value                                               |
|                                                 |         | 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                |
|                                                 |         |                                                      |   |                                                                                |   |                                                |
|                                                 |         | December      31, 2006                                    |
| Intangible      assets subject to amortization       |         |                                                      |   |                                                                                |   |                                                |
| Patents      and trademarks                          | 17.1         |  $        98 |   |  $           (70)       |   |  $       28 |
| Totals                                               |         |  $        98 |   |  $          (70)             |   |  $       28 |

| Years      ending December 31, |   | Amortization      Expense                                                          |
|--------------------------------|--------|------------------------------------------------------------------------------------|
| 2008                           |   |  $            376 |
| 2009                           |   | 280                                                                                |
| 2010                           |   | 211                                                                                |
| 2011                           |   | 152                                                                                |
| 2012                           |   | 112                                                                                |
| Thereafter                     |   | 129                                                                                |
| Total                          |   |  $         1,260                 |

----

|                               |   | Physical      Security                                       |   | 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                           | 1.5      – 3.06   |
|-------------------------------------------------------|-------------------------|
| Expected      volatility                              | 83      – 105%    |
| Risk-free      interest rate                          | 3.85      – 4.86% |
| Weighted      average per share grant date fair value | $0.52                   |

----

|                                          | 2007         |           | 2006   |
|-----------------------------------------------|--------------|----------------|--------|
|                                          |         | Weighted       |   |   |  Weighted |
|                                          |         |  Average  |   |   |  Average |
|                                          |         |  Exercise |   |   |  Exercise |
|                                          |  Shares |  Price    |   |  Shares |  Price |
|  Outstanding      at beginning of year   | 4,581,973    | $      0.99    |   | 3,238,093 | $      1.05 |
| Granted                                       | 3,917,900    | 0.52           |   | 1,514,323 | 0.86 |
| Exercised                                     | (12,500)     | 0.39           |   | (40,323) | 1.24 |
| Forfeited                                     | (600,000)    | 0.48           |   | (130,120) | 1.17 |
| Outstanding      at end of year               | 7,887,373    | $ 0.79         |   | 4,581,973 | $ 0.99 |
|  Options      exercisable at end of year | 5,907,876    | $ 0.88         |   | 4,171,973 | $1.01 |

|                      |  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 |
|  $0.38      to $0.52 | 2,743,900                 |   | 4.5      years            |   | $      0.40 |   | 1,408,400 |   | $      0.41 |
|  $0.53      to $0.95 | 3,243,800                 |   |  6.6      years      |   | 0.82 |   | 2,599,800 |   | 0.82 |
|  $0.96      to $1.60 | 1,894,333                 |   |  6.2      years      |   | 1.30 |   | 1,894,333 |   | 1.30 |
|  $1.61      to $9.25 | 5,340                     |   |  1.8      years      |   | 8.39 |   | 5,340 |   | 8.39 |
|                      | 7,887,373                 |   |  5.8      years      |   | $      0.79 |   | 5,907,873 |   | $      0.88 |

----

|                                   | First        | Second       | Third        | Fourth       | Total        |
|----------------------------------------|--------------|--------------|--------------|--------------|--------------|
|                                   | Quarter      | Quarter      | Quarter      | Quarter      | Year         |
| 2007:                                  |         |         |         |         |         |
|  Net      sales                   | $2,263       | $1,843       | $1,843       | $3,247       | $9,196       |
|  Gross      profit                | 1,329        | 852          | 1,082        | $1,284       | 4,547        |
|  Net      loss                    | (908)        | (1,841)      | (954)        | (1,397)      | (5,100)      |
|  Net      loss per share, basic   | ($0.03)      | ($0.06)      | ($0.03)      | ($0.05)      | ($0.16)      |
|  Net      loss per share, diluted | ($0.03)      | ($0.06)      | ($0.03)      | ($0.05)      | ($0.16)      |
|                                   |         |         |         |         |         |
|                                   | First        | Second       | Third        | Fourth       | Total        |
|                                   | Quarter      | Quarter      | Quarter      | Quarter      | Year         |
| 2006:                                  |         |         |         |         |         |
|  Net      sales                   | $      2,695 | $      2,219 | $      1,933 | $      1,873 | $      8,720 |
|  Gross      profit                | 1,445        | 1,054        | 1,001        | 801          | 4,301        |
|  Net      loss                    | (1,408)      | (1,923)      | (1,745)      | (1,942)      | (7,018)      |
|  Net      loss per share, basic   | $ (0.07)     | $ (0.09)     | $ (0.08)     | $ (0.08)     | $ (0.33)     |
|  Net      loss per share, diluted | $ (0.07)     | $ (0.09)     | $ (0.08)     | $ (0.08)     | $(0.33)      |

----